-----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, DiFqb8pA1yPrRZKkzCGY8IFj3Hs9L11/dVFPX/iCV6pbeiW+c0awhGP6nWL59lwb PaxAyrS2NVoJixHMepfZDA== /in/edgar/work/20000630/0000921929-00-000006/0000921929-00-000006.txt : 20000920 0000921929-00-000006.hdr.sgml : 20000920 ACCESSION NUMBER: 0000921929-00-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER AIRLINES INC /CO/ CENTRAL INDEX KEY: 0000921929 STANDARD INDUSTRIAL CLASSIFICATION: [4512 ] IRS NUMBER: 841256945 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12805 FILM NUMBER: 666632 BUSINESS ADDRESS: STREET 1: 12015 EAST 46TH AVE CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033717400 MAIL ADDRESS: STREET 1: 12015 EAST 46TH AVENUE STREET 2: 12015 EAST 46TH AVENUE CITY: DENVER STATE: CO ZIP: 80239 10-K 1 0001.txt ANNUAL REPORT FORM 10-K SECURITIESAND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-24126 FRONTIER AIRLINES, INC. (Exact name of registrant as specified in its charter) Colorado 84-1256945 (State or other jurisdiction of incorporated or organization) (I.R.S. Employer Identification No.) 12015 E. 46th Avenue, Denver, CO 80239 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (303) 371-7400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value Title of Class Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of Common Stock held by non-affiliates of the Company computed by reference to the last quoted price at which such stock sold on such date as reported by the Nasdaq National Market as of June 15,2000: $181,263,088. The number of shares of the Company's Common Stock outstanding as of June 15, 2000 is 17,747,056. Documents incorporated by reference - Information required by Part III is incorporated by reference to the Company's 2000 Proxy Statement. TABLE OF CONTENTS Page PART I Item 1: Business.....................................................3 Item 2: Properties .................................................12 Item 3: Legal Proceedings...........................................12 Item 4: Submission of Matters to a Vote of Security Holders.........13 PART II Item 5: Market for Common Equity and Related Stockholder Matters....13 Item 6: Selected Financial Data.....................................16 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations...............18 Item 7A: Quantitative and Qualitative Disclosures About Market Risk ................................................30 Item 8: Financial Statements........................................30 PART III Item 10: Directors and Executive Officers of the Registrant..........30 Item 11: Executive Compensation......................................30 Item 12: Security Ownership of Certain Beneficial Owners and Management..............................................31 Item 13: Certain Relationships and Related Transactions..............31 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................31 PART I This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that describe the business and prospects of Frontier Airlines, Inc. ("Frontier" or the "Company") and the expectations of our Company and management. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe, intend or anticipate will or may occur in the future, are forward-looking statements. When used in this document, the words "estimate," "anticipate," "project" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward- looking statements herein. These risks and uncertainties include, but are not limited to, those discussed in "Risk Factors" below. Item 1: Business General We are a scheduled airline based in Denver, Colorado. As of June 15, 2000, we operate routes linking our Denver hub to 21 cities in 17 states spanning the nation from coast to coast. We were organized in February 1994 and we began flight operations in July 1994 with two leased Boeing 737-200 jets. We have since expanded our fleet to 24 leased jets, including seven Boeing 737-200s and 17 larger Boeing 737-300s. We currently use up to nine gates at our hub, Denver International Airport ("DIA"), where we operate approximately 112 daily system flight departures and arrivals. The following table lists the cities we serve as of June 15, 2000, as well as the dates we commenced service to those cities: El Paso, Texas October 13, 1994 Albuquerque, New Mexico October 13, 1994 Omaha, Nebraska January 16, 1995 Chicago/Midway, Illinois September 25, 1995 Phoenix, Arizona September 25, 1995 Los Angeles, California November 3, 1995 Minneapolis/St. Paul, Minnesota November 13, 1995 Salt Lake City, Utah November 13. 1995 San Francisco, California November 17, 1995 Seattle, Washington May 1, 1996 Bloomington/Normal, Illinois January 6, 1997 Boston, Massachusetts September 16, 1997 Baltimore, Maryland November 16, 1997 New York/LaGuardia, New York December 3, 1997 San Diego, California July 23, 1998 Atlanta, Georgia December 17, 1998 Dallas/Fort Worth, Texas December 17, 1998 Las Vegas, Nevada December 17, 1998 Portland, Oregon June 14, 1999 Orlando, Florida September 9, 1999 Kansas City, Missouri June 15, 2000 On November 1, 1998, we initiated complimentary shuttle service between Boulder, Colorado and DIA. We currently operate six daily round trip bus routes between Boulder and DIA. In addition to implementing service to 3 new cities between April 1, 1999 and June 15, 2000, we also added additional flight frequencies in the following markets: Baltimore, Dallas/Fort Worth, San Francisco and Seattle. Our senior management team includes executives with substantial experience in the airline industry, including several executives who occupied similar positions at a former airline called Frontier Airlines. The former Frontier Airlines served regional routes to and from Denver from 1950 to 1986. There were various occasions when the former Frontier Airlines served most of the Company's current and intended markets with jet equipment from its Denver hub. 3 Our corporate headquarters are located at 12015 East 46th Avenue, Denver, Colorado 80239. Our administrative office telephone number is 303-371-7400; our reservations telephone number is 800-432-1359; and our world wide Web site address is www.frontierairlines.com. Business Strategy and Markets Our business strategy is to provide air service at affordable fares to high volume markets from our Denver hub. Our strategy is based on the following factors: o Stimulate demand by offering a combination of low fares, quality service and frequent flyer credits in Continental Airlines' OnePass program. o Expand our Denver hub operation and increase connecting traffic by adding additional high volume markets to our current route system. o Continue filling gaps in flight frequencies to high volume markets from our Denver hub. In April 1999, we were named "Best Domestic Low Fare Carrier" by Entrepreneur Magazine in the publication's sixth annual Business Travel Awards. During our fiscal year 2000, we were also named Entrepreneur of the Year for the services sector at Ernst & Young's 1999 Rocky Mountain Entrepreneur of the Year awards. Route System History Our route system strategy encompasses connecting our Denver hub to top business and leisure destinations. We currently serve 17 of the top 25 destinations from Denver, as defined by the U.S. Department of Transportation's Origin and Destination Market Survey. In addition, as we bring additional aircraft into our fleet and add new markets to our route system, connection opportunities increase. During fiscal year 2000, connection opportunities for our passengers connecting through DIA increased from an average of 5.3 flights to 5.9 flights. Marketing and Sales Our sales efforts are targeted to price-sensitive passengers in both the leisure and corporate travel markets. In the leisure market, we offer discounted fares marketed through the Internet, newspaper, radio and television advertising along with special promotions. We market these activities in both our Denver hub and throughout our route system. To balance the seasonal demand changes that occur in the leisure market, we introduced several programs in late 1996 designed to capture a larger share of the corporate market, which tends to be less seasonal than the leisure market. These programs include negotiated fares for large companies that sign contracts committing to a specified volume of travel, future travel credits for small and medium size businesses contracting with us, and special discounts for members of various trade and nonprofit associations. As of June 15, 2000, we had signed contracts with over 4,600 companies. We also pursue sales opportunities with meeting and convention arrangers and government travel offices. The primary tools we use to attract this business include personal sales calls, direct mail and telemarketing. In addition, we offer air/ground vacation packages to many destinations on our route system under contracts with various tour operators. During fiscal year 2000, Renaissance Travel Solutions, which operated a private label "Frontier Airlines Vacation" brand, ceased operations. In April 2000, we entered into an agreement with travelbyus.com ltd., a Canadian travel company, to market and sell private label Frontier Airlines Vacation products effective June 2000. These products include air/land inclusive packages to vacation markets within our route system, such as Las Vegas and Orlando, as well as ski destinations and other destinations we serve. In 1995, we joined Continental Airlines' OnePass program. We selected the OnePass program because there was an established membership base in Denver and in other cities we served and planned to serve. Our relationship with travel agencies is important to us and other airlines. In November 1999, we matched an industry initiative and lowered travel agent commissions from eight to five %. However, unlike some other airlines, we do not limit the earnings potential of travel agents through a commission cap. We have implemented marketing strategies designed to maintain and encourage relationships with travel agencies throughout our route system. We communicate with travel agents through personal visits by company executives and sales managers, sales literature mailings, trade shows, telemarketing and advertising in various travel agent trade publications. 4 We participate in the four major computer reservation systems used by travel agents to make airline reservations: Amadeus, Galileo, Worldspan and Sabre. We maintain a reservations center in Denver, operated by our employees. We also maintain an "overflow" center in Miami, Florida, staffed by contract personnel, which assists our Denver reservations center during peak booking periods. In March 2000, we announced our plans to open a new call center in Las Cruces, New Mexico. The center, scheduled to open in August 2000, will employ approximately 100 full-time Frontier employees by the end of calendar year 2000, and will be located in a 12,000 square foot building we are leasing and renovating. This new call center will replace our current Miami outsource company. In January 1999, we renewed an agreement with Electronic Data Systems ("EDS") for continued and enhanced airline customer information services, including computerized reservations, passenger processing and telecommunications services. Since early 1997, we have made greater use of electronic or "paperless" ticketing, a lower cost alternative to ticketing passengers on relatively expensive ticket stock. During fiscal year 2000, we enabled all four computer reservation systems utilized by travel agents to offer e-ticketing capabilities on our flights. Our agreement with EDS enhances our ability to provide Internet bookings through the EDS SHARESweb booking engine. In April 1999, we began offering "Spirit of the Web" fares via our Web site, which permits customers to make "close in" bookings beginning on Wednesdays for the following weekend. This is intended to fill seats that might otherwise go unfilled. During fiscal year 2000, our percentage of Internet-related revenue, which includes our own Web site and other Internet travel distributors, increased from 3.5% to 12.2%. In May 2000, we unveiled a newly designed and enhanced Web site that incorporates booking capabilities on each page of the site, an expanded "About Frontier" section, exclusive partner offers, a new "Frequently Answered Questions" section and new real time flight information. We also announced in May that we had signed a letter of intent to purchase EDS' VIBE, Versatile Internet Booking Engine, which will permit us to perform more advanced online booking capabilities, such as online discounts, and explore a business to business corporate strategy. We anticipate that VIBE will be operational by the end of calendar 2000. In order to gain connecting traffic from other carriers, we have negotiated various types of interline agreements with approximately 130 domestic and international airlines serving cities on our route system. Generally, these agreements include joint ticketing and baggage services and other conveniences designed to expedite the connecting process. Product Pricing We generally offer our seats at discount fares, and consider our service an affordable alternative to the higher fare, larger carriers. Seat inventories on each flight are managed through a yield management system. We generally offer discounts with five levels of advance purchase requirements. In contrast to most carriers, our fares usually do not require travelers to include a Saturday overnight stay in order to take advantage of these discount rates. We also do not charge a premium for one-way fares and, generally, our fares do not require a round-trip purchase. Competition The Airline Deregulation Act of 1978 (the "Deregulation Act") produced a highly competitive airline industry, freed of certain government regulations that for 40 years prior to the Deregulation Act had dictated where domestic airlines could fly and how much they could charge for their services. Since then, smaller carriers such as we have entered markets long dominated by large airlines with substantially greater resources, such as United Airlines, American Airlines, Northwest Airlines and Delta Air Lines. We compete principally with United Airlines, the dominant carrier at DIA, and its commuter affiliates with a total market share of approximately 72%. This gives United a significant competitive advantage compared to us and other carriers serving DIA. We believe our current market share at DIA approximates 7%. We compete with United primarily on the basis of fares, fare flexibility and the quality of our customer service. 5 At the present time, four airports, including New York's LaGuardia Airport, are regulated by means of "slot" allocations, which represent government authorization to take off or land at a particular airport within a specified time period. FAA regulations require the use of each slot at least 80% of the time and provide for forfeiture of slots in certain circumstances. We were originally awarded six slots at LaGuardia. At the present time, we utilize four of those slots to operate two daily round-trip flights between Denver and LaGuardia. Another airport that is regulated by slots is Ronald Reagan Washington National Airport (DCA). In addition to slot restrictions, DCA is limited by a perimeter rule, which limits flights to and from DCA to 1,250 miles. In April 2000, the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century ("FAIR 21") was enacted. FAIR 21 which authorizes the Department of Transportation ("DOT") to grant up to 12 slot exemptions beyond the 1,250 mile DCA perimeter, provided certain specifications are met. These include that the new service will provide air transportation with domestic network benefits in areas beyond the perimeter; increase competition by new entrant air carriers or in multiple markets; not reduce travel options for communities served by small hub airports and medium hub airports within the perimeter; and not result in meaningfully increased travel delays. We have filed an application requesting four slots to operate two daily non-stop flights between our Denver hub and DCA. Eight other carriers also have filed applications seeking "beyond perimeter" slots, and the DOT has indicated a decision on the award of the 12 slot exemptions will be made in early July 2000. If our application is successful, we plan to implement service between Denver and DCA later this summer or in the early fall. Aircraft As of June 2000, we operate 24 leased Boeing 737 twinjet aircraft in all-coach seating configurations. The age of these aircraft, their passenger capacities and their lease expirations are shown in the following table: Approximate Number of Aircraft No. of Year of Passenger Lease Model Aircraft Manufacture Seats Expiration B-737-200A 7 1978-1983 119 2001-2005 B-737-300 17 1985-1998 136 2002-2006
Stage 3 noise level requirements mandated that 100% of an operator's fleet comply with Stage 3 by January 1, 2000. Each of our aircraft has been in compliance with Stage 3 on and after that date. In March 2000, we entered into an agreement to purchase 11 new Airbus aircraft, with options to purchase an additional nine new Airbus aircraft. To the extent we exercise our options to purchase the nine aircraft, they are replaced on a one-for-one basis with additional options to purchase new Airbus aircraft, up to a total of nine additional option aircraft. This order contemplates a fleet replacement plan by which we will phase out our Boeing 737 aircraft and replace them with a combination of Airbus A319 and A318 aircraft. As a complement to this purchase, in April and May 2000, we signed two aircraft lease agreements to lease 16 new Airbus aircraft. When combined with the purchase agreement, and upon completion of our fleet transition, we expect our fleet to be comprised of approximately two-thirds A319 aircraft and one-third A318 aircraft. We expect to take delivery of our first leased Airbus aircraft during the middle part of 2001 and plan to complete our fleet transition by the end of 2004. The A319 and A318 aircraft will be configured with 132 and 114 passenger seats, respectively, with a 32-inch seat pitch. We believe that operating new Airbus aircraft will result in significant operating cost savings and an improved product for our customers. We seek to lease additional aircraft from time-to-time in order to replace aircraft with expiring lease terms and to expand our service and route system. However, the aircraft lease market is cyclical, and we cannot be certain that additional aircraft will be available when we need or want to procure them, or that they will be available at acceptable lease rates and terms. Maintenance and Repairs All of our aircraft maintenance and repairs are accomplished in accordance with the our maintenance program approved by the United States Federal Aviation Administration ("FAA"). Spare or replacement parts are maintained by us primarily in Denver. Spare parts vendors supply us with certain of these parts, and we purchase or lease others from other airline or vendor sources. 6 Since August 1996, we have trained, staffed and supervised our own maintenance work force at Denver. We sublease a portion of Continental Airlines' hangar at DIA where we presently perform our own maintenance through the "D" check level. Other major maintenance, such as major engine repairs, continue to be performed by outside FAA approved contractors. We also maintain a smaller maintenance facility at El Paso, Texas. Under our aircraft lease agreements, we pay all expenses relating to the maintenance and operation of our aircraft, and we are required to pay monthly maintenance reserve deposits to the lessors based on usage. Maintenance reserve deposits are applied against the cost of scheduled major maintenance. Scheduled major maintenance has occurred or will occur for four of our aircraft in the fiscal year ending March 31, 2001. To the extent not used for major maintenance during the lease terms, maintenance reserve deposits remain with the aircraft lessors upon redelivery of the aircraft. Our monthly completion factors for the years ending March 31, 2000, 1999 and 1998 ranged from 96.7% to 99.7%, from 97.6% to 99.8%, and from 92.8% to 99.9%, respectively. The completion factor is the percentage of our scheduled flights that were operated by us (i.e., not canceled). Flights not completed were canceled principally as a result of mechanical problems, and, to a lesser extent, weather. There can be no assurance that our aircraft will continue to be sufficiently reliable over longer periods of time. Fuel During the years ending March 31, 2000, 1999 and 1998, jet fuel accounted for 15.3%, 11.6% and 14.1%, respectively, of our operating expenses. We have arrangements with major fuel suppliers for substantial portions of our fuel requirements, and we believe that such arrangements assure an adequate supply of fuel for current and anticipated future operations. However, we have not entered into any agreements that fix the price of fuel over any period of time. Jet fuel costs are subject to wide fluctuations as a result of sudden disruptions in supply beyond our control. Therefore, we cannot predict the future availability and cost of jet fuel with any degree of certainty. Fuel prices increased significantly in fiscal 2000. Our average fuel price per gallon including taxes and into-plane fees was 79.9(cent) for the year ended March 31, 2000, with the monthly average price per gallon during the same period ranging from a low of 57.9(cent) to a high of $1.02. As of June 15, 2000, the price per gallon was 94.1(cent). Our average fuel price per gallon including taxes and into-plane fees was 55.4(cent) for the year ended March 31, 1999, with the monthly average price per gallon during the same period ranging from a low of 48.3(cent) to a high of 62.3(cent). Newer aircraft are more fuel efficient than our Boeing 737-200 aircraft due to improved aircraft airframe design and engine technology. Significant increases in the price of jet fuel such as those that occurred in fiscal 2000 result in a higher increase in our overall total costs than those of competitors whose fleets have a larger proportion of fuel efficient aircraft such as our Boeing 737-300 aircraft. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations and financial results. Our ability to pass on increased fuel costs to passengers through price increases or fuel surcharges may be limited, particularly given our affordable fare strategy. Insurance We carry $800 million per aircraft per occurrence in property damage and passenger and third-party liability insurance, and insurance for aircraft loss or damage as required by our aircraft lease agreements, and customary coverage for other business insurance. While we believe such insurance is adequate, there can be no assurance that such coverage will adequately protect us against all losses which we might sustain. Our property damage and passenger and third-party liability insurance coverage exceeds the minimum amounts required by the DOT regulations. Employees As of June 1, 2000 we had 2,126 employees, including 1,643 full-time and 483 part-time personnel. Our employees included 233 pilots, 371 flight attendants, 493 customer service agents, 295 ramp service agents, 188 reservations agents, 334 mechanics and related personnel, and 212 general management personnel. We consider our relations with our employees to be good. We have established a compensation philosophy that we will pay competitive wages compared to other airlines of similar size and other employers with whom we compete for our labor supply. Employees have the opportunity to earn above our established market rates through the payment of bonuses. 7 Two of our employee groups have voted for union representation: our pilots voted in November 1998 to be represented by an independent union, the Frontier Airline Pilots Association, and our dispatchers voted in September 1999 to be represented by the Transport Workers Union. The first bargaining agreement for the pilots, which has a 5-year term, was ratified and became effective in May 2000. Negotiations are presently being conducted with the Transport Workers Union, representing our dispatchers. In addition since 1997 we have had union organizing attempts that were defeated by our flight attendants, ramp service agents, mechanics, and stock clerks. We have enhanced our Retirement Savings Plan [401(k)] by announcing an increased matching contribution by the Company. Effective May 2000, participants will receive a 50% Company match for contributions up to 10%. This match is discretionary and appoved on an annual basis by our Board of Dircetors. We anticipate that the match and related vesting schedule of 20% per year will reduce our turnover rates. All new employees are subject to pre-employment drug and alcohol testing. Those employees who perform safety sensitive functions are also subject to random drug testing. Training, both initial and recurring, is required for many employees. We train our pilots, flight attendants, ground service personnel, reservations personnel and mechanics. FAA regulations require pilots to be licensed as commercial pilots, with specific ratings for aircraft to be flown, to be medically certified or physically fit, and have recent flying experience. Mechanics, quality control inspectors and flight dispatchers must be licensed and qualified for specific aircraft. Flight attendants must have initial and periodic competency, fitness training and certification. The FAA approves and monitors our training programs. Management personnel directly involved in the supervision of flight operations, training, maintenance and aircraft inspection must meet experience standards prescribed by FAA regulations. Government Regulation All interstate air carriers are subject to regulation by the DOT and the FAA under the Federal Aviation Act. The DOT's jurisdiction extends primarily to the economic aspects of air transportation, while the FAA's regulatory authority relates primarily to air safety, including aircraft certification and operations, crew licensing and training, maintenance standards, and aircraft standards. In general, the amount of regulation over domestic air carriers in terms of market entry and exit, pricing and inter-carrier agreements has been greatly reduced subsequent to enactment of the Deregulation Act. U.S. Department of Transportation. We hold a Certificate of Public Convenience and Necessity issued by the DOT that allows us to engage in air transportation. Pursuant to law and DOT regulation, each United States carrier must qualify as a United States citizen, which requires that its President and at least two-thirds of its Board of Directors and other managing officers be comprised of United States citizens; that not more than 25% of its voting stock may be owned by foreign nationals, and that the carrier not be otherwise subject to foreign control. U.S. Federal Aviation Administration. We also hold an operating certificate issued by the FAA pursuant to Part 121 of the Federal Aviation Regulations. The FAA has jurisdiction over the regulation of flight operations including the licensing of pilots and maintenance personnel, the establishment of minimum standards for training and maintenance, and technical standards for flight, communications and ground equipment. We must have and we maintain FAA certificates of airworthiness for all of our aircraft. Our flight personnel, flight and emergency procedures, aircraft and maintenance facilities and station operations are subject to periodic inspections and tests by the FAA. At the present time, four airports, including New York's LaGuardia Airport, are regulated by means of "slot" allocations, which represent government authorization to take off or land at a particular airport within a specified time period. FAA regulations require the use of each slot at least 80% of the time and provide for forfeiture of slots in certain circumstances. The Company currently holds slots to serve the Denver-LaGuardia market and provides two daily round trip flights in that market. FAIR 21 begins a phase out of slot controls at three of the four slot controlled airports, including LaGuardia where slot restrictions are to be eliminated by January 1, 2007. The DOT and FAA also have authority under the Aviation Safety and Noise Abatement Act of 1979, the Airport Noise and Capacity Act of 1990 ("ANCA") and Clean Air Act of 1963 to monitor and regulate aircraft engine noise and exhaust emissions. We are required to comply with all applicable FAA noise control regulations and with current exhaust emissions standards. All of our fleet is in compliance with the FAA's Stage 3 noise level requirements. 8 Railway Labor Act/National Mediation Board. Our pilots organized in 1998 under an independent union, the Frontier Airlines Pilots Association, and our dispatchers organized in 1999 and are represented by the Transport Workers Union. Our labor relations with respect to the pilots and dispatchers are now covered under Title II of the Railway Labor Act and are subject to the jurisdiction of the National Mediation Board. Miscellaneous. All air carriers are subject to certain provisions of the Communications Act of 1934 because of their extensive use of radio and other communication facilities, and are required to obtain an aeronautical radio license from the Federal Communications Commission ("FCC"). To the extent that we are subject to FCC requirements, we take all necessary steps to comply with those requirements. Risk Factors In addition to the other information contained in this Form 10-K, the following risk factors should be considered carefully in evaluating us and our business. We Will be Required to Secure New Aircraft Financing We have agreed to purchase certain new Airbus A319 and A318 aircraft See "Description of Business - Aircraft". In order to complete the purchase of these aircraft we must secure acceptable aircraft financing. The amount of financing required will depend on the number of aircraft purchase options we exercise and the amount of cash generated by operations prior to delivery of the aircraft. We are exploring various financing alternatives, including, but not limited to, domestic and foreign bank financing, public debt financing such as enhanced equipment trust certificates, and leveraged lease arrangements. We expect to develop a financing plan and implement that plan coincident with the delivery of the first purchased aircraft in calendar year 2002. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". While we believe that such financing will be available to us, there can be no assurance that financing will be available when required, or on acceptable terms. The inability to secure such financing could have a material adverse effect on us and result in delays in or our inability to take delivery of Airbus aircraft we have agreed to purchase. The Airline Industry is Seasonal and Cyclical Our operations primarily depend on passenger travel demand, and, as such are subject to seasonal variations. Our weakest travel periods are generally during the quarters ending in June and December. The airline industry is also a highly cyclical business with substantial volatility. Airlines frequently experience short-term cash requirements. This is caused by seasonal fluctuations in traffic, which often put a drain on cash during off-peak periods, and various other factors, including price competition from other airlines, national and international events, fuel prices and general economic conditions, including inflation. Because a substantial portion of airline travel is discretionary, our operating and financial results may be negatively impacted by any downturn in national or regional economic conditions in the United States, and particularly in Colorado. Airlines require substantial liquidity to continue operating under most conditions. The airline industry also has low operating profit margins and revenues that vary to a substantially greater degree than do the related costs. Therefore, a significant shortfall from expected revenue levels could have a material adverse effect on our operations. Working capital deficits are not uncommon in the airline industry since airlines typically have no product inventories and ticket sales not yet flown are reflected as current liabilities. Increasing Number of Consolidations and Alliances Has Also Increased Competition The U.S. airline industry has consolidated in recent years, and there are additional consolidations presently proposed. Consolidations have enabled certain carriers to expand their international operations and increase their presence in the U.S. domestic market. In addition, many major domestic carriers have formed alliances with domestic regional carriers and foreign carriers. As a result, many of the carriers with which we compete in our markets are larger and have substantially greater resources than we have. Continuing developments in the industry will affect our ability to compete in the various markets in which we operate. 9 We Are in a High Fixed Cost Business The airline industry is characterized by fixed costs that are high in relation to revenues. Accordingly, a shortfall from expected revenue levels can have a material adverse effect on our profitability and liquidity. Increases in Fuel Costs Affect Our Operating Costs Fuel is a major component of operating expense for all airlines. Both the cost and availability of fuel are subject to many economic and political factors and events occurring throughout the world, and fuel costs fluctuate widely. Fuel accounted for 15.3% of our total operating expenses for the year ended March 31, 2000. We cannot predict our future cost and availability of fuel, and substantial sustained price increases as have prevailed during our fiscal year ended March 31, 2000, or the unavailability of adequate fuel supplies, could have a material adverse effect on our operations and profitability. Because newer aircraft are more fuel efficient than our Boeing 737-200 aircraft a significant increase in the price of jet fuel would result in a higher increase in our total costs than those of competitors using more fuel-efficient aircraft. In addition, larger airlines may have a competitive advantage because they pay lower prices for fuel. We intend generally to follow industry trends by raising fares in response to significant fuel price increases. However, our ability to pass on increased fuel costs through fare increases may be limited by economic and competitive conditions. We are Subject to Federal Regulatory Oversight We have obtained the necessary authority from the DOT and the FAA to conduct flight operations. However, the continuation of such authority is subject to continued compliance with applicable statutes, rules and regulations pertaining to the airline industry, including any new rules and regulations that may be adopted in the future. We believe that small and start-up airlines are often subject to strict scrutiny by FAA officials, making them susceptible to regulatory demands that can negatively impact their operations. No assurance can be given that we will be able to continue to comply with all present and future rules and regulations. In addition, we can give no assurance about the costs of compliance with such regulations and the effect of such compliance costs on our profitability. We also expect substantial FAA scrutiny as we transition from our all Boeing to an all Airbus fleet. In May 1996 a relatively new domestic airline sustained an accident in which one of its aircraft was destroyed and all persons on board were fatally injured. In June 1996, that airline agreed at the FAA's request to cease all of its flight operations. Although the FAA, after an intensive and lengthy investigation, allowed that airline to resume its operations, should we experience a similar accident it is probable that there would be a material adverse effect on our business and results of operations. We Experience High Costs at Denver International Airport DIA opened in March 1995, and Denver's-Stapleton International Airport was closed. Financed through revenue bonds, DIA depends on landing fees, gate rentals and other income from airlines, the traveling public and others to pay debt service and support operations. Our cost of operations at DIA will vary as traffic increases or diminishes at that airport. However, we believe that our operating costs at DIA substantially exceed those that other airlines incur at most hub airports in other cities. We Have a Limited Number of Routes Because of our relatively small fleet size and limited number of routes, we are at a competitive disadvantage compared to other airlines, such as United Airlines, that can spread their operating costs across more equipment and routes and retain connecting traffic (and revenue) within their much more extensive route networks. We Face Intense Competition and Market Dominance by United Airlines The airline industry is highly competitive, primarily due to the effects of the Airline Deregulation Act of 1978 (the "Deregulation Act"), which has substantially eliminated government authority to regulate domestic routes and fares and has increased the ability of airlines to compete with respect to flight frequencies and fares. We compete with United Airlines in our Denver hub, and we anticipate that we will compete principally with United Airlines in our future market entries. United Airlines and its commuter affiliates are the dominant carriers out of DIA, accounting for approximately 72% of all passenger boardings. Additionally, from July 1997 until February 1998, when it ceased flight operations, Western Pacific Airlines, a low-fare carrier, provided hub service at DIA. This additional competition, as well as other competitive activities by United Airlines and other carriers, have had in the past and could continue to have a material adverse effect on our revenues and results of operations. Most of our current and potential competitors have significantly greater financial resources, larger route networks and superior market identity than we have. 10 We are Dependent on Our Chief Executive Officer We are dependent on the active participation of Samuel D. Addoms, our President and Chief Executive Officer. The loss of his services could materially and adversely affect our business and future prospects. We do not maintain key person life insurance on any of our officers. We Could Lose Airport and Gate Access We have not initially encountered barriers to airport or airport gate access other than cost. However, any condition that would deny or limit our access to the airports that we intend to utilize in the future or that diminishes the desire or ability of potential customers to travel between any of those cities may have a materially adverse effect on our business. In addition, gates may be limited at some airports, which could adversely affect our operations. There are Certain Risks Associated with Our Boeing 737 Aircraft A. Maintenance. Under our aircraft lease agreements, we are required to bear all routine and major maintenance expenses. Maintenance expenses comprise a significant portion of our operating expenses. In addition, we are required periodically to take aircraft out of service for heavy maintenance checks, which can adversely affect revenues. We also may be required to comply with regulations and airworthiness directives issued by the FAA, the cost of which may be partially assumed by our aircraft lessors depending upon the magnitude of the expense. There can be no assurance that we will not incur higher than anticipated maintenance expenses. We believe that our leased aircraft are in compliance with all FAA-issued Airworthiness Directives ("ADs"). However, other ADs are presently required to be performed in the future and there is a high probability that additional ADs will be required. B. Local Noise Regulations. As a result of litigation and pressure from airport area residents, airport operators have taken local actions over the years to reduce aircraft noise. These actions have included regulations requiring aircraft to meet prescribed decibel limits by designated dates, curfews during night time hours, restrictions on frequency of aircraft operations and various operational procedures for noise abatement. The Airport Noise and Capacity Act of 1990 ("ANCA") recognized the right of airport operators with special noise problems to implement local noise abatement procedures as long as such procedures do not interfere unreasonably with the interstate and foreign commerce of the national air transportation system. ANCA generally requires FAA approval of local noise restrictions on Stage 3 aircraft. An agreement between the City and County of Denver and another county adjacent to Denver specifies certain maximum aircraft noise levels at designated monitoring points in the vicinity of DIA with significant payments payable by Denver to the other county for each substantiated noise violation under the agreement. Violation of these noise standards could result in increased landing fees at DIA for us, as well as other carriers operating at DIA. Noise regulations have not had a material adverse effect on our operations to date, but regulations could be enacted in the future that would have such an effect. We Have a Limited Number of Aircraft, and the Market for Aircraft Fluctuates We currently schedule all of our aircraft in regular passenger service with limited spare aircraft capability in the event one or more aircraft is removed from scheduled service for unplanned maintenance repairs or other reasons. The unplanned loss of use of one or more of our aircraft for a significant period of time could have a materially adverse effect on our operations and operating results. The market for leased aircraft fluctuates based on worldwide economic factors. There can be no assurance that we will be able to lease additional aircraft on satisfactory terms or when needed. Our Relations With Our Employees is Very Important We believe we operate with lower personnel costs than many established airlines, principally due to lower base salaries and greater flexibility in the utilization of personnel. There can be no assurance that we will continue to realize these advantages over other air carriers for an extended period of time. Our pilots are represented by an independent labor union, the Frontier Airline Pilots Association and our dispatchers are represented by the Transport Workers Union. In addition since 1997 we have had union organizing attempts that were defeated by our flight attendants, ramp service agents, mechanics, and stock clerks. The collective bargaining agreement we have entered into with our pilots has increased our labor and benefit costs effective in May 2000, and additional unionization of our employees could increase our overall costs as well. 11 We Have Not Paid Dividends We have never declared or paid cash dividends on our Common Stock. We currently intend to retain any future earnings to fund operations and to continue development of our business and do not expect to pay any cash dividends on our Common Stock in the foreseeable future. Item 2: Properties We have leased approximately 47,000 square feet of office space in Denver with terms ending February 2001 and May 2001 at a current annual rental of approximately $720,000. This facility provides space for our reservations center together with space for administrative activities, including senior management, purchasing, accounting, sales, marketing, advertising, human resources, maintenance and engineering and information technology systems. Beginning February 2001, we will move our general and administrative functions to a new headquarters facility near DIA. The new lease for approximately 51,000 square feet has a term of 12 years at an average annual rental of approximately $686,000 plus operating and maintenance expenses. The Denver reservations center will occupy a facility separate from the headquarters at a location yet to be determined. Beginning August 2000, a second reservations center facility will commence operations in Las Cruces, New Mexico. This facility is approximately 12,000 square feet and is leased for a term of 122 months at an average annual rental of approximately $132,000 plus operating and maintenance expenses. Each of our airport locations requires leased space associated with gate operations, ticketing and baggage operations. We either lease the ticket counters, gates and airport office facilities at each of the airports we serve from the appropriate airport authority or sublease them from other airlines. We have agreed to enter into an airport lease and facilities agreement with the City and County of Denver (CCD) at DIA for ticket counter space, nine gates and associated operations. This lease will expire in 2010. We also sublease a portion of Continental Airlines' hangar at DIA until January 1, 2004. Item 3: Legal Proceedings In 1997, we filed a complaint with the U.S. Department of Justice ("DOJ") alleging that United Airlines has engaged in predatory, anticompetitive and monopolistic practices at DIA. The complaint asks the agency to investigate eight separate counts of potential antitrust violations. The eight counts range from "capacity dumping" in markets served by competitors to alleged abuses relating to United's pricing practices, "exclusive dealing" with corporate customers and commuter carriers, and other tactics used by United to allegedly drive competitors from its markets. In early 1998 we received and answered a DOJ Civil Investigative Demand, which requested information and documents in our possession relating to possible violations of the federal antitrust laws concerning monopolization or attempts to monopolize air transportation in certain markets, including certain Denver city-pair markets. To date, the DOJ has not acted on our complaint, although the DOJ has filed a federal civil antitrust action against another major U.S. carrier with respect to certain alleged anti-competitive practices against smaller carriers, not including us. In a related matter, the DOT, in response to complaints by us and other smaller airlines, in April 1998 published a number of proposed guidelines designed to identify predatory practices in the airline industry, along with enforcement policies. We are unable to predict what actions, if any, will be taken either by the DOT or by Congress with respect to these issues. From time to time, we are engaged in routine litigation incidental to our business. Except as may be otherwise specifically discussed in this section, we believe there are no legal proceedings pending in which we are a party or of which any of our property is the subject that are not adequately covered by insurance maintained by us, or which if adversely decided, would have a material adverse effect upon our business or financial condition. 12 Item 4: Submission of Matters to a Vote of Security Holders During the fourth quarter of the year covered by this report, we did not submit any matters to a vote of our security holders through the solicitation of proxies or otherwise. PART II Item 5: Market for Common Equity and Related Stockholder Matters Price Range of Common Stock Until May 26, 1999, our Common Stock was traded on the Nasdaq SmallCap Market under the symbol "FRNT." Effective May 26, 1999, our Common Stock began trading on the Nasdaq National Market, also under the symbol "FRNT." We were able to move from the SmallCap Market to the National Market because of our ability to meet minimum requirements in areas such as net tangible assets, market capitalization, public float, number of shareholders and corporate governance. The following table shows the range of high and low bid prices per share for our Common Stock for the periods indicated and as reported by Nasdaq through June 15, 2000. Market quotations listed here represent prices between dealers and do not reflect retail mark-ups, mark-downs or commissions. As of June 15, 2000 there were 657 holders of record of our Common Stock. Price Range of Common Stock Quarter Ended High Low June 30, 1998 $ 3 7/8 $ 2 7/8 September 30, 1998 4 5/8 3 December 31, 1998 5 3/8 3 March 31, 1999 10 4 15/16 June 30, 1999 17 3/16 9 1/2 September 30, 1999 18 5/8 8 1/4 December 31, 1999 13 1/2 8 29/32 March 31, 2000 11 5/16 9 3/8 June 30, 2000 (through June 15, 2000) 15 15/32 11 1/2 13 Recent Sales of Securities During the period April 1, 1999 through June 15, 2000, various holders of warrants to purchase our Common Stock exercised their warrants and we issued Common Stock as described below: Number of Exercise Warrant Warrant Holder Shares Issued Price Dates of Exercise -------------- ------------- ----- ----------------- Initial Public Offering Underwriter (and affiliates) 83,600 $5.525 4/1/99-5/18/99 Secondary Offering Underwriters (and affiliates) 147,764 $5.55 7/12/99-5/31/00 Aircraft Lessor 395,000 $5.00-$7.19 5/6/99 & 6/16/99 Financial Advisor 548,000 $3.00 6/14/99
As of June 15, 2000, we have granted stock options to our employees and directors to purchase up to 3,008,750 shares of Common Stock, 1,237,271 of which options have been previously exercised and 975,979 of which are currently exercisable at exercise prices ranging from $1.00 to $13.82 per share. Dividend Policy We have not declared or paid cash dividends on our Common Stock. We currently intend to retain any future earnings to fund operations and the continued development of our business, and, thus, do not expect to pay any cash dividends on our Common Stock in the foreseeable future. Future cash dividends, if any, will be determined by our Board of Directors and will be based upon our earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors. Rights Dividend Distribution In February 1997, our Board of Directors declared a dividend distribution of one right (a "Right") for each outstanding share of our Common Stock to shareholders of record at the close of business on March 15, 1997. Except as described below, each Right, when exercisable, entitles the registered holder to purchase from us one share of Common Stock at a purchase price of $65.00 per share (the "Purchase Price"), subject to adjustment. The Rights expire at the close of business on February 20, 2007, unless we redeem or exchange them earlier as described below. The description and terms of the Rights are set forth in a Rights Agreement, as amended by amendments dated June 30, 1997, December 5, 1997, and September 9, 1999 (as so amended, the "Rights Agreement"). The Rights are exercisable upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons other than us, our subsidiaries or any person receiving newly-issued shares of Common Stock directly from us or indirectly via an underwriter in connection with a public offering by us (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Common Stock. If any person becomes an Acquiring Person other than pursuant to a Qualifying Offer (as defined below), each holder of a Right has the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, all Rights that are beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable in any event until such time as the Rights are no longer redeemable by us as set forth below. A "Qualifying Offer" means a tender offer or exchange offer for, or merger proposal involving, all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the Board of Directors who are not our officers or employees and who are not related to the Person making such offer, to be fair to and in the best interests of the Company and our shareholders. 14 If after the Stock Acquisition Date we are acquired in a merger or other business combination transaction in which the Common Stock is changed or exchanged or in which we are not the surviving corporation (other than a merger that follows a Qualifying Offer) or 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right shall have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The Purchase Price payable, and the number of shares of Common Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Stock, (ii) if holders of the Common Stock are granted certain rights or warrants to subscribe for Common Stock or convertible securities at less than the current market price of the Common Stock, or (iii) upon the distribution to holders of the Common Stock of evidences of indebtedness or assets or of subscription rights or warrants. At any time until ten days following the Stock Acquisition Date, we may redeem the Rights in whole at a price of $.01 per Right. Upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $.01 redemption price. While the distribution, if any, of the Rights will not be taxable to shareholders or to us, shareholders may, depending upon the circumstances, recognize taxable income if the Rights become exercisable for Common Stock (or other consideration) of the Company or for common stock of the acquiring company. 15 Item 6: Selected Financial Data The following selected financial and operating data as of and for each of the years ended March 31, 2000, 1999, 1998, 1997 and 1996 are derived from our audited financial statements. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and the related notes thereto included elsewhere in this Report. Year Ended March 31, 2000 1999 1998 1997 1996 ----------------------------------------------------------------- (Amounts in thousands except per share amounts) Statement of Operations Data: Total operating revenues $329,820 $220,608 $147,142 $116,501 $70,393 Total operating expenses 290,511 195,928 165,697 129,662 76,325 Operating income (loss) 39,309 24,680 (18,554) (13,161) (5,933) Income (loss) before income tax expense (benefit) and cumulative effect of change of accounting for maintenance checks 43,415 25,086 (17,746) (12,186) Income tax expense (benefit) 16,954 (5,480) - - - Income (loss) before cumulative effect of change in accounting for maintenance checks 26,460 30,566 (17,746) (12,186) - Cumulative effect of change of method of accounting for maintenance checks 549 - - - - Net income (loss) 27,010 30,566 (17,746) (12,186) (5,582) Income (loss) per share before cumulative effect of a change in accounting principle: Basic 1.53 2.14 (1.95) (1.49) (1.23) Diluted 1.40 1.98 (1.95) (1.49) (1.23) Net income (loss) per share: Basic 1.56 2.14 (1.95) (1.49) (1.23) Diluted 1.43 1.98 (1.95) (1.49) (1.23) Balance Sheet Data: Cash, cash equivalents and short-term investments $83,611 $47,289 $3,641 $10,286 $7,527 Current assets 140,361 94,209 33,999 31,470 25,797 Total assets 187,546 119,620 50,598 44,093 30,990 Current liabilities 98,475 68,721 50,324 32,745 25,844 Long-term debt 329 435 3,566 56 92 Total liabilities 106,501 75,230 56,272 34,210 26,289 Stockholders' equity (deficit) 81,045 44,391 (5,673) 9,883 4,701 Working capital (deficit) 41,886 25,488 (16,325) (1,275) (47)
16 Year Ended March 31, 2000 1999 1998 1997 1996 ------------------------------------------------------------------- Selected Operating Data: Passenger revenue (000s) (2) $320,850 $214,311 $142,018 $113,758 $68,455 Revenue passengers carried (000s) 2,284 1,664 1,356 1,180 758 Revenue passenger miles (RPMs) (000s) (3) 2,104,460 1,506,597 1,119,378 839,939 479,887 Available seat miles (ASMs) (000s) (4) 3,559,595 2,537,503 1,996,185 1,419,720 844,161 Passenger load factor (5) 59.1% 59.4% 56.1% 59.2% 56.8% Break-even load factor (6) 51.1% 52.4% 63.1% 65.5% 61.5% Block hours (7) 71,276 52,789 42,767 32,459 20,783 Departures 33,284 25,778 22,257 18,910 14,957 Average seats per departure 129 125 124 118 112 Average stage length 829 787 723 636 504 Average length of haul 921 905 826 712 633 Aircraft miles (000s) 27,594 20,300 16,098 12,032 7,537 Average daily block hour utilization (8) 9.9 9.6 9.5 10.3 9.9 Yield per RPM (cents) (9) 15.25 14.22 12.69 13.54 14.26 Total yield per RPM (cents) (10) 15.67 14.64 13.14 13.87 14.67 Total yield per ASM (cents) (11) 9.27 8.69 7.37 8.21 8.34 Expense per ASM (cents) 8.16 7.72 8.30 9.13 9.04 Expense per ASM excluding fuel (cents) 6.91 6.82 7.13 7.61 7.65 Passenger revenue per block hour $4,502 $4,060 $3,321 $3,505 $3,294 Average fare (12) $134 $123 $100 $92 $88 Average aircraft in service 19.7 15.0 12.3 9.6 5.7 Aircraft in service at end of year 23.0 17.0 14.0 10.0 7.0 Average age of aircraft at end of year 10.5 14.7 16.2 22.0 25.3 EBITDAR (000s) (13) $90,583 $58,848 $7,437 $4,576 $942 EBITDAR as a % of revenue 27.5% 26.7% 5.1% 3.9% 1.3%
(1) Fiscal 2000 includes income of $549,000 ($.03 per share) from the cumulative effect of the change in the method of accounting for maintenance checks. (2) "Passenger revenue" includes revenues for non-revenue passengers, administrative fees, and revenue recognized for unused tickets that are greater than one year from issuance date. (3) "Revenue passenger miles," or RPMs, are determined by multiplying the number of fare-paying passengers carried by the distance flown. (4) "Available seat miles," or ASMs, are determined by multiplying the number of seats available for passengers by the number of miles flown. (5) "Passenger load factor" is determined by dividing revenue passenger miles by available seat miles. (6) "Break-even load factor" is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses (7) "Block hours" represent the time between aircraft gate departure and aircraft gate arrival. (8) "Average daily block hour utilization" represents the total block hours divided by the weighted average number of aircraft days in service. (9) "Yield per RPM" is determined by dividing passenger revenues by revenue passenger miles. (10) "Total Yield per RPM" is determined by dividing total revenues by revenue passenger miles. (11) "Total Yield per ASM" is determined by dividing passenger revenues by available seat miles. (12) "Average fare" excludes revenue included in passenger revenue for non-revenue passengers, administrative fees, and revenue recognized for unused tickets that are greater than one year from issuance date. (13) "EBITDAR", or "earnings before interest, income taxes, depreciation, amortization and aircraft rentals," is a supplemental financial measurement we and many airline industry analysts use in the evaluation of our business. However, EBITDAR should only be read in conjunction with all of our financial statements appearing elsewhere herein, and should not be construed as an alternative either to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of our operating performance or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. 17 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Selected Operating Statistics The following table provides our operating revenues and expenses expressed as cents per total available seat miles ("ASM") and as a percentage of total operating revenues, as rounded, for the years ended March 31, 2000, 1999 and 1998. Pro forma amounts have been provided for the years ended March 31, 1999 and 1998 assuming the new method of accounting for maintenance checks is applied retroactively. 2000 1999 1998 ---------------------- -------------------------- -------------------------- Per % Per % Per % total of total of total of ASM Revenue ASM Revenue ASM Revenue --- ------- --- ------- --- ------- Revenues: Passenger 9.02 97.3% 8.44 97.1% 7.11 96.5% Cargo 0.19 2.1% 0.19 2.2% 0.15 2.1% Other 0.06 0.6% 0.06 0.7% 0.11 1.4% ----------- ---------- ------------ ------------ ------------- ------------ Total revenues 9.27 100.0% 8.69 100.0% 7.37 100.0% Operating expenses: Flight operations 3.53 38.1% 3.12 35.9% 3.32 45.1% Aircraft and traffic servicing 1.38 14.8% 1.36 15.6% 1.56 21.1% Maintenance 1.41 15.2% 1.42 16.3% 1.59 21.6% Promotion and sales 1.29 14.0% 1.39 16.0% 1.45 19.7% General and administrative 0.46 5.0% 0.36 4.2% 0.32 4.3% Depreciation and amortization 0.10 1.0% 0.07 0.8% 0.06 0.9% ----------- ---------- ------------ ------------ ------------- ------------ Total operating expenses 8.16 88.1% 7.72 8.8% 8.30 112.6% =========== ========== ============ ============ ============= ============ Total ASMs (000s) 3,559,595 2,537,503 1,996,185 Pro forma amounts: Maintenance 1.49 17.1% 1.54 20.9% Total operating expenses 7.79 89.6% 8.25 111.9%
18 The following selected financial and operating data for the years ended March 31, 2000, 1999, and 1998 have been adjusted on a pro forma basis assuming the new method of accounting for maintenance checks is applied retroactively. Year Ended March 31, 1999 1998 -------------------------- Statement of Operations Data: Maintenance expenses (000s) 37,821 30,692 Total operating expenses (000s) 197,659 164,598 Net income (loss) (000s) 29,510 (16,647) Net income (loss) per share: Basic 2.07 (1.83) Diluted 1.92 (1.83) Selected Operating Data: Break-even load factor 52.9% 62.2% Expense per ASM (cents) 7.79 8.25 Expense per ASM excluding fuel (cents) 6.89 7.02 Results of Operations - Year Ended March 31, 2000 Compared to Year Ended March 31, 1999 General We are a scheduled airline based in Denver, Colorado. We currently operate routes linking our Denver hub to 21 cities in 17 states spanning the nation from coast to coast. At present, we use up to 9 gates at Denver International Airport ("DIA") for approximately 112 daily flight departures and arrivals. During the year ended March 31, 2000, we added Portland, Oregon and Orlando, Florida to our route system. On June 15, 2000 we commenced service in the Kansas City, Missouri market. Organized in February 1994, we commenced flight operations as a regional carrier in July 1994 with two leased Boeing 737-200 jet aircraft. We have since expanded our fleet to 24 leased jets as of June 2000, including seven Boeing 737-200s and seventeen larger Boeing 737-300s. During the year ended March 31, 2000, we added seven additional leased Boeing 737-300 aircraft and four Boeing 737-200A to our fleet and retired 5 Boeing 737-200 aircraft. Small fluctuations in our yield per RPM or expense per ASM can significantly affect operating results because we, like other airlines, have high fixed costs in relation to revenues. Airline operations are highly sensitive to various factors, including the actions of competing airlines and general economic factors, which can adversely affect our liquidity, cash flows and results of operations. During the fourth quarter ended March 31, 2000, we changed our method of accounting for maintenance checks from the accrue in advance method to the direct expensing method. The Company believes that the newly adopted accounting principle is preferable in the circumstances because there has not been an obligating event prior to the maintenance checks actually being performed and the new method is the predominant method used in the airline industry. Fluctuations in these maintenance costs from period to period are not expected to be significant given the maturity and current size of the Company's fleet. For purposes of comparability, the amounts for the year ended March 31, 1999 used in our discussion and analysis of financial condition and results of operations use the pro forma data included in the Selected Operating Statistics tables. As a result of the expansion of our operations during the year ended March 31, 2000, our results of operations are not necessarily indicative of future operating results or comparable to the prior year ended March 31, 1999. 19 Results of Operations We had net income of $27,009,000 or $1.40 per diluted share for the year ended March 31, 2000 as compared to pro forma net income of $29,510,000 or $1.92 per diluted share for the year ended March 31, 1999. During the year ended March 31, 2000, we reported a provision for income taxes, which totaled $16,954,000, or 90(cent) per diluted share. During the year ended March 31, 1999, we eliminated the valuation allowance that offset tax loss carryforwards and recognized an income tax benefit. The income tax benefit totaled $5,480,000 or 36(cent) per share. During the year ended March 31, 2000, as compared to the prior comparable periods, we experienced higher fares as a result of increases in the number of business travelers, and a general increase in fare levels. We also increased fares to partially offset increased fuel costs. Our cost per ASM for the year ended March 31, 2000 and pro forma cost per ASM for the year ended March 31, 1999 were 8.16(cent) and 7.79(cent), respectively, or an increase of .37(cent) or 4.8%. Costs per ASM excluding fuel for the years ended March 31, 2000 and pro forma costs per ASM for the year ended March 31, 1999 were 6.91(cent) and 6.89(cent), respectively, or an increase of .3%. Our cost per ASM increased during the year ended March 31, 2000 from 7.79(cent) principally because of overall increases in the cost of fuel which accounted for .35(cent) per ASM, aircraft rentals because of newer and larger aircraft of .05(cent) per ASM, general and administrative expenses to support increased levels of operations and the number of personnel of .09(cent) per ASM, offset by a .08(cent) reduction in cost per ASM in maintenance as a result of conducting certain heavy maintenance checks in-house and a .10(cent) decrease in cost per ASM in promotion and sales expense as a result of a decrease in the travel agency commission rate from 8% to 5% in November 1999, decreased advertising and communication expenses offset by an increase in credit card fees associated with the increase in our average fare. An airline's break-even load factor is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses. For the year ended March 31, 2000, our break-even load factor was 51.1% compared to the passenger load factor achieved of 59.1%. For the year ended March 31, 1999, our pro forma break-even load factor was 52.9% compared to the achieved passenger load factor of 59.4%. Our break-even load factor decreased from the prior comparable period largely as a result of an increase in our average fare to $134 during the year ended March 31, 2000 from $123 during the year ended March 31, 1999, an increase in our total yield per RPM from 14.64(cent) for the year ended March 31, 1999 to 15.67(cent) for the year ended March 31, 2000 offset by an increase in our expense per ASM to 8.16(cent) for the year ended March 31, 2000 from 7.79(cent) for the year ended March 31, 1999. Revenues Our revenues are highly sensitive to changes in fare levels. Fare pricing policies have a significant impact on our revenues. Because of the elasticity of passenger demand, we believe that increases in fares will result in a decrease in passenger demand in many markets. We cannot predict future fare levels, which depend to a substantial degree on actions of competitors. When sale prices or other price changes are initiated by competitors in our markets, we believe that we must, in most cases, match those competitive fares in order to maintain our market share. Passenger revenues are seasonal in leisure travel markets depending on the markets' locations and when they are most frequently patronized. Our average fare for the years ended March 31, 2000 and 1999 was $134 and $123, respectively. We believe that the increase in the average fare during the year ended March 31, 2000 over the prior comparable periods was largely a result of our focus on increasing the number of business travelers, an increase in fares to offset increased fuel costs, and a general increase in fare levels. Passenger Revenues. Passenger revenues totaled $320,850,000 for the year ended March 31, 2000 compared to $214,311,000 for the year ended March 31, 1999, or an increase of 49.7%. We carried 2,284,000 revenue passengers for the year ended March 31, 2000 compared to 1,664,000 for the year ended March 31, 1999 or an increase of 37.3%. We had an average of 19.7 aircraft in our fleet during the year ended March 31, 2000 compared to an average of 15 aircraft during the year ended March 31, 1999, an increase of 31.3%, and ASMs increased by 1,022,092,000 or 40.3%. We believe that our passenger traffic and related revenues during the year ended March 31, 2000 were adversely affected by late deliveries of aircraft and consumer concerns over the Year 2000 issue. 20 Cargo revenues, consisting of revenues from freight and mail service, totaled $6,856,000 and $4,881,000 for the years ended March 31, 2000 and 1999, respectively, representing 2.1% and 2.2% of total operating revenues, respectively, an increase of 40.5%. This adjunct to the passenger business is highly competitive and depends heavily on aircraft scheduling, alternate competitive means of same day delivery service and schedule reliability. Other revenues, comprised principally of interline handling fees, liquor sales and excess baggage fees, totaled $2,114,000 and $1,415,000 or .6% of total operating revenues for each of the years ended March 31, 2000 and 1999, respectively. Operating Expenses Operating expenses include those related to flight operations, aircraft and traffic servicing, maintenance, promotion and sales, general and administrative and depreciation and amortization. Total operating expenses and pro forma total operating expenses were $290,511,000 and $197,659,000, respectively, for the years ended March 31, 2000 and 1999, and represented 88.1% and 89.6% of total revenue, respectively. Operating expenses decreased as a percentage of revenue during the year ended March 31, 2000 as a result of the 49.7% increase in passenger revenues attributable to a 37.3% increase in passengers and a 8.9% increase in the average fare offset by a 44.2% increase in the average cost per gallon of fuel and a general wage rate increase which went into effect in January 2000. Flight Operations. Flight operations expenses of $125,536,000 and $79,247,000 were 38.1% and 35.9% of total revenue for the years ended March 31, 2000 and 1999, respectively. Flight operations expenses include all expenses related directly to the operation of the aircraft, including fuel, lease and insurance expenses, pilot and flight attendant compensation, in-flight catering, crew overnight expenses, flight dispatch and flight operations administrative expenses. Aircraft fuel expenses include both the direct cost of fuel including taxes as well as the cost of delivering fuel into the aircraft. Aircraft fuel costs of $44,402,000 for 55,568,000 gallons used and $22,758,000 for 41,082,000 gallons used resulted in an average fuel cost of 79.9(cent) and 55.4(cent) per gallon and represented 35.4% and 28.7% of total flight operations expenses for the years ended March 31, 2000 and 1999, respectively. The average fuel cost per gallon increased for the year ended March 31, 2000 from the comparable prior period due to an overall increase in the market price of fuel. Fuel prices are subject to change weekly as we do not purchase supplies in advance for inventory. Fuel consumption for each of the years ended March 31, 2000 and 1999 averaged 780 and 778 gallons per block hour, respectively. Fuel consumption increased over the prior comparable period because of increased flap speed settings mandated by the FAA, which required more fuel to maintain air speed at normal operating levels. The requirement for increased flap speed settings will be lifted when a fleet modification is completed, which is required to be completed by August 1, 2000. Approximately 65% of our fleet have had the modification completed as of March 31, 2000. Additionally, 5 aircraft were returned to their lessor during the year ended March 31, 2000 and replaced with 4 aircraft with higher thrust engines that have a higher fuel burn rate. Aircraft lease expenses totaled $47,945,000 (14.5% of total revenue) and $32,958,000 (14.9% of total revenue) for the years ended March 31, 2000 and 1999, respectively, or an increase of 45.5%. The increase is largely due to higher lease expenses for larger and newer Boeing 737-300 aircraft added to the fleet which resulted in the increase in the average number of aircraft to 19.7 from 15, or 31.3%, for the year ended March 31, 2000. The average age of our fleet decreased from 14.7 years as of March 31, 1999 to 10.5 years as of March 31, 2000. Aircraft insurance expenses totaled $2,689,000 (.8% of total revenue) for the year ended March 31, 2000. Aircraft insurance expenses for the year ended March 31, 1999 were $2,425,000 (1.1% of total revenue). Aircraft insurance expenses were .13(cent) and .16(cent) per RPM for the years ended March 31, 2000 and 1999, respectively. Aircraft insurance expenses decreased per RPM as a result of competitive pricing in the aircraft insurance industry and our favorable experience rating since we began flight operations in July 1994. Pilot and flight attendant salaries before payroll taxes and benefits totaled $15,392,000 and $10,653,00 or 4.8% and 5% of passenger revenue for each of the years ended March 31, 2000 and 1999, or an increase of 44.5%. Pilot and flight attendant compensation increased principally as a result of a 31.3% increase in the average number of aircraft in service, general wage rate increases, and a 35% increase in block hours. We pay pilot and flight attendant salaries for training consisting of approximately six and three weeks, respectively, prior to scheduled increases in service which can cause the compensation expense during such periods to appear high in relationship to the average number of aircraft in service. When we are not in the process of adding aircraft to our system, pilot and flight attendant expense per aircraft normalizes. With a scheduled passenger operation, and with salaried rather than hourly crew compensation, our expenses for flight operations are largely fixed, with flight catering and fuel expenses the principal exception. 21 Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were $48,955,000 and $34,451,000 (an increase of 42.1%) for the years ended March 31, 2000 and 1999, respectively, and represented 14.8% and 15.6% of total revenue. Aircraft and traffic servicing expenses include all expenses incurred at airports including landing fees, facilities rental, station labor, ground handling expenses, and interrupted trip expenses associated with delayed or cancelled flights. Interrupted trip expenses are amounts paid to other airlines to protect passengers as well as hotel, meal and other incidental expenses. Aircraft and traffic servicing expenses will increase with the addition of new cities to our route system. During the year ended March 31, 2000 we served 21 cities compared to 19 cities during the year ended March 31, 1999, or an increase of 10.5%. Three of the four cities added during the year ended March 31, 1999 were not added until mid-December 1998. Aircraft and traffic servicing expenses were $1,471 for the year ended March 31, 2000 as compared to $1,336 per departure for the year ended March 31, 1999, or an increase of $135. An additional DIA revenue credit above amounts previously estimated and accrued, for its fiscal year ended December 31, 1997 totaled $371,000 (or $11 per departure) and was included as an offset to aircraft and traffic servicing expenses during the year ended March 31, 1999. After adjusting the cost per departure for these credits for the year ended March 31, 1999, the cost per departure would have been $1,347 and the cost per departure for the year ended March 31, 2000 would have been a $124 increase over the prior comparable period. Aircraft and traffic servicing expenses increased as a result of a drop in the completion factor for the year ended March 31, 2000 to 98.6% from 99% for the year ended March 31, 1999 and late deliveries of aircraft which increased interrupted trip expenses. We also had expenses associated with the Boulder, Colorado-DIA shuttle bus service, which is complimentary to our passengers, and a general wage rate increase which was effective in January 2000. Maintenance. Maintenance expenses for the year ended March 31, 2000 and pro forma maintenance expenses for the year ended March 31, 1999 of $50,239,000 and $37,821,000, respectively, were 15.2% and 17.1% of total revenue. These include all labor, parts and supplies expenses related to the maintenance of the aircraft. Routine maintenance is charged to maintenance expense as incurred while major engine overhauls and heavy maintenance check expense are accrued monthly. Maintenance cost per block hour for the year ended March 31, 2000 and pro forma maintenance cost per block hour for the year ended March 31, 1999 was $704 and $717 per block hour, respectively. Maintenance cost per block hour decreased during the year ended March 31, 2000 as a result of a decrease in the average age of our aircraft and as a result of conducting certain heavy maintenance checks in-house, which, prior to March 1999, had been outsourced. Additionally, maintenance costs per block hour have decreased as certain fixed costs are spread over a larger fleet. These cost savings were offset by higher than usual borrowed parts fees during the year ended March 31, 2000. During the years ended March 31, 2000 these fees were approximately $1,439,000 compared to $349,000 during the years ended March 31, 1999 or $20 and $7 per block hour, respectively. During the year ended March 31, 2000, we increased our spare parts inventory in an effort to mitigate this expense in the future. Promotion and Sales. Promotion and sales expenses totaled $46,014,000 and $35,217,000 and were 14% and 16% of total revenue for the years ended March 31, 2000 and 1999, respectively. These include advertising expenses, telecommunications expenses, wages and benefits for reservationists and reservations supervision as well as marketing management and sales personnel, credit card fees, travel agency commissions and computer reservations costs. Promotion and sales expenses decreased as a percentage of revenue for the year ended March 31, 2000 over the prior comparable period largely as a result of the increase in revenue and a decrease in travel agency commissions. During the year ended March 31, 2000, promotion and sales expenses per passenger decreased to $20.15 from $21.16 for the year ended March 31, 1999. Promotion and sales expenses decreased largely as a result of a decrease in travel agency commissions from 8% to 5% effective in November 1999 matching the decrease instituted by our competitors. Travel agency commissions and interline service charges and handling fees, as a percentage of passenger revenue, before non-revenue passengers, administrative fees and breakage (revenue from expired tickets), decreased to 4.4% for the year ended March 31, 2000 from 5.6% for the year ended March 31, 1999. The decrease in travel agency commissions was offset by increased commission expense associated with the increase in our average fare. During the years ended March 31, 1999 and 2000, we added four and two new markets, respectively, thereby experiencing a decrease in advertising expenses per passenger which are generally higher when opening new markets. During the year ended March 31, 2000 we had an increase in computer reservations costs associated with the expansion of our travel agency electronic ticketing capabilities. With increased activity on our web site, our calls per passenger have decreased. Because of this web site activity as well as a decrease in long distance rates, we experienced a decrease in communications expense. These cost savings were offset by an increase in credit card fees associated with the increase in our average fare from $123 for the year ended March 31, 1999 to $134 for the year ended March 31, 2000. We believe that promotion and sales expenses per passenger will continue to decrease but there can be no assurance that this will occur. 22 General and Administrative. General and administrative expenses for the years ended March 31, 2000 and 1999 totaled $16,327,000 and $9,264,000, respectively, and were 5.0% and 4.2% of total revenue, respectively. General and administrative expenses include the wages and benefits for several of our executive officers and various other administrative personnel including legal, accounting, IT (including costs associated with Y2K), aircraft procurement, corporate communications, training and human resources and other expenses associated with these departments. Employee health benefits, accrued vacation and bonus expenses, general insurance expenses including worker's compensation, and write-offs associated with credit card and check fraud are also included in general and administrative expenses. We experienced increases in our human resources, training and IT expenses as a result of an increase in employees from approximately 1,502 in March 1999 to approximately 2,067 in March 2000, or an increase of 37.6%. In addition to the usual increases in crew and station personnel associated with additional aircraft and cities, we had significant increases in maintenance personnel as a result of bringing certain heavy maintenance checks in-house which began in March 1999. We increased general and administrative personnel in general because many of these areas were considered to be under staffed in prior years as we strived for profitability. We also experienced personnel increases in the area of aircraft procurement as a result of the purchase and lease agreements for Airbus aircraft and the number of aircraft we brought into our fleet during the year ended March 31, 2000. Because of the increase in personnel, our health insurance benefit expenses and accrued vacation expense increased accordingly. During the years ended March 31, 2000 and 1999, we accrued for employee performance bonuses totaling $2,605,000 and $1,829,000, respectively, or .8% of total revenue for each of these years. Depreciation and Amortization. Depreciation and amortization expenses of $3,440,000 and $1,659,000, an increase of 107.4% were approximately 1.0% and .9% of total revenue for the years ended March 31, 2000 and 1999, respectively. These expenses include depreciation of office equipment, ground station equipment, and other fixed assets. Amortization of start-up and route development costs are not included as these expenses have been expensed as incurred. Depreciation expense increased over the prior year as a result of an increase in our spare parts inventory including a spare engine, leasehold improvements associated with 11 (6 additional and 5 replacement) aircraft brought into our fleet during the year, ground handling equipment, and computers to support new employees as well as replacement computers for those with outdated technology. Nonoperating Income (Expense). Net nonoperating income totaled $4,105,000 for the year ended March 31, 2000 compared to $406,000 for the year ended March 31, 1999. Interest income increased from $1,556,000 to $4,335,000 during the year ended March 31, 2000 from the prior period due to an increase in cash balances as a result of an increase in cash provided by operating activities and proceeds from stock option and warrant exercises. Interest expense decreased to $119,000 during the year ended March 31, 2000 from $701,000 in the prior period. In December 1997, we sold $5,000,000 of 10% senior notes. In connection with this transaction, we issued warrants to purchase 1,750,000 shares of Common Stock to the lender. Interest expense paid in cash and the accretion of the warrants and deferred loan expenses associated with the senior secured notes totaled $568,000 during the year ended March 31, 1999. In January 1999, we paid the note in full. Other, net nonoperating expense was $110,000 for the year ended March 31, 2000 compared to other, net nonoperating income of $449,000 for the year ended March 31, 1999. Other, net nonoperating expense for the year ended March 31, 1999 includes $486,000 of unamortized deferred loan costs associated with the senior secured notes that remained at the time we prepaid the debt. Income Tax Expense (benefit): During the year ended March 31, 2000, we had income tax expense totaling $16,954,000, or 39% of income before income tax expense and cumulative effect of change in method of accounting for maintenance checks. During the year ended March 31, 1999 we recognized an income tax benefit of $5,480,000 primarily attributable to the probable realization of our remaining income tax loss carryforwards for which a valuation allowance had been previously recorded. As a result of our profitability for the year ended March 31, 1999 a valuation allowance was no longer considered necessary. 23 Cumulative Effect of Change in Method of Accounting for Overhaul Costs: During the year ended March 31, 2000, we changed our method of accounting for maintenance checks from the accrual to the direct expense method which resulted in a credit of $549,000 net of income taxes of $351,000. Assuming this method was used during the year ended March 31, 1999, we would have had $1,731,000 of additional maintenance expense, and net income would have decreased by $1,056,000, or 6(cent) per share. Results of Operations - Year Ended March 31, 1999 Compared to Year Ended March 31, 1998 General During the year ended March 31, 1999 we operated routes linking our Denver hub to 19 cities in 15 states. We used up to seven gates at Denver International Airport ("DIA") for approximately 92 daily flight departures and arrivals. During the year ended March 31, 1999, we added Atlanta, Georgia and Dallas/Ft. Worth, Texas to our route system and re-entered the San Diego, California and Las Vegas, Nevada markets. On June 14, 1999 we commenced service in the Denver-Portland, Oregon market. During the year ended March 31, 1999, we added two additional leased Boeing 737-300 aircraft and one Boeing 737-200A to our fleet. On June 30, 1997, we signed an Agreement and Plan of Merger ("the Merger Agreement") providing for our merger (the "Merger") with Western Pacific Airlines. Pursuant to the Merger Agreement, a "code share" marketing alliance between us and Western Pacific went into effect on August 1, 1997, in effect integrating the route networks of the two airlines. On September 29, 1997, we both mutually agreed to terminate the Merger Agreement and the code-share arrangement. The separation of the two carriers required us to implement a costly restructuring of our flight schedule and route system to support a stand-alone operation competing against both Western Pacific and United Airlines, the dominant air carrier at DIA. On October 5, 1997, Western Pacific filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Western Pacific ceased operations on February 4, 1998. The Merger Agreement and our competition with Western Pacific adversely affected our results of operations for the year ended March 31, 1998. As a result of the expansion of our operations and the cessation of service by Western Pacific during the year ended March 31, 1999, our results of operations are not necessarily indicative of future operating results or comparable to the prior year ended March 31, 1998. Results of Operations We had net income of $30,566,000 or $1.98 per diluted share for the year ended March 31, 1999 as compared to a net loss of $17,746,000 or $1.95 per share for the year ended March 31, 1998. During the year ended March 31, 1999 as compared to the prior comparable period, we experienced higher fares as a result of increases in business travelers, decreased competition as a result of the demise of Western Pacific, and an increase in the average length of haul and stage length. Our cost per ASM declined to 7.72(cent) during the year ended March 31, 1999 from 8.30(cent) for the prior comparable period, principally as a result of lower fuel prices and improved operating efficiencies and economies of scale as our fixed costs were spread across a larger base of operations. An airline's break-even load factor is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses. For the year ended March 31, 1999, our break-even load factor was 52.4% compared to the passenger load factor achieved of 59.4%. For the year ended March 31, 1998, our break-even load factor was 63.1% compared to the achieved passenger load factor of 56.1%. Our break-even load factor decreased from the prior comparable period largely as a result of an increase in our average fare to $123 during the year ended March 31, 1999 from $100 during the year ended March 31, 1998, an increase in our total yield per RPM from 13.15(cent) for the year ended March 31, 1998 to 14.64(cent) for the year ended March 31, 1999, and a decrease in our expense per ASM to 7.72(cent) for the year ended March 31, 1999 from 8.30(cent) for the year ended March 31, 1998. Revenues Our revenues are highly sensitive to changes in fare levels. Fare pricing policies have a significant impact on our revenues. Because of the elasticity of passenger demand, we believe that increases in fares will result in a decrease in passenger demand in many markets. We cannot predict future fare levels, which depend to a substantial degree on actions of competitors. When sale prices or other price changes are initiated by competitors in our markets, we believe that we must, in most cases, match those competitive fares in order to maintain our market share. Passenger revenues are seasonal in leisure travel markets depending on the markets' locations and when they are most frequently patronized. 24 Our average fare for the years ended March 31, 1999 and 1998 was $123 and $100, respectively. We believe that the increase in the average fare during the year ended March 31, 1999 over the prior comparable period was largely a result of our focus on increasing the number of business travelers, decreased competition as a result of the demise of Western Pacific, and an increase in the average length of haul and stage length. The average length of haul increased from 825 miles for the year ended March 31, 1998 to 905 miles for the year ended March 31, 1999. We also experienced higher average fares in certain of our markets as a result of accommodating Northwest Airlines passengers during that carrier's pilot strike in August and September 1998. Passenger Revenues. Passenger revenues totaled $214,311,000 for the year ended March 31, 1999 compared to $142,018,000 for the year ended March 31, 1998, or an increase of 50.9%. We carried 1,664,000 revenue passengers for the year ended March 31, 1999 compared to 1,356,000 for the year ended March 31, 1998 or an increase of 22.7%. We had an average of 15 aircraft in our fleet during the year ended March 31, 1999 compared to an average of 12.3 aircraft during the year ended March 31, 1998, an increase of 22%, and ASMs increased 541,318,000 or 27.1%. Cargo revenues, consisting of revenues from freight and mail service, totaled $4,881,000 and $3,009,000 for the years ended March 31, 1999 and 1998, respectively, representing 2.2% and 2.0% of total operating revenues, respectively, or an increase of 62.2%. This adjunct to the passenger business is highly competitive and depends heavily on aircraft scheduling, alternate competitive means of same day delivery service and schedule reliability. Other revenues, comprised principally of interline handling fees, liquor sales and excess baggage fees, totaled $1,415,000 and $2,115,000 or .6% and 1.4% of total operating revenues for each of the years ended March 31, 1999 and 1998, respectively. Other revenues were higher during the year ended March 31, 1998 as a result of ticket handling fees associated with the code share agreement with Western Pacific. Ticket handling fees are earned by the ticketing airline to offset ticketing costs incurred on segments ticketed on the flight operated by our code share partner. We recognized approximately $1,007,000 in ticket handling fees associated with our code share agreement with Western Pacific during the year ended March 31, 1998. The costs that offset this revenue are included in sales and promotion expenses. Operating Expenses Operating expenses include those related to flight operations, aircraft and traffic servicing, maintenance, promotion and sales, general and administrative and depreciation and amortization. Total operating expenses were $195,928,000 and $165,697,000 for the years ended March 31, 1999 and 1998 and represented 88.8% and 112.6% of total revenue, respectively. Operating expenses decreased as a percentage of revenue during the year ended March 31, 1999 as we experienced significantly lower fuel prices and improved operating efficiencies and economies of scale as our fixed costs were spread across a larger base of operations. Flight Operations. Flight operations expenses of $79,247,000 and $66,288,000 were 35.9% and 45.1% of total revenue for the years ended March 31, 1999 and 1998, respectively. Flight operations expenses include all expenses related directly to the operation of the aircraft including fuel, lease and insurance expenses, pilot and flight attendant compensation, in-flight catering, crew overnight expenses, flight dispatch and flight operations administrative expenses. Aircraft fuel expenses include both the direct cost of fuel including taxes as well as the cost of delivering fuel into the aircraft. Aircraft fuel costs of $22,758,000 for 41,082,000 gallons used and $23,332,000 for 33,098,000 gallons used resulted in an average fuel cost of 55.4(cent) and 70.5(cent) per gallon and represented 28.7% and 35.2% of total flight operations expenses for the years ended March 31, 1999 and 1998, respectively. The average fuel cost per gallon decreased for the years ended March 31, 1999 and 1998 from the comparable prior period due to an overall decrease in the market price of fuel. Fuel prices are subject to change weekly as we do not purchase supplies in advance for inventory. Fuel consumption for each of the years ended March 31, 1999 and 1998 averaged 778 and 774 gallons per block hour, respectively. 25 Aircraft lease expenses totaled $32,958,000 (14.9% of total revenue) and $24,330,000 (16.5% of total revenue) for the years ended March 31, 1999 and 1998, respectively, or an increase of 35.5%. The increase is largely due to higher lease expenses for larger and newer Boeing 737-300 aircraft added to the fleet which resulted in the increase in the average number of aircraft to 15 from 12.3, or 22%, for the years ended March 31, 1999, respectively. Aircraft insurance expenses totaled $2,425,000 (1.1% of total revenue) for the years ended March 31, 1999 and 1998 offset by a profit commission of $153,000 for the policy period ended June 6, 1998. The profit commission was earned because we had no aircraft hull insurance claims during the 1997-1998 policy year. Aircraft insurance expenses for the year ended March 31, 1998 were $2,989,000 (2% of total revenue). Aircraft insurance expenses decreased as a percentage of revenue as a result of competitive pricing in the aircraft insurance industry, our favorable experience rating since we began flight operations in July 1994 and economies of scale due to the increase in fleet size. Pilot and flight attendant salaries before payroll taxes and benefits totaled $10,653,000 and $8,708,000 or 5% and 6.1% of passenger revenue for each of the years ended March 31, 1999 and 1998, or an increase of 22.3%. Pilot and flight attendant compensation increased principally as a result of a 22% increase in the average number of aircraft in service, general wage rate increases, and an increase of 23.4% in block hours. We pay pilot and flight attendant salaries for training consisting of approximately six and three weeks, respectively, prior to scheduled increases in service which can cause the compensation expense during that period to appear high in relationship to the average number of aircraft in service. When we are not in the process of adding aircraft to our system, pilot and flight attendant expense per aircraft normalizes. With a scheduled passenger operation, and with salaried rather than hourly crew compensation, our expenses for flight operations are largely fixed, with flight catering and fuel expenses the principal exception. Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were $34,147,000 and $30,685,000 (an increase of 11.3%) for the years ended March 31, 1999 and 1998, respectively, and represented 15.5% and 20.9% of total revenue. These include all expenses incurred at airports served by us, as well as station operations administration and flight operations ground equipment maintenance. Station expenses include landing fees, facilities rental, station labor and ground handling expenses. Station expenses as a percentage of revenue decreased during the year ended March 31, 1999 over the year ended March 31, 1998 as a result of our rental costs (in particular, the gate rentals at DIA and other cities where we added additional frequencies), which are largely fixed costs, remaining relatively constant as compared to the increase in revenue. Additionally, we began our own ground handling operations at DIA effective September 1, 1998 which is more cost effective than using a third party contractor. Aircraft and traffic servicing expenses will increase with the addition of new cities to our route system. Maintenance. Maintenance expenses of $36,090,000 and $31,791,000 were 16.4% and 21.6% of total revenue for the years ended March 31, 1999 and 1998, respectively. These include all labor, parts and supplies expenses related to the maintenance of the aircraft. Routine maintenance is charged to maintenance expense as incurred while major engine overhauls and heavy maintenance check expense is accrued monthly. Effective March 1999, we began to conduct certain aircraft heavy maintenance checks in-house which we expect will reduce maintenance expenses in future years. During the quarter ended March 31, 1999, we reduced our accrued maintenance expenses for these heavy maintenance checks by approximately $1,100,000 as a result of the reduced costs associated with performing these heavy maintenance checks in-house. Maintenance cost per block hour was $684 and $743 per block hour for the years ended March 31, 1999 and 1998, respectively. Maintenance costs per block hour decreased as a result of six new aircraft we added to our fleet during the past two years, by bringing certain aircraft heavy maintenance checks in-house, the fixed rental cost of the hangar facility being spread over a larger aircraft fleet offset by FAA mandated corrosion inspections on our 737-200s. The newer aircraft require fewer routine repairs and are generally covered by a warranty period of approximately up to three years on standard Boeing components. We believe that these costs will continue to normalize as we add additional aircraft to our fleet. Promotion and Sales. Promotion and sales expenses totaled $35,621,000 and $29,329,000 and were 16.1% and 19.9% of total revenue for the years ended March 31, 1999 and 1998, respectively. These include advertising expenses, telecommunications expenses, wages and benefits for reservationists and reservations supervision as well as marketing management and sales personnel, credit card fees, travel agency commissions and computer reservations costs. Our promotion and sales expenses for the year ended March 31, 1998 included expenses as a result of the code share agreement with Western Pacific, under which we incurred additional communications, computer reservation, and interline service charges and handling fees for the code share agreement. These expenses were offset, in part, by interline handling fees earned which are included in other revenues. We did not have any code share agreements during the year ended March 31, 1999 that had as large of an impact on our expenses as the code share agreement with Western Pacific. Promotion and sales expenses decreased as a percentage of revenue for the year ended March 31, 1999 over the prior comparable period largely as a result of the increase in revenue. 26 Promotion and sales expenses per passenger decreased to $21.41 from $21.63 for year ended March 31, 1999, as a result of the elimination of expenses related to the code share agreement with Western Pacific offset by increased reservation costs and an increase in credit card fees. The costs of reservation expenses increased as a result of outsourcing part of our reservations requirements. These increased costs were offset by a decrease in travel agency commissions. During April 1998, we reduced travel agency commissions to 8% from 10%, matching an 8% commission instituted by our competitors in the fall of 1997. Additionally, our direct sales, which are not subject to commissions, increased as a percentage of passenger revenue. Travel agency commissions and interline service charges and handling fees, as a percentage of passenger revenue, before non-revenue passengers, administrative fees and breakage (revenue from expired tickets), decreased to 5.6% for the year ended March 31, 1999 from 7.6% for the year ended March 31, 1998. Advertising expenses of $3,900,000 were 1.8% of passenger revenue for the year ended March 31, 1999, compared to $3,048,000 or 2.2% of passenger revenue for the year ended March 31, 1998. As new cities are added to our flight schedule, advertising and marketing promotions are designed and implemented to increase awareness of our new service, name and brand awareness. Advertising expenses decreased as a percentage of revenue largely as a result of the increase in the average fare. Additionally, during the year ended March 31, 1998 we competed with Western Pacific for the low fare market which required a higher volume of advertising. General and Administrative. General and administrative expenses for the years ended March 31, 1999 and 1998 totaled $9,163,000 and $6,353,000, respectively, and were 4.2% and 4.3% of total revenue, respectively. These expenses include the wages and benefits for our executive officers and various other administrative personnel. Legal and accounting expenses, supplies and other miscellaneous expenses are also included in this category. Included in general and administrative expenses for the year ended March 31, 1999 were accrued bonuses and related payroll taxes for our employees which totaled approximately $1,830,000. This was the first time we paid bonuses to our employees. Included in general and administrative expenses during the year ended March 31, 1998 were unusual expenses of approximately $500,000 associated with the terminated Merger Agreement with Western Pacific. Depreciation and Amortization. Depreciation and amortization expenses of $1,659,000 and $1,251,000 were approximately .8% and .9% of total revenue for the years ended March 31, 1999 and 1998, respectively. These expenses include depreciation of office equipment, ground station equipment, and other fixed assets. Amortization of start-up and route development costs are not included as these expenses have been expensed as incurred. Nonoperating Income (Expense). Net nonoperating income totaled $406,000 for the year ended March 31, 1999 compared to $808,000 for the year ended March 31, 1998. Interest income increased from $722,000 to $1,556,000 during the year ended March 31, 1999 from the prior comparable period due to an increase in cash balances as a result of the sale of Common Stock in April 1998 and an increase in cash from operating activities. Interest expenses increased to $701,000 from $324,000 during the year ended March 31, 1999 from the prior year. In December 1997, we sold $5,000,000 of 10% senior notes. In connection with this transaction, we issued the lender warrants to purchase 1,750,000 shares of Common Stock. Interest expense paid in cash and the accretion of the warrants and deferred loan expenses associated with the senior secured notes totaled $568,000 and $263,000 during the years ended March 31, 1999 and 1998, respectively. See Note 4 to the Financial Statements. Other, net nonoperating expense was $449,000 for the year ended March 31, 1999 compared to other, net nonoperating income of $410,000 for the year ended March 31, 1998. Other, net nonoperating expense for the year ended March 31, 1999 includes $486,000 of unamortized deferred loan and warrant costs associated with the senior secured notes that remained at the time we prepaid the debt. Income Tax Benefit: We recognized an income tax benefit of $5,480,000 primarily attributable to the probable realization of our remaining income tax loss carryforwards for which a valuation allowance had been previously recorded. As a result of our profitability for the year ended March 31, 1999 and projected taxable income for the year ending March 31, 2000, a valuation allowance was no longer considered necessary. 27 Expenses per ASM. Our expenses per ASM for the years ended March 31, 1999 and 1998 were 7.72(cent) and 8.30(cent), respectively, or a decrease of 7%. Expenses per ASM decreased from the prior comparable period as a result of economies of scale as fixed costs were spread across a larger base of operations, a decrease in fuel prices, and the increase in average ASMs per aircraft as we added aircraft with greater seating capacity compared to earlier fleet additions. Expenses per ASM excluding fuel for the year ended were 6.82(cent) and 7.13(cent), respectively, or a decrease of 4.3%. Expenses per ASM are influenced to a degree by the amount of aircraft utilization and by aircraft seating configuration. For example, with the 108 seat all coach seating configuration selected by us on five of our Boeing 737-200 aircraft, the expenses per ASM for us are higher by 11% when compared with the 120 seat alternative used by many carriers. Our average seats per aircraft for the year ended March 31, 1999 were 125 as compared to 124 seats per aircraft for the year ended March 31, 1998, with the increase in our Boeing 737-300 aircraft. Liquidity and Capital Resources Our balance sheet reflected cash and cash equivalents and short-term investments of $83,611,000 and $47,289,000 at March 31, 2000 and 1999, respectively. At March 31, 2000, total current assets were $140,361,000 as compared to $98,475,000 of total current liabilities, resulting in working capital of $41,886,000. At March 31, 1999, total current assets were $94,209,000 as compared to $68,721,000 of total current liabilities, resulting in working capital of $25,488,000. The increase in our working capital is largely a result of cash flows provided by operating activities and proceeds from exercises of common stock options and warrants during the year ended March 31, 2000. Cash provided by operating activities for the year ended March 31, 2000 was $54,707,000. This was primarily attributable to our net income for the period adjusted for non-cash charges, the utilization of deferred tax assets, increases in air traffic liability, other accrued expenses and accrued maintenance expenses, offset by increases in trade receivables, security, maintenance and other deposits, prepaid expenses and inventories. Cash provided by operating activities for the year ended March 31, 1999 was $35,956,000. This was primarily attributable to our net income for the period adjusted for non-cash charges, increases in accounts payable, air traffic liability, other accrued expenses and accrued maintenance expense, offset by increases in restricted investments, trade receivables, security, maintenance and other deposits, prepaid expenses and inventories. Cash used by investing activities for year ended March 31, 2000 was $39,370,000. We invested $15,760,000 in short-term investments, net of maturities, comprised of government-backed agencies and commercial paper with maturities of one year or less. During the year ended March 31, 2000, cash security deposits for aircraft totaling $2,491,000 were returned to us or replaced with letters of credit. During the year ended March 31, 2000, we made cash security deposits totaling $200,000 in connection with an Airbus aircraft lease and $6,400,000 in down payments associated with a purchase agreement to purchase Airbus aircraft. We had issued to certain of our aircraft lessors warrants to purchase 395,000 shares of our Common Stock at an aggregate purchase price of $2,391,600. During May 1999 and June 1999, aircraft lessors exercised all of these warrants and we received $2,391,600. To the extent that the aircraft lessors were able to realize certain profit margins on their subsequent sale of our Common Stock, they were required to refund a portion of the cash security deposits they were holding. As a result of their sales of our Common Stock, $1,206,000 in cash security deposits were returned to us during the year ended March 31, 2000. Other cash security deposits were replaced with letters of credit and these deposits were returned to us. We also received $625,000 in cash security deposits for aircraft returned to the lessor during the year ended March 31, 2000. Additionally, we secured 10 aircraft delivered during the year ended March 31, 2000 with letters of credit totaling $3,640,000 and restricted investments increased by this amount to collateralize the letters of credit. We used $16,361,000 for capital expenditures for rotable aircraft components including a spare CFM engine, maintenance equipment and tools, aircraft leasehold improvements, and computer equipment during the year ended March 31, 2000. Cash used by investing activities for the year ended March 31, 1999 was $6,801,000. We used $4,313,000 for capital expenditures for ground handling equipment, rotable aircraft components, maintenance equipment and aircraft leasehold costs and improvements. We used cash of $944,000 for initial lease acquisition security deposits for one aircraft delivered during the year ended March 31, 1999 and for three fiscal year 2000 deliveries. Additionally, we secured two aircraft delivered in December 1998 with letters of credit and for one aircraft delivered in April 1999 totaling $1,544,000. Our restricted investments increased $1,544,000 to collateralize the letters of credit. 28 Cash provided by financing activities for the years ended March 31, 2000 and 1999 was $5,224,000 and $14,493,000, respectively. During the year ended March 31, 2000, we received $5,324,000 from the exercise of common stock options and warrants. During the year ended March 31, 1999, we sold 4,363,001 shares of our common stock through a private placement to an institutional investor. Gross proceeds to us from the transaction were approximately $14,180,000, of which we received net proceeds of approximately $13,650,000. We issued a warrant to this investor to purchase 716,929 shares of our Common Stock at a purchase price of $3.75 per share. This warrant expires in April 2002. Additionally, during the year ended March 31, 1999, we received $1,900,000 from the exercise of common stock options and warrants. As of June 15, 2000 we lease 24 Boeing 737 type aircraft under operating leases with expiration dates ranging from 2001 to 2006. Under these leases, we were required to make cash security deposits or issue letters of credit to secure the lease obligations. At March 31, 2000, we had made cash security deposits and had arranged for issuance of letters of credit totaling $3,258,000 and $7,284,000, respectively. Accordingly, our restricted cash balance includes $7,284,000 that collateralize the outstanding letters of credit. Additionally, we make deposits for maintenance of these aircraft. At March 31, 2000 and 1999, we had made maintenance deposits of $26,912,000 and $18,673,000, respectively. In March 2000, we entered into an agreement to purchase 11 new Airbus aircraft, with options to purchase an additional nine new Airbus aircraft. To the extent we exercise our options to purchase the nine aircraft, they are replaced on a one-for-one basis with additional options to purchase new Airbus aircraft, up to a total of nine additional option aircraft. This order contemplates a fleet replacement plan by which we will phase out our Boeing 737 aircraft and replace them with a combination of Airbus A319 and A318 aircraft. The aggregate additional amounts due under this purchase commitment and estimated amounts for buyer-furnished equipment and spare parts for both the purchased and leased aircraft was approximately $347,000,000 at March 31,2000. Under the terms of the purchase agreement, we are required to make scheduled pre-delivery payments. These payments are non-refundable with certain exceptions. As of March 31, 2000, the Company has made pre-delivery payments totaling $6,400,000 to secure these aircraft and option aircraft. As a complement to this purchase, in April and May 2000 we signed two aircraft lease agreements to lease 16 new Airbus aircraft. As of March 31, 2000, we have made deposits totaling $200,000 to secure these aircraft. Upon completion of our fleet transition, we expect our owned and leased fleet to be comprised of approximately two-thirds A319 aircraft and one-third A318 aircraft. We expect to take delivery of our first leased Airbus aircraft during the middle part of calendar 2001 and plan to complete our fleet transition by the end of 2004. The A319 and A318 aircraft will be configured with 132 and 114 passenger seats, respectively, with a 32-inch seat pitch. We believe that operating new Airbus aircraft will result in significant operating cost savings and an improved product for our customers. In order to complete the purchase of these aircraft we must secure acceptable aircraft financing. The amount of financing required will depend on the number of aircraft purchase options we exercise and the amount of cash generated by operations prior to delivery of the aircraft. We continue to explore various financing alternatives, including but not limited to, domestic and foreign bank financing, public debt financing such as enhanced equipment trust certificates, and leveraged lease arrangements. We expect to develop a financing plan and implement that plan coincident with the delivery of the first purchased aircraft in 2002. While we believe that such financing will be available to us, there can be no assurance that financing will be available when required, or on acceptable terms. The inability to secure such financing could have a material adverse effect on us and result in delays in or our inability to take delivery of Airbus aircraft we have agreed to purchase. We are exploring various means to increase revenues and reduce expenses. We have performed ad hoc charters and will consider them in the future depending on the availability of our fleet. We are considering revenue enhancement initiatives with new marketing alliances. We began our own ground handling operations at DIA effective September 1, 1998, a function which had been provided by an independent contractor. Ground handling equipment required by us to perform these operations necessitated capital expenditures of approximately $800,000. Effective March 1, 1999, we began to conduct certain aircraft heavy maintenance checks in-house which we believe has reduced our maintenance expenses. Effective November 5, 1999 we reduced travel agency commissions from 8% to 5% in response to our competitors. Effective in August 2000, our new reservations center located in Las Cruces, New Mexico will open. We believe the cost of operating this facility will be lower than that charged by the contract provider we currently use for these services. We are in the process of adding additional procedures when making reservations to reduce credit card fraud. In November 1998, our pilots voted to be represented by an independent union, the Frontier Airline Pilots Association. In September 1999, our dispatchers elected to be represented by the Transport Workers Union. The first bargaining agreement for the pilots, which has a 5-year term, was ratified and made effective in May 2000. Negotiations are underway with the Transport Workers Union for a contract with the dispatchers. In addition since 1997 we have had union organizing attempts that were defeated by our employees: our flight attendants, ramp service agents, mechanics, and stock clerks. 29 We believe that our existing cash balances coupled with improved operating results are and will be adequate to fund our operations for the foreseeable future. However, as discussed above, we will require financing in order to fund our intended purchase of Airbus A319 and A318 aircraft. Item 7A: Quantitative and Qualitative Disclosures About Market Risk The risk inherent in our market risk sensitive position is the potential loss arising from an adverse change in the price of fuel as described below. The sensitivity analysis presented does not consider either the effect that such an adverse change may have an overall economic activity or additional action management may take to mitigate our exposure to such a change. Actual results may differ from the amounts disclosed. At the present time, we do not utilize fuel price hedging instruments to reduce our exposure to fluctuations in fuel prices. Our earnings are affected by changes in the price and availability of aircraft fuel. Market risk is estimated as a hypothetical 10 percent increase in the average cost per gallon of fuel for the fiscal year ended March 31, 2000. Based on fiscal year 200 actual fuel usage, such an increase would have resulted in an increase to aircraft fuel expense of approximately $4,442,000 in fiscal year 2000. Comparatively, based on projected fiscal year 2001 fuel usage, such an increase would result in an increase to aircraft fuel expense of approximately $5,343,000 in fiscal year 2001. The increase in exposure to fuel price fluctuations in fiscal year 2001 is due to the increase of our average aircraft fleet size during the year ended March 31, 2000, projected increases to our fleet during the year ended March 31, 2001 and related gallons purchased. Our average cost per gallon of fuel for the period ended March 31, 2000 increased 44.4% over the average cost for the year ended March 31, 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Operating Expenses". Item 8: Financial Statements Our financial statements are filed as a part of this report immediately following the signature page. PART III Item 10: Directors and Executive Officers of the Registrant. The information required by this Item is incorporated herein by reference to the data under the heading "Election of Directors" in the Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of shareholders to be held on September 7, 2000. We will file the definitive Proxy Statement with the Commission on or before July 31, 2000. Item 11. Executive Compensation. The information required by this Item is incorporated herein by reference to the data under the heading "Executive Compensation" in the Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of shareholders to be held on September 7, 2000. We will file the definitive Proxy Statement with the Commission on or before July 31, 2000. 30 Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this Item is incorporated herein by reference to the data under the heading "Voting Securities and Principal Holders Thereof" in the Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of shareholders to be held on September 7, 2000. We will file the definitive Proxy Statement with the Commission on or before July 31, 2000. Item 13. Certain Relationships and Related Transactions. The information required by this Item is incorporated herein by reference to the data under the heading "Related Transactions" in the Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of shareholders to be held on September 7, 2000. We will file the definitive Proxy Statement with the Commission on or before July 31, 2000. PART IV Item 14(a): Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Exhibit Numbers Description of Exhibits 3.1 Amended and Restated Articles of Incorporation of the Company.(12) 3.2 Amended Bylaws of the Company (June 9, 1997). (5) 4.1 Specimen Common Stock certificate of the Company. (1) 4.2 The Amended and Restated Articles of Incorporation and Amended By laws of the Company are included as Exhibits 3.1 and 3.2. 4.3 Form of Warrant. (1) 4.3 Rights Agreement, dated as of February 20, 1997, between Frontier Airlines, Inc. and American Securities Transfer & Trust, Inc, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively, incorporated by reference to Frontier Airlines, Inc. Registration Statement on Form 8-A dated March 11, 1997. (6) 4.4(a) Amendment to Rights Agreement dated June 30, 1997. (5) 4.4(b) Amendment to Rights Agreement dated December 5, 1997. (13) 4.4(c) Third Amendment to Rights Agreement dated September 9, 1999. (15) 10.1 Office Lease. (1) 10.2 Office Lease Supplements and Amendments. (5) 10.2(a) Addendum to Office Lease (10) 10.2(b) Office Lease Supplements and Amendments (13) 10.2(c) Lease Amendment dated as of January 12, 2000 between Highline Group, LLC,landlord, and Frontier Airlines, Inc., tenant. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 31 10.2(d) Lease Amendment dated as of April 1, 2000 between Highline Group, LLC, landlord, and Frontier Airlines, Inc., tenant. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.3 1994 Stock Option Plan. (1) 10.4 Amendment No. 1 to 1994 Stock Option Plan. (2) 10.4(a) Amendment No. 2 to 1994 Stock Option Plan (5) 10.5 Registration Rights Agreement. (1) 10.6 Sales Agreement. (1) 10.7 Airport Use and Facilities Agreement, Denver International Airport. (2) 10.8 Aircraft Lease Agreement dated as of July 26, 1994. (2) 10.8(a) Assignment and Assumption Agreements dated as of March 28,1997 and March 20, 1997 between USAirways, Inc. and First Security Bank, National Association ("Trustee") and Frontier Airlines, Inc. (5) 10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated as of July 26,1994 between Frontier Airlines, Inc. and First Security Bank, National Association. (5) 10.9 Code Sharing Agreement. (5) 10.10 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177). (3) 10.10(a) Aircraft Lease Extension and Amendment Agreement dated as of October 1, 1999. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (15) 10.11 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257). (3) 10.11(a) Aircraft Lease Extension and Amendment Agreement dated as of October 1, 1999. (15) 10.12 Aircraft Lease Agreement dated as of May 1, 1996. (3) 10.13 Aircraft Lease Agreement dated as of June 3, 1996. (3) 10.13(a) Amendment No.1 to Aircraft Lease Agreement dated as of June 3, 1996.(10) 10.14 Aircraft Lease Agreement dated as of June 12, 1996. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (3) 10.15 Operating Lease Agreement dated November 1, 1996 between the Company and First Security Bank, National Association. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.16 Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 32 10.16(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated May 20, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.17 Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.17(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) dated May 20, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.18 Aircraft Lease Agreement (MSN 28563) dated as of March 25, 1997 between the Company and General Electric Capital Corporation. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.19 Space and Use Agreement with Continental Airlines, as amended. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.19(a) Space and Use Agreement with Continental Airlines. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.20 Letter of Understanding with Continental Airlines dated August 16 1996. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.21 Service Agreement between Frontier Airlines, Inc and Greenwich Air Services, Inc. dated May 19, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.22 Agreement between Frontier Airlines, Inc. and Dallas Aerospace, Inc. dated April 17, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.23 General Services Agreement between Frontier Airlines, Inc. and Tramco, Inc. dated as of August 6, 1996. (5) 10.24 General Terms Engine Lease Agreement between Frontier Airlines, Inc. and Terandon Leasing Corporation dated as of August 15, 1996, as assigned to U.S. Bancorp Leasing and Financial on February 19, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.25 Lease Agreement between Frontier Airlines, Inc. and Aircraft Instrument and Radio Company, Inc, dated December 11, 1995. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.26 Agreement and Plan of Merger between Western Pacific Airlines, Inc. and Frontier Airlines, Inc. dated June 30, 1997. (5) 33 10.26(a) Agreement dated as of September 29, 1997 between Western Pacifi Airlines, Inc. and Frontier Airlines, Inc. (7) 10.27 Security Agreement with Wexford Management LLC dated December 2, 1997. (8) 10.28 Amended and Restated Warrant Agreement with Wexford Management LLC dated as of February 27, 1998. (12) 10.29 Amended and Restated R egistration Rights Agreement with Wexford Management LLC dated as of February 27, 1998. (12) 10.30 Securities Purchase Agreement with B III Capital Partners, L.P. dated as of April 24, 1998. (9) 10.31 Registration Rights Agreement with B III Capital Partners, L.P. dated as of April 24, 1998. (12) 10.32 Warrant Agreement with The Seabury Group, LLC dated as of May 26, 1998. (12) 10.33 Registration Rights Agreement with The Seabury Group, LLC dated as of May 26, 1998. (12) 10.34 Aircraft Lease Agreement (MSN 21613) dated as of August 10, 1998 between the Company and nterlease Aviation Investors, L.L.C. (10) 10.35 Aircraft Lease Agreement (MSN 28738) dated as of November 23, 1998 among first Security Bank, National Association, Lessor, Heller Financial Leasing, Inc., Owner participant, and the Company, Lessee. (11). 10.36 Aircraft Sublease Agreement (MSN 28734) dated as of December 14, 1998 between Indigo Pacific AB, Sublessor, and the Company, Sublessee. (11) 10.37 Aircraft Lease Agreement (MSN 23004) dated as of February 26, 1999 between First Security Bank, N.A., Lessor, and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (13) 10.38 Aircraft Lease Agreement (MSN 23007) dated as of February 26, 1999 between First Security Bank, N.A. Lessor and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (13) 10.39 Aircraft Lease Agreement (MSN 26440) dated as of March 15, 1999 between Indigo Aviation AB (publ), Lessor, and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (13) 10.40 Aircraft Lease Agreement (MSN 24569) dated as of April 16, 1999 between C.I.T. Leasing Corporation, Lessor, and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (13) 10.41 Aircraft Lease Agreement (MSN 24856) dated as of June 2, 1999 between Indigo Aviation AB (publ), Lessor and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (13) 10.42 Severance Agreement dated March 10, 1999 between the Company and Samuel D. Addoms. (13) 10.43 Space and Use Agreement between Continental Airlines, Inc. and the Company. (13) 34 10.44 Aircraft Sublease Agreement (MSN 23039) dated as of July 21, 1999 between Kommanditbolaget Flygplant XIV, Sublessor, and Frontier Airlines, Inc., Sublessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (14) 10.45 Aircraft Sublease Agreement (MSN 23040) dated as of July 21, 1999 between Kommanditbolaget Flygplant XIV, Sublessor, and Frontier Airlines, Inc., Sublessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (14) 10.46 Aircraft Sublease Agreement (MSN 26442) dated as of October 11, 1999 between Indigo Aviation AB (publ), Lessor, and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (15) 10.47 Aircraft Lease Agreement (MSN 25256) dated as of January 7, 2000 between Aviation Financial Services, Inc. Lessor, and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.48 Aircraft Lease Agreement (MSN 25159) dated as of January 7, 2000 between Aviation Financial Services, Inc. Lessor, and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.49 Aircraft Lease Agreement (MSN 25264) dated as of January 7, 2000 between Aviation Financial Services, Inc. Lessor, and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.50 Aircraft Lease Agreement (MSN 25263) dated as of January 7, 2000 between Aviation Financial Services, Inc. Lessor, and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.51 Airbus A318/A319 Purchase Agreement dated as of March 10, 2000 between AVSA, S.A.R.L., Seller, and Frontier Airlines, Inc., Buyer. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.52 Aircraft Lease Common Terms Agreement dated as of April 20, 2000 between General Electric Capital Corporation and Frontier Airlines, Inc. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.53 Aircraft Lease Agreement dated as of April 20, 2000 between Aviation Financial Services, Inc., Lessor, and Frontier Airlines, Inc., Lessee, in respect of Fifteen Airbus A319 Aircraft. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.54 Aircraft Lease Agreement dated as of May 25, 2000 between Frontier Airlines, Inc., Lessee, and International Lease Finance Corporation, Lessor, in respect to one Airbus A318 aircraft. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of theexcluded material has been made. (16) 35 10.55 Lease dated as of May 5, 2000 for Frontier Center One, LLC, as landlord, and Frontier Airlines, Inc., as tenant. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.56 Operating Agreement of Frontier Center One, LLC, dated as of May 10, 2000 between Shea Frontier Center, LLC, and 7001 Tower, LLC, and Frontier Airlines, Inc. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.57 Standard Industrial Lease dated April 27, 2000, between Mesilla Valley Business Park, LLC, landlord, and Frontier Airlines, Inc., tenant. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 10.58 Aircraft Lease Agreement dated as of May 25, 2000 between Frontier Airlines,Inc.,Lessee, and International Lease Finance Corporation, Lessor, in respect to one Boeing 737-300 aircraft. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (16) 18.1 Letter re: change in accounting principle. (16) 23.1 Consent of KPMG LLP (16) 27.1 Financial Data Schedule (16) (1) Incorporated by reference from the Company's Registration Statement on Form SB-2, Commission File No. 33-77790-D, declared effective May 20, 1994. (2) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-4877, filed on June 29, 1995. (3) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-4877, filed on June 24, 1996. (4) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB, Commission File No. 0-4877, filed on February 13, 1997. (5) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-24126, filed July 14, 1997. (6) Incorporated by reference from the Company's Report on Form 8-K filed on March 12, 1997. (7) Incorporated by reference from the Company's Report on Form 8-K filed on October 1, 1997. (8) Incorporated by reference from the Company's Report on Form 8-K filed on December 12, 1997. (9) Incorporated by reference from the Company's Report on Form 8-K filed on May 4, 1998. (10) Incorporated by reference from the Company's Report on Form 10-Q, Commission File No. 0-24126, filed on November 13, 1998. (11) Incorporated by reference from the Company's Report on Form 10-Q, Commission File No. 0-24126, filed on February 12, 1999. (12) Incorporated by reference from the Company's Report on Form 10-K/A, Commission file No. 0-24126, filed July 9, 1998. (13) Incorporated by reference from the Company's Report on Form 10-KSB, Commission File No. 0-24126, filed [DATE]. (14) Incorporated by reference from the Company's Report on Form 10-Q, Commission File No. 0-24126, filed on August 10, 1999. (15) Incorporated by reference from the Company's Report on Form 10-Q, Commission File No. 0-24126, filed on November 10, 1999. (16) Filed Herewith. 36 Item 14(b): Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 2000. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRONTIER AIRLINES, INC. Date: June 26, 2000 By: /s/ Steve B. Warnecke -------------------------------------- Steve B. Warnecke, Vice President and Chief Financial Officer Date: June 26, 2000 By: /s/ Elissa A. Potucek -------------------------------------- Elissa A. Potucek, Vice President, Controller, Treasurer and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: June 26, 2000 /s/ Samuel D. Addoms, Director -------------------------------------- Samuel D. Addoms, Director Date: June 26, 2000 /s/ William B. McNamara, Director -------------------------------------- William B. McNamara, Director Date: June 26, 2000 -------------------------------------- Paul Stephen Dempsey, Director Date: June 26, 2000 /s/ B. LaRae Orullian, Director -------------------------------------- B. LaRae Orullian, Director Date: June 26, 2000 /s/ D. Dale Browning, Director -------------------------------------- D. Dale Browning, Director Date: June 26, 2000 /s/ James B. Upchurch, Director -------------------------------------- James B. Upchurch, Director Independent Auditors' Report The Board of Directors and Stockholders Frontier Airlines, Inc.: We have audited the accompanying balance sheets of Frontier Airlines, Inc. as of March 31, 2000 and 1999, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frontier Airlines, Inc., as of March 31, 2000 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2000, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, the Company changed its method of accounting for maintenance checks in 2000. KPMG LLP Denver, Colorado May 31, 2000 F-1 FRONTIER AIRLINES, INC. Balance Sheets March 31, 2000 and 1999 March 31, March 31, 2000 1999 ---------------- ---------------- Assets Current assets: Cash and cash equivalents 67,850,933 47,289,072 Short-term investments 15,760,000 - Restricted investments 4,000,000 4,000,000 Trade receivables, net of allowance for doubtful accounts of $170,819 and $199,960 at March 31, 2000 and 1999 22,190,835 16,930,038 Maintenance deposits (note 5) 19,637,128 13,018,466 Prepaid expenses (note 2) 7,386,851 5,439,834 Inventories 2,235,183 1,203,916 Deferred tax assets (note 7) 1,136,194 6,041,576 Deferred lease and other expenses 163,527 285,636 ---------------- ---------------- Total current assets 140,360,651 94,208,538 Security, maintenance and other deposits (note 5) 17,613,122 11,834,457 Property and equipment, net (note 3) 21,654,262 8,733,778 Deferred lease and other expenses 104,243 267,762 Restricted investments 7,813,760 4,575,760 ---------------- ---------------- $ 187,546,038 $ 119,620,295 ================ ================ Liabilities and Stockholders' Equity Current liabilities: Accounts payable 14,407,913 14,011,238 Air traffic liability 44,518,837 28,887,692 Other accrued expenses (note 4) 17,542,019 10,781,509 Accrued maintenance expense (note 5) 21,893,316 14,933,568 Current portion of obligations under capital leases (note 5) 113,029 106,833 ---------------- ---------------- Total current liabilities 98,475,114 68,720,840 Accrued maintenance expense (note 5) 7,214,167 6,042,958 Deferred tax liability (note 7) 483,514 30,928 Obligations under capital leases, excluding current portion 328,702 434,920 (note 5) ---------------- ---------------- Total liabilities 106,501,497 75,229,646 ---------------- ---------------- Stockholders' equity Preferred stock, no par value, authorized 1,000,000 shares; none issued and outstanding - - Common stock, no par value, stated value of $.001 per share, authorized 40,000,000 shares; 17,732,273 and 16,141,172 shares issued and outstanding at March 31, 2000 and 17,732 16,141 1999 Additional paid-in capital 67,946,230 58,054,844 Unearned ESOP shares (note 10) (857,713) (609,375) Retained earnings (accumulated deficit) 13,938,292 (13,070,961) ---------------- ---------------- 81,044,541 44,390,649 ---------------- ---------------- Commitments and contingencies (notes 5, 12 and 13) $ 187,546,038 $ 119,620,295 ================ ================ See accompanying notes to financial statements.
F-2 FRONTIER AIRLINES, INC. Statements of Operations Years Ended March 31, 2000, 1999 and 1998 2000 1999 1998 Revenues: Passenger $ 320,850,271 $ 214,311,312 $ 142,018,392 Cargo 6,855,882 4,881,066 3,008,919 Other 2,113,802 1,415,332 2,115,326 ---------------- ---------------- ---------------- Total revenues 329,819,955 220,607,710 147,142,637 ---------------- ---------------- ---------------- Operating expenses: Flight operations 125,536,174 79,247,347 66,288,125 Aircraft and traffic servicing 48,954,728 34,450,562 31,042,855 Maintenance 50,238,538 36,090,052 31,790,600 Promotion and sales 46,013,812 35,216,787 28,971,107 General and administrative 16,327,410 9,263,538 6,352,977 Depreciation and amortization 3,440,069 1,659,429 1,251,364 ---------------- ---------------- ---------------- Total operating expenses 290,510,731 195,927,715 165,697,028 ---------------- ---------------- ---------------- Operating income (loss) 39,309,224 24,679,995 (18,554,391) ---------------- ---------------- ---------------- Nonoperating income (expense): Interest income 4,334,688 1,556,047 722,380 Interest expense (119,496) (700,635) (324,167) Other, net (109,798) (448,917) 409,808 ---------------- ---------------- ---------------- Total nonoperating income, net 4,105,394 406,495 808,021 ---------------- ---------------- ---------------- Income (loss) before ncome tax expense (benefit) and cumulative effect of change in method of accounting for maintenance checks 43,414,618 25,086,490 (17,746,370) Income tax expense (benefit) 16,954,374 (5,479,570) - ---------------- ---------------- ---------------- Income (loss) before cumulative effect of change in accounting principle 26,460,244 30,566,060 (17,746,370) Cumulative effect of change in method of accounting for maintenance checks 549,009 - - ---------------- ---------------- ---------------- Net income (loss) 27,009,253 30,566,060 (17,746,370) ================ ================ ================ (continued) F-3 FRONTIER AIRLINES, INC. Statements of Operations, continued Years Ended March 31, 2000, 1999 and 1998 2000 1999 1998 ------ ------ ------ Earnings (loss) per share: Basic: Income (loss) before cumulative effect of a change in accounting principle $1.53 $2.14 ($1.95) Cumulative effect of change in method of accounting for maintenance checks 0.03 - - ---------------- ---------------- ---------------- Net income (loss) $1.56 $2.14 ($1.95) ================ ================ ================ Diluted: Income (loss) before cumulative effect of a change in accounting principle $1.40 $1.98 ($1.95) Cumulative effect of change in method of accounting for maintenance checks 0.03 - - ---------------- ---------------- ---------------- Net income (loss) $1.43 $1.98 ($1.95) ================ ================ ================ Pro forma amounts assuming the new method of accounting for maintenance checks is applied retroactively: Net income (loss) $ 29,510,374 $(16,647,306) Earnings (loss) per share: Basic $2.07 ($1.83) ================ ================ Diluted $1.92 ($1.83) ================ ================ Weighted average shares of common stock outstanding Basic 17,329,400 14,257,661 9,095,220 ================ ================ ================ Diluted 18,856,688 15,401,435 9,095,220 ================ ================ ================ See accompanying notes to financial statements.
F-4 FRONTIER AIRLINES, INC. Statements of Stockholders' Equity Years Ended March 31, 2000, 1999 and 1998 Common Stock Retained ----------------------------- Additional Unearned earnings Total Stated paid-in ESOP (accumulated stockholders' Shares value capital shares deficit) equity -------------- ------------ ------------- ------------ -------------- ------------- Balances, March 31, 1997 8,844,375 $ 8,844 $ 35,764,710 - $ (25,890,651) $ 9,882,903 Exercise of common stock options 409,188 409 434,948 - - 435,357 Warrants issued in conjunction with debt - - 1,754,926 - - 1,754,926 Net loss - - - - (17,746,370) (17,746,370) -------------- ------------ ------------- ------------ -------------- ------------- Balances, March 31, 1998 9,253,563 9,253 37,954,584 - (43,637,021) (5,673,184) Sale of common stock, net of offering costs of $525,059 4,363,001 4,363 13,650,331 - - 13,654,694 Contribution of common stock to employees stock ownership plan 275,000 275 1,457,975 (1,458,250) - - Amortization of employee stock compensation - - - 848,875 - 848,875 Exercise of common stock warrants 1,796,400 1,797 4,360,022 - - 4,361,819 Exercise of common stock options 453,208 453 631,932 - - 632,385 Net income - - - - 30,566,060 30,566,060 -------------- ------------ ------------- ------------ -------------- ------------- Balances, March 31, 1999 16,141,172 16,141 58,054,844 (609,375) (13,070,961) 44,390,649 Exercise of common stock warrants 1,147,726 1,148 4,758,969 - - 4,760,117 Exercise of common stock options 343,375 343 563,712 - - 564,055 Tax benefit from exercises of common stock options and warrants - - 3,425,055 - - 3,425,055 Contribution of common stock to employees stock ownership plan 100,000 100 1,143,650 (1,143,750) - - Amortization of employee stock compensation - - - 895,412 - 895,412 Net income - - - - 27,009,253 27,009,253 -------------- ------------ ------------- ------------ -------------- ------------- Balances, March 31, 2000 17,732,273 $ 17,732 $67,946,230 (857,713) $13,938,292 81,044,541 ============== ============ ============= ============ ============== ============= See accompanying notes to financial statements.
F-5 FRONTIER AIRLINES, INC. Statements of Cash Flows Years ended March 31, 2000, 1999, and 1998 - ------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 Cash flows from operating activities: ------ ------ ------ Net income (loss) $ 27,009,253 $ 30,566,060 $ (17,746,370) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Employee stock ownership plan compensation expense 895,412 848,875 - Depreciation and amortization 3,725,697 2,705,255 1,749,097 Loss on sale of equipment - 3,867 10,334 Deferred tax expense (benefit) 5,459,468 (6,010,648) - Changes in operating assets and liabilities: Restricted investments 402,000 (425,301) (2,372,326) Trade receivables 5,260,797) (5,268,715) (4,209,981) Security, maintenance and other deposits (8,288,288) (6,968,057) (3,583,327) Prepaid expenses (1,947,017) (1,596,140) (393,823) Inventories (1,031,267) (39,606) (167,208) Note receivable - - 11,740 Accounts payable 396,675 346,488 5,619,217 Air traffic liability 15,631,145 9,977,251 5,851,809 Other accrued expenses 10,084,065 5,758,840 1,839,597 Accrued maintenance expense 8,130,957 6,057,944 5,233,104 ---------------- ---------------- ---------------- Net cash provided (used) by operating activities 55,207,303 35,956,113 (8,158,137) ---------------- ---------------- ---------------- Cash flows from investing activities: Increase in short-term investments, net (15,760,000) - - Aircraft lease and purchase deposits, net (4,109,039) (944,000) 207,500 Increase in restricted investments (3,640,000) (1,544,000) (1,500,000) Capital expenditures (16,360,553) (4,313,065) (2,355,266) ---------------- ---------------- ---------------- Net cash used in investing activities (39,869,592) (6,801,065) (3,647,766) ---------------- ---------------- ---------------- Cash flows from financing activities: Net proceeds from issuance of common stock and warrants 5,324,172 15,549,810 435,357 Proceeds from issuance of senior secured notes - - 5,000,000 Principal payments on senior secured notes - (941,841) - Cash payments for debt issuance costs - - (227,500) Proceeds from short-term borrowings - 179,664 202,810 Principal payments on short-term borrowings - (179,664) (212,622) Principal payments on obligations under capital leases (100,022) (115,340) (37,200) ---------------- ---------------- ---------------- Net cash provided by financing activities 5,224,150 14,492,629 5,160,845 ---------------- ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 20,561,861 43,647,677 (6,645,058) Cash and cash equivalents, beginning of year 47,289,072 3,641,395 10,286,453 ---------------- ---------------- ---------------- Cash and cash equivalents, end of year $ 67,850,933 $ 47,289,072 $ 3,641,395 ================ ================ ================ See accompanying notes to financial statements.
F-6 FRONTIER AIRLINES, INC. Notes to Financial Statements March 31, 2000 (1) Nature of Business and Summary of Significant Accounting Policies Nature of Business Frontier Airlines, Inc. (the "Company") was incorporated in the State of Colorado on February 8, 1994. Denver-based Frontier Airlines serves 20 cities coast to coast with a fleet of 23 Boeing 737 jets and employs approximately 2,000 aviation professionals. The Company commenced airline operations on July 5, 1994. Airline operations have high fixed costs and are highly sensitive to various factors including the actions of competing airlines and general economic factors. Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For financial statement purposes, the Company considers cash and short-term investments with an original maturity of three months or less to be cash equivalents. Short-term investments Short-term investments consist of government-backed agencies with maturities of one year or less. These investments are classified as held-to-maturity and are carried at amortized cost which approximates fair value. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the security until maturity. Interest income is recognized when earned. Supplemental Disclosure of Cash Flow Information Noncash Financing and Investment Activities: During the year ended March 31, 1998, the Company issued warrants to its lender in connection with its $5,000,000 senior secured notes with an estimated fair market value totaling $1,645,434, and issued warrants to its financial advisor in connection with debt and equity financing with an estimated fair market value totaling $109,492. Also during the years ended March 31, 1999 and 1998, the Company entered into capital lease F-7 FRONTIER AIRLINES, INC. Notes to Financial Statements, continued (1) Nature of Business and Summary of Significant Accounting Policies (continued) agreements totaling $504,900 and $97,000, respectively. During the year ended March 31, 1998, the Company exchanged a note receivable for certain property and equipment totaling $47,000. Interest and Taxes Paid During the Year: Cash paid for interest totaled $119,496, $302,503, and $184,999, for the years ended March 31, 2000, 1999 and 1998, respectively. During the year ending March 31, 2000, the Company paid approximately $3,005,000 for income taxes. No income taxes were paid during the years ended March 31, 1999 and 1998. Restricted Investments Restricted investments include certificates of deposit which secure certain letters of credit issued primarily to companies which process credit card sale transactions, certain airport authorities and aircraft lessors. Restricted investments are carried at cost, which management believes approximates market value. Maturities are for one year or less and the Company intends to hold restricted investments until maturity. Valulation and Qualifying Accounts The allowance for doubtful accounts was approximately $171,000 and $200,000 at March 31, 2000 and 1999, respectively. Provisions for bad debts net of recoveries totaled $873,000, $386,000, and $267,000 for the years ended March 31, 2000, 1999 and 1998. Deductions from the reserve totaled $902,000, $330,000, and $200,000 for the years ended March 31, 2000, 1999, and 1998, respectively. Inventories Inventories consist of expendable parts, supplies and aircraft fuel and are stated at the lower of cost or market. Inventories are accounted for on a first-in, first-out basis and are charged to expense as they are used. At March 31, 2000, the Company has an aircraft parts agreement for its Boeing 737 aircraft with an aircraft parts supplier. The Company is required to pay a monthly consignment fee to the lessor, based on the value of the consigned parts, and to replenish any such parts when used with a like part. At March 31, 2000 and 1999, the Company held consigned parts and supplies in the amount of approximately $5,788,000 and $8,902,000, respectively, which are not included in the Company's balance sheet. F-8 (1) Nature of Business and Summary of Significant Accounting Policies (continued) Property and Equipment Property and equipment are carried at cost. Major additions, betterments and renewals are capitalized. Depreciation and amortization is provided for on a straight-line basis to estimated residual values over estimated depreciable lives as follows: Flight equipment 5-10 years Improvements to leased aircraft Life of improvements or term of Ground property, equipment, and leasehold improvements 3-5 years or term of lease Assets utilized under capital leases are amortized over the lesser of the lease term or the estimated useful life of the asset using the straight-line method. Amortization of capital leases is included in depreciation expense. Maintenance Routine maintenance and repairs are charged to operations as incurred. Under the terms of its aircraft lease agreements, the Company is required to make monthly maintenance deposits and a liability for accrued maintenance is established based on usage. The deposits are applied against the cost of major airframe maintenance checks, landing gear and engine overhauls. Deposit balances remaining at lease termination remain with the lessor and any remaining liability for maintenance checks is reversed against the deposit balance. Additionally, a provision is made for the estimated costs of scheduled major overhauls required to be performed on leased aircraft and components under the provisions of the aircraft lease agreements if the required monthly deposit amounts are not adequate to cover the entire cost of the scheduled maintenance. Accrued maintenance expense expected to be incurred beyond one year is classified as long-term. Effective April 1, 1999, the Company changed its method of accounting for required periodic maintenance checks from the accrue-in-advance method to the direct expensing method. The Company believes that the newly adopted accounting principle is preferable in the circumstances because there has not been an obligating event prior to the maintenance checks actually being performed, and the new method is the predominant method used in the airline industry. Fluctuations in these maintenance costs from period to period are not expected to be significant given the maturity and current size of the Company's fleet. Previously, the Company accrued-in-advance for maintenance checks and major overhauls, including the costs for scheduled major airframe, landing gear, and engine overhauls. The Company continues to utilize the accrue-in-advance method for F-9 (1) Nature of Business and Summary of Significant Accounting Policies (continued) scheduled major airframe, landing gear and engine overhauls because the Company's aircraft lease agreements require the Company to make non-refundable monthly deposits with the lessors for such costs. The cumulative effect of the change, calculated as of April 1, 1999, was to increase net income by $549,009 or $.03 per diluted share. The effect of the change was to decrease net income for the year ended March 31, 2000 by $247,713 or $.01 per diluted share. Had the new method of accounting been used, net income (loss) for the years ended March 31, 1999 and 1998 would have been $29,510,374 and $(16,647,306) or $1.92 and ($1.83) per diluted share, respectively. Revenue Recognition Passenger, cargo, and other revenues are recognized when the transportation is provided or after the tickets expire, and are net of excise taxes. Revenues which have been deferred are included in the accompanying balance sheet as air traffic liability. Passenger Traffic Commissions and Related Expenses Passenger traffic commissions and related expenses are expensed when the transportation is provided and the related revenue is recognized. Passenger traffic commissions and related expenses not yet recognized are included as a prepaid expense. Frequent Flyer Awards The Company allows its passengers to accumulate mileage on Continental Airlines' OnePass frequent flyer program. The cost of providing mileage on the OnePass program is based on an agreed upon rate per mileage credit, which is paid to Continental Airlines on a monthly basis. Income (Loss) Per Common Share Basic EPS excludes the effect of potentially dilutive securities and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in earnings. Common options and warrants were excluded from the computation of diluted loss per share in 1998 as their effect would have been anti-dilutive. F-10 (1) Nature of Business and Summary of Significant Accounting Policies (continued) Income Taxes The Company accounts for income taxes using the asset and liability method. Under that method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax bases of existing assets and liabilities. A valuation allowance for net deferred tax assets is provided unless realizability is judged by management to be more likely than not. The effect on deferred taxes from a change in tax rates is recognized in income in the period that includes the enactment date. Fair Value of Financial Instruments The Company estimates the fair value of its monetary assets and liabilities based upon existing interest rates related to such assets and liabilities compared to current rates of interest for instruments with a similar nature and degree of risk. The Company estimates that the carrying value of all of its monetary assets and liabilities approximates fair value as of March 31, 2000. Stock Based Compensation The Company follows Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees ("APB 25") and related Interpretations in accounting for its employee stock options and follows the disclosure provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123). Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying Common Stock on the date of grant, no compensation expense is recognized. The Company has included the pro forma disclosures required by SFAS No. 123 in Note 9. Impairment of Long-Lived Assets The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets' carrying amount. Impact of Recently Issued Accounting Standards In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging a ctivities. SFAS No. 133 is effective for periods beginning after June 15, 2000. The adoption of SFAS No. 133 would have no effect on the Company's financial statements based on present activity. F-11 (1) Nature of Business and Summary of Significant Accounting Policies (continued) Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. (2) Prepaid Expenses and Other Assets The March 31, 2000 and 1999 prepaid expenses and other assets is comprised of the following: 2000 1999 ------ ------ Prepaid aircraft rentals $ 2,652,672 $1,509,917 Prepaid passenger traffic commissions 1,529,129 1,575,320 Prepaid fuel 929,940 337,062 Other prepaid expenses and other assets 2,275,110 2,017,535 ------------------------------- $ 7,386,851 $ 5,439,834 =============================== (3) Property and Equipment, Net As of March 31, 2000 and 1999 property and equipment consisted of the following: 2000 1999 ------ ------ Flight equipment and improvements to leased aircraft $ 20,891,239 $ 7,204,878 Ground property, equipment and leasehold improvements 6,571,776 6,186,490 --------------- -------------- 27,463,015 13,391,368 Less accumulated depreciation and amortization 5,808,753 4,657,590 --------------- -------------- Property and equipment, net $ 21,654,262 $ 8,733,778 =============== ============== Property and equipment includes certain office equipment under capital leases. At March 31, 2000 and 1999, office equipment recorded under capital leases was $602,149 and $785,847 and accumulated amortization was $163,428 and $154,942, respectively. F-12 (4) Other Accrued Expenses The March 31, 2000 and 1999 other accrued expenses is comprised of the following: 2000 1999 ------ ------ Income taxes payable $ 5,483,264 $ 524,591 Accrued salaries and benefits 5,505,449 4,802,772 Federal excise taxes payable 3,664,429 3,372,907 Other 2,888,877 2,081,239 ------------------------------------- $17,542,019 $10,781,509 ===================================== (5) Lease Commitments Aircraft Leases At March 31, 2000, the Company operated 23 aircraft which are accounted for under operating lease agreements with initial terms ranging from 16.5 months to 8 years. Certain leases allow for renewal options. Security deposits related to leased aircraft at March 31, 2000 and 1999 totaled $3,257,789 and $5,548,750 and are included in security, maintenance and other deposits on the balance sheet. Letters of credit issued to certain aircraft lessors in lieu of cash deposits and related restricted investments to secure these letters of credit at March 31, 2000 and 1999 totaled $7,284,000 and $3,644,000, respectively. In addition to scheduled future minimum lease payments, the Company is required to make monthly maintenance deposits and a liability for accrued maintenance is established based on usage. The lease agreements require the Company to pay taxes, maintenance, insurance, and other operating expenses applicable to the leased property. At March 31, 2000 and 1999, aircraft maintenance deposits totaled $26,911,635 and $18,672,825, respectively, and are reported as a component of security, maintenance and other deposits on the balance sheet. Any cash deposits paid to aircraft lessors for future scheduled maintenance costs to the extent not used during the lease term remain with the lessors, and any remaining liability for maintenance checks is reversed against the deposit balance. Maintenance deposits are unsecured and may be subject to the risk of loss in the event the lessors are not able to satisfy their obligations under the lease agreements. F-13 (5) Lease Commitments (continued) Other Leases The Company leases an office and hangar space, spare engines and office equipment for its headquarters, airport facilities, and certain equipment. The Company also leases certain airport gate facilities on a month-to-month basis. At March 31, 2000, commitments under capital and noncancelable operating leases (excluding maintenance deposit requirements) with terms in excess of one year were as follows: Capital Operating Leases Leases --------- ------------ Year ended March 31: 2001 $153,320 $ 66,657,710 2002 153,320 61,411,677 2003 153,320 56,172,369 2004 44,322 47,005,434 2005 - 28,323,323 Thereafter - 4,668,121 ------------- ------------------ Total minimum lease payments 504,282 $ 264,238,634 ================== Less amount representing interest 62,551 ------------- Present value of obligations under capital leases 441,731 Less current portion of obligations under capital leases 113,029 ------------- Obligations under capital leases, excluding current portion $ 328,702 ============= The obligations under capital leases have been discounted at imputed interest rates ranging from 10% to 13%. Rental expense under operating leases, including month-to-month leases, for the years ended March 31, 2000, 1999 and 1998 was $65,201,876, $46,099,140 and $36,573,509, respectively. F-14 (6) Senior Secured Notes In December 1997, the Company sold $5,000,000 of 10% senior secured notes to Wexford Management LLC ("Wexford"). The notes were due and payable in full on December 15, 2001 with interest payable quarterly in arrears. The notes were secured by substantially all of the assets of the Company. The Wexford agreement contained restrictions primarily related to liens on assets and required prior written consent for expenditures outside the ordinary course of business. In connection with this transaction, the Company issued Wexford warrants to purchase 1,750,000 shares of Common Stock at $3.00 per share. The Company determined the value of the warrants to be $1,645,434 and recorded the value as a discount on notes payable and as equity in additional paid-in capital. The balance of the notes were to be accreted to its face value over the term of the notes and included as interest expense. The effective interest rate on the notes was approximately 18.2% considering the value of the warrants During the year ended March 31, 1999, Wexford exercised all of the warrants described above. As permitted under the terms of the agreement, Wexford elected to tender debt for the warrant exercise price first by application of accrued unpaid interest and the remainder by reducing the principal balance of the notes. The total amount of $5,250,000 from the exercise was comprised of the following: payment of accrued interest totaling $134,971, then to the outstanding principal balance totaling $4,058,159, and the remaining balance in cash to the Company totaling $1,056,870. In January 1999, the Company paid the remaining balance of the note in full which totaled $941,841, thereby terminating all of Wexford's security interests in the Company's assets. The discount amortized to interest expense prior to the pay-off of the notes totaled $199,975 and $113,454 for the years ended March 31, 1999 and 1998, respectively. Upon the exercise of the warrants by Wexford, $1,094,042 of unamortized discount was charged to additional paid-in capital. The remaining unamortized discount and other deferred loan costs totaled $485,846 at the repayment date and were charged to other nonoperationg expense. F-15 (7) Income Taxes Income tax expense (benefit) for the years ended March 31, 2000 and 1999 consists of: Current Deferred Total --------- ---------- ------ Year ended March 31, 2000: U.S. Federal $9,785,064 $ 4,726,153 $ 14,511,217 State and local 1,811,343 631,814 2,443,157 ----------------- ------------------ ------------------ $11,596,407 $ 5,357,967 $ 16,954,374 ================= ================== ================== Year ended March 31, 1999: U.S. Federal $531,077 $ (5,244,134) $ (4,713,057) State and local - (766,513) (766,513) ----------------- ------------------ ------------------ $531,077 $ (6,010,647) $ (5,479,570) ================= ================== ==================
There was no income tax expense or benefit in 1998. The differences between the Company's effective rate for income taxes and the federal statutory rate are shown in the following table: 2000 1999 1998 ------ ------ ------ Income tax benefit (expense) at the statutory rate (35%) (35%) 34% (Increase) decrease in valuation allowance - 60% (34%) State and local income tax, net of federal income tax benefit (3%) (3%) - Nondeductible expenses (1%) - - ---------- ----------- ---------- (39%) 22% - ========== =========== ========== F-16 (7) Income Taxes, continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at March 31, 2000 and 1999 are presented below: 2000 1999 Deferred tax assets: ------ ------ Accrued vacation and health insurance liability not deductible for tax purposes $1,041,000 $ 654,000 Accrued maintenance not deductible for tax purposes - 212,000 Net operating loss carryforwards 4,548,000 AMT credit carryforward - 525,000 Start-up cost deferred for tax purposes - 55,000 Inventory reserves 134,000 - Other 136,000 103,000 ------------------- ------------------ Total gross deferred tax assets 1,311,000 6,097,000 Deferred tax liabilities: Equipment depreciation and amortization (556,000) (86,000) Book/tax difference on warrant treatment (102,000) - ------------------- ------------------ Total gross deferred tax liabilities (658,000) (86,000) ------------------- ------------------ Net deferred tax assets $ 653,000 $6,011,000 =================== ================== The net deferred tax assets are reflected in accompanying balance sheet as follows: 2000 1999 ------ ------ Current deferred tax assets $1,136,194 $6,041,576 Non-current deferred tax liabilities (483,514) (30,928) ------------------- ------------------ Net deferred tax assets $652,680 $6,010,648 =================== ==================
F-17 (7) Income Taxes, continued The Company recognized an income tax benefit of $5,479,570 in 1999 attributable to the probable realization of its remaining income tax loss carryforwards for which a valuation allowance had previously been recorded. As of March 31, 1999 the Company had net operating loss carryforwards of approximately $11,891,000 and alternative minimum tax credits of approximately $525,000 which were fully utilized to reduce federal regular income taxes during the year ended March 31, 2000. (8) Warrants and Stock Purchase Rights At completion of the Company's initial public offering in 1994, an underwriter acquired options to purchase up to 110,000 shares of Common Stock exercisable at a price equal to $5.525 per share. As of March 31, 2000, all 110,000 options have been exercised with net proceeds to the Company totaling $607,750. The underwriters in a secondary public offering by the Company in 1995 received a warrant to purchase 168,500 shares of Common Stock at $5.55 per share. The underwriters had an option to exercise the warrants as a cashless exercise, which has the effect of reducing the total number of warrants issued to them. As of March 31, 2000, 142,697 warrants were exercised with net proceeds to the Company totaling $209,069 and 36,571 warrants were retired pursuant to the cashless exercise option. The remaining warrants issued to the underwriters in the secondary public offerings expire on September 18, 2000. In October 1995, the Company issued to each of two Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares of Common Stock for an aggregate purchase price of $500,000. In June 1996, the Company issued two warrants to a Boeing 737-200 lessor, each warrant entitling the lessor to purchase 70,000 shares of Common Stock at an aggregate exercise price of $503,300 per warrant. In connection with a Boeing 737-300 aircraft delivered in August 1997, the Company issued to the lessor a warrant to purchase 55,000 shares of Common Stock at an aggregate purchase price of $385,000. During May and June 1999, aircraft lessors exercised all 395,000 warrants with net proceeds to the Company totaling $2,391,600. To the extent that the aircraft lessors were able to realize certain profit margins on their subsequent sale of the stock, they were required to refund a portion of the cash security deposits they were holding. As a result of their sale of the Company's Common Stock, $1,024,000 in cash security deposits were returned to the Company during the year ended March 31, 2000. In February 1998, in connection with the $5,000,000 senior notes as discussed in Note 6, the Company issued a warrant to the lender to purchase 1,750,000 shares of the Company's Common Stock at a purchase price of $3.00 per share. During the year ended March 31, 1999, this warrant was exercised in its entirety. F-18 (8) Warrants and Rights Dividend, continued In May 1998, the Company issued to its financial advisor, in connection with debt and equity financings, a warrant to purchase 548,000 shares of the Company's Common Stock at a purchase price of $3.00 per share, which warrant expires in May 2003. Of the 548,000 warrants issued, 116,450 were attributable to the issuance of the senior secured notes discussed in Note 6. The Company recorded a value of $109,492 for these warrants and recorded the value as equity in additional paid in capital and deferred loan costs. During the year ended March 31, 2000, the financial advisor exercised the warrant with net proceeds to the Company totaling $1,644,000. In April 1998, in connection with a private placement of 4,363,001 shares of its Common Stock, the Company issued a warrant to an institutional investor to purchase 716,929 shares of its Common Stock at a purchase price of $3.75 per share, which warrant expires in April 2002. In February 1997, the Board of Directors declared a dividend distribution of one Common Stock purchase right for each share of the Company's Common Stock outstanding on March 15, 1997. Each right entitles a shareholder to purchase one share of the Company's Common Stock at a purchase price of $65.00 per full common share, subject to adjustment. The rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 20 percent or more of the outstanding shares of the Company's Common Stock. The rights expire on February 20, 2007, unless redeemed by the Company earlier. Once the rights become exercisable, each holder of a right will have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the right. (9) Stock Option Plan The Company has a stock option plan whereby the Board of Directors or its Compensation Committee may grant options to purchase shares of the Company's Common Stock to employees, officers, and directors of the Company. Under the plan, the Company has reserved an aggregate of 4,250,000 shares of Common Stock for issuance pursuant to the exercise of options. With certain exceptions, options issued through March 31, 2000 generally vest over a five-year period from the date of grant and expire from March 9, 2004 to March 7, 2010. At March 31, 2000, 1,291,250 options are available for grant under the plan. F-19 (9) Stock Option Plan, continued A summary of the Plan's stock option activity and related information for the years ended March 31, 2000, 1999 and 1998 is as follows: 2000 1999 1998 -------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price -------------------------------------------------------------------------- Outstanding-beginning of year 1,796,354 $1.58 1,532,062 $1.56 1,911,250 $1.85 Granted 300,000 $13.41 717,500 $5.94 30,000 $2.77 Exercised (343,375) $1.64 (453,208) $1.34 (409,188) $1.06 Surrendered - - - - (180,000) $7.40 Re-issued - - - - 180,000 $3.00 -------------------------------------------------------------------------- 1,752,979 $5.41 1,796,354 $3.35 1,532,062 $1.56 ========================================================================== Exercisable at end of year 972,979 $2.78 1,103,020 $1.70 1,761,250 $1.39
Exercise prices for options outstanding under the plan as of March 31, 2000 ranged from $1.00 to $16.57 per option share. The weighted-average remaining contractual life of those options is 7 years. A summary of the outstanding and exercisable options at March 31, 2000, segregated by exercise price ranges, is as follows: --------------------------------------------------------------------------------------------------- Weighted- Average Weighted- Remaining Weighted- Exercise Price Options Average Contractual Exercisable Average Range Outstanding Exercise Price Life (in years) Options Exercise Price --------------------------------------------------------------------------------------------------- $ 1.00 - $ 2.50 555,562 $1.14 3.9 555,562 $1.14 $ 3.00 - $ 5.06 542,417 3.53 7.5 306,417 3.36 $ 8.13 - $13.82 540,000 9.32 9.2 111,000 9.39 $16.07 - $16.57 115,000 16.50 9.2 - - ----------------------------------------------------------------------------------- 1,752,979 $5.41 7.0 972,979 $2.78 ===================================================================================
F-20 (9) Stock Option Plan, continued The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost is recognized for options granted at a price equal to the fair market value of the Common Stock. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to March 31, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of 5.98%, 5.36% and 6.42%, dividend yields of 0%, 0% and 0%; volatility factors of the expected market price of the Company's Common Stock of 61.38%, 69.25% and 64.33%, and a weighted-average expected life of the options of 3.5 years for the year ended March 31, 2000 and 3.7 years for the year ended March 31, 1999 and 1998. Had compensation cost for the Company's stock-based compensation plan been determined using the fair value of the options at the grant date, the Company's pro forma net income (loss) and earnings (loss) per share would be as follows: 1999 1998 1997 Net Income: ------ ------ ------ As reported $ 27,009,253 $ 30,566,060 $(17,746,370) Pro forma $ 26,230,907 $ 30,263,570 $(17,842,594) Earnings (loss) per share, basic: As reported $ 1.56 $ 2.14 $ (1.95) Proforma $ 1.51 $ 2.12 $ (1.96) Earnings (loss) per share, diluted: As reported $ 1.43 $ 1.98 $ (1.95) Proforma $ 1.39 $ 1.96 $ (1.96)
(10) Benefit Plans Employee Stock Ownership Plan The Company has established an Employee Stock Ownership Plan (ESOP) which inures to the benefit of each employee of the Company, except those employees covered by a collective bargaining agreement that does not provide for participation in the ESOP. Company contributions to the ESOP are discretionary and may vary from year to year. In order for an employee to receive an allocation of Company Common Stock from the ESOP, the employee must be employed on the last day of the ESOP's plan year, with certain exceptions. The Company's annual contribution to the ESOP, if any, will be allocated among the eligible employees of the Company as of the end of each plan year in proportion to the relative compensation (as defined in the ESOP) earned that plan year by each of the eligible employees. The ESOP does not provide for contributions by participating employees. Employees will vest in contributions made to the ESOP based F-21 (10) Benefit Plans, continued upon their years of service with the Company. A year of service is an ESOP plan year during which an employee has at least 1,000 hours of service. Vesting generally occurs at the rate of 20% per year, beginning after the first year of service, so that a participating employee will be fully vested after five years of service. Distributions from the ESOP will not be made to employees during employment. However, upon termination of employment with the Company, each employee will be entitled to receive the vested portion of his or her account balance. Total Company contributions to the ESOP from inception through March 31, 1998 totaled 216,209 shares. During the years ended March 31, 2000 and 1999, the Company contributed 100,000 and 275,000 shares to the plan and none during the year ended March 31, 1998. The Company recognized compensation expense during the year ended March 31, 2000 and 1999 of $895,412 and $848,875, respectively, related to its contribution to the ESOP and none during the year ended March 31, 1998. Retirement Savings Plan The Company has established a Retirement Savings Plan (401(k)). Participants may contribute from 1% to 15% of pre-tax annual compensation. Annual individual pre-tax participant contributions are limited to $10,500 for calendar year 2000, $10,000 for calendar years 1999 and 1998 and $9,500 for calendar year 1997 under the Internal Revenue Code. Participants are immediately vested in their voluntary contributions. Effective April 1999, for the plan year ending December 31, 1999, the Company's Board of Directors elected to match 25% of participant contributions from April 1999 through April 2000. Effective May 2000, for the plan year ending December 31, 2000, the Company's Board of Directors elected to match 50% of participant contributions up to 10% of salaries from May 2000 through December 2000. The Company had not matched any contributions made prior to April 1999. Future matching contributions, if any, will be determined annually by the Board of Directors. In order to receive the matching contribution, Participants must be employed on the last day of the plan year. Participants will vest in contributions made to the 401(k) upon their years of service with the Company. A year of service is a 401(k) plan year during which a participant has at least 1,000 hours of service. Vesting generally occurs at the rate of 20% per year, beginning after the first year of service, so that a Participant will be fully vested after five years of service. Upon termination of employment with the Company, each participant will be entitled to receive the vested portion of his or her account balance. F-22 (11) Concentration of Credit Risk The Company does not believe it is subject to any significant concentration of credit risk relating to trade receivables. At March 31, 2000 and 1999, 69.7% and 70% of the Company's trade receivables relate to tickets sold to individual passengers through the use of major credit cards, travel agencies approved by the Airlines Reporting Corporation, tickets sold by other airlines and used by passengers on Company flights, or the United States Postal Service. These receivables are short-term, generally being settled shortly after sale or in the month following ticket usage. (12) Commitments and Contingencies The Company is party to legal proceedings and claims which arise during the ordinary course of business. In the opinion of management, the ultimate outcome of these matters will not have a material adverse effect upon the Company's financial position or results of operations. In March 2000, the Company entered into an agreement with AVSA, S.A.R.L. to purchase 11 new Airbus aircraft, with options to purchase an additional nine new Airbus aircraft. To the extent that the Company exercises options to purchase the nine aircraft, they are replaced on a one-for-one basis with additional options to purchase new Airbus aircraft, up to a total of nine additional option aircraft. The 11 firm aircraft are scheduled to be delivered in calendar years 2002 through 2004. The aggregate additional amounts due under this purchase commitment and estimated amounts for buyer-furnished equipment and spare parts for both the purchased and leased aircraft (see Note 13) was approximately $347,000,000 at March 31, 2000. Under the terms of the purchase agreement, the Company is required to make scheduled pre-delivery payments. These payments are non-refundable with certain exceptions. As of March 31, 2000, the Company has made pre-delivery payments totaling $6,400,000 to secure these aircraft and option aircraft. Pre-delivery payments due in fiscal year 2001 approximate $5,000,000. After pre-delivery payments, the balance of the total purchase price must be paid upon delivery of each aircraft. In order to complete the purchase of these aircraft, it will be necessary for the Company to secure financing. The amount of financing required will depend on the number of aircraft purchase options exercised and the amount of cash generated by operations prior to delivery of the aircraft. At this time, the type of financing has not been determined. F-23 (13) Subsequent Events During May 2000, the Company entered into an aircraft lease for a Boeing 737 aircraft with a lease term of approximately three years beginning in June 2000. During April 2000 and May 2000, the Company entered into aircraft leases for 16 Airbus aircraft with lease terms of approximately 12 years. Delivery dates begin in June 2001 and end in October 2004. During April and May 2000, the Company entered into two leases for its new general office and call center facilities, with lease terms of approximately 10 and 12 years, respectively. Total commitments under these noncancelable operating leases (excluding maintenance deposit requirements) are approximately as follows: Year ended March 31, 2001 $ 2,221,000 2002 8,434,000 2003 18,651,000 2004 31,064,000 2005 44,204,000 thereafter 479,891,000 ------------------ $ 584,465,000 ================== F-24 (14) Selected Quarterly Financial Data (Unaudited) First Second Third Fourth quarter (1) quarter (1) quarter (1) quarter 2000 Revenues $ 77,886,197 $ 85,453,265 $ 73,973,909 $ 92,506,584 ================= ================= ================= ================= Operating expenses $ 66,120,957 $ 72,350,177 $ 69,964,227 $ 82,075,370 ================= ================= ================= ================= Net income, before cumulative effect of change in accounting principle $ 7,728,564 $ 8,752,522 $ 3,095,381 $ 6,883,777 Cumulative effect of change in method of accounting for maintenance checks 549,009 - - - ----------------- ----------------- ----------------- ----------------- Net income $ 8,277,573 $ 8,752,522 $ 3,095,381 $ 6,883,777 ================= ================= ================= ================= Earnings per share: Basic: Income before cumulative effect of a change in accounting principle $ 0.47 $ 0.50 $ 0.18 $ 0.39 Cumulative effect of change in method of accounting for maintenance checks 0.03 - - - ----------------- ----------------- ----------------- ----------------- Net income $ 0.50 $ 0.50 $ 0.18 $ 0.39 ================= ================= ================= ================= Diluted: Income before cumulative effect of change in accounting principle $ 0.42 $ 0.46 $ 0.16 $ 0.36 Cumulative effect of change in method of accounting for maintenance checks 0.03 - - - ----------------- ----------------- ----------------- ----------------- Net income $ 0.45 $ 0.46 $ 0.16 $ 0.36 ================= ================= ================= ================= 1999 Revenues $ 42,887,553 $ 56,852,913 $ 50,693,588 $ 70,173,656 ================= ================= ================= ================= Operating expenses $ 42,462,864 $ 47,075,097 $ 48,450,574 $ 57,939,180 ================= ================= ================= ================= Net Income $ 433,709 $ 9,869,558 $ 2,459,531 $ 17,803,262 ================= ================= ================= ================= Earnings per share: Basic $ 0.03 $ 0.71 $ 0.17 $ 1.01 ================= ================= ================= ================= Diluted $ 0.03 $ 0.64 $ 0.15 $ 0.93 ================= ================= ================= =================
(1) Income before the cumulative effect of the change in the method of accounting for maintenance checks for the first, second, and third quarters of the year ended March 31, 2000 differs from the amount previously reported on Form 10-Q by $112,161, ($261,358), and ($84,640), respectively, because the change in method of accounting for maintenance checks was applied retroactively to April 1, 1999 (Note 1). F-25 EX-10.2(C) 2 0002.txt LEASE AGREEMENT Lease Amendment (Airport Plaza Office Lease) This Lease Amendment, dated as of January 12, 2000, is by and between Highline Group LLC ("Landlord"), as receiver for the Airport Plaza Building (the "Building") and Frontier Airlines, Inc. ("Tenant"). Recitals A. Landlord and Tenant entered into the Lease Agreement, dated March 15, 1994, as amended from time to time and which covers Spaces 100, 110, 120, 121, 190, 200, 300, 350, 360, 400, 450, 470, 500, 605, 610, 615, and 620 in the Building (the "Lease"). B. The date for the expiration of the Lease concerning spaces 110, 120, 200, 350, 360, 400, 605, 610, 615, and 620 is August 31, 2000 (the "2000 Expiration Spaces"). C. The date for the expiration of the Lease concerning spaces 100, 121, 190, 300, 450, 500, and 470 is January 31, 2001 (the "2001 Expiration Spaces"). B. Landlord and Tenant desire to modify the Lease as set forth below. Agreement Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. The term of the Lease for the 2000 Expiration Spaces shall be extended *. 2. The minimum rent payable monthly under the Lease for the 2000 Expiration Spaces shall be: $* ($* per square foot) from February 1, 2000 to August 31, 2000, and $* ($* per square foot) from September 1, 2000 to January 31, 2001. Tenant's base year for the 2000 Expiration Spaces shall be the year 2000. 3. All of the terms and conditions of the Lease concerning the 2001 Expiration Spaces shall remain unchanged and the Tenant shall continue to pay rent and operating expense reimbursements equal to $*per month for the 2001 Expiration Spaces. 4. Tenant shall continue to pay for the remainder of the term of the 2000 Expiration Spaces and the 2001 Expiration Spaces a monthly after hours reimbursement to Landlord in the amount of $* 5. The expiration date for space 500 shall be extended to May 31, 2001 and Tenant shall pay Landlord monthly during such extended term (a) minimum rent and operating expense reimbursements equal to $*and (b) after hours reimbursement equal to $* 6. Tenant shall lease from Landlord, effective the date of this Lease Amendment through January 31, 2001 the following additional spaces in the building: Suite 122 at *square feet, Suite 440 at *square feet and Suite 600-A at *square feet. The minimum rent and operating expense reimbursements payable for such space shall equal $* ($* per square foot) per month from the date of this Lease Amendment to January 31, 2001. Tenant's base year for the suites identified in this paragraph shall be the year 2000. 7. Tenant shall pay to Landlord a damage deposit in the amount of $* that shall be returned to Tenant within * days after the expiration of the term of the Lease if Tenant has satisfied all of the obligations contained in the Lease upon its expiration. Such damage deposit shall be placed in an interest bearing account and if the damage deposit is returned to Tenant as set forth above, Tenant shall be entitled to the interest earned on such account. 8. If Tenant and Landlord enter into a long term agreement whereby Tenant leases from Landlord space for its reservation center in the building, Landlord will credit Tenant for the amount of rent Tenant has paid to Landlord pursuant to paragraph 2 above that exceeds $* per square foot. To the extent that any term of this Lease Amendment shall conflict with any term in the Lease, or any amendment or term sheet related thereto, the terms of this Lease Amendment shall supercede such conflicting term and this Lease Amendment shall control. Except as modified herein all of the other terms and conditions of the Lease shall remain unchanged and in full force and effect. Landlord Highline Group, LLC As receiver for Airport Plaza By:______________________ Name:_______________ Title:_______________ Tenant Frontier Airlines, Inc. By:______________________ Name:_______________ Title:_______________ EX-10.2(D) 3 0003.txt LEASE AMENDMENT Lease Amendment (Airport Plaza Office Lease) This Lease Amendment, dated as of April 1, 2000, is by and between Highline Group Rimfire 25, Inc. ("Landlord"), as receiver for the Airport Plaza Building (the "Building") and Frontier Airlines, Inc. ("Tenant"). Recitals A. Landlord predecessor and Tenant entered into the Lease Agreement, dated March 15, 1994, as amended from time to time (the "Lease"). B. Landlord and Tenant desire to modify the Lease as set forth below. Agreement Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Tenant hereby leases from Landlord Suites 600b (* square feet) and 600c (* square feet). 2. The minimum rent payable monthly under the Lease for Suites 600b and 600c, collectively, shall be: $*. Tenant's base year for Suites 600b and 600c shall be the year 2000. 3. The expiration of the term of the Lease for Suites 600b and 600c shall be *. To the extent that any term of this Lease Amendment shall conflict with any term in the Lease, or any amendment or term sheet related thereto, the terms of this Lease Amendment shall supercede such conflicting term and this Lease Amendment shall control. Except as modified herein all of the other terms and conditions of the Lease shall remain unchanged and in full force and effect. Landlord Rimfire 25, Inc. By: Highline Group LLC, as agent By:______________________ Name:_______________ Title:_______________ Tenant Frontier Airlines, Inc. By:______________________ Name:_______________ Title:_______________ EX-10.47 4 0004.txt AIRCRAFT LEASE AGREEMENT AIRCRAFT LEASE AGREEMENT Dated as of January 7, 2000 between AVIATION FINANCIAL SERVICES INC. a wholly owned subsidiary of General Electric Capital Corporation as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Aircraft : Boeing 737-36E Serial No: 25256 U.S. Reg. No.: N315FL Note: This Aircraft Lease Agreement has been executed in several counterparts of which this is Counterpart No. ___. See Clause 16.15 hereof for information concerning the distinction between various counterparts. INDEX CLAUSE PAGE - ------ ---- 1. Interpretation..............................................................1 1.1 Definitions.......................................................1 1.2 Construction.....................................................15 2. Representations and Warranties.............................................16 2.1 Lessee's Representations and Warranties..........................16 2.2 Lessee's Further Representations and Warranties..................17 2.3 Repetition.......................................................19 2.4 Lessor's Representations and Warranties..........................19 3. Conditions Precedent.......................................................20 3.1 Conditions Precedent.............................................20 3.2 Further conditions precedent.....................................23 3.3 Waiver...........................................................23 4. Commencement...............................................................24 4.1 Leasing..........................................................24 4.2 Delivery.........................................................24 4.3 Delayed Delivery.................................................24 4.4 Licenses.........................................................25 4.5 Inspection.......................................................25 4.6 Indemnity........................................................25 5. Payments...................................................................25 5.1 Deposit..........................................................25 5.2 Rental Periods...................................................25 5.3 Rent.............................................................26 5.4 Maintenance Reserves.............................................26 5.5 Payments.........................................................26 5.6 Withholding......................................................27 5.7 General Tax indemnity............................................27 5.8 Sales and Use Taxes..............................................29 5.9 Information......................................................30 5.10 Indemnity Payments to be Made on an After-Tax Basis.............30 5.11 Default Interest................................................30 5.12 Contest.........................................................31 5.13 Net Lease.......................................................32 5.14 Security........................................................32 5.14 Security........................................................33 6. Manufacturer's Warranties..................................................34 6.1 Assignment.......................................................34 6.2 Proceeds.........................................................34 6.3 Parts............................................................34 6.4 Agreement........................................................34 7. Lessor's Covenants.........................................................35 7.1 Quiet Enjoyment..................................................35 7.2 Release of Maintenance Reserves..................................35 7.3 Lessor Obligations Following Expiry Date.........................36 8. Lessee's Covenants.........................................................36 8.1 Duration.........................................................36 8.2 Information......................................................36 8.3 Lawful and Safe Operation........................................37 8.4 Taxes and other Outgoings........................................39 8.5 Sub-Leasing and Wet-Leasing......................................39 8.6 Inspection.......................................................40 8.7 Title............................................................40 8.8 General..........................................................41 8.9 Records..........................................................41 8.10 Protection......................................................42 8.11 Maintenance and Repair..........................................42 8.12 Removal of Engines and Parts....................................43 8.13 Installation of Engines and Parts...............................44 8.14 Non-Installed Engines and Parts.................................44 8.15 Pooling of Engines and Parts....................................45 8.16 Equipment Changes...............................................45 8.17 Title on an Equipment Change....................................46 8.18 Third Party.....................................................46 9. Insurance..................................................................46 9.1 Insurances.......................................................46 9.2 Requirements.....................................................47 9.3 Change...........................................................47 9.4 Insurance Covenants..............................................47 9.5 Failure to Insure................................................48 9.6 Continuing Indemnity.............................................48 9.7 Application of Insurance Proceeds................................48 9.7 Application of Insurance Proceeds................................49 10. Indemnity.................................................................49 10.1 General.........................................................49 10.2 Duration........................................................50 11. Events of Loss............................................................50 11.1 Events of Loss..................................................50 11.2 Substitute Aircraft.............................................51 11.3 Requisition.....................................................52 12. Return of Aircraft........................................................52 12.1 Return..........................................................52 12.2 Final Inspection................................................52 12.3 Non-Compliance..................................................53 12.4 Redelivery......................................................53 12.5 Acknowledgment.................................................53 12.6 Maintenance Program.............................................53 12.7 Fuel............................................................53 12.8 Automatic Extension of Term....................................54 13. Default...................................................................54 13.1 Events..........................................................54 13.2 Rights..........................................................57 13.3 Deregistration..................................................61 14. Assignment................................................................61 14.1 Lessee's Assignment.............................................61 14.2 Lessor's Assignment.............................................61 14.3 Transfer........................................................61 15. Illegality................................................................61 16. Miscellaneous.............................................................62 16.1 Waivers, Remedies Cumulative....................................62 16.2 Delegation......................................................62 16.3 Certificates....................................................62 16.4 Appropriation...................................................62 16.5 Currency........................................................62 16.6 Set-off.........................................................62 16.7 Severability....................................................63 16.8 Remedy..........................................................63 16.9 Expenses........................................................63 16.10 Time of Essence................................................63 16.11 Notices........................................................64 16.12 Governing Law and Jurisdiction.................................64 16.13 Sole and Entire Agreement......................................66 16.14 Indemnities....................................................66 16.15 Counterparts...................................................66 16.16 Language.......................................................66 16.17 No Brokers.....................................................66 17. Disclaimers and Waivers...................................................68 17.1 Exclusion.......................................................68 17.2 Waiver..........................................................68 17.3 Disclaimer of Consequential Damages.............................69 17.4 Confirmation....................................................69 18. Section 1110..............................................................69 19. Usury Laws................................................................69 20. Modification or Revision..................................................70 21. Witness...................................................................71 SCHEDULES.....................................................................72 SCHEDULE 1. Description of Aircraft.........................................72 SCHEDULE 2. Certificate of Technical Acceptance.............................78 SCHEDULE 3. Operating Condition at Redelivery...............................84 SCHEDULE 4. Insurances Requirements.........................................88 SCHEDULE 5. Intentionally Omitted...........................................91 SCHEDULE 6. Lease Supplement No.____........................................92 SCHEDULE 7. Form of Lease Termination Certificate...........................95 SCHEDULE 8. Form of Aircraft Usage Report..................................97 AIRCRAFT LEASE AGREEMENT THIS AGREEMENT is made as of the 7th day of January, 2000 between:- (1) AVIATION FINANCIAL SERVICES INC., a company incorporated under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation whose principal place of business is at c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, Connecticut, 06927 ("Lessor"); and (2) FRONTIER AIRLINES, INC., a company incorporated under the laws of the State of Colorado whose principal place of business is at 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America ("Lessee"). WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease from Lessor the Aircraft on the terms of this Agreement. IT IS AGREED as follows:- 1. INTERPRETATION 1.1 DEFINITIONS In this Agreement the following expressions have the meanings set out opposite:- After-Tax Basis in the case of any amount payable on an "After-Tax Basis" to or for the benefit of any Person (including any amount payable pursuant to this definition) (a "Required Payment"), the total amount that must be paid is the amount such that, after deduction of the net amount of all Taxes required to be paid by such Person with respect to the receipt or accrual by it of such amount (and assuming that such Person is subject to (i) United States Federal income tax at the highest marginal statutory rate imposed on corporations for the relevant period, (ii) United States state and local income taxes at the composite of the highest marginal statutory rates imposed on such Person for the relevant period, as such composite rate shall be certified by a financial officer of such Person, and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on such Person) the net amount received is the amount of the Required Payment. Agreed Value the amount specified for Agreed Value in Letter Agreement No. 1. Air Authority Federal Aviation Administration ("FAA"). Aircraft the aircraft described in Part 1 of Schedule 1, (which term includes where the context admits a separate reference to all Engines, Parts and Aircraft Documents) or any aircraft substituted in place thereof pursuant to Clause 11.1 or 11.2. Aircraft Documents the documents, data and records identified in Part 2 of Schedule 1 and all additions, renewals, revisions and replacements from time to time made in accordance with this Agreement. Airframe the Aircraft, excluding the Engines and Aircraft Documents. Appraisal Procedure the following procedure for determining the "fair market rental value" of the Aircraft: (a) Lessor shall select an independent aircraft appraiser who shall make a determination of "fair market rental value" of the Aircraft; and (b) the fees and expenses of the appraiser shall be paid by Lessee. "Fair market rental value" shall mean the value determined by an appraisal completed on an "as-is" and "where-is" basis. APU the auxiliary power unit installed on the Aircraft on the Delivery Date and any replacement auxiliary power unit installed in accordance with this Agreement. Boeing The Boeing Company, a Delaware corporation with its principal office in Seattle, State of Washington, U.S.A. Business Day a day (other than a Saturday or Sunday) on which business of the nature required by this Agreement is carried out in the State of Incorporation or where used in relation to payments on which banks are open for business in New York. Certificated Air Carrier any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be issued, any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the United States of America, and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated so as to entitle Lessor, as a lessor, to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft. Cold Section Refurbishment with respect to any Engine the completion of the following: completely unstacking either high or low or both compressor sections, if needed, and completing the following for the appropriate section(s): visual inspection; de-blading discs as necessary; visual and NDT (Non-Destructive Testing) inspections as necessary of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the compressor; balance of all rotors; and installation of rotors in the engine. Cycle one take-off and landing of the Aircraft. DGAC means the Civil Aviation Authority of Spain. Damage Notification Threshold the amount specified therefor in Letter Agreement No. 1. Default any Event of Default and any event which with the giving of notice, lapse of time, determination of materiality or fulfillment of other condition would constitute an Event of Default. Delivery Condition Requirements the requirements specified on Part 1 of Schedule 1. Delivery Date the date on which the Aircraft is tendered for delivery by Lessor in accordance with this Agreement. Delivery Location Marana, Arizona. Deposit all amounts payable pursuant to Clause 5.1 whether in cash or by Letter of Credit. Dollars and $ the lawful currency of the United States of America. Engine whether or not installed on the Aircraft:- (a) each engine of the manufacture and model specified in Part 1 of Schedule 1 (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower) which Lessor elects to tender to Lessee with the Aircraft on the Delivery Date, such engines being described as to serial numbers on the certificate of acceptance to be executed by Lessee upon delivery of the Aircraft; or (b) any engine which has replaced that engine, title to which has or should have, passed to Lessor in accordance with this Agreement; and in each case includes all modules and Parts from time to time belonging to or installed in that engine but excludes any properly replaced engine title to which has, or should have, passed to Lessee pursuant to this Agreement. Engine Event of Loss the occurrence with respect to an Engine only, whether or not installed on the Airframe, of any of those events described in provisions (a) through (d) of the definition of Event of Loss. Engine Flight Hour means each hour or part thereof an Engine is operated, elapsing from the moment that wheels of an aircraft on which such Engine is installed leave the ground until the wheels of such aircraft next touch the ground. Engine Refurbishment a complete disassembly, inspection and repair of the modules of an Engine per the engine manufacturer's maintenance manual, so that such Engine shall have a minimum expected on-wing life of * hours and * cycles. ERISA the Employee Retirement Income Security Act of 1974, as amended. Event of Default an event or condition specified in Clause 13.1. Event of Loss with respect to the Aircraft (including for the purposes of this definition the Airframe):- (a) the actual or constructive total loss of the Aircraft (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss, or requisition for use or hire which results in an insurance settlement on the basis of a total loss); or (b) it being destroyed, damaged beyond repair or permanently rendered unfit for normal use for any reason whatsoever; or (c) the requisition of title, or other compulsory acquisition, capture, seizure, deprivation, confiscation or detention for any reason of the Aircraft by the government of the State of Registration or other competent authority (whether de jure or de facto), but excluding requisition for use or hire not involving requisition of title; or (d) the hi-jacking, theft, condemnation, confiscation, seizure or requisition for use or hire of the Aircraft which deprives any person permitted by this Agreement to have possession and/or use of the Aircraft of its possession and/or use for more than * days (or, if earlier, beyond the Expiry Date). Excusable Delay with respect to delivery of the Aircraft, delay or non-performance due to or arising out of acts of God or public enemy, civil war, insurrection or riot, fire, flood, explosion, earthquake, accident, epidemic, quarantine restriction, any act of government, governmental priority, allocation, regulation or order affecting directly or indirectly, the Aircraft, any manufacturer, Lessor or any materials or facilities, strike or labor dispute causing cessation, slowdown or interruption of work, inability after due and timely diligence to procure equipment, data or materials from manufacturers, suppliers, any existing owner, seller or lessee in a timely manner, damage, destruction or loss, or any other cause to the extent that such cause is beyond the control of Lessor whether above mentioned or not and whether or not similar to the foregoing. Expiry Date the day preceding the numerically corresponding day * months after the Delivery Date or if earlier the date on which:- (a) the date Lessor, acting in accordance with the terms of this Agreement terminates the leasing of the Aircraft to Lessee under this Agreement; or (b) Lessor receives the Agreed Value together with any other amounts then due and unpaid by Lessee following an Event of Loss. FAA the Federal Aviation Administration of the United States of America and any successor thereof. FAR the Federal Aviation Regulations set forth in Title 14 of the United States Code of Federal Regulations, as amended and modified from time to time. Federal Aviation Act The Transportation Laws of the United States as set forth at 49 United States Code et seq. or any similar legislation of the United States of America enacted in substitution or replacement thereof. Financing Statements Uniform Commercial Code Financing Statements in respect of the Aircraft and Engines leased hereunder prepared in a form acceptable for filing with the applicable Government Entities in the Habitual Base, the state in which the chief executive office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the Habitual Base) and such other jurisdiction as Lessor shall reasonably require. Flight Hour each hour or part thereof (rounded up to two decimal places) elapsing from the moment the wheels of the Aircraft leave the ground on take off until the wheels of the Aircraft next touch the ground. GAAP generally accepted accounting principles in the United States. Governing Law the laws of the State of New York. Government Entity (a) any national government, political subdivision thereof, or local jurisdiction therein; (b) any instrumentality, board, commission, court, or agency of any thereof, however constituted; and (c) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any of the above is a participant. Gross Negligence means any intentional, conscious or voluntary action or decision which is taken with wanton, reckless, flagrant and culpable disregard for the consequences of such action or decision. Guaranty means a Guaranty of General Electric Capital Corporation to Lessee with respect to Lessor substantially in the form attached hereto as Exhibit A to Letter Agreement No. 1. Habitual Base the State of Colorado or, subject to the prior written consent of Lessor, any other state, country or countries in which the Aircraft is for the time being habitually based. Hot Section Refurbishment with respect to any Engine, the complete visual inspection and repair as necessary of the combustion section of an Engine in an engine repair/overhaul station including without limitation complete unstacking of the high pressure or low pressure turbine or both if needed; complete visual inspection of such turbine(s); de-blading of discs as required; visual and NDT inspections of all discs as required; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of all blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the turbine; balance of all rotors; and installation of rotors in the engine. Indemnitee each of GE Capital Aviation Services, Inc. ("GECASI"), GE Capital Aviation Services Limited ("GECASL"), Lessor, and any of their respective successors and assigns, shareholders, subsidiaries, affiliates, partners, contractors, directors, officers, servants, agents and employees and indemnitees; provided, however, that no such Indemnitee shall be entitled to an indemnification to the extent such Indemnitee is manufacturer of the Aircraft, any Engines, or Parts in its capacity as such. Insurances as defined in Clause 9.1 hereof. Landing Gear the landing gear assembly of the Aircraft excluding any rotable components. Law shall mean and include (a) any statute, decree, constitution, regulation, order judgment or other directive of any Governmental Entity; (b) any treaty, pact, compact or other agreement to which any Governmental Entity is a signatory or party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above. Lease Supplement a Lease Supplement, substantially in the form of Schedule 6 hereto, entered into between Lessor and Lessee. Lessee's Maintenance Program the Maintenance Program specifically approved by the Air Authority for Lessee's maintenance of the Aircraft. Lessor Lien (a) any Security Interest whatsoever from time to time created by or through Lessor in connection with the financing of the Aircraft; (b) any other Security Interest in respect of the Aircraft which results from acts of or claims against Lessor not related to the transactions contemplated by or permitted under this Agreement; and (c) Security Interests in respect of the Aircraft for Lessor Taxes. Lessor Taxes Taxes:- (a) imposed as a direct result of activities of Lessor in the jurisdiction imposing the Tax unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement or the operation of the Aircraft by Lessee; or (b) imposed on the net income, profits or gains of Lessor by any Government Entity in the United State of America; provided, however, that Lessor Taxes shall not include any Tax imposed by any government or taxing authority of any jurisdiction if and to the extent that such Tax results from (i) the use, operation, presence or registration of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax, or (ii) the situs of organization, any place of business or any activity of Lessee or any other Person having use, possession or custody of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax; or (c) imposed with respect to any period commencing or event occurring after the Expiry Date and unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement; provided always, that Lessor Taxes shall not include any income taxes or other amounts payable and subject to indemnification in favor of Lessor pursuant to the Lease. Letter Agreement No. 1 that certain Letter Agreement No. 1 between Lessor and Lessee dated as of the date hereof. MACRS Deductions means cost recovery deductions for *% of the Lessor's cost of the Aircraft pursuant to Section 168(b) of the Internal Revenue Code of 1986, as amended, commencing in the year 2000, computed (i) on the basis that the Aircraft is "7-year property" (within the meaning of Section 168(e) of the Code), (ii) by using the *% declining balance method over a 7 year recovery period, switching to the straight-line method for the first taxable year of the Lessor during the term for which such method yields a larger allowance, (iii) assuming salvage value is zero, (iv) using a half-year convention and (v) assuming that the Aircraft is sold at the end of the Term of * months. Letter of Credit means any letter of credit issued in relation to the Lease pursuant to Section 5.15 and any replacement or renewal of that letter of credit. Maintenance Performer the Lessee, Tramco, USAir Inc., or such other Person as is approved by the FAA to perform maintenance and/or modification services on commercial aircraft and/or commercial aircraft engines, which Person shall be agreed by Lessor and Lessee to have recognized standing and experience, suitable facilities for the level of maintenance being carried out and suitable equipment to perform such services on aircraft and/or engines of the same or improved model as the Aircraft or, in the case of engines, the Engines. Maintenance Program an Air Authority approved maintenance program for the Aircraft based upon the Manufacturer's specifications, service bulletins, planning documents, maintenance manuals and documents and encompassing scheduled maintenance (including block maintenance), condition-monitored maintenance, and/or on-condition maintenance of Airframe, Engines and Parts, including but not limited to, servicing, testing, preventive maintenance, repairs, structural inspections, system checks, overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives, corrosion control, inspections and treatments. Major Checks any C-Check, multiple C-Check, D-Check or annual heavy maintenance visit or segment thereof suggested for commercial aircraft of the same model as the Aircraft by its manufacturer (however denominated) as set out in Lessee's Maintenance Program. Manufacturer Boeing. Minimum Liability Coverage the amount set forth therefore in Letter Agreement No. 1. Mortgage Convention shall mean the Convention for the International Recognition of Rights in Aircraft, signed (ad referendum) at Geneva, Switzerland, on June 19, 1948, and amended from time to time, but excluding the terms of any adhesion thereto or ratification thereof containing reservations to which the United States of America does not accede. Operative Documents shall mean this Agreement, all Lease Supplements hereto, Letter Agreement No. 1, the Guaranty, any schedules or documents prepared in conformance to the Schedules hereto, any side-letters related hereto and any amendments, revisions, supplements or modifications hereto or thereto. Other Agreements any agreement (other than this Agreement) made or to be made between Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) or AerFi Group plc (or an associate or affiliate thereof) and Lessee (or an associate or affiliate thereof). Part whether or not installed on the Aircraft:- (a) any component, furnishing or equipment (other than a complete Engine) furnished with the Aircraft on the Delivery Date; and (b) any other component, furnishing or equipment (other than a complete Engine) title to which has, or should have passed to Lessor pursuant to this Agreement; but excludes any such items title to which has, or should have, passed to Lessee pursuant to this Agreement. Permitted Lien (a) any lien for Taxes not assessed or, if assessed, not yet due and payable, or being contested in good faith by appropriate proceedings; (b) any lien of a repairer, mechanic, carrier, hangarkeeper or other similar lien arising in the ordinary course of business or by operation of Law in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings; and (c) any Lessor Lien. but only if (in the case of both (a) and (b)) (i) adequate resources have been provided by Lessee for the payment of the Taxes or obligations; and (ii) such proceedings, or the continued existence of the lien, do not give rise to any likelihood of the sale, forfeiture or other loss of the Aircraft or any interest therein or of criminal liability on Lessor. Person any individual person, corporation, partnership, firm, joint stock company, joint venture, trust, estate, unincorporated organization, association, Government Entity, or organization or association of which any of the above is a member or a participant. Redelivery Location a location on Lessee's route system in the United States designated by Lessor, or such other location as Lessor and Lessee shall agree. Related Agreements any agreement (other than this Agreement) made or to be made between or with Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) and Lessee (or an associate or affiliate of Lessee). Replacement Engine an engine of the same manufacturer and model, and having equivalent value, utility, modification status, time elapsed since Hot Section Refurbishment and Cold Section Refurbishment and remaining warranty status as the Engine it is intended to replace under Clause 11.1(c), or at Lessee's option, an engine of the same manufacturer as such Engine but of an improved model, and otherwise of an equivalent value and utility and suitable for installation and use on the Airframe without impairing the value or utility of the Airframe and compatible with the remaining installed Engine. Rent all amounts payable pursuant to Clause 5.3. Rental Period each period ascertained in accordance with Clause 5.2. Rent Date the first day of each Rental Period. Required LC Expiry Date means the date being * days after the Expiry Date. Return Occasion the date on which the Aircraft is redelivered to Lessor in accordance with Clause 12 hereof. Scheduled Delivery Month *. Security Interest any mortgage, charge, pledge, lien, assignment, hypothecation, right of set-off or any agreement or arrangement having the effect of creating a Security Interest other than a Permitted Lien. State of Incorporation State of Colorado. State of Registration United States of America. Subsidiary (a) in relation to any reference to accounts, any company whose accounts are consolidated with the accounts of Lessee in accordance with GAAP; (b) for any other purpose an entity from time to time:- (i) of which another has direct or indirect control or owns directly or indirectly more than 50 per cent of the voting share capital; or (ii) which is a direct or indirect subsidiary of another under the laws of the jurisdiction of its incorporation. Supplemental Rent all amounts payable under Clause 5.4(a). Tax Indemnitee means an Indemnitee and for any taxable year in which the Lessor joins in the filing of a consolidated federal income tax return, shall include each member of the affiliated group (within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto) of which the Lessor is a member. Taxes any and all present and future taxes, duties, withholdings, levies, assessments, imposts, fees and other governmental charges of all kinds together with any penalties, fines, surcharges and interest thereon and any additions thereto. Term the period commencing on the Delivery Date and ending on the Expiry Date, except that the Term may be extended beyond the Expiry Date if the Return Occasion is delayed in the circumstances specified, and subject to the limitation described, in Clause 12.3. United States the United States of America Viva collectively means (i) Viva Vuelos Internacionales de Vacaciones, S.A. (ii) Hispamer Servicos Financieros EFC - S.A. and (iii) Leasebanesto S.A Wet Lease any arrangement whereby Lessee agrees to furnish the Aircraft to a third party pursuant to which the Aircraft (i) shall be solely within the operational control of Lessee and shall be operated solely by regular employees of Lessee possessing all current certificates and licenses that would be required under the Federal Aviation Act for the performance by such employees of similar functions within the United States of America, (ii) shall be maintained by Lessee in accordance with Lessee's Maintenance Program and (iii) shall be and remain subject and subordinate to all other terms and conditions of this Agreement; provided, however, that Lessee shall remain primarily liable for the performance of all of the terms of this Agreement (including, without limitation, its obligations set forth in Clause 9 of this Agreement) to the same extent as if such arrangement had not been entered into. 1.2 CONSTRUCTION (a) In this Agreement, unless the contrary intention is stated, a reference to:- (i) each of "Lessor" or "Lessee" or any other person includes without prejudice to the provisions of this Agreement any successor in title to it and any permitted assignee; (ii) words importing the plural shall include the singular and vice versa; (iii) any document shall include that document as amended, novated or supplemented; (iv) a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement; (v) a reference to "Agreement", "the Agreement" or "this Agreement" shall, unless expressly provided otherwise, mean and include this Aircraft Lease Agreement and each of the other Operative Documents; and (b) the headings in this Agreement are to be ignored in construing this Agreement. 2. REPRESENTATIONS AND WARRANTIES 2.1 Lessee's Representations and Warranties: Lessee represents and warrants to Lessor that:- (a) Status: Lessee is a corporation duly incorporated and validly existing under the laws of the State of Incorporation and has the corporate power to own its assets and carry on its business as it is being conducted and is the holder of all necessary air transportation licenses required in connection therewith and with the use and operation of the Aircraft; (b) Power and authority: Lessee has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, this Agreement and the transactions contemplated by this Agreement; (c) Legal validity: this Agreement has been duly entered into and delivered by Lessee, and this Agreement does, and the Operative Documents to which it is a party when executed and delivered by Lessee will, constitute legal, valid and binding obligations of Lessee, enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally, and, to the extent that certain remedies require or may require enforcement by a court of equity, by such principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) as a court having jurisdiction may impose and by Laws which may affect some of such remedies but which do not make the available remedies inadequate for the substantial realization of the benefits provided herein; (d) Non-conflict: the entry into and performance by Lessee of, and the transactions contemplated by, this Agreement do not and will not:- (i) conflict with any laws binding on Lessee; or (ii) conflict with the constitutional documents of Lessee; or (iii) conflict with or result in default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding upon Lessee or any of its assets nor result in the creation of any Security Interest over any of its assets; (e) Authorization: all authorizations, consents, registrations and notifications required in connection with the entry into, performance, validity and enforceability of, this Agreement and the transactions contemplated by this Agreement, have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; (f) No Immunity: (i) Lessee is subject to civil commercial law with respect to its obligations under this Agreement; and (ii) neither Lessee nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Lessee constitute private and commercial acts; (g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries most recently delivered to Lessor, including balance sheets and statements of income and retained earnings:- (i) have been prepared in accordance with GAAP; and (ii) fairly represent the consolidated financial condition of Lessee and its Subsidiaries as at the date to which they were drawn up; (h) Restricted Countries: Lessee does not hold a contract or other obligation to operate the Aircraft to or for any of the countries designated under U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola. (i) Chief Executive's Office: Lessee's Chief Executive Office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) is located at 12015 East 46th Avenue, Suite 200, Denver, Colorado, United States of America; (j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft; and (j) Citizen of the United States: Lessee is a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 2.2 Lessee's Further Representations and Warranties: Lessee further represents and warrants to Lessor that:- (a) No Default: (i) no Default has occurred and is continuing or might result from the entry into or performance of the Operative Documents to which Lessee is a party; and (ii) no other event or condition has occurred and is continuing which constitutes (or with the giving of notice, lapse of time, determination of materiality or the fulfillment of any other applicable condition or any combination of the foregoing, might constitute) a material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding on Lessee or any assets of Lessee; (b) Registration: (i) except for the filing for recordation of this Agreement and a Lease Supplement with the FAA, and the filing of any Financing Statements required (and continuation statements at periodic intervals), no further filing or recording of this Agreement or of any other document (including any financing statement under Article 9 of the Uniform Commercial Code) and no further action, is or will be necessary under the Laws of the United States, the State of Incorporation, and the State of Registration, the Habitual Base or any other states in order to (A) fully establish, perfect and protect Lessor's title to, and interest in, the Aircraft or any Engine or Part as against Lessee or any third party, or (B) ensure the validity, effectiveness and enforceability of this Agreement or any other Operative Document to which the Lessee is a party; and (ii) under the laws of the State of Incorporation, the State of Registration and the Habitual Base the property rights of Lessor in the Aircraft have been fully established, perfected and protected and this Agreement will have priority in all respects over the claims of all creditors of Lessee; (c) Litigation: no litigation, arbitration or administrative proceedings are pending or to its knowledge threatened against Lessee which, if adversely determined, would have a material adverse effect upon its financial condition or business or its ability to perform its obligations under this Agreement; (d) Pari Passu: the obligations of Lessee under the Operative Documents to which it is a party rank at least pari passu with all other present and future unsecured and unsubordinated obligations (including contingent obligations) of Lessee, with the exception of such obligations as are mandatorily preferred by law and not by virtue of any contract; (e) Material Adverse Change: there has been no material adverse change in the consolidated financial condition of Lessee and its Subsidiaries or the financial condition of Lessee since the date to which the accounts most recently provided to Lessor on or prior to the Delivery Date were drawn up; (f) Taxes: Lessee has delivered all necessary returns and payments due to the tax authorities in the State of Incorporation, the State of Registration and the Habitual Base and is not required by Law to deduct any Taxes from any payments under this Agreement; (g) Information: the financial and other information furnished by Lessee in connection with this Agreement does not contain any untrue statement or omit to state facts, the omission of which makes the statements therein, in the light of the circumstances under which they were made, misleading, nor omits to disclose any material matter to Lessor and all forecasts and opinions contained therein were honestly made on reasonable grounds after due and careful inquiry by Lessee; and (h) ERISA: Lessee is not engaged in any transaction in connection with which it could be subjected to either a civil penalty assessed pursuant to Section 502 of ERISA or any tax imposed by Section 4975 of the Internal Revenue Code; no material liability to the Pension Benefit Guaranty Corporation has been or is expected by Lessee to be incurred with respect to any employee pension benefit plan (as defined in Section 3 of ERISA) maintained by Lessee or by any trade or business (whether or not incorporated) which together with Lessee would be treated as a single employer under Section 4001 of ERISA and Section 414 of the Internal Revenue Code; there has been no reportable event (as defined in Section 4043(b) of ERISA) with respect to any such employee pension benefit plan; no notice of intent to terminate any such employee pension benefit plan has been filed or is expected to be filed, nor has any such employee pension benefit been terminated; no circumstance exists or is anticipated that constitutes or would constitute grounds under Section 4042 of ERISA for the Pension Benefit Guaranty Corporation to institute proceedings to terminate, or to appoint a trustee to manage the administration of, such an employee pension benefit plan; and no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived, exists with respect to any such employee pension benefit plan. 2.3 Repetition: The representations and warranties in Clause 2.1 and Clause 2.2 will survive the execution of this Agreement. The representations and warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be repeated by Lessee on the Delivery Date with reference to the facts and circumstances then existing. The representations and warranties contained in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as if made with reference to the facts and circumstances then existing. 2.4 Lessor's Representations and Warranties: Lessor represents and warrants to Lessee that:- (a) Status: Lessor is a company duly incorporated and validly existing under the laws of the State of New York and has the corporate power to own its assets and carry on its business as it is now being conducted; (b) Power and authority: Lessor has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, the Operative Documents to which it is a party and the transactions contemplated by the Operative Documents to which it is a party; (c) Legal validity: the Operative Documents to which it is a party constitute Lessor's legal, valid and binding obligation; (d) Non-conflict: the entry into and performance by Lessor of, and the transactions contemplated by, the Operative Documents to which it is a party do not and will not:- (i) conflict with any laws binding on Lessor; or (ii) conflict with the constitutional documents of Lessor; or (iii) conflict with any document which is binding upon Lessor or any of its assets; (e) Authorization: so far as concerns the obligations of Lessor, all authorizations, consents, registrations and notifications required under the laws of the State of New York in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Operative Documents to which it is a party by Lessor have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; and (f) No Immunity: (i) Lessor is subject to civil commercial law with respect to its obligations under the Operative Documents to which it is a party; and (ii) neither Lessor nor any of its assets is entitled to any right of immunity and the entry into and performance of the Operative Documents to which it is a party by Lessor constitute private and commercial acts. 3. CONDITIONS PRECEDENT 3.1 Conditions Precedent: Lessor's obligation to deliver and lease the Aircraft under this Agreement is subject to satisfaction of each of the following conditions:- (a) receipt by Lessor from Lessee not later than * Business Days prior to the Delivery Date of the following satisfactory in form and substance to Lessor:- (i) Constitutional Documents: a copy of the constitutional documents of Lessee including without limitation articles of incorporation, bylaws and a current certificate of good standing issued by the secretary of the state for the State of Incorporation; (ii) Resolutions: a copy of a resolution of the board of directors of Lessee approving the terms of, and the transactions contemplated by, this Agreement, resolving that it enter into this Agreement, and authorizing a specified person or persons to execute this Agreement and the other Operative Documents to which it is a party and accept delivery of the Aircraft on its behalf; (iii) Opinion: evidence that opinions as reasonably agreed by Lessor will be issued on the Delivery Date by legal counsel acceptable to Lessor; (iv) FAA Opinion: a draft of an opinion of Crowe & Dunlevy P.C. or other counsel acceptable to Lessor who are recognized specialists with regard to FAA registration matters in form acceptable to Lessor as to the due filing for recordation of this Agreement, to be delivered in executed final form to Lessor and Lessee upon such filing and recordation; (v) Approvals: evidence of the issue of each approval, license and consent which may be required in relation to, or in connection with, the performance by Lessee of any of its obligations hereunder (including, without limitation, any consent to the export of the Aircraft from the Habitual Base and consent to the deregistration of the Aircraft upon the termination of the leasing of the Aircraft under this Agreement); (vi) Licenses: copies of Lessee's Certificate of Convenience and Necessity, Radio License, FAR Part 121 operator's certificates and all other licenses, certificates and permits required by Lessee in relation to, or in connection with, the operation of the Aircraft; (vii) Process Agent: a letter from the process agent appointed by Lessee in this Agreement accepting that appointment; (viii) Certificate: a certificate of a duly authorized officer of Lessee:- (a) setting out a specimen of each signature referred to in Clause 3.1(a)(ii); (b) certifying that each copy document specified in this Clause is correct, complete and in full force and effect; (c) certifying that Lessee's representations and warranties contained in Clause 2.1 and 2.2 are true and correct on the Delivery Date as if given on such date; and (d) certifying that there has been no material change in Lessee's Constitutional Documents since originally delivered by Lessee to Lessor; (ix) Air Traffic Control: a letter from Lessee addressed to Transport Canada or other relevant air traffic control authority pursuant to which Lessee authorizes the addressee to issue to Lessor, upon Lessor's request from time to time, a statement of account of all sums due by Lessee to the authority in respect of all aircraft (including, without limitation, the Aircraft) operated by Lessee; (x) Deregistration Power: an irrevocable power of attorney authorizing Lessor or such other person as Lessor may from time to time specify to do any thing or act or to give any consent or approval which may be required to obtain deregistration of the Aircraft and to export the Aircraft from the Habitual Base upon termination of the leasing of the Aircraft under this Agreement, duly notarized and legalized; (xi) Certificate of Lease Termination: a certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 7 hereto, acknowledging that this Agreement is no longer in effect with respect to the Aircraft and Engines, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to the Lessee hereunder; and (xii) General: such other documents as Lessor may reasonably request; (b) the receipt by Lessor on or before the Delivery Date of:- (i) Opinions: a signed original of each of the opinions referred to in Clause 3.1(a)(iii) and 3.1(a)(iv); (ii) Payments: all sums due to Lessor under this Agreement on or before the Delivery Date including, without limitation, the first payment of Rent; (iii) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor that Lessee is taking the required steps to ensure due compliance with the provisions of this Agreement as to Insurances with effect on and after the Delivery Date; (iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be dated the Delivery Date, fully completed and executed by Lessor and Lessee, and filed for recording at the FAA; (v) Certificate of Technical Acceptance: in the form of Schedule 2 hereto, to be dated and fully completed, and executed by Lessor and Lessee certifying that Lessee has completed its inspection of the Aircraft in accordance with Clause 4.5 hereof and that Aircraft conforms to the provisions set forth therein and is in all respects acceptable to Lessee, or if not so acceptable, then setting forth discrepancies and corrective action to be taken; (vi) Accounts: the latest available accounts of Lessee as described in Clause 8.2(b)(i) and (ii); (vii) Documents: a confirmation of receipt of the Aircraft Documents delivered with the Aircraft on the Delivery Date; (viii) UCC-1 Financing Statements: in form acceptable to Lessor, and suitable for filing in the States of Colorado and New York and signed by Lessee; and (ix) General: such other documents as Lessor may reasonably request. (c) receipt by Lessor of such information and documents relating to the proposed Maintenance Program as Lessor may require and Lessor having agreed the proposed Maintenance Program on or prior to the Delivery Date; and (d) evidence that on the Delivery Date that all filings, registrations, recordings and other actions have been or will be taken which are necessary or advisable to ensure the validity, effectiveness and enforceability of this Agreement and the Assignments and to protect the property rights of Lessor in the Aircraft or any Part. 3.2 Further conditions precedent: The obligations of Lessor to deliver and lease the Aircraft under this Agreement are subject to the further conditions precedent that:- (a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are correct and would be correct if repeated on delivery of the Aircraft under this Agreement; and (b) no Default has occurred and is continuing or might result from the leasing of the Aircraft to Lessee under this Agreement. 3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole benefit of Lessor and may be waived or deferred in whole or in part and with or without conditions by Lessor. If any of those conditions are not satisfied on the Delivery Date and Lessor (in its absolute discretion) nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure that those conditions are fulfilled within * days after the Delivery Date and Lessor may treat as an Event of Default the failure of Lessee to do so. 4. COMMENCEMENT 4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the Aircraft on lease in accordance with this Agreement for the duration of the Term. Lessor will deliver and Lessee will accept the Aircraft on the day in the Scheduled Delivery Month notified by Lessor to Lessee at least * Business Days in advance of such date or such other day as may be agreed. In the event (a) Lessee is unwilling or unable to accept delivery of the Aircraft on the date notified by Lessor as the Delivery Date, and (b) the Aircraft meets Delivery Condition Requirements then Lessee's obligation to pay Rent hereunder shall commence on such Delivery Date notwithstanding that Lessee has not accepted possession of the Aircraft. After delivery the Aircraft and every Part will be in every respect at the sole risk of Lessee, who will bear all risk of loss, theft, damage or destruction to the Aircraft from any cause whatsoever. 4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the Delivery Location or such other location as may be agreed. Lessee will effect acceptance of the Aircraft by execution and delivery to Lessor of the duly completed and executed Certificate of Acceptance in the form of Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the form of Schedule 6 hereto and by authorizing the filing at the FAA of an executed copy of such Lease Supplement with an executed copy of this Agreement attached thereto. 4.3 Delayed Delivery: If owing to:- (a) any seller, manufacturer or existing lessee of the Aircraft delaying in the delivery of, or failing to deliver, the Aircraft to Lessor for any reason (other than because of any default of Lessor in the performance of its obligations under an agreement with that seller, manufacturer or lessee unless the default arises from any act or omission of Lessee) whether or not in circumstances entitling that seller, manufacturer or lessee to terminate that agreement; (b) any purchase agreement for the Aircraft terminating prior to delivery of the Aircraft (other than because of any default of Lessor in the performance of its obligations under that agreement unless the default arises from any act or omission of Lessee); (c) any Excusable Delay; or (d) notification of any defect or non-conformity pursuant to Clause 4.5; Lessor delays in the delivery of, or fails to deliver, the Aircraft under this Agreement:- (i) Lessor will not be responsible for any losses, including loss of profit, costs or expenses arising from or in connection with the delay or failure suffered or incurred by Lessee; (ii) subject to Clause 4.5, Lessee will not be entitled to terminate this Agreement or to reject the Aircraft when tendered for delivery by Lessor, on the grounds of any such delay; (iii) in the case of termination of a purchase agreement, Lessor may at any time after the termination terminate this Agreement; and (iv) upon any such termination or termination pursuant to Clause 4.5 neither Lessor nor Lessee will have any further obligation to the other under this Agreement other than as expressly set out in this Agreement, except that Lessor will repay to Lessee the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable. 4.4 Licenses: Lessee will at its expense obtain all licenses, permits and approvals which may be necessary to export the Aircraft from the Delivery Location. Lessor will furnish such data and information as may be reasonably requested by Lessee in connection with obtaining any such license, permit or approval. 4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase or lease agreement, Lessor will give Lessee an opportunity:- (a) to inspect the Aircraft at the Delivery Location; and (b) to assign up to 2 representatives to participate as observers in a demonstration flight to demonstrate the condition of the Aircraft. If Lessee notifies Lessor promptly prior to the Delivery Date of any defect or non-conformity with Schedule 1 observed during the inspection or demonstration flight, Lessor will correct or procure the correction of the defect or non-conformity as promptly as practicable (except to the extent otherwise agreed or to the extent in the opinion of Lessor it is impracticable or prohibitively expensive to do so). Subject to Clause 4.3, Lessor may postpone the Delivery Date in such a case to the date which Lessor notifies Lessee that the defect or non-conformity has been rectified. Lessee will be entitled to terminate this Agreement if Lessor notifies it that Lessor does not intend to correct the defect or non-conformity. 4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from and against all Claims (as defined in Clause 10) arising from death or injury to any observer or any employee of Lessee in connection with any demonstration flight or inspection of the Aircraft by Lessee. 5. PAYMENTS 5.1 Deposit: Lessee shall pay to Lessor a Deposit in cash or pursuant to a Letter of Credit in form and substance reasonably acceptable to Lessor in the amounts set forth in the definition of Deposit in Letter Agreement No. 1 and in accordance with the schedule set forth therein. So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits then held by Lessor upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 5.2 Rental Periods: The Term will consist of consecutive whole or partial Rental Periods set forth in Letter Agreement No. 1. The first Rental Period will commence on the Delivery Date and each subsequent Rental Period will commence on the date succeeding the last day of the previous Rental Period. Each Rental Period will end on the date immediately preceding the calendar day in the next month numerically corresponding to the Delivery Date, except that: (a) if there is no such numerically corresponding day in that month, it will end on the last day of that month; and (b) if a Rental Period would otherwise overrun the Expiry Date, it will end on the Expiry Date. 5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in advance in the amount specified as "Rent" in Letter Agreement No. 1. Payment must be initiated adequately in advance of the Rent Date to ensure that Lessor receives credit for the payment on the Rent Date. If a Rental Period begins on a non-Business Day, the Rent payable in respect of that Rental Period shall be paid on the Business Day immediately preceding the date on which such Rental Period commences. 5.4 Supplemental Rent: (a) Amount: Lessee will further pay to Lessor Supplemental Rent in relation to each calendar month or portion thereof during the Term and for the last Rental Period of the Term no later than the 10th day following the end of such calendar month as follows:- (i) in respect of the Airframe, the product of the Airframe Maintenance Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Aircraft during that calendar month ("Airframe Supplemental Rent"); and (ii) in respect of the life-limited Parts ("LLP") for each Engine, the product of the Life-Limited Parts Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine LLP Refurbishment Reserves"); and (iii) in respect of Engine Refurbishment for each Engine, the product of the Engine Refurbishment Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine Refurbishment Reserves"); and (iv) in respect of the Landing Gear, the product of the Landing Gear Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Landing Gear during that calendar month ("Landing Gear Supplemental Rent"). (b) Adjustment: Lessor may adjust the amount of Supplemental Rent after the Delivery Date upon notice to Lessee not more frequently than annually utilizing the Escalation Adjustment set forth in Letter Agreement No. 1. The Engine Reserve Rate may be further adjusted not more frequently than annually as provided in Section III of Letter Agreement No. 1. 5.5 Payments: All payments by Lessee to Lessor under this Agreement will be made for value on the due date in Dollars and in same day funds settled through the New York Clearing House System or such other funds as may for the time being be customary for the settlement in New York City of international payments in Dollars by telegraphic transfer to Bankers Trust Company, ABA number * for the account of GECC T&I Air Depository Account, Account No. * or to such other account as Lessor may advise Lessee in writing. 5.6 Withholding: All payments by Lessee pursuant to the Operative Documents to which it is a party shall be free of all withholdings of any nature whatsoever except to the extent otherwise required by Law, and if any such withholding is so required, Lessee shall pay on an After-Tax Basis an additional amount such that after the deduction of all amounts required to be withheld, the net amount actually received by Lessor on an After-Tax Basis will equal the amount that Lessor would have received on an After-Tax Basis if such withholding had not been required; provided, however, that if Lessee pays any such additional amount to compensate for the withholding of any Lessor Tax, Lessor shall repay to Lessee within * days after receipt of Lessee's written request therefor (which request shall include a description in reasonable detail of the Lessor Tax involved and the calculation of the additional amount to be repaid) the amount of such additional amount to the extent attributable to any Lessor Tax. 5.7 General Tax Indemnity: (a) General: (i) Lessee will on demand pay and indemnify each Indemnitee against all Taxes (other than Lessor Taxes) levied or imposed against or upon or payable by such Indemnitee or Lessee and arising from, with respect to or in connection with the transactions pursuant to the Operative Documents to which it is a party including (but not limited to) all Taxes relating or attributable to Lessee, any Operative Document or the Aircraft directly or indirectly in connection with the importation, exportation, registration, ownership, leasing, sub-leasing, purchase, delivery, possession, use, operation, repair, maintenance, overhaul, transportation, landing, storage, presence or redelivery of the Aircraft or any part thereof or any rent, receipts, insurance proceeds, income or other amounts arising therefrom. (ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by Lessee directly to the appropriate taxing authority (to the extent permitted by applicable Law) at or before the time prescribed by applicable Law. After any payment by Lessee of any Tax directly to a taxing authority, Lessee shall furnish to Lessor, on request, a certified copy of a receipt for Lessee's payment of such Tax or such other evidence of payment of such Tax as is reasonably obtainable by Lessee and reasonably acceptable to Lessor. (iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause 5.7 shall be paid within * days after receipt of a written demand therefor from the relevant Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable, provided that if an amount of any indemnified Tax is being contested in accordance with Clause 5.12 and Lessee shall have duly performed (and shall continue to perform) all its obligations under Clause 5.12 with respect to such contest, then payment of the indemnity with respect to such Tax under Clause 5.12 shall , at Lessee's election, be deferred until the date the contest has been completed. (b) MACRS Tax Indemnity Lessee will on demand pay and indemnify each Tax Indemnitee for any loss, disallowance, or deferral of, or delay in claiming, the MACRS Deductions resulting from (A) Lessee's using the Aircraft in such a manner as to cause the Aircraft to be treated as "used predominantly outside the United States" within the meaning of Section 168(g) of The Internal Revenue Code of 1986, as amended (the "Code") or (B) the Aircraft being treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code other than as a result of the Lessor being a "tax-exempt entity" under Section 168(h)(2) of the Code (either (A) or (B) hereinafter referred to as a "MACRS Loss"). In determining the indemnity required in connection with a MACRS Loss to the Tax Indemnitee under this Clause, the Tax Indemnitees shall be assumed to be subject to a combined U. S. and state income tax rate of (after giving effect to the deductibility of such state income taxes for U. S. income tax purposes) *% in 2000 and in each year thereafter (the "Assumed Tax Rate"), and the Tax Indemnitee will have sufficient taxable income to be taxed at the Assumed Tax Rate after full utilization of the MACRS Deductions. The amount of the MACRS Loss for any taxable year or years shall be computed as the difference between (X) the present value of the MACRS Deductions for such year or years and all subsequent years using a discount rate of * per cent (*%) per annum, and (Y) the present value of the actual cost recovery deductions attributable to the Aircraft realized by the Tax Indemnitee as a result of the MACRS Loss (but assuming that the Aircraft is sold by the Lessor at the end of the Term of * months using a discount rate of * per cent (*%) per annum. The amount payable under this indemnity shall be the amount that, after deduction by the Tax Indemnitee of the amount of all additional U.S., state, local and foreign taxes required to be paid by the Tax Indemnitee in respect of the receipt or accrual of such amount, will equal the amount of the MACRS Loss as computed in the preceding sentence, plus the amount of any actual interest, penalties and additions to tax payable by the Tax Indemnitee with respect to the MACRS Loss. (c) Foreign Tax Credit Indemnity If, as a result of the use or operation or location of the Aircraft outside the United States by Lessee, more than the *% (the "Permitted Percentage") of any item of income, deduction, or loss with respect to the transactions contemplated by the Lease will be treated for Federal income tax purposes as derived from, or allocable to, sources outside the United States (an "Excess Foreign Allocation"), and if as a result thereof the amount of the foreign tax credits available for utilization by the Lessor for any taxable year shall be less than the amount of the foreign tax credits that would have been available for utilization by the Lessor if the Lessee had not used the Aircraft outside the United States more than the Permitted Percentage (such event being referred to herein as a "Foreign Tax Credit Loss"), then the Lessee shall pay to the Lessor as an indemnity an amount which, after deduction of the amount of all additional federal, state, local and foreign taxes actually required to be paid by the Lessor in respect of the receipt or accrual of such amount, is equal to the actual increase in the Federal income taxes payable by (or not refundable to) the Lessor for such taxable year as a result of such Foreign Tax Credit Loss, plus the amount of any interest, penalties and additions to tax payable by the Lessor as a result of such Foreign Tax Credit Loss. (d) Payment Each payment by the Lessee pursuant to Clauses 5.7(b) and (c) shall be made within * days after receipt of a written demand therefor accompanied by a written statement describing in reasonable detail the MACRS Loss or Foreign Tax Credit Loss in question, the amount of additional Federal income tax, interest, penalties and additions to tax and the calculation of the payment due in request thereof (but in no event shall be required to be paid earlier than * (*) Business Days prior to the date such additional Federal income taxes are due); provided that, if a contest of the MACRS Loss or Foreign Tax Credit Loss is being conducted pursuant to Clause 5.12 hereof, payment (other than payments required under Clause 5.12) shall not be required from the Lessee until * days after the final determination of such contest. 5.8. Sales and Use Taxes: (a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if requested by Lessor, Lessee shall pay to the relevant tax authority for the account of Lessor), in addition to the amounts specified as "Rent" in Letter Agreement No. 1: (i) all sales, use, rental, value added, goods and services and similar taxes ("Sales Taxes") required to be paid to the tax authority of the jurisdiction in which the Delivery Location is situated or to the jurisdiction in which the Aircraft is habitually based with respect to the lease of the Aircraft to Lessee pursuant to the Operative Documents to which it is a party unless Lessee delivers to Lessor on or prior to the Delivery Date such exemption certificate or other document as may be acceptable to Lessor to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party; and (ii) all Sales Taxes required to be paid to the tax authority of any jurisdiction in which the Aircraft may be used, operated or otherwise located from time to time unless Lessee delivers to Lessor such exemption certificates or other documents as may be required by applicable Law to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by each such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party. (b) Lessee will cooperate with Lessor in connection with the preparation and filing of any exemption application or similar document that is reasonably necessary or desirable under applicable Law to avoid the imposition of any Sales Taxes with respect to the transactions contemplated by the Operative Documents to which Lessee is a party. (c) The specific obligations with respect to sales and use taxes set forth in this Clause 5.8 are in addition to, and are not in substitution for, the Lessee's obligation to indemnify for sales and use taxes pursuant to Clause 5.7. 5.9 Information: (a) If Lessee is required by any applicable Law, or by any third party, to deliver any report or return in connection with any Taxes for which Lessee would be obligated to indemnify Lessor under the Operative Documents to which Lessee is a party, Lessee will complete the same and, on request, supply a copy of the report or return to Lessor. (b) If any report, return or statement is required to be made by Lessor with respect to any Tax for which there is an indemnity obligation of Lessee under this Clause 5, Lessee will promptly notify Lessor of the requirement and: (i) if permitted by applicable Law, make and timely file such report, return or statement (except for any report, return or statement that Lessor has notified Lessee that Lessor intends to prepare and file), prepare such return in such manner as will show the ownership of the Aircraft in Lessor if required or appropriate, and provide Lessor upon request a copy of each such report, return or statement filed by Lessee, or (ii) if Lessee is not permitted by applicable Law to file any such report, return or statement, Lessee will prepare and deliver to Lessor a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. Lessee will provide such information and documents as Lessor may reasonably request to enable Lessor to comply with its tax filing, audit and litigation obligations. 5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that, with respect to any payment or indemnity pursuant to Clause 5.7 (Tax Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to or for the benefit of any Indemnitee, Lessee's indemnity obligations shall include such amount as may be necessary to hold such Indemnitee harmless on an After-Tax Basis from all Taxes required to be paid by such Indemnitee with respect to such payment or indemnity (including any payments pursuant to this Clause 5.10), determined based on the assumption that at the time each such payment or indemnity accrues to the relevant Indemnitee, such payment or indemnity will be subject to (i) United States Federal income tax at the highest marginal statutory tax rate applicable to corporations, (ii) United States state and local income taxes at the composite of the highest marginal statutory tax rates applicable to the Indemnitee and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on the relevant Indemnitee. 5.11 Default Interest: If Lessee fails to pay any amount payable under this Agreement on the due date, Lessee will pay on demand from time to time to Lessor interest (both before and after judgment) on that amount, from the due date to the date of payment in full by Lessee to Lessor, at the Interest Rate specified in Letter Agreement No. 1; provided, however, that in no event shall such rate exceed the maximum permitted by Law. All such interest will be compounded monthly and calculated on the basis of the actual number of days elapsed in the month assuming a * day month and a * day year. 5.12 Contest: (a) If an Indemnitee receives a written claim for any Tax for which Lessee would be required to pay an indemnity pursuant to Clause 5.7 or Clause 5.8, such Indemnitee shall notify Lessee promptly of such claim, provided that any failure to provide such notice will not relieve Lessee of any indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If requested by Lessee in writing promptly after receipt of such Indemnitee's notice, such Indemnitee shall, upon receipt of indemnity satisfactory to it and at the expense of Lessee (including, without limitation, all costs, expenses, legal and accountants' fees and disbursements, and penalties, interest and additions to tax incurred in contesting such claim) in good faith contest or (if permitted by applicable Law in the case of Taxes other than those payable pursuant to Clauses 5.7(b) and (c)) permit Lessee to contest such claim by (i) resisting payment thereof if practicable and appropriate, (ii) not paying the same except under protest if protest is necessary and proper, or (iii) if payment is made, using reasonable efforts to obtain a refund of such Taxes in appropriate administrative and judicial proceedings. Such Indemnitee shall determine the method of any contest conducted by such Indemnitee and (in good faith consultation with Lessee) control the conduct thereof. Lessee shall determine the method of any contest conducted by Lessee and (in good faith consultation with such Indemnitee) control the conduct thereof. Lessee shall pay in full all payments of Rent and other amounts payable pursuant to the Operative Documents to which Lessee is a party, without reduction for or on account of any Tax, while such contest is continuing. Such Indemnitee shall not be required to contest, or to continue to contest, a claim for Taxes under this Clause 5.12 if (w) in the case of Taxes payable pursuant to Clauses 5.7(b) or (c), the amount in dispute is less than $*, or (x) such contest would result in a risk of criminal penalties or of a sale, forfeiture or loss of, or the imposition of a Lien (other than a Permitted Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion of independent tax counsel selected by such Indemnitee and reasonably satisfactory to Lessee, that a reasonable basis exists for such contest, or (z) a Default or an Event of Default shall be continuing (unless Lessee shall have provided security reasonably satisfactory to such Indemnitee securing Lessee's performance of its obligations under this Clause 5). If such Indemnitee contests any claim for Taxes by making a payment and seeking a refund thereof, then Lessee shall advance to such Indemnitee, on an interest-free basis, an amount equal to the Taxes to be paid by such Indemnitee in connection with the contest and shall indemnify such Indemnitee on an After-Tax Basis for any adverse tax consequences to such Indemnitee of such interest-free advance. Upon the final determination of any contest pursuant to this Clause 5.12 in respect of any Taxes for which Lessee shall have made an advance to such Indemnitee in accordance with the immediately preceding sentence, the amount of Lessee's obligation shall be determined as if such advance had not been made; any indemnity obligation of Lessee to such Indemnitee under this Clause 5 and such Indemnitee's obligation to repay the advance will be satisfied first by setoff against each other, and any difference owing by either party shall be paid within ten days after such final determination. (b) If an Indemnitee obtains a refund of all or any part of any Taxes for which a full indemnity was paid by Lessee, such Indemnitee shall pay Lessee the amount of such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such refund and increased by any Taxes saved by such Indemnitee by reason of the deductibility of such payment by such Indemnitee. If, in addition to such refund, such Indemnitee receives an amount of interest on such refund, such Indemnitee shall pay to Lessee the portion of such interest which is fairly attributable to such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such interest and increased by any Taxes saved by reason of the deductibility of such payment by such Indemnitee. Such Indemnitee shall not be required to make any payment to Lessee pursuant to this Clause 5.12 if, and for so long as, an Event of Default shall have occurred and be continuing. (c) Any Indemnitee in its sole discretion (by written notice to Lessee) may waive its rights to indemnification pursuant to Clause 5.7 with respect to any claim for any Tax and may refrain from contesting or continuing the contest of such claim, in which event Lessee shall have no obligation to indemnify such Indemnitee for the Taxes that are the subject of such claim. If an Indemnitee agrees to a settlement of any contest conducted pursuant to this Clause 5.11 without the prior written consent of Lessee, which consent shall not be unreasonably withheld, then Lessor shall be deemed to have waived its rights to the indemnification provided for in Clause 5.7 with respect to the Tax liability accepted in such settlement. 5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this Agreement are absolute and unconditional irrespective of any contingency whatsoever including (but not limited to):- (a) any right of set-off, counterclaim, recoupment, defense or other right which either party to this Agreement may have against the other; (b) any unavailability of the Aircraft for any reason, including, but not limited to, a requisition of the Aircraft or any prohibition or interruption of or interference with or other restriction against Lessee's use, operation or possession of the Aircraft; (c) any lack or invalidity of title or any other defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, or operation of any kind or nature of the Aircraft for any particular use or trade, or for registration or documentation under the laws of any relevant jurisdiction, or any Event of Loss in respect of or any damage to the Aircraft; (d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceedings by or against Lessor or Lessee; (e) any invalidity or unenforceability or lack of due authorization of, or other defect in, this Agreement; (f) and Security Interests with respect to the Aircraft or Taxes; and/or (g) any other cause which but for this provision would or might otherwise have the effect of terminating or in any way affecting any obligation of Lessee under this Agreement. 5.14 Security (a) To the fullest extent permitted by Law and by way of continuing security Lessee as sole beneficial owner charges the Deposit and the Supplemental Rent and all rights of Lessee to payment thereof and the debt represented thereby (the "Charged Monies") to Lessor by way of first fixed charge as security for Lessee's obligations and liabilities under this Agreement and the Related Agreements (the "Secured Liabilities"). Except as expressly permitted under this Agreement, Lessee will not be entitled to payment of the Charged Monies. Lessee will not assign, transfer or otherwise dispose of all or part of its rights in the Charged Monies and it will enter into any additional documents and instruments necessary or advisable to evidence, create or perfect Lessor's rights to the Charged Monies; (b) If Lessee fails to comply with any provision of this Agreement or any Event of Default has occurred and is continuing, in addition to all rights and remedies accorded to Lessor elsewhere in this Agreement and under Law as a secured party in respect of the Charged Monies, Lessor may immediately or at any time thereafter, without prior notice to Lessee:- (i) set-off all or any part of the Secured Liabilities against the liabilities of Lessor in respect of the Charged Monies; or (ii) apply or appropriate the Charged Monies in or towards the payment or discharge of the Secured Liabilities in such order as Lessor sees fit; and (c) If Lessor has exercised the set-off described in sub-clause (b) above, Lessee shall, following a demand in writing from Lessor, restore the Charged Monies to the level at which they stood immediately prior to such set-off. 5.15 Letter of Credit (a) If Lessee elects to provide Lessor with a Letter of Credit, the provisions of this Section shall apply. Any Letter of Credit provided by Lessee to Lessor will be issued and payable by USBank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by USBank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, and will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and each Other Agreement (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (b) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than * days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (c) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (d) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, immediately procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. 6. MANUFACTURER'S WARRANTIES 6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to the benefit of each warranty, express or implied, with respect to the Aircraft, any Engine or Part so far as concerns any manufacturer, vendor, subcontractor or supplier. Except to the extent Lessor otherwise directs, Lessor hereby authorizes Lessee to pursue any claim thereunder in relation to defects affecting the Aircraft, any Engine or Part and Lessee agrees diligently to pursue any such claim which arises at its own cost. Lessee will notify Lessor promptly upon becoming aware of any such claim. 6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular case, all proceeds of any such claim will be paid directly to Lessor but if and to the extent that such claim relates:- (a) to defects affecting the Aircraft which Lessee has rectified; or (b) to compensation for loss of use of the Aircraft, an Engine or any Part during the Term; and provided no Default has occurred and is continuing the proceeds will be paid to Lessee by Lessor but in the case of (a) above only on receipt of evidence satisfactory to Lessor that Lessee has rectified the relevant defect. 6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case, Lessee will procure that all engines, components, furnishings or equipment provided by the manufacturer, vendor, subcontractor or supplier in replacement of a defective Engine or Part pursuant to the terms of any warranty will be installed promptly by Lessee and that title thereto free of Security Interests vests in Lessor. On installation each part will be deemed to be a Part. In the case of a Replacement Engine, Lessee will satisfy and perform each of the conditions and covenants set forth in Clause 11.1(c), and upon satisfaction of such conditions, such Replacement Engine will be deemed an "Engine" for all purposes of this Agreement. 6.4 Agreement: To the extent any warranties relating to the Aircraft are made available under an agreement between any manufacturer, vendor, subcontractor or supplier and Lessee, this Clause 6 is subject to that agreement. However Lessee will:- (a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant to Clause 6.2 and pending such payment will hold the claim and the proceeds on trust for Lessor; and (b) Lessee will take all such steps as are necessary at the end of the Term to ensure the benefit of any of those warranties which have not expired are vested in Lessor. 7. LESSOR'S COVENANTS 7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its rights under or in connection with this Agreement will not constitute such an interference. Lessor will procure at Lessee's request an undertaking of quiet enjoyment for the benefit of Lessee with respect to any prospective Lessor Lien. 7.2 Release of Supplemental Rent: Provided no Default has occurred and is continuing Lessor will release funds to Lessee from the Supplemental Rent respecting maintenance work performed upon submission by Lessee to Lessor within * months of the commencement of that maintenance and before * (*) months following the Expiry Date of an invoice and supporting documentation reasonably satisfactory to Lessor evidencing:- (a) with respect to the Airframe, the completion, in accordance with this Agreement, of those items of maintenance (excluding any repairs arising as the result of operational or maintenance mishandling) characterized by the Manufacturer's maintenance planning document and best industry practice as "D" Check and/or individual structural inspections having an interval of not less than * Flight Hours or * years for the Aircraft or any lesser interval for an equivalent major structural inspection if required by the Manufacturer's maintenance planning document subject to retroactive and prospective adjustment of the Reserve Rates as deemed appropriate by Lessor, the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Airframe Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously released by Lessor under this sub-clause; (b) with respect to any Engine, the performance, in accordance with this Agreement, of all shop visits requiring engine disassembly (other than (i) repairs arising as a result of foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Engine Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; (c) with respect to life limited parts within any Engine, the performance, in accordance with this Agreement, of any such parts replacement (other than (i) replacement arising as a result of accidents or incidents (whether or not eligible for recovery under Lessee's insurance), foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of QEC kits) and/or (iii) any elective parts replacement), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate of Engine LLP Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; and (d) with respect to the Landing Gear, the performance in accordance with this Agreement, of all work on the landing gear in the nature of overhaul and requiring removal and disassembly (other than repairs arising as the result of operational or maintenance mishandling), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Landing Gear Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid by Lessor under this sub-clause. 7.3 Lessor Obligations Following Expiry Date: Within * Business Days of:- (a) redelivery of the Aircraft to Lessor in accordance with and in the condition required by this Agreement; or (b) payment to Lessor of the Agreed Value following an Event of Loss after the Delivery Date; or in each case such later time as Lessor is reasonably satisfied Lessee has irrevocably paid to Lessor all amounts which may then be outstanding or become payable under this Agreement, the other Operative Documents to which Lessee is a party or the Related Agreements and Lessee, Lessor will pay to Lessee:- (i) the balance of the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable; and (ii) the amount of any Rent received in respect of any period falling after the date of redelivery of the Aircraft or payment of the Agreed Value, as the case may be; and shall return to Lessee the warrant certificate, if not previously exercised, representing the Warrant. 8. LESSEE'S COVENANTS 8.1 Duration: The undertakings in this Clause and in Clause 12 will:- (a) except as otherwise stated, be performed at the expense of Lessee; and (b) remain in force until the Expiry Date in accordance with this Agreement and thereafter to the extent of any accrued rights of Lessor in relation to those undertakings. 8.2 Information: Lessee will:- (a) notify Lessor forthwith of the occurrence of any Default or any other event which might adversely affect Lessee's ability to perform any of its obligations under this Agreement; (b) furnish to Lessor:- (i) upon request, the consolidated management accounts of Lessee (comprising a balance sheet and profit and loss statement) prepared for the most recent previous financial quarter; (ii) as soon as available but not in any event later than * days after the last day of each financial year of Lessee, its audited consolidated balance sheet as of such day and its audited consolidated profit and loss statement for the year ending on such day; (iii) at the same time as it is issued to the shareholders or creditors of Lessee, a copy of each notice or circular issued to Lessee's shareholders or creditors as a group; and (iv) on request from time to time such other information regarding Lessee and its business and affairs as Lessor may reasonably request; (c) keep Lessor informed as to current serial numbers of the Engines and any engine installed on the Aircraft; (d) promptly furnish to Lessor all information Lessor from time to time reasonably requests regarding the Aircraft, any Engine or any Part, its use, location and condition including, without limitation, the hours available on the Aircraft and any Engine until the next scheduled check, inspection, overhaul, refurbishment or shop visit, as the case may be; (e) on request, within * days after the end of any Rental Period, furnish to Lessor evidence satisfactory to Lessor of payment of all Taxes due during that or any previous Rental Period; (f) on request, furnish to Lessor evidence satisfactory to Lessor that all Taxes and charges incurred by Lessee with respect to the Aircraft, including without limitation all payments due to the relevant air traffic control authorities, have been paid and discharged in full; (g) within * days after the end of each calendar month during the Term, provide Lessor with a monthly report on the Aircraft and each Engine in the form set out in Schedule 8 hereto; (h) give Lessor not less than * days' written notice as to the time and location of all Major Checks; and (i) promptly notify Lessor of:- (i) any loss, theft, damage or destruction to the Aircraft, any Engine or any Part, or any modification to the Aircraft if the potential cost may exceed the Damage Notification Threshold; and (ii) any claim or other occurrence likely to give rise to a claim under the Insurances (but in the case of hull claims only in excess of the Damage Notification Threshold) and details of any negotiations with the insurance brokers over any such claim. 8.3 Lawful and Safe Operation: Lessee will:- (a) comply with the law for the time being in force in any country or jurisdiction which may for the time being be applicable to the Aircraft (including without limitation Laws mandating insurance coverage) or, so far as concerns the use and operation of the Aircraft or an owner or operator thereof and take all reasonable steps to ensure that the Aircraft is not used for any illegal purpose; (b) not use the Aircraft in any manner contrary to any recommendation of the manufacturers of the Aircraft, any Engine or any Part or any recommendation or regulation of the Air Authority or for any purpose for which the Aircraft is not designed or reasonably suitable; (c) ensure that the crew and engineers employed by it in connection with the operation and maintenance of the Aircraft have the qualifications and hold the licenses required by the Air Authority and applicable Law; (d) use the Aircraft solely in commercial or other operations for which Lessee is duly authorized by the Air Authority and applicable Law; (e) not use the Aircraft for the carriage of:- (i) whole animals living or dead except in the cargo compartments according to I.A.T.A. regulations, and except domestic pet animals carried in a suitable container to prevent the escape of any liquid and to ensure the welfare of the animal; (ii) acids, toxic chemicals, other corrosive materials, explosives, nuclear fuels, nuclear wastes, or any nuclear assemblies or components, except as permitted for passenger aircraft under the "Restriction of Goods" schedule issued by I.A.T.A. from time to time and provided that all the requirements for packaging or otherwise contained therein are fulfilled; (iii) any other goods, materials or items of cargo which could reasonably be expected to cause damage to the Aircraft and which would not be adequately covered by the Insurances; or (iv) any illegal item or substance; (f) not utilize the Aircraft for purposes of training, qualifying or re-confirming the status of cockpit personnel except for the benefit of Lessee's cockpit personnel, and then only if the use of the Aircraft for such purpose is not disproportionate to the use for such purpose of other aircraft of the same type operated by Lessee; (g) not cause or permit the Aircraft to proceed to, or remain at, any location which is for the time being the subject of a prohibition order (or any similar order or directive) by:- (i) any Government Entity of the State of Registration or the Habitual Base; or (ii) any Government Entity of the country in which such location is situated; or (iii) any Government Entity having jurisdiction over Lessor or the Aircraft; (h) obtain and maintain in full force all certificates, licenses, permits and authorizations required for the use and operation of the Aircraft for the time being, and for the making of payments required by, and the compliance by Lessee with its other obligations under, this Agreement; (i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to or for any country or entity that is the subject of sanctions under the U.S. International Economic Emergency Powers Act or U.N. Security Council directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola). Lessee also covenants and agrees (i) not to operate or locate, or suffer or permit to be operated or located, the Aircraft in any country restricted under the U.S. Trading with the Enemy Act and the U.S. Export Administration Act except as may be permitted by operating in accordance with the conditions specified by the U.S. Export Administration Regulations (15 CFR Parts 730-799), General License GATS (15 CFR Part 771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii) not to operate the Aircraft between Cuba and the United States; and (j) not use, operate, or locate the Aircraft, or cause suffer or permit the Aircraft to be used, operated or located during the Term in any manner not covered by the Insurances or in any area excluded from coverage by the Insurances or in any manner which would prejudice the interests of the Indemnitees in the Insurances, the Aircraft, any Engine or any Part. 8.4 Taxes and other Outgoings: Lessee will promptly pay:- (a) all license and registration fees, Taxes (other than Lessor Taxes) and other amounts of any nature imposed by any Government Entity with respect to the Aircraft, including without limitation the purchase, ownership, delivery, leasing, possession, use, operation, return, sale or other disposition of the Aircraft; and (b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts in respect of any premises where the Aircraft or any Part thereof is located from time to time; except to the extent that in the reasonable opinion of Lessor such payment is being contested in good faith by appropriate proceedings, in respect of which adequate resources have been provided by Lessee and non-payment of which does not give rise to any material likelihood of the Aircraft or any interest therein being sold, forfeited or otherwise lost or of criminal liability on the part of Lessor. 8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8 AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF. 8.6 Inspection: (a) Lessor and any person designated by Lessor may at any time visit, inspect and survey the Aircraft, any Engine or any Part and for such purpose may, subject to any applicable Air Authority regulation, travel on the flight deck as observer; (b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable out-of-pocket expenses incurred by Lessor in connection with any such visit, inspection or survey; and (c) Lessor will:- (i) have no duty or liability to make, or arising out of making or failing to make, any such visit, inspection or survey; and (ii) so long as no Default has occurred and is continuing, not exercise such right other than on reasonable notice and so as not to disrupt unreasonably the commercial operations of Lessee, provided, however, Lessee will take such action as may be reasonably required to facilitate Lessor's inspection. 8.7 Title: Lessee will:- (a) not do or knowingly permit to be done or omit or knowingly permit to be omitted to be done any act or thing which might reasonably be expected to jeopardize the rights of Lessor as owner of the Aircraft; (b) on all occasions when the ownership of the Aircraft, any Engine or any Part is relevant, make clear to third parties that title is held by Lessor; (c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation or carriage (whether for hire or reward or gratuitously) which may be undertaken by Lessee or (ii) pledge the credit of Lessor; (d) ensure that there is always affixed, and not removed or in any way obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7 cm.) in a reasonably prominent position in the cockpit of the Aircraft and on each Engine stating:- "This Aircraft/Engine is owned by Aviation Financial Services Inc. and is leased to Frontier Airlines, Inc. and may not be operated by any other person without the prior written consent of Aviation Financial Services Inc."; (e) not create or permit to exist any Security Interest upon the Aircraft, any Engine or any Part; (f) not do or permit to be done anything which may reasonably be expected to expose the Aircraft, any Engine or any Part to penalty, forfeiture, impounding, detention, appropriation, damage or destruction and without prejudice to the foregoing, if any such penalty, forfeiture, impounding, detention or appropriation, damage or destruction occurs, give Lessor notice and use best endeavors to procure the immediate release of the Aircraft, any Engine or the Part, as the case may be; (g) not abandon the Aircraft, the Engine or any Part; (h) pay and discharge or cause to be paid and discharged when due and payable or make adequate provision by way of security or otherwise for all debts, damages, claims and liabilities which have given or might give rise to a Security Interest over or affecting the Aircraft, any Engine or any Part; and (i) not attempt, or hold itself out as having any power, to sell, lease or otherwise dispose of the Aircraft, any Engine or any Part; and (j) obtain a waiver of any mechanic's lien or right thereto from any vendor providing maintenance services for Lessee prior to delivering the Aircraft or any Engine or Part to such vendor. 8.8 General: Lessee will:- (a) not make any substantial change in the nature of the business in which it is engaged, will preserve its corporate existence (other than in connection with a solvent reconstruction the terms of which have been approved by Lessor, such approval not to be unreasonably withheld), and will conduct its business in an orderly and efficient and will maintain all rights, privileges, licenses and franchises material thereto or material to performing its obligations under this Agreement; (b) ensure that no change will occur in the Habitual Base of the Aircraft without the prior written consent of Lessor; (c) not without giving Lessor * days prior notice (in accordance with this Agreement), change its chief executive office (as such term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America; (d) remain a Certified Air Carrier and maintain, without limitation, its status so as to fall within the preview of Section 1110 of Title 11 of the United States Code or any analogous Statute; and (e) remain a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 8.9 Records: Lessee will:- (a) procure that accurate, complete and current records of all flights made by, and all maintenance carried out on, the Aircraft (including in relation to each Engine and Part subsequently installed, before the installation) are kept; keep the_records in such manner as the Air Authority may from time to time require. All records must be maintained in English. The records will form part of the Aircraft Documents; and (b) maintain, with appropriate revisions in English, all Aircraft Documents, records, logs, and other materials required by applicable Laws and best practice of major international air transport operators in respect of the Aircraft. 8.10 Protection: Lessee will:- (a) maintain the registration of the Aircraft with the Air Authority reflecting (so far as permitted by applicable Law) the interest of Lessor and not do or suffer to be done anything which might adversely affect that registration; and (b) do all acts and things (including, without limitation, making any filing or registration with the Air Authority or any other Government Entity or as required to comply with the Mortgage Convention where applicable) and execute and deliver all documents (including, without limitation, any amendment of this Agreement) as may be required by Lessor:- (i) following any change or proposed change in the ownership or financing of the Aircraft; or (ii) following any modification of the Aircraft, any Engine or any Part or the permanent replacement of any Engine or Part in accordance with this Agreement, so as to ensure that the rights of Lessor under this Agreement apply with the same effect as before; or (iii) to establish, maintain, preserve, perfect and protect the rights of Lessor under this Agreement and the interest of Lessor in the Aircraft. 8.11 Maintenance and Repair: Lessee will:- (a) keep the Aircraft airworthy in all respects and in good repair and condition; (b) not change the Maintenance Performer without providing the Lessor with prior written notice; (c) not materially change the Lessee's Maintenance Program or the schedule of the Lessee's Maintenance Program without the prior written consent of Lessor; (d) maintain the Aircraft in accordance with Lessee's Maintenance Program through the Maintenance Performer and perform (at the respective intervals provided in Lessee's Maintenance Program) all Major Checks; (e) maintain the Aircraft in accordance with the standard of maintenance required by FAR Part 121, Subpart L and any other rules and regulations of the FAA and in at least the same manner and with at least the same care, including, without limitation, maintenance scheduling, modification status and technical condition, as is the case with respect to similar aircraft owned or otherwise operated by Lessee and as if Lessee were to retain and continue operating the Aircraft in its fleet after the Expiry Date, including, without limitation, all maintenance to the Airframe, any Engine or any Part required to maintain all warranties, performance guarantees or service life policies in full force and effect except to the extent of conflict with the rules and regulations of the Air Authority; (f) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority and/or mandated by any manufacturer of the Aircraft, any Engine or Part (an "Airworthiness Directive); (g) comply with all applicable Laws and the regulations of the Air Authority and other aviation authorities with jurisdiction over Lessee or the Aircraft, any Engine or Part regardless of upon whom such requirements are imposed and which relate to the maintenance, condition, use or operation of the Aircraft or require any modification or alteration to the Aircraft, any Engine or Part; (h) maintain in good standing a current certificate of airworthiness (in the appropriate category for the nature of the operations of the Aircraft) for the Aircraft issued by the Air Authority except where the Aircraft is undergoing maintenance, modification or repair required or permitted by this Agreement and will from time to time provide to Lessor a copy on request; (i) if required by the Air Authority, maintain a current certification as to maintenance issued by or on behalf of the Air Authority in respect of the Aircraft and will from time to time provide to Lessor a copy on request; and (j) procure promptly the replacement of any Engine or Part which has become time, cycle or calendar expired, lost, stolen, seized, confiscated, destroyed, damaged beyond repair, unserviceable or permanently rendered unfit for use, with an engine or part complying with the conditions set out in Clause 8.13(a) and in the case of any Engine which suffers an Engine Event of Loss, shall procure that such engine complies with the provisions of Clause 11.1(c). 8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part installed on the Aircraft is at any time removed from the Aircraft other than:- (a) if replaced as expressly permitted by this Agreement; or (b) if the removal is of an obsolete item and is in accordance with Lessee's Maintenance Program; or (c) (i) during the course of maintaining, servicing, repairing, overhauling or testing that Engine or the Aircraft, as the case may be; or (ii) as part of a normal engine or part rotation program; or (iii) for the purpose of making such modifications to the Engine or the Aircraft, as the case may be, as are permitted under this Agreement; and then in each case (A) with respect to a Part, only if it is reinstalled or replaced by a part complying with Clause 8.13(a) as soon as practicable and in any event no later than the Expiry Date, and (B) with respect to an Engine, title to such Engine shall remain vested in Lessor. 8.13 Installation of Engines and Parts: Lessee will:- (a) ensure that, except as permitted by this Agreement, no engine or part is installed on the Aircraft unless:- (i) in the case of an engine, it is an engine of the same model as, or an improved or advanced version of the Engine it replaces, which is in the same or better operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits and has the same or greater value and utility as the replaced Engine; (ii) in the case of a part, it is in as good operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits, is of the same or a more advanced make and model and is of the same interchangeable modification status as the replaced Part; (iii) in the case of a part, it has become and remains the property of Owner free from Security Interests and on installation on the Aircraft will without further act be subject to this Agreement; and (iv) in each case, Lessee has full details as to its source and maintenance records; (b) if no Default has occurred which is continuing, be entitled to install any engine or part on the Aircraft by way of replacement notwithstanding Clause 8.13(a) if:- (i) there is not available to Lessee at the time and in the place that that engine or part is required to be installed on the Aircraft, a replacement engine or, as the case may be, part complying with the requirements of Clause 8.13(a); (ii) it would result in an unreasonable disruption of the operation of the Aircraft and/or the business of Lessee to ground the Aircraft until an engine or part, as the case may be, complying with Clause 8.13(a) becomes available for installation on the Aircraft; and (iii) as soon as practicable after installation of the same on the Aircraft but, in any event, no later than the Expiry Date, Lessee removes any such engine or part and replaces it with the Engine or Part replaced by it or by an engine or part, as the case may be, complying with Clause 8.13(a). 8.14 Non-Installed Engines and Parts: Lessee will:- (a) ensure that any Engine or Part which is not installed on the Aircraft (or any other aircraft as permitted by this Agreement) is, except as expressly permitted by this Agreement, properly and safely stored, and kept free from Security Interests; (b) notify Lessor whenever any Engine is removed from the Aircraft and, from time to time, on request procure that any person to whom possession of an Engine is given acknowledges in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in the Engine and will not seek to exercise any rights whatsoever in relation to it; (c) (notwithstanding the foregoing provisions of this sub-clause), be permitted, if no Default has occurred and is continuing, to install any Engine or Part on an aircraft, or in the case of a Part on an engine:- (i) owned and operated by Lessee free from Security Interests; or (ii) leased or hired to Lessee pursuant to a lease or conditional sale agreement on a long-term basis and on terms whereby Lessee has full operational control of that aircraft or engine; or (iii) acquired by Lessee and/or financed or refinanced, and operated by Lessee, on terms that ownership of that aircraft or engine, as the case may be, pursuant to a lease or conditional sale agreement, or a Security Interest therein, is vested in or held by any other Person; provided that in the case of (ii) and (iii):- (1) the terms of any such lease, conditional sale agreement or Security Interest will not have the effect of prejudicing the interest of Lessor in that Engine or Part; and (2) the lessor under such lease, the seller under such conditional sale agreement or the holder of such Security Interest, as the case may be, has confirmed and acknowledged in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in respect of that Engine or Part and that it will not seek to exercise any rights whatsoever in relation thereto. 8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any pooling agreement or arrangement in respect of an Engine or Part without the prior written consent of Lessor. 8.16 Equipment Changes: (a) Lessee will not make any modification or addition to the Aircraft (each an "Equipment Change"), except for an Equipment Change which:- (i) is expressly permitted by this Agreement, or (ii) has the prior written approval of Lessor and which does not diminish the value, utility, condition, or airworthiness of the Aircraft; (b) So long as a Default has not occurred and is continuing, Lessee may remove any Equipment Change if it can be removed from the Aircraft without diminishing or impairing the value, utility, condition or airworthiness of the Aircraft; and (c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes payable by Lessor as the case may be, as a result of an Equipment Change. 8.17 Title on an Equipment Change: (a) Title to all Parts installed on the Aircraft whether by way of replacement, as the result of an Equipment Change or otherwise (except those installed pursuant to Clause 8.13(b)) will on installation, without further act, vest in Lessor subject to this Agreement free and clear of all Security Interests. Lessee will at its own expense take all such steps and execute, and procure the execution of, all such instruments as Lessor may require and which are necessary to ensure that title so passes to Lessor according to all applicable Laws. At any time when requested by Lessor, Lessee will provide evidence to Lessor's satisfaction (including the provision, if required, to Lessor of one or more legal opinions) that title has so passed to Lessor; (b) Lessor may require Lessee to remove any Equipment Change and to restore the Aircraft to its condition prior to that Equipment Change; and (c) Except as referred to in Clause 8.17(b) any Engine or Part at any time removed from the Aircraft will remain the property of Owner until a replacement has been made in accordance with this Agreement and until title in that replacement has passed, according to applicable Laws, to Lessor subject to this Agreement and free of all Security Interests. Upon title to such replacement so passing to Lessor, title to the replaced Engine or Part, will, provided no Default has occurred and is continuing, pass to Lessee. 8.18 Third Party: Lessee will procure that no person (other than Lessor) will act in any manner inconsistent with its obligations under this Agreement and that all persons will comply with those obligations as if references to "Lessee" included a separate reference to those persons. 9. INSURANCE 9.1 Insurances: Lessee will maintain in full force during the Term, and thereafter as expressly required in this Agreement, insurances in respect of the Aircraft in form and substance satisfactory to Lessor (the "Insurances" which expression includes, where the context so admits, any relevant re-insurance(s)) through such brokers and with such insurers and having such deductibles and being subject to such exclusions as may be approved by Lessor from time to time. The Insurances will be effected either:- (a) on a direct basis with insurers of recognized standing who normally participate in aviation insurances in the leading international insurance markets and led by reputable underwriter(s) approved by Lessor; or (b) with a single insurer or group of insurers approved by Lessor who does not retain the risk but effects substantial reinsurance with reinsurers in the leading international insurance markets and through brokers each of recognized standing and acceptable to Lessor for a percentage acceptable to Lessor of all risks insured (the "Reinsurances"). 9.2 Requirements: Lessor's current requirements as to required Insurances are as specified in this Clause and in Schedule 4. Lessor may from time to time stipulate other requirements for the Insurances so that the scope and level of cover is maintained in line with best industry practice and the interests of Lessor protected. 9.3 Change: If at any time Lessor wishes to revoke its approval of any insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers will consult with Lessee and Lessee's brokers (as for the time being approved by Lessor) regarding whether that approval should be revoked to protect the interests of the parties insured. If, following the consultation, Lessor considers that any change should be made, Lessee will then arrange or procure the arrangement of alternative cover satisfactory to Lessor. 9.4 Insurance Covenants: Lessee will:- (a) ensure that all legal requirements as to insurance of the Aircraft, any Engine or any Part which may from time to time be imposed by the laws of the State of Registration or any state to, from or over which the Aircraft may be flown, in so far as they affect or concern the operation of the Aircraft, are complied with and in particular those requirements compliance with which is necessary to ensure that (i) the Aircraft is not in danger of detention or forfeiture, (ii) the Insurances remain valid and in full force and effect, and (iii) the interests of the Indemnitees in the Insurances and the Aircraft or any Part are not thereby prejudiced; (b) not use, cause or permit the Aircraft, any Engine or any Part to be used for any purpose or in any manner not covered by the Insurances or outside any geographical limit imposed by the Insurances; (c) comply with the terms and conditions of each policy of the Insurances and not do, consent or agree to any act or omission which:- (i) invalidates or may invalidate the Insurances; or (ii) renders or may render void or voidable the whole or any part of any of the Insurances; or (iii) brings any particular liability within the scope of an exclusion or exception to the Insurances; (d) not take out without the prior written approval of Lessor any insurance or reinsurance in respect of the Aircraft other than those required under this Agreement unless relating solely to hull total loss, business interruption, profit commission and deductible risk; (e) commence renewal procedures at least * days prior to expiry of any of the Insurances and provide to Lessor:- (i) if requested by Lessor, a written status report of renewal negotiation * days prior to each expiry date; (ii) telexed telecopy confirmation of completion of renewal prior to each expiry date; and (iii) certificates of insurance (and where appropriate certificates of reinsurance), and broker's (and any reinsurance brokers') letter of undertaking in a form acceptable to Lessor in English, detailing the coverage and confirming the insurers' (and any reinsurers') agreement to the specified insurance requirements of this Agreement within * days after each renewal date; (f) on request, provide to Lessor copies of documents or other information evidencing the Insurances; (g) on request, provide to Lessor evidence that the Insurance premiums have been paid; (h) not make any modification or alteration to the Insurances material and adverse to the interests of any of the Indemnitees; (i) be responsible for any deductible under the Insurances; and (j) provide any other insurance and reinsurance related information, or assistance, in respect of the Insurances as Lessor may reasonably require. 9.5 Failure to Insure: If Lessee fails to maintain the Insurances in compliance with this Agreement, each of the Indemnitees will be entitled but not bound, (without prejudice to any other rights of Lessor under this Agreement):- (a) to pay the premiums due or to effect and maintain insurances satisfactory to it or otherwise remedy Lessee's failure in such manner (including, without limitation to effect and maintain an "owner's interest" policy) as it considers appropriate. Any sums so expended by it will become immediately due and payable by Lessee to Lessor on an After-Tax Basis together with interest thereon at the rate specified in Clause 5.11, from the date of expenditure by it up to the date of reimbursement by Lessee; and (b) at any time while such failure is continuing to require the Aircraft to remain at any airport or to proceed to and remain at any airport designated by it until the failure is remedied to its satisfaction. 9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the Expiry Date with respect to its liability under the Indemnity in Clause 10 for * years which provides for each Indemnitee to be named as additional insured. Lessee's obligation in this Clause shall not be affected by Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees ceasing to have any interest in respect of the Aircraft. 9.7 Application of Insurance Proceeds:- As between Lessor and Lessee:- (a) all insurance payments received as the result of an Event of Loss or Engine Event of Loss occurring during the Term will be paid to Lessor and Lessor will pay the balance of those amounts to Lessee after deduction of all amounts which may be or become payable by Lessee to Lessor under this Agreement (including under Clause 11.1(b)); (b) all insurance proceeds of any property, damage or loss to the Aircraft, any Engine or any Part occurring during the Term not constituting an Event of Loss or Engine Event of Loss and in excess of the Damage Notification Threshold will be applied in payment (or to reimburse Lessee) for repairs or replacement property upon Lessor being satisfied that the repairs or replacement have been effected in accordance with this Agreement. Insurance proceeds in amounts below the Damage Notification Threshold may be paid by the insurer directly to Lessee. Any balance remaining may be retained by Lessor; (c) all insurance proceeds in respect of third party liability will, except to the extent paid by the insurers to the relevant third party, be paid to Lessor to be paid directly in satisfaction of the relevant liability or to Lessee in reimbursement of any payment so made; and (d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment of any such insurance proceeds a Default has occurred and is continuing, all such proceeds will be paid to or retained by Lessor to be applied toward payment of any amounts which may be or become payable by Lessee in such order as Lessor sees fit or as Lessor may elect. To the extent insurance proceeds are paid to Lessee, Lessee agrees to comply with the foregoing provisions and apply or pay over such proceeds as so required. 9.8 Previous Owner as Additional Insured:- Lessee shall effect and maintain insurance naming Viva as an additional insured under Lessee's public liability policy, to the extent of Viva's interest, for the period commencing on the Delivery Date and ending on the earlier to occur of (i) the second anniversary of the Delivery Date or (ii) the date of completion of the next scheduled annual heavy maintenance visit. 10. INDEMNITY 10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS, PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES, PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):- (A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY, PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL, MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE, OPERATION, DATE PROCESSING OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE; (B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH RENDERS VOIDABLE ANY OF THE INSURANCES; AND (C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT, COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON; BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION OF THIS AGREEMENT OR TO THE EXTENT IT ARISES SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN. 10.2 Duration: The indemnities contained in this agreement will continue in full force following the end of the Term notwithstanding any breach or repudiation by Lessor or Lessee of this Agreement or any termination of the lease of the Aircraft hereunder. 11. EVENTS OF LOSS 11.1 (a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft of the same manufacture, model, value and utility as the Aircraft. If Lessor exercises such option, Lessee shall be obliged to lease such substitute aircraft pursuant to the terms and conditions of this Agreement and such substitute aircraft shall constitute the Aircraft for all purposes of this Agreement. Lessor shall provide Lessee with details of the substitute aircraft as soon as may be practicable after the occurrence of the Event of Loss. If Lessor advises Lessee that Lessor does not wish to exercise such option, this Agreement will immediately terminate and except as expressly stated in this Agreement neither party will have any further obligation or liability under this Agreement other than pursuant to Clause 16.9 except that Lessor will return the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable, to Lessee; and (b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the earlier of (i) * Business Days after the Event of Loss and (ii) the date of receipt of insurance proceeds in respect of that Event of Loss. Subject to the rights of any insurers and reinsurers or other third party, upon irrevocable payment in full to Lessor of that amount and all other amounts which may be or become payable to Lessor under this Agreement, Lessor will without recourse or warranty (except as to Lessor's Liens) and without further act, be deemed to have transferred to Lessee all of Lessor's rights to any Engines and Parts not installed when the Event of Loss occurred, all on an as-is where-is basis, and will at Lessee's expense, execute and deliver such bills of sale and other documents and instruments as Lessee may reasonably request to evidence (on the public record or otherwise) the transfer and the vesting of Lessor's rights in such Engines and Parts in Lessee, free and clear of all rights of Lessor and Lessor Liens. (c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss, Lessee shall give Lessor prompt written notice thereof and shall, within * days after such occurrence, convey to Lessor, as replacement for the Engine suffering such event, title to a Replacement Engine. Each Replacement Engine shall be free of all Security Interests and shall be in as good an operating condition as the Engine being replaced, assuming the Engine being replaced was in the condition and repair required by the terms hereof immediately prior to the Engine Event of Loss. Upon full compliance by Lessee with the terms of this Clause 11.1(c), Lessor will transfer to Lessee title to the Engine which suffered the Engine Event of Loss. Prior to or at the time of any such conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a full warranty bill of sale, in form and substance reasonably satisfactory to Lessor, with respect to such Replacement Engine; (ii) cause a lease supplement (in form and substance satisfactory to Lessor) subjecting such Replacement Engine to this Agreement, to be duly executed by Lessee, and recorded pursuant to applicable Law; (iii) furnish Lessor with such evidence of title to such Replacement Engine as Lessor may reasonably request; (iv) furnish Lessor with an opinion of Lessee's counsel to the effect that title to such Replacement Engine has been duly conveyed to Lessor subject to this Agreement, free and clear of all Security Interests, and that such Replacement Engine is duly leased hereunder; (v) furnish a certificate signed by a duly authorized financial officer or executive of Lessee certifying that, upon consummation of such replacement, no Event of Default will have occurred or be continuing; (vi) furnish Lessor with such documents as Lessor may reasonably request in connection with the consummation of the transactions contemplated by this Clause 11.1(c), in each case in form and substance satisfactory to Lessor; and (vii) furnish such Financing Statements incorporating the Replacement Engine as may be requested by Lessor. For all purposes hereof, each such Replacement Engine shall be deemed part of the property leased hereunder, shall be deemed an "Engine" as defined herein and shall be deemed part of the same Aircraft as was the Engine replaced thereof. No Engine Event of Loss covered by this Clause 11.1(c) shall result in any reduction in Rent or affect Lessee's obligation to pay Engine Supplemental Rent or the amount thereof to be paid by Lessee. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of one or more Engines pursuant to this Clause 11.1. 11.2 Substitute Aircraft: (a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft (the "Substitute Aircraft") of the same manufacture and model as the Aircraft and having a value, utility and condition equal to or greater than the Aircraft as at the date of occurrence of the Event of Loss which Substitute Aircraft will be leased by Lessor to Lessee for the remainder of the Term pursuant to the terms and conditions of this Agreement. If Lessor exercises such option, the Substitute Aircraft will constitute the Aircraft for all purposes of this Agreement in respect of facts and circumstances arising after the date of delivery thereof to Lessee. Lessor shall provide Lessee with details of the Substitute Aircraft as soon as may be practicable after the occurrence of the Event of Loss; (b) Lessor will use all reasonable endeavors to deliver the Substitute Aircraft to Lessee as soon as may be practicable following the date of occurrence of the Event of Loss but not later than * months after such date; and (c) Lessee agrees to enter into such documentation as Lessor may require in order to reflect the leasing of the Substitute Aircraft as aforesaid including, without limitation, documentation in respect of the Insurances. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of the Aircraft or Airframe pursuant to this Clause 11.2. 11.3 Requisition: During any requisition for use or hire of the Aircraft, any Engine or Part which does not constitute an Event of Loss:- (a) the Rent and other charges payable under this Agreement will not be suspended or abated either in whole or in part, and Lessee will not be released from any of its other obligations under the Agreement (other than operational obligations with which Lessee is unable to comply solely by virtue of the requisition); and (b) so long as no Default has occurred and is continuing, Lessee will be entitled to any hire paid by the requisitioning authority in respect of the Term. Lessee will, as soon as practicable after the end of any such requisition, cause the Aircraft to be put into the condition required by this Agreement. Lessor will be entitled to all compensation payable by the requisitioning authority in respect of any change in the structure, state or condition of the Aircraft arising during the period of requisition, and Lessor will apply such compensation in reimbursing Lessee for the cost of complying with its obligations under this Agreement in respect of any such change, but so that, if any Default has occurred and is continuing, Lessor may apply the compensation or hire in or towards settlement of any amounts owing by Lessee under this Agreement. 12. RETURN OF AIRCRAFT 12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to Clause 13.2 or termination of the leasing of the Aircraft under this Agreement Lessee will, unless an Event of Loss has occurred, at its expense, redeliver the Aircraft and Aircraft Documents to Lessor at the Redelivery Location or such other airport as is mutually acceptable to the parties hereto, in accordance with the procedures and in compliance with the conditions set forth in Schedule 3, free and clear of all Security Interests and Permitted Liens (other than Lessor Liens) and in a condition qualifying for immediate certification of airworthiness by the FAA or as otherwise agreed by Lessor and Lessee. 12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee will make the Aircraft available to Lessor for inspection ("Final Inspection") in order to verify that the condition of the Aircraft complies with this Agreement. The Final Inspection will permit, and be of sufficient duration for, Lessor to:- (a) inspect the Aircraft Documents; (b) inspect the Aircraft and uninstalled Parts; (c) inspect the Engines, including without limitation (i) a borescope inspection of (A) the low pressure and high pressure compressors and (B) turbine and combustion areas, (ii) engine condition runs and (iii) review of Engine trend monitoring data and technical log reports covering the last * (*) days of operation; and (d) perform a complete borescope inspection of the APU; and (e) observe a * hour demonstration flight (with Lessor's representatives as on-board observers). 12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the condition of the Aircraft does not comply with this Agreement, Lessee will at Lessor's option:- (a) immediately rectify the non-compliance and to the extent the non-compliance extends beyond the Expiry Date, the Term will be automatically extended and this Agreement will remain in force until the non-compliance has been rectified as provided in Clause 12.8; or (b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax Basis, and provide to Lessor's satisfaction cash as security for that indemnity, against the cost of putting the Aircraft into the condition required by this Agreement. 12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's request, all documents necessary to export the Aircraft from the Habitual Base (including, without limitation, a valid and subsisting export license for the Aircraft) and required in relation to the deregistration of the Aircraft with the Air Authority. 12.5 Acknowledgment: Provided Lessee has complied with its obligations under this Agreement, following redelivery of the Aircraft by Lessee to Lessor at the Redelivery Location, Lessor will deliver to Lessee an acknowledgment confirming that Lessee has redelivered the Aircraft to Lessor in accordance with this Agreement. 12.6 Maintenance Program: (a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide Lessor or its agent reasonable access to Lessee's Maintenance Program and the Aircraft Documents in order to facilitate the Aircraft's integration into any subsequent operator's fleet; and (b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft deliver to Lessor a certified true current and complete copy of Lessee's Maintenance Program. Lessor agrees that it will not disclose the contents of Lessee's Maintenance Program to any person or entity except to the extent necessary to monitor Lessee's compliance with this Agreement and/or to bridge the maintenance program for the Aircraft from Lessee's Maintenance Program to another program after the Expiry Date. 12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be made in respect of fuel on board on the Delivery Date and the Expiry Date at the price then prevailing at the Redelivery Location. 12.8 Automatic Extension of Term: In the event of Lessee's failure to make the Aircraft available to Lessor for timely inspection pursuant to Clauses 12.1 hereof, non-compliance of the condition of the Aircraft under Clause 12.3 hereof or any other failure of Lessee which prevents timely Redelivery of the Aircraft to Lessor, the Term of this Agreement will be automatically extended and this Agreement will remain in force until such non-compliance has been rectified, with Lessee being obligated to pay Rent at a rate specified in Clause 5.3 plus * percent on a per diem basis with respect to the period of such extension. 13. DEFAULT 13.1 Events: Each of the following events will constitute an Event of Default and a repudiation (but not a termination) of this Agreement by Lessee (whether any such event or condition is voluntary or involuntary or occurs by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Government Entity). Lessee acknowledges that the occurrence of any Event of Default would represent a material default in the performance of its obligations under this Agreement:- (a) Non-payment: Lessee fails to make any payment under this Agreement on the due date; or (b) Insurance: Lessee fails to comply with any provision of Clause 9 or any insurance required to be maintained under this Agreement is canceled or terminated or notice of cancellation is given in respect of any such insurance; or (c) Breach: Lessee fails to comply with any other provision of this Agreement and, if such failure is in the reasonable opinion of Lessor capable of remedy, the failure continues for * days after notice from Lessor to Lessee; or (d) Representation: any representation or warranty made (or deemed to be repeated) by Lessee in or pursuant to this Agreement or in any document or certificate or statement is or proves to have been incorrect in any material respect when made or deemed to be repeated; or (e) Cross Default: (i) a final judgment for the payment of money not covered by insurance in excess of * Dollars ($*), or final judgments for the payment of money not covered by insurance in excess of * Dollars ($*) in the aggregate, shall be rendered against Lessee and the same shall remain undischarged for a period of * (*) days during which execution thereof shall not be effectively stayed by agreement of the parties involved, stayed by court order or adequately bonded; or (ii) attachments or other Security Interests shall be issued or entered against substantially all of the property of Lessee and shall remain undischarged or unbonded for * (*) days except for Security Interests created in connection with monies borrowed or obligations agreed to by Lessee in the ordinary course of its business; or (iii) Lessee shall default in the payment of any sum which by itself is in excess of $* or any sums which in aggregate exceed $* notwithstanding that any particular individual sum thereof does not exceed $* of any one or more obligations for the payment of borrowed money, for the deferred purchase price of property or for the payment of rent or hire under any lease of aircraft when the same becomes due if such nonpayment results in or would permit an acceleration of such indebtedness, or Lessee shall default in the performance of any other term, agreement, or condition contained in any agreement or instrument under or by which any such obligation is created, evidenced or secured, if the effect of such default is to cause or permit such obligation to become due prior to its stated maturity; or (iv) any event of default or termination event, howsoever described, occurs under the Other Agreements; or (f) Approvals: any consent, authorization, license, certificate or approval of or registration with or declaration to any Government Entity in connection with this Agreement (including, without limitation): - (i) any authorization required by Lessee to obtain and transfer freely Dollars (or any other relevant currency) out of any relevant country; or (ii) required by Lessee to authorize, or in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of this Agreement or the performance by Lessee of its obligations under this Agreement; or (iii) the registration of the Aircraft; or (iv) any airline license or air transport license including, without limitation, authority to operate the Aircraft under FAR Part 121 and a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code; is modified in a manner unacceptable to Lessor or is withheld, or is revoked, suspended, canceled, withdrawn, terminated or not renewed, or otherwise ceases to be in full force; or (g) Bankruptcy, etc.: (i) Lessee or any Subsidiary consents to the appointment of a custodian, receiver, trustee or liquidator of itself or all or any material part of Lessee's property or Lessee's consolidated property, or Lessee or any Subsidiary admits in writing its inability to, or is unable to, or does not, pay its debts generally as they come due, or makes a general assignment for the benefit of creditors, or Lessee or any Subsidiary files a voluntary petition in bankruptcy or a voluntary petition seeking reorganization in a proceeding under any bankruptcy or insolvency Laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee or any Subsidiary in any such proceeding, or Lessee or any Subsidiary by voluntary petition, answer or consent seeks relief under the provisions of any other bankruptcy, insolvency or other similar Law providing for the reorganization or winding-up of corporations, or provides for an agreement, composition, extension or adjustment with its creditors, or any corporate action (including, without limitation, any board of directors or shareholder action) is taken by Lessee or any Subsidiary in furtherance of any of the foregoing, whether or not the same is fully effected or accomplished; or (ii) an order, judgment or decree is entered by any court appointing, without the consent of Lessee or any of its Subsidiaries, a custodian, receiver, trustee or liquidator of Lessee or any Subsidiary, or of all or any material part of Lessee's property or Lessee's consolidated property is sequestered, and any such order, judgment or decree of appointment or sequestration remains in effect, undismissed, unstayed or unvacated for a period of * days after the date of entry thereof or at any time an order for relief is granted; or (iii) an involuntary petition against Lessee or any Subsidiary in a proceeding under the United States Federal Bankruptcy Laws or other insolvency Laws (as now or hereafter in effect) is filed and is not withdrawn or dismissed within * days thereafter or at any time an order for relief is granted in such proceeding, or if, under the provisions of any Law providing for reorganization or winding-up of corporations which may apply to Lessee or any Subsidiary, any court of competent jurisdiction assumes jurisdiction over, or custody or control of, Lessee or any Subsidiary or of all or any material part of Lessee's property, or Lessee's consolidated property and such jurisdiction, custody or control remains in effect, unrelinquished, unstayed or unterminated for a period of 30 days or at any time an order for relief is granted in such proceeding; or (h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations under this Agreement or this Agreement becomes wholly or partly invalid or unenforceable; or (i) Suspension of Business: Lessee or any of its Subsidiaries suspends or ceases or threatens to suspend or cease to carry on all or a substantial part of its business; or (j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers or threatens to dispose, convey or transfer of all or a material part of its assets, liquidates or dissolves or consolidates or merges with any other Person whether by one or a series of transactions, related or not, other than for the purpose of a reorganization of the terms of which have received the previous consent in writing of Lessor; or (k) Rights and Remedies: the existence, validity, enforceability or priority of the rights of Lessor as owner and the rights of Lessor as lessor in respect of the Aircraft are challenged by Lessee or any other person claiming by or through Lessee; or (l) Delivery: Lessee fails to timely comply with its obligations under Clause 4 to accept delivery of the Aircraft; or (m) Ownership, Security Interests and Related Matters: Lessee fails to timely comply with its obligations under Clause 8.7; or (n) Transfer: Lessee makes or permits any assignment or transfer of this Agreement, or any interest herein, or of the right to possession of the Aircraft, the Airframe, or any Engine; or (o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry Date in accordance with Clause 12. (p) Adverse Change: any event or series of events occurs which, in the reasonable opinion of Lessor might have a material adverse effect on the financial condition or operations of Lessee and its Subsidiaries or on the ability of Lessee to comply with its obligations under this Agreement; or (q) Letter of Credit: (i) the issuer of the Letter of Credit (if any) fails to make any payment under that Letter of Credit when due; or (ii) any such Letter of Credit is not in full force or, for any reason ceases to constitute the legal, valid and binding obligation of the issuer; or (iii) any of the events listed in paragraph (f)(i) above, with respect to the performance by the issuer of its obligations under any Letter of Credit, or paragraph (g) above applies to such issuer (references in those sub-paragraphs to Lessee being deemed to be to the issuer); or (iv) where applicable, any Letter of Credit is not renewed within the time required by Section 5.15; and each reference in this paragraph (q) to "the issuer" shall include a reference to any confirming bank for the Letter of Credit. 13.2 Rights: If an Event of Default occurs, Lessor may at its option (and without prejudice to any of its other rights under this Agreement), at any time thereafter (without notice to Lessee except as required under applicable Law):- (a) by notice to Lessee and with immediate effect on dispatch of such notice terminate the letting of the Aircraft (but without prejudice to the continuing obligations of Lessee under this Agreement), whereupon all rights of Lessee under this Agreement shall cease; and/or (b) proceed by appropriate court action or actions to enforce performance of this Agreement, including, without limitation, the payment of all Rent and all other amounts payable to Lessor or any Indemnitee pursuant to the terms hereof; and/or (c) proceed by appropriate court action or actions to recover damages for the breach of this Agreement which shall include, without limitation: - (i) all Rent and other amounts which are or become due and payable hereunder prior to the date Lessor recovers possession of the Aircraft; (ii) at Lessor's election, either one of the amounts determined pursuant to Clause 13.2(e) or Clause 13.2(f) below or any lost profits suffered by Lessor as a consequence of Lessor's inability to place the Aircraft with another lessee on financial terms that are as favorable to Lessor as the terms of this Agreement; (iii) all costs associated with Lessor's exercise of its remedies hereunder, including, but not limited to, repossession costs, legal fees, Aircraft storage costs, Aircraft re-lease or sale costs and Lessor's internal costs and expenses (including the cost of personnel time calculated based upon the compensation paid to the individuals involved on an annual basis and a general Lessor overhead allocation); (iv) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Aircraft; (v) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to redeliver the Aircraft in the condition required by this Agreement; and (vi) any other losses (including lost profits), damage, expense, cost or liability which Lessor suffers or incurs as a result of the Event of Default and/or termination of this Agreement, including an amount sufficient to fully compensate Lessor for any loss of or damage to Lessors residual interest in the Aircraft caused by Lessee's default; and/or (d) either: - (i) enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and, at Lessor's sole option, remove the same (and/or any engine which is not an Engine but which is installed on the Airframe, subject to the rights of the owner, lessor or secured party thereof) or cause it to be redelivered to Lessor at a location in the United States identified by Lessor (or such other location as Lessor may require) (the "Return Location"), by summary proceedings or otherwise, all without liability accruing to Lessor for or by reason of such entry or taking of possession whether for the restoration of damage to property, or otherwise, caused by such entry or taking, except damages caused by gross negligence or willful misconduct; and Lessor is hereby irrevocably, by way of security for Lessee's obligations under this Agreement, appointed attorney for Lessee in causing the redelivery or in directing the pilots of Lessee or other pilots to fly the Aircraft to that airport and will have all the powers and authorizations necessary for taking that action; or (ii) by serving notice require Lessee to redeliver the Aircraft to Lessor at a point within the continental United States designated by Lessor; and/or (e) sell at private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee; and/or (f) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under paragraph (a), paragraph (b), paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2, Lessor, by * days written notice to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts owing under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus the amount, if any, by which the aggregate Rent for the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the interest rate of * percent (*%) per annum, exceeds the fair market rental value (determined pursuant to the Appraisal Procedure) of the Aircraft for the remainder of the Term, after discounting such fair market rental value periodically (equal to installment frequency) to present worth as of the payment date specified in such notice at the interest rate of * percent (*%) per annum; and/or (g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have relet the Aircraft under a lease which extends at least to the date upon which the Term for the Aircraft would have expired but for Lessee's default, Lessor, in lieu of exercising its rights under Clause 13.2(f) above with respect to the Aircraft, may, if it shall so elect, demand that Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft due after the time of reletting) any unpaid Rent for the Aircraft due up to the date of reletting and any other amounts owing under this Agreement, plus the amount, if any, by which the aggregate Rent for the Aircraft, which would otherwise have become due over the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth as of the date of reletting at the interest rate of * percent (*%) per annum, exceeds the aggregate basic rental payments to become due under the reletting from the date of such reletting to the date upon which the Term for the Aircraft would have expired but for Lessee's default, discounted periodically (equal to installment frequency) to present worth as of the date of the reletting at the interest rate of * percent (*%) per annum; and/or (h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f), and (g) of this Clause 13.2, by * days written notice to Lessee specifying a payment date, Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor on the payment date specified in such notice as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts payable under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus an amount equaling the aggregate Rent for the remainder of the Term, discounted periodically (equal to installment frequency) to present worth at the interest rate of * per cent (*%) per annum; (i) draw upon the Deposit (including the Letter of Credit) or the Supplemental Rent furnished under this Agreement or the Related Agreements (as those times are defined in such agreements) and apply such amounts to amounts owing to Lessor hereunder. Lessee, for itself and for its successors and assigns, hereby agrees that, to the extent now or hereafter permitted by applicable Law, notwithstanding any provision of the Federal Bankruptcy Code as amended from time to time, the title of Lessor to the Aircraft and any right of Lessor to take possession of the Aircraft in compliance with the provisions of this Agreement, in each case, upon the occurrence and continuance of an Event of Default, shall not be affected by the provisions of the Federal Bankruptcy Code, as amended from time to time. In addition to the foregoing, Lessee shall be liable for any and all unpaid Rent and other amounts payable under this Agreement during or after the exercise of any of the aforementioned remedies, together with interest on such unpaid amounts at the Interest Rate set forth in Letter Agreement No. 1, and until satisfaction of all of Lessee's obligations to Lessor hereunder and (on an After-Tax Basis) for all reasonable legal fees and other reasonable costs and expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the return of the Aircraft in accordance with the terms of Clause 12 hereof or in placing the Aircraft in the condition and with airworthiness certification as required by such Clause. In effecting any repossession, Lessor and its representatives and agents, to the extent permitted by Law, shall: (i) have the right to enter upon any premises where it reasonably believes the Aircraft, the Airframe, an Engine or Part to be located; (ii) not be liable, in conversion or otherwise, for the taking of any personal property of Lessee which is in or attached to the Aircraft, the Airframe, an Engine or Part which is repossessed; provided, however, that Lessor shall return to Lessee all personal property of Lessee or its passengers which was on the Aircraft at the time Lessor re-takes possession of the Aircraft; (iii) not be liable or responsible, in any manner, for any inadvertent damage or injury to any of Lessee's property in repossessing and holding the Aircraft, the Airframe, an Engine or Part, except for that caused by or in connection with Lessor's gross negligence or willful acts; (iv) have the right to maintain possession of and dispose of the Aircraft, the Airframe, an Engine or Part on any premises owned by Lessee or under Lessee's control; and (v) have the right to obtain a key to any premises at which the Aircraft, the Airframe, an Engine or Part may be located from the landlord or owner thereof. If reasonably required by Lessor, Lessee, at its sole expense, shall assemble and make the Aircraft, the Airframe, an Engine or Part available at a place designated by Lessor in accordance with Clause 12 hereof. Lessee hereby agrees that, in the event of the return to or repossession by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express or implied) previously assigned to Lessee or otherwise held by Lessee shall without further act, notice or writing be assigned or reassigned to Lessor, if assignable. Lessee shall be liable to Lessor on an After-Tax Basis for all reasonable expenses, disbursements, costs and fees incurred in (i) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby authorized and instructed, at its option, to make reasonable expenditures which Lessor considers advisable to repair and restore the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof, all at Lessee's sole expense. At any public sale of the Aircraft, the Airframe, an Engine or Part pursuant to this Clause, Lessor may bid for and purchase such property and Lessee agrees that the amounts paid therefor shall be used in the computation contemplated herein. With the exception that the remedy in Clause 13.2(g) can be elected only if the remedy in Clause 13.2(f) is not elected and the remedy in Clause 13.2(h) can be elected only in lieu of all other remedies save the remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this Clause 13 is intended to be exclusive, but, to the extent permissible hereunder or under applicable Law, each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at Law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies; provided, however, that nothing in this Clause 13 shall be construed to permit Lessor to obtain a duplicate recovery of any element of damages to which Lessor is entitled. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default. 13.3 Deregistration: If an Event of Default occurs, Lessor may sell or otherwise deal with the Aircraft free and clear of any leasehold or other interest of Lessee as if this Agreement had never been made and Lessee will at the request of Lessor take all steps necessary to effect (if applicable) deregistration of the Aircraft and its export from the country where the Aircraft is for the time being situated and any other steps necessary to enable the Aircraft to be redelivered to Lessor in accordance with this Agreement including without limitation execution and filing of a certificate or other instrument of lease termination with the Air Authority and; Lessee hereby irrevocably and by way of security for its obligations under this Agreement appoints (which appointment is coupled with an interest) Lessor as its attorney to execute and deliver any documentation and to do any act or thing required in connection with the foregoing. 14. ASSIGNMENT 14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT. 14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its rights under this Agreement and in the Aircraft. In the case of an assignment other than by way of security, Lessor will be released from and will have no further obligation under this Agreement following the assignment of all its rights under this Agreement and the assumption by the assignee or transferee of all of Lessor's obligations under this Agreement. Notwithstanding any such assignment, Lessor will remain entitled to the benefit of each indemnity and the liability insurances effected under this Agreement. Lessee will comply with all reasonable requests of Lessor, its successors and assigns in respect of any such assignment. Lessor will promptly notify Lessee of any assignment. 14.3 Transfer: If Lessor desires to effect any assignment or transfer of its rights and obligations under this Agreement, Lessee agrees to cooperate and take all such steps as Lessor may reasonably request to give the transferee the benefit of this Agreement and to acknowledge the release of Lessor from its obligations hereunder as of the time of such assignment or transfer. 15. ILLEGALITY If it is or becomes unlawful in any jurisdiction for Lessor to give effect to any of its obligations as contemplated by this Agreement or to continue this Agreement, Lessor may by notice in writing to Lessee terminate the leasing of the Aircraft under this Agreement and Lessee will forthwith redeliver the Aircraft to Lessor in accordance with Clause 12. Without prejudice to the foregoing Lessor will consult in good faith with Lessee as to any steps which may be taken to restructure the transaction to avoid that unlawfulness but will be under no obligation to take any such steps. 16. MISCELLANEOUS 16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:- (i) may be exercised as often as necessary; (ii) are cumulative and not exclusive of its rights under any Law; and (iii) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right will not constitute a waiver of that right. 16.2 Delegation: Lessor may delegate to any person or persons all or any of the trusts, powers or discretions vested in it by these presents and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate) as Lessor in its absolute discretion thinks fit. 16.3 Certificates: Save where expressly provided in this Agreement, any certificate or determination by Lessor as to any rate of interest or as to any other amount payable under this Agreement will, in the absence of manifest error, be conclusive and binding on Lessee. 16.4 Appropriation: If any sum paid or recovered in respect of the liabilities of Lessee under this Agreement is less than the amount then due, Lessor may apply that sum to amounts due under this Agreement in such proportions and order and generally in such manner as Lessor may determine at its sole discretion. 16.5 Currency: Lessee acknowledges that the specification of Dollars in this Agreement is of the essence and that Dollars shall be the currency of account in any and all events. Lessee waives any right it may have in any jurisdiction to pay any amount under this Agreement in a currency other than Dollars. 16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee against any obligation (whether or not matured) owed by Lessor to Lessee, regardless of the place of payment or currency. If the obligations are in different currencies, Lessor may convert either obligation at the market rate of exchange available in New York or at its option London for the purpose of the set-off. If an obligation is unascertained or unliquidated, Lessor may in good faith estimate that obligation and set off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained or liquidated. Lessor will not be obliged to pay any amounts to Lessee under this Agreement so long as any sums which are then due from Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee remain unpaid and any such amounts which would otherwise be due will fall due only if and when Lessee has paid all such sums except to the extent Lessor otherwise agrees or sets off such amounts against such payment pursuant to the foregoing. 16.7 Severability: If a provision of this Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect:- (a) the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or (b) the legality, validity or enforceability in any other jurisdiction of that or any other provision of this Agreement. 16.8 Remedy: If Lessee fails to comply with any provision of this Agreement, Lessor may, without being in any way obliged to do so or responsible for so doing and without prejudice to the ability of Lessor to treat the non-compliance as a Default or an Event of Default, effect compliance on behalf of Lessee, whereupon Lessee shall become liable to pay immediately any sums expended by Lessor together with all costs and expenses (including legal costs) in connection therewith. 16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to this Agreement, Lessee is to pay to Lessor on an After-Tax Basis on demand:- (a) all costs associated with perfecting Lessor's rights in the Aircraft and/or this Agreement in the State of Registration, the Habitual Base of the Aircraft (and other states as appropriate given the operation of the Aircraft), including (but not limited to) the provision of legal opinions, tax advice, stamp duties, translations and registrations, whether required by Lessor or Lessee. (b) all expenses (including legal, professional, and out-of-pocket expenses) incurred or payable by Lessor related to any amendment to or extension of or other documentation in connection with, or the granting of any waiver or consent under this Agreement requested by Lessee or the monitoring of compliance by Lessee with this Agreement; and (c) all expenses (including legal, survey and other costs) payable or incurred by Lessor in contemplation of, or otherwise in connection with, the enforcement of or preservation of any of Lessor's or Owner's rights under this Agreement, or in respect of the repossession of the Aircraft. All expenses payable pursuant to this Clause 16.9 will be paid in the currency in which they are incurred by Lessor. 16.10 Time of Essence: The time stipulated in this Agreement for all payments payable by Lessee to Lessor and the prompt, punctual and performance of Lessee's other obligations under this Agreement are of the essence of this Agreement. 16.11 Notices: All notices under, or in connection with, this Agreement will, unless otherwise stated, be given in writing by letter, facsimile or SITA. Any such notice is deemed effectively to be given as follows:- (i) if by letter, on the earlier of the date when delivered or the *th day after dispatch; (ii) if by facsimile or SITA, when transmitted and full transmission has been separately notified by telephone by the transmitting party. The address, telex numbers, SITA, facsimile and telephone numbers of Lessee, Lessor and Owner are as follows:- Lessee: Address: 12015 East 46th Avenue, Suite 200 Denver, Colorado 80239 United States of America Attn: General Counsel SITA: DENGAF9 Facsimile: (303) 371-7007 Telephone: (303) 371-7400 Lessor: Address: Aviation Financial Services, Inc. c/o GE Capital Aviation Services, Inc. 201 High Ridge Road Stamford, CT 06927-4900 Attn: Contracts - Leader North America Facsimile: (203) 961-5965 Telephone: (203) 357-4585 16.12 Governing Law and Jurisdiction: (a) THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES); (b) Pursuant to and in accordance with Section 5-1402 of the New York General Obligations Law, Lessee and Lessor each agree that the United States District Court for the Southern District of New York and any New York state court sitting in the City of New York, New York are to have nonexclusive jurisdiction to settle any disputes arising out of or relating to this Agreement and each party submits itself and its property to the nonexclusive jurisdiction of the foregoing courts with respect to such disputes; (c) Without prejudice to any other mode of service, (i) (A) Lessee appoints Corporation Service Company, 80 State Street, 6th Floor, Albany, New York 12207-2543 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessor and (B) Lessor appoints General Electric Capital Corporation, a New York corporation, 260 High Ridge Road, Stamford, Connecticut 06927 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessee; (ii) Each of Lessor and Lessee agrees that failure by a process agent to notify the other party of the process shall not invalidate the proceedings concerned; (iii) Each of Lessor and Lessee consents to the service of process relating to any such proceedings by prepaid mailing of a copy of the process to the other party's agent at the address identified in paragraph (i)(A) or (i) (B), respectively, or by prepaid mailing by air mail, certified or registered mail of a copy of the process to Lessee or Lessor, respectively, at the address set forth in Clause 16.11; (d) Lessee: - (i) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the COURTS REFERRED TO IN CLAUSE 16.12(b) ABOVE on grounds of inconvenient forum or otherwise as regards proceedings in connection with this Agreement; (ii) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this agreement brought in the courts REFERRED TO IN CLAUSE 16.12(b); (iii) agrees that a judgment or order of any court REFERRED TO IN CLAUSE 16.12(b) in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction; (e) Nothing in this Clause 16.12 limits the right of Lessor to bring proceedings against Lessee in connection with this Agreement: - (i) in any other court of competent jurisdiction; or (ii) concurrently in more than one jurisdiction; (f) Lessee irrevocably and unconditionally: - (i) agrees that if Lessor brings legal proceedings against it or its assets in relation to this Agreement no immunity from such legal proceedings (which will be deemed to include without limitation, suit, attachment prior to judgment, other attachment, the obtaining of judgment, execution or other enforcement) will be claimed by or on behalf of itself or with respect to its assets; (ii) waives any such right of immunity which it or its assets now has or may in the future acquire; (iii) consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such proceedings. 16.13 Sole and Entire Agreement: This Agreement and the other Operative Documents to which each is a party are the sole and entire agreement between Lessor and Lessee in relation to the leasing of the Aircraft, and supersede all previous agreements in relation to that leasing. 16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under this Agreement (other than Lessor) are given to Lessor on behalf of that Indemnitee. 16.15 Counterparts: This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. To the extent, if any, that this Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no Security Interest in this Agreement may be created through the transfer or possession of any counterpart other than the counterpart that has been marked "Counterpart No. 1" on the cover page thereof. 16.16 Language: All notices to be given under this Agreement will be in English. All documents delivered to Lessor pursuant to this Agreement will be in English, or if not in English, will be accompanied by a certified English translation. If there is any inconsistency between the English version of this Agreement and any version in any other language, the English version will prevail. 16.17 No Brokers: Lessee hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessor or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. Lessor hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessee or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. For the purposes hereof, the term "Excluded Persons" shall mean (x) in the case of Lessor, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere, and (y) in the case of Lessee, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere. Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, but not limited to reasonable attorneys' fees) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon this Agreement or the Operative Documents to which Lessor and Lessee are a party or the Aircraft, if such claim damage, cost or expense arises out of any action or alleged action by the indemnifying party, its employees or agents. 17. DISCLAIMERS AND WAIVERS 17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS, WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: - (a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: - (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH; (ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO; (iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES; (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE 2.4. 17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS. 17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN CALCULATED BASED ON ITS PROVISIONS. 18. SECTION 1110 Lessee acknowledges that Lessor would not have entered into the Lease unless it had available to it the benefits of a lessor under Section 1110 of Title 11 of the U.S.C. Lessee covenants and agrees with Lessor that to better ensure the availability of such benefits, Lessee shall support any motion, petition or application filed by Lessor with any bankruptcy court having jurisdiction over Lessee whereby Lessor seeks recovery of possession of the Aircraft under said Section 1110 and shall not in any way oppose such action by Lessor unless Lessee shall have complied with the requirements of said Section 1110 to be fulfilled in order to entitle Lessee to continued use and possession of the Aircraft hereunder. In the event said Section 1110 is amended, or if it is repealed and another statute is enacted in lieu thereof, Lessor and Lessee agree to amend the Lease and take such other action not inconsistent with the Lease as Lessor reasonably deems necessary so as to afford to Lessor the rights and benefits as such amended or substituted statute confers upon owners and lessors of aircraft similarly situated to Lessor. 19. USURY LAWS: The parties intend to contract in strict compliance with the usury Laws of the States of New York and Colorado and, to the extent applicable, the United States of America. Notwithstanding anything to the contrary in the Operative Documents, Lessee will not be obligated to pay any interest in excess of the maximum non-usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by Lessor in connection with the Operative Documents. During any period of time in which the then-applicable highest lawful rate is lower than the rate specified in Clauses 5.11 or 13.2, interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will pay interest at the highest lawful rate until the aggregate amount of interest paid by Lessee equals the amount of interest that would have been payable in accordance with the interest rate specified in Clauses 5.11 or 13.2. 20. MODIFICATION OR REVISION: Neither this Agreement nor any term of this Agreement may be modified, rescinded, changed waived, discharged or terminated except by a writing signed by the party to be charged. Lessor and Lessee acknowledge their agreement to the provision of this Clause 20 by their initials below: - LESSOR: __________ LESSEE: ____________ 21. IN WITNESS whereof the parties hereto have executed this Agreement on the date shown at the beginning of this Agreement. WITNESS SIGNED on behalf of AVIATION FINANCIAL SERVICES INC. By: ___________________________ Name: ___________________________ Title: ___________________________ WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC. By: ___________________________ Name: ___________________________ Title: ___________________________ SCHEDULE 1 PART 1 DESCRIPTION OF AIRCRAFT AIRCRAFT MANUFACTURER: Boeing MODEL: 737-36E SERIAL NUMBER: 25256 ENGINES ENGINE TYPE: CFM-56-3B2 SERIAL NOS: SN 727254 and SN 724977 Part A Description of Aircraft On the Delivery Date each Aircraft shall comply with the following conditions: 1. The Aircraft will have accomplished all outstanding airworthiness directives by terminating action, if required, and mandatory orders affecting that model of Aircraft issued by the Air Authority and the DGAC which, if the Aircraft was registered with either of such air authorities, would have to be complied with within * days after the Delivery Date. 2. The Aircraft will have in existence a valid Export Certificate of Airworthiness with respect to the Aircraft issued by the DGAC and shall have all systems operational and shall be eligible for 14 C.F.R. Part 121 operations. 3. The Aircraft shall be in 148Y (tourist/load class seats). 4. The Aircraft shall be fully serviceable with no carried forward defects and shall be clean by airline standards. 5. Airframe: Ex a block MPD 'C7-SI' check in accordance with the Manufactures maintenance planning document, including 100% compliance with the CPCP program and aging aircraft program. Engines: Minimum expected life of * hours and * cycles, verified by power assurance runs. Plus Boroscope inspections to establish the internal condition of the engine. The engines will be able to achieve full take off power at 22,000 thrust rating of minimum OATL of 34 degrees Celsius. Components: Minimum of * hours, * cycles on hard time limited items and * months or full life if Full life is less than * months on calendar limited items and shall be supported by appropriate certification documentation such as JAR form 1 or FAA form 8130-1, where the FAA approval agency is a JAA listed company: for this purpose "Hard Time Component" means any component which has a limited on-wing life in accordance with Manufactures Maintenance Planning Document and which can have life fully restored through appropriate maintenance. The installed components as a group will have an average of total flight time since new of not more than that of the Airframe; and APU: Serviceable and capable of operating under full load without limitation Livery Painting: Freshly painted white. Demonstration Flight: At delivery Lessor will provide a demonstration flight not exceeding two hours in duration. Detail Specification: Aircraft shall comply with the aircraft detail specification No D6-76300-87 except for systems which have been modified to comply with JAR ops requirements and shall have TCAS and VHF 8.33 spacing installed. MTOW: 138,000 LBS 6. FUSELAGE, WINDOWS AND DOORS The aircraft will be ex a D Check as specified in 5 above.The fuselage will be free of major dents and abrasions, and loose or pulled or missing rivets. All repairs will be permanent Class 1 repairs and where possible flush as defined by the Manufacturer's structural repair manual or have specific Manufacturer approval accepted by the FAA. 7. WINGS AND EMPENNAGE (a) Leading edges will be free from damage. (b) Unpainted surfaces will be polished during the D Check; (c) Control surfaces will be cleaned and polished or painted as per Previous operator's policy during the "D" Check; and (d) Wings will be free of fuel leaks. 8. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be serviceable. (b) Carpets and seat covers will be in good condition, and meet JAR/FAR fire resistance regulations; (c) Seats will be serviceable, in good condition having been removed, inspected and repaired. (d) Emergency equipment having a calendar life will have a minimum of * year or *% of its total approved life, whichever is less, remaining; and (e) All signs and decals shall be clean, secure and legible. 9. COCKPIT (a) Fairing panels shall be substantially free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean; (c) Seat covers will be in serviceable , clean and free of stains. (d) Seats will be serviceable, in good condition and will be repainted as necessary; and (e) All signs and decals shall be clean, secure and legible. 10. CARGO COMPARTMENTS (a) Panels will be serviceable; and (b) Nets will be in servicable. PART 2 AIRCRAFT DOCUMENTS Part A A. Certificates A001 Certificate of Airworthiness A002 Current Aircraft Registration A003 C of A for Export (if applicable) A004 Noise Limitation Certificate (AFM page) A005 Radio Station License A007 Aircraft deregistration confirmation A008 Burn Certificates - Cabin Interiors - as follows: Certification of compliance with the fire blocking requirements as outlined in JAR/FAR Part 25 including: - - Seat cushions* - - Back rest cushions* - - Dress covers* - - Carpets - - Curtains - - Interior Surfaces (if refurbished) * Including "in combination" burn certification B. Aircraft Maintenance Status Summaries B001 Certified current Time in Service (Hours & Cycles) and maintenance status B002 Certified status of Airworthiness Directives including method of compliance B003 Certified status of Service Bulletin Status B004 Certified status of SSI B005 Certified status of CPCP (if applicable) B006 Certified inventory of Hard Time Components (Fitted listing) B007 Certified inventory of OC/CM Components (Fitted listing) B008 Certified status of all non-SB and Major Modifications/STC's including acceptable State of Manufacture Certification B009 Certified status of Check/Inspection History & Current Status of Checks B010 List of Deferred Maintenance Items B011 List of Out of Phase Checks, Special Requirements, Time Limited Repairs (if any). B012 Aircraft Accident & Incident Report. B013 Structural repairs and damage (including Dent & Buckle Chart). C. Aircraft Maintenance Records C001 Technical Logs (Minimum of 2 years or as required by the FAA) C002 A Checks Last complete cycle of A Checks (or equivalent) C003 C Checks Last Complete cycle of C Checks (or equivalent) C004 All Major Checks C005 CPCP Tasks (if applicable) C006 Periodic Tasks C007 Dirty Finger Print Certification - AD's C008 Dirty Finger Print Certification - SB's C009 Dirty Finger Print Certification - All other modification C010 Last Weight Report including Schedule C011 Last Test Flight Report C012 Certified ETOPS compliance report (if applicable) C013 Dirty Finger Print certification - All Structural repairs/structural damage C014 Details of State of Manufacture certification basis - A non-SRM Structural repairs C015 Aircraft Log Book(s) if applicable D. Configuration Status D001 Approved and certified LOPA D002 Galley Drawings/Component OHM D003 Emergency Equipment Drawing/Listing D004 Loose Equipment Inventory D005 Inventory Listing of Avonic installed Units. E. Aircraft Historical Records E001 C of A (Export) from State of Manufacture E002 Manufacturer's AD Report E003 Manufacturer's Inspection Report, Initial Equipment list E004 Manufacturer's repair/alteration report E005 Manufacturer's SB Report E006 Service Difficulty Reports (if any) E007 Aircraft Historical Log E008 Last Flight Data Recorder Read-Out & Corrections E009 Weighing report F. Engine Records F001 Certified Statement of Status of Each Engine F002 AD Compliance Report and Compliance Documents F003 Manufacturer's Modifications & SB Status F004 In-house Modifications (if applicable) F005 Certified LLP Listing F006 Certified listing of installed units F007 Manufacturer Delivery Document F008 Complete copies of all historical engine/module Shop Visit Reports F009 State of Manufacture LLP Traceability F010 Conditioning Monitoring Report F011 Engine Log Book/Master Records of Installation/Removals F012 Last Borescope Report, including video if available F013 Test Cell Run Report F014 Last On-Wing Ground Run F015 Certified Statement that Engines are not involved in an Accident F016 Approved Release to Service Certification for installed rotables F017 Approved ETOPS compliance report (if applicable) G. APU G001 Certified Statement on Status of APU (if applicable) G002 Certified SB Compliance Report/AD Status Report G003 Approved Release to Service Certification for installed units G004 APU Log Book/Master Record of Installation/Removals G005 Complete copies of all APU Shop Visit Reports & Reason for Removal G006 Statement of APU Hours to Aircraft Flying Hours G007 LLP Status and Full Traceability to birth G008 APU Borescope Report G009 Last On-Wing/Health Check Data sheets (if applicable) G010 Last Test Cell Run G011 Approved ETOPS compliance report H. Component Records H001 Approved Release to Service Certification for Hard Time Components H002 Approved Release to Service Certification for OC/CM Components I. Landing Gears I001 Approved Release to Service Certification for major assemblies on each Gear I002 Approved LLP Listings for each Gear (with FULL Traceability to Birth) I003 Last Shop Visit Report (OH) J. Manuals All Manufacturer's Manuals delivered with the Aircraft updated to the latest revision standard as may be reasonably requested by Purchaser Microfilm: J006 WDM J007 IPC J008 Maintenance Manual J009 Schematics J010 Hook Up Listing K. Miscellaneous K006 Maintenance Programme Specifications (Operator's) K007 Reference Material for Interpretation of Status Summaries, or cross-reference for Part Numbers SCHEDULE 2 CERTIFICATE OF TECHNICAL ACCEPTANCE This Certificate of Technical Acceptance is delivered, on the date set out below by Frontier Airlines, Inc. ("Lessee"), to AVIATION FINANCIAL SERVICES INC. ("Lessor"), pursuant to the Aircraft Lease Agreement dated as of the 7th of January, 2000 between Lessor and Lessee (the "Agreement"). The capitalized terms used in this Certificate shall have the meaning given to such terms in the Agreement. 1. DETAILS OF ACCEPTANCE Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this [ ] day of [ ], 2000, at [ ], accepted the following, in accordance with the provisions of the Agreement: (a) Boeing Model 737-36E airframe, Manufacturer's Serial No. 25256; (b) CFM-56-3B2 Engines: - Engine Manufacturer's Serial Nos. 1) [______] 2) [______] (Each of which shall have more than 750 rated takeoff horsepower or the equivalent of such horsepower); (c) Fuel on Board Status: [ ] (lbs.) (gals.) (d) Loose Equipment Check List: as per list signed by Lessor and Lessee and attached hereto; and (e) Aircraft Documents: as per list signed by Lessor and Lessee and attached hereto. 2. HOURS AND CYCLES DATA (as of Delivery Date) (a) Airframe: Number of Hours since last block "D" Check (Heaviest Check): ______ hours "C" Check (or Equivalent): Interval: ________________________ Time Since: _______________________ (b) Landing Gear Overhaul: --------------------- Number of Cycles Since Last Overhaul: Left Gear __________________________ cycles Right Gear _________________________ cycles Nose Gear _________________________ cycles Center Gear ________________________ cycles Interval: Left Gear _________________________ Right Gear _________________________ Nose Gear _________________________ Center Gear ________________________ (c) Engines: ------- Number of Hours Since Last Heavy Shop Visit: S/N :______ hours ----------- S/N :______ hours ----------- Number of Hours Since Last Hot Section Refurbishment: S/N :______ hours ----------- S/N :______ hours ----------- Number of Hours Since Last Cold Section Refurbishment: S/N :______ hours ----------- S/N :______ hours ----------- Hot Section Inspection: Interval: ___________________________ Time Since (S/N ): __________________________ -------------- Time Since (S/N ): __________________________ -------------- Time Remaining to First Restriction: Engine S/N: _ ------------------ Hours: __________ Restriction: __________ Cycles: __________ Restriction: __________ Engine S/N: _ ------------------ Hours: __________ Restriction: __________ Cycles: __________ Restriction: __________ Average Cycles in Life Limited Parts (see attached Schedule):________ (d) Auxiliary Power Unit: -------------------- Number of APU Hours Since Last Heavy Shop Visit: __________ hours Date accomplished __________ Hot Section Inspection: Interval: ________________________ Time Since: ________________________ (e) Time Controlled Components: -------------------------- (f) Interior Equipment: ------------------ Number of Passenger Seats and Configuration:_______________ _________ Number of Galleys and Location: _________ __________ Number of Lavatories and Location: _________ __________ LOPA - Attached __________ __________ List of Loose Equipment on Board: -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- (g) Avionics: Description Model Part No. -------- ----------- ----- -------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- 3. ACCEPTANCE: The undersigned hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents are acceptable to it, satisfy all of the Delivery Condition Requirements relating to the technical condition of the Aircraft and are in the condition for delivery to and acceptance by Lessee as required under the Agreement, except as described on the EXCEPTIONS LIST attached hereto. LESSEE'S EXECUTION AND DELIVERY OF THIS CERTIFICATE SIGNIFIES LESSEE'S ABSOLUTE AND IRREVOCABLE TECHNICAL ACCEPTANCE OF THE AIRCRAFT FOR ALL PURPOSES HEREOF AND OF THE AGREEMENT. IN WITNESS WHEREOF, Lessee has, by its duly authorized representative, executed this Certificate on the date in paragraph 1 above. LESSEE: FRONTIER AIRLINES, INC. By: _________________________ Title: _________________________ ATTACHMENT EXCEPTIONS LIST The items set forth below represent non-conformities to the Delivery Condition Requirements as of the Delivery Date, the corrective action (or payment to Lessee in lieu thereof), if any, to be taken by Lessor and the date of accomplishment. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR'S UNDERTAKINGS SET FORTH HEREIN ARE IN FURTHERANCE OF AND SUBJECT TO THE AIRCRAFT LEASE AGREEMENT DATED AS OF JANUARY 7, 2000 BETWEEN LESSOR AND LESSEE (THE "LEASE"), THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, HEREUNDER AND THAT LESSORS UNDERTAKINGS ARE SUBJECT TO EACH AND EVERY DISCLAIMER OF LESSOR SET FORTH IN THE LEASE INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN CLAUSE 17 THEREOF. LESSOR LESSEE By: _________________________ By:___________________________ Title: _________________________ Title:__________________________ -------------------------------------- 1. ______________________________________ -------------------------------------- -------------------------------------- ------------ ---------- 2. ______________________________________ ====================================== -------------------------------------- ------------- ---------- 3. ______________________________________ ====================================== -------------------------------------- ------------- ---------- SCHEDULE 3 OPERATING CONDITION AT REDELIVERY On the Expiry Date the Aircraft, subject to fair wear and tear generally, will be in the condition set out below:- 1. GENERAL CONDITION The Aircraft will:- (a) be in the same configuration as on the Delivery Date or as reasonably requested by Lessor; (b) be clean by commercial airline standards; (c) have installed the full complement of engines and other equipment, parts, furnishings and accessories as is normally installed in the Aircraft and the loose equipment as was installed in the Aircraft at the time of Delivery, and be in a condition suitable for immediate operation in commercial service; (d) have in existence a valid certificate of airworthiness (or if required by Lessor, a valid export certificate of airworthiness) with respect to the Aircraft issued by the Air Authority and be in compliance without waiver with all current FAR Part 121 requirements; (e) comply with the manufacturer's original specifications or as modified by Lessee with the approval of Lessor, and as required to meet the regulations of the Air Authority at the Expiry Date; (f) have undergone, immediately prior to redelivery, a block `C' Check so that all inspections falling due within the next following * Flight Hours, * Cycles or the next following * months of operation in accordance with Lessee's Maintenance Program, have been accomplished; (g) have had accomplished all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority, and/or mandated by any manufacturer of the Aircraft, any Engine or Part, for this purpose, compliance shall be by terminating action if: the latest date permitted by such Airworthiness Directive for compliance by terminating action falls within * days after the Expiry Date; (h) have installed all applicable vendor's and manufacturer's service bulletin kits received free of charge by Lessee that are appropriate for the Aircraft and to the extent not installed, those kits will be furnished free of charge to Lessor; (i) have its fuselage, engine cowlings, and vertical fin and rudder freshly painted in an all white livery and the paint on the wings and the horizontal stabilizer surfaces shall be clean and in good condition, free from cracks, peeling, blistering and erosion and shall be uniform in color and free from areas of local touch up; (j) have all signs and decals clean, secure and legible; (k) shall have no open, deferred, continued, carryover or placarded log book items; and (l) meet the requirements of FAR Part 36, Appendix C, Stage 3 noise compliance as then in effect without waiver or restriction. 2. COMPONENTS (a) Each Flight Hour and Cycle limited component (other than the APU) shall have not less than * Flight Hours and * Cycles (whichever is the more stringent test) of life remaining to the next expected removal, in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul and Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (b) Each calendar-limited component including safety equipment will have not less than * months life remaining to the next scheduled removal in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul, Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (c) Each life-limited component will be supported by certification documentation necessary to demonstrate traceability of utilization since new (i.e. back-to-birth traceability); (d) Each "on-condition" and "condition monitored" component will be serviceable; (e) The APU will be serviceable and capable of operating under full load without limitation; and (f) The installed components as a group will have an average of total flight time since new of not more than that of the Airframe. 3. ENGINES Each Engine will be installed on the Aircraft and if not the engines installed on the Delivery Date will be accompanied by all documentation Lessor may require to evidence that title thereto is properly vested in Owner and will:- (a) have not less than * Engine Flight Hours or * Cycles (whichever is the more restrictive factor) remaining to next scheduled life limited part replacement and have an expected on-wing remaining life of not less than * Engine Flight Hours or * Cycles (whichever is the more restrictive factor). The expected life remaining will be determined by the inspection and checks accomplished by Lessor in accordance with this Agreement; (b) not be "on watch". (For purposes of the Agreement "on watch" shall mean any maintenance condition that would require an Engine removal and/or reinspection or airworthiness directive action that would require an Engine removal within * flight hours and * Cycles of the Expiry Date); and (c) be in a condition which can operate at maximum rated take off power at sea level at a temperature of 34oC. 4. FUSELAGE, WINDOWS AND DOORS (a) The fuselage will be free of major dents and abrasions, and any dents and abrasions that require a repetitive inspection or future repair, temporary repairs, and loose or pulled or missing rivets and all structural repairs shall be in accordance with the manufacturer's and Air Authority's approved data for permanent repair; (b) Windows will be free of delamination, blemishes, crazing and will be properly sealed; and (c) Doors will be free moving, correctly rigged and be fitted with serviceable seals. 5. WINGS AND EMPENNAGE (a) Leading edges will be free from damage; (b) Unpainted control surfaces will be waxed and polished; (c) Unpainted cowlings and fairings will be polished; and (d) Wings will be free of fuel leaks. 6. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks and stains; (b) Carpets and seat covers will be in good condition, clean and free of stains and meet FAR fire resistance regulations; (c) Seats will be serviceable, in good condition and repainted as necessary; and (d) Emergency equipment having a calendar life will have a minimum of * year or *% of its total approved life, whichever is less, remaining. 7. COCKPIT (a) Fairing panels shall be free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean and effectively sealed; (c) Seat covers will be in good condition, clean and free of stains and will conform to FAR fire resistance regulation; and (d) Seats will be serviceable, in good condition and will be repainted as necessary. 8. CARGO COMPARTMENTS (a) Panels will be in good condition; and (b) Nets will be in good condition. 9. LANDING GEAR The landing gear and wheel wells will be clean, free of leaks and repaired as necessary. Wheels and brakes shall be in a half life condition or better. (a) The landing gear and wheel wells will be clean, free of leaks and repaired as necessary. (b) Each wheel and brake assembly shall be in a half life condition or better. 10. CORROSION (a) The Aircraft shall be in compliance with the Manufacturer's corrosion prevention and control program (CPCP) requirements. All CPCP inspections which would normally be accomplished while access is provided during structural inspection in accordance with Lessee's Maintenance Program during the Term shall have been accomplished.; (b) The entire fuselage will be substantially free from corrosion and will be adequately treated and an approved corrosion prevention program will be in operation; and (c) Fuel tanks will be free from contamination and corrosion and a tank treatment program will be in operation. SCHEDULE 4 INSURANCE REQUIREMENTS The Insurances required to be maintained are as follows:- (a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with respect to the Aircraft on an "agreed value basis" for the Agreed Value and with a deductible not exceeding the Deductible Amount set forth in Letter Agreement No. 1, or such other amount agreed by Lessor from time to time; (b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All Risks Policy to the fullest extent available from the leading international insurance markets including confiscation and requisition by the State of Registration for the Agreed Value, however, when the Aircraft is being operated solely in or over the United States of America and/or Canada, coverage may be limited to such perils as are customarily insured by comparable airlines, operating similar equipment in similar circumstances; (c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in transit other than by air) property insurance on all Engines and Parts when not installed on the Aircraft on an "agreed value" basis for their full replacement value and including engine test and running risks; (d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage) of an amount not less than the Minimum Liability Coverage for the time being any one occurrence (but in respect of products and personal injury liability this limit may be an aggregate limit for any and all losses occurring during the currency of the policy). War and Allied Risks are also to be covered under the Policy in line with prudent market practice for comparable airlines, operating similar equipment in similar circumstances; (e) All required hull and spares insurance (as specified above), so far as it relates to the Aircraft will: - (i) name Lessor and its respective successors and assigns as additional assureds for their respective rights and interests, warranted, each as to itself only, no operational interest; (ii) provide that any loss will be settled jointly with Lessor and Lessee and will be payable in Dollars to Lessor except where the loss does not exceed the Damage Notification Threshold, and Lessor has not notified the insurers to the contrary, in which case the loss will be settled with and paid to Lessee; (iii) if separate Hull "all risks" and "war risks" insurances are arranged, include a 50/50 provision in accordance with market practice (AVS. 103 is the current market language); (iv) confirm that the insurers are not entitled to replace the Aircraft in the event of an insured Event of Loss; (v) confirm that the insurers will not obtain a valid discharge of the obligations under the Insurances by payment to the broker, notwithstanding market practice to the contrary; (f) All required liability insurances (specified above) will:- (i) include Lessor, GECASI, GECASL, Viva, and their respective successors and assigns and their respective shareholders, subsidiaries, directors, officers, agents, employees and indemnitees as additional insureds for their respective rights and interests, warranted, each as to itself only, no operational interest; provided, however, that Viva shall be named as an additional assured solely for the period commencing on the Delivery Date and ending on the earlier to occur of (i) * years following the Delivery Date and (ii) the completion of the next heavy maintenance visit; (ii) include a Severability of Interest Clause which provides that the insurance, except for the limit of liability, will operate to give each assured the same protection as if there was a separate policy issued to each assured; (iii) contain a provision confirming that the policy is primary without right of contribution and the liability of the insurers will not be affected by any other insurance of which Lessor or Lessee have the benefit so as to reduce the amount payable to the additional insureds under such policies; (g) All Insurances will:- (i) be in accordance with normal industry practice of persons operating similar aircraft in similar circumstances; (ii) provide cover denominated in Dollars and any other currencies which Lessor may reasonably require in relation to liability insurance; (iii) operate on a worldwide basis subject to such limitations and exclusions as Lessor may agree; (iv) acknowledge the insurer is aware (and has seen a copy) of this Agreement and that the Aircraft is owned by Lessor; (v) provide that, in relation to the interests of each of the additional assureds the Insurances will not be invalidated by any act or omission by Lessee, or any other person other than the respective additional assured seeking protection and shall insure the interests of each of the additional assureds regardless of any breach or violation by Lessee, or any other person other than the respective additional assured seeking protection of any warranty, declaration or condition, contained in such Insurances; (vi) provide that the insurers will hold harmless and waive any rights of recourse and/or subrogation against the additional assureds, including GECASI and GECASL or to be subrogated to any rights of Lessor against Lessee; (vii) provide that the additional assureds will have no obligation or responsibility for the payment of any premiums due (but reserve the right to pay the same should any of them elect so to do) and that the insurers will not exercise any right of set-off or counter-claim in respect of any premium due against the respective interests of the additional assureds other than outstanding premiums relating to the Aircraft, any Engine or Part the subject of the relevant claim; (viii) provide that the Insurances will continue unaltered for the benefit of the additional assureds for at least * days after written notice by registered mail or telex of any cancellation, change, event of non-payment of premium or installment thereof has been sent to Lessor, except in the case of war risks for which * days (or such lesser period as is or may be customarily available in respect of war risks or allied perils) will be given, or in the case of war between the 5 great powers or nuclear peril for which termination is automatic; (ix) if reinsurance is a requirement of this Agreement such reinsurance will (i) be on the same terms as the original insurances and will include the provisions of this Schedule, (ii) provide that notwithstanding any bankruptcy insolvency, liquidation, dissolution or similar proceedings of or affecting the reinsured that the reinsurers' liability will be to make such payments as would have fallen due under the relevant policy of reinsurance if the reinsured had (immediately before such bankruptcy, insolvency, liquidation, dissolution or similar proceedings) discharged its obligations in full under the original insurance policies in respect of which the then relevant policy of reinsurance has been effected; and (iii) contain a "cut-through" clause in the following form (or otherwise, satisfactory to Lessor): "The Reinsurers and the Reinsured hereby mutually agree that in the event of any claim arising under the reinsurances in respect of a total loss or other claim where as provided by the Aircraft Lease Agreement dated March 25, 1997 and made between Lessor and Lessee such claim is to be paid to the person named as sole loss payee under the primary insurances, the Reinsurers will in lieu of payment to the Reinsured, its successors in interest and assigns pay to the person named as sole loss payee under the primary insurances effected by the Reinsured that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Reinsured (subject to proof of loss), it being understood and agreed that any such payment by the Reinsurers will (to the extent of such payment) fully discharge and release the Reinsurers from any and all further liability in connection therewith"; subject to such provisions not contravening any law of the State of Incorporation; (x) contain a provision entitling Lessor or any insured party to initiate a claim under any policy in the event of the refusal or failure of Lessee to do so; and (xi) accept and insure the indemnity provisions of this Agreement to the extent of the risks covered by the policies. SCHEDULE 5 [Intentionally Omitted] SCHEDULE 6 LEASE SUPPLEMENT NO. __ LEASE SUPPLEMENT NO. ___, dated , 2000, between Aviation Financial Services Inc., a corporation organized under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation (Lessor"), and Frontier Airlines, Inc. a corporation organized under the laws of the State of Colorado (Lessee"). Lessor and Lessee have previously entered into that certain Aircraft Lease Agreement dated as of January 7, 2000 (herein referred to as the "Agreement" and the defined terms therein being hereinafter used with the same meaning). The Agreement provides for the execution and delivery from time to time of a Lease Supplement substantially in the form hereof for the purpose of leasing the aircraft described below under the Agreement as and when delivered by Lessor to Lessee in accordance with the terms thereof. The Agreement and this Lease Supplement relate to the Aircraft, Engines and Parts as more precisely described below. A counterpart of the Agreement is attached hereto and this Lease Supplement and the Agreement shall form one document. In consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: - 1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee hereby accepts, acknowledges receipt of possession and leases from Lessor under the Agreement, that certain Boeing Model 737-300 commercial jet Aircraft, and the two (2) CFM International CFM-56-3-B2 Engines (each of which Engines has 750 or more rated takeoff horsepower or the equivalent of such horsepower) described in Schedule 1 hereto, together with the Aircraft Documents described in the Agreement (the "Delivered Aircraft"). 2. The Delivery Date of the Delivered Aircraft is the date of this Lease Supplement set forth in the opening paragraph hereof. 3. The Term for the Delivered Aircraft shall commence on the Delivery Date and shall end on the Expiry Date. 4. The amount of Rent for the Delivered Aircraft is set forth in Letter Agreement No. 1 to the Agreement. 5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each delivered Engine have been duly marked in accordance with the terms of Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required by the Agreement,(iii) the representations and warranties of Lessee referred to in Clause 2 of the Agreement are hereby repeated with effect as of the date first above written, (iv) having inspected the Delivered Aircraft, Lessee acknowledges that the Delivered Aircraft satisfies all conditions required for Lessee's acceptance of delivery as set forth in the Agreement, except as noted in the Exceptions List attached to the Certificate of Technical Acceptance, and (v) the execution and delivery of this Lease Supplement signifies absolute and irrevocable acceptance by Lessee of the Delivered Aircraft for all purposes hereof and of the Agreement. 6. All of the terms and provisions of the Agreement are hereby incorporated by reference in this Lease Supplement to the same extent as if fully set forth herein. 7. This Lease Supplement may be executed in any number of counterparts, each of such counterparts, shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Lease Supplement. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. __ to be duly executed as of the day and year first above written. LESSOR, LESSEE, AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By:_____________________________ By:_________________________ Name:__________________________ Name:______________________ Title:____________________________ Title:________________________ SCHEDULE 1 TO LEASE SUPPLEMENT NO. One Boeing 737-300 Airframe Registration Mark N_____ Manufacturer's Serial No. Total Time* Total Cycles* ---------- ---------- ------------ 25256 _________ _________ Installed CFM International, Inc. Engines Model No. Serial No. Total Time* Total Cycles* - --------- ---------- ---------- ------------ CFM-56-3-B2 [______] ____________ ____________ CFM-56-3-B2 [______] _____________ ____________ Each of the above-described Aircraft Engines is 750 or more rated takeoff horsepower or its equivalent. * The total time and total cycles referred to above are as of Time, , . Such times and cycles are within hours and cycles of the actual hours and cycles at the time of this Lease Supplement. SCHEDULE 7 FORM OF LEASE TERMINATION CERTIFICATE The undersigned hereby certify that the Aircraft Lease Agreement dated as of January 7, 2000 between the undersigned Lessor and undersigned Lessee, and as further described in the Appendix attached hereto, has terminated and the aircraft and aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this __________ day of ____________________, __________ LESSOR LESSEE AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By:________________________________ By:___________________________ Title:_______________________________ Title:_________________________ APPENDIX FAA Recording Date FAA Conveyance No. SCHEDULE 8 FORM OF AIRCRAFT USAGE REPORT FOR PERIOD BEGINNING ON __________, 2000____ AND ENDING ON ___________, 2000____ The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies as follows: 1. This report is submitted to Aviation Financial Services Inc. ("Lessor") under that certain Aircraft Lease Agreement dated as of January 7, 2000, between Lessor and Lessee (the "Lease"), and capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the Lease. 2. The Aircraft covered by this report is: Aircraft: Boeing 737-36E Serial No: 25256 U.S. Reg. No.: N_____ 3. During the period covered by this report, the Airframe which is the subject of the Lease was operated for the following number of Flight Hours and Cycles as such terms are defined in the Lease: _________ Flight Hours __________ Cycles 4. During the period covered by this report, the CFM-56-B2 Engines Bearing respective serial numbers __________ and ____________ which are the subject of the Lease, where each operated for the following number of Engine Flight Hours and Cycles, as defined in the Lease: Engine Flight Hours Cycles SN ________ _______________ _________________ SN ________ _______________ _________________ This Aircraft Usage Report is dated __________________, 200_, FRONTIER AIRLINES, INC. By:________________________________ Title:_____________________________ EX-10.48 5 0005.txt AIRCRAFT LEASE AGREEMENT AIRCRAFT LEASE AGREEMENT Dated as of January 7, 2000 between AVIATION FINANCIAL SERVICES INC. a wholly owned subsidiary of General Electric Capital Corporation as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Aircraft : Boeing 737-36E Serial No: 25159 U.S. Reg. No.: N315FL Note: This Aircraft Lease Agreement has been executed in several counterparts of which this is Counterpart No. ___. See Clause 16.15 hereof for information concerning the distinction between various counterparts. INDEX CLAUSE PAGE - ------ ---- 1. Interpretation..............................................................1 1.1 Definitions.......................................................1 1.2 Construction.....................................................15 2. Representations and Warranties.............................................16 2.1 Lessee's Representations and Warranties..........................16 2.2 Lessee's Further Representations and Warranties..................17 2.3 Repetition.......................................................19 2.4 Lessor's Representations and Warranties..........................19 3. Conditions Precedent.......................................................20 3.1 Conditions Precedent.............................................20 3.2 Further conditions precedent.....................................23 3.3 Waiver...........................................................23 4. Commencement...............................................................24 4.1 Leasing..........................................................24 4.2 Delivery.........................................................24 4.3 Delayed Delivery.................................................24 4.4 Licenses.........................................................25 4.5 Inspection.......................................................25 4.6 Indemnity........................................................25 5. Payments...................................................................25 5.1 Deposit..........................................................25 5.2 Rental Periods...................................................25 5.3 Rent.............................................................26 5.4 Maintenance Reserves.............................................26 5.5 Payments.........................................................26 5.6 Withholding......................................................27 5.7 General Tax indemnity............................................27 5.8 Sales and Use Taxes..............................................29 5.9 Information......................................................30 5.10 Indemnity Payments to be Made on an After-Tax Basis.............30 5.11 Default Interest................................................30 5.12 Contest.........................................................31 5.13 Net Lease.......................................................32 5.14 Security........................................................32 5.14 Security........................................................33 6. Manufacturer's Warranties..................................................34 6.1 Assignment.......................................................34 6.2 Proceeds.........................................................34 6.3 Parts............................................................34 6.4 Agreement........................................................34 7. Lessor's Covenants.........................................................35 7.1 Quiet Enjoyment..................................................35 7.2 Release of Maintenance Reserves..................................35 7.3 Lessor Obligations Following Expiry Date.........................36 8. Lessee's Covenants.........................................................36 8.1 Duration.........................................................36 8.2 Information......................................................36 8.3 Lawful and Safe Operation........................................37 8.4 Taxes and other Outgoings........................................39 8.5 Sub-Leasing and Wet-Leasing......................................39 8.6 Inspection.......................................................40 8.7 Title............................................................40 8.8 General..........................................................41 8.9 Records..........................................................41 8.10 Protection......................................................42 8.11 Maintenance and Repair..........................................42 8.12 Removal of Engines and Parts....................................43 8.13 Installation of Engines and Parts...............................44 8.14 Non-Installed Engines and Parts.................................44 8.15 Pooling of Engines and Parts....................................45 8.16 Equipment Changes...............................................45 8.17 Title on an Equipment Change....................................46 8.18 Third Party.....................................................46 9. Insurance..................................................................46 9.1 Insurances.......................................................46 9.2 Requirements.....................................................47 9.3 Change...........................................................47 9.4 Insurance Covenants..............................................47 9.5 Failure to Insure................................................48 9.6 Continuing Indemnity.............................................48 9.7 Application of Insurance Proceeds................................48 9.7 Application of Insurance Proceeds................................49 10. Indemnity.................................................................49 10.1 General.........................................................49 10.2 Duration........................................................50 11. Events of Loss............................................................50 11.1 Events of Loss..................................................50 11.2 Substitute Aircraft.............................................51 11.3 Requisition.....................................................52 12. Return of Aircraft........................................................52 12.1 Return..........................................................52 12.2 Final Inspection................................................52 12.3 Non-Compliance..................................................53 12.4 Redelivery......................................................53 12.5 Acknowledgment.................................................53 12.6 Maintenance Program.............................................53 12.7 Fuel............................................................53 12.8 Automatic Extension of Term....................................54 13. Default...................................................................54 13.1 Events..........................................................54 13.2 Rights..........................................................57 13.3 Deregistration..................................................61 14. Assignment................................................................61 14.1 Lessee's Assignment.............................................61 14.2 Lessor's Assignment.............................................61 14.3 Transfer........................................................61 15. Illegality................................................................61 16. Miscellaneous.............................................................62 16.1 Waivers, Remedies Cumulative....................................62 16.2 Delegation......................................................62 16.3 Certificates....................................................62 16.4 Appropriation...................................................62 16.5 Currency........................................................62 16.6 Set-off.........................................................62 16.7 Severability....................................................63 16.8 Remedy..........................................................63 16.9 Expenses........................................................63 16.10 Time of Essence................................................63 16.11 Notices........................................................64 16.12 Governing Law and Jurisdiction.................................64 16.13 Sole and Entire Agreement......................................66 16.14 Indemnities....................................................66 16.15 Counterparts...................................................66 16.16 Language.......................................................66 16.17 No Brokers.....................................................66 17. Disclaimers and Waivers...................................................68 17.1 Exclusion.......................................................68 17.2 Waiver..........................................................68 17.3 Disclaimer of Consequential Damages.............................69 17.4 Confirmation....................................................69 18. Section 1110..............................................................69 19. Usury Laws................................................................69 20. Modification or Revision..................................................70 21. Witness...................................................................71 SCHEDULES.....................................................................72 SCHEDULE 1. Description of Aircraft.........................................72 SCHEDULE 2. Certificate of Technical Acceptance.............................78 SCHEDULE 3. Operating Condition at Redelivery...............................84 SCHEDULE 4. Insurances Requirements.........................................88 SCHEDULE 5. Intentionally Omitted...........................................91 SCHEDULE 6. Lease Supplement No.____........................................92 SCHEDULE 7. Form of Lease Termination Certificate...........................95 SCHEDULE 8. Form of Aircraft Usage Report...................................97 AIRCRAFT LEASE AGREEMENT THIS AGREEMENT is made as of the 7th day of January, 2000 between:- (1) AVIATION FINANCIAL SERVICES INC., a company incorporated under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation whose principal place of business is at c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, Connecticut, 06927 ("Lessor"); and (2) FRONTIER AIRLINES, INC., a company incorporated under the laws of the State of Colorado whose principal place of business is at 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America ("Lessee"). WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease from Lessor the Aircraft on the terms of this Agreement. IT IS AGREED as follows:- 1. INTERPRETATION 1.1 DEFINITIONS In this Agreement the following expressions have the meanings set out opposite:- After-Tax Basis in the case of any amount payable on an "After-Tax Basis" to or for the benefit of any Person (including any amount payable pursuant to this definition) (a "Required Payment"), the total amount that must be paid is the amount such that, after deduction of the net amount of all Taxes required to be paid by such Person with respect to the receipt or accrual by it of such amount (and assuming that such Person is subject to (i) United States Federal income tax at the highest marginal statutory rate imposed on corporations for the relevant period, (ii) United States state and local income taxes at the composite of the highest marginal statutory rates imposed on such Person for the relevant period, as such composite rate shall be certified by a financial officer of such Person, and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on such Person) the net amount received is the amount of the Required Payment. Agreed Value the amount specified for Agreed Value in Letter Agreement No. 1. Air Authority Federal Aviation Administration ("FAA"). Aircraft the aircraft described in Part 1 of Schedule 1, (which term includes where the context admits a separate reference to all Engines, Parts and Aircraft Documents) or any aircraft substituted in place thereof pursuant to Clause 11.1 or 11.2. Aircraft Documents the documents, data and records identified in Part 2 of Schedule 1 and all additions, renewals, revisions and replacements from time to time made in accordance with this Agreement. Airframe the Aircraft, excluding the Engines and Aircraft Documents. Appraisal Procedure the following procedure for determining the "fair market rental value" of the Aircraft: (a) Lessor shall select an independent aircraft appraiser who shall make a determination of "fair market rental value" of the Aircraft; and (b) the fees and expenses of the appraiser shall be paid by Lessee. "Fair market rental value" shall mean the value determined by an appraisal completed on an "as-is" and "where-is" basis. APU the auxiliary power unit installed on the Aircraft on the Delivery Date and any replacement auxiliary power unit installed in accordance with this Agreement. Boeing The Boeing Company, a Delaware corporation with its principal office in Seattle, State of Washington, U.S.A. Business Day a day (other than a Saturday or Sunday) on which business of the nature required by this Agreement is carried out in the State of Incorporation or where used in relation to payments on which banks are open for business in New York. Certificated Air Carrier any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be issued, any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the United States of America, and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated so as to entitle Lessor, as a lessor, to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft. Cold Section Refurbishment with respect to any Engine the completion of the following: completely unstacking either high or low or both compressor sections, if needed, and completing the following for the appropriate section(s): visual inspection; de-blading discs as necessary; visual and NDT (Non-Destructive Testing) inspections as necessary of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the compressor; balance of all rotors; and installation of rotors in the engine. Cycle one take-off and landing of the Aircraft. DGAC means the Civil Aviation Authority of Spain. Damage Notification Threshold the amount specified therefor in Letter Agreement No. 1. Default any Event of Default and any event which with the giving of notice, lapse of time, determination of materiality or fulfillment of other condition would constitute an Event of Default. Delivery Condition Requirements the requirements specified on Part 1 of Schedule 1. Delivery Date the date on which the Aircraft is tendered for delivery by Lessor in accordance with this Agreement. Delivery Location Marana, Arizona. Deposit all amounts payable pursuant to Clause 5.1 whether in cash or by Letter of Credit. Dollars and $ the lawful currency of the United States of America. Engine whether or not installed on the Aircraft:- (a) each engine of the manufacture and model specified in Part 1 of Schedule 1 (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower) which Lessor elects to tender to Lessee with the Aircraft on the Delivery Date, such engines being described as to serial numbers on the certificate of acceptance to be executed by Lessee upon delivery of the Aircraft; or (b) any engine which has replaced that engine, title to which has or should have, passed to Lessor in accordance with this Agreement; and in each case includes all modules and Parts from time to time belonging to or installed in that engine but excludes any properly replaced engine title to which has, or should have, passed to Lessee pursuant to this Agreement. Engine Event of Loss the occurrence with respect to an Engine only, whether or not installed on the Airframe, of any of those events described in provisions (a) through (d) of the definition of Event of Loss. Engine Flight Hour means each hour or part thereof an Engine is operated, elapsing from the moment that wheels of an aircraft on which such Engine is installed leave the ground until the wheels of such aircraft next touch the ground. Engine Refurbishment a complete disassembly, inspection and repair of the modules of an Engine per the engine manufacturer's maintenance manual, so that such Engine shall have a minimum expected on-wing life of * hours and * cycles. ERISA the Employee Retirement Income Security Act of 1974, as amended. Event of Default an event or condition specified in Clause 13.1. Event of Loss with respect to the Aircraft (including for the purposes of this definition the Airframe):- (a) the actual or constructive total loss of the Aircraft (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss, or requisition for use or hire which results in an insurance settlement on the basis of a total loss); or (b) it being destroyed, damaged beyond repair or permanently rendered unfit for normal use for any reason whatsoever; or (c) the requisition of title, or other compulsory acquisition, capture, seizure, deprivation, confiscation or detention for any reason of the Aircraft by the government of the State of Registration or other competent authority (whether de jure or de facto), but excluding requisition for use or hire not involving requisition of title; or (d) the hi-jacking, theft, condemnation, confiscation, seizure or requisition for use or hire of the Aircraft which deprives any person permitted by this Agreement to have possession and/or use of the Aircraft of its possession and/or use for more than * days (or, if earlier, beyond the Expiry Date). Excusable Delay with respect to delivery of the Aircraft, delay or non-performance due to or arising out of acts of God or public enemy, civil war, insurrection or riot, fire, flood, explosion, earthquake, accident, epidemic, quarantine restriction, any act of government, governmental priority, allocation, regulation or order affecting directly or indirectly, the Aircraft, any manufacturer, Lessor or any materials or facilities, strike or labor dispute causing cessation, slowdown or interruption of work, inability after due and timely diligence to procure equipment, data or materials from manufacturers, suppliers, any existing owner, seller or lessee in a timely manner, damage, destruction or loss, or any other cause to the extent that such cause is beyond the control of Lessor whether above mentioned or not and whether or not similar to the foregoing. Expiry Date the day preceding the numerically corresponding day * months after the Delivery Date or if earlier the date on which:- (a) the date Lessor, acting in accordance with the terms of this Agreement terminates the leasing of the Aircraft to Lessee under this Agreement; or (b) Lessor receives the Agreed Value together with any other amounts then due and unpaid by Lessee following an Event of Loss. FAA the Federal Aviation Administration of the United States of America and any successor thereof. FAR the Federal Aviation Regulations set forth in Title 14 of the United States Code of Federal Regulations, as amended and modified from time to time. Federal Aviation Act The Transportation Laws of the United States as set forth at 49 United States Code et seq. or any similar legislation of the United States of America enacted in substitution or replacement thereof. Financing Statements Uniform Commercial Code Financing Statements in respect of the Aircraft and Engines leased hereunder prepared in a form acceptable for filing with the applicable Government Entities in the Habitual Base, the state in which the chief executive office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the Habitual Base) and such other jurisdiction as Lessor shall reasonably require. Flight Hour each hour or part thereof (rounded up to two decimal places) elapsing from the moment the wheels of the Aircraft leave the ground on take off until the wheels of the Aircraft next touch the ground. GAAP generally accepted accounting principles in the United States. Governing Law the laws of the State of New York. Government Entity (a) any national government, political subdivision thereof, or local jurisdiction therein; (b) any instrumentality, board, commission, court, or agency of any thereof, however constituted; and (c) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any of the above is a participant. Gross Negligence means any intentional, conscious or voluntary action or decision which is taken with wanton, reckless, flagrant and culpable disregard for the consequences of such action or decision. Guaranty means a Guaranty of General Electric Capital Corporation to Lessee with respect to Lessor substantially in the form attached hereto as Exhibit A to Letter Agreement No. 1. Habitual Base the State of Colorado or, subject to the prior written consent of Lessor, any other state, country or countries in which the Aircraft is for the time being habitually based. Hot Section Refurbishment with respect to any Engine, the complete visual inspection and repair as necessary of the combustion section of an Engine in an engine repair/overhaul station including without limitation complete unstacking of the high pressure or low pressure turbine or both if needed; complete visual inspection of such turbine(s); de-blading of discs as required; visual and NDT inspections of all discs as required; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of all blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the turbine; balance of all rotors; and installation of rotors in the engine. Indemnitee each of GE Capital Aviation Services, Inc. ("GECASI"), GE Capital Aviation Services Limited ("GECASL"), Lessor, and any of their respective successors and assigns, shareholders, subsidiaries, affiliates, partners, contractors, directors, officers, servants, agents and employees and indemnitees; provided, however, that no such Indemnitee shall be entitled to an indemnification to the extent such Indemnitee is manufacturer of the Aircraft, any Engines, or Parts in its capacity as such. Insurances as defined in Clause 9.1 hereof. Landing Gear the landing gear assembly of the Aircraft excluding any rotable components. Law shall mean and include (a) any statute, decree, constitution, regulation, order judgment or other directive of any Governmental Entity; (b) any treaty, pact, compact or other agreement to which any Governmental Entity is a signatory or party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above. Lease Supplement a Lease Supplement, substantially in the form of Schedule 6 hereto, entered into between Lessor and Lessee. Lessee's Maintenance Program the Maintenance Program specifically approved by the Air Authority for Lessee's maintenance of the Aircraft. Lessor Lien (a) any Security Interest whatsoever from time to time created by or through Lessor in connection with the financing of the Aircraft; (b) any other Security Interest in respect of the Aircraft which results from acts of or claims against Lessor not related to the transactions contemplated by or permitted under this Agreement; and (c) Security Interests in respect of the Aircraft for Lessor Taxes. Lessor Taxes Taxes:- (a) imposed as a direct result of activities of Lessor in the jurisdiction imposing the Tax unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement or the operation of the Aircraft by Lessee; or (b) imposed on the net income, profits or gains of Lessor by any Government Entity in the United State of America; provided, however, that Lessor Taxes shall not include any Tax imposed by any government or taxing authority of any jurisdiction if and to the extent that such Tax results from (i) the use, operation, presence or registration of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax, or (ii) the situs of organization, any place of business or any activity of Lessee or any other Person having use, possession or custody of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax; or (c) imposed with respect to any period commencing or event occurring after the Expiry Date and unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement; provided always, that Lessor Taxes shall not include any income taxes or other amounts payable and subject to indemnification in favor of Lessor pursuant to the Lease. Letter Agreement No. 1 that certain Letter Agreement No. 1 between Lessor and Lessee dated as of the date hereof. MACRS Deductions means cost recovery deductions for *% of the Lessor's cost of the Aircraft pursuant to Section 168(b) of the Internal Revenue Code of 1986, as amended, commencing in the year 2000, computed (i) on the basis that the Aircraft is "7-year property" (within the meaning of Section 168(e) of the Code), (ii) by using the *% declining balance method over a 7 year recovery period, switching to the straight-line method for the first taxable year of the Lessor during the term for which such method yields a larger allowance, (iii) assuming salvage value is zero, (iv) using a half-year convention and (v) assuming that the Aircraft is sold at the end of the Term of * months. Letter of Credit means any letter of credit issued in relation to the Lease pursuant to Section 5.15 and any replacement or renewal of that letter of credit. Maintenance Performer the Lessee, Tramco, USAir Inc., or such other Person as is approved by the FAA to perform maintenance and/or modification services on commercial aircraft and/or commercial aircraft engines, which Person shall be agreed by Lessor and Lessee to have recognized standing and experience, suitable facilities for the level of maintenance being carried out and suitable equipment to perform such services on aircraft and/or engines of the same or improved model as the Aircraft or, in the case of engines, the Engines. Maintenance Program an Air Authority approved maintenance program for the Aircraft based upon the Manufacturer's specifications, service bulletins, planning documents, maintenance manuals and documents and encompassing scheduled maintenance (including block maintenance), condition-monitored maintenance, and/or on-condition maintenance of Airframe, Engines and Parts, including but not limited to, servicing, testing, preventive maintenance, repairs, structural inspections, system checks, overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives, corrosion control, inspections and treatments. Major Checks any C-Check, multiple C-Check, D-Check or annual heavy maintenance visit or segment thereof suggested for commercial aircraft of the same model as the Aircraft by its manufacturer (however denominated) as set out in Lessee's Maintenance Program. Manufacturer Boeing. Minimum Liability Coverage the amount set forth therefore in Letter Agreement No. 1. Mortgage Convention shall mean the Convention for the International Recognition of Rights in Aircraft, signed (ad referendum) at Geneva, Switzerland, on June 19, 1948, and amended from time to time, but excluding the terms of any adhesion thereto or ratification thereof containing reservations to which the United States of America does not accede. Operative Documents shall mean this Agreement, all Lease Supplements hereto, Letter Agreement No. 1, the Guaranty, any schedules or documents prepared in conformance to the Schedules hereto, any side-letters related hereto and any amendments, revisions, supplements or modifications hereto or thereto. Other Agreements any agreement (other than this Agreement) made or to be made between Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) or AerFi Group plc (or an associate or affiliate thereof) and Lessee (or an associate or affiliate thereof). Part whether or not installed on the Aircraft:- (a) any component, furnishing or equipment (other than a complete Engine) furnished with the Aircraft on the Delivery Date; and (b) any other component, furnishing or equipment (other than a complete Engine) title to which has, or should have passed to Lessor pursuant to this Agreement; but excludes any such items title to which has, or should have, passed to Lessee pursuant to this Agreement. Permitted Lien (a) any lien for Taxes not assessed or, if assessed, not yet due and payable, or being contested in good faith by appropriate proceedings; (b) any lien of a repairer, mechanic, carrier, hangarkeeper or other similar lien arising in the ordinary course of business or by operation of Law in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings; and (c) any Lessor Lien. but only if (in the case of both (a) and (b)) (i) adequate resources have been provided by Lessee for the payment of the Taxes or obligations; and (ii) such proceedings, or the continued existence of the lien, do not give rise to any likelihood of the sale, forfeiture or other loss of the Aircraft or any interest therein or of criminal liability on Lessor. Person any individual person, corporation, partnership, firm, joint stock company, joint venture, trust, estate, unincorporated organization, association, Government Entity, or organization or association of which any of the above is a member or a participant. Redelivery Location a location on Lessee's route system in the United States designated by Lessor, or such other location as Lessor and Lessee shall agree. Related Agreements any agreement (other than this Agreement) made or to be made between or with Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) and Lessee (or an associate or affiliate of Lessee). Replacement Engine an engine of the same manufacturer and model, and having equivalent value, utility, modification status, time elapsed since Hot Section Refurbishment and Cold Section Refurbishment and remaining warranty status as the Engine it is intended to replace under Clause 11.1(c), or at Lessee's option, an engine of the same manufacturer as such Engine but of an improved model, and otherwise of an equivalent value and utility and suitable for installation and use on the Airframe without impairing the value or utility of the Airframe and compatible with the remaining installed Engine. Rent all amounts payable pursuant to Clause 5.3. Rental Period each period ascertained in accordance with Clause 5.2. Rent Date the first day of each Rental Period. Required LC Expiry Date means the date being * days after the Expiry Date. Return Occasion the date on which the Aircraft is redelivered to Lessor in accordance with Clause 12 hereof. Scheduled Delivery Month *. Security Interest any mortgage, charge, pledge, lien, assignment, hypothecation, right of set-off or any agreement or arrangement having the effect of creating a Security Interest other than a Permitted Lien. State of Incorporation State of Colorado. State of Registration United States of America. Subsidiary (a) in relation to any reference to accounts, any company whose accounts are consolidated with the accounts of Lessee in accordance with GAAP; (b) for any other purpose an entity from time to time:- (i) of which another has direct or indirect control or owns directly or indirectly more than 50 per cent of the voting share capital; or (ii) which is a direct or indirect subsidiary of another under the laws of the jurisdiction of its incorporation. Supplemental Rent all amounts payable under Clause 5.4(a). Tax Indemnitee means an Indemnitee and for any taxable year in which the Lessor joins in the filing of a consolidated federal income tax return, shall include each member of the affiliated group (within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto) of which the Lessor is a member. Taxes any and all present and future taxes, duties, withholdings, levies, assessments, imposts, fees and other governmental charges of all kinds together with any penalties, fines, surcharges and interest thereon and any additions thereto. Term the period commencing on the Delivery Date and ending on the Expiry Date, except that the Term may be extended beyond the Expiry Date if the Return Occasion is delayed in the circumstances specified, and subject to the limitation described, in Clause 12.3. United States the United States of America Viva collectively means (i) Viva Vuelos Internacionales de Vacaciones, S.A. (ii) Hispamer Servicos Financieros EFC - S.A. and (iii) Leasebanesto S.A Wet Lease any arrangement whereby Lessee agrees to furnish the Aircraft to a third party pursuant to which the Aircraft (i) shall be solely within the operational control of Lessee and shall be operated solely by regular employees of Lessee possessing all current certificates and licenses that would be required under the Federal Aviation Act for the performance by such employees of similar functions within the United States of America, (ii) shall be maintained by Lessee in accordance with Lessee's Maintenance Program and (iii) shall be and remain subject and subordinate to all other terms and conditions of this Agreement; provided, however, that Lessee shall remain primarily liable for the performance of all of the terms of this Agreement (including, without limitation, its obligations set forth in Clause 9 of this Agreement) to the same extent as if such arrangement had not been entered into. 1.2 CONSTRUCTION (a) In this Agreement, unless the contrary intention is stated, a reference to:- (i) each of "Lessor" or "Lessee" or any other person includes without prejudice to the provisions of this Agreement any successor in title to it and any permitted assignee; (ii) words importing the plural shall include the singular and vice versa; (iii) any document shall include that document as amended, novated or supplemented; (iv) a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement; (v) a reference to "Agreement", "the Agreement" or "this Agreement" shall, unless expressly provided otherwise, mean and include this Aircraft Lease Agreement and each of the other Operative Documents; and (b) the headings in this Agreement are to be ignored in construing this Agreement. 2. REPRESENTATIONS AND WARRANTIES 2.1 Lessee's Representations and Warranties: Lessee represents and warrants to Lessor that:- (a) Status: Lessee is a corporation duly incorporated and validly existing under the laws of the State of Incorporation and has the corporate power to own its assets and carry on its business as it is being conducted and is the holder of all necessary air transportation licenses required in connection therewith and with the use and operation of the Aircraft; (b) Power and authority: Lessee has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, this Agreement and the transactions contemplated by this Agreement; (c) Legal validity: this Agreement has been duly entered into and delivered by Lessee, and this Agreement does, and the Operative Documents to which it is a party when executed and delivered by Lessee will, constitute legal, valid and binding obligations of Lessee, enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally, and, to the extent that certain remedies require or may require enforcement by a court of equity, by such principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) as a court having jurisdiction may impose and by Laws which may affect some of such remedies but which do not make the available remedies inadequate for the substantial realization of the benefits provided herein; (d) Non-conflict: the entry into and performance by Lessee of, and the transactions contemplated by, this Agreement do not and will not:- (i) conflict with any laws binding on Lessee; or (ii) conflict with the constitutional documents of Lessee; or (iii) conflict with or result in default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding upon Lessee or any of its assets nor result in the creation of any Security Interest over any of its assets; (e) Authorization: all authorizations, consents, registrations and notifications required in connection with the entry into, performance, validity and enforceability of, this Agreement and the transactions contemplated by this Agreement, have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; (f) No Immunity: (i) Lessee is subject to civil commercial law with respect to its obligations under this Agreement; and (ii) neither Lessee nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Lessee constitute private and commercial acts; (g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries most recently delivered to Lessor, including balance sheets and statements of income and retained earnings:- (i) have been prepared in accordance with GAAP; and (ii) fairly represent the consolidated financial condition of Lessee and its Subsidiaries as at the date to which they were drawn up; (h) Restricted Countries: Lessee does not hold a contract or other obligation to operate the Aircraft to or for any of the countries designated under U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola. (i) Chief Executive's Office: Lessee's Chief Executive Office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) is located at 12015 East 46th Avenue, Suite 200, Denver, Colorado, United States of America; (j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft; and (j) Citizen of the United States: Lessee is a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 2.2 Lessee's Further Representations and Warranties: Lessee further represents and warrants to Lessor that:- (a) No Default: (i) no Default has occurred and is continuing or might result from the entry into or performance of the Operative Documents to which Lessee is a party; and (ii) no other event or condition has occurred and is continuing which constitutes (or with the giving of notice, lapse of time, determination of materiality or the fulfillment of any other applicable condition or any combination of the foregoing, might constitute) a material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding on Lessee or any assets of Lessee; (b) Registration: (i) except for the filing for recordation of this Agreement and a Lease Supplement with the FAA, and the filing of any Financing Statements required (and continuation statements at periodic intervals), no further filing or recording of this Agreement or of any other document (including any financing statement under Article 9 of the Uniform Commercial Code) and no further action, is or will be necessary under the Laws of the United States, the State of Incorporation, and the State of Registration, the Habitual Base or any other states in order to (A) fully establish, perfect and protect Lessor's title to, and interest in, the Aircraft or any Engine or Part as against Lessee or any third party, or (B) ensure the validity, effectiveness and enforceability of this Agreement or any other Operative Document to which the Lessee is a party; and (ii) under the laws of the State of Incorporation, the State of Registration and the Habitual Base the property rights of Lessor in the Aircraft have been fully established, perfected and protected and this Agreement will have priority in all respects over the claims of all creditors of Lessee; (c) Litigation: no litigation, arbitration or administrative proceedings are pending or to its knowledge threatened against Lessee which, if adversely determined, would have a material adverse effect upon its financial condition or business or its ability to perform its obligations under this Agreement; (d) Pari Passu: the obligations of Lessee under the Operative Documents to which it is a party rank at least pari passu with all other present and future unsecured and unsubordinated obligations (including contingent obligations) of Lessee, with the exception of such obligations as are mandatorily preferred by law and not by virtue of any contract; (e) Material Adverse Change: there has been no material adverse change in the consolidated financial condition of Lessee and its Subsidiaries or the financial condition of Lessee since the date to which the accounts most recently provided to Lessor on or prior to the Delivery Date were drawn up; (f) Taxes: Lessee has delivered all necessary returns and payments due to the tax authorities in the State of Incorporation, the State of Registration and the Habitual Base and is not required by Law to deduct any Taxes from any payments under this Agreement; (g) Information: the financial and other information furnished by Lessee in connection with this Agreement does not contain any untrue statement or omit to state facts, the omission of which makes the statements therein, in the light of the circumstances under which they were made, misleading, nor omits to disclose any material matter to Lessor and all forecasts and opinions contained therein were honestly made on reasonable grounds after due and careful inquiry by Lessee; and (h) ERISA: Lessee is not engaged in any transaction in connection with which it could be subjected to either a civil penalty assessed pursuant to Section 502 of ERISA or any tax imposed by Section 4975 of the Internal Revenue Code; no material liability to the Pension Benefit Guaranty Corporation has been or is expected by Lessee to be incurred with respect to any employee pension benefit plan (as defined in Section 3 of ERISA) maintained by Lessee or by any trade or business (whether or not incorporated) which together with Lessee would be treated as a single employer under Section 4001 of ERISA and Section 414 of the Internal Revenue Code; there has been no reportable event (as defined in Section 4043(b) of ERISA) with respect to any such employee pension benefit plan; no notice of intent to terminate any such employee pension benefit plan has been filed or is expected to be filed, nor has any such employee pension benefit been terminated; no circumstance exists or is anticipated that constitutes or would constitute grounds under Section 4042 of ERISA for the Pension Benefit Guaranty Corporation to institute proceedings to terminate, or to appoint a trustee to manage the administration of, such an employee pension benefit plan; and no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived, exists with respect to any such employee pension benefit plan. 2.3 Repetition: The representations and warranties in Clause 2.1 and Clause 2.2 will survive the execution of this Agreement. The representations and warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be repeated by Lessee on the Delivery Date with reference to the facts and circumstances then existing. The representations and warranties contained in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as if made with reference to the facts and circumstances then existing. 2.4 Lessor's Representations and Warranties: Lessor represents and warrants to Lessee that:- (a) Status: Lessor is a company duly incorporated and validly existing under the laws of the State of New York and has the corporate power to own its assets and carry on its business as it is now being conducted; (b) Power and authority: Lessor has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, the Operative Documents to which it is a party and the transactions contemplated by the Operative Documents to which it is a party; (c) Legal validity: the Operative Documents to which it is a party constitute Lessor's legal, valid and binding obligation; (d) Non-conflict: the entry into and performance by Lessor of, and the transactions contemplated by, the Operative Documents to which it is a party do not and will not:- (i) conflict with any laws binding on Lessor; or (ii) conflict with the constitutional documents of Lessor; or (iii) conflict with any document which is binding upon Lessor or any of its assets; (e) Authorization: so far as concerns the obligations of Lessor, all authorizations, consents, registrations and notifications required under the laws of the State of New York in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Operative Documents to which it is a party by Lessor have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; and (f) No Immunity: (i) Lessor is subject to civil commercial law with respect to its obligations under the Operative Documents to which it is a party; and (ii) neither Lessor nor any of its assets is entitled to any right of immunity and the entry into and performance of the Operative Documents to which it is a party by Lessor constitute private and commercial acts. 3. CONDITIONS PRECEDENT 3.1 Conditions Precedent: Lessor's obligation to deliver and lease the Aircraft under this Agreement is subject to satisfaction of each of the following conditions:- (a) receipt by Lessor from Lessee not later than * Business Days prior to the Delivery Date of the following satisfactory in form and substance to Lessor:- (i) Constitutional Documents: a copy of the constitutional documents of Lessee including without limitation articles of incorporation, bylaws and a current certificate of good standing issued by the secretary of the state for the State of Incorporation; (ii) Resolutions: a copy of a resolution of the board of directors of Lessee approving the terms of, and the transactions contemplated by, this Agreement, resolving that it enter into this Agreement, and authorizing a specified person or persons to execute this Agreement and the other Operative Documents to which it is a party and accept delivery of the Aircraft on its behalf; (iii) Opinion: evidence that opinions as reasonably agreed by Lessor will be issued on the Delivery Date by legal counsel acceptable to Lessor; (iv) FAA Opinion: a draft of an opinion of Crowe & Dunlevy P.C. or other counsel acceptable to Lessor who are recognized specialists with regard to FAA registration matters in form acceptable to Lessor as to the due filing for recordation of this Agreement, to be delivered in executed final form to Lessor and Lessee upon such filing and recordation; (v) Approvals: evidence of the issue of each approval, license and consent which may be required in relation to, or in connection with, the performance by Lessee of any of its obligations hereunder (including, without limitation, any consent to the export of the Aircraft from the Habitual Base and consent to the deregistration of the Aircraft upon the termination of the leasing of the Aircraft under this Agreement); (vi) Licenses: copies of Lessee's Certificate of Convenience and Necessity, Radio License, FAR Part 121 operator's certificates and all other licenses, certificates and permits required by Lessee in relation to, or in connection with, the operation of the Aircraft; (vii) Process Agent: a letter from the process agent appointed by Lessee in this Agreement accepting that appointment; (viii) Certificate: a certificate of a duly authorized officer of Lessee:- (a) setting out a specimen of each signature referred to in Clause 3.1(a)(ii); (b) certifying that each copy document specified in this Clause is correct, complete and in full force and effect; (c) certifying that Lessee's representations and warranties contained in Clause 2.1 and 2.2 are true and correct on the Delivery Date as if given on such date; and (d) certifying that there has been no material change in Lessee's Constitutional Documents since originally delivered by Lessee to Lessor; (ix) Air Traffic Control: a letter from Lessee addressed to Transport Canada or other relevant air traffic control authority pursuant to which Lessee authorizes the addressee to issue to Lessor, upon Lessor's request from time to time, a statement of account of all sums due by Lessee to the authority in respect of all aircraft (including, without limitation, the Aircraft) operated by Lessee; (x) Deregistration Power: an irrevocable power of attorney authorizing Lessor or such other person as Lessor may from time to time specify to do any thing or act or to give any consent or approval which may be required to obtain deregistration of the Aircraft and to export the Aircraft from the Habitual Base upon termination of the leasing of the Aircraft under this Agreement, duly notarized and legalized; (xi) Certificate of Lease Termination: a certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 7 hereto, acknowledging that this Agreement is no longer in effect with respect to the Aircraft and Engines, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to the Lessee hereunder; and (xii) General: such other documents as Lessor may reasonably request; (b) the receipt by Lessor on or before the Delivery Date of:- (i) Opinions: a signed original of each of the opinions referred to in Clause 3.1(a)(iii) and 3.1(a)(iv); (ii) Payments: all sums due to Lessor under this Agreement on or before the Delivery Date including, without limitation, the first payment of Rent; (iii) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor that Lessee is taking the required steps to ensure due compliance with the provisions of this Agreement as to Insurances with effect on and after the Delivery Date; (iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be dated the Delivery Date, fully completed and executed by Lessor and Lessee, and filed for recording at the FAA; (v) Certificate of Technical Acceptance: in the form of Schedule 2 hereto, to be dated and fully completed, and executed by Lessor and Lessee certifying that Lessee has completed its inspection of the Aircraft in accordance with Clause 4.5 hereof and that Aircraft conforms to the provisions set forth therein and is in all respects acceptable to Lessee, or if not so acceptable, then setting forth discrepancies and corrective action to be taken; (vi) Accounts: the latest available accounts of Lessee as described in Clause 8.2(b)(i) and (ii); (vii) Documents: a confirmation of receipt of the Aircraft Documents delivered with the Aircraft on the Delivery Date; (viii) UCC-1 Financing Statements: in form acceptable to Lessor, and suitable for filing in the States of Colorado and New York and signed by Lessee; and (ix) General: such other documents as Lessor may reasonably request. (c) receipt by Lessor of such information and documents relating to the proposed Maintenance Program as Lessor may require and Lessor having agreed the proposed Maintenance Program on or prior to the Delivery Date; and (d) evidence that on the Delivery Date that all filings, registrations, recordings and other actions have been or will be taken which are necessary or advisable to ensure the validity, effectiveness and enforceability of this Agreement and the Assignments and to protect the property rights of Lessor in the Aircraft or any Part. 3.2 Further conditions precedent: The obligations of Lessor to deliver and lease the Aircraft under this Agreement are subject to the further conditions precedent that:- (a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are correct and would be correct if repeated on delivery of the Aircraft under this Agreement; and (b) no Default has occurred and is continuing or might result from the leasing of the Aircraft to Lessee under this Agreement. 3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole benefit of Lessor and may be waived or deferred in whole or in part and with or without conditions by Lessor. If any of those conditions are not satisfied on the Delivery Date and Lessor (in its absolute discretion) nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure that those conditions are fulfilled within * days after the Delivery Date and Lessor may treat as an Event of Default the failure of Lessee to do so. 4. COMMENCEMENT 4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the Aircraft on lease in accordance with this Agreement for the duration of the Term. Lessor will deliver and Lessee will accept the Aircraft on the day in the Scheduled Delivery Month notified by Lessor to Lessee at least * Business Days in advance of such date or such other day as may be agreed. In the event (a) Lessee is unwilling or unable to accept delivery of the Aircraft on the date notified by Lessor as the Delivery Date, and (b) the Aircraft meets Delivery Condition Requirements then Lessee's obligation to pay Rent hereunder shall commence on such Delivery Date notwithstanding that Lessee has not accepted possession of the Aircraft. After delivery the Aircraft and every Part will be in every respect at the sole risk of Lessee, who will bear all risk of loss, theft, damage or destruction to the Aircraft from any cause whatsoever. 4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the Delivery Location or such other location as may be agreed. Lessee will effect acceptance of the Aircraft by execution and delivery to Lessor of the duly completed and executed Certificate of Acceptance in the form of Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the form of Schedule 6 hereto and by authorizing the filing at the FAA of an executed copy of such Lease Supplement with an executed copy of this Agreement attached thereto. 4.3 Delayed Delivery: If owing to:- (a) any seller, manufacturer or existing lessee of the Aircraft delaying in the delivery of, or failing to deliver, the Aircraft to Lessor for any reason (other than because of any default of Lessor in the performance of its obligations under an agreement with that seller, manufacturer or lessee unless the default arises from any act or omission of Lessee) whether or not in circumstances entitling that seller, manufacturer or lessee to terminate that agreement; (b) any purchase agreement for the Aircraft terminating prior to delivery of the Aircraft (other than because of any default of Lessor in the performance of its obligations under that agreement unless the default arises from any act or omission of Lessee); (c) any Excusable Delay; or (d) notification of any defect or non-conformity pursuant to Clause 4.5; Lessor delays in the delivery of, or fails to deliver, the Aircraft under this Agreement:- (i) Lessor will not be responsible for any losses, including loss of profit, costs or expenses arising from or in connection with the delay or failure suffered or incurred by Lessee; (ii) subject to Clause 4.5, Lessee will not be entitled to terminate this Agreement or to reject the Aircraft when tendered for delivery by Lessor, on the grounds of any such delay; (iii) in the case of termination of a purchase agreement, Lessor may at any time after the termination terminate this Agreement; and (iv) upon any such termination or termination pursuant to Clause 4.5 neither Lessor nor Lessee will have any further obligation to the other under this Agreement other than as expressly set out in this Agreement, except that Lessor will repay to Lessee the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable. 4.4 Licenses: Lessee will at its expense obtain all licenses, permits and approvals which may be necessary to export the Aircraft from the Delivery Location. Lessor will furnish such data and information as may be reasonably requested by Lessee in connection with obtaining any such license, permit or approval. 4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase or lease agreement, Lessor will give Lessee an opportunity:- (a) to inspect the Aircraft at the Delivery Location; and (b) to assign up to 2 representatives to participate as observers in a demonstration flight to demonstrate the condition of the Aircraft. If Lessee notifies Lessor promptly prior to the Delivery Date of any defect or non-conformity with Schedule 1 observed during the inspection or demonstration flight, Lessor will correct or procure the correction of the defect or non-conformity as promptly as practicable (except to the extent otherwise agreed or to the extent in the opinion of Lessor it is impracticable or prohibitively expensive to do so). Subject to Clause 4.3, Lessor may postpone the Delivery Date in such a case to the date which Lessor notifies Lessee that the defect or non-conformity has been rectified. Lessee will be entitled to terminate this Agreement if Lessor notifies it that Lessor does not intend to correct the defect or non-conformity. 4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from and against all Claims (as defined in Clause 10) arising from death or injury to any observer or any employee of Lessee in connection with any demonstration flight or inspection of the Aircraft by Lessee. 5. PAYMENTS 5.1 Deposit: Lessee shall pay to Lessor a Deposit in cash or pursuant to a Letter of Credit in form and substance reasonably acceptable to Lessor in the amounts set forth in the definition of Deposit in Letter Agreement No. 1 and in accordance with the schedule set forth therein. So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits then held by Lessor upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 5.2 Rental Periods: The Term will consist of consecutive whole or partial Rental Periods set forth in Letter Agreement No. 1. The first Rental Period will commence on the Delivery Date and each subsequent Rental Period will commence on the date succeeding the last day of the previous Rental Period. Each Rental Period will end on the date immediately preceding the calendar day in the next month numerically corresponding to the Delivery Date, except that: (a) if there is no such numerically corresponding day in that month, it will end on the last day of that month; and (b) if a Rental Period would otherwise overrun the Expiry Date, it will end on the Expiry Date. 5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in advance in the amount specified as "Rent" in Letter Agreement No. 1. Payment must be initiated adequately in advance of the Rent Date to ensure that Lessor receives credit for the payment on the Rent Date. If a Rental Period begins on a non-Business Day, the Rent payable in respect of that Rental Period shall be paid on the Business Day immediately preceding the date on which such Rental Period commences. 5.4 Supplemental Rent: (a) Amount: Lessee will further pay to Lessor Supplemental Rent in relation to each calendar month or portion thereof during the Term and for the last Rental Period of the Term no later than the 10th day following the end of such calendar month as follows:- (i) in respect of the Airframe, the product of the Airframe Maintenance Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Aircraft during that calendar month ("Airframe Supplemental Rent"); and (ii) in respect of the life-limited Parts ("LLP") for each Engine, the product of the Life-Limited Parts Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine LLP Refurbishment Reserves"); and (iii) in respect of Engine Refurbishment for each Engine, the product of the Engine Refurbishment Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine Refurbishment Reserves"); and (iv) in respect of the Landing Gear, the product of the Landing Gear Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Landing Gear during that calendar month ("Landing Gear Supplemental Rent"). (b) Adjustment: Lessor may adjust the amount of Supplemental Rent after the Delivery Date upon notice to Lessee not more frequently than annually utilizing the Escalation Adjustment set forth in Letter Agreement No. 1. The Engine Reserve Rate may be further adjusted not more frequently than annually as provided in Section III of Letter Agreement No. 1. 5.5 Payments: All payments by Lessee to Lessor under this Agreement will be made for value on the due date in Dollars and in same day funds settled through the New York Clearing House System or such other funds as may for the time being be customary for the settlement in New York City of international payments in Dollars by telegraphic transfer to Bankers Trust Company, ABA number * for the account of GECC T&I Air Depository Account, Account No. * or to such other account as Lessor may advise Lessee in writing. 5.6 Withholding: All payments by Lessee pursuant to the Operative Documents to which it is a party shall be free of all withholdings of any nature whatsoever except to the extent otherwise required by Law, and if any such withholding is so required, Lessee shall pay on an After-Tax Basis an additional amount such that after the deduction of all amounts required to be withheld, the net amount actually received by Lessor on an After-Tax Basis will equal the amount that Lessor would have received on an After-Tax Basis if such withholding had not been required; provided, however, that if Lessee pays any such additional amount to compensate for the withholding of any Lessor Tax, Lessor shall repay to Lessee within * days after receipt of Lessee's written request therefor (which request shall include a description in reasonable detail of the Lessor Tax involved and the calculation of the additional amount to be repaid) the amount of such additional amount to the extent attributable to any Lessor Tax. 5.7 General Tax Indemnity: (a) General: (i) Lessee will on demand pay and indemnify each Indemnitee against all Taxes (other than Lessor Taxes) levied or imposed against or upon or payable by such Indemnitee or Lessee and arising from, with respect to or in connection with the transactions pursuant to the Operative Documents to which it is a party including (but not limited to) all Taxes relating or attributable to Lessee, any Operative Document or the Aircraft directly or indirectly in connection with the importation, exportation, registration, ownership, leasing, sub-leasing, purchase, delivery, possession, use, operation, repair, maintenance, overhaul, transportation, landing, storage, presence or redelivery of the Aircraft or any part thereof or any rent, receipts, insurance proceeds, income or other amounts arising therefrom. (ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by Lessee directly to the appropriate taxing authority (to the extent permitted by applicable Law) at or before the time prescribed by applicable Law. After any payment by Lessee of any Tax directly to a taxing authority, Lessee shall furnish to Lessor, on request, a certified copy of a receipt for Lessee's payment of such Tax or such other evidence of payment of such Tax as is reasonably obtainable by Lessee and reasonably acceptable to Lessor. (iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause 5.7 shall be paid within * days after receipt of a written demand therefor from the relevant Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable, provided that if an amount of any indemnified Tax is being contested in accordance with Clause 5.12 and Lessee shall have duly performed (and shall continue to perform) all its obligations under Clause 5.12 with respect to such contest, then payment of the indemnity with respect to such Tax under Clause 5.12 shall , at Lessee's election, be deferred until the date the contest has been completed. (b) MACRS Tax Indemnity Lessee will on demand pay and indemnify each Tax Indemnitee for any loss, disallowance, or deferral of, or delay in claiming, the MACRS Deductions resulting from (A) Lessee's using the Aircraft in such a manner as to cause the Aircraft to be treated as "used predominantly outside the United States" within the meaning of Section 168(g) of The Internal Revenue Code of 1986, as amended (the "Code") or (B) the Aircraft being treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code other than as a result of the Lessor being a "tax-exempt entity" under Section 168(h)(2) of the Code (either (A) or (B) hereinafter referred to as a "MACRS Loss"). In determining the indemnity required in connection with a MACRS Loss to the Tax Indemnitee under this Clause, the Tax Indemnitees shall be assumed to be subject to a combined U. S. and state income tax rate of (after giving effect to the deductibility of such state income taxes for U. S. income tax purposes) *% in 2000 and in each year thereafter (the "Assumed Tax Rate"), and the Tax Indemnitee will have sufficient taxable income to be taxed at the Assumed Tax Rate after full utilization of the MACRS Deductions. The amount of the MACRS Loss for any taxable year or years shall be computed as the difference between (X) the present value of the MACRS Deductions for such year or years and all subsequent years using a discount rate of * per cent (*%) per annum, and (Y) the present value of the actual cost recovery deductions attributable to the Aircraft realized by the Tax Indemnitee as a result of the MACRS Loss (but assuming that the Aircraft is sold by the Lessor at the end of the Term of * months using a discount rate of * per cent (*%) per annum. The amount payable under this indemnity shall be the amount that, after deduction by the Tax Indemnitee of the amount of all additional U.S., state, local and foreign taxes required to be paid by the Tax Indemnitee in respect of the receipt or accrual of such amount, will equal the amount of the MACRS Loss as computed in the preceding sentence, plus the amount of any actual interest, penalties and additions to tax payable by the Tax Indemnitee with respect to the MACRS Loss. (c) Foreign Tax Credit Indemnity If, as a result of the use or operation or location of the Aircraft outside the United States by Lessee, more than the *% (the "Permitted Percentage") of any item of income, deduction, or loss with respect to the transactions contemplated by the Lease will be treated for Federal income tax purposes as derived from, or allocable to, sources outside the United States (an "Excess Foreign Allocation"), and if as a result thereof the amount of the foreign tax credits available for utilization by the Lessor for any taxable year shall be less than the amount of the foreign tax credits that would have been available for utilization by the Lessor if the Lessee had not used the Aircraft outside the United States more than the Permitted Percentage (such event being referred to herein as a "Foreign Tax Credit Loss"), then the Lessee shall pay to the Lessor as an indemnity an amount which, after deduction of the amount of all additional federal, state, local and foreign taxes actually required to be paid by the Lessor in respect of the receipt or accrual of such amount, is equal to the actual increase in the Federal income taxes payable by (or not refundable to) the Lessor for such taxable year as a result of such Foreign Tax Credit Loss, plus the amount of any interest, penalties and additions to tax payable by the Lessor as a result of such Foreign Tax Credit Loss. (d) Payment Each payment by the Lessee pursuant to Clauses 5.7(b) and (c) shall be made within * days after receipt of a written demand therefor accompanied by a written statement describing in reasonable detail the MACRS Loss or Foreign Tax Credit Loss in question, the amount of additional Federal income tax, interest, penalties and additions to tax and the calculation of the payment due in request thereof (but in no event shall be required to be paid earlier than * (*) Business Days prior to the date such additional Federal income taxes are due); provided that, if a contest of the MACRS Loss or Foreign Tax Credit Loss is being conducted pursuant to Clause 5.12 hereof, payment (other than payments required under Clause 5.12) shall not be required from the Lessee until * days after the final determination of such contest. 5.8. Sales and Use Taxes: (a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if requested by Lessor, Lessee shall pay to the relevant tax authority for the account of Lessor), in addition to the amounts specified as "Rent" in Letter Agreement No. 1: (i) all sales, use, rental, value added, goods and services and similar taxes ("Sales Taxes") required to be paid to the tax authority of the jurisdiction in which the Delivery Location is situated or to the jurisdiction in which the Aircraft is habitually based with respect to the lease of the Aircraft to Lessee pursuant to the Operative Documents to which it is a party unless Lessee delivers to Lessor on or prior to the Delivery Date such exemption certificate or other document as may be acceptable to Lessor to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party; and (ii) all Sales Taxes required to be paid to the tax authority of any jurisdiction in which the Aircraft may be used, operated or otherwise located from time to time unless Lessee delivers to Lessor such exemption certificates or other documents as may be required by applicable Law to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by each such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party. (b) Lessee will cooperate with Lessor in connection with the preparation and filing of any exemption application or similar document that is reasonably necessary or desirable under applicable Law to avoid the imposition of any Sales Taxes with respect to the transactions contemplated by the Operative Documents to which Lessee is a party. (c) The specific obligations with respect to sales and use taxes set forth in this Clause 5.8 are in addition to, and are not in substitution for, the Lessee's obligation to indemnify for sales and use taxes pursuant to Clause 5.7. 5.9 Information: (a) If Lessee is required by any applicable Law, or by any third party, to deliver any report or return in connection with any Taxes for which Lessee would be obligated to indemnify Lessor under the Operative Documents to which Lessee is a party, Lessee will complete the same and, on request, supply a copy of the report or return to Lessor. (b) If any report, return or statement is required to be made by Lessor with respect to any Tax for which there is an indemnity obligation of Lessee under this Clause 5, Lessee will promptly notify Lessor of the requirement and: (i) if permitted by applicable Law, make and timely file such report, return or statement (except for any report, return or statement that Lessor has notified Lessee that Lessor intends to prepare and file), prepare such return in such manner as will show the ownership of the Aircraft in Lessor if required or appropriate, and provide Lessor upon request a copy of each such report, return or statement filed by Lessee, or (ii) if Lessee is not permitted by applicable Law to file any such report, return or statement, Lessee will prepare and deliver to Lessor a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. Lessee will provide such information and documents as Lessor may reasonably request to enable Lessor to comply with its tax filing, audit and litigation obligations. 5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that, with respect to any payment or indemnity pursuant to Clause 5.7 (Tax Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to or for the benefit of any Indemnitee, Lessee's indemnity obligations shall include such amount as may be necessary to hold such Indemnitee harmless on an After-Tax Basis from all Taxes required to be paid by such Indemnitee with respect to such payment or indemnity (including any payments pursuant to this Clause 5.10), determined based on the assumption that at the time each such payment or indemnity accrues to the relevant Indemnitee, such payment or indemnity will be subject to (i) United States Federal income tax at the highest marginal statutory tax rate applicable to corporations, (ii) United States state and local income taxes at the composite of the highest marginal statutory tax rates applicable to the Indemnitee and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on the relevant Indemnitee. 5.11 Default Interest: If Lessee fails to pay any amount payable under this Agreement on the due date, Lessee will pay on demand from time to time to Lessor interest (both before and after judgment) on that amount, from the due date to the date of payment in full by Lessee to Lessor, at the Interest Rate specified in Letter Agreement No. 1; provided, however, that in no event shall such rate exceed the maximum permitted by Law. All such interest will be compounded monthly and calculated on the basis of the actual number of days elapsed in the month assuming a * day month and a * day year. 5.12 Contest: (a) If an Indemnitee receives a written claim for any Tax for which Lessee would be required to pay an indemnity pursuant to Clause 5.7 or Clause 5.8, such Indemnitee shall notify Lessee promptly of such claim, provided that any failure to provide such notice will not relieve Lessee of any indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If requested by Lessee in writing promptly after receipt of such Indemnitee's notice, such Indemnitee shall, upon receipt of indemnity satisfactory to it and at the expense of Lessee (including, without limitation, all costs, expenses, legal and accountants' fees and disbursements, and penalties, interest and additions to tax incurred in contesting such claim) in good faith contest or (if permitted by applicable Law in the case of Taxes other than those payable pursuant to Clauses 5.7(b) and (c)) permit Lessee to contest such claim by (i) resisting payment thereof if practicable and appropriate, (ii) not paying the same except under protest if protest is necessary and proper, or (iii) if payment is made, using reasonable efforts to obtain a refund of such Taxes in appropriate administrative and judicial proceedings. Such Indemnitee shall determine the method of any contest conducted by such Indemnitee and (in good faith consultation with Lessee) control the conduct thereof. Lessee shall determine the method of any contest conducted by Lessee and (in good faith consultation with such Indemnitee) control the conduct thereof. Lessee shall pay in full all payments of Rent and other amounts payable pursuant to the Operative Documents to which Lessee is a party, without reduction for or on account of any Tax, while such contest is continuing. Such Indemnitee shall not be required to contest, or to continue to contest, a claim for Taxes under this Clause 5.12 if (w) in the case of Taxes payable pursuant to Clauses 5.7(b) or (c), the amount in dispute is less than $*, or (x) such contest would result in a risk of criminal penalties or of a sale, forfeiture or loss of, or the imposition of a Lien (other than a Permitted Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion of independent tax counsel selected by such Indemnitee and reasonably satisfactory to Lessee, that a reasonable basis exists for such contest, or (z) a Default or an Event of Default shall be continuing (unless Lessee shall have provided security reasonably satisfactory to such Indemnitee securing Lessee's performance of its obligations under this Clause 5). If such Indemnitee contests any claim for Taxes by making a payment and seeking a refund thereof, then Lessee shall advance to such Indemnitee, on an interest-free basis, an amount equal to the Taxes to be paid by such Indemnitee in connection with the contest and shall indemnify such Indemnitee on an After-Tax Basis for any adverse tax consequences to such Indemnitee of such interest-free advance. Upon the final determination of any contest pursuant to this Clause 5.12 in respect of any Taxes for which Lessee shall have made an advance to such Indemnitee in accordance with the immediately preceding sentence, the amount of Lessee's obligation shall be determined as if such advance had not been made; any indemnity obligation of Lessee to such Indemnitee under this Clause 5 and such Indemnitee's obligation to repay the advance will be satisfied first by setoff against each other, and any difference owing by either party shall be paid within ten days after such final determination. (b) If an Indemnitee obtains a refund of all or any part of any Taxes for which a full indemnity was paid by Lessee, such Indemnitee shall pay Lessee the amount of such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such refund and increased by any Taxes saved by such Indemnitee by reason of the deductibility of such payment by such Indemnitee. If, in addition to such refund, such Indemnitee receives an amount of interest on such refund, such Indemnitee shall pay to Lessee the portion of such interest which is fairly attributable to such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such interest and increased by any Taxes saved by reason of the deductibility of such payment by such Indemnitee. Such Indemnitee shall not be required to make any payment to Lessee pursuant to this Clause 5.12 if, and for so long as, an Event of Default shall have occurred and be continuing. (c) Any Indemnitee in its sole discretion (by written notice to Lessee) may waive its rights to indemnification pursuant to Clause 5.7 with respect to any claim for any Tax and may refrain from contesting or continuing the contest of such claim, in which event Lessee shall have no obligation to indemnify such Indemnitee for the Taxes that are the subject of such claim. If an Indemnitee agrees to a settlement of any contest conducted pursuant to this Clause 5.11 without the prior written consent of Lessee, which consent shall not be unreasonably withheld, then Lessor shall be deemed to have waived its rights to the indemnification provided for in Clause 5.7 with respect to the Tax liability accepted in such settlement. 5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this Agreement are absolute and unconditional irrespective of any contingency whatsoever including (but not limited to):- (a) any right of set-off, counterclaim, recoupment, defense or other right which either party to this Agreement may have against the other; (b) any unavailability of the Aircraft for any reason, including, but not limited to, a requisition of the Aircraft or any prohibition or interruption of or interference with or other restriction against Lessee's use, operation or possession of the Aircraft; (c) any lack or invalidity of title or any other defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, or operation of any kind or nature of the Aircraft for any particular use or trade, or for registration or documentation under the laws of any relevant jurisdiction, or any Event of Loss in respect of or any damage to the Aircraft; (d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceedings by or against Lessor or Lessee; (e) any invalidity or unenforceability or lack of due authorization of, or other defect in, this Agreement; (f) and Security Interests with respect to the Aircraft or Taxes; and/or (g) any other cause which but for this provision would or might otherwise have the effect of terminating or in any way affecting any obligation of Lessee under this Agreement. 5.14 Security (a) To the fullest extent permitted by Law and by way of continuing security Lessee as sole beneficial owner charges the Deposit and the Supplemental Rent and all rights of Lessee to payment thereof and the debt represented thereby (the "Charged Monies") to Lessor by way of first fixed charge as security for Lessee's obligations and liabilities under this Agreement and the Related Agreements (the "Secured Liabilities"). Except as expressly permitted under this Agreement, Lessee will not be entitled to payment of the Charged Monies. Lessee will not assign, transfer or otherwise dispose of all or part of its rights in the Charged Monies and it will enter into any additional documents and instruments necessary or advisable to evidence, create or perfect Lessor's rights to the Charged Monies; (b) If Lessee fails to comply with any provision of this Agreement or any Event of Default has occurred and is continuing, in addition to all rights and remedies accorded to Lessor elsewhere in this Agreement and under Law as a secured party in respect of the Charged Monies, Lessor may immediately or at any time thereafter, without prior notice to Lessee:- (i) set-off all or any part of the Secured Liabilities against the liabilities of Lessor in respect of the Charged Monies; or (ii) apply or appropriate the Charged Monies in or towards the payment or discharge of the Secured Liabilities in such order as Lessor sees fit; and (c) If Lessor has exercised the set-off described in sub-clause (b) above, Lessee shall, following a demand in writing from Lessor, restore the Charged Monies to the level at which they stood immediately prior to such set-off. 5.15 Letter of Credit (a) If Lessee elects to provide Lessor with a Letter of Credit, the provisions of this Section shall apply. Any Letter of Credit provided by Lessee to Lessor will be issued and payable by USBank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by USBank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, and will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and each Other Agreement (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (b) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than * days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (c) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (d) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, immediately procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. 6. MANUFACTURER'S WARRANTIES 6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to the benefit of each warranty, express or implied, with respect to the Aircraft, any Engine or Part so far as concerns any manufacturer, vendor, subcontractor or supplier. Except to the extent Lessor otherwise directs, Lessor hereby authorizes Lessee to pursue any claim thereunder in relation to defects affecting the Aircraft, any Engine or Part and Lessee agrees diligently to pursue any such claim which arises at its own cost. Lessee will notify Lessor promptly upon becoming aware of any such claim. 6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular case, all proceeds of any such claim will be paid directly to Lessor but if and to the extent that such claim relates:- (a) to defects affecting the Aircraft which Lessee has rectified; or (b) to compensation for loss of use of the Aircraft, an Engine or any Part during the Term; and provided no Default has occurred and is continuing the proceeds will be paid to Lessee by Lessor but in the case of (a) above only on receipt of evidence satisfactory to Lessor that Lessee has rectified the relevant defect. 6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case, Lessee will procure that all engines, components, furnishings or equipment provided by the manufacturer, vendor, subcontractor or supplier in replacement of a defective Engine or Part pursuant to the terms of any warranty will be installed promptly by Lessee and that title thereto free of Security Interests vests in Lessor. On installation each part will be deemed to be a Part. In the case of a Replacement Engine, Lessee will satisfy and perform each of the conditions and covenants set forth in Clause 11.1(c), and upon satisfaction of such conditions, such Replacement Engine will be deemed an "Engine" for all purposes of this Agreement. 6.4 Agreement: To the extent any warranties relating to the Aircraft are made available under an agreement between any manufacturer, vendor, subcontractor or supplier and Lessee, this Clause 6 is subject to that agreement. However Lessee will:- (a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant to Clause 6.2 and pending such payment will hold the claim and the proceeds on trust for Lessor; and (b) Lessee will take all such steps as are necessary at the end of the Term to ensure the benefit of any of those warranties which have not expired are vested in Lessor. 7. LESSOR'S COVENANTS 7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its rights under or in connection with this Agreement will not constitute such an interference. Lessor will procure at Lessee's request an undertaking of quiet enjoyment for the benefit of Lessee with respect to any prospective Lessor Lien. 7.2 Release of Supplemental Rent: Provided no Default has occurred and is continuing Lessor will release funds to Lessee from the Supplemental Rent respecting maintenance work performed upon submission by Lessee to Lessor within * months of the commencement of that maintenance and before * (*) months following the Expiry Date of an invoice and supporting documentation reasonably satisfactory to Lessor evidencing:- (a) with respect to the Airframe, the completion, in accordance with this Agreement, of those items of maintenance (excluding any repairs arising as the result of operational or maintenance mishandling) characterized by the Manufacturer's maintenance planning document and best industry practice as "D" Check and/or individual structural inspections having an interval of not less than * Flight Hours or * years for the Aircraft or any lesser interval for an equivalent major structural inspection if required by the Manufacturer's maintenance planning document subject to retroactive and prospective adjustment of the Reserve Rates as deemed appropriate by Lessor, the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Airframe Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously released by Lessor under this sub-clause; (b) with respect to any Engine, the performance, in accordance with this Agreement, of all shop visits requiring engine disassembly (other than (i) repairs arising as a result of foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Engine Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; (c) with respect to life limited parts within any Engine, the performance, in accordance with this Agreement, of any such parts replacement (other than (i) replacement arising as a result of accidents or incidents (whether or not eligible for recovery under Lessee's insurance), foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of QEC kits) and/or (iii) any elective parts replacement), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate of Engine LLP Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; and (d) with respect to the Landing Gear, the performance in accordance with this Agreement, of all work on the landing gear in the nature of overhaul and requiring removal and disassembly (other than repairs arising as the result of operational or maintenance mishandling), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Landing Gear Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid by Lessor under this sub-clause. 7.3 Lessor Obligations Following Expiry Date: Within * Business Days of:- (a) redelivery of the Aircraft to Lessor in accordance with and in the condition required by this Agreement; or (b) payment to Lessor of the Agreed Value following an Event of Loss after the Delivery Date; or in each case such later time as Lessor is reasonably satisfied Lessee has irrevocably paid to Lessor all amounts which may then be outstanding or become payable under this Agreement, the other Operative Documents to which Lessee is a party or the Related Agreements and Lessee, Lessor will pay to Lessee:- (i) the balance of the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable; and (ii) the amount of any Rent received in respect of any period falling after the date of redelivery of the Aircraft or payment of the Agreed Value, as the case may be; and shall return to Lessee the warrant certificate, if not previously exercised, representing the Warrant. 8. LESSEE'S COVENANTS 8.1 Duration: The undertakings in this Clause and in Clause 12 will:- (a) except as otherwise stated, be performed at the expense of Lessee; and (b) remain in force until the Expiry Date in accordance with this Agreement and thereafter to the extent of any accrued rights of Lessor in relation to those undertakings. 8.2 Information: Lessee will:- (a) notify Lessor forthwith of the occurrence of any Default or any other event which might adversely affect Lessee's ability to perform any of its obligations under this Agreement; (b) furnish to Lessor:- (i) upon request, the consolidated management accounts of Lessee (comprising a balance sheet and profit and loss statement) prepared for the most recent previous financial quarter; (ii) as soon as available but not in any event later than * days after the last day of each financial year of Lessee, its audited consolidated balance sheet as of such day and its audited consolidated profit and loss statement for the year ending on such day; (iii) at the same time as it is issued to the shareholders or creditors of Lessee, a copy of each notice or circular issued to Lessee's shareholders or creditors as a group; and (iv) on request from time to time such other information regarding Lessee and its business and affairs as Lessor may reasonably request; (c) keep Lessor informed as to current serial numbers of the Engines and any engine installed on the Aircraft; (d) promptly furnish to Lessor all information Lessor from time to time reasonably requests regarding the Aircraft, any Engine or any Part, its use, location and condition including, without limitation, the hours available on the Aircraft and any Engine until the next scheduled check, inspection, overhaul, refurbishment or shop visit, as the case may be; (e) on request, within * days after the end of any Rental Period, furnish to Lessor evidence satisfactory to Lessor of payment of all Taxes due during that or any previous Rental Period; (f) on request, furnish to Lessor evidence satisfactory to Lessor that all Taxes and charges incurred by Lessee with respect to the Aircraft, including without limitation all payments due to the relevant air traffic control authorities, have been paid and discharged in full; (g) within * days after the end of each calendar month during the Term, provide Lessor with a monthly report on the Aircraft and each Engine in the form set out in Schedule 8 hereto; (h) give Lessor not less than * days' written notice as to the time and location of all Major Checks; and (i) promptly notify Lessor of:- (i) any loss, theft, damage or destruction to the Aircraft, any Engine or any Part, or any modification to the Aircraft if the potential cost may exceed the Damage Notification Threshold; and (ii) any claim or other occurrence likely to give rise to a claim under the Insurances (but in the case of hull claims only in excess of the Damage Notification Threshold) and details of any negotiations with the insurance brokers over any such claim. 8.3 Lawful and Safe Operation: Lessee will:- (a) comply with the law for the time being in force in any country or jurisdiction which may for the time being be applicable to the Aircraft (including without limitation Laws mandating insurance coverage) or, so far as concerns the use and operation of the Aircraft or an owner or operator thereof and take all reasonable steps to ensure that the Aircraft is not used for any illegal purpose; (b) not use the Aircraft in any manner contrary to any recommendation of the manufacturers of the Aircraft, any Engine or any Part or any recommendation or regulation of the Air Authority or for any purpose for which the Aircraft is not designed or reasonably suitable; (c) ensure that the crew and engineers employed by it in connection with the operation and maintenance of the Aircraft have the qualifications and hold the licenses required by the Air Authority and applicable Law; (d) use the Aircraft solely in commercial or other operations for which Lessee is duly authorized by the Air Authority and applicable Law; (e) not use the Aircraft for the carriage of:- (i) whole animals living or dead except in the cargo compartments according to I.A.T.A. regulations, and except domestic pet animals carried in a suitable container to prevent the escape of any liquid and to ensure the welfare of the animal; (ii) acids, toxic chemicals, other corrosive materials, explosives, nuclear fuels, nuclear wastes, or any nuclear assemblies or components, except as permitted for passenger aircraft under the "Restriction of Goods" schedule issued by I.A.T.A. from time to time and provided that all the requirements for packaging or otherwise contained therein are fulfilled; (iii) any other goods, materials or items of cargo which could reasonably be expected to cause damage to the Aircraft and which would not be adequately covered by the Insurances; or (iv) any illegal item or substance; (f) not utilize the Aircraft for purposes of training, qualifying or re-confirming the status of cockpit personnel except for the benefit of Lessee's cockpit personnel, and then only if the use of the Aircraft for such purpose is not disproportionate to the use for such purpose of other aircraft of the same type operated by Lessee; (g) not cause or permit the Aircraft to proceed to, or remain at, any location which is for the time being the subject of a prohibition order (or any similar order or directive) by:- (i) any Government Entity of the State of Registration or the Habitual Base; or (ii) any Government Entity of the country in which such location is situated; or (iii) any Government Entity having jurisdiction over Lessor or the Aircraft; (h) obtain and maintain in full force all certificates, licenses, permits and authorizations required for the use and operation of the Aircraft for the time being, and for the making of payments required by, and the compliance by Lessee with its other obligations under, this Agreement; (i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to or for any country or entity that is the subject of sanctions under the U.S. International Economic Emergency Powers Act or U.N. Security Council directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola). Lessee also covenants and agrees (i) not to operate or locate, or suffer or permit to be operated or located, the Aircraft in any country restricted under the U.S. Trading with the Enemy Act and the U.S. Export Administration Act except as may be permitted by operating in accordance with the conditions specified by the U.S. Export Administration Regulations (15 CFR Parts 730-799), General License GATS (15 CFR Part 771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii) not to operate the Aircraft between Cuba and the United States; and (j) not use, operate, or locate the Aircraft, or cause suffer or permit the Aircraft to be used, operated or located during the Term in any manner not covered by the Insurances or in any area excluded from coverage by the Insurances or in any manner which would prejudice the interests of the Indemnitees in the Insurances, the Aircraft, any Engine or any Part. 8.4 Taxes and other Outgoings: Lessee will promptly pay:- (a) all license and registration fees, Taxes (other than Lessor Taxes) and other amounts of any nature imposed by any Government Entity with respect to the Aircraft, including without limitation the purchase, ownership, delivery, leasing, possession, use, operation, return, sale or other disposition of the Aircraft; and (b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts in respect of any premises where the Aircraft or any Part thereof is located from time to time; except to the extent that in the reasonable opinion of Lessor such payment is being contested in good faith by appropriate proceedings, in respect of which adequate resources have been provided by Lessee and non-payment of which does not give rise to any material likelihood of the Aircraft or any interest therein being sold, forfeited or otherwise lost or of criminal liability on the part of Lessor. 8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8 AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF. 8.6 Inspection: (a) Lessor and any person designated by Lessor may at any time visit, inspect and survey the Aircraft, any Engine or any Part and for such purpose may, subject to any applicable Air Authority regulation, travel on the flight deck as observer; (b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable out-of-pocket expenses incurred by Lessor in connection with any such visit, inspection or survey; and (c) Lessor will:- (i) have no duty or liability to make, or arising out of making or failing to make, any such visit, inspection or survey; and (ii) so long as no Default has occurred and is continuing, not exercise such right other than on reasonable notice and so as not to disrupt unreasonably the commercial operations of Lessee, provided, however, Lessee will take such action as may be reasonably required to facilitate Lessor's inspection. 8.7 Title: Lessee will:- (a) not do or knowingly permit to be done or omit or knowingly permit to be omitted to be done any act or thing which might reasonably be expected to jeopardize the rights of Lessor as owner of the Aircraft; (b) on all occasions when the ownership of the Aircraft, any Engine or any Part is relevant, make clear to third parties that title is held by Lessor; (c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation or carriage (whether for hire or reward or gratuitously) which may be undertaken by Lessee or (ii) pledge the credit of Lessor; (d) ensure that there is always affixed, and not removed or in any way obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7 cm.) in a reasonably prominent position in the cockpit of the Aircraft and on each Engine stating:- "This Aircraft/Engine is owned by Aviation Financial Services Inc. and is leased to Frontier Airlines, Inc. and may not be operated by any other person without the prior written consent of Aviation Financial Services Inc."; (e) not create or permit to exist any Security Interest upon the Aircraft, any Engine or any Part; (f) not do or permit to be done anything which may reasonably be expected to expose the Aircraft, any Engine or any Part to penalty, forfeiture, impounding, detention, appropriation, damage or destruction and without prejudice to the foregoing, if any such penalty, forfeiture, impounding, detention or appropriation, damage or destruction occurs, give Lessor notice and use best endeavors to procure the immediate release of the Aircraft, any Engine or the Part, as the case may be; (g) not abandon the Aircraft, the Engine or any Part; (h) pay and discharge or cause to be paid and discharged when due and payable or make adequate provision by way of security or otherwise for all debts, damages, claims and liabilities which have given or might give rise to a Security Interest over or affecting the Aircraft, any Engine or any Part; and (i) not attempt, or hold itself out as having any power, to sell, lease or otherwise dispose of the Aircraft, any Engine or any Part; and (j) obtain a waiver of any mechanic's lien or right thereto from any vendor providing maintenance services for Lessee prior to delivering the Aircraft or any Engine or Part to such vendor. 8.8 General: Lessee will:- (a) not make any substantial change in the nature of the business in which it is engaged, will preserve its corporate existence (other than in connection with a solvent reconstruction the terms of which have been approved by Lessor, such approval not to be unreasonably withheld), and will conduct its business in an orderly and efficient and will maintain all rights, privileges, licenses and franchises material thereto or material to performing its obligations under this Agreement; (b) ensure that no change will occur in the Habitual Base of the Aircraft without the prior written consent of Lessor; (c) not without giving Lessor * days prior notice (in accordance with this Agreement), change its chief executive office (as such term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America; (d) remain a Certified Air Carrier and maintain, without limitation, its status so as to fall within the preview of Section 1110 of Title 11 of the United States Code or any analogous Statute; and (e) remain a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 8.9 Records: Lessee will:- (a) procure that accurate, complete and current records of all flights made by, and all maintenance carried out on, the Aircraft (including in relation to each Engine and Part subsequently installed, before the installation) are kept; keep the_records in such manner as the Air Authority may from time to time require. All records must be maintained in English. The records will form part of the Aircraft Documents; and (b) maintain, with appropriate revisions in English, all Aircraft Documents, records, logs, and other materials required by applicable Laws and best practice of major international air transport operators in respect of the Aircraft. 8.10 Protection: Lessee will:- (a) maintain the registration of the Aircraft with the Air Authority reflecting (so far as permitted by applicable Law) the interest of Lessor and not do or suffer to be done anything which might adversely affect that registration; and (b) do all acts and things (including, without limitation, making any filing or registration with the Air Authority or any other Government Entity or as required to comply with the Mortgage Convention where applicable) and execute and deliver all documents (including, without limitation, any amendment of this Agreement) as may be required by Lessor:- (i) following any change or proposed change in the ownership or financing of the Aircraft; or (ii) following any modification of the Aircraft, any Engine or any Part or the permanent replacement of any Engine or Part in accordance with this Agreement, so as to ensure that the rights of Lessor under this Agreement apply with the same effect as before; or (iii) to establish, maintain, preserve, perfect and protect the rights of Lessor under this Agreement and the interest of Lessor in the Aircraft. 8.11 Maintenance and Repair: Lessee will:- (a) keep the Aircraft airworthy in all respects and in good repair and condition; (b) not change the Maintenance Performer without providing the Lessor with prior written notice; (c) not materially change the Lessee's Maintenance Program or the schedule of the Lessee's Maintenance Program without the prior written consent of Lessor; (d) maintain the Aircraft in accordance with Lessee's Maintenance Program through the Maintenance Performer and perform (at the respective intervals provided in Lessee's Maintenance Program) all Major Checks; (e) maintain the Aircraft in accordance with the standard of maintenance required by FAR Part 121, Subpart L and any other rules and regulations of the FAA and in at least the same manner and with at least the same care, including, without limitation, maintenance scheduling, modification status and technical condition, as is the case with respect to similar aircraft owned or otherwise operated by Lessee and as if Lessee were to retain and continue operating the Aircraft in its fleet after the Expiry Date, including, without limitation, all maintenance to the Airframe, any Engine or any Part required to maintain all warranties, performance guarantees or service life policies in full force and effect except to the extent of conflict with the rules and regulations of the Air Authority; (f) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority and/or mandated by any manufacturer of the Aircraft, any Engine or Part (an "Airworthiness Directive); (g) comply with all applicable Laws and the regulations of the Air Authority and other aviation authorities with jurisdiction over Lessee or the Aircraft, any Engine or Part regardless of upon whom such requirements are imposed and which relate to the maintenance, condition, use or operation of the Aircraft or require any modification or alteration to the Aircraft, any Engine or Part; (h) maintain in good standing a current certificate of airworthiness (in the appropriate category for the nature of the operations of the Aircraft) for the Aircraft issued by the Air Authority except where the Aircraft is undergoing maintenance, modification or repair required or permitted by this Agreement and will from time to time provide to Lessor a copy on request; (i) if required by the Air Authority, maintain a current certification as to maintenance issued by or on behalf of the Air Authority in respect of the Aircraft and will from time to time provide to Lessor a copy on request; and (j) procure promptly the replacement of any Engine or Part which has become time, cycle or calendar expired, lost, stolen, seized, confiscated, destroyed, damaged beyond repair, unserviceable or permanently rendered unfit for use, with an engine or part complying with the conditions set out in Clause 8.13(a) and in the case of any Engine which suffers an Engine Event of Loss, shall procure that such engine complies with the provisions of Clause 11.1(c). 8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part installed on the Aircraft is at any time removed from the Aircraft other than:- (a) if replaced as expressly permitted by this Agreement; or (b) if the removal is of an obsolete item and is in accordance with Lessee's Maintenance Program; or (c) (i) during the course of maintaining, servicing, repairing, overhauling or testing that Engine or the Aircraft, as the case may be; or (ii) as part of a normal engine or part rotation program; or (iii) for the purpose of making such modifications to the Engine or the Aircraft, as the case may be, as are permitted under this Agreement; and then in each case (A) with respect to a Part, only if it is reinstalled or replaced by a part complying with Clause 8.13(a) as soon as practicable and in any event no later than the Expiry Date, and (B) with respect to an Engine, title to such Engine shall remain vested in Lessor. 8.13 Installation of Engines and Parts: Lessee will:- (a) ensure that, except as permitted by this Agreement, no engine or part is installed on the Aircraft unless:- (i) in the case of an engine, it is an engine of the same model as, or an improved or advanced version of the Engine it replaces, which is in the same or better operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits and has the same or greater value and utility as the replaced Engine; (ii) in the case of a part, it is in as good operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits, is of the same or a more advanced make and model and is of the same interchangeable modification status as the replaced Part; (iii) in the case of a part, it has become and remains the property of Owner free from Security Interests and on installation on the Aircraft will without further act be subject to this Agreement; and (iv) in each case, Lessee has full details as to its source and maintenance records; (b) if no Default has occurred which is continuing, be entitled to install any engine or part on the Aircraft by way of replacement notwithstanding Clause 8.13(a) if:- (i) there is not available to Lessee at the time and in the place that that engine or part is required to be installed on the Aircraft, a replacement engine or, as the case may be, part complying with the requirements of Clause 8.13(a); (ii) it would result in an unreasonable disruption of the operation of the Aircraft and/or the business of Lessee to ground the Aircraft until an engine or part, as the case may be, complying with Clause 8.13(a) becomes available for installation on the Aircraft; and (iii) as soon as practicable after installation of the same on the Aircraft but, in any event, no later than the Expiry Date, Lessee removes any such engine or part and replaces it with the Engine or Part replaced by it or by an engine or part, as the case may be, complying with Clause 8.13(a). 8.14 Non-Installed Engines and Parts: Lessee will:- (a) ensure that any Engine or Part which is not installed on the Aircraft (or any other aircraft as permitted by this Agreement) is, except as expressly permitted by this Agreement, properly and safely stored, and kept free from Security Interests; (b) notify Lessor whenever any Engine is removed from the Aircraft and, from time to time, on request procure that any person to whom possession of an Engine is given acknowledges in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in the Engine and will not seek to exercise any rights whatsoever in relation to it; (c) (notwithstanding the foregoing provisions of this sub-clause), be permitted, if no Default has occurred and is continuing, to install any Engine or Part on an aircraft, or in the case of a Part on an engine:- (i) owned and operated by Lessee free from Security Interests; or (ii) leased or hired to Lessee pursuant to a lease or conditional sale agreement on a long-term basis and on terms whereby Lessee has full operational control of that aircraft or engine; or (iii) acquired by Lessee and/or financed or refinanced, and operated by Lessee, on terms that ownership of that aircraft or engine, as the case may be, pursuant to a lease or conditional sale agreement, or a Security Interest therein, is vested in or held by any other Person; provided that in the case of (ii) and (iii):- (1) the terms of any such lease, conditional sale agreement or Security Interest will not have the effect of prejudicing the interest of Lessor in that Engine or Part; and (2) the lessor under such lease, the seller under such conditional sale agreement or the holder of such Security Interest, as the case may be, has confirmed and acknowledged in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in respect of that Engine or Part and that it will not seek to exercise any rights whatsoever in relation thereto. 8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any pooling agreement or arrangement in respect of an Engine or Part without the prior written consent of Lessor. 8.16 Equipment Changes: (a) Lessee will not make any modification or addition to the Aircraft (each an "Equipment Change"), except for an Equipment Change which:- (i) is expressly permitted by this Agreement, or (ii) has the prior written approval of Lessor and which does not diminish the value, utility, condition, or airworthiness of the Aircraft; (b) So long as a Default has not occurred and is continuing, Lessee may remove any Equipment Change if it can be removed from the Aircraft without diminishing or impairing the value, utility, condition or airworthiness of the Aircraft; and (c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes payable by Lessor as the case may be, as a result of an Equipment Change. 8.17 Title on an Equipment Change: (a) Title to all Parts installed on the Aircraft whether by way of replacement, as the result of an Equipment Change or otherwise (except those installed pursuant to Clause 8.13(b)) will on installation, without further act, vest in Lessor subject to this Agreement free and clear of all Security Interests. Lessee will at its own expense take all such steps and execute, and procure the execution of, all such instruments as Lessor may require and which are necessary to ensure that title so passes to Lessor according to all applicable Laws. At any time when requested by Lessor, Lessee will provide evidence to Lessor's satisfaction (including the provision, if required, to Lessor of one or more legal opinions) that title has so passed to Lessor; (b) Lessor may require Lessee to remove any Equipment Change and to restore the Aircraft to its condition prior to that Equipment Change; and (c) Except as referred to in Clause 8.17(b) any Engine or Part at any time removed from the Aircraft will remain the property of Owner until a replacement has been made in accordance with this Agreement and until title in that replacement has passed, according to applicable Laws, to Lessor subject to this Agreement and free of all Security Interests. Upon title to such replacement so passing to Lessor, title to the replaced Engine or Part, will, provided no Default has occurred and is continuing, pass to Lessee. 8.18 Third Party: Lessee will procure that no person (other than Lessor) will act in any manner inconsistent with its obligations under this Agreement and that all persons will comply with those obligations as if references to "Lessee" included a separate reference to those persons. 9. INSURANCE 9.1 Insurances: Lessee will maintain in full force during the Term, and thereafter as expressly required in this Agreement, insurances in respect of the Aircraft in form and substance satisfactory to Lessor (the "Insurances" which expression includes, where the context so admits, any relevant re-insurance(s)) through such brokers and with such insurers and having such deductibles and being subject to such exclusions as may be approved by Lessor from time to time. The Insurances will be effected either:- (a) on a direct basis with insurers of recognized standing who normally participate in aviation insurances in the leading international insurance markets and led by reputable underwriter(s) approved by Lessor; or (b) with a single insurer or group of insurers approved by Lessor who does not retain the risk but effects substantial reinsurance with reinsurers in the leading international insurance markets and through brokers each of recognized standing and acceptable to Lessor for a percentage acceptable to Lessor of all risks insured (the "Reinsurances"). 9.2 Requirements: Lessor's current requirements as to required Insurances are as specified in this Clause and in Schedule 4. Lessor may from time to time stipulate other requirements for the Insurances so that the scope and level of cover is maintained in line with best industry practice and the interests of Lessor protected. 9.3 Change: If at any time Lessor wishes to revoke its approval of any insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers will consult with Lessee and Lessee's brokers (as for the time being approved by Lessor) regarding whether that approval should be revoked to protect the interests of the parties insured. If, following the consultation, Lessor considers that any change should be made, Lessee will then arrange or procure the arrangement of alternative cover satisfactory to Lessor. 9.4 Insurance Covenants: Lessee will:- (a) ensure that all legal requirements as to insurance of the Aircraft, any Engine or any Part which may from time to time be imposed by the laws of the State of Registration or any state to, from or over which the Aircraft may be flown, in so far as they affect or concern the operation of the Aircraft, are complied with and in particular those requirements compliance with which is necessary to ensure that (i) the Aircraft is not in danger of detention or forfeiture, (ii) the Insurances remain valid and in full force and effect, and (iii) the interests of the Indemnitees in the Insurances and the Aircraft or any Part are not thereby prejudiced; (b) not use, cause or permit the Aircraft, any Engine or any Part to be used for any purpose or in any manner not covered by the Insurances or outside any geographical limit imposed by the Insurances; (c) comply with the terms and conditions of each policy of the Insurances and not do, consent or agree to any act or omission which:- (i) invalidates or may invalidate the Insurances; or (ii) renders or may render void or voidable the whole or any part of any of the Insurances; or (iii) brings any particular liability within the scope of an exclusion or exception to the Insurances; (d) not take out without the prior written approval of Lessor any insurance or reinsurance in respect of the Aircraft other than those required under this Agreement unless relating solely to hull total loss, business interruption, profit commission and deductible risk; (e) commence renewal procedures at least * days prior to expiry of any of the Insurances and provide to Lessor:- (i) if requested by Lessor, a written status report of renewal negotiation * days prior to each expiry date; (ii) telexed telecopy confirmation of completion of renewal prior to each expiry date; and (iii) certificates of insurance (and where appropriate certificates of reinsurance), and broker's (and any reinsurance brokers') letter of undertaking in a form acceptable to Lessor in English, detailing the coverage and confirming the insurers' (and any reinsurers') agreement to the specified insurance requirements of this Agreement within * days after each renewal date; (f) on request, provide to Lessor copies of documents or other information evidencing the Insurances; (g) on request, provide to Lessor evidence that the Insurance premiums have been paid; (h) not make any modification or alteration to the Insurances material and adverse to the interests of any of the Indemnitees; (i) be responsible for any deductible under the Insurances; and (j) provide any other insurance and reinsurance related information, or assistance, in respect of the Insurances as Lessor may reasonably require. 9.5 Failure to Insure: If Lessee fails to maintain the Insurances in compliance with this Agreement, each of the Indemnitees will be entitled but not bound, (without prejudice to any other rights of Lessor under this Agreement):- (a) to pay the premiums due or to effect and maintain insurances satisfactory to it or otherwise remedy Lessee's failure in such manner (including, without limitation to effect and maintain an "owner's interest" policy) as it considers appropriate. Any sums so expended by it will become immediately due and payable by Lessee to Lessor on an After-Tax Basis together with interest thereon at the rate specified in Clause 5.11, from the date of expenditure by it up to the date of reimbursement by Lessee; and (b) at any time while such failure is continuing to require the Aircraft to remain at any airport or to proceed to and remain at any airport designated by it until the failure is remedied to its satisfaction. 9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the Expiry Date with respect to its liability under the Indemnity in Clause 10 for * years which provides for each Indemnitee to be named as additional insured. Lessee's obligation in this Clause shall not be affected by Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees ceasing to have any interest in respect of the Aircraft. 9.7 Application of Insurance Proceeds:- As between Lessor and Lessee:- (a) all insurance payments received as the result of an Event of Loss or Engine Event of Loss occurring during the Term will be paid to Lessor and Lessor will pay the balance of those amounts to Lessee after deduction of all amounts which may be or become payable by Lessee to Lessor under this Agreement (including under Clause 11.1(b)); (b) all insurance proceeds of any property, damage or loss to the Aircraft, any Engine or any Part occurring during the Term not constituting an Event of Loss or Engine Event of Loss and in excess of the Damage Notification Threshold will be applied in payment (or to reimburse Lessee) for repairs or replacement property upon Lessor being satisfied that the repairs or replacement have been effected in accordance with this Agreement. Insurance proceeds in amounts below the Damage Notification Threshold may be paid by the insurer directly to Lessee. Any balance remaining may be retained by Lessor; (c) all insurance proceeds in respect of third party liability will, except to the extent paid by the insurers to the relevant third party, be paid to Lessor to be paid directly in satisfaction of the relevant liability or to Lessee in reimbursement of any payment so made; and (d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment of any such insurance proceeds a Default has occurred and is continuing, all such proceeds will be paid to or retained by Lessor to be applied toward payment of any amounts which may be or become payable by Lessee in such order as Lessor sees fit or as Lessor may elect. To the extent insurance proceeds are paid to Lessee, Lessee agrees to comply with the foregoing provisions and apply or pay over such proceeds as so required. 9.8 Previous Owner as Additional Insured:- Lessee shall effect and maintain insurance naming Viva as an additional insured under Lessee's public liability policy, to the extent of Viva's interest, for the period commencing on the Delivery Date and ending on the earlier to occur of (i) the second anniversary of the Delivery Date or (ii) the date of completion of the next scheduled annual heavy maintenance visit. 10. INDEMNITY 10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS, PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES, PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):- (A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY, PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL, MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE, OPERATION, DATE PROCESSING OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE; (B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH RENDERS VOIDABLE ANY OF THE INSURANCES; AND (C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT, COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON; BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION OF THIS AGREEMENT OR TO THE EXTENT IT ARISES SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN. 10.2 Duration: The indemnities contained in this agreement will continue in full force following the end of the Term notwithstanding any breach or repudiation by Lessor or Lessee of this Agreement or any termination of the lease of the Aircraft hereunder. 11. EVENTS OF LOSS 11.1 (a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft of the same manufacture, model, value and utility as the Aircraft. If Lessor exercises such option, Lessee shall be obliged to lease such substitute aircraft pursuant to the terms and conditions of this Agreement and such substitute aircraft shall constitute the Aircraft for all purposes of this Agreement. Lessor shall provide Lessee with details of the substitute aircraft as soon as may be practicable after the occurrence of the Event of Loss. If Lessor advises Lessee that Lessor does not wish to exercise such option, this Agreement will immediately terminate and except as expressly stated in this Agreement neither party will have any further obligation or liability under this Agreement other than pursuant to Clause 16.9 except that Lessor will return the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable, to Lessee; and (b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the earlier of (i) * Business Days after the Event of Loss and (ii) the date of receipt of insurance proceeds in respect of that Event of Loss. Subject to the rights of any insurers and reinsurers or other third party, upon irrevocable payment in full to Lessor of that amount and all other amounts which may be or become payable to Lessor under this Agreement, Lessor will without recourse or warranty (except as to Lessor's Liens) and without further act, be deemed to have transferred to Lessee all of Lessor's rights to any Engines and Parts not installed when the Event of Loss occurred, all on an as-is where-is basis, and will at Lessee's expense, execute and deliver such bills of sale and other documents and instruments as Lessee may reasonably request to evidence (on the public record or otherwise) the transfer and the vesting of Lessor's rights in such Engines and Parts in Lessee, free and clear of all rights of Lessor and Lessor Liens. (c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss, Lessee shall give Lessor prompt written notice thereof and shall, within * days after such occurrence, convey to Lessor, as replacement for the Engine suffering such event, title to a Replacement Engine. Each Replacement Engine shall be free of all Security Interests and shall be in as good an operating condition as the Engine being replaced, assuming the Engine being replaced was in the condition and repair required by the terms hereof immediately prior to the Engine Event of Loss. Upon full compliance by Lessee with the terms of this Clause 11.1(c), Lessor will transfer to Lessee title to the Engine which suffered the Engine Event of Loss. Prior to or at the time of any such conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a full warranty bill of sale, in form and substance reasonably satisfactory to Lessor, with respect to such Replacement Engine; (ii) cause a lease supplement (in form and substance satisfactory to Lessor) subjecting such Replacement Engine to this Agreement, to be duly executed by Lessee, and recorded pursuant to applicable Law; (iii) furnish Lessor with such evidence of title to such Replacement Engine as Lessor may reasonably request; (iv) furnish Lessor with an opinion of Lessee's counsel to the effect that title to such Replacement Engine has been duly conveyed to Lessor subject to this Agreement, free and clear of all Security Interests, and that such Replacement Engine is duly leased hereunder; (v) furnish a certificate signed by a duly authorized financial officer or executive of Lessee certifying that, upon consummation of such replacement, no Event of Default will have occurred or be continuing; (vi) furnish Lessor with such documents as Lessor may reasonably request in connection with the consummation of the transactions contemplated by this Clause 11.1(c), in each case in form and substance satisfactory to Lessor; and (vii) furnish such Financing Statements incorporating the Replacement Engine as may be requested by Lessor. For all purposes hereof, each such Replacement Engine shall be deemed part of the property leased hereunder, shall be deemed an "Engine" as defined herein and shall be deemed part of the same Aircraft as was the Engine replaced thereof. No Engine Event of Loss covered by this Clause 11.1(c) shall result in any reduction in Rent or affect Lessee's obligation to pay Engine Supplemental Rent or the amount thereof to be paid by Lessee. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of one or more Engines pursuant to this Clause 11.1. 11.2 Substitute Aircraft: (a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft (the "Substitute Aircraft") of the same manufacture and model as the Aircraft and having a value, utility and condition equal to or greater than the Aircraft as at the date of occurrence of the Event of Loss which Substitute Aircraft will be leased by Lessor to Lessee for the remainder of the Term pursuant to the terms and conditions of this Agreement. If Lessor exercises such option, the Substitute Aircraft will constitute the Aircraft for all purposes of this Agreement in respect of facts and circumstances arising after the date of delivery thereof to Lessee. Lessor shall provide Lessee with details of the Substitute Aircraft as soon as may be practicable after the occurrence of the Event of Loss; (b) Lessor will use all reasonable endeavors to deliver the Substitute Aircraft to Lessee as soon as may be practicable following the date of occurrence of the Event of Loss but not later than * months after such date; and (c) Lessee agrees to enter into such documentation as Lessor may require in order to reflect the leasing of the Substitute Aircraft as aforesaid including, without limitation, documentation in respect of the Insurances. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of the Aircraft or Airframe pursuant to this Clause 11.2. 11.3 Requisition: During any requisition for use or hire of the Aircraft, any Engine or Part which does not constitute an Event of Loss:- (a) the Rent and other charges payable under this Agreement will not be suspended or abated either in whole or in part, and Lessee will not be released from any of its other obligations under the Agreement (other than operational obligations with which Lessee is unable to comply solely by virtue of the requisition); and (b) so long as no Default has occurred and is continuing, Lessee will be entitled to any hire paid by the requisitioning authority in respect of the Term. Lessee will, as soon as practicable after the end of any such requisition, cause the Aircraft to be put into the condition required by this Agreement. Lessor will be entitled to all compensation payable by the requisitioning authority in respect of any change in the structure, state or condition of the Aircraft arising during the period of requisition, and Lessor will apply such compensation in reimbursing Lessee for the cost of complying with its obligations under this Agreement in respect of any such change, but so that, if any Default has occurred and is continuing, Lessor may apply the compensation or hire in or towards settlement of any amounts owing by Lessee under this Agreement. 12. RETURN OF AIRCRAFT 12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to Clause 13.2 or termination of the leasing of the Aircraft under this Agreement Lessee will, unless an Event of Loss has occurred, at its expense, redeliver the Aircraft and Aircraft Documents to Lessor at the Redelivery Location or such other airport as is mutually acceptable to the parties hereto, in accordance with the procedures and in compliance with the conditions set forth in Schedule 3, free and clear of all Security Interests and Permitted Liens (other than Lessor Liens) and in a condition qualifying for immediate certification of airworthiness by the FAA or as otherwise agreed by Lessor and Lessee. 12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee will make the Aircraft available to Lessor for inspection ("Final Inspection") in order to verify that the condition of the Aircraft complies with this Agreement. The Final Inspection will permit, and be of sufficient duration for, Lessor to:- (a) inspect the Aircraft Documents; (b) inspect the Aircraft and uninstalled Parts; (c) inspect the Engines, including without limitation (i) a borescope inspection of (A) the low pressure and high pressure compressors and (B) turbine and combustion areas, (ii) engine condition runs and (iii) review of Engine trend monitoring data and technical log reports covering the last * (*) days of operation; and (d) perform a complete borescope inspection of the APU; and (e) observe a * hour demonstration flight (with Lessor's representatives as on-board observers). 12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the condition of the Aircraft does not comply with this Agreement, Lessee will at Lessor's option:- (a) immediately rectify the non-compliance and to the extent the non-compliance extends beyond the Expiry Date, the Term will be automatically extended and this Agreement will remain in force until the non-compliance has been rectified as provided in Clause 12.8; or (b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax Basis, and provide to Lessor's satisfaction cash as security for that indemnity, against the cost of putting the Aircraft into the condition required by this Agreement. 12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's request, all documents necessary to export the Aircraft from the Habitual Base (including, without limitation, a valid and subsisting export license for the Aircraft) and required in relation to the deregistration of the Aircraft with the Air Authority. 12.5 Acknowledgment: Provided Lessee has complied with its obligations under this Agreement, following redelivery of the Aircraft by Lessee to Lessor at the Redelivery Location, Lessor will deliver to Lessee an acknowledgment confirming that Lessee has redelivered the Aircraft to Lessor in accordance with this Agreement. 12.6 Maintenance Program: (a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide Lessor or its agent reasonable access to Lessee's Maintenance Program and the Aircraft Documents in order to facilitate the Aircraft's integration into any subsequent operator's fleet; and (b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft deliver to Lessor a certified true current and complete copy of Lessee's Maintenance Program. Lessor agrees that it will not disclose the contents of Lessee's Maintenance Program to any person or entity except to the extent necessary to monitor Lessee's compliance with this Agreement and/or to bridge the maintenance program for the Aircraft from Lessee's Maintenance Program to another program after the Expiry Date. 12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be made in respect of fuel on board on the Delivery Date and the Expiry Date at the price then prevailing at the Redelivery Location. 12.8 Automatic Extension of Term: In the event of Lessee's failure to make the Aircraft available to Lessor for timely inspection pursuant to Clauses 12.1 hereof, non-compliance of the condition of the Aircraft under Clause 12.3 hereof or any other failure of Lessee which prevents timely Redelivery of the Aircraft to Lessor, the Term of this Agreement will be automatically extended and this Agreement will remain in force until such non-compliance has been rectified, with Lessee being obligated to pay Rent at a rate specified in Clause 5.3 plus * percent on a per diem basis with respect to the period of such extension. 13. DEFAULT 13.1 Events: Each of the following events will constitute an Event of Default and a repudiation (but not a termination) of this Agreement by Lessee (whether any such event or condition is voluntary or involuntary or occurs by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Government Entity). Lessee acknowledges that the occurrence of any Event of Default would represent a material default in the performance of its obligations under this Agreement:- (a) Non-payment: Lessee fails to make any payment under this Agreement on the due date; or (b) Insurance: Lessee fails to comply with any provision of Clause 9 or any insurance required to be maintained under this Agreement is canceled or terminated or notice of cancellation is given in respect of any such insurance; or (c) Breach: Lessee fails to comply with any other provision of this Agreement and, if such failure is in the reasonable opinion of Lessor capable of remedy, the failure continues for * days after notice from Lessor to Lessee; or (d) Representation: any representation or warranty made (or deemed to be repeated) by Lessee in or pursuant to this Agreement or in any document or certificate or statement is or proves to have been incorrect in any material respect when made or deemed to be repeated; or (e) Cross Default: (i) a final judgment for the payment of money not covered by insurance in excess of * Dollars ($*), or final judgments for the payment of money not covered by insurance in excess of * Dollars ($*) in the aggregate, shall be rendered against Lessee and the same shall remain undischarged for a period of * (*) days during which execution thereof shall not be effectively stayed by agreement of the parties involved, stayed by court order or adequately bonded; or (ii) attachments or other Security Interests shall be issued or entered against substantially all of the property of Lessee and shall remain undischarged or unbonded for * (*) days except for Security Interests created in connection with monies borrowed or obligations agreed to by Lessee in the ordinary course of its business; or (iii) Lessee shall default in the payment of any sum which by itself is in excess of $* or any sums which in aggregate exceed $* notwithstanding that any particular individual sum thereof does not exceed $* of any one or more obligations for the payment of borrowed money, for the deferred purchase price of property or for the payment of rent or hire under any lease of aircraft when the same becomes due if such nonpayment results in or would permit an acceleration of such indebtedness, or Lessee shall default in the performance of any other term, agreement, or condition contained in any agreement or instrument under or by which any such obligation is created, evidenced or secured, if the effect of such default is to cause or permit such obligation to become due prior to its stated maturity; or (iv) any event of default or termination event, howsoever described, occurs under the Other Agreements; or (f) Approvals: any consent, authorization, license, certificate or approval of or registration with or declaration to any Government Entity in connection with this Agreement (including, without limitation): - (i) any authorization required by Lessee to obtain and transfer freely Dollars (or any other relevant currency) out of any relevant country; or (ii) required by Lessee to authorize, or in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of this Agreement or the performance by Lessee of its obligations under this Agreement; or (iii) the registration of the Aircraft; or (iv) any airline license or air transport license including, without limitation, authority to operate the Aircraft under FAR Part 121 and a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code; is modified in a manner unacceptable to Lessor or is withheld, or is revoked, suspended, canceled, withdrawn, terminated or not renewed, or otherwise ceases to be in full force; or (g) Bankruptcy, etc.: (i) Lessee or any Subsidiary consents to the appointment of a custodian, receiver, trustee or liquidator of itself or all or any material part of Lessee's property or Lessee's consolidated property, or Lessee or any Subsidiary admits in writing its inability to, or is unable to, or does not, pay its debts generally as they come due, or makes a general assignment for the benefit of creditors, or Lessee or any Subsidiary files a voluntary petition in bankruptcy or a voluntary petition seeking reorganization in a proceeding under any bankruptcy or insolvency Laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee or any Subsidiary in any such proceeding, or Lessee or any Subsidiary by voluntary petition, answer or consent seeks relief under the provisions of any other bankruptcy, insolvency or other similar Law providing for the reorganization or winding-up of corporations, or provides for an agreement, composition, extension or adjustment with its creditors, or any corporate action (including, without limitation, any board of directors or shareholder action) is taken by Lessee or any Subsidiary in furtherance of any of the foregoing, whether or not the same is fully effected or accomplished; or (ii) an order, judgment or decree is entered by any court appointing, without the consent of Lessee or any of its Subsidiaries, a custodian, receiver, trustee or liquidator of Lessee or any Subsidiary, or of all or any material part of Lessee's property or Lessee's consolidated property is sequestered, and any such order, judgment or decree of appointment or sequestration remains in effect, undismissed, unstayed or unvacated for a period of * days after the date of entry thereof or at any time an order for relief is granted; or (iii) an involuntary petition against Lessee or any Subsidiary in a proceeding under the United States Federal Bankruptcy Laws or other insolvency Laws (as now or hereafter in effect) is filed and is not withdrawn or dismissed within * days thereafter or at any time an order for relief is granted in such proceeding, or if, under the provisions of any Law providing for reorganization or winding-up of corporations which may apply to Lessee or any Subsidiary, any court of competent jurisdiction assumes jurisdiction over, or custody or control of, Lessee or any Subsidiary or of all or any material part of Lessee's property, or Lessee's consolidated property and such jurisdiction, custody or control remains in effect, unrelinquished, unstayed or unterminated for a period of 30 days or at any time an order for relief is granted in such proceeding; or (h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations under this Agreement or this Agreement becomes wholly or partly invalid or unenforceable; or (i) Suspension of Business: Lessee or any of its Subsidiaries suspends or ceases or threatens to suspend or cease to carry on all or a substantial part of its business; or (j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers or threatens to dispose, convey or transfer of all or a material part of its assets, liquidates or dissolves or consolidates or merges with any other Person whether by one or a series of transactions, related or not, other than for the purpose of a reorganization of the terms of which have received the previous consent in writing of Lessor; or (k) Rights and Remedies: the existence, validity, enforceability or priority of the rights of Lessor as owner and the rights of Lessor as lessor in respect of the Aircraft are challenged by Lessee or any other person claiming by or through Lessee; or (l) Delivery: Lessee fails to timely comply with its obligations under Clause 4 to accept delivery of the Aircraft; or (m) Ownership, Security Interests and Related Matters: Lessee fails to timely comply with its obligations under Clause 8.7; or (n) Transfer: Lessee makes or permits any assignment or transfer of this Agreement, or any interest herein, or of the right to possession of the Aircraft, the Airframe, or any Engine; or (o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry Date in accordance with Clause 12. (p) Adverse Change: any event or series of events occurs which, in the reasonable opinion of Lessor might have a material adverse effect on the financial condition or operations of Lessee and its Subsidiaries or on the ability of Lessee to comply with its obligations under this Agreement; or (q) Letter of Credit: (i) the issuer of the Letter of Credit (if any) fails to make any payment under that Letter of Credit when due; or (ii) any such Letter of Credit is not in full force or, for any reason ceases to constitute the legal, valid and binding obligation of the issuer; or (iii) any of the events listed in paragraph (f)(i) above, with respect to the performance by the issuer of its obligations under any Letter of Credit, or paragraph (g) above applies to such issuer (references in those sub-paragraphs to Lessee being deemed to be to the issuer); or (iv) where applicable, any Letter of Credit is not renewed within the time required by Section 5.15; and each reference in this paragraph (q) to "the issuer" shall include a reference to any confirming bank for the Letter of Credit. 13.2 Rights: If an Event of Default occurs, Lessor may at its option (and without prejudice to any of its other rights under this Agreement), at any time thereafter (without notice to Lessee except as required under applicable Law):- (a) by notice to Lessee and with immediate effect on dispatch of such notice terminate the letting of the Aircraft (but without prejudice to the continuing obligations of Lessee under this Agreement), whereupon all rights of Lessee under this Agreement shall cease; and/or (b) proceed by appropriate court action or actions to enforce performance of this Agreement, including, without limitation, the payment of all Rent and all other amounts payable to Lessor or any Indemnitee pursuant to the terms hereof; and/or (c) proceed by appropriate court action or actions to recover damages for the breach of this Agreement which shall include, without limitation: - (i) all Rent and other amounts which are or become due and payable hereunder prior to the date Lessor recovers possession of the Aircraft; (ii) at Lessor's election, either one of the amounts determined pursuant to Clause 13.2(e) or Clause 13.2(f) below or any lost profits suffered by Lessor as a consequence of Lessor's inability to place the Aircraft with another lessee on financial terms that are as favorable to Lessor as the terms of this Agreement; (iii) all costs associated with Lessor's exercise of its remedies hereunder, including, but not limited to, repossession costs, legal fees, Aircraft storage costs, Aircraft re-lease or sale costs and Lessor's internal costs and expenses (including the cost of personnel time calculated based upon the compensation paid to the individuals involved on an annual basis and a general Lessor overhead allocation); (iv) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Aircraft; (v) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to redeliver the Aircraft in the condition required by this Agreement; and (vi) any other losses (including lost profits), damage, expense, cost or liability which Lessor suffers or incurs as a result of the Event of Default and/or termination of this Agreement, including an amount sufficient to fully compensate Lessor for any loss of or damage to Lessors residual interest in the Aircraft caused by Lessee's default; and/or (d) either: - (i) enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and, at Lessor's sole option, remove the same (and/or any engine which is not an Engine but which is installed on the Airframe, subject to the rights of the owner, lessor or secured party thereof) or cause it to be redelivered to Lessor at a location in the United States identified by Lessor (or such other location as Lessor may require) (the "Return Location"), by summary proceedings or otherwise, all without liability accruing to Lessor for or by reason of such entry or taking of possession whether for the restoration of damage to property, or otherwise, caused by such entry or taking, except damages caused by gross negligence or willful misconduct; and Lessor is hereby irrevocably, by way of security for Lessee's obligations under this Agreement, appointed attorney for Lessee in causing the redelivery or in directing the pilots of Lessee or other pilots to fly the Aircraft to that airport and will have all the powers and authorizations necessary for taking that action; or (ii) by serving notice require Lessee to redeliver the Aircraft to Lessor at a point within the continental United States designated by Lessor; and/or (e) sell at private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee; and/or (f) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under paragraph (a), paragraph (b), paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2, Lessor, by * days written notice to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts owing under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus the amount, if any, by which the aggregate Rent for the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the interest rate of * percent (*%) per annum, exceeds the fair market rental value (determined pursuant to the Appraisal Procedure) of the Aircraft for the remainder of the Term, after discounting such fair market rental value periodically (equal to installment frequency) to present worth as of the payment date specified in such notice at the interest rate of * percent (*%) per annum; and/or (g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have relet the Aircraft under a lease which extends at least to the date upon which the Term for the Aircraft would have expired but for Lessee's default, Lessor, in lieu of exercising its rights under Clause 13.2(f) above with respect to the Aircraft, may, if it shall so elect, demand that Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft due after the time of reletting) any unpaid Rent for the Aircraft due up to the date of reletting and any other amounts owing under this Agreement, plus the amount, if any, by which the aggregate Rent for the Aircraft, which would otherwise have become due over the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth as of the date of reletting at the interest rate of * percent (*%) per annum, exceeds the aggregate basic rental payments to become due under the reletting from the date of such reletting to the date upon which the Term for the Aircraft would have expired but for Lessee's default, discounted periodically (equal to installment frequency) to present worth as of the date of the reletting at the interest rate of * percent (*%) per annum; and/or (h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f), and (g) of this Clause 13.2, by * days written notice to Lessee specifying a payment date, Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor on the payment date specified in such notice as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts payable under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus an amount equaling the aggregate Rent for the remainder of the Term, discounted periodically (equal to installment frequency) to present worth at the interest rate of * per cent (*%) per annum; (i) draw upon the Deposit (including the Letter of Credit) or the Supplemental Rent furnished under this Agreement or the Related Agreements (as those times are defined in such agreements) and apply such amounts to amounts owing to Lessor hereunder. Lessee, for itself and for its successors and assigns, hereby agrees that, to the extent now or hereafter permitted by applicable Law, notwithstanding any provision of the Federal Bankruptcy Code as amended from time to time, the title of Lessor to the Aircraft and any right of Lessor to take possession of the Aircraft in compliance with the provisions of this Agreement, in each case, upon the occurrence and continuance of an Event of Default, shall not be affected by the provisions of the Federal Bankruptcy Code, as amended from time to time. In addition to the foregoing, Lessee shall be liable for any and all unpaid Rent and other amounts payable under this Agreement during or after the exercise of any of the aforementioned remedies, together with interest on such unpaid amounts at the Interest Rate set forth in Letter Agreement No. 1, and until satisfaction of all of Lessee's obligations to Lessor hereunder and (on an After-Tax Basis) for all reasonable legal fees and other reasonable costs and expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the return of the Aircraft in accordance with the terms of Clause 12 hereof or in placing the Aircraft in the condition and with airworthiness certification as required by such Clause. In effecting any repossession, Lessor and its representatives and agents, to the extent permitted by Law, shall: (i) have the right to enter upon any premises where it reasonably believes the Aircraft, the Airframe, an Engine or Part to be located; (ii) not be liable, in conversion or otherwise, for the taking of any personal property of Lessee which is in or attached to the Aircraft, the Airframe, an Engine or Part which is repossessed; provided, however, that Lessor shall return to Lessee all personal property of Lessee or its passengers which was on the Aircraft at the time Lessor re-takes possession of the Aircraft; (iii) not be liable or responsible, in any manner, for any inadvertent damage or injury to any of Lessee's property in repossessing and holding the Aircraft, the Airframe, an Engine or Part, except for that caused by or in connection with Lessor's gross negligence or willful acts; (iv) have the right to maintain possession of and dispose of the Aircraft, the Airframe, an Engine or Part on any premises owned by Lessee or under Lessee's control; and (v) have the right to obtain a key to any premises at which the Aircraft, the Airframe, an Engine or Part may be located from the landlord or owner thereof. If reasonably required by Lessor, Lessee, at its sole expense, shall assemble and make the Aircraft, the Airframe, an Engine or Part available at a place designated by Lessor in accordance with Clause 12 hereof. Lessee hereby agrees that, in the event of the return to or repossession by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express or implied) previously assigned to Lessee or otherwise held by Lessee shall without further act, notice or writing be assigned or reassigned to Lessor, if assignable. Lessee shall be liable to Lessor on an After-Tax Basis for all reasonable expenses, disbursements, costs and fees incurred in (i) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby authorized and instructed, at its option, to make reasonable expenditures which Lessor considers advisable to repair and restore the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof, all at Lessee's sole expense. At any public sale of the Aircraft, the Airframe, an Engine or Part pursuant to this Clause, Lessor may bid for and purchase such property and Lessee agrees that the amounts paid therefor shall be used in the computation contemplated herein. With the exception that the remedy in Clause 13.2(g) can be elected only if the remedy in Clause 13.2(f) is not elected and the remedy in Clause 13.2(h) can be elected only in lieu of all other remedies save the remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this Clause 13 is intended to be exclusive, but, to the extent permissible hereunder or under applicable Law, each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at Law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies; provided, however, that nothing in this Clause 13 shall be construed to permit Lessor to obtain a duplicate recovery of any element of damages to which Lessor is entitled. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default. 13.3 Deregistration: If an Event of Default occurs, Lessor may sell or otherwise deal with the Aircraft free and clear of any leasehold or other interest of Lessee as if this Agreement had never been made and Lessee will at the request of Lessor take all steps necessary to effect (if applicable) deregistration of the Aircraft and its export from the country where the Aircraft is for the time being situated and any other steps necessary to enable the Aircraft to be redelivered to Lessor in accordance with this Agreement including without limitation execution and filing of a certificate or other instrument of lease termination with the Air Authority and; Lessee hereby irrevocably and by way of security for its obligations under this Agreement appoints (which appointment is coupled with an interest) Lessor as its attorney to execute and deliver any documentation and to do any act or thing required in connection with the foregoing. 14. ASSIGNMENT 14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT. 14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its rights under this Agreement and in the Aircraft. In the case of an assignment other than by way of security, Lessor will be released from and will have no further obligation under this Agreement following the assignment of all its rights under this Agreement and the assumption by the assignee or transferee of all of Lessor's obligations under this Agreement. Notwithstanding any such assignment, Lessor will remain entitled to the benefit of each indemnity and the liability insurances effected under this Agreement. Lessee will comply with all reasonable requests of Lessor, its successors and assigns in respect of any such assignment. Lessor will promptly notify Lessee of any assignment. 14.3 Transfer: If Lessor desires to effect any assignment or transfer of its rights and obligations under this Agreement, Lessee agrees to cooperate and take all such steps as Lessor may reasonably request to give the transferee the benefit of this Agreement and to acknowledge the release of Lessor from its obligations hereunder as of the time of such assignment or transfer. 15. ILLEGALITY If it is or becomes unlawful in any jurisdiction for Lessor to give effect to any of its obligations as contemplated by this Agreement or to continue this Agreement, Lessor may by notice in writing to Lessee terminate the leasing of the Aircraft under this Agreement and Lessee will forthwith redeliver the Aircraft to Lessor in accordance with Clause 12. Without prejudice to the foregoing Lessor will consult in good faith with Lessee as to any steps which may be taken to restructure the transaction to avoid that unlawfulness but will be under no obligation to take any such steps. 16. MISCELLANEOUS 16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:- (i) may be exercised as often as necessary; (ii) are cumulative and not exclusive of its rights under any Law; and (iii) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right will not constitute a waiver of that right. 16.2 Delegation: Lessor may delegate to any person or persons all or any of the trusts, powers or discretions vested in it by these presents and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate) as Lessor in its absolute discretion thinks fit. 16.3 Certificates: Save where expressly provided in this Agreement, any certificate or determination by Lessor as to any rate of interest or as to any other amount payable under this Agreement will, in the absence of manifest error, be conclusive and binding on Lessee. 16.4 Appropriation: If any sum paid or recovered in respect of the liabilities of Lessee under this Agreement is less than the amount then due, Lessor may apply that sum to amounts due under this Agreement in such proportions and order and generally in such manner as Lessor may determine at its sole discretion. 16.5 Currency: Lessee acknowledges that the specification of Dollars in this Agreement is of the essence and that Dollars shall be the currency of account in any and all events. Lessee waives any right it may have in any jurisdiction to pay any amount under this Agreement in a currency other than Dollars. 16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee against any obligation (whether or not matured) owed by Lessor to Lessee, regardless of the place of payment or currency. If the obligations are in different currencies, Lessor may convert either obligation at the market rate of exchange available in New York or at its option London for the purpose of the set-off. If an obligation is unascertained or unliquidated, Lessor may in good faith estimate that obligation and set off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained or liquidated. Lessor will not be obliged to pay any amounts to Lessee under this Agreement so long as any sums which are then due from Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee remain unpaid and any such amounts which would otherwise be due will fall due only if and when Lessee has paid all such sums except to the extent Lessor otherwise agrees or sets off such amounts against such payment pursuant to the foregoing. 16.7 Severability: If a provision of this Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect:- (a) the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or (b) the legality, validity or enforceability in any other jurisdiction of that or any other provision of this Agreement. 16.8 Remedy: If Lessee fails to comply with any provision of this Agreement, Lessor may, without being in any way obliged to do so or responsible for so doing and without prejudice to the ability of Lessor to treat the non-compliance as a Default or an Event of Default, effect compliance on behalf of Lessee, whereupon Lessee shall become liable to pay immediately any sums expended by Lessor together with all costs and expenses (including legal costs) in connection therewith. 16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to this Agreement, Lessee is to pay to Lessor on an After-Tax Basis on demand:- (a) all costs associated with perfecting Lessor's rights in the Aircraft and/or this Agreement in the State of Registration, the Habitual Base of the Aircraft (and other states as appropriate given the operation of the Aircraft), including (but not limited to) the provision of legal opinions, tax advice, stamp duties, translations and registrations, whether required by Lessor or Lessee. (b) all expenses (including legal, professional, and out-of-pocket expenses) incurred or payable by Lessor related to any amendment to or extension of or other documentation in connection with, or the granting of any waiver or consent under this Agreement requested by Lessee or the monitoring of compliance by Lessee with this Agreement; and (c) all expenses (including legal, survey and other costs) payable or incurred by Lessor in contemplation of, or otherwise in connection with, the enforcement of or preservation of any of Lessor's or Owner's rights under this Agreement, or in respect of the repossession of the Aircraft. All expenses payable pursuant to this Clause 16.9 will be paid in the currency in which they are incurred by Lessor. 16.10 Time of Essence: The time stipulated in this Agreement for all payments payable by Lessee to Lessor and the prompt, punctual and performance of Lessee's other obligations under this Agreement are of the essence of this Agreement. 16.11 Notices: All notices under, or in connection with, this Agreement will, unless otherwise stated, be given in writing by letter, facsimile or SITA. Any such notice is deemed effectively to be given as follows:- (i) if by letter, on the earlier of the date when delivered or the *th day after dispatch; (ii) if by facsimile or SITA, when transmitted and full transmission has been separately notified by telephone by the transmitting party. The address, telex numbers, SITA, facsimile and telephone numbers of Lessee, Lessor and Owner are as follows:- Lessee: Address: 12015 East 46th Avenue, Suite 200 Denver, Colorado 80239 United States of America Attn: General Counsel SITA: DENGAF9 Facsimile: (303) 371-7007 Telephone: (303) 371-7400 Lessor: Address: Aviation Financial Services, Inc. c/o GE Capital Aviation Services, Inc. 201 High Ridge Road Stamford, CT 06927-4900 Attn: Contracts - Leader North America Facsimile: (203) 961-5965 Telephone: (203) 357-4585 16.12 Governing Law and Jurisdiction: (a) THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES); (b) Pursuant to and in accordance with Section 5-1402 of the New York General Obligations Law, Lessee and Lessor each agree that the United States District Court for the Southern District of New York and any New York state court sitting in the City of New York, New York are to have nonexclusive jurisdiction to settle any disputes arising out of or relating to this Agreement and each party submits itself and its property to the nonexclusive jurisdiction of the foregoing courts with respect to such disputes; (c) Without prejudice to any other mode of service, (i) (A) Lessee appoints Corporation Service Company, 80 State Street, 6th Floor, Albany, New York 12207-2543 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessor and (B) Lessor appoints General Electric Capital Corporation, a New York corporation, 260 High Ridge Road, Stamford, Connecticut 06927 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessee; (ii) Each of Lessor and Lessee agrees that failure by a process agent to notify the other party of the process shall not invalidate the proceedings concerned; (iii) Each of Lessor and Lessee consents to the service of process relating to any such proceedings by prepaid mailing of a copy of the process to the other party's agent at the address identified in paragraph (i)(A) or (i) (B), respectively, or by prepaid mailing by air mail, certified or registered mail of a copy of the process to Lessee or Lessor, respectively, at the address set forth in Clause 16.11; (d) Lessee: - (i) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the COURTS REFERRED TO IN CLAUSE 16.12(b) ABOVE on grounds of inconvenient forum or otherwise as regards proceedings in connection with this Agreement; (ii) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this agreement brought in the courts REFERRED TO IN CLAUSE 16.12(b); (iii) agrees that a judgment or order of any court REFERRED TO IN CLAUSE 16.12(b) in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction; (e) Nothing in this Clause 16.12 limits the right of Lessor to bring proceedings against Lessee in connection with this Agreement: - (i) in any other court of competent jurisdiction; or (ii) concurrently in more than one jurisdiction; (f) Lessee irrevocably and unconditionally: - (i) agrees that if Lessor brings legal proceedings against it or its assets in relation to this Agreement no immunity from such legal proceedings (which will be deemed to include without limitation, suit, attachment prior to judgment, other attachment, the obtaining of judgment, execution or other enforcement) will be claimed by or on behalf of itself or with respect to its assets; (ii) waives any such right of immunity which it or its assets now has or may in the future acquire; (iii) consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such proceedings. 16.13 Sole and Entire Agreement: This Agreement and the other Operative Documents to which each is a party are the sole and entire agreement between Lessor and Lessee in relation to the leasing of the Aircraft, and supersede all previous agreements in relation to that leasing. 16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under this Agreement (other than Lessor) are given to Lessor on behalf of that Indemnitee. 16.15 Counterparts: This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. To the extent, if any, that this Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no Security Interest in this Agreement may be created through the transfer or possession of any counterpart other than the counterpart that has been marked "Counterpart No. 1" on the cover page thereof. 16.16 Language: All notices to be given under this Agreement will be in English. All documents delivered to Lessor pursuant to this Agreement will be in English, or if not in English, will be accompanied by a certified English translation. If there is any inconsistency between the English version of this Agreement and any version in any other language, the English version will prevail. 16.17 No Brokers: Lessee hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessor or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. Lessor hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessee or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. For the purposes hereof, the term "Excluded Persons" shall mean (x) in the case of Lessor, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere, and (y) in the case of Lessee, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere. Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, but not limited to reasonable attorneys' fees) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon this Agreement or the Operative Documents to which Lessor and Lessee are a party or the Aircraft, if such claim damage, cost or expense arises out of any action or alleged action by the indemnifying party, its employees or agents. 17. DISCLAIMERS AND WAIVERS 17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS, WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: - (a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: - (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH; (ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO; (iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES; (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE 2.4. 17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS. 17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN CALCULATED BASED ON ITS PROVISIONS. 18. SECTION 1110 Lessee acknowledges that Lessor would not have entered into the Lease unless it had available to it the benefits of a lessor under Section 1110 of Title 11 of the U.S.C. Lessee covenants and agrees with Lessor that to better ensure the availability of such benefits, Lessee shall support any motion, petition or application filed by Lessor with any bankruptcy court having jurisdiction over Lessee whereby Lessor seeks recovery of possession of the Aircraft under said Section 1110 and shall not in any way oppose such action by Lessor unless Lessee shall have complied with the requirements of said Section 1110 to be fulfilled in order to entitle Lessee to continued use and possession of the Aircraft hereunder. In the event said Section 1110 is amended, or if it is repealed and another statute is enacted in lieu thereof, Lessor and Lessee agree to amend the Lease and take such other action not inconsistent with the Lease as Lessor reasonably deems necessary so as to afford to Lessor the rights and benefits as such amended or substituted statute confers upon owners and lessors of aircraft similarly situated to Lessor. 19. USURY LAWS: The parties intend to contract in strict compliance with the usury Laws of the States of New York and Colorado and, to the extent applicable, the United States of America. Notwithstanding anything to the contrary in the Operative Documents, Lessee will not be obligated to pay any interest in excess of the maximum non-usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by Lessor in connection with the Operative Documents. During any period of time in which the then-applicable highest lawful rate is lower than the rate specified in Clauses 5.11 or 13.2, interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will pay interest at the highest lawful rate until the aggregate amount of interest paid by Lessee equals the amount of interest that would have been payable in accordance with the interest rate specified in Clauses 5.11 or 13.2. 20. MODIFICATION OR REVISION: Neither this Agreement nor any term of this Agreement may be modified, rescinded, changed waived, discharged or terminated except by a writing signed by the party to be charged. Lessor and Lessee acknowledge their agreement to the provision of this Clause 20 by their initials below: - LESSOR: __________ LESSEE: ____________ 21. IN WITNESS whereof the parties hereto have executed this Agreement on the date shown at the beginning of this Agreement. WITNESS SIGNED on behalf of AVIATION FINANCIAL SERVICES INC. By: ___________________________ Name: ___________________________ Title: ___________________________ WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC. By: ___________________________ Name: ___________________________ Title: ___________________________ SCHEDULE 1 PART 1 DESCRIPTION OF AIRCRAFT AIRCRAFT MANUFACTURER: Boeing MODEL: 737-36E SERIAL NUMBER: 25159 ENGINES ENGINE TYPE: CFM-56-3B2 SERIAL NOS: SN 727254 and SN 724977 Part A Description of Aircraft On the Delivery Date each Aircraft shall comply with the following conditions: 1. The Aircraft will have accomplished all outstanding airworthiness directives by terminating action, if required, and mandatory orders affecting that model of Aircraft issued by the Air Authority and the DGAC which, if the Aircraft was registered with either of such air authorities, would have to be complied with within * days after the Delivery Date. 2. The Aircraft will have in existence a valid Export Certificate of Airworthiness with respect to the Aircraft issued by the DGAC and shall have all systems operational and shall be eligible for 14 C.F.R. Part 121 operations. 3. The Aircraft shall be in 148Y (tourist/load class seats). 4. The Aircraft shall be fully serviceable with no carried forward defects and shall be clean by airline standards. 5. Airframe: Ex a block MPD 'C7-SI' check in accordance with the Manufactures maintenance planning document, including 100% compliance with the CPCP program and aging aircraft program. Engines: Minimum expected life of * hours and * cycles, verified by power assurance runs. Plus Boroscope inspections to establish the internal condition of the engine. The engines will be able to achieve full take off power at 22,000 thrust rating of minimum OATL of 34 degrees Celsius. Components: Minimum of * hours, * cycles on hard time limited items and * months or full life if Full life is less than * months on calendar limited items and shall be supported by appropriate certification documentation such as JAR form 1 or FAA form 8130-1, where the FAA approval agency is a JAA listed company: for this purpose "Hard Time Component" means any component which has a limited on-wing life in accordance with Manufactures Maintenance Planning Document and which can have life fully restored through appropriate maintenance. The installed components as a group will have an average of total flight time since new of not more than that of the Airframe; and APU: Serviceable and capable of operating under full load without limitation Livery Painting: Freshly painted white. Demonstration Flight: At delivery Lessor will provide a demonstration flight not exceeding two hours in duration. Detail Specification: Aircraft shall comply with the aircraft detail specification No D6-76300-87 except for systems which have been modified to comply with JAR ops requirements and shall have TCAS and VHF 8.33 spacing installed. MTOW: 138,000 LBS 6. FUSELAGE, WINDOWS AND DOORS The aircraft will be ex a D Check as specified in 5 above.The fuselage will be free of major dents and abrasions, and loose or pulled or missing rivets. All repairs will be permanent Class 1 repairs and where possible flush as defined by the Manufacturer's structural repair manual or have specific Manufacturer approval accepted by the FAA. 7. WINGS AND EMPENNAGE (a) Leading edges will be free from damage. (b) Unpainted surfaces will be polished during the D Check; (c) Control surfaces will be cleaned and polished or painted as per Previous operator's policy during the "D" Check; and (d) Wings will be free of fuel leaks. 8. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be serviceable. (b) Carpets and seat covers will be in good condition, and meet JAR/FAR fire resistance regulations; (c) Seats will be serviceable, in good condition having been removed, inspected and repaired. (d) Emergency equipment having a calendar life will have a minimum of * year or *% of its total approved life, whichever is less, remaining; and (e) All signs and decals shall be clean, secure and legible. 9. COCKPIT (a) Fairing panels shall be substantially free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean; (c) Seat covers will be in serviceable , clean and free of stains. (d) Seats will be serviceable, in good condition and will be repainted as necessary; and (e) All signs and decals shall be clean, secure and legible. 10. CARGO COMPARTMENTS (a) Panels will be serviceable; and (b) Nets will be in servicable. PART 2 AIRCRAFT DOCUMENTS Part C A. Certificates A001 Certificate of Airworthiness A002 Current Aircraft Registration A003 C of A for Export (if applicable) A004 Noise Limitation Certificate (AFM page) A005 Radio Station License A007 Aircraft deregistration confirmation A008 Burn Certificates - Cabin Interiors - as follows: Certification of compliance with the fire blocking requirements as outlined in JAR/FAR Part 25 including: - - Seat cushions* - - Back rest cushions* - - Dress covers* - - Carpets - - Curtains - - Interior Surfaces (if refurbished) * Including "in combination" burn certification B. Aircraft Maintenance Status Summaries B001 Certified current Time in Service ( Hours & Cycles) and maintenance status B002 Certified status of Airworthiness Directives including method of compliance B003 Certified status of Service Bulletin Status B004 Certified status of SSI B005 Certified status of CPCP (if applicable) B006 Certified inventory of Hard Time Components (Fitted listing) B007 Certified inventory of OC/CM Components (Fitted listing) B008 Certified status of all non-SB and Major Modifications/STC's including acceptable State of Manufacture Certification B009 Certified status of Check/Inspection History & Current Status of Checks B010 List of Deferred Maintenance Items B011 List of Out of Phase Checks, Special Requirements, Time Limited Repairs (if any). B012 Aircraft Accident & Incident Report. B013 Structural repairs and damage (including Dent & Buckle Chart). C. Aircraft Maintenance Records C001 Technical Logs (Minimum of 2 years or as required by the FAA) C002 A Checks Last complete cycle of A Checks (or equivalent) C003 C Checks Last Complete cycle of C Checks (or equivalent) C004 All Major Checks C005 CPCP Tasks (if applicable) C006 Periodic Tasks C007 Dirty Finger Print Certification - AD's C008 Dirty Finger Print Certification - SB's C009 Dirty Finger Print Certification - All other modification C010 Last Weight Report including Schedule C011 Last Test Flight Report C012 Certified ETOPS compliance report (if applicable) C013 Dirty Finger Print certification - All Structural repairs/structural damage C014 Details of State of Manufacture certification basis - A non-SRM Structural repairs C015 Aircraft Log Book(s) if applicable D. Configuration Status D001 Approved and certified LOPA D002 Galley Drawings/Component OHM D003 Emergency Equipment Drawing/Listing D004 Loose Equipment Inventory D005 Inventory Listing of Avonic installed Units. E. Aircraft Historical Records E001 C of A (Export) from State of Manufacture E002 Manufacturer's AD Report E003 Manufacturer's Inspection Report, Initial Equipment list E004 Manufacturer's repair/alteration report E005 Manufacturer's SB Report E006 Service Difficulty Reports (if any) E007 Aircraft Historical Log E008 Last Flight Data Recorder Read-Out & Corrections E009 Weighing report F. Engine Records F001 Certified Statement of Status of Each Engine F002 AD Compliance Report and Compliance Documents F003 Manufacturer's Modifications & SB Status F004 In-house Modifications (if applicable) F005 Certified LLP Listing F006 Certified listing of installed units F007 Manufacturer Delivery Document F008 Complete copies of all historical engine/module Shop Visit Reports F009 State of Manufacture LLP Traceability F010 Conditioning Monitoring Report F011 Engine Log Book/Master Records of Installation/Removals F012 Last Borescope Report, including video if available F013 Test Cell Run Report F014 Last On-Wing Ground Run F015 Certified Statement that Engines are not involved in an Accident F016 Approved Release to Service Certification for installed rotables F017 Approved ETOPS compliance report (if applicable) G. APU G001 Certified Statement on Status of APU (if applicable) G002 Certified SB Compliance Report/AD Status Report G003 Approved Release to Service Certification for installed units G004 APU Log Book/Master Record of Installation/Removals G005 Complete copies of all APU Shop Visit Reports & Reason for Removal G006 Statement of APU Hours to Aircraft Flying Hours G007 LLP Status and Full Traceability to birth G008 APU Borescope Report G009 Last On-Wing/Health Check Data sheets (if applicable) G010 Last Test Cell Run G011 Approved ETOPS compliance report H. Component Records H001 Approved Release to Service Certification for Hard Time Components H002 Approved Release to Service Certification for OC/CM Components I. Landing Gears I001 Approved Release to Service Certification for major assemblies on each Gear I002 Approved LLP Listings for each Gear (with FULL Traceability to Birth) I003 Last Shop Visit Report (OH) J. Manuals All Manufacturer's Manuals delivered with the Aircraft updated to the latest revision standard as may be reasonably requested by Purchaser Microfilm: J006 WDM J007 IPC J008 Maintenance Manual J009 Schematics J010 Hook Up Listing K. Miscellaneous K006 Maintenance Programme Specifications (Operator's) K007 Reference Material for Interpretation of Status Summaries, or cross-reference for Part Numbers SCHEDULE 2 CERTIFICATE OF TECHNICAL ACCEPTANCE This Certificate of Technical Acceptance is delivered, on the date set out below by Frontier Airlines, Inc. ("Lessee"), to AVIATION FINANCIAL SERVICES INC. ("Lessor"), pursuant to the Aircraft Lease Agreement dated as of the 7th of January, 2000 between Lessor and Lessee (the "Agreement"). The capitalized terms used in this Certificate shall have the meaning given to such terms in the Agreement. 1. DETAILS OF ACCEPTANCE Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this [ ] day of [ ], 2000, at [ ], accepted the following, in accordance with the provisions of the Agreement: (a) Boeing Model 737-36E airframe, Manufacturer's Serial No. 25159; (b) CFM-56-3B2 Engines: - Engine Manufacturer's Serial Nos. 1) [______] 2) [______] (Each of which shall have more than 750 rated takeoff horsepower or the equivalent of such horsepower); (c) Fuel on Board Status: [ ] (lbs.) (gals.) (d) Loose Equipment Check List: as per list signed by Lessor and Lessee and attached hereto; and (e) Aircraft Documents: as per list signed by Lessor and Lessee and attached hereto. 2. HOURS AND CYCLES DATA (as of Delivery Date) (a) Airframe: --------- Number of Hours since last block "D" Check (Heaviest Check): __ hours ----------------------------------------------------------- "C" Check (or Equivalent): ------------------------- Interval: ___________________________ Time Since: _______________________ (b) Landing Gear Overhaul: --------------------- Number of Cycles Since Last Overhaul: Left Gear __________________________ cycles Right Gear _________________________ cycles Nose Gear _________________________ cycles Center Gear ________________________ cycles Interval: Left Gear _________________________ Right Gear _________________________ Nose Gear _________________________ Center Gear ________________________ (c) Engines: ------- Number of Hours Since Last Heavy Shop Visit: S/N :______ hours ----------- S/N :______ hours ----------- Number of Hours Since Last Hot Section Refurbishment: S/N :______ hours ----------- S/N :______ hours ----------- Number of Hours Since Last Cold Section Refurbishment: S/N :______ hours ----------- S/N :______ hours ----------- Hot Section Inspection: Interval: ___________________________ Time Since (S/N ): __________________________ -------------- Time Since (S/N ): __________________________ -------------- Time Remaining to First Restriction: Engine S/N: _ ------------------ Hours: __________ Restriction: __________ Cycles: __________ Restriction: __________ Engine S/N: _ ------------------ Hours: __________ Restriction: __________ Cycles: __________ Restriction: __________ Average Cycles in Life Limited Parts (see attached Schedule):________ (d) Auxiliary Power Unit: -------------------- Number of APU Hours Since Last Heavy Shop Visit: __________ hours Date accomplished __________ Hot Section Inspection: Interval: ________________________ Time Since: ________________________ (e) Time Controlled Components: -------------------------- (f) Interior Equipment: ------------------ Number of Passenger Seats and Configuration:_______________ _________ Number of Galleys and Location: _________ __________ Number of Lavatories and Location: _________ __________ LOPA - Attached __________ __________ List of Loose Equipment on Board: -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- (g) Avionics: Description Model Part No. -------- ----------- ----- -------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- 3. ACCEPTANCE: The undersigned hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents are acceptable to it, satisfy all of the Delivery Condition Requirements relating to the technical condition of the Aircraft and are in the condition for delivery to and acceptance by Lessee as required under the Agreement, except as described on the EXCEPTIONS LIST attached hereto. LESSEE'S EXECUTION AND DELIVERY OF THIS CERTIFICATE SIGNIFIES LESSEE'S ABSOLUTE AND IRREVOCABLE TECHNICAL ACCEPTANCE OF THE AIRCRAFT FOR ALL PURPOSES HEREOF AND OF THE AGREEMENT. IN WITNESS WHEREOF, Lessee has, by its duly authorized representative, executed this Certificate on the date in paragraph 1 above. LESSEE: FRONTIER AIRLINES, INC. By: _________________________ Title: _________________________ ATTACHMENT EXCEPTIONS LIST The items set forth below represent non-conformities to the Delivery Condition Requirements as of the Delivery Date, the corrective action (or payment to Lessee in lieu thereof), if any, to be taken by Lessor and the date of accomplishment. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR'S UNDERTAKINGS SET FORTH HEREIN ARE IN FURTHERANCE OF AND SUBJECT TO THE AIRCRAFT LEASE AGREEMENT DATED AS OF JANUARY 7, 2000 BETWEEN LESSOR AND LESSEE (THE "LEASE"), THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, HEREUNDER AND THAT LESSORS UNDERTAKINGS ARE SUBJECT TO EACH AND EVERY DISCLAIMER OF LESSOR SET FORTH IN THE LEASE INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN CLAUSE 17 THEREOF. LESSOR LESSEE By: _________________________ By:___________________________ Title: _________________________ Title:__________________________ -------------------------------------- 1. ______________________________________ -------------------------------------- -------------------------------------- ------------ ---------- 2. ______________________________________ ====================================== -------------------------------------- ------------- ---------- 3. ______________________________________ ====================================== -------------------------------------- ------------- ---------- - - SCHEDULE 3 OPERATING CONDITION AT REDELIVERY On the Expiry Date the Aircraft, subject to fair wear and tear generally, will be in the condition set out below:- 1. GENERAL CONDITION The Aircraft will:- (a) be in the same configuration as on the Delivery Date or as reasonably requested by Lessor; (b) be clean by commercial airline standards; (c) have installed the full complement of engines and other equipment, parts, furnishings and accessories as is normally installed in the Aircraft and the loose equipment as was installed in the Aircraft at the time of Delivery, and be in a condition suitable for immediate operation in commercial service; (d) have in existence a valid certificate of airworthiness (or if required by Lessor, a valid export certificate of airworthiness) with respect to the Aircraft issued by the Air Authority and be in compliance without waiver with all current FAR Part 121 requirements; (e) comply with the manufacturer's original specifications or as modified by Lessee with the approval of Lessor, and as required to meet the regulations of the Air Authority at the Expiry Date; (f) have undergone, immediately prior to redelivery, a block `C' Check so that all inspections falling due within the next following * Flight Hours, * Cycles or the next following * months of operation in accordance with Lessee's Maintenance Program, have been accomplished; (g) have had accomplished all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority, and/or mandated by any manufacturer of the Aircraft, any Engine or Part, for this purpose, compliance shall be by terminating action if: the latest date permitted by such Airworthiness Directive for compliance by terminating action falls within * days after the Expiry Date; (h) have installed all applicable vendor's and manufacturer's service bulletin kits received free of charge by Lessee that are appropriate for the Aircraft and to the extent not installed, those kits will be furnished free of charge to Lessor; (i) have its fuselage, engine cowlings, and vertical fin and rudder freshly painted in an all white livery and the paint on the wings and the horizontal stabilizer surfaces shall be clean and in good condition, free from cracks, peeling, blistering and erosion and shall be uniform in color and free from areas of local touch up; (j) have all signs and decals clean, secure and legible; (k) shall have no open, deferred, continued, carryover or placarded log book items; and (l) meet the requirements of FAR Part 36, Appendix C, Stage 3 noise compliance as then in effect without waiver or restriction. 2. COMPONENTS (a) Each Flight Hour and Cycle limited component (other than the APU) shall have not less than * Flight Hours and * Cycles (whichever is the more stringent test) of life remaining to the next expected removal, in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul and Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (b) Each calendar-limited component including safety equipment will have not less than * months life remaining to the next scheduled removal in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul, Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (c) Each life-limited component will be supported by certification documentation necessary to demonstrate traceability of utilization since new (i.e. back-to-birth traceability); (d) Each "on-condition" and "condition monitored" component will be serviceable; (e) The APU will be serviceable and capable of operating under full load without limitation; and (f) The installed components as a group will have an average of total flight time since new of not more than that of the Airframe. 3. ENGINES Each Engine will be installed on the Aircraft and if not the engines installed on the Delivery Date will be accompanied by all documentation Lessor may require to evidence that title thereto is properly vested in Owner and will:- (a) have not less than * Engine Flight Hours or * Cycles (whichever is the more restrictive factor) remaining to next scheduled life limited part replacement and have an expected on-wing remaining life of not less than * Engine Flight Hours or * Cycles (whichever is the more restrictive factor). The expected life remaining will be determined by the inspection and checks accomplished by Lessor in accordance with this Agreement; (b) not be "on watch". (For purposes of the Agreement "on watch" shall mean any maintenance condition that would require an Engine removal and/or reinspection or airworthiness directive action that would require an Engine removal within * flight hours and * Cycles of the Expiry Date); and (c) be in a condition which can operate at maximum rated take off power at sea level at a temperature of 34oC. 4. FUSELAGE, WINDOWS AND DOORS (a) The fuselage will be free of major dents and abrasions, and any dents and abrasions that require a repetitive inspection or future repair, temporary repairs, and loose or pulled or missing rivets and all structural repairs shall be in accordance with the manufacturer's and Air Authority's approved data for permanent repair; (b) Windows will be free of delamination, blemishes, crazing and will be properly sealed; and (c) Doors will be free moving, correctly rigged and be fitted with serviceable seals. 5. WINGS AND EMPENNAGE (a) Leading edges will be free from damage; (b) Unpainted control surfaces will be waxed and polished; (c) Unpainted cowlings and fairings will be polished; and (d) Wings will be free of fuel leaks. 6. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks and stains; (b) Carpets and seat covers will be in good condition, clean and free of stains and meet FAR fire resistance regulations; (c) Seats will be serviceable, in good condition and repainted as necessary; and (d) Emergency equipment having a calendar life will have a minimum of * year or *% of its total approved life, whichever is less, remaining. 7. COCKPIT (a) Fairing panels shall be free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean and effectively sealed; (c) Seat covers will be in good condition, clean and free of stains and will conform to FAR fire resistance regulation; and (d) Seats will be serviceable, in good condition and will be repainted as necessary. 8. CARGO COMPARTMENTS (a) Panels will be in good condition; and (b) Nets will be in good condition. 9. LANDING GEAR The landing gear and wheel wells will be clean, free of leaks and repaired as necessary. Wheels and brakes shall be in a half life condition or better. (a) The landing gear and w heel wells will be clean, free of leaks and repaired as necessary. (b) Each wheel and b rake assembly shall be in a half life condition or better. 10. CORROSION (a) The Aircraft shall be in compliance with the Manufacturer's corrosion prevention and control program (CPCP) requirements. All CPCP inspections which would normally be accomplished while access is provided during structural inspection in accordance with Lessee's Maintenance Program during the Term shall have been accomplished.; (b) The entire fuselage will be substantially free from corrosion and will be adequately treated and an approved corrosion prevention program will be in operation; and (c) Fuel tanks will be free from contamination and corrosion and a tank treatment program will be in operation. SCHEDULE 4 INSURANCE REQUIREMENTS The Insurances required to be maintained are as follows:- (a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with respect to the Aircraft on an "agreed value basis" for the Agreed Value and with a deductible not exceeding the Deductible Amount set forth in Letter Agreement No. 1, or such other amount agreed by Lessor from time to time; (b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All Risks Policy to the fullest extent available from the leading international insurance markets including confiscation and requisition by the State of Registration for the Agreed Value, however, when the Aircraft is being operated solely in or over the United States of America and/or Canada, coverage may be limited to such perils as are customarily insured by comparable airlines, operating similar equipment in similar circumstances; (c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in transit other than by air) property insurance on all Engines and Parts when not installed on the Aircraft on an "agreed value" basis for their full replacement value and including engine test and running risks; (d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage) of an amount not less than the Minimum Liability Coverage for the time being any one occurrence (but in respect of products and personal injury liability this limit may be an aggregate limit for any and all losses occurring during the currency of the policy). War and Allied Risks are also to be covered under the Policy in line with prudent market practice for comparable airlines, operating similar equipment in similar circumstances; (e) All required hull and spares insurance (as specified above), so far as it relates to the Aircraft will: - (i) name Lessor and its respective successors and assigns as additional assureds for their respective rights and interests, warranted, each as to itself only, no operational interest; (ii) provide that any loss will be settled jointly with Lessor and Lessee and will be payable in Dollars to Lessor except where the loss does not exceed the Damage Notification Threshold, and Lessor has not notified the insurers to the contrary, in which case the loss will be settled with and paid to Lessee; (iii) if separate Hull "all risks" and "war risks" insurances are arranged, include a 50/50 provision in accordance with market practice (AVS. 103 is the current market language); (iv) confirm that the insurers are not entitled to replace the Aircraft in the event of an insured Event of Loss; (v) confirm that the insurers will not obtain a valid discharge of the obligations under the Insurances by payment to the broker, notwithstanding market practice to the contrary; (f) All required liability insurances (specified above) will:- (i) include Lessor, GECASI, GECASL, Viva, and their respective successors and assigns and their respective shareholders, subsidiaries, directors, officers, agents, employees and indemnitees as additional insureds for their respective rights and interests, warranted, each as to itself only, no operational interest; provided, however, that Viva shall be named as an additional assured solely for the period commencing on the Delivery Date and ending on the earlier to occur of (i) * years following the Delivery Date and (ii) the completion of the next heavy maintenance visit; (ii) include a Severability of Interest Clause which provides that the insurance, except for the limit of liability, will operate to give each assured the same protection as if there was a separate policy issued to each assured; (iii) contain a provision confirming that the policy is primary without right of contribution and the liability of the insurers will not be affected by any other insurance of which Lessor or Lessee have the benefit so as to reduce the amount payable to the additional insureds under such policies; (g) All Insurances will:- (i) be in accordance with normal industry practice of persons operating similar aircraft in similar circumstances; (ii) provide cover denominated in Dollars and any other currencies which Lessor may reasonably require in relation to liability insurance; (iii) operate on a worldwide basis subject to such limitations and exclusions as Lessor may agree; (iv) acknowledge the insurer is aware (and has seen a copy) of this Agreement and that the Aircraft is owned by Lessor; (v) provide that, in relation to the interests of each of the additional assureds the Insurances will not be invalidated by any act or omission by Lessee, or any other person other than the respective additional assured seeking protection and shall insure the interests of each of the additional assureds regardless of any breach or violation by Lessee, or any other person other than the respective additional assured seeking protection of any warranty, declaration or condition, contained in such Insurances; (vi) provide that the insurers will hold harmless and waive any rights of recourse and/or subrogation against the additional assureds, including GECASI and GECASL or to be subrogated to any rights of Lessor against Lessee; (vii) provide that the additional assureds will have no obligation or responsibility for the payment of any premiums due (but reserve the right to pay the same should any of them elect so to do) and that the insurers will not exercise any right of set-off or counter-claim in respect of any premium due against the respective interests of the additional assureds other than outstanding premiums relating to the Aircraft, any Engine or Part the subject of the relevant claim; (viii) provide that the Insurances will continue unaltered for the benefit of the additional assureds for at least * days after written notice by registered mail or telex of any cancellation, change, event of non-payment of premium or installment thereof has been sent to Lessor, except in the case of war risks for which * days (or such lesser period as is or may be customarily available in respect of war risks or allied perils) will be given, or in the case of war between the 5 great powers or nuclear peril for which termination is automatic; (ix) if reinsurance is a requirement of this Agreement such reinsurance will (i) be on the same terms as the original insurances and will include the provisions of this Schedule, (ii)provide that notwithstanding any bankruptcy, insolvency, liquidation, dissolution or similar proceedings of or affecting the reinsured that the reinsurers' liability will be to make such payments as would have fallen due under the relevant policy of reinsurance if the reinsured had (immediately before such bankruptcy, insolvency, liquidation, dissolution or similar proceedings) discharged its obligations in full under the original insurance policies in respect of which the then relevant policy of reinsurance has been effected; and (iii) contain a "cut-through" clause in the following form (or otherwise, satisfactory to Lessor): "The Reinsurers and the Reinsured hereby mutually agree that in the event of any claim arising under the reinsurances in respect of a total loss or other claim where as provided by th e Aircraft Lease Agreement dated March 25, 1997 and made between Lessor and Lessee such claim is to be paid to the person named as sole loss payee under the primary insurances, the Reinsurers will in lieu of payment to the Reinsured, its successors in interest and assigns pay to the person named as sole loss payee under the primary insurances effected by the Reinsured that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Reinsured (subject to proof of loss), it being understood and agreed that any such payment by the Reinsurers will (to the extent of such payment) fully discharge and release the Reinsurers from any and all further liability in connection therewith"; subject to such provisions not contravening any law of the State of Incorporation; (x) contain a provision entitling Lessor or any insured party to initiate a claim under any policy in the event of the refusal or failure of Lessee to do so; and (xi) accept and insure the indemnity provisions of this Agreement to the extent of the risks covered by the policies. SCHEDULE 5 [Intentionally Omitted] SCHEDULE 6 LEASE SUPPLEMENT NO. __ LEASE SUPPLEMENT NO. ___, dated , 2000, between Aviation Financial Services Inc., a corporation organized under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation (Lessor"), and Frontier Airlines, Inc. a corporation organized under the laws of the State of Colorado (Lessee"). Lessor and Lessee have previously entered into that certain Aircraft Lease Agreement dated as of January 7, 2000 (herein referred to as the "Agreement" and the defined terms therein being hereinafter used with the same meaning). The Agreement provides for the execution and delivery from time to time of a Lease Supplement substantially in the form hereof for the purpose of leasing the aircraft described below under the Agreement as and when delivered by Lessor to Lessee in accordance with the terms thereof. The Agreement and this Lease Supplement relate to the Aircraft, Engines and Parts as more precisely described below. A counterpart of the Agreement is attached hereto and this Lease Supplement and the Agreement shall form one document. In consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: - 1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee hereby accepts, acknowledges receipt of possession and leases from Lessor under the Agreement, that certain Boeing Model 737-300 commercial jet Aircraft, and the two (2) CFM International CFM-56-3-B2 Engines (each of which Engines has 750 or more rated takeoff horsepower or the equivalent of such horsepower) described in Schedule 1 hereto, together with the Aircraft Documents described in the Agreement (the "Delivered Aircraft"). 2. The Delivery Date of the Delivered Aircraft is the date of this Lease Supplement set forth in the opening paragraph hereof. 3. The Term for the Delivered Aircraft shall commence on the Delivery Date and shall end on the Expiry Date. 4. The amount of Rent for the Delivered Aircraft is set forth in Letter Agreement No. 1 to the Agreement. 5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each delivered Engine have been duly marked in accordance with the terms of Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required by the Agreement, (iii) the representations and warranties of Lessee referred to in Clause 2 of the Agreement are hereby repeated with effect as of the date first above written, (iv) having inspected the Delivered Aircraft, Lessee acknowledges that the Delivered Aircraft satisfies all conditions required for Lessee's acceptance of delivery as set forth in the Agreement, except as noted in the Exceptions List attached to the Certificate of Technical Acceptance, and (v) the execution and delivery of this Lease Supplement signifies absolute and irrevocable acceptance by Lessee of the Delivered Aircraft for all purposes hereof and of the Agreement. 6. All of the terms and provisions of the Agreement are hereby incorporated by reference in this Lease Supplement to the same extent as if fully set forth herein. 7. This Lease Supplement may be executed in any number of counterparts, each of such counterparts, shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Lease Supplement. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. __ to be duly executed as of the day and year first above written. LESSOR, LESSEE, AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By:_____________________________ By:_________________________ Name:__________________________ Name:______________________ Title:____________________________ Title:________________________ SCHEDULE 1 TO LEASE SUPPLEMENT NO. One Boeing 737-300 Airframe Registration Mark N_____ Manufacturer's Serial No. Total Time* Total Cycles* ---------- ---------- ------------ 25159 _________ _________ Installed CFM International, Inc. Engines Model No. Serial No. Total Time* Total Cycles* - --------- ---------- ---------- ------------ CFM-56-3-B2 [______] ____________ ____________ CFM-56-3-B2 [______] _____________ ____________ Each of the above-described Aircraft Engines is 750 or more rated takeoff horsepower or its equivalent. * The total time and total cycles referred to above are as of Time, , . Such times and cycles are within hours and cycles of the actual hours and cycles at the time of this Lease Supplement. SCHEDULE 7 FORM OF LEASE TERMINATION CERTIFICATE The undersigned hereby certify that the Aircraft Lease Agreement dated as of January 7, 2000 between the undersigned Lessor and undersigned Lessee, and as further described in the Appendix attached hereto, has terminated and the aircraft and aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this __________ day of ____________________, __________ LESSOR LESSEE AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By:________________________________ By:___________________________ Title:_______________________________ Title:_________________________ APPENDIX FAA Recording Date FAA Conveyance No. SCHEDULE 8 FORM OF AIRCRAFT USAGE REPORT FOR PERIOD BEGINNING ON __________, 2000____ AND ENDING ON ___________, 2000____ The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies as follows: 1. This report is submitted to Aviation Financial Services Inc. ("Lessor") under that certain Aircraft Lease Agreement dated as of January 7, 2000, between Lessor and Lessee (the "Lease"), and capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the Lease. 2. The Aircraft covered by this report is: Aircraft: Boeing 737-36E Serial No: 25159 U.S. Reg. No.: N_____ 3. During the period covered by this report, the Airframe which is the subject of the Lease was operated for the following number of Flight Hours and Cycles as such terms are defined in the Lease: _________ Flight Hours __________ Cycles 4. During the period covered by this report, the CFM-56-B2 Engines Bearing respective serial numbers __________ and ____________ which are the subject of the Lease, where each operated for the following number of Engine Flight Hours and Cycles, as defined in the Lease: Engine Flight Hours Cycles SN ________ _______________ _________________ SN ________ _______________ _________________ This Aircraft Usage Report is dated __________________, 200_, FRONTIER AIRLINES, INC. By:________________________________ Title:_______________________________ EX-10.49 6 0006.txt AIRCRAFT LEASE AGREEMENT EXECUTION COPY AIRCRAFT LEASE AGREEMENT Dated as of January 7, 2000 between AVIATION FINANCIAL SERVICES INC. a wholly owned subsidiary of General Electric Capital Corporation as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Aircraft : Boeing 737-36E Serial No: 25264 U.S. Reg. No.: N316FL Note: This Aircraft Lease Agreement has been executed in several counterparts of which this is Counterpart No. ___. See Clause 16.15 hereof for information concerning the distinction between various counterparts. INDEX CLAUSE PAGE - ------ ---- 1. Interpretation..............................................................1 1.1 Definitions.......................................................1 1.2 Construction.....................................................15 2. Representations and Warranties.............................................16 2.1 Lessee's Representations and Warranties..........................16 2.2 Lessee's Further Representations and Warranties..................17 2.3 Repetition.......................................................19 2.4 Lessor's Representations and Warranties..........................19 3. Conditions Precedent.......................................................20 3.1 Conditions Precedent.............................................20 3.2 Further conditions precedent.....................................23 3.3 Waiver...........................................................23 4. Commencement...............................................................24 4.1 Leasing..........................................................24 4.2 Delivery.........................................................24 4.3 Delayed Delivery.................................................24 4.4 Licenses.........................................................25 4.5 Inspection.......................................................25 4.6 Indemnity........................................................25 5. Payments...................................................................25 5.1 Deposit..........................................................25 5.2 Rental Periods...................................................25 5.3 Rent.............................................................26 5.4 Maintenance Reserves.............................................26 5.5 Payments.........................................................26 5.6 Withholding......................................................27 5.7 General Tax indemnity............................................27 5.8 Sales and Use Taxes..............................................29 5.9 Information......................................................30 5.10 Indemnity Payments to be Made on an After-Tax Basis.............30 5.11 Default Interest................................................30 5.12 Contest.........................................................31 5.13 Net Lease.......................................................32 5.14 Security........................................................32 5.14 Security........................................................33 6. Manufacturer's Warranties..................................................34 6.1 Assignment.......................................................34 6.2 Proceeds.........................................................34 6.3 Parts............................................................34 6.4 Agreement........................................................34 7. Lessor's Covenants.........................................................35 7.1 Quiet Enjoyment..................................................35 7.2 Release of Maintenance Reserves..................................35 7.3 Lessor Obligations Following Expiry Date.........................36 8. Lessee's Covenants.........................................................36 8.1 Duration.........................................................36 8.2 Information......................................................36 8.3 Lawful and Safe Operation........................................37 8.4 Taxes and other Outgoings........................................39 8.5 Sub-Leasing and Wet-Leasing......................................39 8.6 Inspection.......................................................40 8.7 Title............................................................40 8.8 General..........................................................41 8.9 Records..........................................................41 8.10 Protection......................................................42 8.11 Maintenance and Repair..........................................42 8.12 Removal of Engines and Parts....................................43 8.13 Installation of Engines and Parts...............................44 8.14 Non-Installed Engines and Parts.................................44 8.15 Pooling of Engines and Parts....................................45 8.16 Equipment Changes...............................................45 8.17 Title on an Equipment Change....................................46 8.18 Third Party.....................................................46 9. Insurance..................................................................46 9.1 Insurances.......................................................46 9.2 Requirements.....................................................47 9.3 Change...........................................................47 9.4 Insurance Covenants..............................................47 9.5 Failure to Insure................................................48 9.6 Continuing Indemnity.............................................48 9.7 Application of Insurance Proceeds................................48 9.7 Application of Insurance Proceeds................................49 10. Indemnity.................................................................49 10.1 General.........................................................49 10.2 Duration........................................................50 11. Events of Loss............................................................50 11.1 Events of Loss..................................................50 11.2 Substitute Aircraft.............................................51 11.3 Requisition.....................................................52 12. Return of Aircraft........................................................52 12.1 Return..........................................................52 12.2 Final Inspection................................................52 12.3 Non-Compliance..................................................53 12.4 Redelivery......................................................53 12.5 Acknowledgment.................................................53 12.6 Maintenance Program.............................................53 12.7 Fuel............................................................53 12.8 Automatic Extension of Term....................................54 13. Default...................................................................54 13.1 Events..........................................................54 13.2 Rights..........................................................57 13.3 Deregistration..................................................61 14. Assignment................................................................61 14.1 Lessee's Assignment.............................................61 14.2 Lessor's Assignment.............................................61 14.3 Transfer........................................................61 15. Illegality................................................................61 16. Miscellaneous.............................................................62 16.1 Waivers, Remedies Cumulative....................................62 16.2 Delegation......................................................62 16.3 Certificates....................................................62 16.4 Appropriation...................................................62 16.5 Currency........................................................62 16.6 Set-off.........................................................62 16.7 Severability....................................................63 16.8 Remedy..........................................................63 16.9 Expenses........................................................63 16.10 Time of Essence................................................63 16.11 Notices........................................................64 16.12 Governing Law and Jurisdiction.................................64 16.13 Sole and Entire Agreement......................................66 16.14 Indemnities....................................................66 16.15 Counterparts...................................................66 16.16 Language.......................................................66 16.17 No Brokers.....................................................66 17. Disclaimers and Waivers...................................................68 17.1 Exclusion.......................................................68 17.2 Waiver..........................................................68 17.3 Disclaimer of Consequential Damages.............................69 17.4 Confirmation....................................................69 18. Section 1110..............................................................69 19. Usury Laws................................................................69 20. Modification or Revision..................................................70 21. Witness...................................................................71 SCHEDULES.....................................................................72 SCHEDULE 1. Description of Aircraft.........................................72 SCHEDULE 2. Certificate of Technical Acceptance.............................78 SCHEDULE 3. Operating Condition at Redelivery...............................84 SCHEDULE 4. Insurances Requirements.........................................88 SCHEDULE 5. Intentionally Omitted...........................................91 SCHEDULE 6. Lease Supplement No. ____.......................................92 SCHEDULE 7. Form of Lease Termination Certificate...........................95 SCHEDULE 8. Form of Aircraft Usage Report...................................97 AIRCRAFT LEASE AGREEMENT THIS AGREEMENT is made as of the 7th day of January, 2000 between:- (1) AVIATION FINANCIAL SERVICES INC., a company incorporated under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation whose principal place of business is at c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, Connecticut, 06927 ("Lessor"); and (2) FRONTIER AIRLINES, INC., a company incorporated under the laws of the State of Colorado whose principal place of business is at 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America ("Lessee"). WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease from Lessor the Aircraft on the terms of this Agreement. IT IS AGREED as follows:- 1. INTERPRETATION 1.1 DEFINITIONS In this Agreement the following expressions have the meanings set out opposite:- After-Tax Basis in the case of any amount payable on an "After-Tax Basis" to or for the benefit of any Person (including any amount payable pursuant to this definition) (a "Required Payment"), the total amount that must be paid is the amount such that, after deduction of the net amount of all Taxes required to be paid by such Person with respect to the receipt or accrual by it of such amount (and assuming that such Person is subject to (i) United States Federal income tax at the highest marginal statutory rate imposed on corporations for the relevant period, (ii) United States state and local income taxes at the composite of the highest marginal statutory rates imposed on such Person for the relevant period, as such composite rate shall be certified by a financial officer of such Person, and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on such Person) the net amount received is the amount of the Required Payment. Agreed Value the amount specified for Agreed Value in Letter Agreement No. 1. Air Authority Federal Aviation Administration ("FAA"). Aircraft the aircraft described in Part 1 of Schedule 1, (which term includes where the context admits a separate reference to all Engines, Parts and Aircraft Documents) or any aircraft substituted in place thereof pursuant to Clause 11.1 or 11.2. Aircraft Documents the documents, data and records identified in Part 2 of Schedule 1 and all additions, renewals, revisions and replacements from time to time made in accordance with this Agreement. Airframe the Aircraft, excluding the Engines and Aircraft Documents. Appraisal Procedure the following procedure for determining the "fair market rental value" of the Aircraft: (a) Lessor shall select an independent aircraft appraiser who shall make a determination of "fair market rental value" of the Aircraft; and (b) the fees and expenses of the appraiser shall be paid by Lessee. "Fair market rental value" shall mean the value determined by an appraisal completed on an "as-is" and "where-is" basis. APU the auxiliary power unit installed on the Aircraft on the Delivery Date and any replacement auxiliary power unit installed in accordance with this Agreement. Boeing The Boeing Company, a Delaware corporation with its principal office in Seattle, State of Washington, U.S.A. Business Day a day (other than a Saturday or Sunday) on which business of the nature required by this Agreement is carried out in the State of Incorporation or where used in relation to payments on which banks are open for business in New York. Certificated Air Carrier any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be issued, any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the United States of America, and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated so as to entitle Lessor, as a lessor, to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft. Cold Section Refurbishment with respect to any Engine the completion of the following: completely unstacking either high or low or both compressor sections, if needed, and completing the following for the appropriate section(s): visual inspection; de-blading discs as necessary; visual and NDT (Non-Destructive Testing) inspections as necessary of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the compressor; balance of all rotors; and installation of rotors in the engine. Cycle one take-off and landing of the Aircraft. DGAC means the Civil Aviation Authority of Spain. Damage Notification Threshold the amount specified therefor in Letter Agreement No. 1. Default any Event of Default and any event which with the giving of notice, lapse of time, determination of materiality or fulfillment of other condition would constitute an Event of Default. Delivery Condition Requirements the requirements specified on Part 1 of Schedule 1. Delivery Date the date on which the Aircraft is tendered for delivery by Lessor in accordance with this Agreement. Delivery Location Marana, Arizona. Deposit all amounts payable pursuant to Clause 5.1 whether in cash or by Letter of Credit. Dollars and $ the lawful currency of the United States of America. Engine whether or not installed on the Aircraft:- (a) each engine of the manufacture and model specified in Part 1 of Schedule 1 (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower) which Lessor elects to tender to Lessee with the Aircraft on the Delivery Date, such engines being described as to serial numbers on the certificate of acceptance to be executed by Lessee upon delivery of the Aircraft; or (b) any engine which has replaced that engine, title to which has or should have, passed to Lessor in accordance with this Agreement; and in each case includes all modules and Parts from time to time belonging to or installed in that engine but excludes any properly replaced engine title to which has, or should have, passed to Lessee pursuant to this Agreement. Engine Event of Loss the occurrence with respect to an Engine only, whether or not installed on the Airframe, of any of those events described in provisions (a) through (d) of the definition of Event of Loss. Engine Flight Hour means each hour or part thereof an Engine is operated, elapsing from the moment that wheels of an aircraft on which such Engine is installed leave the ground until the wheels of such aircraft next touch the ground. Engine Refurbishment a complete disassembly, inspection and repair of the modules of an Engine per the engine manufacturer's maintenance manual, so that such Engine shall have a minimum expected on-wing life of * hours and * cycles. ERISA the Employee Retirement Income Security Act of 1974, as amended. Event of Default an event or condition specified in Clause 13.1. Event of Loss with respect to the Aircraft (including for the purposes of this definition the Airframe):- (a) the actual or constructive total loss of the Aircraft (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss, or requisition for use or hire which results in an insurance settlement on the basis of a total loss); or (b) it being destroyed, damaged beyond repair or permanently rendered unfit for normal use for any reason whatsoever; or (c) the requisition of title, or other compulsory acquisition, capture, seizure, deprivation, confiscation or detention for any reason of the Aircraft by the government of the State of Registration or other competent authority (whether de jure or de facto), but excluding requisition for use or hire not involving requisition of title; or (d) the hi-jacking, theft, condemnation, confiscation, seizure or requisition for use or hire of the Aircraft which deprives any person permitted by this Agreement to have possession and/or use of the Aircraft of its possession and/or use for more than * days (or, if earlier, beyond the Expiry Date). Excusable Delay with respect to delivery of the Aircraft, delay or non-performance due to or arising out of acts of God or public enemy, civil war, insurrection or riot, fire, flood, explosion, earthquake, accident, epidemic, quarantine restriction, any act of government, governmental priority, allocation, regulation or order affecting directly or indirectly, the Aircraft, any manufacturer, Lessor or any materials or facilities, strike or labor dispute causing cessation, slowdown or interruption of work, inability after due and timely diligence to procure equipment, data or materials from manufacturers, suppliers, any existing owner, seller or lessee in a timely manner, damage, destruction or loss, or any other cause to the extent that such cause is beyond the control of Lessor whether above mentioned or not and whether or not similar to the foregoing. Expiry Date the day preceding the numerically corresponding day * months after the Delivery Date or if earlier the date on which:- (a) the date Lessor, acting in accordance with the terms of this Agreement terminates the leasing of the Aircraft to Lessee under this Agreement; or (b) Lessor receives the Agreed Value together with any other amounts then due and unpaid by Lessee following an Event of Loss. FAA the Federal Aviation Administration of the United States of America and any successor thereof. FAR the Federal Aviation Regulations set forth in Title 14 of the United States Code of Federal Regulations, as amended and modified from time to time. Federal Aviation Act The Transportation Laws of the United States as set forth at 49 United States Code et seq. or any similar legislation of the United States of America enacted in substitution or replacement thereof. Financing Statements Uniform Commercial Code Financing Statements in respect of the Aircraft and Engines leased hereunder prepared in a form acceptable for filing with the applicable Government Entities in the Habitual Base, the state in which the chief executive office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the Habitual Base) and such other jurisdiction as Lessor shall reasonably require. Flight Hour each hour or part thereof (rounded up to two decimal places) elapsing from the moment the wheels of the Aircraft leave the ground on take off until the wheels of the Aircraft next touch the ground. GAAP generally accepted accounting principles in the United States. Governing Law the laws of the State of New York. Government Entity (a) any national government, political subdivision thereof, or local jurisdiction therein; (b) any instrumentality, board, commission, court, or agency of any thereof, however constituted; and (c) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any of the above is a participant. Gross Negligence means any intentional, conscious or voluntary action or decision which is taken with wanton, reckless, flagrant and culpable disregard for the consequences of such action or decision. Guaranty means a Guaranty of General Electric Capital Corporation to Lessee with respect to Lessor substantially in the form attached hereto as Exhibit A to Letter Agreement No. 1. Habitual Base the State of Colorado or, subject to the prior written consent of Lessor, any other state, country or countries in which the Aircraft is for the time being habitually based. Hot Section Refurbishment with respect to any Engine, the complete visual inspection and repair as necessary of the combustion section of an Engine in an engine repair/overhaul station including without limitation complete unstacking of the high pressure or low pressure turbine or both if needed; complete visual inspection of such turbine(s); de-blading of discs as required; visual and NDT inspections of all discs as required; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of all blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the turbine; balance of all rotors; and installation of rotors in the engine. Indemnitee each of GE Capital Aviation Services, Inc. ("GECASI"), GE Capital Aviation Services Limited ("GECASL"), Lessor, and any of their respective successors and assigns, shareholders, subsidiaries, affiliates, partners, contractors, directors, officers, servants, agents and employees and indemnitees; provided, however, that no such Indemnitee shall be entitled to an indemnification to the extent such Indemnitee is manufacturer of the Aircraft, any Engines, or Parts in its capacity as such. Insurances as defined in Clause 9.1 hereof. Landing Gear the landing gear assembly of the Aircraft excluding any rotable components. Law shall mean and include (a) any statute, decree, constitution, regulation, order judgment or other directive of any Governmental Entity; (b) any treaty, pact, compact or other agreement to which any Governmental Entity is a signatory or party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above. Lease Supplement a Lease Supplement, substantially in the form of Schedule 6 hereto, entered into between Lessor and Lessee. Lessee's Maintenance Program the Maintenance Program specifically approved by the Air Authority for Lessee's maintenance of the Aircraft. Lessor Lien (a) any Security Interest whatsoever from time to time created by or through Lessor in connection with the financing of the Aircraft; (b) any other Security Interest in respect of the Aircraft which results from acts of or claims against Lessor not related to the transactions contemplated by or permitted under this Agreement; and (c) Security Interests in respect of the Aircraft for Lessor Taxes. Lessor Taxes Taxes:- (a) imposed as a direct result of activities of Lessor in the jurisdiction imposing the Tax unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement or the operation of the Aircraft by Lessee; or (b) imposed on the net income, profits or gains of Lessor by any Government Entity in the United State of America; provided, however, that Lessor Taxes shall not include any Tax imposed by any government or taxing authority of any jurisdiction if and to the extent that such Tax results from (i) the use, operation, presence or registration of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax, or (ii) the situs of organization, any place of business or any activity of Lessee or any other Person having use, possession or custody of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax; or (c) imposed with respect to any period commencing or event occurring after the Expiry Date and unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement; provided always, that Lessor Taxes shall not include any income taxes or other amounts payable and subject to indemnification in favor of Lessor pursuant to the Lease. Letter Agreement No. 1 that certain Letter Agreement No. 1 between Lessor and Lessee dated as of the date hereof. MACRS Deductions means cost recovery deductions for *% of the Lessor's cost of the Aircraft pursuant to Section 168(b) of the Internal Revenue Code of 1986, as amended, commencing in the year 2000, computed (i) on the basis that the Aircraft is "7-year property" (within the meaning of Section 168(e) of the Code), (ii) by using the *% declining balance method over a 7 year recovery period, switching to the straight-line method for the first taxable year of the Lessor during the term for which such method yields a larger allowance, (iii) assuming salvage value is zero, (iv) using a half-year convention and (v) assuming that the Aircraft is sold at the end of the Term of * months. Letter of Credit means any letter of credit issued in relation to the Lease pursuant to Section 5.15 and any replacement or renewal of that letter of credit. Maintenance Performer the Lessee, Tramco, USAir Inc., or such other Person as is approved by the FAA to perform maintenance and/or modification services on commercial aircraft and/or commercial aircraft engines, which Person shall be agreed by Lessor and Lessee to have recognized standing and experience, suitable facilities for the level of maintenance being carried out and suitable equipment to perform such services on aircraft and/or engines of the same or improved model as the Aircraft or, in the case of engines, the Engines. Maintenance Program an Air Authority approved maintenance program for the Aircraft based upon the Manufacturer's specifications, service bulletins, planning documents, maintenance manuals and documents and encompassing scheduled maintenance (including block maintenance), condition-monitored maintenance, and/or on-condition maintenance of Airframe, Engines and Parts, including but not limited to, servicing, testing, preventive maintenance, repairs, structural inspections, system checks, overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives, corrosion control, inspections and treatments. Major Checks any C-Check, multiple C-Check, D-Check or annual heavy maintenance visit or segment thereof suggested for commercial aircraft of the same model as the Aircraft by its manufacturer (however denominated) as set out in Lessee's Maintenance Program. Manufacturer Boeing. Minimum Liability Coverage the amount set forth therefore in Letter Agreement No. 1. Mortgage Convention shall mean the Convention for the International Recognition of Rights in Aircraft, signed (ad referendum) at Geneva, Switzerland, on June 19, 1948, and amended from time to time, but excluding the terms of any adhesion thereto or ratification thereof containing reservations to which the United States of America does not accede. Operative Documents shall mean this Agreement, all Lease Supplements hereto, Letter Agreement No. 1, the Guaranty, any schedules or documents prepared in conformance to the Schedules hereto, any side-letters related hereto and any amendments, revisions, supplements or modifications hereto or thereto. Other Agreements any agreement (other than this Agreement) made or to be made between Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) or AerFi Group plc (or an associate or affiliate thereof) and Lessee (or an associate or affiliate thereof). Part whether or not installed on the Aircraft:- (a) any component, furnishing or equipment (other than a complete Engine) furnished with the Aircraft on the Delivery Date; and (b) any other component, furnishing or equipment (other than a complete Engine) title to which has, or should have passed to Lessor pursuant to this Agreement; but excludes any such items title to which has, or should have, passed to Lessee pursuant to this Agreement. Permitted Lien (a) any lien for Taxes not assessed or, if assessed, not yet due and payable, or being contested in good faith by appropriate proceedings; (b) any lien of a repairer, mechanic, carrier, hangarkeeper or other similar lien arising in the ordinary course of business or by operation of Law in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings; and (c) any Lessor Lien. but only if (in the case of both (a) and (b)) (i) adequate resources have been provided by Lessee for the payment of the Taxes or obligations; and (ii) such proceedings, or the continued existence of the lien, do not give rise to any likelihood of the sale, forfeiture or other loss of the Aircraft or any interest therein or of criminal liability on Lessor. Person any individual person, corporation, partnership, firm, joint stock company, joint venture, trust, estate, unincorporated organization, association, Government Entity, or organization or association of which any of the above is a member or a participant. Redelivery Location a location on Lessee's route system in the United States designated by Lessor, or such other location as Lessor and Lessee shall agree. Related Agreements any agreement (other than this Agreement) made or to be made between or with Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) and Lessee (or an associate or affiliate of Lessee). Replacement Engine an engine of the same manufacturer and model, and having equivalent value, utility, modification status, time elapsed since Hot Section Refurbishment and Cold Section Refurbishment and remaining warranty status as the Engine it is intended to replace under Clause 11.1(c), or at Lessee's option, an engine of the same manufacturer as such Engine but of an improved model, and otherwise of an equivalent value and utility and suitable for installation and use on the Airframe without impairing the value or utility of the Airframe and compatible with the remaining installed Engine. Rent all amounts payable pursuant to Clause 5.3. Rental Period each period ascertained in accordance with Clause 5.2. Rent Date the first day of each Rental Period. Required LC Expiry Date means the date being * days after the Expiry Date. Return Occasion the date on which the Aircraft is redelivered to Lessor in accordance with Clause 12 hereof. Scheduled Delivery Month *. Security Interest any mortgage, charge, pledge, lien, assignment, hypothecation, right of set-off or any agreement or arrangement having the effect of creating a Security Interest other than a Permitted Lien. State of Incorporation State of Colorado. State of Registration United States of America. Subsidiary (a) in relation to any reference to accounts, any company whose accounts are consolidated with the accounts of Lessee in accordance with GAAP; (b) for any other purpose an entity from time to time:- (i) of which another has direct or indirect control or owns directly or indirectly more than 50 per cent of the voting share capital; or (ii) which is a direct or indirect subsidiary of another under the laws of the jurisdiction of its incorporation. Supplemental Rent all amounts payable under Clause 5.4(a). Tax Indemnitee means an Indemnitee and for any taxable year in which the Lessor joins in the filing of a consolidated federal income tax return, shall include each member of the affiliated group (within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto) of which the Lessor is a member. Taxes any and all present and future taxes, duties, withholdings, levies, assessments, imposts, fees and other governmental charges of all kinds together with any penalties, fines, surcharges and interest thereon and any additions thereto. Term the period commencing on the Delivery Date and ending on the Expiry Date, except that the Term may be extended beyond the Expiry Date if the Return Occasion is delayed in the circumstances specified, and subject to the limitation described, in Clause 12.3. United States the United States of America Viva collectively means (i) Viva Vuelos Internacionales de Vacaciones, S.A. (ii) Hispamer Servicos Financieros EFC - S.A. and (iii) Leasebanesto S.A Wet Lease any arrangement whereby Lessee agrees to furnish the Aircraft to a third party pursuant to which the Aircraft (i) shall be solely within the operational control of Lessee and shall be operated solely by regular employees of Lessee possessing all current certificates and licenses that would be required under the Federal Aviation Act for the performance by such employees of similar functions within the United States of America, (ii) shall be maintained by Lessee in accordance with Lessee's Maintenance Program and (iii) shall be and remain subject and subordinate to all other terms and conditions of this Agreement; provided, however, that Lessee shall remain primarily liable for the performance of all of the terms of this Agreement (including, without limitation, its obligations set forth in Clause 9 of this Agreement) to the same extent as if such arrangement had not been entered into. 1.2 CONSTRUCTION (a) In this Agreement, unless the contrary intention is stated, a reference to:- (i) each of "Lessor" or "Lessee" or any other person includes without prejudice to the provisions of this Agreement any successor in title to it and any permitted assignee; (ii) words importing the plural shall include the singular and vice versa; (iii) any document shall include that document as amended, novated or supplemented; (iv) a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement; (v) a reference to "Agreement", "the Agreement" or "this Agreement" shall, unless expressly provided otherwise, mean and include this Aircraft Lease Agreement and each of the other Operative Documents; and (b) the headings in this Agreement are to be ignored in construing this Agreement. 2. REPRESENTATIONS AND WARRANTIES 2.1 Lessee's Representations and Warranties: Lessee represents and warrants to Lessor that:- (a) Status: Lessee is a corporation duly incorporated and validly existing under the laws of the State of Incorporation and has the corporate power to own its assets and carry on its business as it is being conducted and is the holder of all necessary air transportation licenses required in connection therewith and with the use and operation of the Aircraft; (b) Power and authority: Lessee has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, this Agreement and the transactions contemplated by this Agreement; (c) Legal validity: this Agreement has been duly entered into and delivered by Lessee, and this Agreement does, and the Operative Documents to which it is a party when executed and delivered by Lessee will, constitute legal, valid and binding obligations of Lessee, enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally, and, to the extent that certain remedies require or may require enforcement by a court of equity, by such principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) as a court having jurisdiction may impose and by Laws which may affect some of such remedies but which do not make the available remedies inadequate for the substantial realization of the benefits provided herein; (d) Non-conflict: the entry into and performance by Lessee of, and the transactions contemplated by, this Agreement do not and will not:- (i) conflict with any laws binding on Lessee; or (ii) conflict with the constitutional documents of Lessee; or (iii) conflict with or result in default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding upon Lessee or any of its assets nor result in the creation of any Security Interest over any of its assets; (e) Authorization: all authorizations, consents, registrations and notifications required in connection with the entry into, performance, validity and enforceability of, this Agreement and the transactions contemplated by this Agreement, have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; (f) No Immunity: (i) Lessee is subject to civil commercial law with respect to its obligations under this Agreement; and (ii) neither Lessee nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Lessee constitute private and commercial acts; (g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries most recently delivered to Lessor, including balance sheets and statements of income and retained earnings:- (i) have been prepared in accordance with GAAP; and (ii) fairly represent the consolidated financial condition of Lessee and its Subsidiaries as at the date to which they were drawn up; (h) Restricted Countries: Lessee does not hold a contract or other obligation to operate the Aircraft to or for any of the countries designated under U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola. (i) Chief Executive's Office: Lessee's Chief Executive Office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) is located at 12015 East 46th Avenue, Suite 200, Denver, Colorado, United States of America; (j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft; and (j) Citizen of the United States: Lessee is a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 2.2 Lessee's Further Representations and Warranties: Lessee further represents and warrants to Lessor that:- (a) No Default: (i) no Default has occurred and is continuing or might result from the entry into or performance of the Operative Documents to which Lessee is a party; and (ii) no other event or condition has occurred and is continuing which constitutes (or with the giving of notice, lapse of time, determination of materiality or the fulfillment of any other applicable condition or any combination of the foregoing, might constitute) a material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding on Lessee or any assets of Lessee; (b) Registration: (i) except for the filing for recordation of this Agreement and a Lease Supplement with the FAA, and the filing of any Financing Statements required (and continuation statements at periodic intervals), no further filing or recording of this Agreement or of any other document (including any financing statement under Article 9 of the Uniform Commercial Code) and no further action, is or will be necessary under the Laws of the United States, the State of Incorporation, and the State of Registration, the Habitual Base or any other states in order to (A) fully establish, perfect and protect Lessor's title to, and interest in, the Aircraft or any Engine or Part as against Lessee or any third party, or (B) ensure the validity, effectiveness and enforceability of this Agreement or any other Operative Document to which the Lessee is a party; and (ii) under the laws of the State of Incorporation, the State of Registration and the Habitual Base the property rights of Lessor in the Aircraft have been fully established, perfected and protected and this Agreement will have priority in all respects over the claims of all creditors of Lessee; (c) Litigation: no litigation, arbitration or administrative proceedings are pending or to its knowledge threatened against Lessee which, if adversely determined, would have a material adverse effect upon its financial condition or business or its ability to perform its obligations under this Agreement; (d) Pari Passu: the obligations of Lessee under the Operative Documents to which it is a party rank at least pari passu with all other present and future unsecured and unsubordinated obligations (including contingent obligations) of Lessee, with the exception of such obligations as are mandatorily preferred by law and not by virtue of any contract; (e) Material Adverse Change: there has been no material adverse change in the consolidated financial condition of Lessee and its Subsidiaries or the financial condition of Lessee since the date to which the accounts most recently provided to Lessor on or prior to the Delivery Date were drawn up; (f) Taxes: Lessee has delivered all necessary returns and payments due to the tax authorities in the State of Incorporation, the State of Registration and the Habitual Base and is not required by Law to deduct any Taxes from any payments under this Agreement; (g) Information: the financial and other information furnished by Lessee in connection with this Agreement does not contain any untrue statement or omit to state facts, the omission of which makes the statements therein, in the light of the circumstances under which they were made, misleading, nor omits to disclose any material matter to Lessor and all forecasts and opinions contained therein were honestly made on reasonable grounds after due and careful inquiry by Lessee; and (h) ERISA: Lessee is not engaged in any transaction in connection with which it could be subjected to either a civil penalty assessed pursuant to Section 502 of ERISA or any tax imposed by Section 4975 of the Internal Revenue Code; no material liability to the Pension Benefit Guaranty Corporation has been or is expected by Lessee to be incurred with respect to any employee pension benefit plan (as defined in Section 3 of ERISA) maintained by Lessee or by any trade or business (whether or not incorporated) which together with Lessee would be treated as a single employer under Section 4001 of ERISA and Section 414 of the Internal Revenue Code; there has been no reportable event (as defined in Section 4043(b) of ERISA) with respect to any such employee pension benefit plan; no notice of intent to terminate any such employee pension benefit plan has been filed or is expected to be filed, nor has any such employee pension benefit been terminated; no circumstance exists or is anticipated that constitutes or would constitute grounds under Section 4042 of ERISA for the Pension Benefit Guaranty Corporation to institute proceedings to terminate, or to appoint a trustee to manage the administration of, such an employee pension benefit plan; and no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived, exists with respect to any such employee pension benefit plan. 2.3 Repetition: The representations and warranties in Clause 2.1 and Clause 2.2 will survive the execution of this Agreement. The representations and warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be repeated by Lessee on the Delivery Date with reference to the facts and circumstances then existing. The representations and warranties contained in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as if made with reference to the facts and circumstances then existing. 2.4 Lessor's Representations and Warranties: Lessor represents and warrants to Lessee that:- (a) Status: Lessor is a company duly incorporated and validly existing under the laws of the State of New York and has the corporate power to own its assets and carry on its business as it is now being conducted; (b) Power and authority: Lessor has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, the Operative Documents to which it is a party and the transactions contemplated by the Operative Documents to which it is a party; (c) Legal validity: the Operative Documents to which it is a party constitute Lessor's legal, valid and binding obligation; (d) Non-conflict: the entry into and performance by Lessor of, and the transactions contemplated by, the Operative Documents to which it is a party do not and will not:- (i) conflict with any laws binding on Lessor; or (ii) conflict with the constitutional documents of Lessor; or (iii) conflict with any document which is binding upon Lessor or any of its assets; (e) Authorization: so far as concerns the obligations of Lessor, all authorizations, consents, registrations and notifications required under the laws of the State of New York in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Operative Documents to which it is a party by Lessor have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; and (f) No Immunity: (i) Lessor is subject to civil commercial law with respect to its obligations under the Operative Documents to which it is a party; and (ii) neither Lessor nor any of its assets is entitled to any right of immunity and the entry into and performance of the Operative Documents to which it is a party by Lessor constitute private and commercial acts. 3. CONDITIONS PRECEDENT 3.1 Conditions Precedent: Lessor's obligation to deliver and lease the Aircraft under this Agreement is subject to satisfaction of each of the following conditions:- (a) receipt by Lessor from Lessee not later than * Business Days prior to the Delivery Date of the following satisfactory in form and substance to Lessor:- (i) Constitutional Documents: a copy of the constitutional documents of Lessee including without limitation articles of incorporation, bylaws and a current certificate of good standing issued by the secretary of the state for the State of Incorporation; (ii) Resolutions: a copy of a resolution of the board of directors of Lessee approving the terms of, and the transactions contemplated by, this Agreement, resolving that it enter into this Agreement, and authorizing a specified person or persons to execute this Agreement and the other Operative Documents to which it is a party and accept delivery of the Aircraft on its behalf; (iii) Opinion: evidence that opinions as reasonably agreed by Lessor will be issued on the Delivery Date by legal counsel acceptable to Lessor; (iv) FAA Opinion: a draft of an opinion of Crowe & Dunlevy P.C. or other counsel acceptable to Lessor who are recognized specialists with regard to FAA registration matters in form acceptable to Lessor as to the due filing for recordation of this Agreement, to be delivered in executed final form to Lessor and Lessee upon such filing and recordation; (v) Approvals: evidence of the issue of each approval, license and consent which may be required in relation to, or in connection with, the performance by Lessee of any of its obligations hereunder (including, without limitation, any consent to the export of the Aircraft from the Habitual Base and consent to the deregistration of the Aircraft upon the termination of the leasing of the Aircraft under this Agreement); (vi) Licenses: copies of Lessee's Certificate of Convenience and Necessity, Radio License, FAR Part 121 operator's certificates and all other licenses, certificates and permits required by Lessee in relation to, or in connection with, the operation of the Aircraft; (vii) Process Agent: a letter from the process agent appointed by Lessee in this Agreement accepting that appointment; (viii) Certificate: a certificate of a duly authorized officer of Lessee:- (a) setting out a specimen of each signature referred to in Clause 3.1(a)(ii); (b) certifying that each copy document specified in this Clause is correct, complete and in full force and effect; (c) certifying that Lessee's representations and warranties contained in Clause 2.1 and 2.2 are true and correct on the Delivery Date as if given on such date; and (d) certifying that there has been no material change in Lessee's Constitutional Documents since originally delivered by Lessee to Lessor; (ix) Air Traffic Control: a letter from Lessee addressed to Transport Canada or other relevant air traffic control authority pursuant to which Lessee authorizes the addressee to issue to Lessor, upon Lessor's request from time to time, a statement of account of all sums due by Lessee to the authority in respect of all aircraft (including, without limitation, the Aircraft) operated by Lessee; (x) Deregistration Power: an irrevocable power of attorney authorizing Lessor or such other person as Lessor may from time to time specify to do any thing or act or to give any consent or approval which may be required to obtain deregistration of the Aircraft and to export the Aircraft from the Habitual Base upon termination of the leasing of the Aircraft under this Agreement, duly notarized and legalized; (xi) Certificate of Lease Termination: a certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 7 hereto, acknowledging that this Agreement is no longer in effect with respect to the Aircraft and Engines, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to the Lessee hereunder; and (xii) General: such other documents as Lessor may reasonably request; (b) the receipt by Lessor on or before the Delivery Date of:- (i) Opinions: a signed original of each of the opinions referred to in Clause 3.1(a)(iii) and 3.1(a)(iv); (ii) Payments: all sums due to Lessor under this Agreement on or before the Delivery Date including, without limitation, the first payment of Rent; (iii) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor that Lessee is taking the required steps to ensure due compliance with the provisions of this Agreement as to Insurances with effect on and after the Delivery Date; (iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be dated the Delivery Date, fully completed and executed by Lessor and Lessee, and filed for recording at the FAA; (v) Certificate of Technical Acceptance: in the form of Schedule 2 hereto, to be dated and fully completed, and executed by Lessor and Lessee certifying that Lessee has completed its inspection of the Aircraft in accordance with Clause 4.5 hereof and that Aircraft conforms to the provisions set forth therein and is in all respects acceptable to Lessee, or if not so acceptable, then setting forth discrepancies and corrective action to be taken; (vi) Accounts: the latest available accounts of Lessee as described in Clause 8.2(b)(i) and (ii); (vii) Documents: a confirmation of receipt of the Aircraft Documents delivered with the Aircraft on the Delivery Date; (viii) UCC-1 Financing Statements: in form acceptable to Lessor, and suitable for filing in the States of Colorado and New York and signed by Lessee; and (ix) General: such other documents as Lessor may reasonably request. (c) receipt by Lessor of such information and documents relating to the proposed Maintenance Program as Lessor may require and Lessor having agreed the proposed Maintenance Program on or prior to the Delivery Date; and (d) evidence that on the Delivery Date that all filings, registrations, recordings and other actions have been or will be taken which are necessary or advisable to ensure the validity, effectiveness and enforceability of this Agreement and the Assignments and to protect the property rights of Lessor in the Aircraft or any Part. 3.2 Further conditions precedent: The obligations of Lessor to deliver and lease the Aircraft under this Agreement are subject to the further conditions precedent that:- (a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are correct and would be correct if repeated on delivery of the Aircraft under this Agreement; and (b) no Default has occurred and is continuing or might result from the leasing of the Aircraft to Lessee under this Agreement. 3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole benefit of Lessor and may be waived or deferred in whole or in part and with or without conditions by Lessor. If any of those conditions are not satisfied on the Delivery Date and Lessor (in its absolute discretion) nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure that those conditions are fulfilled within * days after the Delivery Date and Lessor may treat as an Event of Default the failure of Lessee to do so. 4. COMMENCEMENT 4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the Aircraft on lease in accordance with this Agreement for the duration of the Term. Lessor will deliver and Lessee will accept the Aircraft on the day in the Scheduled Delivery Month notified by Lessor to Lessee at least * Business Days in advance of such date or such other day as may be agreed. In the event (a) Lessee is unwilling or unable to accept delivery of the Aircraft on the date notified by Lessor as the Delivery Date, and (b) the Aircraft meets Delivery Condition Requirements then Lessee's obligation to pay Rent hereunder shall commence on such Delivery Date notwithstanding that Lessee has not accepted possession of the Aircraft. After delivery the Aircraft and every Part will be in every respect at the sole risk of Lessee, who will bear all risk of loss, theft, damage or destruction to the Aircraft from any cause whatsoever. 4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the Delivery Location or such other location as may be agreed. Lessee will effect acceptance of the Aircraft by execution and delivery to Lessor of the duly completed and executed Certificate of Acceptance in the form of Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the form of Schedule 6 hereto and by authorizing the filing at the FAA of an executed copy of such Lease Supplement with an executed copy of this Agreement attached thereto. 4.3 Delayed Delivery: If owing to:- (a) any seller, manufacturer or existing lessee of the Aircraft delaying in the delivery of, or failing to deliver, the Aircraft to Lessor for any reason (other than because of any default of Lessor in the performance of its obligations under an agreement with that seller, manufacturer or lessee unless the default arises from any act or omission of Lessee) whether or not in circumstances entitling that seller, manufacturer or lessee to terminate that agreement; (b) any purchase agreement for the Aircraft terminating prior to delivery of the Aircraft (other than because of any default of Lessor in the performance of its obligations under that agreement unless the default arises from any act or omission of Lessee); (c) any Excusable Delay; or (d) notification of any defect or non-conformity pursuant to Clause 4.5; Lessor delays in the delivery of, or fails to deliver, the Aircraft under this Agreement:- (i) Lessor will not be responsible for any losses, including loss of profit, costs or expenses arising from or in connection with the delay or failure suffered or incurred by Lessee; (ii) subject to Clause 4.5, Lessee will not be entitled to terminate this Agreement or to reject the Aircraft when tendered for delivery by Lessor, on the grounds of any such delay; (iii) in the case of termination of a purchase agreement, Lessor may at any time after the termination terminate this Agreement; and (iv) upon any such termination or termination pursuant to Clause 4.5 neither Lessor nor Lessee will have any further obligation to the other under this Agreement other than as expressly set out in this Agreement, except that Lessor will repay to Lessee the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable. 4.4 Licenses: Lessee will at its expense obtain all licenses, permits and approvals which may be necessary to export the Aircraft from the Delivery Location. Lessor will furnish such data and information as may be reasonably requested by Lessee in connection with obtaining any such license, permit or approval. 4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase or lease agreement, Lessor will give Lessee an opportunity:- (a) to inspect the Aircraft at the Delivery Location; and (b) to assign up to 2 representatives to participate as observers in a demonstration flight to demonstrate the condition of the Aircraft. If Lessee notifies Lessor promptly prior to the Delivery Date of any defect or non-conformity with Schedule 1 observed during the inspection or demonstration flight, Lessor will correct or procure the correction of the defect or non-conformity as promptly as practicable (except to the extent otherwise agreed or to the extent in the opinion of Lessor it is impracticable or prohibitively expensive to do so). Subject to Clause 4.3, Lessor may postpone the Delivery Date in such a case to the date which Lessor notifies Lessee that the defect or non-conformity has been rectified. Lessee will be entitled to terminate this Agreement if Lessor notifies it that Lessor does not intend to correct the defect or non-conformity. 4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from and against all Claims (as defined in Clause 10) arising from death or injury to any observer or any employee of Lessee in connection with any demonstration flight or inspection of the Aircraft by Lessee. 5. PAYMENTS 5.1 Deposit: Lessee shall pay to Lessor a Deposit in cash or pursuant to a Letter of Credit in form and substance reasonably acceptable to Lessor in the amounts set forth in the definition of Deposit in Letter Agreement No. 1 and in accordance with the schedule set forth therein. So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits then held by Lessor upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 5.2 Rental Periods: The Term will consist of consecutive whole or partial Rental Periods set forth in Letter Agreement No. 1. The first Rental Period will commence on the Delivery Date and each subsequent Rental Period will commence on the date succeeding the last day of the previous Rental Period. Each Rental Period will end on the date immediately preceding the calendar day in the next month numerically corresponding to the Delivery Date, except that: (a) if there is no such numerically corresponding day in that month, it will end on the last day of that month; and (b) if a Rental Period would otherwise overrun the Expiry Date, it will end on the Expiry Date. 5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in advance in the amount specified as "Rent" in Letter Agreement No. 1. Payment must be initiated adequately in advance of the Rent Date to ensure that Lessor receives credit for the payment on the Rent Date. If a Rental Period begins on a non-Business Day, the Rent payable in respect of that Rental Period shall be paid on the Business Day immediately preceding the date on which such Rental Period commences. 5.4 Supplemental Rent: (a) Amount: Lessee will further pay to Lessor Supplemental Rent in relation to each calendar month or portion thereof during the Term and for the last Rental Period of the Term no later than the 10th day following the end of such calendar month as follows:- (i) in respect of the Airframe, the product of the Airframe Maintenance Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Aircraft during that calendar month ("Airframe Supplemental Rent"); and (ii) in respect of the life-limited Parts ("LLP") for each Engine, the product of the Life-Limited Parts Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine LLP Refurbishment Reserves"); and (iii) in respect of Engine Refurbishment for each Engine, the product of the Engine Refurbishment Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine Refurbishment Reserves"); and (iv) in respect of the Landing Gear, the product of the Landing Gear Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Landing Gear during that calendar month ("Landing Gear Supplemental Rent"). (b) Adjustment: Lessor may adjust the amount of Supplemental Rent after the Delivery Date upon notice to Lessee not more frequently than annually utilizing the Escalation Adjustment set forth in Letter Agreement No. 1. The Engine Reserve Rate may be further adjusted not more frequently than annually as provided in Section III of Letter Agreement No. 1. 5.5 Payments: All payments by Lessee to Lessor under this Agreement will be made for value on the due date in Dollars and in same day funds settled through the New York Clearing House System or such other funds as may for the time being be customary for the settlement in New York City of international payments in Dollars by telegraphic transfer to Bankers Trust Company, ABA number * for the account of GECC T&I Air Depository Account, Account No. * or to such other account as Lessor may advise Lessee in writing. 5.6 Withholding: All payments by Lessee pursuant to the Operative Documents to which it is a party shall be free of all withholdings of any nature whatsoever except to the extent otherwise required by Law, and if any such withholding is so required, Lessee shall pay on an After-Tax Basis an additional amount such that after the deduction of all amounts required to be withheld, the net amount actually received by Lessor on an After-Tax Basis will equal the amount that Lessor would have received on an After-Tax Basis if such withholding had not been required; provided, however, that if Lessee pays any such additional amount to compensate for the withholding of any Lessor Tax, Lessor shall repay to Lessee within * days after receipt of Lessee's written request therefor (which request shall include a description in reasonable detail of the Lessor Tax involved and the calculation of the additional amount to be repaid) the amount of such additional amount to the extent attributable to any Lessor Tax. 5.7 General Tax Indemnity: (a) General: (i) Lessee will on demand pay and indemnify each Indemnitee against all Taxes (other than Lessor Taxes) levied or imposed against or upon or payable by such Indemnitee or Lessee and arising from, with respect to or in connection with the transactions pursuant to the Operative Documents to which it is a party including (but not limited to) all Taxes relating or attributable to Lessee, any Operative Document or the Aircraft directly or indirectly in connection with the importation, exportation, registration, ownership, leasing, sub-leasing, purchase, delivery, possession, use, operation, repair, maintenance, overhaul, transportation, landing, storage, presence or redelivery of the Aircraft or any part thereof or any rent, receipts, insurance proceeds, income or other amounts arising therefrom. (ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by Lessee directly to the appropriate taxing authority (to the extent permitted by applicable Law) at or before the time prescribed by applicable Law. After any payment by Lessee of any Tax directly to a taxing authority, Lessee shall furnish to Lessor, on request, a certified copy of a receipt for Lessee's payment of such Tax or such other evidence of payment of such Tax as is reasonably obtainable by Lessee and reasonably acceptable to Lessor. (iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause 5.7 shall be paid within * days after receipt of a written demand therefor from the relevant Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable, provided that if an amount of any indemnified Tax is being contested in accordance with Clause 5.12 and Lessee shall have duly performed (and shall continue to perform) all its obligations under Clause 5.12 with respect to such contest, then payment of the indemnity with respect to such Tax under Clause 5.12 shall , at Lessee's election, be deferred until the date the contest has been completed. (b) MACRS Tax Indemnity Lessee will on demand pay and indemnify each Tax Indemnitee for any loss, disallowance, or deferral of, or delay in claiming, the MACRS Deductions resulting from (A) Lessee's using the Aircraft in such a manner as to cause the Aircraft to be treated as "used predominantly outside the United States" within the meaning of Section 168(g) of The Internal Revenue Code of 1986, as amended (the "Code") or (B) the Aircraft being treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code other than as a result of the Lessor being a "tax-exempt entity" under Section 168(h)(2) of the Code (either (A) or (B) hereinafter referred to as a "MACRS Loss"). In determining the indemnity required in connection with a MACRS Loss to the Tax Indemnitee under this Clause, the Tax Indemnitees shall be assumed to be subject to a combined U. S. and state income tax rate of (after giving effect to the deductibility of such state income taxes for U. S. income tax purposes) *% in 2000 and in each year thereafter (the "Assumed Tax Rate"), and the Tax Indemnitee will have sufficient taxable income to be taxed at the Assumed Tax Rate after full utilization of the MACRS Deductions. The amount of the MACRS Loss for any taxable year or years shall be computed as the difference between (X) the present value of the MACRS Deductions for such year or years and all subsequent years using a discount rate of * per cent (*%) per annum, and (Y) the present value of the actual cost recovery deductions attributable to the Aircraft realized by the Tax Indemnitee as a result of the MACRS Loss (but assuming that the Aircraft is sold by the Lessor at the end of the Term of * months using a discount rate of * per cent (*%) per annum. The amount payable under this indemnity shall be the amount that, after deduction by the Tax Indemnitee of the amount of all additional U.S., state, local and foreign taxes required to be paid by the Tax Indemnitee in respect of the receipt or accrual of such amount, will equal the amount of the MACRS Loss as computed in the preceding sentence, plus the amount of any actual interest, penalties and additions to tax payable by the Tax Indemnitee with respect to the MACRS Loss. (c) Foreign Tax Credit Indemnity If, as a result of the use or operation or location of the Aircraft outside the United States by Lessee, more than the *% (the "Permitted Percentage") of any item of income, deduction, or loss with respect to the transactions contemplated by the Lease will be treated for Federal income tax purposes as derived from, or allocable to, sources outside the United States (an "Excess Foreign Allocation"), and if as a result thereof the amount of the foreign tax credits available for utilization by the Lessor for any taxable year shall be less than the amount of the foreign tax credits that would have been available for utilization by the Lessor if the Lessee had not used the Aircraft outside the United States more than the Permitted Percentage (such event being referred to herein as a "Foreign Tax Credit Loss"), then the Lessee shall pay to the Lessor as an indemnity an amount which, after deduction of the amount of all additional federal, state, local and foreign taxes actually required to be paid by the Lessor in respect of the receipt or accrual of such amount, is equal to the actual increase in the Federal income taxes payable by (or not refundable to) the Lessor for such taxable year as a result of such Foreign Tax Credit Loss, plus the amount of any interest, penalties and additions to tax payable by the Lessor as a result of such Foreign Tax Credit Loss. (d) Payment Each payment by the Lessee pursuant to Clauses 5.7(b) and (c) shall be made within * days after receipt of a written demand therefor accompanied by a written statement describing in reasonable detail the MACRS Loss or Foreign Tax Credit Loss in question, the amount of additional Federal income tax, interest, penalties and additions to tax and the calculation of the payment due in request thereof (but in no event shall be required to be paid earlier than * (*) Business Days prior to the date such additional Federal income taxes are due); provided that, if a contest of the MACRS Loss or Foreign Tax Credit Loss is being conducted pursuant to Clause 5.12 hereof, payment (other than payments required under Clause 5.12) shall not be required from the Lessee until * days after the final determination of such contest. 5.8. Sales and Use Taxes: (a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if requested by Lessor, Lessee shall pay to the relevant tax authority for the account of Lessor), in addition to the amounts specified as "Rent" in Letter Agreement No. 1: (i) all sales, use, rental, value added, goods and services and similar taxes ("Sales Taxes") required to be paid to the tax authority of the jurisdiction in which the Delivery Location is situated or to the jurisdiction in which the Aircraft is habitually based with respect to the lease of the Aircraft to Lessee pursuant to the Operative Documents to which it is a party unless Lessee delivers to Lessor on or prior to the Delivery Date such exemption certificate or other document as may be acceptable to Lessor to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party; and (ii) all Sales Taxes required to be paid to the tax authority of any jurisdiction in which the Aircraft may be used, operated or otherwise located from time to time unless Lessee delivers to Lessor such exemption certificates or other documents as may be required by applicable Law to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by each such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party. (b) Lessee will cooperate with Lessor in connection with the preparation and filing of any exemption application or similar document that is reasonably necessary or desirable under applicable Law to avoid the imposition of any Sales Taxes with respect to the transactions contemplated by the Operative Documents to which Lessee is a party. (c) The specific obligations with respect to sales and use taxes set forth in this Clause 5.8 are in addition to, and are not in substitution for, the Lessee's obligation to indemnify for sales and use taxes pursuant to Clause 5.7. 5.9 Information: (a) If Lessee is required by any applicable Law, or by any third party, to deliver any report or return in connection with any Taxes for which Lessee would be obligated to indemnify Lessor under the Operative Documents to which Lessee is a party, Lessee will complete the same and, on request, supply a copy of the report or return to Lessor. (b) If any report, return or statement is required to be made by Lessor with respect to any Tax for which there is an indemnity obligation of Lessee under this Clause 5, Lessee will promptly notify Lessor of the requirement and: (i) if permitted by applicable Law, make and timely file such report, return or statement (except for any report, return or statement that Lessor has notified Lessee that Lessor intends to prepare and file), prepare such return in such manner as will show the ownership of the Aircraft in Lessor if required or appropriate, and provide Lessor upon request a copy of each such report, return or statement filed by Lessee, or (ii) if Lessee is not permitted by applicable Law to file any such report, return or statement, Lessee will prepare and deliver to Lessor a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. Lessee will provide such information and documents as Lessor may reasonably request to enable Lessor to comply with its tax filing, audit and litigation obligations. 5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that, with respect to any payment or indemnity pursuant to Clause 5.7 (Tax Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to or for the benefit of any Indemnitee, Lessee's indemnity obligations shall include such amount as may be necessary to hold such Indemnitee harmless on an After-Tax Basis from all Taxes required to be paid by such Indemnitee with respect to such payment or indemnity (including any payments pursuant to this Clause 5.10), determined based on the assumption that at the time each such payment or indemnity accrues to the relevant Indemnitee, such payment or indemnity will be subject to (i) United States Federal income tax at the highest marginal statutory tax rate applicable to corporations, (ii) United States state and local income taxes at the composite of the highest marginal statutory tax rates applicable to the Indemnitee and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on the relevant Indemnitee. 5.11 Default Interest: If Lessee fails to pay any amount payable under this Agreement on the due date, Lessee will pay on demand from time to time to Lessor interest (both before and after judgment) on that amount, from the due date to the date of payment in full by Lessee to Lessor, at the Interest Rate specified in Letter Agreement No. 1; provided, however, that in no event shall such rate exceed the maximum permitted by Law. All such interest will be compounded monthly and calculated on the basis of the actual number of days elapsed in the month assuming a * day month and a * day year. 5.12 Contest: (a) If an Indemnitee receives a written claim for any Tax for which Lessee would be required to pay an indemnity pursuant to Clause 5.7 or Clause 5.8, such Indemnitee shall notify Lessee promptly of such claim, provided that any failure to provide such notice will not relieve Lessee of any indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If requested by Lessee in writing promptly after receipt of such Indemnitee's notice, such Indemnitee shall, upon receipt of indemnity satisfactory to it and at the expense of Lessee (including, without limitation, all costs, expenses, legal and accountants' fees and disbursements, and penalties, interest and additions to tax incurred in contesting such claim) in good faith contest or (if permitted by applicable Law in the case of Taxes other than those payable pursuant to Clauses 5.7(b) and (c)) permit Lessee to contest such claim by (i) resisting payment thereof if practicable and appropriate, (ii) not paying the same except under protest if protest is necessary and proper, or (iii) if payment is made, using reasonable efforts to obtain a refund of such Taxes in appropriate administrative and judicial proceedings. Such Indemnitee shall determine the method of any contest conducted by such Indemnitee and (in good faith consultation with Lessee) control the conduct thereof. Lessee shall determine the method of any contest conducted by Lessee and (in good faith consultation with such Indemnitee) control the conduct thereof. Lessee shall pay in full all payments of Rent and other amounts payable pursuant to the Operative Documents to which Lessee is a party, without reduction for or on account of any Tax, while such contest is continuing. Such Indemnitee shall not be required to contest, or to continue to contest, a claim for Taxes under this Clause 5.12 if (w) in the case of Taxes payable pursuant to Clauses 5.7(b) or (c), the amount in dispute is less than $*, or (x) such contest would result in a risk of criminal penalties or of a sale, forfeiture or loss of, or the imposition of a Lien (other than a Permitted Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion of independent tax counsel selected by such Indemnitee and reasonably satisfactory to Lessee, that a reasonable basis exists for such contest, or (z) a Default or an Event of Default shall be continuing (unless Lessee shall have provided security reasonably satisfactory to such Indemnitee securing Lessee's performance of its obligations under this Clause 5). If such Indemnitee contests any claim for Taxes by making a payment and seeking a refund thereof, then Lessee shall advance to such Indemnitee, on an interest-free basis, an amount equal to the Taxes to be paid by such Indemnitee in connection with the contest and shall indemnify such Indemnitee on an After-Tax Basis for any adverse tax consequences to such Indemnitee of such interest-free advance. Upon the final determination of any contest pursuant to this Clause 5.12 in respect of any Taxes for which Lessee shall have made an advance to such Indemnitee in accordance with the immediately preceding sentence, the amount of Lessee's obligation shall be determined as if such advance had not been made; any indemnity obligation of Lessee to such Indemnitee under this Clause 5 and such Indemnitee's obligation to repay the advance will be satisfied first by setoff against each other, and any difference owing by either party shall be paid within ten days after such final determination. (b) If an Indemnitee obtains a refund of all or any part of any Taxes for which a full indemnity was paid by Lessee, such Indemnitee shall pay Lessee the amount of such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such refund and increased by any Taxes saved by such Indemnitee by reason of the deductibility of such payment by such Indemnitee. If, in addition to such refund, such Indemnitee receives an amount of interest on such refund, such Indemnitee shall pay to Lessee the portion of such interest which is fairly attributable to such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such interest and increased by any Taxes saved by reason of the deductibility of such payment by such Indemnitee. Such Indemnitee shall not be required to make any payment to Lessee pursuant to this Clause 5.12 if, and for so long as, an Event of Default shall have occurred and be continuing. (c) Any Indemnitee in its sole discretion (by written notice to Lessee) may waive its rights to indemnification pursuant to Clause 5.7 with respect to any claim for any Tax and may refrain from contesting or continuing the contest of such claim, in which event Lessee shall have no obligation to indemnify such Indemnitee for the Taxes that are the subject of such claim. If an Indemnitee agrees to a settlement of any contest conducted pursuant to this Clause 5.11 without the prior written consent of Lessee, which consent shall not be unreasonably withheld, then Lessor shall be deemed to have waived its rights to the indemnification provided for in Clause 5.7 with respect to the Tax liability accepted in such settlement. 5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this Agreement are absolute and unconditional irrespective of any contingency whatsoever including (but not limited to):- (a) any right of set-off, counterclaim, recoupment, defense or other right which either party to this Agreement may have against the other; (b) any unavailability of the Aircraft for any reason, including, but not limited to, a requisition of the Aircraft or any prohibition or interruption of or interference with or other restriction against Lessee's use, operation or possession of the Aircraft; (c) any lack or invalidity of title or any other defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, or operation of any kind or nature of the Aircraft for any particular use or trade, or for registration or documentation under the laws of any relevant jurisdiction, or any Event of Loss in respect of or any damage to the Aircraft; (d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceedings by or against Lessor or Lessee; (e) any invalidity or unenforceability or lack of due authorization of, or other defect in, this Agreement; (f) and Security Interests with respect to the Aircraft or Taxes; and/or (g) any other cause which but for this provision would or might otherwise have the effect of terminating or in any way affecting any obligation of Lessee under this Agreement. 5.14 Security (a) To the fullest extent permitted by Law and by way of continuing security Lessee as sole beneficial owner charges the Deposit and the Supplemental Rent and all rights of Lessee to payment thereof and the debt represented thereby (the "Charged Monies") to Lessor by way of first fixed charge as security for Lessee's obligations and liabilities under this Agreement and the Related Agreements (the "Secured Liabilities"). Except as expressly permitted under this Agreement, Lessee will not be entitled to payment of the Charged Monies. Lessee will not assign, transfer or otherwise dispose of all or part of its rights in the Charged Monies and it will enter into any additional documents and instruments necessary or advisable to evidence, create or perfect Lessor's rights to the Charged Monies; (b) If Lessee fails to comply with any provision of this Agreement or any Event of Default has occurred and is continuing, in addition to all rights and remedies accorded to Lessor elsewhere in this Agreement and under Law as a secured party in respect of the Charged Monies, Lessor may immediately or at any time thereafter, without prior notice to Lessee:- (i) set-off all or any part of the Secured Liabilities against the liabilities of Lessor in respect of the Charged Monies; or (ii) apply or appropriate the Charged Monies in or towards the payment or discharge of the Secured Liabilities in such order as Lessor sees fit; and (c) If Lessor has exercised the set-off described in sub-clause (b) above, Lessee shall, following a demand in writing from Lessor, restore the Charged Monies to the level at which they stood immediately prior to such set-off. 5.15 Letter of Credit (a) If Lessee elects to provide Lessor with a Letter of Credit, the provisions of this Section shall apply. Any Letter of Credit provided by Lessee to Lessor will be issued and payable by USBank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by USBank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, and will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and each Other Agreement (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (b) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than * days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (c) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (d) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, immediately procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. 6. MANUFACTURER'S WARRANTIES 6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to the benefit of each warranty, express or implied, with respect to the Aircraft, any Engine or Part so far as concerns any manufacturer, vendor, subcontractor or supplier. Except to the extent Lessor otherwise directs, Lessor hereby authorizes Lessee to pursue any claim thereunder in relation to defects affecting the Aircraft, any Engine or Part and Lessee agrees diligently to pursue any such claim which arises at its own cost. Lessee will notify Lessor promptly upon becoming aware of any such claim. 6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular case, all proceeds of any such claim will be paid directly to Lessor but if and to the extent that such claim relates:- (a) to defects affecting the Aircraft which Lessee has rectified; or (b) to compensation for loss of use of the Aircraft, an Engine or any Part during the Term; and provided no Default has occurred and is continuing the proceeds will be paid to Lessee by Lessor but in the case of (a) above only on receipt of evidence satisfactory to Lessor that Lessee has rectified the relevant defect. 6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case, Lessee will procure that all engines, components, furnishings or equipment provided by the manufacturer, vendor, subcontractor or supplier in replacement of a defective Engine or Part pursuant to the terms of any warranty will be installed promptly by Lessee and that title thereto free of Security Interests vests in Lessor. On installation each part will be deemed to be a Part. In the case of a Replacement Engine, Lessee will satisfy and perform each of the conditions and covenants set forth in Clause 11.1(c), and upon satisfaction of such conditions, such Replacement Engine will be deemed an "Engine" for all purposes of this Agreement. 6.4 Agreement: To the extent any warranties relating to the Aircraft are made available under an agreement between any manufacturer, vendor, subcontractor or supplier and Lessee, this Clause 6 is subject to that agreement. However Lessee will:- (a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant to Clause 6.2 and pending such payment will hold the claim and the proceeds on trust for Lessor; and (b) Lessee will take all such steps as are necessary at the end of the Term to ensure the benefit of any of those warranties which have not expired are vested in Lessor. 7. LESSOR'S COVENANTS 7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its rights under or in connection with this Agreement will not constitute such an interference. Lessor will procure at Lessee's request an undertaking of quiet enjoyment for the benefit of Lessee with respect to any prospective Lessor Lien. 7.2 Release of Supplemental Rent: Provided no Default has occurred and is continuing Lessor will release funds to Lessee from the Supplemental Rent respecting maintenance work performed upon submission by Lessee to Lessor within * months of the commencement of that maintenance and before * (*) months following the Expiry Date of an invoice and supporting documentation reasonably satisfactory to Lessor evidencing:- (a) with respect to the Airframe, the completion, in accordance with this Agreement, of those items of maintenance (excluding any repairs arising as the result of operational or maintenance mishandling) characterized by the Manufacturer's maintenance planning document and best industry practice as "D" Check and/or individual structural inspections having an interval of not less than * Flight Hours or * years for the Aircraft or any lesser interval for an equivalent major structural inspection if required by the Manufacturer's maintenance planning document subject to retroactive and prospective adjustment of the Reserve Rates as deemed appropriate by Lessor, the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Airframe Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously released by Lessor under this sub-clause; (b) with respect to any Engine, the performance, in accordance with this Agreement, of all shop visits requiring engine disassembly (other than (i) repairs arising as a result of foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Engine Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; (c) with respect to life limited parts within any Engine, the performance, in accordance with this Agreement, of any such parts replacement (other than (i) replacement arising as a result of accidents or incidents (whether or not eligible for recovery under Lessee's insurance), foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of QEC kits) and/or (iii) any elective parts replacement), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate of Engine LLP Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; and (d) with respect to the Landing Gear, the performance in accordance with this Agreement, of all work on the landing gear in the nature of overhaul and requiring removal and disassembly (other than repairs arising as the result of operational or maintenance mishandling), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Landing Gear Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid by Lessor under this sub-clause. 7.3 Lessor Obligations Following Expiry Date: Within * Business Days of:- (a) redelivery of the Aircraft to Lessor in accordance with and in the condition required by this Agreement; or (b) payment to Lessor of the Agreed Value following an Event of Loss after the Delivery Date; or in each case such later time as Lessor is reasonably satisfied Lessee has irrevocably paid to Lessor all amounts which may then be outstanding or become payable under this Agreement, the other Operative Documents to which Lessee is a party or the Related Agreements and Lessee, Lessor will pay to Lessee:- (i) the balance of the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable; and (ii) the amount of any Rent received in respect of any period falling after the date of redelivery of the Aircraft or payment of the Agreed Value, as the case may be; and shall return to Lessee the warrant certificate, if not previously exercised, representing the Warrant. 8. LESSEE'S COVENANTS 8.1 Duration: The undertakings in this Clause and in Clause 12 will:- (a) except as otherwise stated, be performed at the expense of Lessee; and (b) remain in force until the Expiry Date in accordance with this Agreement and thereafter to the extent of any accrued rights of Lessor in relation to those undertakings. 8.2 Information: Lessee will:- (a) notify Lessor forthwith of the occurrence of any Default or any other event which might adversely affect Lessee's ability to perform any of its obligations under this Agreement; (b) furnish to Lessor:- (i) upon request, the consolidated management accounts of Lessee (comprising a balance sheet and profit and loss statement) prepared for the most recent previous financial quarter; (ii) as soon as available but not in any event later than * days after the last day of each financial year of Lessee, its audited consolidated balance sheet as of such day and its audited consolidated profit and loss statement for the year ending on such day; (iii) at the same time as it is issued to the shareholders or creditors of Lessee, a copy of each notice or circular issued to Lessee's shareholders or creditors as a group; and (iv) on request from time to time such other information regarding Lessee and its business and affairs as Lessor may reasonably request; (c) keep Lessor informed as to current serial numbers of the Engines and any engine installed on the Aircraft; (d) promptly furnish to Lessor all information Lessor from time to time reasonably requests regarding the Aircraft, any Engine or any Part, its use, location and condition including, without limitation, the hours available on the Aircraft and any Engine until the next scheduled check, inspection, overhaul, refurbishment or shop visit, as the case may be; (e) on request, within * days after the end of any Rental Period, furnish to Lessor evidence satisfactory to Lessor of payment of all Taxes due during that or any previous Rental Period; (f) on request, furnish to Lessor evidence satisfactory to Lessor that all Taxes and charges incurred by Lessee with respect to the Aircraft, including without limitation all payments due to the relevant air traffic control authorities, have been paid and discharged in full; (g) within * days after the end of each calendar month during the Term, provide Lessor with a monthly report on the Aircraft and each Engine in the form set out in Schedule 8 hereto; (h) give Lessor not less than * days' written notice as to the time and location of all Major Checks; and (i) promptly notify Lessor of:- (i) any loss, theft, damage or destruction to the Aircraft, any Engine or any Part, or any modification to the Aircraft if the potential cost may exceed the Damage Notification Threshold; and (ii) any claim or other occurrence likely to give rise to a claim under the Insurances (but in the case of hull claims only in excess of the Damage Notification Threshold) and details of any negotiations with the insurance brokers over any such claim. 8.3 Lawful and Safe Operation: Lessee will:- (a) comply with the law for the time being in force in any country or jurisdiction which may for the time being be applicable to the Aircraft (including without limitation Laws mandating insurance coverage) or, so far as concerns the use and operation of the Aircraft or an owner or operator thereof and take all reasonable steps to ensure that the Aircraft is not used for any illegal purpose; (b) not use the Aircraft in any manner contrary to any recommendation of the manufacturers of the Aircraft, any Engine or any Part or any recommendation or regulation of the Air Authority or for any purpose for which the Aircraft is not designed or reasonably suitable; (c) ensure that the crew and engineers employed by it in connection with the operation and maintenance of the Aircraft have the qualifications and hold the licenses required by the Air Authority and applicable Law; (d) use the Aircraft solely in commercial or other operations for which Lessee is duly authorized by the Air Authority and applicable Law; (e) not use the Aircraft for the carriage of:- (i) whole animals living or dead except in the cargo compartments according to I.A.T.A. regulations, and except domestic pet animals carried in a suitable container to prevent the escape of any liquid and to ensure the welfare of the animal; (ii) acids, toxic chemicals, other corrosive materials, explosives, nuclear fuels, nuclear wastes, or any nuclear assemblies or components, except as permitted for passenger aircraft under the "Restriction of Goods" schedule issued by I.A.T.A. from time to time and provided that all the requirements for packaging or otherwise contained therein are fulfilled; (iii) any other goods, materials or items of cargo which could reasonably be expected to cause damage to the Aircraft and which would not be adequately covered by the Insurances; or (iv) any illegal item or substance; (f) not utilize the Aircraft for purposes of training, qualifying or re-confirming the status of cockpit personnel except for the benefit of Lessee's cockpit personnel, and then only if the use of the Aircraft for such purpose is not disproportionate to the use for such purpose of other aircraft of the same type operated by Lessee; (g) not cause or permit the Aircraft to proceed to, or remain at, any location which is for the time being the subject of a prohibition order (or any similar order or directive) by:- (i) any Government Entity of the State of Registration or the Habitual Base; or (ii) any Government Entity of the country in which such location is situated; or (iii) any Government Entity having jurisdiction over Lessor or the Aircraft; (h) obtain and maintain in full force all certificates, licenses, permits and authorizations required for the use and operation of the Aircraft for the time being, and for the making of payments required by, and the compliance by Lessee with its other obligations under, this Agreement; (i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to or for any country or entity that is the subject of sanctions under the U.S. International Economic Emergency Powers Act or U.N. Security Council directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola). Lessee also covenants and agrees (i) not to operate or locate, or suffer or permit to be operated or located, the Aircraft in any country restricted under the U.S. Trading with the Enemy Act and the U.S. Export Administration Act except as may be permitted by operating in accordance with the conditions specified by the U.S. Export Administration Regulations (15 CFR Parts 730-799), General License GATS (15 CFR Part 771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii) not to operate the Aircraft between Cuba and the United States; and (j) not use, operate, or locate the Aircraft, or cause suffer or permit the Aircraft to be used, operated or located during the Term in any manner not covered by the Insurances or in any area excluded from coverage by the Insurances or in any manner which would prejudice the interests of the Indemnitees in the Insurances, the Aircraft, any Engine or any Part. 8.4 Taxes and other Outgoings: Lessee will promptly pay:- (a) all license and registration fees, Taxes (other than Lessor Taxes) and other amounts of any nature imposed by any Government Entity with respect to the Aircraft, including without limitation the purchase, ownership, delivery, leasing, possession, use, operation, return, sale or other disposition of the Aircraft; and (b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts in respect of any premises where the Aircraft or any Part thereof is located from time to time; except to the extent that in the reasonable opinion of Lessor such payment is being contested in good faith by appropriate proceedings, in respect of which adequate resources have been provided by Lessee and non-payment of which does not give rise to any material likelihood of the Aircraft or any interest therein being sold, forfeited or otherwise lost or of criminal liability on the part of Lessor. 8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8 AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF. 8.6 Inspection: (a) Lessor and any person designated by Lessor may at any time visit, inspect and survey the Aircraft, any Engine or any Part and for such purpose may, subject to any applicable Air Authority regulation, travel on the flight deck as observer; (b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable out-of-pocket expenses incurred by Lessor in connection with any such visit, inspection or survey; and (c) Lessor will:- (i) have no duty or liability to make, or arising out of making or failing to make, any such visit, inspection or survey; and (ii) so long as no Default has occurred and is continuing, not exercise such right other than on reasonable notice and so as not to disrupt unreasonably the commercial operations of Lessee, provided, however, Lessee will take such action as may be reasonably required to facilitate Lessor's inspection. 8.7 Title: Lessee will:- (a) not do or knowingly permit to be done or omit or knowingly permit to be omitted to be done any act or thing which might reasonably be expected to jeopardize the rights of Lessor as owner of the Aircraft; (b) on all occasions when the ownership of the Aircraft, any Engine or any Part is relevant, make clear to third parties that title is held by Lessor; (c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation or carriage (whether for hire or reward or gratuitously) which may be undertaken by Lessee or (ii) pledge the credit of Lessor; (d) ensure that there is always affixed, and not removed or in any way obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7 cm.) in a reasonably prominent position in the cockpit of the Aircraft and on each Engine stating:- "This Aircraft/Engine is owned by Aviation Financial Services Inc. and is leased to Frontier Airlines, Inc. and may not be operated by any other person without the prior written consent of Aviation Financial Services Inc."; (e) not create or permit to exist any Security Interest upon the Aircraft, any Engine or any Part; (f) not do or permit to be done anything which may reasonably be expected to expose the Aircraft, any Engine or any Part to penalty, forfeiture, impounding, detention, appropriation, damage or destruction and without prejudice to the foregoing, if any such penalty, forfeiture, impounding, detention or appropriation, damage or destruction occurs, give Lessor notice and use best endeavors to procure the immediate release of the Aircraft, any Engine or the Part, as the case may be; (g) not abandon the Aircraft, the Engine or any Part; (h) pay and discharge or cause to be paid and discharged when due and payable or make adequate provision by way of security or otherwise for all debts, damages, claims and liabilities which have given or might give rise to a Security Interest over or affecting the Aircraft, any Engine or any Part; and (i) not attempt, or hold itself out as having any power, to sell, lease or otherwise dispose of the Aircraft, any Engine or any Part; and (j) obtain a waiver of any mechanic's lien or right thereto from any vendor providing maintenance services for Lessee prior to delivering the Aircraft or any Engine or Part to such vendor. 8.8 General: Lessee will:- (a) not make any substantial change in the nature of the business in which it is engaged, will preserve its corporate existence (other than in connection with a solvent reconstruction the terms of which have been approved by Lessor, such approval not to be unreasonably withheld), and will conduct its business in an orderly and efficient and will maintain all rights, privileges, licenses and franchises material thereto or material to performing its obligations under this Agreement; (b) ensure that no change will occur in the Habitual Base of the Aircraft without the prior written consent of Lessor; (c) not without giving Lessor * days prior notice (in accordance with this Agreement), change its chief executive office (as such term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America; (d) remain a Certified Air Carrier and maintain, without limitation, its status so as to fall within the preview of Section 1110 of Title 11 of the United States Code or any analogous Statute; and (e) remain a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 8.9 Records: Lessee will:- (a) procure that accurate, complete and current records of all flights made by, and all maintenance carried out on, the Aircraft (including in relation to each Engine and Part subsequently installed, before the installation) are kept; keep the_records in such manner as the Air Authority may from time to time require. All records must be maintained in English. The records will form part of the Aircraft Documents; and (b) maintain, with appropriate revisions in English, all Aircraft Documents, records, logs, and other materials required by applicable Laws and best practice of major international air transport operators in respect of the Aircraft. 8.10 Protection: Lessee will:- (a) maintain the registration of the Aircraft with the Air Authority reflecting (so far as permitted by applicable Law) the interest of Lessor and not do or suffer to be done anything which might adversely affect that registration; and (b) do all acts and things (including, without limitation, making any filing or registration with the Air Authority or any other Government Entity or as required to comply with the Mortgage Convention where applicable) and execute and deliver all documents (including, without limitation, any amendment of this Agreement) as may be required by Lessor:- (i) following any change or proposed change in the ownership or financing of the Aircraft; or (ii) following any modification of the Aircraft, any Engine or any Part or the permanent replacement of any Engine or Part in accordance with this Agreement, so as to ensure that the rights of Lessor under this Agreement apply with the same effect as before; or (iii) to establish, maintain, preserve, perfect and protect the rights of Lessor under this Agreement and the interest of Lessor in the Aircraft. 8.11 Maintenance and Repair: Lessee will:- (a) keep the Aircraft airworthy in all respects and in good repair and condition; (b) not change the Maintenance Performer without providing the Lessor with prior written notice; (c) not materially change the Lessee's Maintenance Program or the schedule of the Lessee's Maintenance Program without the prior written consent of Lessor; (d) maintain the Aircraft in accordance with Lessee's Maintenance Program through the Maintenance Performer and perform (at the respective intervals provided in Lessee's Maintenance Program) all Major Checks; (e) maintain the Aircraft in accordance with the standard of maintenance required by FAR Part 121, Subpart L and any other rules and regulations of the FAA and in at least the same manner and with at least the same care, including, without limitation, maintenance scheduling, modification status and technical condition, as is the case with respect to similar aircraft owned or otherwise operated by Lessee and as if Lessee were to retain and continue operating the Aircraft in its fleet after the Expiry Date, including, without limitation, all maintenance to the Airframe, any Engine or any Part required to maintain all warranties, performance guarantees or service life policies in full force and effect except to the extent of conflict with the rules and regulations of the Air Authority; (f) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority and/or mandated by any manufacturer of the Aircraft, any Engine or Part (an "Airworthiness Directive); (g) comply with all applicable Laws and the regulations of the Air Authority and other aviation authorities with jurisdiction over Lessee or the Aircraft, any Engine or Part regardless of upon whom such requirements are imposed and which relate to the maintenance, condition, use or operation of the Aircraft or require any modification or alteration to the Aircraft, any Engine or Part; (h) maintain in good standing a current certificate of airworthiness (in the appropriate category for the nature of the operations of the Aircraft) for the Aircraft issued by the Air Authority except where the Aircraft is undergoing maintenance, modification or repair required or permitted by this Agreement and will from time to time provide to Lessor a copy on request; (i) if required by the Air Authority, maintain a current certification as to maintenance issued by or on behalf of the Air Authority in respect of the Aircraft and will from time to time provide to Lessor a copy on request; and (j) procure promptly the replacement of any Engine or Part which has become time, cycle or calendar expired, lost, stolen, seized, confiscated, destroyed, damaged beyond repair, unserviceable or permanently rendered unfit for use, with an engine or part complying with the conditions set out in Clause 8.13(a) and in the case of any Engine which suffers an Engine Event of Loss, shall procure that such engine complies with the provisions of Clause 11.1(c). 8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part installed on the Aircraft is at any time removed from the Aircraft other than:- (a) if replaced as expressly permitted by this Agreement; or (b) if the removal is of an obsolete item and is in accordance with Lessee's Maintenance Program; or (c) (i) during the course of maintaining, servicing, repairing, overhauling or testing that Engine or the Aircraft, as the case may be; or (ii) as part of a normal engine or part rotation program; or (iii) for the purpose of making such modifications to the Engine or the Aircraft, as the case may be, as are permitted under this Agreement; and then in each case (A) with respect to a Part, only if it is reinstalled or replaced by a part complying with Clause 8.13(a) as soon as practicable and in any event no later than the Expiry Date, and (B) with respect to an Engine, title to such Engine shall remain vested in Lessor. 8.13 Installation of Engines and Parts: Lessee will:- (a) ensure that, except as permitted by this Agreement, no engine or part is installed on the Aircraft unless:- (i) in the case of an engine, it is an engine of the same model as, or an improved or advanced version of the Engine it replaces, which is in the same or better operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits and has the same or greater value and utility as the replaced Engine; (ii) in the case of a part, it is in as good operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits, is of the same or a more advanced make and model and is of the same interchangeable modification status as the replaced Part; (iii) in the case of a part, it has become and remains the property of Owner free from Security Interests and on installation on the Aircraft will without further act be subject to this Agreement; and (iv) in each case, Lessee has full details as to its source and maintenance records; (b) if no Default has occurred which is continuing, be entitled to install any engine or part on the Aircraft by way of replacement notwithstanding Clause 8.13(a) if:- (i) there is not available to Lessee at the time and in the place that that engine or part is required to be installed on the Aircraft, a replacement engine or, as the case may be, part complying with the requirements of Clause 8.13(a); (ii) it would result in an unreasonable disruption of the operation of the Aircraft and/or the business of Lessee to ground the Aircraft until an engine or part, as the case may be, complying with Clause 8.13(a) becomes available for installation on the Aircraft; and (iii) as soon as practicable after installation of the same on the Aircraft but, in any event, no later than the Expiry Date, Lessee removes any such engine or part and replaces it with the Engine or Part replaced by it or by an engine or part, as the case may be, complying with Clause 8.13(a). 8.14 Non-Installed Engines and Parts: Lessee will:- (a) ensure that any Engine or Part which is not installed on the Aircraft (or any other aircraft as permitted by this Agreement) is, except as expressly permitted by this Agreement, properly and safely stored, and kept free from Security Interests; (b) notify Lessor whenever any Engine is removed from the Aircraft and, from time to time, on request procure that any person to whom possession of an Engine is given acknowledges in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in the Engine and will not seek to exercise any rights whatsoever in relation to it; (c) (notwithstanding the foregoing provisions of this sub-clause), be permitted, if no Default has occurred and is continuing, to install any Engine or Part on an aircraft, or in the case of a Part on an engine:- (i) owned and operated by Lessee free from Security Interests; or (ii) leased or hired to Lessee pursuant to a lease or conditional sale agreement on a long-term basis and on terms whereby Lessee has full operational control of that aircraft or engine; or (iii) acquired by Lessee and/or financed or refinanced, and operated by Lessee, on terms that ownership of that aircraft or engine, as the case may be, pursuant to a lease or conditional sale agreement, or a Security Interest therein, is vested in or held by any other Person; provided that in the case of (ii) and (iii):- (1) the terms of any such lease, conditional sale agreement or Security Interest will not have the effect of prejudicing the interest of Lessor in that Engine or Part; and (2) the lessor under such lease, the seller under such conditional sale agreement or the holder of such Security Interest, as the case may be, has confirmed and acknowledged in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in respect of that Engine or Part and that it will not seek to exercise any rights whatsoever in relation thereto. 8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any pooling agreement or arrangement in respect of an Engine or Part without the prior written consent of Lessor. 8.16 Equipment Changes: (a) Lessee will not make any modification or addition to the Aircraft (each an "Equipment Change"), except for an Equipment Change which:- (i) is expressly permitted by this Agreement, or (ii) has the prior written approval of Lessor and which does not diminish the value, utility, condition, or airworthiness of the Aircraft; (b) So long as a Default has not occurred and is continuing, Lessee may remove any Equipment Change if it can be removed from the Aircraft without diminishing or impairing the value, utility, condition or airworthiness of the Aircraft; and (c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes payable by Lessor as the case may be, as a result of an Equipment Change. 8.17 Title on an Equipment Change: (a) Title to all Parts installed on the Aircraft whether by way of replacement, as the result of an Equipment Change or otherwise (except those installed pursuant to Clause 8.13(b)) will on installation, without further act, vest in Lessor subject to this Agreement free and clear of all Security Interests. Lessee will at its own expense take all such steps and execute, and procure the execution of, all such instruments as Lessor may require and which are necessary to ensure that title so passes to Lessor according to all applicable Laws. At any time when requested by Lessor, Lessee will provide evidence to Lessor's satisfaction (including the provision, if required, to Lessor of one or more legal opinions) that title has so passed to Lessor; (b) Lessor may require Lessee to remove any Equipment Change and to restore the Aircraft to its condition prior to that Equipment Change; and (c) Except as referred to in Clause 8.17(b) any Engine or Part at any time removed from the Aircraft will remain the property of Owner until a replacement has been made in accordance with this Agreement and until title in that replacement has passed, according to applicable Laws, to Lessor subject to this Agreement and free of all Security Interests. Upon title to such replacement so passing to Lessor, title to the replaced Engine or Part, will, provided no Default has occurred and is continuing, pass to Lessee. 8.18 Third Party: Lessee will procure that no person (other than Lessor) will act in any manner inconsistent with its obligations under this Agreement and that all persons will comply with those obligations as if references to "Lessee" included a separate reference to those persons. 9. INSURANCE 9.1 Insurances: Lessee will maintain in full force during the Term, and thereafter as expressly required in this Agreement, insurances in respect of the Aircraft in form and substance satisfactory to Lessor (the "Insurances" which expression includes, where the context so admits, any relevant re-insurance(s)) through such brokers and with such insurers and having such deductibles and being subject to such exclusions as may be approved by Lessor from time to time. The Insurances will be effected either:- (a) on a direct basis with insurers of recognized standing who normally participate in aviation insurances in the leading international insurance markets and led by reputable underwriter(s) approved by Lessor; or (b) with a single insurer or group of insurers approved by Lessor who does not retain the risk but effects substantial reinsurance with reinsurers in the leading international insurance markets and through brokers each of recognized standing and acceptable to Lessor for a percentage acceptable to Lessor of all risks insured (the "Reinsurances"). 9.2 Requirements: Lessor's current requirements as to required Insurances are as specified in this Clause and in Schedule 4. Lessor may from time to time stipulate other requirements for the Insurances so that the scope and level of cover is maintained in line with best industry practice and the interests of Lessor protected. 9.3 Change: If at any time Lessor wishes to revoke its approval of any insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers will consult with Lessee and Lessee's brokers (as for the time being approved by Lessor) regarding whether that approval should be revoked to protect the interests of the parties insured. If, following the consultation, Lessor considers that any change should be made, Lessee will then arrange or procure the arrangement of alternative cover satisfactory to Lessor. 9.4 Insurance Covenants: Lessee will:- (a) ensure that all legal requirements as to insurance of the Aircraft, any Engine or any Part which may from time to time be imposed by the laws of the State of Registration or any state to, from or over which the Aircraft may be flown, in so far as they affect or concern the operation of the Aircraft, are complied with and in particular those requirements compliance with which is necessary to ensure that (i) the Aircraft is not in danger of detention or forfeiture, (ii) the Insurances remain valid and in full force and effect, and (iii) the interests of the Indemnitees in the Insurances and the Aircraft or any Part are not thereby prejudiced; (b) not use, cause or permit the Aircraft, any Engine or any Part to be used for any purpose or in any manner not covered by the Insurances or outside any geographical limit imposed by the Insurances; (c) comply with the terms and conditions of each policy of the Insurances and not do, consent or agree to any act or omission which:- (i) invalidates or may invalidate the Insurances; or (ii) renders or may render void or voidable the whole or any part of any of the Insurances; or (iii) brings any particular liability within the scope of an exclusion or exception to the Insurances; (d) not take out without the prior written approval of Lessor any insurance or reinsurance in respect of the Aircraft other than those required under this Agreement unless relating solely to hull total loss, business interruption, profit commission and deductible risk; (e) commence renewal procedures at least * days prior to expiry of any of the Insurances and provide to Lessor:- (i) if requested by Lessor, a written status report of renewal negotiation * days prior to each expiry date; (ii) telexed telecopy confirmation of completion of renewal prior to each expiry date; and (iii) certificates of insurance (and where appropriate certificates of reinsurance), and broker's (and any reinsurance brokers') letter of undertaking in a form acceptable to Lessor in English, detailing the coverage and confirming the insurers' (and any reinsurers') agreement to the specified insurance requirements of this Agreement within * days after each renewal date; (f) on request, provide to Lessor copies of documents or other information evidencing the Insurances; (g) on request, provide to Lessor evidence that the Insurance premiums have been paid; (h) not make any modification or alteration to the Insurances material and adverse to the interests of any of the Indemnitees; (i) be responsible for any deductible under the Insurances; and (j) provide any other insurance and reinsurance related information, or assistance, in respect of the Insurances as Lessor may reasonably require. 9.5 Failure to Insure: If Lessee fails to maintain the Insurances in compliance with this Agreement, each of the Indemnitees will be entitled but not bound, (without prejudice to any other rights of Lessor under this Agreement):- (a) to pay the premiums due or to effect and maintain insurances satisfactory to it or otherwise remedy Lessee's failure in such manner (including, without limitation to effect and maintain an "owner's interest" policy) as it considers appropriate. Any sums so expended by it will become immediately due and payable by Lessee to Lessor on an After-Tax Basis together with interest thereon at the rate specified in Clause 5.11, from the date of expenditure by it up to the date of reimbursement by Lessee; and (b) at any time while such failure is continuing to require the Aircraft to remain at any airport or to proceed to and remain at any airport designated by it until the failure is remedied to its satisfaction. 9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the Expiry Date with respect to its liability under the Indemnity in Clause 10 for * years which provides for each Indemnitee to be named as additional insured. Lessee's obligation in this Clause shall not be affected by Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees ceasing to have any interest in respect of the Aircraft. 9.7 Application of Insurance Proceeds:- As between Lessor and Lessee:- (a) all insurance payments received as the result of an Event of Loss or Engine Event of Loss occurring during the Term will be paid to Lessor and Lessor will pay the balance of those amounts to Lessee after deduction of all amounts which may be or become payable by Lessee to Lessor under this Agreement (including under Clause 11.1(b)); (b) all insurance proceeds of any property, damage or loss to the Aircraft, any Engine or any Part occurring during the Term not constituting an Event of Loss or Engine Event of Loss and in excess of the Damage Notification Threshold will be applied in payment (or to reimburse Lessee) for repairs or replacement property upon Lessor being satisfied that the repairs or replacement have been effected in accordance with this Agreement. Insurance proceeds in amounts below the Damage Notification Threshold may be paid by the insurer directly to Lessee. Any balance remaining may be retained by Lessor; (c) all insurance proceeds in respect of third party liability will, except to the extent paid by the insurers to the relevant third party, be paid to Lessor to be paid directly in satisfaction of the relevant liability or to Lessee in reimbursement of any payment so made; and (d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment of any such insurance proceeds a Default has occurred and is continuing, all such proceeds will be paid to or retained by Lessor to be applied toward payment of any amounts which may be or become payable by Lessee in such order as Lessor sees fit or as Lessor may elect. To the extent insurance proceeds are paid to Lessee, Lessee agrees to comply with the foregoing provisions and apply or pay over such proceeds as so required. 9.8 Previous Owner as Additional Insured:- Lessee shall effect and maintain insurance naming Viva as an additional insured under Lessee's public liability policy, to the extent of Viva's interest, for the period commencing on the Delivery Date and ending on the earlier to occur of (i) the second anniversary of the Delivery Date or (ii) the date of completion of the next scheduled annual heavy maintenance visit. 10. INDEMNITY 10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS, PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES, PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):- (A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY, PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL, MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE, OPERATION, DATE PROCESSING OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE; (B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH RENDERS VOIDABLE ANY OF THE INSURANCES; AND (C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT, COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON; BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION OF THIS AGREEMENT OR TO THE EXTENT IT ARISES SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN. 10.2 Duration: The indemnities contained in this agreement will continue in full force following the end of the Term notwithstanding any breach or repudiation by Lessor or Lessee of this Agreement or any termination of the lease of the Aircraft hereunder. 11. EVENTS OF LOSS 11.1 (a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft of the same manufacture, model, value and utility as the Aircraft. If Lessor exercises such option, Lessee shall be obliged to lease such substitute aircraft pursuant to the terms and conditions of this Agreement and such substitute aircraft shall constitute the Aircraft for all purposes of this Agreement. Lessor shall provide Lessee with details of the substitute aircraft as soon as may be practicable after the occurrence of the Event of Loss. If Lessor advises Lessee that Lessor does not wish to exercise such option, this Agreement will immediately terminate and except as expressly stated in this Agreement neither party will have any further obligation or liability under this Agreement other than pursuant to Clause 16.9 except that Lessor will return the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable, to Lessee; and (b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the earlier of (i) * Business Days after the Event of Loss and (ii) the date of receipt of insurance proceeds in respect of that Event of Loss. Subject to the rights of any insurers and reinsurers or other third party, upon irrevocable payment in full to Lessor of that amount and all other amounts which may be or become payable to Lessor under this Agreement, Lessor will without recourse or warranty (except as to Lessor's Liens) and without further act, be deemed to have transferred to Lessee all of Lessor's rights to any Engines and Parts not installed when the Event of Loss occurred, all on an as-is where-is basis, and will at Lessee's expense, execute and deliver such bills of sale and other documents and instruments as Lessee may reasonably request to evidence (on the public record or otherwise) the transfer and the vesting of Lessor's rights in such Engines and Parts in Lessee, free and clear of all rights of Lessor and Lessor Liens. (c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss, Lessee shall give Lessor prompt written notice thereof and shall, within * days after such occurrence, convey to Lessor, as replacement for the Engine suffering such event, title to a Replacement Engine. Each Replacement Engine shall be free of all Security Interests and shall be in as good an operating condition as the Engine being replaced, assuming the Engine being replaced was in the condition and repair required by the terms hereof immediately prior to the Engine Event of Loss. Upon full compliance by Lessee with the terms of this Clause 11.1(c), Lessor will transfer to Lessee title to the Engine which suffered the Engine Event of Loss. Prior to or at the time of any such conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a full warranty bill of sale, in form and substance reasonably satisfactory to Lessor, with respect to such Replacement Engine; (ii) cause a lease supplement (in form and substance satisfactory to Lessor) subjecting such Replacement Engine to this Agreement, to be duly executed by Lessee, and recorded pursuant to applicable Law; (iii) furnish Lessor with such evidence of title to such Replacement Engine as Lessor may reasonably request; (iv) furnish Lessor with an opinion of Lessee's counsel to the effect that title to such Replacement Engine has been duly conveyed to Lessor subject to this Agreement, free and clear of all Security Interests, and that such Replacement Engine is duly leased hereunder; (v) furnish a certificate signed by a duly authorized financial officer or executive of Lessee certifying that, upon consummation of such replacement, no Event of Default will have occurred or be continuing; (vi) furnish Lessor with such documents as Lessor may reasonably request in connection with the consummation of the transactions contemplated by this Clause 11.1(c), in each case in form and substance satisfactory to Lessor; and (vii) furnish such Financing Statements incorporating the Replacement Engine as may be requested by Lessor. For all purposes hereof, each such Replacement Engine shall be deemed part of the property leased hereunder, shall be deemed an "Engine" as defined herein and shall be deemed part of the same Aircraft as was the Engine replaced thereof. No Engine Event of Loss covered by this Clause 11.1(c) shall result in any reduction in Rent or affect Lessee's obligation to pay Engine Supplemental Rent or the amount thereof to be paid by Lessee. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of one or more Engines pursuant to this Clause 11.1. 11.2 Substitute Aircraft: (a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft (the "Substitute Aircraft") of the same manufacture and model as the Aircraft and having a value, utility and condition equal to or greater than the Aircraft as at the date of occurrence of the Event of Loss which Substitute Aircraft will be leased by Lessor to Lessee for the remainder of the Term pursuant to the terms and conditions of this Agreement. If Lessor exercises such option, the Substitute Aircraft will constitute the Aircraft for all purposes of this Agreement in respect of facts and circumstances arising after the date of delivery thereof to Lessee. Lessor shall provide Lessee with details of the Substitute Aircraft as soon as may be practicable after the occurrence of the Event of Loss; (b) Lessor will use all reasonable endeavors to deliver the Substitute Aircraft to Lessee as soon as may be practicable following the date of occurrence of the Event of Loss but not later than * months after such date; and (c) Lessee agrees to enter into such documentation as Lessor may require in order to reflect the leasing of the Substitute Aircraft as aforesaid including, without limitation, documentation in respect of the Insurances. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of the Aircraft or Airframe pursuant to this Clause 11.2. 11.3 Requisition: During any requisition for use or hire of the Aircraft, any Engine or Part which does not constitute an Event of Loss:- (a) the Rent and other charges payable under this Agreement will not be suspended or abated either in whole or in part, and Lessee will not be released from any of its other obligations under the Agreement (other than operational obligations with which Lessee is unable to comply solely by virtue of the requisition); and (b) so long as no Default has occurred and is continuing, Lessee will be entitled to any hire paid by the requisitioning authority in respect of the Term. Lessee will, as soon as practicable after the end of any such requisition, cause the Aircraft to be put into the condition required by this Agreement. Lessor will be entitled to all compensation payable by the requisitioning authority in respect of any change in the structure, state or condition of the Aircraft arising during the period of requisition, and Lessor will apply such compensation in reimbursing Lessee for the cost of complying with its obligations under this Agreement in respect of any such change, but so that, if any Default has occurred and is continuing, Lessor may apply the compensation or hire in or towards settlement of any amounts owing by Lessee under this Agreement. 12. RETURN OF AIRCRAFT 12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to Clause 13.2 or termination of the leasing of the Aircraft under this Agreement Lessee will, unless an Event of Loss has occurred, at its expense, redeliver the Aircraft and Aircraft Documents to Lessor at the Redelivery Location or such other airport as is mutually acceptable to the parties hereto, in accordance with the procedures and in compliance with the conditions set forth in Schedule 3, free and clear of all Security Interests and Permitted Liens (other than Lessor Liens) and in a condition qualifying for immediate certification of airworthiness by the FAA or as otherwise agreed by Lessor and Lessee. 12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee will make the Aircraft available to Lessor for inspection ("Final Inspection") in order to verify that the condition of the Aircraft complies with this Agreement. The Final Inspection will permit, and be of sufficient duration for, Lessor to:- (a) inspect the Aircraft Documents; (b) inspect the Aircraft and uninstalled Parts; (c) inspect the Engines, including without limitation (i) a borescope inspection of (A) the low pressure and high pressure compressors and (B) turbine and combustion areas, (ii) engine condition runs and (iii) review of Engine trend monitoring data and technical log reports covering the last * (*) days of operation; and (d) perform a complete borescope inspection of the APU; and (e) observe a * hour demonstration flight (with Lessor's representatives as on-board observers). 12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the condition of the Aircraft does not comply with this Agreement, Lessee will at Lessor's option:- (a) immediately rectify the non-compliance and to the extent the non-compliance extends beyond the Expiry Date, the Term will be automatically extended and this Agreement will remain in force until the non-compliance has been rectified as provided in Clause 12.8; or (b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax Basis, and provide to Lessor's satisfaction cash as security for that indemnity, against the cost of putting the Aircraft into the condition required by this Agreement. 12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's request, all documents necessary to export the Aircraft from the Habitual Base (including, without limitation, a valid and subsisting export license for the Aircraft) and required in relation to the deregistration of the Aircraft with the Air Authority. 12.5 Acknowledgment: Provided Lessee has complied with its obligations under this Agreement, following redelivery of the Aircraft by Lessee to Lessor at the Redelivery Location, Lessor will deliver to Lessee an acknowledgment confirming that Lessee has redelivered the Aircraft to Lessor in accordance with this Agreement. 12.6 Maintenance Program: (a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide Lessor or its agent reasonable access to Lessee's Maintenance Program and the Aircraft Documents in order to facilitate the Aircraft's integration into any subsequent operator's fleet; and (b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft deliver to Lessor a certified true current and complete copy of Lessee's Maintenance Program. Lessor agrees that it will not disclose the contents of Lessee's Maintenance Program to any person or entity except to the extent necessary to monitor Lessee's compliance with this Agreement and/or to bridge the maintenance program for the Aircraft from Lessee's Maintenance Program to another program after the Expiry Date. 12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be made in respect of fuel on board on the Delivery Date and the Expiry Date at the price then prevailing at the Redelivery Location. 12.8 Automatic Extension of Term: In the event of Lessee's failure to make the Aircraft available to Lessor for timely inspection pursuant to Clauses 12.1 hereof, non-compliance of the condition of the Aircraft under Clause 12.3 hereof or any other failure of Lessee which prevents timely Redelivery of the Aircraft to Lessor, the Term of this Agreement will be automatically extended and this Agreement will remain in force until such non-compliance has been rectified, with Lessee being obligated to pay Rent at a rate specified in Clause 5.3 plus * percent on a per diem basis with respect to the period of such extension. 13. DEFAULT 13.1 Events: Each of the following events will constitute an Event of Default and a repudiation (but not a termination) of this Agreement by Lessee (whether any such event or condition is voluntary or involuntary or occurs by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Government Entity). Lessee acknowledges that the occurrence of any Event of Default would represent a material default in the performance of its obligations under this Agreement:- (a) Non-payment: Lessee fails to make any payment under this Agreement on the due date; or (b) Insurance: Lessee fails to comply with any provision of Clause 9 or any insurance required to be maintained under this Agreement is canceled or terminated or notice of cancellation is given in respect of any such insurance; or (c) Breach: Lessee fails to comply with any other provision of this Agreement and, if such failure is in the reasonable opinion of Lessor capable of remedy, the failure continues for * days after notice from Lessor to Lessee; or (d) Representation: any representation or warranty made (or deemed to be repeated) by Lessee in or pursuant to this Agreement or in any document or certificate or statement is or proves to have been incorrect in any material respect when made or deemed to be repeated; or (e) Cross Default: (i) a final judgment for the payment of money not covered by insurance in excess of * Dollars ($*), or final judgments for the payment of money not covered by insurance in excess of * Dollars ($*) in the aggregate, shall be rendered against Lessee and the same shall remain undischarged for a period of * (*) days during which execution thereof shall not be effectively stayed by agreement of the parties involved, stayed by court order or adequately bonded; or (ii) attachments or other Security Interests shall be issued or entered against substantially all of the property of Lessee and shall remain undischarged or unbonded for * (*) days except for Security Interests created in connection with monies borrowed or obligations agreed to by Lessee in the ordinary course of its business; or (iii) Lessee shall default in the payment of any sum which by itself is in excess of $* or any sums which in aggregate exceed $* notwithstanding that any particular individual sum thereof does not exceed $* of any one or more obligations for the payment of borrowed money, for the deferred purchase price of property or for the payment of rent or hire under any lease of aircraft when the same becomes due if such nonpayment results in or would permit an acceleration of such indebtedness, or Lessee shall default in the performance of any other term, agreement, or condition contained in any agreement or instrument under or by which any such obligation is created, evidenced or secured, if the effect of such default is to cause or permit such obligation to become due prior to its stated maturity; or (iv) any event of default or termination event, howsoever described, occurs under the Other Agreements; or (f) Approvals: any consent, authorization, license, certificate or approval of or registration with or declaration to any Government Entity in connection with this Agreement (including, without limitation): - (i) any authorization required by Lessee to obtain and transfer freely Dollars (or any other relevant currency) out of any relevant country; or (ii) required by Lessee to authorize, or in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of this Agreement or the performance by Lessee of its obligations under this Agreement; or (iii) the registration of the Aircraft; or (iv) any airline license or air transport license including, without limitation, authority to operate the Aircraft under FAR Part 121 and a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code; is modified in a manner unacceptable to Lessor or is withheld, or is revoked, suspended, canceled, withdrawn, terminated or not renewed, or otherwise ceases to be in full force; or (g) Bankruptcy, etc.: (i) Lessee or any Subsidiary consents to the appointment of a custodian, receiver, trustee or liquidator of itself or all or any material part of Lessee's property or Lessee's consolidated property, or Lessee or any Subsidiary admits in writing its inability to, or is unable to, or does not, pay its debts generally as they come due, or makes a general assignment for the benefit of creditors, or Lessee or any Subsidiary files a voluntary petition in bankruptcy or a voluntary petition seeking reorganization in a proceeding under any bankruptcy or insolvency Laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee or any Subsidiary in any such proceeding, or Lessee or any Subsidiary by voluntary petition, answer or consent seeks relief under the provisions of any other bankruptcy, insolvency or other similar Law providing for the reorganization or winding-up of corporations, or provides for an agreement, composition, extension or adjustment with its creditors, or any corporate action (including, without limitation, any board of directors or shareholder action) is taken by Lessee or any Subsidiary in furtherance of any of the foregoing, whether or not the same is fully effected or accomplished; or (ii) an order, judgment or decree is entered by any court appointing, without the consent of Lessee or any of its Subsidiaries, a custodian, receiver, trustee or liquidator of Lessee or any Subsidiary, or of all or any material part of Lessee's property or Lessee's consolidated property is sequestered, and any such order, judgment or decree of appointment or sequestration remains in effect, undismissed, unstayed or unvacated for a period of * days after the date of entry thereof or at any time an order for relief is granted; or (iii) an involuntary petition against Lessee or any Subsidiary in a proceeding under the United States Federal Bankruptcy Laws or other insolvency Laws (as now or hereafter in effect) is filed and is not withdrawn or dismissed within * days thereafter or at any time an order for relief is granted in such proceeding, or if, under the provisions of any Law providing for reorganization or winding-up of corporations which may apply to Lessee or any Subsidiary, any court of competent jurisdiction assumes jurisdiction over, or custody or control of, Lessee or any Subsidiary or of all or any material part of Lessee's property, or Lessee's consolidated property and such jurisdiction, custody or control remains in effect, unrelinquished, unstayed or unterminated for a period of 30 days or at any time an order for relief is granted in such proceeding; or (h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations under this Agreement or this Agreement becomes wholly or partly invalid or unenforceable; or (i) Suspension of Business: Lessee or any of its Subsidiaries suspends or ceases or threatens to suspend or cease to carry on all or a substantial part of its business; or (j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers or threatens to dispose, convey or transfer of all or a material part of its assets, liquidates or dissolves or consolidates or merges with any other Person whether by one or a series of transactions, related or not, other than for the purpose of a reorganization of the terms of which have received the previous consent in writing of Lessor; or (k) Rights and Remedies: the existence, validity, enforceability or priority of the rights of Lessor as owner and the rights of Lessor as lessor in respect of the Aircraft are challenged by Lessee or any other person claiming by or through Lessee; or (l) Delivery: Lessee fails to timely comply with its obligations under Clause 4 to accept delivery of the Aircraft; or (m) Ownership, Security Interests and Related Matters: Lessee fails to timely comply with its obligations under Clause 8.7; or (n) Transfer: Lessee makes or permits any assignment or transfer of this Agreement, or any interest herein, or of the right to possession of the Aircraft, the Airframe, or any Engine; or (o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry Date in accordance with Clause 12. (p) Adverse Change: any event or series of events occurs which, in the reasonable opinion of Lessor might have a material adverse effect on the financial condition or operations of Lessee and its Subsidiaries or on the ability of Lessee to comply with its obligations under this Agreement; or (q) Letter of Credit: (i) the issuer of the Letter of Credit (if any) fails to make any payment under that Letter of Credit when due; or (ii) any such Letter of Credit is not in full force or, for any reason ceases to constitute the legal, valid and binding obligation of the issuer; or (iii) any of the events listed in paragraph (f)(i) above, with respect to the performance by the issuer of its obligations under any Letter of Credit, or paragraph (g) above applies to such issuer (references in those sub-paragraphs to Lessee being deemed to be to the issuer); or (iv) where applicable, any Letter of Credit is not renewed within the time required by Section 5.15; and each reference in this paragraph (q) to "the issuer" shall include a reference to any confirming bank for the Letter of Credit. 13.2 Rights: If an Event of Default occurs, Lessor may at its option (and without prejudice to any of its other rights under this Agreement), at any time thereafter (without notice to Lessee except as required under applicable Law):- (a) by notice to Lessee and with immediate effect on dispatch of such notice terminate the letting of the Aircraft (but without prejudice to the continuing obligations of Lessee under this Agreement), whereupon all rights of Lessee under this Agreement shall cease; and/or (b) proceed by appropriate court action or actions to enforce performance of this Agreement, including, without limitation, the payment of all Rent and all other amounts payable to Lessor or any Indemnitee pursuant to the terms hereof; and/or (c) proceed by appropriate court action or actions to recover damages for the breach of this Agreement which shall include, without limitation: - (i) all Rent and other amounts which are or become due and payable hereunder prior to the date Lessor recovers possession of the Aircraft; (ii) at Lessor's election, either one of the amounts determined pursuant to Clause 13.2(e) or Clause 13.2(f) below or any lost profits suffered by Lessor as a consequence of Lessor's inability to place the Aircraft with another lessee on financial terms that are as favorable to Lessor as the terms of this Agreement; (iii) all costs associated with Lessor's exercise of its remedies hereunder, including, but not limited to, repossession costs, legal fees, Aircraft storage costs, Aircraft re-lease or sale costs and Lessor's internal costs and expenses (including the cost of personnel time calculated based upon the compensation paid to the individuals involved on an annual basis and a general Lessor overhead allocation); (iv) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Aircraft; (v) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to redeliver the Aircraft in the condition required by this Agreement; and (vi) any other losses (including lost profits), damage, expense, cost or liability which Lessor suffers or incurs as a result of the Event of Default and/or termination of this Agreement, including an amount sufficient to fully compensate Lessor for any loss of or damage to Lessors residual interest in the Aircraft caused by Lessee's default; and/or (d) either: - (i) enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and, at Lessor's sole option, remove the same (and/or any engine which is not an Engine but which is installed on the Airframe, subject to the rights of the owner, lessor or secured party thereof) or cause it to be redelivered to Lessor at a location in the United States identified by Lessor (or such other location as Lessor may require) (the "Return Location"), by summary proceedings or otherwise, all without liability accruing to Lessor for or by reason of such entry or taking of possession whether for the restoration of damage to property, or otherwise, caused by such entry or taking, except damages caused by gross negligence or willful misconduct; and Lessor is hereby irrevocably, by way of security for Lessee's obligations under this Agreement, appointed attorney for Lessee in causing the redelivery or in directing the pilots of Lessee or other pilots to fly the Aircraft to that airport and will have all the powers and authorizations necessary for taking that action; or (ii) by serving notice require Lessee to redeliver the Aircraft to Lessor at a point within the continental United States designated by Lessor; and/or (e) sell at private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee; and/or (f) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under paragraph (a), paragraph (b), paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2, Lessor, by * days written notice to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts owing under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus the amount, if any, by which the aggregate Rent for the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the interest rate of * percent (*%) per annum, exceeds the fair market rental value (determined pursuant to the Appraisal Procedure) of the Aircraft for the remainder of the Term, after discounting such fair market rental value periodically (equal to installment frequency) to present worth as of the payment date specified in such notice at the interest rate of * percent (*%) per annum; and/or (g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have relet the Aircraft under a lease which extends at least to the date upon which the Term for the Aircraft would have expired but for Lessee's default, Lessor, in lieu of exercising its rights under Clause 13.2(f) above with respect to the Aircraft, may, if it shall so elect, demand that Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft due after the time of reletting) any unpaid Rent for the Aircraft due up to the date of reletting and any other amounts owing under this Agreement, plus the amount, if any, by which the aggregate Rent for the Aircraft, which would otherwise have become due over the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth as of the date of reletting at the interest rate of * percent (*%) per annum, exceeds the aggregate basic rental payments to become due under the reletting from the date of such reletting to the date upon which the Term for the Aircraft would have expired but for Lessee's default, discounted periodically (equal to installment frequency) to present worth as of the date of the reletting at the interest rate of * percent (*%) per annum; and/or (h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f), and (g) of this Clause 13.2, by * days written notice to Lessee specifying a payment date, Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor on the payment date specified in such notice as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts payable under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus an amount equaling the aggregate Rent for the remainder of the Term, discounted periodically (equal to installment frequency) to present worth at the interest rate of * per cent (*%) per annum; (i) draw upon the Deposit (including the Letter of Credit) or the Supplemental Rent furnished under this Agreement or the Related Agreements (as those times are defined in such agreements) and apply such amounts to amounts owing to Lessor hereunder. Lessee, for itself and for its successors and assigns, hereby agrees that, to the extent now or hereafter permitted by applicable Law, notwithstanding any provision of the Federal Bankruptcy Code as amended from time to time, the title of Lessor to the Aircraft and any right of Lessor to take possession of the Aircraft in compliance with the provisions of this Agreement, in each case, upon the occurrence and continuance of an Event of Default, shall not be affected by the provisions of the Federal Bankruptcy Code, as amended from time to time. In addition to the foregoing, Lessee shall be liable for any and all unpaid Rent and other amounts payable under this Agreement during or after the exercise of any of the aforementioned remedies, together with interest on such unpaid amounts at the Interest Rate set forth in Letter Agreement No. 1, and until satisfaction of all of Lessee's obligations to Lessor hereunder and (on an After-Tax Basis) for all reasonable legal fees and other reasonable costs and expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the return of the Aircraft in accordance with the terms of Clause 12 hereof or in placing the Aircraft in the condition and with airworthiness certification as required by such Clause. In effecting any repossession, Lessor and its representatives and agents, to the extent permitted by Law, shall: (i) have the right to enter upon any premises where it reasonably believes the Aircraft, the Airframe, an Engine or Part to be located; (ii) not be liable, in conversion or otherwise, for the taking of any personal property of Lessee which is in or attached to the Aircraft, the Airframe, an Engine or Part which is repossessed; provided, however, that Lessor shall return to Lessee all personal property of Lessee or its passengers which was on the Aircraft at the time Lessor re-takes possession of the Aircraft; (iii) not be liable or responsible, in any manner, for any inadvertent damage or injury to any of Lessee's property in repossessing and holding the Aircraft, the Airframe, an Engine or Part, except for that caused by or in connection with Lessor's gross negligence or willful acts; (iv) have the right to maintain possession of and dispose of the Aircraft, the Airframe, an Engine or Part on any premises owned by Lessee or under Lessee's control; and (v) have the right to obtain a key to any premises at which the Aircraft, the Airframe, an Engine or Part may be located from the landlord or owner thereof. If reasonably required by Lessor, Lessee, at its sole expense, shall assemble and make the Aircraft, the Airframe, an Engine or Part available at a place designated by Lessor in accordance with Clause 12 hereof. Lessee hereby agrees that, in the event of the return to or repossession by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express or implied) previously assigned to Lessee or otherwise held by Lessee shall without further act, notice or writing be assigned or reassigned to Lessor, if assignable. Lessee shall be liable to Lessor on an After-Tax Basis for all reasonable expenses, disbursements, costs and fees incurred in (i) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby authorized and instructed, at its option, to make reasonable expenditures which Lessor considers advisable to repair and restore the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof, all at Lessee's sole expense. At any public sale of the Aircraft, the Airframe, an Engine or Part pursuant to this Clause, Lessor may bid for and purchase such property and Lessee agrees that the amounts paid therefor shall be used in the computation contemplated herein. With the exception that the remedy in Clause 13.2(g) can be elected only if the remedy in Clause 13.2(f) is not elected and the remedy in Clause 13.2(h) can be elected only in lieu of all other remedies save the remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this Clause 13 is intended to be exclusive, but, to the extent permissible hereunder or under applicable Law, each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at Law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies; provided, however, that nothing in this Clause 13 shall be construed to permit Lessor to obtain a duplicate recovery of any element of damages to which Lessor is entitled. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default. 13.3 Deregistration: If an Event of Default occurs, Lessor may sell or otherwise deal with the Aircraft free and clear of any leasehold or other interest of Lessee as if this Agreement had never been made and Lessee will at the request of Lessor take all steps necessary to effect (if applicable) deregistration of the Aircraft and its export from the country where the Aircraft is for the time being situated and any other steps necessary to enable the Aircraft to be redelivered to Lessor in accordance with this Agreement including without limitation execution and filing of a certificate or other instrument of lease termination with the Air Authority and; Lessee hereby irrevocably and by way of security for its obligations under this Agreement appoints (which appointment is coupled with an interest) Lessor as its attorney to execute and deliver any documentation and to do any act or thing required in connection with the foregoing. 14. ASSIGNMENT 14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT. 14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its rights under this Agreement and in the Aircraft. In the case of an assignment other than by way of security, Lessor will be released from and will have no further obligation under this Agreement following the assignment of all its rights under this Agreement and the assumption by the assignee or transferee of all of Lessor's obligations under this Agreement. Notwithstanding any such assignment, Lessor will remain entitled to the benefit of each indemnity and the liability insurances effected under this Agreement. Lessee will comply with all reasonable requests of Lessor, its successors and assigns in respect of any such assignment. Lessor will promptly notify Lessee of any assignment. 14.3 Transfer: If Lessor desires to effect any assignment or transfer of its rights and obligations under this Agreement, Lessee agrees to cooperate and take all such steps as Lessor may reasonably request to give the transferee the benefit of this Agreement and to acknowledge the release of Lessor from its obligations hereunder as of the time of such assignment or transfer. 15. ILLEGALITY If it is or becomes unlawful in any jurisdiction for Lessor to give effect to any of its obligations as contemplated by this Agreement or to continue this Agreement, Lessor may by notice in writing to Lessee terminate the leasing of the Aircraft under this Agreement and Lessee will forthwith redeliver the Aircraft to Lessor in accordance with Clause 12. Without prejudice to the foregoing Lessor will consult in good faith with Lessee as to any steps which may be taken to restructure the transaction to avoid that unlawfulness but will be under no obligation to take any such steps. 16. MISCELLANEOUS 16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:- (i) may be exercised as often as necessary; (ii) are cumulative and not exclusive of its rights under any Law; and (iii) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right will not constitute a waiver of that right. 16.2 Delegation: Lessor may delegate to any person or persons all or any of the trusts, powers or discretions vested in it by these presents and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate) as Lessor in its absolute discretion thinks fit. 16.3 Certificates: Save where expressly provided in this Agreement, any certificate or determination by Lessor as to any rate of interest or as to any other amount payable under this Agreement will, in the absence of manifest error, be conclusive and binding on Lessee. 16.4 Appropriation: If any sum paid or recovered in respect of the liabilities of Lessee under this Agreement is less than the amount then due, Lessor may apply that sum to amounts due under this Agreement in such proportions and order and generally in such manner as Lessor may determine at its sole discretion. 16.5 Currency: Lessee acknowledges that the specification of Dollars in this Agreement is of the essence and that Dollars shall be the currency of account in any and all events. Lessee waives any right it may have in any jurisdiction to pay any amount under this Agreement in a currency other than Dollars. 16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee against any obligation (whether or not matured) owed by Lessor to Lessee, regardless of the place of payment or currency. If the obligations are in different currencies, Lessor may convert either obligation at the market rate of exchange available in New York or at its option London for the purpose of the set-off. If an obligation is unascertained or unliquidated, Lessor may in good faith estimate that obligation and set off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained or liquidated. Lessor will not be obliged to pay any amounts to Lessee under this Agreement so long as any sums which are then due from Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee remain unpaid and any such amounts which would otherwise be due will fall due only if and when Lessee has paid all such sums except to the extent Lessor otherwise agrees or sets off such amounts against such payment pursuant to the foregoing. 16.7 Severability: If a provision of this Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect:- (a) the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or (b) the legality, validity or enforceability in any other jurisdiction of that or any other provision of this Agreement. 16.8 Remedy: If Lessee fails to comply with any provision of this Agreement, Lessor may, without being in any way obliged to do so or responsible for so doing and without prejudice to the ability of Lessor to treat the non-compliance as a Default or an Event of Default, effect compliance on behalf of Lessee, whereupon Lessee shall become liable to pay immediately any sums expended by Lessor together with all costs and expenses (including legal costs) in connection therewith. 16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to this Agreement, Lessee is to pay to Lessor on an After-Tax Basis on demand:- (a) all costs associated with perfecting Lessor's rights in the Aircraft and/or this Agreement in the State of Registration, the Habitual Base of the Aircraft (and other states as appropriate given the operation of the Aircraft), including (but not limited to) the provision of legal opinions, tax advice, stamp duties, translations and registrations, whether required by Lessor or Lessee. (b) all expenses (including legal, professional, and out-of-pocket expenses) incurred or payable by Lessor related to any amendment to or extension of or other documentation in connection with, or the granting of any waiver or consent under this Agreement requested by Lessee or the monitoring of compliance by Lessee with this Agreement; and (c) all expenses (including legal, survey and other costs) payable or incurred by Lessor in contemplation of, or otherwise in connection with, the enforcement of or preservation of any of Lessor's or Owner's rights under this Agreement, or in respect of the repossession of the Aircraft. All expenses payable pursuant to this Clause 16.9 will be paid in the currency in which they are incurred by Lessor. 16.10 Time of Essence: The time stipulated in this Agreement for all payments payable by Lessee to Lessor and the prompt, punctual and performance of Lessee's other obligations under this Agreement are of the essence of this Agreement. 16.11 Notices: All notices under, or in connection with, this Agreement will, unless otherwise stated, be given in writing by letter, facsimile or SITA. Any such notice is deemed effectively to be given as follows:- (i) if by letter, on the earlier of the date when delivered or the *th day after dispatch; (ii) if by facsimile or SITA, when transmitted and full transmission has been separately notified by telephone by the transmitting party. The address, telex numbers, SITA, facsimile and telephone numbers of Lessee, Lessor and Owner are as follows:- Lessee: Address: 12015 East 46th Avenue, Suite 200 Denver, Colorado 80239 United States of America Attn: General Counsel SITA: DENGAF9 Facsimile: (303) 371-7007 Telephone: (303) 371-7400 Lessor: Address: Aviation Financial Services, Inc. c/o GE Capital Aviation Services, Inc. 201 High Ridge Road Stamford, CT 06927-4900 Attn: Contracts - Leader North America Facsimile: (203) 961-5965 Telephone: (203) 357-4585 16.12 Governing Law and Jurisdiction: (a) THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES); (b) Pursuant to and in accordance with Section 5-1402 of the New York General Obligations Law, Lessee and Lessor each agree that the United States District Court for the Southern District of New York and any New York state court sitting in the City of New York, New York are to have nonexclusive jurisdiction to settle any disputes arising out of or relating to this Agreement and each party submits itself and its property to the nonexclusive jurisdiction of the foregoing courts with respect to such disputes; (c) Without prejudice to any other mode of service, (i) (A) Lessee appoints Corporation Service Company, 80 State Street, 6th Floor, Albany, New York 12207-2543 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessor and (B) Lessor appoints General Electric Capital Corporation, a New York corporation, 260 High Ridge Road, Stamford, Connecticut 06927 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessee; (ii) Each of Lessor and Lessee agrees that failure by a process agent to notify the other party of the process shall not invalidate the proceedings concerned; (iii) Each of Lessor and Lessee consents to the service of process relating to any such proceedings by prepaid mailing of a copy of the process to the other party's agent at the address identified in paragraph (i)(A) or (i) (B), respectively, or by prepaid mailing by air mail, certified or registered mail of a copy of the process to Lessee or Lessor, respectively, at the address set forth in Clause 16.11; (d) Lessee: - (i) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the COURTS REFERRED TO IN CLAUSE 16.12(b) ABOVE on grounds of inconvenient forum or otherwise as regards proceedings in connection with this Agreement; (ii) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this agreement brought in the courts REFERRED TO IN CLAUSE 16.12(b); (iii) agrees that a judgment or order of any court REFERRED TO IN CLAUSE 16.12(b) in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction; (e) Nothing in this Clause 16.12 limits the right of Lessor to bring proceedings against Lessee in connection with this Agreement: - (i) in any other court of competent jurisdiction; or (ii) concurrently in more than one jurisdiction; (f) Lessee irrevocably and unconditionally: - (i) agrees that if Lessor brings legal proceedings against it or its assets in relation to this Agreement no immunity from such legal proceedings (which will be deemed to include without limitation, suit, attachment prior to judgment, other attachment, the obtaining of judgment, execution or other enforcement) will be claimed by or on behalf of itself or with respect to its assets; (ii) waives any such right of immunity which it or its assets now has or may in the future acquire; (iii) consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such proceedings. 16.13 Sole and Entire Agreement: This Agreement and the other Operative Documents to which each is a party are the sole and entire agreement between Lessor and Lessee in relation to the leasing of the Aircraft, and supersede all previous agreements in relation to that leasing. 16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under this Agreement (other than Lessor) are given to Lessor on behalf of that Indemnitee. 16.15 Counterparts: This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. To the extent, if any, that this Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no Security Interest in this Agreement may be created through the transfer or possession of any counterpart other than the counterpart that has been marked "Counterpart No. 1" on the cover page thereof. 16.16 Language: All notices to be given under this Agreement will be in English. All documents delivered to Lessor pursuant to this Agreement will be in English, or if not in English, will be accompanied by a certified English translation. If there is any inconsistency between the English version of this Agreement and any version in any other language, the English version will prevail. 16.17 No Brokers: Lessee hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessor or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. Lessor hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessee or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. For the purposes hereof, the term "Excluded Persons" shall mean (x) in the case of Lessor, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere, and (y) in the case of Lessee, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere. Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, but not limited to reasonable attorneys' fees) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon this Agreement or the Operative Documents to which Lessor and Lessee are a party or the Aircraft, if such claim damage, cost or expense arises out of any action or alleged action by the indemnifying party, its employees or agents. 17. DISCLAIMERS AND WAIVERS 17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS, WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: - (a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: - (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH; (ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO; (iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES; (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE 2.4. 17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS. 17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN CALCULATED BASED ON ITS PROVISIONS. 18. SECTION 1110 Lessee acknowledges that Lessor would not have entered into the Lease unless it had available to it the benefits of a lessor under Section 1110 of Title 11 of the U.S.C. Lessee covenants and agrees with Lessor that to better ensure the availability of such benefits, Lessee shall support any motion, petition or application filed by Lessor with any bankruptcy court having jurisdiction over Lessee whereby Lessor seeks recovery of possession of the Aircraft under said Section 1110 and shall not in any way oppose such action by Lessor unless Lessee shall have complied with the requirements of said Section 1110 to be fulfilled in order to entitle Lessee to continued use and possession of the Aircraft hereunder. In the event said Section 1110 is amended, or if it is repealed and another statute is enacted in lieu thereof, Lessor and Lessee agree to amend the Lease and take such other action not inconsistent with the Lease as Lessor reasonably deems necessary so as to afford to Lessor the rights and benefits as such amended or substituted statute confers upon owners and lessors of aircraft similarly situated to Lessor. 19. USURY LAWS: The parties intend to contract in strict compliance with the usury Laws of the States of New York and Colorado and, to the extent applicable, the United States of America. Notwithstanding anything to the contrary in the Operative Documents, Lessee will not be obligated to pay any interest in excess of the maximum non-usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by Lessor in connection with the Operative Documents. During any period of time in which the then-applicable highest lawful rate is lower than the rate specified in Clauses 5.11 or 13.2, interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will pay interest at the highest lawful rate until the aggregate amount of interest paid by Lessee equals the amount of interest that would have been payable in accordance with the interest rate specified in Clauses 5.11 or 13.2. 20. MODIFICATION OR REVISION: Neither this Agreement nor any term of this Agreement may be modified, rescinded, changed waived, discharged or terminated except by a writing signed by the party to be charged. Lessor and Lessee acknowledge their agreement to the provision of this Clause 20 by their initials below: - LESSOR: __________ LESSEE: ____________ 21. IN WITNESS whereof the parties hereto have executed this Agreement on the date shown at the beginning of this Agreement. WITNESS SIGNED on behalf of AVIATION FINANCIAL SERVICES INC. By: ___________________________ Name: ___________________________ Title: ___________________________ WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC. By: ___________________________ Name: ___________________________ Title: ___________________________ AIRCRAFT LEASE AGREEMENT THIS AGREEMENT is made as of the 7th day of January, 2000 between:- (1) AVIATION FINANCIAL SERVICES INC., a company incorporated under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation whose principal place of business is at c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, Connecticut, 06927 ("Lessor"); and (2) FRONTIER AIRLINES, INC., a company incorporated under the laws of the State of Colorado whose principal place of business is at 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America ("Lessee"). WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease from Lessor the Aircraft on the terms of this Agreement. IT IS AGREED as follows:- 1. INTERPRETATION 1.1 DEFINITIONS In this Agreement the following expressions have the meanings set out opposite:- After-Tax Basis in the case of any amount payable on an "After-Tax Basis" to or for the benefit of any Person (including any amount payable pursuant to this definition) (a "Required Payment"), the total amount that must be paid is the amount such that, after deduction of the net amount of all Taxes required to be paid by such Person with respect to the receipt or accrual by it of such amount (and assuming that such Person is subject to (i) United States Federal income tax at the highest marginal statutory rate imposed on corporations for the relevant period, (ii) United States state and local income taxes at the composite of the highest marginal statutory rates imposed on such Person for the relevant period, as such composite rate shall be certified by a financial officer of such Person, and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on such Person) the net amount received is the amount of the Required Payment. Agreed Value the amount specified for Agreed Value in Letter Agreement No. 1. Air Authority Federal Aviation Administration ("FAA"). Aircraft the aircraft described in Part 1 of Schedule 1, (which term includes where the context admits a separate reference to all Engines, Parts and Aircraft Documents) or any aircraft substituted in place thereof pursuant to Clause 11.1 or 11.2. Aircraft Documents the documents, data and records identified in Part 2 of Schedule 1 and all additions, renewals, revisions and replacements from time to time made in accordance with this Agreement. Airframe the Aircraft, excluding the Engines and Aircraft Documents. Appraisal Procedure the following procedure for determining the "fair market rental value" of the Aircraft: (a) Lessor shall select an independent aircraft appraiser who shall make a determination of "fair market rental value" of the Aircraft; and (b) the fees and expenses of the appraiser shall be paid by Lessee. "Fair market rental value" shall mean the value determined by an appraisal completed on an "as-is" and "where-is" basis. APU the auxiliary power unit installed on the Aircraft on the Delivery Date and any replacement auxiliary power unit installed in accordance with this Agreement. Boeing The Boeing Company, a Delaware corporation with its principal office in Seattle, State of Washington, U.S.A. Business Day a day (other than a Saturday or Sunday) on which business of the nature required by this Agreement is carried out in the State of Incorporation or where used in relation to payments on which banks are open for business in New York. Certificated Air Carrier any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be issued, any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the United States of America, and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated so as to entitle Lessor, as a lessor, to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft. Cold Section Refurbishment with respect to any Engine the completion of the following: completely unstacking either high or low or both compressor sections, if needed, and completing the following for the appropriate section(s): visual inspection; de-blading discs as necessary; visual and NDT (Non-Destructive Testing) inspections as necessary of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the compressor; balance of all rotors; and installation of rotors in the engine. Cycle one take-off and landing of the Aircraft. DGAC means the Civil Aviation Authority of Spain. Damage Notification Threshold the amount specified therefor in Letter Agreement No. 1. Default any Event of Default and any event which with the giving of notice, lapse of time, determination of materiality or fulfillment of other condition would constitute an Event of Default. Delivery Condition Requirements the requirements specified on Part 1 of Schedule 1. Delivery Date the date on which the Aircraft is tendered for delivery by Lessor in accordance with this Agreement. Delivery Location Marana, Arizona. Deposit all amounts payable pursuant to Clause 5.1 whether in cash or by Letter of Credit. Dollars and $ the lawful currency of the United States of America. Engine whether or not installed on the Aircraft:- (a) each engine of the manufacture and model specified in Part 1 of Schedule 1 (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower) which Lessor elects to tender to Lessee with the Aircraft on the Delivery Date, such engines being described as to serial numbers on the certificate of acceptance to be executed by Lessee upon delivery of the Aircraft; or (b) any engine which has replaced that engine, title to which has or should have, passed to Lessor in accordance with this Agreement; and in each case includes all modules and Parts from time to time belonging to or installed in that engine but excludes any properly replaced engine title to which has, or should have, passed to Lessee pursuant to this Agreement. Engine Event of Loss the occurrence with respect to an Engine only, whether or not installed on the Airframe, of any of those events described in provisions (a) through (d) of the definition of Event of Loss. Engine Flight Hour means each hour or part thereof an Engine is operated, elapsing from the moment that wheels of an aircraft on which such Engine is installed leave the ground until the wheels of such aircraft next touch the ground. Engine Refurbishment a complete disassembly, inspection and repair of the modules of an Engine per the engine manufacturer's maintenance manual, so that such Engine shall have a minimum expected on-wing life of * hours and * cycles. ERISA the Employee Retirement Income Security Act of 1974, as amended. Event of Default an event or condition specified in Clause 13.1. Event of Loss with respect to the Aircraft (including for the purposes of this definition the Airframe):- (a) the actual or constructive total loss of the Aircraft (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss, or requisition for use or hire which results in an insurance settlement on the basis of a total loss); or (b) it being destroyed, damaged beyond repair or permanently rendered unfit for normal use for any reason whatsoever; or (c) the requisition of title, or other compulsory acquisition, capture, seizure, deprivation, confiscation or detention for any reason of the Aircraft by the government of the State of Registration or other competent authority (whether de jure or de facto), but excluding requisition for use or hire not involving requisition of title; or (d) the hi-jacking, theft, condemnation, confiscation, seizure or requisition for use or hire of the Aircraft which deprives any person permitted by this Agreement to have possession and/or use of the Aircraft of its possession and/or use for more than * days (or, if earlier, beyond the Expiry Date). Excusable Delay with respect to delivery of the Aircraft, delay or non-performance due to or arising out of acts of God or public enemy, civil war, insurrection or riot, fire, flood, explosion, earthquake, accident, epidemic, quarantine restriction, any act of government, governmental priority, allocation, regulation or order affecting directly or indirectly, the Aircraft, any manufacturer, Lessor or any materials or facilities, strike or labor dispute causing cessation, slowdown or interruption of work, inability after due and timely diligence to procure equipment, data or materials from manufacturers, suppliers, any existing owner, seller or lessee in a timely manner, damage, destruction or loss, or any other cause to the extent that such cause is beyond the control of Lessor whether above mentioned or not and whether or not similar to the foregoing. Expiry Date the day preceding the numerically corresponding day * months after the Delivery Date or if earlier the date on which:- (a) the date Lessor, acting in accordance with the terms of this Agreement terminates the leasing of the Aircraft to Lessee under this Agreement; or (b) Lessor receives the Agreed Value together with any other amounts then due and unpaid by Lessee following an Event of Loss. FAA the Federal Aviation Administration of the United States of America and any successor thereof. FAR the Federal Aviation Regulations set forth in Title 14 of the United States Code of Federal Regulations, as amended and modified from time to time. Federal Aviation Act The Transportation Laws of the United States as set forth at 49 United States Code et seq. or any similar legislation of the United States of America enacted in substitution or replacement thereof. Financing Statements Uniform Commercial Code Financing Statements in respect of the Aircraft and Engines leased hereunder prepared in a form acceptable for filing with the applicable Government Entities in the Habitual Base, the state in which the chief executive office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the Habitual Base) and such other jurisdiction as Lessor shall reasonably require. Flight Hour each hour or part thereof (rounded up to two decimal places) elapsing from the moment the wheels of the Aircraft leave the ground on take off until the wheels of the Aircraft next touch the ground. GAAP generally accepted accounting principles in the United States. Governing Law the laws of the State of New York. Government Entity (a) any national government, political subdivision thereof, or local jurisdiction therein; (b) any instrumentality, board, commission, court, or agency of any thereof, however constituted; and (c) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any of the above is a participant. Gross Negligence means any intentional, conscious or voluntary action or decision which is taken with wanton, reckless, flagrant and culpable disregard for the consequences of such action or decision. Guaranty means a Guaranty of General Electric Capital Corporation to Lessee with respect to Lessor substantially in the form attached hereto as Exhibit A to Letter Agreement No. 1. Habitual Base the State of Colorado or, subject to the prior written consent of Lessor, any other state, country or countries in which the Aircraft is for the time being habitually based. Hot Section Refurbishment with respect to any Engine, the complete visual inspection and repair as necessary of the combustion section of an Engine in an engine repair/overhaul station including without limitation complete unstacking of the high pressure or low pressure turbine or both if needed; complete visual inspection of such turbine(s); de-blading of discs as required; visual and NDT inspections of all discs as required; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of all blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the turbine; balance of all rotors; and installation of rotors in the engine. Indemnitee each of GE Capital Aviation Services, Inc. ("GECASI"), GE Capital Aviation Services Limited ("GECASL"), Lessor, and any of their respective successors and assigns, shareholders, subsidiaries, affiliates, partners, contractors, directors, officers, servants, agents and employees and indemnitees; provided, however, that no such Indemnitee shall be entitled to an indemnification to the extent such Indemnitee is manufacturer of the Aircraft, any Engines, or Parts in its capacity as such. Insurances as defined in Clause 9.1 hereof. Landing Gear the landing gear assembly of the Aircraft excluding any rotable components. Law shall mean and include (a) any statute, decree, constitution, regulation, order judgment or other directive of any Governmental Entity; (b) any treaty, pact, compact or other agreement to which any Governmental Entity is a signatory or party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above. Lease Supplement a Lease Supplement, substantially in the form of Schedule 6 hereto, entered into between Lessor and Lessee. Lessee's Maintenance Program the Maintenance Program specifically approved by the Air Authority for Lessee's maintenance of the Aircraft. Lessor Lien (a) any Security Interest whatsoever from time to time created by or through Lessor in connection with the financing of the Aircraft; (b) any other Security Interest in respect of the Aircraft which results from acts of or claims against Lessor not related to the transactions contemplated by or permitted under this Agreement; and (c) Security Interests in respect of the Aircraft for Lessor Taxes. Lessor Taxes Taxes:- (a) imposed as a direct result of activities of Lessor in the jurisdiction imposing the Tax unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement or the operation of the Aircraft by Lessee; or (b) imposed on the net income, profits or gains of Lessor by any Government Entity in the United State of America; provided, however, that Lessor Taxes shall not include any Tax imposed by any government or taxing authority of any jurisdiction if and to the extent that such Tax results from (i) the use, operation, presence or registration of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax, or (ii) the situs of organization, any place of business or any activity of Lessee or any other Person having use, possession or custody of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax; or (c) imposed with respect to any period commencing or event occurring after the Expiry Date and unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement; provided always, that Lessor Taxes shall not include any income taxes or other amounts payable and subject to indemnification in favor of Lessor pursuant to the Lease. Letter Agreement No. 1 that certain Letter Agreement No. 1 between Lessor and Lessee dated as of the date hereof. MACRS Deductions means cost recovery deductions for *% of the Lessor's cost of the Aircraft pursuant to Section 168(b) of the Internal Revenue Code of 1986, as amended, commencing in the year 2000, computed (i) on the basis that the Aircraft is "7-year property" (within the meaning of Section 168(e) of the Code), (ii) by using the *% declining balance method over a 7 year recovery period, switching to the straight-line method for the first taxable year of the Lessor during the term for which such method yields a larger allowance, (iii) assuming salvage value is zero, (iv) using a half-year convention and (v) assuming that the Aircraft is sold at the end of the Term of * months. Letter of Credit means any letter of credit issued in relation to the Lease pursuant to Section 5.15 and any replacement or renewal of that letter of credit. Maintenance Performer the Lessee, Tramco, USAir Inc., or such other Person as is approved by the FAA to perform maintenance and/or modification services on commercial aircraft and/or commercial aircraft engines, which Person shall be agreed by Lessor and Lessee to have recognized standing and experience, suitable facilities for the level of maintenance being carried out and suitable equipment to perform such services on aircraft and/or engines of the same or improved model as the Aircraft or, in the case of engines, the Engines. Maintenance Program an Air Authority approved maintenance program for the Aircraft based upon the Manufacturer's specifications, service bulletins, planning documents, maintenance manuals and documents and encompassing scheduled maintenance (including block maintenance), condition-monitored maintenance, and/or on-condition maintenance of Airframe, Engines and Parts, including but not limited to, servicing, testing, preventive maintenance, repairs, structural inspections, system checks, overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives, corrosion control, inspections and treatments. Major Checks any C-Check, multiple C-Check, D-Check or annual heavy maintenance visit or segment thereof suggested for commercial aircraft of the same model as the Aircraft by its manufacturer (however denominated) as set out in Lessee's Maintenance Program. Manufacturer Boeing. Minimum Liability Coverage the amount set forth therefore in Letter Agreement No. 1. Mortgage Convention shall mean the Convention for the International Recognition of Rights in Aircraft, signed (ad referendum) at Geneva, Switzerland, on June 19, 1948, and amended from time to time, but excluding the terms of any adhesion thereto or ratification thereof containing reservations to which the United States of America does not accede. Operative Documents shall mean this Agreement, all Lease Supplements hereto, Letter Agreement No. 1, the Guaranty, any schedules or documents prepared in conformance to the Schedules hereto, any side-letters related hereto and any amendments, revisions, supplements or modifications hereto or thereto. Other Agreements any agreement (other than this Agreement) made or to be made between Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) or AerFi Group plc (or an associate or affiliate thereof) and Lessee (or an associate or affiliate thereof). Part whether or not installed on the Aircraft:- (a) any component, furnishing or equipment (other than a complete Engine) furnished with the Aircraft on the Delivery Date; and (b) any other component, furnishing or equipment (other than a complete Engine) title to which has, or should have passed to Lessor pursuant to this Agreement; but excludes any such items title to which has, or should have, passed to Lessee pursuant to this Agreement. Permitted Lien (a) any lien for Taxes not assessed or, if assessed, not yet due and payable, or being contested in good faith by appropriate proceedings; (b) any lien of a repairer, mechanic, carrier, hangarkeeper or other similar lien arising in the ordinary course of business or by operation of Law in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings; and (c) any Lessor Lien. but only if (in the case of both (a) and (b)) (i) adequate resources have been provided by Lessee for the payment of the Taxes or obligations; and (ii) such proceedings, or the continued existence of the lien, do not give rise to any likelihood of the sale, forfeiture or other loss of the Aircraft or any interest therein or of criminal liability on Lessor. Person any individual person, corporation, partnership, firm, joint stock company, joint venture, trust, estate, unincorporated organization, association, Government Entity, or organization or association of which any of the above is a member or a participant. Redelivery Location a location on Lessee's route system in the United States designated by Lessor, or such other location as Lessor and Lessee shall agree. Related Agreements any agreement (other than this Agreement) made or to be made between or with Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) and Lessee (or an associate or affiliate of Lessee). Replacement Engine an engine of the same manufacturer and model, and having equivalent value, utility, modification status, time elapsed since Hot Section Refurbishment and Cold Section Refurbishment and remaining warranty status as the Engine it is intended to replace under Clause 11.1(c), or at Lessee's option, an engine of the same manufacturer as such Engine but of an improved model, and otherwise of an equivalent value and utility and suitable for installation and use on the Airframe without impairing the value or utility of the Airframe and compatible with the remaining installed Engine. Rent all amounts payable pursuant to Clause 5.3. Rental Period each period ascertained in accordance with Clause 5.2. Rent Date the first day of each Rental Period. Required LC Expiry Date means the date being * days after the Expiry Date. Return Occasion the date on which the Aircraft is redelivered to Lessor in accordance with Clause 12 hereof. Scheduled Delivery Month *. Security Interest any mortgage, charge, pledge, lien, assignment, hypothecation, right of set-off or any agreement or arrangement having the effect of creating a Security Interest other than a Permitted Lien. State of Incorporation State of Colorado. State of Registration United States of America. Subsidiary (a) in relation to any reference to accounts, any company whose accounts are consolidated with the accounts of Lessee in accordance with GAAP; (b) for any other purpose an entity from time to time:- (i) of which another has direct or indirect control or owns directly or indirectly more than 50 per cent of the voting share capital; or (ii) which is a direct or indirect subsidiary of another under the laws of the jurisdiction of its incorporation. Supplemental Rent all amounts payable under Clause 5.4(a). Tax Indemnitee means an Indemnitee and for any taxable year in which the Lessor joins in the filing of a consolidated federal income tax return, shall include each member of the affiliated group (within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto) of which the Lessor is a member. Taxes any and all present and future taxes, duties, withholdings, levies, assessments, imposts, fees and other governmental charges of all kinds together with any penalties, fines, surcharges and interest thereon and any additions thereto. Term the period commencing on the Delivery Date and ending on the Expiry Date, except that the Term may be extended beyond the Expiry Date if the Return Occasion is delayed in the circumstances specified, and subject to the limitation described, in Clause 12.3. United States the United States of America Viva collectively means (i) Viva Vuelos Internacionales de Vacaciones, S.A. (ii) Hispamer Servicos Financieros EFC - S.A. and (iii) Leasebanesto S.A Wet Lease any arrangement whereby Lessee agrees to furnish the Aircraft to a third party pursuant to which the Aircraft (i) shall be solely within the operational control of Lessee and shall be operated solely by regular employees of Lessee possessing all current certificates and licenses that would be required under the Federal Aviation Act for the performance by such employees of similar functions within the United States of America, (ii) shall be maintained by Lessee in accordance with Lessee's Maintenance Program and (iii) shall be and remain subject and subordinate to all other terms and conditions of this Agreement; provided, however, that Lessee shall remain primarily liable for the performance of all of the terms of this Agreement (including, without limitation, its obligations set forth in Clause 9 of this Agreement) to the same extent as if such arrangement had not been entered into. 1.2 CONSTRUCTION (a) In this Agreement, unless the contrary intention is stated, a reference to:- (i) each of "Lessor" or "Lessee" or any other person includes without prejudice to the provisions of this Agreement any successor in title to it and any permitted assignee; (ii) words importing the plural shall include the singular and vice versa; (iii) any document shall include that document as amended, novated or supplemented; (iv) a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement; (v) a reference to "Agreement", "the Agreement" or "this Agreement" shall, unless expressly provided otherwise, mean and include this Aircraft Lease Agreement and each of the other Operative Documents; and (b) the headings in this Agreement are to be ignored in construing this Agreement. 2. REPRESENTATIONS AND WARRANTIES 2.1 Lessee's Representations and Warranties: Lessee represents and warrants to Lessor that:- (a) Status: Lessee is a corporation duly incorporated and validly existing under the laws of the State of Incorporation and has the corporate power to own its assets and carry on its business as it is being conducted and is the holder of all necessary air transportation licenses required in connection therewith and with the use and operation of the Aircraft; (b) Power and authority: Lessee has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, this Agreement and the transactions contemplated by this Agreement; (c) Legal validity: this Agreement has been duly entered into and delivered by Lessee, and this Agreement does, and the Operative Documents to which it is a party when executed and delivered by Lessee will, constitute legal, valid and binding obligations of Lessee, enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally, and, to the extent that certain remedies require or may require enforcement by a court of equity, by such principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) as a court having jurisdiction may impose and by Laws which may affect some of such remedies but which do not make the available remedies inadequate for the substantial realization of the benefits provided herein; (d) Non-conflict: the entry into and performance by Lessee of, and the transactions contemplated by, this Agreement do not and will not:- (i) conflict with any laws binding on Lessee; or (ii) conflict with the constitutional documents of Lessee; or (iii) conflict with or result in default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding upon Lessee or any of its assets nor result in the creation of any Security Interest over any of its assets; (e) Authorization: all authorizations, consents, registrations and notifications required in connection with the entry into, performance, validity and enforceability of, this Agreement and the transactions contemplated by this Agreement, have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; (f) No Immunity: (i) Lessee is subject to civil commercial law with respect to its obligations under this Agreement; and (ii) neither Lessee nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Lessee constitute private and commercial acts; (g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries most recently delivered to Lessor, including balance sheets and statements of income and retained earnings:- (i) have been prepared in accordance with GAAP; and (ii) fairly represent the consolidated financial condition of Lessee and its Subsidiaries as at the date to which they were drawn up; (h) Restricted Countries: Lessee does not hold a contract or other obligation to operate the Aircraft to or for any of the countries designated under U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola. (i) Chief Executive's Office: Lessee's Chief Executive Office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) is located at 12015 East 46th Avenue, Suite 200, Denver, Colorado, United States of America; (j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft; and (j) Citizen of the United States: Lessee is a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 2.2 Lessee's Further Representations and Warranties: Lessee further represents and warrants to Lessor that:- (a) No Default: (i) no Default has occurred and is continuing or might result from the entry into or performance of the Operative Documents to which Lessee is a party; and (ii) no other event or condition has occurred and is continuing which constitutes (or with the giving of notice, lapse of time, determination of materiality or the fulfillment of any other applicable condition or any combination of the foregoing, might constitute) a material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding on Lessee or any assets of Lessee; (b) Registration: (i) except for the filing for recordation of this Agreement and a Lease Supplement with the FAA, and the filing of any Financing Statements required (and continuation statements at periodic intervals), no further filing or recording of this Agreement or of any other document (including any financing statement under Article 9 of the Uniform Commercial Code) and no further action, is or will be necessary under the Laws of the United States, the State of Incorporation, and the State of Registration, the Habitual Base or any other states in order to (A) fully establish, perfect and protect Lessor's title to, and interest in, the Aircraft or any Engine or Part as against Lessee or any third party, or (B) ensure the validity, effectiveness and enforceability of this Agreement or any other Operative Document to which the Lessee is a party; and (ii) under the laws of the State of Incorporation, the State of Registration and the Habitual Base the property rights of Lessor in the Aircraft have been fully established, perfected and protected and this Agreement will have priority in all respects over the claims of all creditors of Lessee; (c) Litigation: no litigation, arbitration or administrative proceedings are pending or to its knowledge threatened against Lessee which, if adversely determined, would have a material adverse effect upon its financial condition or business or its ability to perform its obligations under this Agreement; (d) Pari Passu: the obligations of Lessee under the Operative Documents to which it is a party rank at least pari passu with all other present and future unsecured and unsubordinated obligations (including contingent obligations) of Lessee, with the exception of such obligations as are mandatorily preferred by law and not by virtue of any contract; (e) Material Adverse Change: there has been no material adverse change in the consolidated financial condition of Lessee and its Subsidiaries or the financial condition of Lessee since the date to which the accounts most recently provided to Lessor on or prior to the Delivery Date were drawn up; (f) Taxes: Lessee has delivered all necessary returns and payments due to the tax authorities in the State of Incorporation, the State of Registration and the Habitual Base and is not required by Law to deduct any Taxes from any payments under this Agreement; (g) Information: the financial and other information furnished by Lessee in connection with this Agreement does not contain any untrue statement or omit to state facts, the omission of which makes the statements therein, in the light of the circumstances under which they were made, misleading, nor omits to disclose any material matter to Lessor and all forecasts and opinions contained therein were honestly made on reasonable grounds after due and careful inquiry by Lessee; and (h) ERISA: Lessee is not engaged in any transaction in connection with which it could be subjected to either a civil penalty assessed pursuant to Section 502 of ERISA or any tax imposed by Section 4975 of the Internal Revenue Code; no material liability to the Pension Benefit Guaranty Corporation has been or is expected by Lessee to be incurred with respect to any employee pension benefit plan (as defined in Section 3 of ERISA) maintained by Lessee or by any trade or business (whether or not incorporated) which together with Lessee would be treated as a single employer under Section 4001 of ERISA and Section 414 of the Internal Revenue Code; there has been no reportable event (as defined in Section 4043(b) of ERISA) with respect to any such employee pension benefit plan; no notice of intent to terminate any such employee pension benefit plan has been filed or is expected to be filed, nor has any such employee pension benefit been terminated; no circumstance exists or is anticipated that constitutes or would constitute grounds under Section 4042 of ERISA for the Pension Benefit Guaranty Corporation to institute proceedings to terminate, or to appoint a trustee to manage the administration of, such an employee pension benefit plan; and no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived, exists with respect to any such employee pension benefit plan. 2.3 Repetition: The representations and warranties in Clause 2.1 and Clause 2.2 will survive the execution of this Agreement. The representations and warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be repeated by Lessee on the Delivery Date with reference to the facts and circumstances then existing. The representations and warranties contained in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as if made with reference to the facts and circumstances then existing. 2.4 Lessor's Representations and Warranties: Lessor represents and warrants to Lessee that:- (a) Status: Lessor is a company duly incorporated and validly existing under the laws of the State of New York and has the corporate power to own its assets and carry on its business as it is now being conducted; (b) Power and authority: Lessor has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, the Operative Documents to which it is a party and the transactions contemplated by the Operative Documents to which it is a party; (c) Legal validity: the Operative Documents to which it is a party constitute Lessor's legal, valid and binding obligation; (d) Non-conflict: the entry into and performance by Lessor of, and the transactions contemplated by, the Operative Documents to which it is a party do not and will not:- (i) conflict with any laws binding on Lessor; or (ii) conflict with the constitutional documents of Lessor; or (iii) conflict with any document which is binding upon Lessor or any of its assets; (e) Authorization: so far as concerns the obligations of Lessor, all authorizations, consents, registrations and notifications required under the laws of the State of New York in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Operative Documents to which it is a party by Lessor have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; and (f) No Immunity: (i) Lessor is subject to civil commercial law with respect to its obligations under the Operative Documents to which it is a party; and (ii) neither Lessor nor any of its assets is entitled to any right of immunity and the entry into and performance of the Operative Documents to which it is a party by Lessor constitute private and commercial acts. 3. CONDITIONS PRECEDENT 3.1 Conditions Precedent: Lessor's obligation to deliver and lease the Aircraft under this Agreement is subject to satisfaction of each of the following conditions:- (a) receipt by Lessor from Lessee not later than * Business Days prior to the Delivery Date of the following satisfactory in form and substance to Lessor:- (i) Constitutional Documents: a copy of the constitutional documents of Lessee including without limitation articles of incorporation, bylaws and a current certificate of good standing issued by the secretary of the state for the State of Incorporation; (ii) Resolutions: a copy of a resolution of the board of directors of Lessee approving the terms of, and the transactions contemplated by, this Agreement, resolving that it enter into this Agreement, and authorizing a specified person or persons to execute this Agreement and the other Operative Documents to which it is a party and accept delivery of the Aircraft on its behalf; (iii) Opinion: evidence that opinions as reasonably agreed by Lessor will be issued on the Delivery Date by legal counsel acceptable to Lessor; (iv) FAA Opinion: a draft of an opinion of Crowe & Dunlevy P.C. or other counsel acceptable to Lessor who are recognized specialists with regard to FAA registration matters in form acceptable to Lessor as to the due filing for recordation of this Agreement, to be delivered in executed final form to Lessor and Lessee upon such filing and recordation; (v) Approvals: evidence of the issue of each approval, license and consent which may be required in relation to, or in connection with, the performance by Lessee of any of its obligations hereunder (including, without limitation, any consent to the export of the Aircraft from the Habitual Base and consent to the deregistration of the Aircraft upon the termination of the leasing of the Aircraft under this Agreement); (vi) Licenses: copies of Lessee's Certificate of Convenience and Necessity, Radio License, FAR Part 121 operator's certificates and all other licenses, certificates and permits required by Lessee in relation to, or in connection with, the operation of the Aircraft; (vii) Process Agent: a letter from the process agent appointed by Lessee in this Agreement accepting that appointment; (viii) Certificate: a certificate of a duly authorized officer of Lessee:- (a) setting out a specimen of each signature referred to in Clause 3.1(a)(ii); (b) certifying that each copy document specified in this Clause is correct, complete and in full force and effect; (c) certifying that Lessee's representations and warranties contained in Clause 2.1 and 2.2 are true and correct on the Delivery Date as if given on such date; and (d) certifying that there has been no material change in Lessee's Constitutional Documents since originally delivered by Lessee to Lessor; (ix) Air Traffic Control: a letter from Lessee addressed to Transport Canada or other relevant air traffic control authority pursuant to which Lessee authorizes the addressee to issue to Lessor, upon Lessor's request from time to time, a statement of account of all sums due by Lessee to the authority in respect of all aircraft (including, without limitation, the Aircraft) operated by Lessee; (x) Deregistration Power: an irrevocable power of attorney authorizing Lessor or such other person as Lessor may from time to time specify to do any thing or act or to give any consent or approval which may be required to obtain deregistration of the Aircraft and to export the Aircraft from the Habitual Base upon termination of the leasing of the Aircraft under this Agreement, duly notarized and legalized; (xi) Certificate of Lease Termination: a certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 7 hereto, acknowledging that this Agreement is no longer in effect with respect to the Aircraft and Engines, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to the Lessee hereunder; and (xii) General: such other documents as Lessor may reasonably request; (b) the receipt by Lessor on or before the Delivery Date of:- (i) Opinions: a signed original of each of the opinions referred to in Clause 3.1(a)(iii) and 3.1(a)(iv); (ii) Payments: all sums due to Lessor under this Agreement on or before the Delivery Date including, without limitation, the first payment of Rent; (iii) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor that Lessee is taking the required steps to ensure due compliance with the provisions of this Agreement as to Insurances with effect on and after the Delivery Date; (iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be dated the Delivery Date, fully completed and executed by Lessor and Lessee, and filed for recording at the FAA; (v) Certificate of Technical Acceptance: in the form of Schedule 2 hereto, to be dated and fully completed, and executed by Lessor and Lessee certifying that Lessee has completed its inspection of the Aircraft in accordance with Clause 4.5 hereof and that Aircraft conforms to the provisions set forth therein and is in all respects acceptable to Lessee, or if not so acceptable, then setting forth discrepancies and corrective action to be taken; (vi) Accounts: the latest available accounts of Lessee as described in Clause 8.2(b)(i) and (ii); (vii) Documents: a confirmation of receipt of the Aircraft Documents delivered with the Aircraft on the Delivery Date; (viii) UCC-1 Financing Statements: in form acceptable to Lessor, and suitable for filing in the States of Colorado and New York and signed by Lessee; and (ix) General: such other documents as Lessor may reasonably request. (c) receipt by Lessor of such information and documents relating to the proposed Maintenance Program as Lessor may require and Lessor having agreed the proposed Maintenance Program on or prior to the Delivery Date; and (d) evidence that on the Delivery Date that all filings, registrations, recordings and other actions have been or will be taken which are necessary or advisable to ensure the validity, effectiveness and enforceability of this Agreement and the Assignments and to protect the property rights of Lessor in the Aircraft or any Part. 3.2 Further conditions precedent: The obligations of Lessor to deliver and lease the Aircraft under this Agreement are subject to the further conditions precedent that:- (a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are correct and would be correct if repeated on delivery of the Aircraft under this Agreement; and (b) no Default has occurred and is continuing or might result from the leasing of the Aircraft to Lessee under this Agreement. 3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole benefit of Lessor and may be waived or deferred in whole or in part and with or without conditions by Lessor. If any of those conditions are not satisfied on the Delivery Date and Lessor (in its absolute discretion) nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure that those conditions are fulfilled within * days after the Delivery Date and Lessor may treat as an Event of Default the failure of Lessee to do so. 4. COMMENCEMENT 4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the Aircraft on lease in accordance with this Agreement for the duration of the Term. Lessor will deliver and Lessee will accept the Aircraft on the day in the Scheduled Delivery Month notified by Lessor to Lessee at least * Business Days in advance of such date or such other day as may be agreed. In the event (a) Lessee is unwilling or unable to accept delivery of the Aircraft on the date notified by Lessor as the Delivery Date, and (b) the Aircraft meets Delivery Condition Requirements then Lessee's obligation to pay Rent hereunder shall commence on such Delivery Date notwithstanding that Lessee has not accepted possession of the Aircraft. After delivery the Aircraft and every Part will be in every respect at the sole risk of Lessee, who will bear all risk of loss, theft, damage or destruction to the Aircraft from any cause whatsoever. 4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the Delivery Location or such other location as may be agreed. Lessee will effect acceptance of the Aircraft by execution and delivery to Lessor of the duly completed and executed Certificate of Acceptance in the form of Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the form of Schedule 6 hereto and by authorizing the filing at the FAA of an executed copy of such Lease Supplement with an executed copy of this Agreement attached thereto. 4.3 Delayed Delivery: If owing to:- (a) any seller, manufacturer or existing lessee of the Aircraft delaying in the delivery of, or failing to deliver, the Aircraft to Lessor for any reason (other than because of any default of Lessor in the performance of its obligations under an agreement with that seller, manufacturer or lessee unless the default arises from any act or omission of Lessee) whether or not in circumstances entitling that seller, manufacturer or lessee to terminate that agreement; (b) any purchase agreement for the Aircraft terminating prior to delivery of the Aircraft (other than because of any default of Lessor in the performance of its obligations under that agreement unless the default arises from any act or omission of Lessee); (c) any Excusable Delay; or (d) notification of any defect or non-conformity pursuant to Clause 4.5; Lessor delays in the delivery of, or fails to deliver, the Aircraft under this Agreement:- (i) Lessor will not be responsible for any losses, including loss of profit, costs or expenses arising from or in connection with the delay or failure suffered or incurred by Lessee; (ii) subject to Clause 4.5, Lessee will not be entitled to terminate this Agreement or to reject the Aircraft when tendered for delivery by Lessor, on the grounds of any such delay; (iii) in the case of termination of a purchase agreement, Lessor may at any time after the termination terminate this Agreement; and (iv) upon any such termination or termination pursuant to Clause 4.5 neither Lessor nor Lessee will have any further obligation to the other under this Agreement other than as expressly set out in this Agreement, except that Lessor will repay to Lessee the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable. 4.4 Licenses: Lessee will at its expense obtain all licenses, permits and approvals which may be necessary to export the Aircraft from the Delivery Location. Lessor will furnish such data and information as may be reasonably requested by Lessee in connection with obtaining any such license, permit or approval. 4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase or lease agreement, Lessor will give Lessee an opportunity:- (a) to inspect the Aircraft at the Delivery Location; and (b) to assign up to 2 representatives to participate as observers in a demonstration flight to demonstrate the condition of the Aircraft. If Lessee notifies Lessor promptly prior to the Delivery Date of any defect or non-conformity with Schedule 1 observed during the inspection or demonstration flight, Lessor will correct or procure the correction of the defect or non-conformity as promptly as practicable (except to the extent otherwise agreed or to the extent in the opinion of Lessor it is impracticable or prohibitively expensive to do so). Subject to Clause 4.3, Lessor may postpone the Delivery Date in such a case to the date which Lessor notifies Lessee that the defect or non-conformity has been rectified. Lessee will be entitled to terminate this Agreement if Lessor notifies it that Lessor does not intend to correct the defect or non-conformity. 4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from and against all Claims (as defined in Clause 10) arising from death or injury to any observer or any employee of Lessee in connection with any demonstration flight or inspection of the Aircraft by Lessee. 5. PAYMENTS 5.1 Deposit: Lessee shall pay to Lessor a Deposit in cash or pursuant to a Letter of Credit in form and substance reasonably acceptable to Lessor in the amounts set forth in the definition of Deposit in Letter Agreement No. 1 and in accordance with the schedule set forth therein. So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits then held by Lessor upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 5.2 Rental Periods: The Term will consist of consecutive whole or partial Rental Periods set forth in Letter Agreement No. 1. The first Rental Period will commence on the Delivery Date and each subsequent Rental Period will commence on the date succeeding the last day of the previous Rental Period. Each Rental Period will end on the date immediately preceding the calendar day in the next month numerically corresponding to the Delivery Date, except that: (a) if there is no such numerically corresponding day in that month, it will end on the last day of that month; and (b) if a Rental Period would otherwise overrun the Expiry Date, it will end on the Expiry Date. 5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in advance in the amount specified as "Rent" in Letter Agreement No. 1. Payment must be initiated adequately in advance of the Rent Date to ensure that Lessor receives credit for the payment on the Rent Date. If a Rental Period begins on a non-Business Day, the Rent payable in respect of that Rental Period shall be paid on the Business Day immediately preceding the date on which such Rental Period commences. 5.4 Supplemental Rent: (a) Amount: Lessee will further pay to Lessor Supplemental Rent in relation to each calendar month or portion thereof during the Term and for the last Rental Period of the Term no later than the 10th day following the end of such calendar month as follows:- (i) in respect of the Airframe, the product of the Airframe Maintenance Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Aircraft during that calendar month ("Airframe Supplemental Rent"); and (ii) in respect of the life-limited Parts ("LLP") for each Engine, the product of the Life-Limited Parts Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine LLP Refurbishment Reserves"); and (iii) in respect of Engine Refurbishment for each Engine, the product of the Engine Refurbishment Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine Refurbishment Reserves"); and (iv) in respect of the Landing Gear, the product of the Landing Gear Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Landing Gear during that calendar month ("Landing Gear Supplemental Rent"). (b) Adjustment: Lessor may adjust the amount of Supplemental Rent after the Delivery Date upon notice to Lessee not more frequently than annually utilizing the Escalation Adjustment set forth in Letter Agreement No. 1. The Engine Reserve Rate may be further adjusted not more frequently than annually as provided in Section III of Letter Agreement No. 1. 5.5 Payments: All payments by Lessee to Lessor under this Agreement will be made for value on the due date in Dollars and in same day funds settled through the New York Clearing House System or such other funds as may for the time being be customary for the settlement in New York City of international payments in Dollars by telegraphic transfer to Bankers Trust Company, ABA number * for the account of GECC T&I Air Depository Account, Account No. * or to such other account as Lessor may advise Lessee in writing. 5.6 Withholding: All payments by Lessee pursuant to the Operative Documents to which it is a party shall be free of all withholdings of any nature whatsoever except to the extent otherwise required by Law, and if any such withholding is so required, Lessee shall pay on an After-Tax Basis an additional amount such that after the deduction of all amounts required to be withheld, the net amount actually received by Lessor on an After-Tax Basis will equal the amount that Lessor would have received on an After-Tax Basis if such withholding had not been required; provided, however, that if Lessee pays any such additional amount to compensate for the withholding of any Lessor Tax, Lessor shall repay to Lessee within * days after receipt of Lessee's written request therefor (which request shall include a description in reasonable detail of the Lessor Tax involved and the calculation of the additional amount to be repaid) the amount of such additional amount to the extent attributable to any Lessor Tax. 5.7 General Tax Indemnity: (a) General: (i) Lessee will on demand pay and indemnify each Indemnitee against all Taxes (other than Lessor Taxes) levied or imposed against or upon or payable by such Indemnitee or Lessee and arising from, with respect to or in connection with the transactions pursuant to the Operative Documents to which it is a party including (but not limited to) all Taxes relating or attributable to Lessee, any Operative Document or the Aircraft directly or indirectly in connection with the importation, exportation, registration, ownership, leasing, sub-leasing, purchase, delivery, possession, use, operation, repair, maintenance, overhaul, transportation, landing, storage, presence or redelivery of the Aircraft or any part thereof or any rent, receipts, insurance proceeds, income or other amounts arising therefrom. (ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by Lessee directly to the appropriate taxing authority (to the extent permitted by applicable Law) at or before the time prescribed by applicable Law. After any payment by Lessee of any Tax directly to a taxing authority, Lessee shall furnish to Lessor, on request, a certified copy of a receipt for Lessee's payment of such Tax or such other evidence of payment of such Tax as is reasonably obtainable by Lessee and reasonably acceptable to Lessor. (iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause 5.7 shall be paid within * days after receipt of a written demand therefor from the relevant Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable, provided that if an amount of any indemnified Tax is being contested in accordance with Clause 5.12 and Lessee shall have duly performed (and shall continue to perform) all its obligations under Clause 5.12 with respect to such contest, then payment of the indemnity with respect to such Tax under Clause 5.12 shall , at Lessee's election, be deferred until the date the contest has been completed. (b) MACRS Tax Indemnity Lessee will on demand pay and indemnify each Tax Indemnitee for any loss, disallowance, or deferral of, or delay in claiming, the MACRS Deductions resulting from (A) Lessee's using the Aircraft in such a manner as to cause the Aircraft to be treated as "used predominantly outside the United States" within the meaning of Section 168(g) of The Internal Revenue Code of 1986, as amended (the "Code") or (B) the Aircraft being treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code other than as a result of the Lessor being a "tax-exempt entity" under Section 168(h)(2) of the Code (either (A) or (B) hereinafter referred to as a "MACRS Loss"). In determining the indemnity required in connection with a MACRS Loss to the Tax Indemnitee under this Clause, the Tax Indemnitees shall be assumed to be subject to a combined U. S. and state income tax rate of (after giving effect to the deductibility of such state income taxes for U. S. income tax purposes) *% in 2000 and in each year thereafter (the "Assumed Tax Rate"), and the Tax Indemnitee will have sufficient taxable income to be taxed at the Assumed Tax Rate after full utilization of the MACRS Deductions. The amount of the MACRS Loss for any taxable year or years shall be computed as the difference between (X) the present value of the MACRS Deductions for such year or years and all subsequent years using a discount rate of * per cent (*%) per annum, and (Y) the present value of the actual cost recovery deductions attributable to the Aircraft realized by the Tax Indemnitee as a result of the MACRS Loss (but assuming that the Aircraft is sold by the Lessor at the end of the Term of * months using a discount rate of * per cent (*%) per annum. The amount payable under this indemnity shall be the amount that, after deduction by the Tax Indemnitee of the amount of all additional U.S., state, local and foreign taxes required to be paid by the Tax Indemnitee in respect of the receipt or accrual of such amount, will equal the amount of the MACRS Loss as computed in the preceding sentence, plus the amount of any actual interest, penalties and additions to tax payable by the Tax Indemnitee with respect to the MACRS Loss. (c) Foreign Tax Credit Indemnity If, as a result of the use or operation or location of the Aircraft outside the United States by Lessee, more than the *% (the "Permitted Percentage") of any item of income, deduction, or loss with respect to the transactions contemplated by the Lease will be treated for Federal income tax purposes as derived from, or allocable to, sources outside the United States (an "Excess Foreign Allocation"), and if as a result thereof the amount of the foreign tax credits available for utilization by the Lessor for any taxable year shall be less than the amount of the foreign tax credits that would have been available for utilization by the Lessor if the Lessee had not used the Aircraft outside the United States more than the Permitted Percentage (such event being referred to herein as a "Foreign Tax Credit Loss"), then the Lessee shall pay to the Lessor as an indemnity an amount which, after deduction of the amount of all additional federal, state, local and foreign taxes actually required to be paid by the Lessor in respect of the receipt or accrual of such amount, is equal to the actual increase in the Federal income taxes payable by (or not refundable to) the Lessor for such taxable year as a result of such Foreign Tax Credit Loss, plus the amount of any interest, penalties and additions to tax payable by the Lessor as a result of such Foreign Tax Credit Loss. (d) Payment Each payment by the Lessee pursuant to Clauses 5.7(b) and (c) shall be made within * days after receipt of a written demand therefor accompanied by a written statement describing in reasonable detail the MACRS Loss or Foreign Tax Credit Loss in question, the amount of additional Federal income tax, interest, penalties and additions to tax and the calculation of the payment due in request thereof (but in no event shall be required to be paid earlier than * (*) Business Days prior to the date such additional Federal income taxes are due); provided that, if a contest of the MACRS Loss or Foreign Tax Credit Loss is being conducted pursuant to Clause 5.12 hereof, payment (other than payments required under Clause 5.12) shall not be required from the Lessee until * days after the final determination of such contest. 5.8. Sales and Use Taxes: (a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if requested by Lessor, Lessee shall pay to the relevant tax authority for the account of Lessor), in addition to the amounts specified as "Rent" in Letter Agreement No. 1: (i) all sales, use, rental, value added, goods and services and similar taxes ("Sales Taxes") required to be paid to the tax authority of the jurisdiction in which the Delivery Location is situated or to the jurisdiction in which the Aircraft is habitually based with respect to the lease of the Aircraft to Lessee pursuant to the Operative Documents to which it is a party unless Lessee delivers to Lessor on or prior to the Delivery Date such exemption certificate or other document as may be acceptable to Lessor to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party; and (ii) all Sales Taxes required to be paid to the tax authority of any jurisdiction in which the Aircraft may be used, operated or otherwise located from time to time unless Lessee delivers to Lessor such exemption certificates or other documents as may be required by applicable Law to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by each such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party. (b) Lessee will cooperate with Lessor in connection with the preparation and filing of any exemption application or similar document that is reasonably necessary or desirable under applicable Law to avoid the imposition of any Sales Taxes with respect to the transactions contemplated by the Operative Documents to which Lessee is a party. (c) The specific obligations with respect to sales and use taxes set forth in this Clause 5.8 are in addition to, and are not in substitution for, the Lessee's obligation to indemnify for sales and use taxes pursuant to Clause 5.7. 5.9 Information: (a) If Lessee is required by any applicable Law, or by any third party, to deliver any report or return in connection with any Taxes for which Lessee would be obligated to indemnify Lessor under the Operative Documents to which Lessee is a party, Lessee will complete the same and, on request, supply a copy of the report or return to Lessor. (b) If any report, return or statement is required to be made by Lessor with respect to any Tax for which there is an indemnity obligation of Lessee under this Clause 5, Lessee will promptly notify Lessor of the requirement and: (i) if permitted by applicable Law, make and timely file such report, return or statement (except for any report, return or statement that Lessor has notified Lessee that Lessor intends to prepare and file), prepare such return in such manner as will show the ownership of the Aircraft in Lessor if required or appropriate, and provide Lessor upon request a copy of each such report, return or statement filed by Lessee, or (ii) if Lessee is not permitted by applicable Law to file any such report, return or statement, Lessee will prepare and deliver to Lessor a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. Lessee will provide such information and documents as Lessor may reasonably request to enable Lessor to comply with its tax filing, audit and litigation obligations. 5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that, with respect to any payment or indemnity pursuant to Clause 5.7 (Tax Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to or for the benefit of any Indemnitee, Lessee's indemnity obligations shall include such amount as may be necessary to hold such Indemnitee harmless on an After-Tax Basis from all Taxes required to be paid by such Indemnitee with respect to such payment or indemnity (including any payments pursuant to this Clause 5.10), determined based on the assumption that at the time each such payment or indemnity accrues to the relevant Indemnitee, such payment or indemnity will be subject to (i) United States Federal income tax at the highest marginal statutory tax rate applicable to corporations, (ii) United States state and local income taxes at the composite of the highest marginal statutory tax rates applicable to the Indemnitee and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on the relevant Indemnitee. 5.11 Default Interest: If Lessee fails to pay any amount payable under this Agreement on the due date, Lessee will pay on demand from time to time to Lessor interest (both before and after judgment) on that amount, from the due date to the date of payment in full by Lessee to Lessor, at the Interest Rate specified in Letter Agreement No. 1; provided, however, that in no event shall such rate exceed the maximum permitted by Law. All such interest will be compounded monthly and calculated on the basis of the actual number of days elapsed in the month assuming a * day month and a * day year. 5.12 Contest: (a) If an Indemnitee receives a written claim for any Tax for which Lessee would be required to pay an indemnity pursuant to Clause 5.7 or Clause 5.8, such Indemnitee shall notify Lessee promptly of such claim, provided that any failure to provide such notice will not relieve Lessee of any indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If requested by Lessee in writing promptly after receipt of such Indemnitee's notice, such Indemnitee shall, upon receipt of indemnity satisfactory to it and at the expense of Lessee (including, without limitation, all costs, expenses, legal and accountants' fees and disbursements, and penalties, interest and additions to tax incurred in contesting such claim) in good faith contest or (if permitted by applicable Law in the case of Taxes other than those payable pursuant to Clauses 5.7(b) and (c)) permit Lessee to contest such claim by (i) resisting payment thereof if practicable and appropriate, (ii) not paying the same except under protest if protest is necessary and proper, or (iii) if payment is made, using reasonable efforts to obtain a refund of such Taxes in appropriate administrative and judicial proceedings. Such Indemnitee shall determine the method of any contest conducted by such Indemnitee and (in good faith consultation with Lessee) control the conduct thereof. Lessee shall determine the method of any contest conducted by Lessee and (in good faith consultation with such Indemnitee) control the conduct thereof. Lessee shall pay in full all payments of Rent and other amounts payable pursuant to the Operative Documents to which Lessee is a party, without reduction for or on account of any Tax, while such contest is continuing. Such Indemnitee shall not be required to contest, or to continue to contest, a claim for Taxes under this Clause 5.12 if (w) in the case of Taxes payable pursuant to Clauses 5.7(b) or (c), the amount in dispute is less than $*, or (x) such contest would result in a risk of criminal penalties or of a sale, forfeiture or loss of, or the imposition of a Lien (other than a Permitted Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion of independent tax counsel selected by such Indemnitee and reasonably satisfactory to Lessee, that a reasonable basis exists for such contest, or (z) a Default or an Event of Default shall be continuing (unless Lessee shall have provided security reasonably satisfactory to such Indemnitee securing Lessee's performance of its obligations under this Clause 5). If such Indemnitee contests any claim for Taxes by making a payment and seeking a refund thereof, then Lessee shall advance to such Indemnitee, on an interest-free basis, an amount equal to the Taxes to be paid by such Indemnitee in connection with the contest and shall indemnify such Indemnitee on an After-Tax Basis for any adverse tax consequences to such Indemnitee of such interest-free advance. Upon the final determination of any contest pursuant to this Clause 5.12 in respect of any Taxes for which Lessee shall have made an advance to such Indemnitee in accordance with the immediately preceding sentence, the amount of Lessee's obligation shall be determined as if such advance had not been made; any indemnity obligation of Lessee to such Indemnitee under this Clause 5 and such Indemnitee's obligation to repay the advance will be satisfied first by setoff against each other, and any difference owing by either party shall be paid within ten days after such final determination. (b) If an Indemnitee obtains a refund of all or any part of any Taxes for which a full indemnity was paid by Lessee, such Indemnitee shall pay Lessee the amount of such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such refund and increased by any Taxes saved by such Indemnitee by reason of the deductibility of such payment by such Indemnitee. If, in addition to such refund, such Indemnitee receives an amount of interest on such refund, such Indemnitee shall pay to Lessee the portion of such interest which is fairly attributable to such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such interest and increased by any Taxes saved by reason of the deductibility of such payment by such Indemnitee. Such Indemnitee shall not be required to make any payment to Lessee pursuant to this Clause 5.12 if, and for so long as, an Event of Default shall have occurred and be continuing. (c) Any Indemnitee in its sole discretion (by written notice to Lessee) may waive its rights to indemnification pursuant to Clause 5.7 with respect to any claim for any Tax and may refrain from contesting or continuing the contest of such claim, in which event Lessee shall have no obligation to indemnify such Indemnitee for the Taxes that are the subject of such claim. If an Indemnitee agrees to a settlement of any contest conducted pursuant to this Clause 5.11 without the prior written consent of Lessee, which consent shall not be unreasonably withheld, then Lessor shall be deemed to have waived its rights to the indemnification provided for in Clause 5.7 with respect to the Tax liability accepted in such settlement. 5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this Agreement are absolute and unconditional irrespective of any contingency whatsoever including (but not limited to):- (a) any right of set-off, counterclaim, recoupment, defense or other right which either party to this Agreement may have against the other; (b) any unavailability of the Aircraft for any reason, including, but not limited to, a requisition of the Aircraft or any prohibition or interruption of or interference with or other restriction against Lessee's use, operation or possession of the Aircraft; (c) any lack or invalidity of title or any other defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, or operation of any kind or nature of the Aircraft for any particular use or trade, or for registration or documentation under the laws of any relevant jurisdiction, or any Event of Loss in respect of or any damage to the Aircraft; (d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceedings by or against Lessor or Lessee; (e) any invalidity or unenforceability or lack of due authorization of, or other defect in, this Agreement; (f) and Security Interests with respect to the Aircraft or Taxes; and/or (g) any other cause which but for this provision would or might otherwise have the effect of terminating or in any way affecting any obligation of Lessee under this Agreement. 5.14 Security (a) To the fullest extent permitted by Law and by way of continuing security Lessee as sole beneficial owner charges the Deposit and the Supplemental Rent and all rights of Lessee to payment thereof and the debt represented thereby (the "Charged Monies") to Lessor by way of first fixed charge as security for Lessee's obligations and liabilities under this Agreement and the Related Agreements (the "Secured Liabilities"). Except as expressly permitted under this Agreement, Lessee will not be entitled to payment of the Charged Monies. Lessee will not assign, transfer or otherwise dispose of all or part of its rights in the Charged Monies and it will enter into any additional documents and instruments necessary or advisable to evidence, create or perfect Lessor's rights to the Charged Monies; (b) If Lessee fails to comply with any provision of this Agreement or any Event of Default has occurred and is continuing, in addition to all rights and remedies accorded to Lessor elsewhere in this Agreement and under Law as a secured party in respect of the Charged Monies, Lessor may immediately or at any time thereafter, without prior notice to Lessee:- (i) set-off all or any part of the Secured Liabilities against the liabilities of Lessor in respect of the Charged Monies; or (ii) apply or appropriate the Charged Monies in or towards the payment or discharge of the Secured Liabilities in such order as Lessor sees fit; and (c) If Lessor has exercised the set-off described in sub-clause (b) above, Lessee shall, following a demand in writing from Lessor, restore the Charged Monies to the level at which they stood immediately prior to such set-off. 5.15 Letter of Credit (a) If Lessee elects to provide Lessor with a Letter of Credit, the provisions of this Section shall apply. Any Letter of Credit provided by Lessee to Lessor will be issued and payable by USBank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by USBank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, and will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and each Other Agreement (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (b) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than * days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (c) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (d) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, immediately procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. 6. MANUFACTURER'S WARRANTIES 6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to the benefit of each warranty, express or implied, with respect to the Aircraft, any Engine or Part so far as concerns any manufacturer, vendor, subcontractor or supplier. Except to the extent Lessor otherwise directs, Lessor hereby authorizes Lessee to pursue any claim thereunder in relation to defects affecting the Aircraft, any Engine or Part and Lessee agrees diligently to pursue any such claim which arises at its own cost. Lessee will notify Lessor promptly upon becoming aware of any such claim. 6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular case, all proceeds of any such claim will be paid directly to Lessor but if and to the extent that such claim relates:- (a) to defects affecting the Aircraft which Lessee has rectified; or (b) to compensation for loss of use of the Aircraft, an Engine or any Part during the Term; and provided no Default has occurred and is continuing the proceeds will be paid to Lessee by Lessor but in the case of (a) above only on receipt of evidence satisfactory to Lessor that Lessee has rectified the relevant defect. 6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case, Lessee will procure that all engines, components, furnishings or equipment provided by the manufacturer, vendor, subcontractor or supplier in replacement of a defective Engine or Part pursuant to the terms of any warranty will be installed promptly by Lessee and that title thereto free of Security Interests vests in Lessor. On installation each part will be deemed to be a Part. In the case of a Replacement Engine, Lessee will satisfy and perform each of the conditions and covenants set forth in Clause 11.1(c), and upon satisfaction of such conditions, such Replacement Engine will be deemed an "Engine" for all purposes of this Agreement. 6.4 Agreement: To the extent any warranties relating to the Aircraft are made available under an agreement between any manufacturer, vendor, subcontractor or supplier and Lessee, this Clause 6 is subject to that agreement. However Lessee will:- (a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant to Clause 6.2 and pending such payment will hold the claim and the proceeds on trust for Lessor; and (b) Lessee will take all such steps as are necessary at the end of the Term to ensure the benefit of any of those warranties which have not expired are vested in Lessor. 7. LESSOR'S COVENANTS 7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its rights under or in connection with this Agreement will not constitute such an interference. Lessor will procure at Lessee's request an undertaking of quiet enjoyment for the benefit of Lessee with respect to any prospective Lessor Lien. 7.2 Release of Supplemental Rent: Provided no Default has occurred and is continuing Lessor will release funds to Lessee from the Supplemental Rent respecting maintenance work performed upon submission by Lessee to Lessor within * months of the commencement of that maintenance and before * (*) months following the Expiry Date of an invoice and supporting documentation reasonably satisfactory to Lessor evidencing:- (a) with respect to the Airframe, the completion, in accordance with this Agreement, of those items of maintenance (excluding any repairs arising as the result of operational or maintenance mishandling) characterized by the Manufacturer's maintenance planning document and best industry practice as "D" Check and/or individual structural inspections having an interval of not less than * Flight Hours or * years for the Aircraft or any lesser interval for an equivalent major structural inspection if required by the Manufacturer's maintenance planning document subject to retroactive and prospective adjustment of the Reserve Rates as deemed appropriate by Lessor, the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Airframe Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously released by Lessor under this sub-clause; (b) with respect to any Engine, the performance, in accordance with this Agreement, of all shop visits requiring engine disassembly (other than (i) repairs arising as a result of foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Engine Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; (c) with respect to life limited parts within any Engine, the performance, in accordance with this Agreement, of any such parts replacement (other than (i) replacement arising as a result of accidents or incidents (whether or not eligible for recovery under Lessee's insurance), foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of QEC kits) and/or (iii) any elective parts replacement), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate of Engine LLP Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; and (d) with respect to the Landing Gear, the performance in accordance with this Agreement, of all work on the landing gear in the nature of overhaul and requiring removal and disassembly (other than repairs arising as the result of operational or maintenance mishandling), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Landing Gear Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid by Lessor under this sub-clause. 7.3 Lessor Obligations Following Expiry Date: Within * Business Days of:- (a) redelivery of the Aircraft to Lessor in accordance with and in the condition required by this Agreement; or (b) payment to Lessor of the Agreed Value following an Event of Loss after the Delivery Date; or in each case such later time as Lessor is reasonably satisfied Lessee has irrevocably paid to Lessor all amounts which may then be outstanding or become payable under this Agreement, the other Operative Documents to which Lessee is a party or the Related Agreements and Lessee, Lessor will pay to Lessee:- (i) the balance of the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable; and (ii) the amount of any Rent received in respect of any period falling after the date of redelivery of the Aircraft or payment of the Agreed Value, as the case may be; and shall return to Lessee the warrant certificate, if not previously exercised, representing the Warrant. 8. LESSEE'S COVENANTS 8.1 Duration: The undertakings in this Clause and in Clause 12 will:- (a) except as otherwise stated, be performed at the expense of Lessee; and (b) remain in force until the Expiry Date in accordance with this Agreement and thereafter to the extent of any accrued rights of Lessor in relation to those undertakings. 8.2 Information: Lessee will:- (a) notify Lessor forthwith of the occurrence of any Default or any other event which might adversely affect Lessee's ability to perform any of its obligations under this Agreement; (b) furnish to Lessor:- (i) upon request, the consolidated management accounts of Lessee (comprising a balance sheet and profit and loss statement) prepared for the most recent previous financial quarter; (ii) as soon as available but not in any event later than * days after the last day of each financial year of Lessee, its audited consolidated balance sheet as of such day and its audited consolidated profit and loss statement for the year ending on such day; (iii) at the same time as it is issued to the shareholders or creditors of Lessee, a copy of each notice or circular issued to Lessee's shareholders or creditors as a group; and (iv) on request from time to time such other information regarding Lessee and its business and affairs as Lessor may reasonably request; (c) keep Lessor informed as to current serial numbers of the Engines and any engine installed on the Aircraft; (d) promptly furnish to Lessor all information Lessor from time to time reasonably requests regarding the Aircraft, any Engine or any Part, its use, location and condition including, without limitation, the hours available on the Aircraft and any Engine until the next scheduled check, inspection, overhaul, refurbishment or shop visit, as the case may be; (e) on request, within * days after the end of any Rental Period, furnish to Lessor evidence satisfactory to Lessor of payment of all Taxes due during that or any previous Rental Period; (f) on request, furnish to Lessor evidence satisfactory to Lessor that all Taxes and charges incurred by Lessee with respect to the Aircraft, including without limitation all payments due to the relevant air traffic control authorities, have been paid and discharged in full; (g) within * days after the end of each calendar month during the Term, provide Lessor with a monthly report on the Aircraft and each Engine in the form set out in Schedule 8 hereto; (h) give Lessor not less than * days' written notice as to the time and location of all Major Checks; and (i) promptly notify Lessor of:- (i) any loss, theft, damage or destruction to the Aircraft, any Engine or any Part, or any modification to the Aircraft if the potential cost may exceed the Damage Notification Threshold; and (ii) any claim or other occurrence likely to give rise to a claim under the Insurances (but in the case of hull claims only in excess of the Damage Notification Threshold) and details of any negotiations with the insurance brokers over any such claim. 8.3 Lawful and Safe Operation: Lessee will:- (a) comply with the law for the time being in force in any country or jurisdiction which may for the time being be applicable to the Aircraft (including without limitation Laws mandating insurance coverage) or, so far as concerns the use and operation of the Aircraft or an owner or operator thereof and take all reasonable steps to ensure that the Aircraft is not used for any illegal purpose; (b) not use the Aircraft in any manner contrary to any recommendation of the manufacturers of the Aircraft, any Engine or any Part or any recommendation or regulation of the Air Authority or for any purpose for which the Aircraft is not designed or reasonably suitable; (c) ensure that the crew and engineers employed by it in connection with the operation and maintenance of the Aircraft have the qualifications and hold the licenses required by the Air Authority and applicable Law; (d) use the Aircraft solely in commercial or other operations for which Lessee is duly authorized by the Air Authority and applicable Law; (e) not use the Aircraft for the carriage of:- (i) whole animals living or dead except in the cargo compartments according to I.A.T.A. regulations, and except domestic pet animals carried in a suitable container to prevent the escape of any liquid and to ensure the welfare of the animal; (ii) acids, toxic chemicals, other corrosive materials, explosives, nuclear fuels, nuclear wastes, or any nuclear assemblies or components, except as permitted for passenger aircraft under the "Restriction of Goods" schedule issued by I.A.T.A. from time to time and provided that all the requirements for packaging or otherwise contained therein are fulfilled; (iii) any other goods, materials or items of cargo which could reasonably be expected to cause damage to the Aircraft and which would not be adequately covered by the Insurances; or (iv) any illegal item or substance; (f) not utilize the Aircraft for purposes of training, qualifying or re-confirming the status of cockpit personnel except for the benefit of Lessee's cockpit personnel, and then only if the use of the Aircraft for such purpose is not disproportionate to the use for such purpose of other aircraft of the same type operated by Lessee; (g) not cause or permit the Aircraft to proceed to, or remain at, any location which is for the time being the subject of a prohibition order (or any similar order or directive) by:- (i) any Government Entity of the State of Registration or the Habitual Base; or (ii) any Government Entity of the country in which such location is situated; or (iii) any Government Entity having jurisdiction over Lessor or the Aircraft; (h) obtain and maintain in full force all certificates, licenses, permits and authorizations required for the use and operation of the Aircraft for the time being, and for the making of payments required by, and the compliance by Lessee with its other obligations under, this Agreement; (i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to or for any country or entity that is the subject of sanctions under the U.S. International Economic Emergency Powers Act or U.N. Security Council directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola). Lessee also covenants and agrees (i) not to operate or locate, or suffer or permit to be operated or located, the Aircraft in any country restricted under the U.S. Trading with the Enemy Act and the U.S. Export Administration Act except as may be permitted by operating in accordance with the conditions specified by the U.S. Export Administration Regulations (15 CFR Parts 730-799), General License GATS (15 CFR Part 771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii) not to operate the Aircraft between Cuba and the United States; and (j) not use, operate, or locate the Aircraft, or cause suffer or permit the Aircraft to be used, operated or located during the Term in any manner not covered by the Insurances or in any area excluded from coverage by the Insurances or in any manner which would prejudice the interests of the Indemnitees in the Insurances, the Aircraft, any Engine or any Part. 8.4 Taxes and other Outgoings: Lessee will promptly pay:- (a) all license and registration fees, Taxes (other than Lessor Taxes) and other amounts of any nature imposed by any Government Entity with respect to the Aircraft, including without limitation the purchase, ownership, delivery, leasing, possession, use, operation, return, sale or other disposition of the Aircraft; and (b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts in respect of any premises where the Aircraft or any Part thereof is located from time to time; except to the extent that in the reasonable opinion of Lessor such payment is being contested in good faith by appropriate proceedings, in respect of which adequate resources have been provided by Lessee and non-payment of which does not give rise to any material likelihood of the Aircraft or any interest therein being sold, forfeited or otherwise lost or of criminal liability on the part of Lessor. 8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8 AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF. 8.6 Inspection: (a) Lessor and any person designated by Lessor may at any time visit, inspect and survey the Aircraft, any Engine or any Part and for such purpose may, subject to any applicable Air Authority regulation, travel on the flight deck as observer; (b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable out-of-pocket expenses incurred by Lessor in connection with any such visit, inspection or survey; and (c) Lessor will:- (i) have no duty or liability to make, or arising out of making or failing to make, any such visit, inspection or survey; and (ii) so long as no Default has occurred and is continuing, not exercise such right other than on reasonable notice and so as not to disrupt unreasonably the commercial operations of Lessee, provided, however, Lessee will take such action as may be reasonably required to facilitate Lessor's inspection. 8.7 Title: Lessee will:- (a) not do or knowingly permit to be done or omit or knowingly permit to be omitted to be done any act or thing which might reasonably be expected to jeopardize the rights of Lessor as owner of the Aircraft; (b) on all occasions when the ownership of the Aircraft, any Engine or any Part is relevant, make clear to third parties that title is held by Lessor; (c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation or carriage (whether for hire or reward or gratuitously) which may be undertaken by Lessee or (ii) pledge the credit of Lessor; (d) ensure that there is always affixed, and not removed or in any way obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7 cm.) in a reasonably prominent position in the cockpit of the Aircraft and on each Engine stating:- "This Aircraft/Engine is owned by Aviation Financial Services Inc. and is leased to Frontier Airlines, Inc. and may not be operated by any other person without the prior written consent of Aviation Financial Services Inc."; (e) not create or permit to exist any Security Interest upon the Aircraft, any Engine or any Part; (f) not do or permit to be done anything which may reasonably be expected to expose the Aircraft, any Engine or any Part to penalty, forfeiture, impounding, detention, appropriation, damage or destruction and without prejudice to the foregoing, if any such penalty, forfeiture, impounding, detention or appropriation, damage or destruction occurs, give Lessor notice and use best endeavors to procure the immediate release of the Aircraft, any Engine or the Part, as the case may be; (g) not abandon the Aircraft, the Engine or any Part; (h) pay and discharge or cause to be paid and discharged when due and payable or make adequate provision by way of security or otherwise for all debts, damages, claims and liabilities which have given or might give rise to a Security Interest over or affecting the Aircraft, any Engine or any Part; and (i) not attempt, or hold itself out as having any power, to sell, lease or otherwise dispose of the Aircraft, any Engine or any Part; and (j) obtain a waiver of any mechanic's lien or right thereto from any vendor providing maintenance services for Lessee prior to delivering the Aircraft or any Engine or Part to such vendor. 8.8 General: Lessee will:- (a) not make any substantial change in the nature of the business in which it is engaged, will preserve its corporate existence (other than in connection with a solvent reconstruction the terms of which have been approved by Lessor, such approval not to be unreasonably withheld), and will conduct its business in an orderly and efficient and will maintain all rights, privileges, licenses and franchises material thereto or material to performing its obligations under this Agreement; (b) ensure that no change will occur in the Habitual Base of the Aircraft without the prior written consent of Lessor; (c) not without giving Lessor * days prior notice (in accordance with this Agreement), change its chief executive office (as such term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America; (d) remain a Certified Air Carrier and maintain, without limitation, its status so as to fall within the preview of Section 1110 of Title 11 of the United States Code or any analogous Statute; and (e) remain a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 8.9 Records: Lessee will:- (a) procure that accurate, complete and current records of all flights made by, and all maintenance carried out on, the Aircraft (including in relation to each Engine and Part subsequently installed, before the installation) are kept; keep the_records in such manner as the Air Authority may from time to time require. All records must be maintained in English. The records will form part of the Aircraft Documents; and (b) maintain, with appropriate revisions in English, all Aircraft Documents, records, logs, and other materials required by applicable Laws and best practice of major international air transport operators in respect of the Aircraft. 8.10 Protection: Lessee will:- (a) maintain the registration of the Aircraft with the Air Authority reflecting (so far as permitted by applicable Law) the interest of Lessor and not do or suffer to be done anything which might adversely affect that registration; and (b) do all acts and things (including, without limitation, making any filing or registration with the Air Authority or any other Government Entity or as required to comply with the Mortgage Convention where applicable) and execute and deliver all documents (including, without limitation, any amendment of this Agreement) as may be required by Lessor:- (i) following any change or proposed change in the ownership or financing of the Aircraft; or (ii) following any modification of the Aircraft, any Engine or any Part or the permanent replacement of any Engine or Part in accordance with this Agreement, so as to ensure that the rights of Lessor under this Agreement apply with the same effect as before; or (iii) to establish, maintain, preserve, perfect and protect the rights of Lessor under this Agreement and the interest of Lessor in the Aircraft. 8.11 Maintenance and Repair: Lessee will:- (a) keep the Aircraft airworthy in all respects and in good repair and condition; (b) not change the Maintenance Performer without providing the Lessor with prior written notice; (c) not materially change the Lessee's Maintenance Program or the schedule of the Lessee's Maintenance Program without the prior written consent of Lessor; (d) maintain the Aircraft in accordance with Lessee's Maintenance Program through the Maintenance Performer and perform (at the respective intervals provided in Lessee's Maintenance Program) all Major Checks; (e) maintain the Aircraft in accordance with the standard of maintenance required by FAR Part 121, Subpart L and any other rules and regulations of the FAA and in at least the same manner and with at least the same care, including, without limitation, maintenance scheduling, modification status and technical condition, as is the case with respect to similar aircraft owned or otherwise operated by Lessee and as if Lessee were to retain and continue operating the Aircraft in its fleet after the Expiry Date, including, without limitation, all maintenance to the Airframe, any Engine or any Part required to maintain all warranties, performance guarantees or service life policies in full force and effect except to the extent of conflict with the rules and regulations of the Air Authority; (f) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority and/or mandated by any manufacturer of the Aircraft, any Engine or Part (an "Airworthiness Directive); (g) comply with all applicable Laws and the regulations of the Air Authority and other aviation authorities with jurisdiction over Lessee or the Aircraft, any Engine or Part regardless of upon whom such requirements are imposed and which relate to the maintenance, condition, use or operation of the Aircraft or require any modification or alteration to the Aircraft, any Engine or Part; (h) maintain in good standing a current certificate of airworthiness (in the appropriate category for the nature of the operations of the Aircraft) for the Aircraft issued by the Air Authority except where the Aircraft is undergoing maintenance, modification or repair required or permitted by this Agreement and will from time to time provide to Lessor a copy on request; (i) if required by the Air Authority, maintain a current certification as to maintenance issued by or on behalf of the Air Authority in respect of the Aircraft and will from time to time provide to Lessor a copy on request; and (j) procure promptly the replacement of any Engine or Part which has become time, cycle or calendar expired, lost, stolen, seized, confiscated, destroyed, damaged beyond repair, unserviceable or permanently rendered unfit for use, with an engine or part complying with the conditions set out in Clause 8.13(a) and in the case of any Engine which suffers an Engine Event of Loss, shall procure that such engine complies with the provisions of Clause 11.1(c). 8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part installed on the Aircraft is at any time removed from the Aircraft other than:- (a) if replaced as expressly permitted by this Agreement; or (b) if the removal is of an obsolete item and is in accordance with Lessee's Maintenance Program; or (c) (i) during the course of maintaining, servicing, repairing, overhauling or testing that Engine or the Aircraft, as the case may be; or (ii) as part of a normal engine or part rotation program; or (iii) for the purpose of making such modifications to the Engine or the Aircraft, as the case may be, as are permitted under this Agreement; and then in each case (A) with respect to a Part, only if it is reinstalled or replaced by a part complying with Clause 8.13(a) as soon as practicable and in any event no later than the Expiry Date, and (B) with respect to an Engine, title to such Engine shall remain vested in Lessor. 8.13 Installation of Engines and Parts: Lessee will:- (a) ensure that, except as permitted by this Agreement, no engine or part is installed on the Aircraft unless:- (i) in the case of an engine, it is an engine of the same model as, or an improved or advanced version of the Engine it replaces, which is in the same or better operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits and has the same or greater value and utility as the replaced Engine; (ii) in the case of a part, it is in as good operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits, is of the same or a more advanced make and model and is of the same interchangeable modification status as the replaced Part; (iii) in the case of a part, it has become and remains the property of Owner free from Security Interests and on installation on the Aircraft will without further act be subject to this Agreement; and (iv) in each case, Lessee has full details as to its source and maintenance records; (b) if no Default has occurred which is continuing, be entitled to install any engine or part on the Aircraft by way of replacement notwithstanding Clause 8.13(a) if:- (i) there is not available to Lessee at the time and in the place that that engine or part is required to be installed on the Aircraft, a replacement engine or, as the case may be, part complying with the requirements of Clause 8.13(a); (ii) it would result in an unreasonable disruption of the operation of the Aircraft and/or the business of Lessee to ground the Aircraft until an engine or part, as the case may be, complying with Clause 8.13(a) becomes available for installation on the Aircraft; and (iii) as soon as practicable after installation of the same on the Aircraft but, in any event, no later than the Expiry Date, Lessee removes any such engine or part and replaces it with the Engine or Part replaced by it or by an engine or part, as the case may be, complying with Clause 8.13(a). 8.14 Non-Installed Engines and Parts: Lessee will:- (a) ensure that any Engine or Part which is not installed on the Aircraft (or any other aircraft as permitted by this Agreement) is, except as expressly permitted by this Agreement, properly and safely stored, and kept free from Security Interests; (b) notify Lessor whenever any Engine is removed from the Aircraft and, from time to time, on request procure that any person to whom possession of an Engine is given acknowledges in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in the Engine and will not seek to exercise any rights whatsoever in relation to it; (c) (notwithstanding the foregoing provisions of this sub-clause), be permitted, if no Default has occurred and is continuing, to install any Engine or Part on an aircraft, or in the case of a Part on an engine:- (i) owned and operated by Lessee free from Security Interests; or (ii) leased or hired to Lessee pursuant to a lease or conditional sale agreement on a long-term basis and on terms whereby Lessee has full operational control of that aircraft or engine; or (iii) acquired by Lessee and/or financed or refinanced, and operated by Lessee, on terms that ownership of that aircraft or engine, as the case may be, pursuant to a lease or conditional sale agreement, or a Security Interest therein, is vested in or held by any other Person; provided that in the case of (ii) and (iii):- (1) the terms of any such lease, conditional sale agreement or Security Interest will not have the effect of prejudicing the interest of Lessor in that Engine or Part; and (2) the lessor under such lease, the seller under such conditional sale agreement or the holder of such Security Interest, as the case may be, has confirmed and acknowledged in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in respect of that Engine or Part and that it will not seek to exercise any rights whatsoever in relation thereto. 8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any pooling agreement or arrangement in respect of an Engine or Part without the prior written consent of Lessor. 8.16 Equipment Changes: (a) Lessee will not make any modification or addition to the Aircraft (each an "Equipment Change"), except for an Equipment Change which:- (i) is expressly permitted by this Agreement, or (ii) has the prior written approval of Lessor and which does not diminish the value, utility, condition, or airworthiness of the Aircraft; (b) So long as a Default has not occurred and is continuing, Lessee may remove any Equipment Change if it can be removed from the Aircraft without diminishing or impairing the value, utility, condition or airworthiness of the Aircraft; and (c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes payable by Lessor as the case may be, as a result of an Equipment Change. 8.17 Title on an Equipment Change: (a) Title to all Parts installed on the Aircraft whether by way of replacement, as the result of an Equipment Change or otherwise (except those installed pursuant to Clause 8.13(b)) will on installation, without further act, vest in Lessor subject to this Agreement free and clear of all Security Interests. Lessee will at its own expense take all such steps and execute, and procure the execution of, all such instruments as Lessor may require and which are necessary to ensure that title so passes to Lessor according to all applicable Laws. At any time when requested by Lessor, Lessee will provide evidence to Lessor's satisfaction (including the provision, if required, to Lessor of one or more legal opinions) that title has so passed to Lessor; (b) Lessor may require Lessee to remove any Equipment Change and to restore the Aircraft to its condition prior to that Equipment Change; and (c) Except as referred to in Clause 8.17(b) any Engine or Part at any time removed from the Aircraft will remain the property of Owner until a replacement has been made in accordance with this Agreement and until title in that replacement has passed, according to applicable Laws, to Lessor subject to this Agreement and free of all Security Interests. Upon title to such replacement so passing to Lessor, title to the replaced Engine or Part, will, provided no Default has occurred and is continuing, pass to Lessee. 8.18 Third Party: Lessee will procure that no person (other than Lessor) will act in any manner inconsistent with its obligations under this Agreement and that all persons will comply with those obligations as if references to "Lessee" included a separate reference to those persons. 9. INSURANCE 9.1 Insurances: Lessee will maintain in full force during the Term, and thereafter as expressly required in this Agreement, insurances in respect of the Aircraft in form and substance satisfactory to Lessor (the "Insurances" which expression includes, where the context so admits, any relevant re-insurance(s)) through such brokers and with such insurers and having such deductibles and being subject to such exclusions as may be approved by Lessor from time to time. The Insurances will be effected either:- (a) on a direct basis with insurers of recognized standing who normally participate in aviation insurances in the leading international insurance markets and led by reputable underwriter(s) approved by Lessor; or (b) with a single insurer or group of insurers approved by Lessor who does not retain the risk but effects substantial reinsurance with reinsurers in the leading international insurance markets and through brokers each of recognized standing and acceptable to Lessor for a percentage acceptable to Lessor of all risks insured (the "Reinsurances"). 9.2 Requirements: Lessor's current requirements as to required Insurances are as specified in this Clause and in Schedule 4. Lessor may from time to time stipulate other requirements for the Insurances so that the scope and level of cover is maintained in line with best industry practice and the interests of Lessor protected. 9.3 Change: If at any time Lessor wishes to revoke its approval of any insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers will consult with Lessee and Lessee's brokers (as for the time being approved by Lessor) regarding whether that approval should be revoked to protect the interests of the parties insured. If, following the consultation, Lessor considers that any change should be made, Lessee will then arrange or procure the arrangement of alternative cover satisfactory to Lessor. 9.4 Insurance Covenants: Lessee will:- (a) ensure that all legal requirements as to insurance of the Aircraft, any Engine or any Part which may from time to time be imposed by the laws of the State of Registration or any state to, from or over which the Aircraft may be flown, in so far as they affect or concern the operation of the Aircraft, are complied with and in particular those requirements compliance with which is necessary to ensure that (i) the Aircraft is not in danger of detention or forfeiture, (ii) the Insurances remain valid and in full force and effect, and (iii) the interests of the Indemnitees in the Insurances and the Aircraft or any Part are not thereby prejudiced; (b) not use, cause or permit the Aircraft, any Engine or any Part to be used for any purpose or in any manner not covered by the Insurances or outside any geographical limit imposed by the Insurances; (c) comply with the terms and conditions of each policy of the Insurances and not do, consent or agree to any act or omission which:- (i) invalidates or may invalidate the Insurances; or (ii) renders or may render void or voidable the whole or any part of any of the Insurances; or (iii) brings any particular liability within the scope of an exclusion or exception to the Insurances; (d) not take out without the prior written approval of Lessor any insurance or reinsurance in respect of the Aircraft other than those required under this Agreement unless relating solely to hull total loss, business interruption, profit commission and deductible risk; (e) commence renewal procedures at least * days prior to expiry of any of the Insurances and provide to Lessor:- (i) if requested by Lessor, a written status report of renewal negotiation * days prior to each expiry date; (ii) telexed telecopy confirmation of completion of renewal prior to each expiry date; and (iii) certificates of insurance (and where appropriate certificates of reinsurance), and broker's (and any reinsurance brokers') letter of undertaking in a form acceptable to Lessor in English, detailing the coverage and confirming the insurers' (and any reinsurers') agreement to the specified insurance requirements of this Agreement within * days after each renewal date; (f) on request, provide to Lessor copies of documents or other information evidencing the Insurances; (g) on request, provide to Lessor evidence that the Insurance premiums have been paid; (h) not make any modification or alteration to the Insurances material and adverse to the interests of any of the Indemnitees; (i) be responsible for any deductible under the Insurances; and (j) provide any other insurance and reinsurance related information, or assistance, in respect of the Insurances as Lessor may reasonably require. 9.5 Failure to Insure: If Lessee fails to maintain the Insurances in compliance with this Agreement, each of the Indemnitees will be entitled but not bound, (without prejudice to any other rights of Lessor under this Agreement):- (a) to pay the premiums due or to effect and maintain insurances satisfactory to it or otherwise remedy Lessee's failure in such manner (including, without limitation to effect and maintain an "owner's interest" policy) as it considers appropriate. Any sums so expended by it will become immediately due and payable by Lessee to Lessor on an After-Tax Basis together with interest thereon at the rate specified in Clause 5.11, from the date of expenditure by it up to the date of reimbursement by Lessee; and (b) at any time while such failure is continuing to require the Aircraft to remain at any airport or to proceed to and remain at any airport designated by it until the failure is remedied to its satisfaction. 9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the Expiry Date with respect to its liability under the Indemnity in Clause 10 for * years which provides for each Indemnitee to be named as additional insured. Lessee's obligation in this Clause shall not be affected by Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees ceasing to have any interest in respect of the Aircraft. 9.7 Application of Insurance Proceeds:- As between Lessor and Lessee:- (a) all insurance payments received as the result of an Event of Loss or Engine Event of Loss occurring during the Term will be paid to Lessor and Lessor will pay the balance of those amounts to Lessee after deduction of all amounts which may be or become payable by Lessee to Lessor under this Agreement (including under Clause 11.1(b)); (b) all insurance proceeds of any property, damage or loss to the Aircraft, any Engine or any Part occurring during the Term not constituting an Event of Loss or Engine Event of Loss and in excess of the Damage Notification Threshold will be applied in payment (or to reimburse Lessee) for repairs or replacement property upon Lessor being satisfied that the repairs or replacement have been effected in accordance with this Agreement. Insurance proceeds in amounts below the Damage Notification Threshold may be paid by the insurer directly to Lessee. Any balance remaining may be retained by Lessor; (c) all insurance proceeds in respect of third party liability will, except to the extent paid by the insurers to the relevant third party, be paid to Lessor to be paid directly in satisfaction of the relevant liability or to Lessee in reimbursement of any payment so made; and (d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment of any such insurance proceeds a Default has occurred and is continuing, all such proceeds will be paid to or retained by Lessor to be applied toward payment of any amounts which may be or become payable by Lessee in such order as Lessor sees fit or as Lessor may elect. To the extent insurance proceeds are paid to Lessee, Lessee agrees to comply with the foregoing provisions and apply or pay over such proceeds as so required. 9.8 Previous Owner as Additional Insured:- Lessee shall effect and maintain insurance naming Viva as an additional insured under Lessee's public liability policy, to the extent of Viva's interest, for the period commencing on the Delivery Date and ending on the earlier to occur of (i) the second anniversary of the Delivery Date or (ii) the date of completion of the next scheduled annual heavy maintenance visit. 10. INDEMNITY 10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS, PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES, PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):- (A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY, PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL, MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE, OPERATION, DATE PROCESSING OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE; (B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH RENDERS VOIDABLE ANY OF THE INSURANCES; AND (C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT, COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON; BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION OF THIS AGREEMENT OR TO THE EXTENT IT ARISES SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN. 10.2 Duration: The indemnities contained in this agreement will continue in full force following the end of the Term notwithstanding any breach or repudiation by Lessor or Lessee of this Agreement or any termination of the lease of the Aircraft hereunder. 11. EVENTS OF LOSS 11.1 (a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft of the same manufacture, model, value and utility as the Aircraft. If Lessor exercises such option, Lessee shall be obliged to lease such substitute aircraft pursuant to the terms and conditions of this Agreement and such substitute aircraft shall constitute the Aircraft for all purposes of this Agreement. Lessor shall provide Lessee with details of the substitute aircraft as soon as may be practicable after the occurrence of the Event of Loss. If Lessor advises Lessee that Lessor does not wish to exercise such option, this Agreement will immediately terminate and except as expressly stated in this Agreement neither party will have any further obligation or liability under this Agreement other than pursuant to Clause 16.9 except that Lessor will return the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable, to Lessee; and (b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the earlier of (i) * Business Days after the Event of Loss and (ii) the date of receipt of insurance proceeds in respect of that Event of Loss. Subject to the rights of any insurers and reinsurers or other third party, upon irrevocable payment in full to Lessor of that amount and all other amounts which may be or become payable to Lessor under this Agreement, Lessor will without recourse or warranty (except as to Lessor's Liens) and without further act, be deemed to have transferred to Lessee all of Lessor's rights to any Engines and Parts not installed when the Event of Loss occurred, all on an as-is where-is basis, and will at Lessee's expense, execute and deliver such bills of sale and other documents and instruments as Lessee may reasonably request to evidence (on the public record or otherwise) the transfer and the vesting of Lessor's rights in such Engines and Parts in Lessee, free and clear of all rights of Lessor and Lessor Liens. (c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss, Lessee shall give Lessor prompt written notice thereof and shall, within * days after such occurrence, convey to Lessor, as replacement for the Engine suffering such event, title to a Replacement Engine. Each Replacement Engine shall be free of all Security Interests and shall be in as good an operating condition as the Engine being replaced, assuming the Engine being replaced was in the condition and repair required by the terms hereof immediately prior to the Engine Event of Loss. Upon full compliance by Lessee with the terms of this Clause 11.1(c), Lessor will transfer to Lessee title to the Engine which suffered the Engine Event of Loss. Prior to or at the time of any such conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a full warranty bill of sale, in form and substance reasonably satisfactory to Lessor, with respect to such Replacement Engine; (ii) cause a lease supplement (in form and substance satisfactory to Lessor) subjecting such Replacement Engine to this Agreement, to be duly executed by Lessee, and recorded pursuant to applicable Law; (iii) furnish Lessor with such evidence of title to such Replacement Engine as Lessor may reasonably request; (iv) furnish Lessor with an opinion of Lessee's counsel to the effect that title to such Replacement Engine has been duly conveyed to Lessor subject to this Agreement, free and clear of all Security Interests, and that such Replacement Engine is duly leased hereunder; (v) furnish a certificate signed by a duly authorized financial officer or executive of Lessee certifying that, upon consummation of such replacement, no Event of Default will have occurred or be continuing; (vi) furnish Lessor with such documents as Lessor may reasonably request in connection with the consummation of the transactions contemplated by this Clause 11.1(c), in each case in form and substance satisfactory to Lessor; and (vii) furnish such Financing Statements incorporating the Replacement Engine as may be requested by Lessor. For all purposes hereof, each such Replacement Engine shall be deemed part of the property leased hereunder, shall be deemed an "Engine" as defined herein and shall be deemed part of the same Aircraft as was the Engine replaced thereof. No Engine Event of Loss covered by this Clause 11.1(c) shall result in any reduction in Rent or affect Lessee's obligation to pay Engine Supplemental Rent or the amount thereof to be paid by Lessee. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of one or more Engines pursuant to this Clause 11.1. 11.2 Substitute Aircraft: (a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft (the "Substitute Aircraft") of the same manufacture and model as the Aircraft and having a value, utility and condition equal to or greater than the Aircraft as at the date of occurrence of the Event of Loss which Substitute Aircraft will be leased by Lessor to Lessee for the remainder of the Term pursuant to the terms and conditions of this Agreement. If Lessor exercises such option, the Substitute Aircraft will constitute the Aircraft for all purposes of this Agreement in respect of facts and circumstances arising after the date of delivery thereof to Lessee. Lessor shall provide Lessee with details of the Substitute Aircraft as soon as may be practicable after the occurrence of the Event of Loss; (b) Lessor will use all reasonable endeavors to deliver the Substitute Aircraft to Lessee as soon as may be practicable following the date of occurrence of the Event of Loss but not later than * months after such date; and (c) Lessee agrees to enter into such documentation as Lessor may require in order to reflect the leasing of the Substitute Aircraft as aforesaid including, without limitation, documentation in respect of the Insurances. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of the Aircraft or Airframe pursuant to this Clause 11.2. 11.3 Requisition: During any requisition for use or hire of the Aircraft, any Engine or Part which does not constitute an Event of Loss:- (a) the Rent and other charges payable under this Agreement will not be suspended or abated either in whole or in part, and Lessee will not be released from any of its other obligations under the Agreement (other than operational obligations with which Lessee is unable to comply solely by virtue of the requisition); and (b) so long as no Default has occurred and is continuing, Lessee will be entitled to any hire paid by the requisitioning authority in respect of the Term. Lessee will, as soon as practicable after the end of any such requisition, cause the Aircraft to be put into the condition required by this Agreement. Lessor will be entitled to all compensation payable by the requisitioning authority in respect of any change in the structure, state or condition of the Aircraft arising during the period of requisition, and Lessor will apply such compensation in reimbursing Lessee for the cost of complying with its obligations under this Agreement in respect of any such change, but so that, if any Default has occurred and is continuing, Lessor may apply the compensation or hire in or towards settlement of any amounts owing by Lessee under this Agreement. 12. RETURN OF AIRCRAFT 12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to Clause 13.2 or termination of the leasing of the Aircraft under this Agreement Lessee will, unless an Event of Loss has occurred, at its expense, redeliver the Aircraft and Aircraft Documents to Lessor at the Redelivery Location or such other airport as is mutually acceptable to the parties hereto, in accordance with the procedures and in compliance with the conditions set forth in Schedule 3, free and clear of all Security Interests and Permitted Liens (other than Lessor Liens) and in a condition qualifying for immediate certification of airworthiness by the FAA or as otherwise agreed by Lessor and Lessee. 12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee will make the Aircraft available to Lessor for inspection ("Final Inspection") in order to verify that the condition of the Aircraft complies with this Agreement. The Final Inspection will permit, and be of sufficient duration for, Lessor to:- (a) inspect the Aircraft Documents; (b) inspect the Aircraft and uninstalled Parts; (c) inspect the Engines, including without limitation (i) a borescope inspection of (A) the low pressure and high pressure compressors and (B) turbine and combustion areas, (ii) engine condition runs and (iii) review of Engine trend monitoring data and technical log reports covering the last * (*) days of operation; and (d) perform a complete borescope inspection of the APU; and (e) observe a * hour demonstration flight (with Lessor's representatives as on-board observers). 12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the condition of the Aircraft does not comply with this Agreement, Lessee will at Lessor's option:- (a) immediately rectify the non-compliance and to the extent the non-compliance extends beyond the Expiry Date, the Term will be automatically extended and this Agreement will remain in force until the non-compliance has been rectified as provided in Clause 12.8; or (b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax Basis, and provide to Lessor's satisfaction cash as security for that indemnity, against the cost of putting the Aircraft into the condition required by this Agreement. 12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's request, all documents necessary to export the Aircraft from the Habitual Base (including, without limitation, a valid and subsisting export license for the Aircraft) and required in relation to the deregistration of the Aircraft with the Air Authority. 12.5 Acknowledgment: Provided Lessee has complied with its obligations under this Agreement, following redelivery of the Aircraft by Lessee to Lessor at the Redelivery Location, Lessor will deliver to Lessee an acknowledgment confirming that Lessee has redelivered the Aircraft to Lessor in accordance with this Agreement. 12.6 Maintenance Program: (a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide Lessor or its agent reasonable access to Lessee's Maintenance Program and the Aircraft Documents in order to facilitate the Aircraft's integration into any subsequent operator's fleet; and (b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft deliver to Lessor a certified true current and complete copy of Lessee's Maintenance Program. Lessor agrees that it will not disclose the contents of Lessee's Maintenance Program to any person or entity except to the extent necessary to monitor Lessee's compliance with this Agreement and/or to bridge the maintenance program for the Aircraft from Lessee's Maintenance Program to another program after the Expiry Date. 12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be made in respect of fuel on board on the Delivery Date and the Expiry Date at the price then prevailing at the Redelivery Location. 12.8 Automatic Extension of Term: In the event of Lessee's failure to make the Aircraft available to Lessor for timely inspection pursuant to Clauses 12.1 hereof, non-compliance of the condition of the Aircraft under Clause 12.3 hereof or any other failure of Lessee which prevents timely Redelivery of the Aircraft to Lessor, the Term of this Agreement will be automatically extended and this Agreement will remain in force until such non-compliance has been rectified, with Lessee being obligated to pay Rent at a rate specified in Clause 5.3 plus * percent on a per diem basis with respect to the period of such extension. 13. DEFAULT 13.1 Events: Each of the following events will constitute an Event of Default and a repudiation (but not a termination) of this Agreement by Lessee (whether any such event or condition is voluntary or involuntary or occurs by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Government Entity). Lessee acknowledges that the occurrence of any Event of Default would represent a material default in the performance of its obligations under this Agreement:- (a) Non-payment: Lessee fails to make any payment under this Agreement on the due date; or (b) Insurance: Lessee fails to comply with any provision of Clause 9 or any insurance required to be maintained under this Agreement is canceled or terminated or notice of cancellation is given in respect of any such insurance; or (c) Breach: Lessee fails to comply with any other provision of this Agreement and, if such failure is in the reasonable opinion of Lessor capable of remedy, the failure continues for * days after notice from Lessor to Lessee; or (d) Representation: any representation or warranty made (or deemed to be repeated) by Lessee in or pursuant to this Agreement or in any document or certificate or statement is or proves to have been incorrect in any material respect when made or deemed to be repeated; or (e) Cross Default: (i) a final judgment for the payment of money not covered by insurance in excess of * Dollars ($*), or final judgments for the payment of money not covered by insurance in excess of * Dollars ($*) in the aggregate, shall be rendered against Lessee and the same shall remain undischarged for a period of * (*) days during which execution thereof shall not be effectively stayed by agreement of the parties involved, stayed by court order or adequately bonded; or (ii) attachments or other Security Interests shall be issued or entered against substantially all of the property of Lessee and shall remain undischarged or unbonded for * (*) days except for Security Interests created in connection with monies borrowed or obligations agreed to by Lessee in the ordinary course of its business; or (iii) Lessee shall default in the payment of any sum which by itself is in excess of $* or any sums which in aggregate exceed $* notwithstanding that any particular individual sum thereof does not exceed $* of any one or more obligations for the payment of borrowed money, for the deferred purchase price of property or for the payment of rent or hire under any lease of aircraft when the same becomes due if such nonpayment results in or would permit an acceleration of such indebtedness, or Lessee shall default in the performance of any other term, agreement, or condition contained in any agreement or instrument under or by which any such obligation is created, evidenced or secured, if the effect of such default is to cause or permit such obligation to become due prior to its stated maturity; or (iv) any event of default or termination event, howsoever described, occurs under the Other Agreements; or (f) Approvals: any consent, authorization, license, certificate or approval of or registration with or declaration to any Government Entity in connection with this Agreement (including, without limitation): - (i) any authorization required by Lessee to obtain and transfer freely Dollars (or any other relevant currency) out of any relevant country; or (ii) required by Lessee to authorize, or in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of this Agreement or the performance by Lessee of its obligations under this Agreement; or (iii) the registration of the Aircraft; or (iv) any airline license or air transport license including, without limitation, authority to operate the Aircraft under FAR Part 121 and a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code; is modified in a manner unacceptable to Lessor or is withheld, or is revoked, suspended, canceled, withdrawn, terminated or not renewed, or otherwise ceases to be in full force; or (g) Bankruptcy, etc.: (i) Lessee or any Subsidiary consents to the appointment of a custodian, receiver, trustee or liquidator of itself or all or any material part of Lessee's property or Lessee's consolidated property, or Lessee or any Subsidiary admits in writing its inability to, or is unable to, or does not, pay its debts generally as they come due, or makes a general assignment for the benefit of creditors, or Lessee or any Subsidiary files a voluntary petition in bankruptcy or a voluntary petition seeking reorganization in a proceeding under any bankruptcy or insolvency Laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee or any Subsidiary in any such proceeding, or Lessee or any Subsidiary by voluntary petition, answer or consent seeks relief under the provisions of any other bankruptcy, insolvency or other similar Law providing for the reorganization or winding-up of corporations, or provides for an agreement, composition, extension or adjustment with its creditors, or any corporate action (including, without limitation, any board of directors or shareholder action) is taken by Lessee or any Subsidiary in furtherance of any of the foregoing, whether or not the same is fully effected or accomplished; or (ii) an order, judgment or decree is entered by any court appointing, without the consent of Lessee or any of its Subsidiaries, a custodian, receiver, trustee or liquidator of Lessee or any Subsidiary, or of all or any material part of Lessee's property or Lessee's consolidated property is sequestered, and any such order, judgment or decree of appointment or sequestration remains in effect, undismissed, unstayed or unvacated for a period of * days after the date of entry thereof or at any time an order for relief is granted; or (iii) an involuntary petition against Lessee or any Subsidiary in a proceeding under the United States Federal Bankruptcy Laws or other insolvency Laws (as now or hereafter in effect) is filed and is not withdrawn or dismissed within * days thereafter or at any time an order for relief is granted in such proceeding, or if, under the provisions of any Law providing for reorganization or winding-up of corporations which may apply to Lessee or any Subsidiary, any court of competent jurisdiction assumes jurisdiction over, or custody or control of, Lessee or any Subsidiary or of all or any material part of Lessee's property, or Lessee's consolidated property and such jurisdiction, custody or control remains in effect, unrelinquished, unstayed or unterminated for a period of 30 days or at any time an order for relief is granted in such proceeding; or (h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations under this Agreement or this Agreement becomes wholly or partly invalid or unenforceable; or (i) Suspension of Business: Lessee or any of its Subsidiaries suspends or ceases or threatens to suspend or cease to carry on all or a substantial part of its business; or (j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers or threatens to dispose, convey or transfer of all or a material part of its assets, liquidates or dissolves or consolidates or merges with any other Person whether by one or a series of transactions, related or not, other than for the purpose of a reorganization of the terms of which have received the previous consent in writing of Lessor; or (k) Rights and Remedies: the existence, validity, enforceability or priority of the rights of Lessor as owner and the rights of Lessor as lessor in respect of the Aircraft are challenged by Lessee or any other person claiming by or through Lessee; or (l) Delivery: Lessee fails to timely comply with its obligations under Clause 4 to accept delivery of the Aircraft; or (m) Ownership, Security Interests and Related Matters: Lessee fails to timely comply with its obligations under Clause 8.7; or (n) Transfer: Lessee makes or permits any assignment or transfer of this Agreement, or any interest herein, or of the right to possession of the Aircraft, the Airframe, or any Engine; or (o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry Date in accordance with Clause 12. (p) Adverse Change: any event or series of events occurs which, in the reasonable opinion of Lessor might have a material adverse effect on the financial condition or operations of Lessee and its Subsidiaries or on the ability of Lessee to comply with its obligations under this Agreement; or (q) Letter of Credit: (i) the issuer of the Letter of Credit (if any) fails to make any payment under that Letter of Credit when due; or (ii) any such Letter of Credit is not in full force or, for any reason ceases to constitute the legal, valid and binding obligation of the issuer; or (iii) any of the events listed in paragraph (f)(i) above, with respect to the performance by the issuer of its obligations under any Letter of Credit, or paragraph (g) above applies to such issuer (references in those sub-paragraphs to Lessee being deemed to be to the issuer); or (iv) where applicable, any Letter of Credit is not renewed within the time required by Section 5.15; and each reference in this paragraph (q) to "the issuer" shall include a reference to any confirming bank for the Letter of Credit. 13.2 Rights: If an Event of Default occurs, Lessor may at its option (and without prejudice to any of its other rights under this Agreement), at any time thereafter (without notice to Lessee except as required under applicable Law):- (a) by notice to Lessee and with immediate effect on dispatch of such notice terminate the letting of the Aircraft (but without prejudice to the continuing obligations of Lessee under this Agreement), whereupon all rights of Lessee under this Agreement shall cease; and/or (b) proceed by appropriate court action or actions to enforce performance of this Agreement, including, without limitation, the payment of all Rent and all other amounts payable to Lessor or any Indemnitee pursuant to the terms hereof; and/or (c) proceed by appropriate court action or actions to recover damages for the breach of this Agreement which shall include, without limitation: - (i) all Rent and other amounts which are or become due and payable hereunder prior to the date Lessor recovers possession of the Aircraft; (ii) at Lessor's election, either one of the amounts determined pursuant to Clause 13.2(e) or Clause 13.2(f) below or any lost profits suffered by Lessor as a consequence of Lessor's inability to place the Aircraft with another lessee on financial terms that are as favorable to Lessor as the terms of this Agreement; (iii) all costs associated with Lessor's exercise of its remedies hereunder, including, but not limited to, repossession costs, legal fees, Aircraft storage costs, Aircraft re-lease or sale costs and Lessor's internal costs and expenses (including the cost of personnel time calculated based upon the compensation paid to the individuals involved on an annual basis and a general Lessor overhead allocation); (iv) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Aircraft; (v) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to redeliver the Aircraft in the condition required by this Agreement; and (vi) any other losses (including lost profits), damage, expense, cost or liability which Lessor suffers or incurs as a result of the Event of Default and/or termination of this Agreement, including an amount sufficient to fully compensate Lessor for any loss of or damage to Lessors residual interest in the Aircraft caused by Lessee's default; and/or (d) either: - (i) enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and, at Lessor's sole option, remove the same (and/or any engine which is not an Engine but which is installed on the Airframe, subject to the rights of the owner, lessor or secured party thereof) or cause it to be redelivered to Lessor at a location in the United States identified by Lessor (or such other location as Lessor may require) (the "Return Location"), by summary proceedings or otherwise, all without liability accruing to Lessor for or by reason of such entry or taking of possession whether for the restoration of damage to property, or otherwise, caused by such entry or taking, except damages caused by gross negligence or willful misconduct; and Lessor is hereby irrevocably, by way of security for Lessee's obligations under this Agreement, appointed attorney for Lessee in causing the redelivery or in directing the pilots of Lessee or other pilots to fly the Aircraft to that airport and will have all the powers and authorizations necessary for taking that action; or (ii) by serving notice require Lessee to redeliver the Aircraft to Lessor at a point within the continental United States designated by Lessor; and/or (e) sell at private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee; and/or (f) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under paragraph (a), paragraph (b), paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2, Lessor, by * days written notice to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts owing under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus the amount, if any, by which the aggregate Rent for the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the interest rate of * percent (*%) per annum, exceeds the fair market rental value (determined pursuant to the Appraisal Procedure) of the Aircraft for the remainder of the Term, after discounting such fair market rental value periodically (equal to installment frequency) to present worth as of the payment date specified in such notice at the interest rate of * percent (*%) per annum; and/or (g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have relet the Aircraft under a lease which extends at least to the date upon which the Term for the Aircraft would have expired but for Lessee's default, Lessor, in lieu of exercising its rights under Clause 13.2(f) above with respect to the Aircraft, may, if it shall so elect, demand that Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft due after the time of reletting) any unpaid Rent for the Aircraft due up to the date of reletting and any other amounts owing under this Agreement, plus the amount, if any, by which the aggregate Rent for the Aircraft, which would otherwise have become due over the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth as of the date of reletting at the interest rate of * percent (*%) per annum, exceeds the aggregate basic rental payments to become due under the reletting from the date of such reletting to the date upon which the Term for the Aircraft would have expired but for Lessee's default, discounted periodically (equal to installment frequency) to present worth as of the date of the reletting at the interest rate of * percent (*%) per annum; and/or (h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f), and (g) of this Clause 13.2, by * days written notice to Lessee specifying a payment date, Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor on the payment date specified in such notice as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts payable under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus an amount equaling the aggregate Rent for the remainder of the Term, discounted periodically (equal to installment frequency) to present worth at the interest rate of * per cent (*%) per annum; (i) draw upon the Deposit (including the Letter of Credit) or the Supplemental Rent furnished under this Agreement or the Related Agreements (as those times are defined in such agreements) and apply such amounts to amounts owing to Lessor hereunder. Lessee, for itself and for its successors and assigns, hereby agrees that, to the extent now or hereafter permitted by applicable Law, notwithstanding any provision of the Federal Bankruptcy Code as amended from time to time, the title of Lessor to the Aircraft and any right of Lessor to take possession of the Aircraft in compliance with the provisions of this Agreement, in each case, upon the occurrence and continuance of an Event of Default, shall not be affected by the provisions of the Federal Bankruptcy Code, as amended from time to time. In addition to the foregoing, Lessee shall be liable for any and all unpaid Rent and other amounts payable under this Agreement during or after the exercise of any of the aforementioned remedies, together with interest on such unpaid amounts at the Interest Rate set forth in Letter Agreement No. 1, and until satisfaction of all of Lessee's obligations to Lessor hereunder and (on an After-Tax Basis) for all reasonable legal fees and other reasonable costs and expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the return of the Aircraft in accordance with the terms of Clause 12 hereof or in placing the Aircraft in the condition and with airworthiness certification as required by such Clause. In effecting any repossession, Lessor and its representatives and agents, to the extent permitted by Law, shall: (i) have the right to enter upon any premises where it reasonably believes the Aircraft, the Airframe, an Engine or Part to be located; (ii) not be liable, in conversion or otherwise, for the taking of any personal property of Lessee which is in or attached to the Aircraft, the Airframe, an Engine or Part which is repossessed; provided, however, that Lessor shall return to Lessee all personal property of Lessee or its passengers which was on the Aircraft at the time Lessor re-takes possession of the Aircraft; (iii) not be liable or responsible, in any manner, for any inadvertent damage or injury to any of Lessee's property in repossessing and holding the Aircraft, the Airframe, an Engine or Part, except for that caused by or in connection with Lessor's gross negligence or willful acts; (iv) have the right to maintain possession of and dispose of the Aircraft, the Airframe, an Engine or Part on any premises owned by Lessee or under Lessee's control; and (v) have the right to obtain a key to any premises at which the Aircraft, the Airframe, an Engine or Part may be located from the landlord or owner thereof. If reasonably required by Lessor, Lessee, at its sole expense, shall assemble and make the Aircraft, the Airframe, an Engine or Part available at a place designated by Lessor in accordance with Clause 12 hereof. Lessee hereby agrees that, in the event of the return to or repossession by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express or implied) previously assigned to Lessee or otherwise held by Lessee shall without further act, notice or writing be assigned or reassigned to Lessor, if assignable. Lessee shall be liable to Lessor on an After-Tax Basis for all reasonable expenses, disbursements, costs and fees incurred in (i) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby authorized and instructed, at its option, to make reasonable expenditures which Lessor considers advisable to repair and restore the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof, all at Lessee's sole expense. At any public sale of the Aircraft, the Airframe, an Engine or Part pursuant to this Clause, Lessor may bid for and purchase such property and Lessee agrees that the amounts paid therefor shall be used in the computation contemplated herein. With the exception that the remedy in Clause 13.2(g) can be elected only if the remedy in Clause 13.2(f) is not elected and the remedy in Clause 13.2(h) can be elected only in lieu of all other remedies save the remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this Clause 13 is intended to be exclusive, but, to the extent permissible hereunder or under applicable Law, each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at Law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies; provided, however, that nothing in this Clause 13 shall be construed to permit Lessor to obtain a duplicate recovery of any element of damages to which Lessor is entitled. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default. 13.3 Deregistration: If an Event of Default occurs, Lessor may sell or otherwise deal with the Aircraft free and clear of any leasehold or other interest of Lessee as if this Agreement had never been made and Lessee will at the request of Lessor take all steps necessary to effect (if applicable) deregistration of the Aircraft and its export from the country where the Aircraft is for the time being situated and any other steps necessary to enable the Aircraft to be redelivered to Lessor in accordance with this Agreement including without limitation execution and filing of a certificate or other instrument of lease termination with the Air Authority and; Lessee hereby irrevocably and by way of security for its obligations under this Agreement appoints (which appointment is coupled with an interest) Lessor as its attorney to execute and deliver any documentation and to do any act or thing required in connection with the foregoing. 14. ASSIGNMENT 14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT. 14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its rights under this Agreement and in the Aircraft. In the case of an assignment other than by way of security, Lessor will be released from and will have no further obligation under this Agreement following the assignment of all its rights under this Agreement and the assumption by the assignee or transferee of all of Lessor's obligations under this Agreement. Notwithstanding any such assignment, Lessor will remain entitled to the benefit of each indemnity and the liability insurances effected under this Agreement. Lessee will comply with all reasonable requests of Lessor, its successors and assigns in respect of any such assignment. Lessor will promptly notify Lessee of any assignment. 14.3 Transfer: If Lessor desires to effect any assignment or transfer of its rights and obligations under this Agreement, Lessee agrees to cooperate and take all such steps as Lessor may reasonably request to give the transferee the benefit of this Agreement and to acknowledge the release of Lessor from its obligations hereunder as of the time of such assignment or transfer. 15. ILLEGALITY If it is or becomes unlawful in any jurisdiction for Lessor to give effect to any of its obligations as contemplated by this Agreement or to continue this Agreement, Lessor may by notice in writing to Lessee terminate the leasing of the Aircraft under this Agreement and Lessee will forthwith redeliver the Aircraft to Lessor in accordance with Clause 12. Without prejudice to the foregoing Lessor will consult in good faith with Lessee as to any steps which may be taken to restructure the transaction to avoid that unlawfulness but will be under no obligation to take any such steps. 16. MISCELLANEOUS 16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:- (i) may be exercised as often as necessary; (ii) are cumulative and not exclusive of its rights under any Law; and (iii) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right will not constitute a waiver of that right. 16.2 Delegation: Lessor may delegate to any person or persons all or any of the trusts, powers or discretions vested in it by these presents and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate) as Lessor in its absolute discretion thinks fit. 16.3 Certificates: Save where expressly provided in this Agreement, any certificate or determination by Lessor as to any rate of interest or as to any other amount payable under this Agreement will, in the absence of manifest error, be conclusive and binding on Lessee. 16.4 Appropriation: If any sum paid or recovered in respect of the liabilities of Lessee under this Agreement is less than the amount then due, Lessor may apply that sum to amounts due under this Agreement in such proportions and order and generally in such manner as Lessor may determine at its sole discretion. 16.5 Currency: Lessee acknowledges that the specification of Dollars in this Agreement is of the essence and that Dollars shall be the currency of account in any and all events. Lessee waives any right it may have in any jurisdiction to pay any amount under this Agreement in a currency other than Dollars. 16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee against any obligation (whether or not matured) owed by Lessor to Lessee, regardless of the place of payment or currency. If the obligations are in different currencies, Lessor may convert either obligation at the market rate of exchange available in New York or at its option London for the purpose of the set-off. If an obligation is unascertained or unliquidated, Lessor may in good faith estimate that obligation and set off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained or liquidated. Lessor will not be obliged to pay any amounts to Lessee under this Agreement so long as any sums which are then due from Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee remain unpaid and any such amounts which would otherwise be due will fall due only if and when Lessee has paid all such sums except to the extent Lessor otherwise agrees or sets off such amounts against such payment pursuant to the foregoing. 16.7 Severability: If a provision of this Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect:- (a) the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or (b) the legality, validity or enforceability in any other jurisdiction of that or any other provision of this Agreement. 16.8 Remedy: If Lessee fails to comply with any provision of this Agreement, Lessor may, without being in any way obliged to do so or responsible for so doing and without prejudice to the ability of Lessor to treat the non-compliance as a Default or an Event of Default, effect compliance on behalf of Lessee, whereupon Lessee shall become liable to pay immediately any sums expended by Lessor together with all costs and expenses (including legal costs) in connection therewith. 16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to this Agreement, Lessee is to pay to Lessor on an After-Tax Basis on demand:- (a) all costs associated with perfecting Lessor's rights in the Aircraft and/or this Agreement in the State of Registration, the Habitual Base of the Aircraft (and other states as appropriate given the operation of the Aircraft), including (but not limited to) the provision of legal opinions, tax advice, stamp duties, translations and registrations, whether required by Lessor or Lessee. (b) all expenses (including legal, professional, and out-of-pocket expenses) incurred or payable by Lessor related to any amendment to or extension of or other documentation in connection with, or the granting of any waiver or consent under this Agreement requested by Lessee or the monitoring of compliance by Lessee with this Agreement; and (c) all expenses (including legal, survey and other costs) payable or incurred by Lessor in contemplation of, or otherwise in connection with, the enforcement of or preservation of any of Lessor's or Owner's rights under this Agreement, or in respect of the repossession of the Aircraft. All expenses payable pursuant to this Clause 16.9 will be paid in the currency in which they are incurred by Lessor. 16.10 Time of Essence: The time stipulated in this Agreement for all payments payable by Lessee to Lessor and the prompt, punctual and performance of Lessee's other obligations under this Agreement are of the essence of this Agreement. 16.11 Notices: All notices under, or in connection with, this Agreement will, unless otherwise stated, be given in writing by letter, facsimile or SITA. Any such notice is deemed effectively to be given as follows:- (i) if by letter, on the earlier of the date when delivered or the *th day after dispatch; (ii) if by facsimile or SITA, when transmitted and full transmission has been separately notified by telephone by the transmitting party. The address, telex numbers, SITA, facsimile and telephone numbers of Lessee, Lessor and Owner are as follows:- Lessee: Address: 12015 East 46th Avenue, Suite 200 Denver, Colorado 80239 United States of America Attn: General Counsel SITA: DENGAF9 Facsimile: (303) 371-7007 Telephone: (303) 371-7400 Lessor: Address: Aviation Financial Services, Inc. c/o GE Capital Aviation Services, Inc. 201 High Ridge Road Stamford, CT 06927-4900 Attn: Contracts - Leader North America Facsimile: (203) 961-5965 Telephone: (203) 357-4585 16.12 Governing Law and Jurisdiction: (a) THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES); (b) Pursuant to and in accordance with Section 5-1402 of the New York General Obligations Law, Lessee and Lessor each agree that the United States District Court for the Southern District of New York and any New York state court sitting in the City of New York, New York are to have nonexclusive jurisdiction to settle any disputes arising out of or relating to this Agreement and each party submits itself and its property to the nonexclusive jurisdiction of the foregoing courts with respect to such disputes; (c) Without prejudice to any other mode of service, (i) (A) Lessee appoints Corporation Service Company, 80 State Street, 6th Floor, Albany, New York 12207-2543 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessor and (B) Lessor appoints General Electric Capital Corporation, a New York corporation, 260 High Ridge Road, Stamford, Connecticut 06927 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessee; (ii) Each of Lessor and Lessee agrees that failure by a process agent to notify the other party of the process shall not invalidate the proceedings concerned; (iii) Each of Lessor and Lessee consents to the service of process relating to any such proceedings by prepaid mailing of a copy of the process to the other party's agent at the address identified in paragraph (i)(A) or (i) (B), respectively, or by prepaid mailing by air mail, certified or registered mail of a copy of the process to Lessee or Lessor, respectively, at the address set forth in Clause 16.11; (d) Lessee: - (i) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the COURTS REFERRED TO IN CLAUSE 16.12(b) ABOVE on grounds of inconvenient forum or otherwise as regards proceedings in connection with this Agreement; (ii) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this agreement brought in the courts REFERRED TO IN CLAUSE 16.12(b); (iii) agrees that a judgment or order of any court REFERRED TO IN CLAUSE 16.12(b) in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction; (e) Nothing in this Clause 16.12 limits the right of Lessor to bring proceedings against Lessee in connection with this Agreement: - (i) in any other court of competent jurisdiction; or (ii) concurrently in more than one jurisdiction; (f) Lessee irrevocably and unconditionally: - (i) agrees that if Lessor brings legal proceedings against it or its assets in relation to this Agreement no immunity from such legal proceedings (which will be deemed to include without limitation, suit, attachment prior to judgment, other attachment, the obtaining of judgment, execution or other enforcement) will be claimed by or on behalf of itself or with respect to its assets; (ii) waives any such right of immunity which it or its assets now has or may in the future acquire; (iii) consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such proceedings. 16.13 Sole and Entire Agreement: This Agreement and the other Operative Documents to which each is a party are the sole and entire agreement between Lessor and Lessee in relation to the leasing of the Aircraft, and supersede all previous agreements in relation to that leasing. 16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under this Agreement (other than Lessor) are given to Lessor on behalf of that Indemnitee. 16.15 Counterparts: This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. To the extent, if any, that this Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no Security Interest in this Agreement may be created through the transfer or possession of any counterpart other than the counterpart that has been marked "Counterpart No. 1" on the cover page thereof. 16.16 Language: All notices to be given under this Agreement will be in English. All documents delivered to Lessor pursuant to this Agreement will be in English, or if not in English, will be accompanied by a certified English translation. If there is any inconsistency between the English version of this Agreement and any version in any other language, the English version will prevail. 16.17 No Brokers: Lessee hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessor or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. Lessor hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessee or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. For the purposes hereof, the term "Excluded Persons" shall mean (x) in the case of Lessor, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere, and (y) in the case of Lessee, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere. Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, but not limited to reasonable attorneys' fees) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon this Agreement or the Operative Documents to which Lessor and Lessee are a party or the Aircraft, if such claim damage, cost or expense arises out of any action or alleged action by the indemnifying party, its employees or agents. 17. DISCLAIMERS AND WAIVERS 17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS, WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: - (a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: - (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH; (ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO; (iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES; (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE 2.4. 17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS. 17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN CALCULATED BASED ON ITS PROVISIONS. 18. SECTION 1110 Lessee acknowledges that Lessor would not have entered into the Lease unless it had available to it the benefits of a lessor under Section 1110 of Title 11 of the U.S.C. Lessee covenants and agrees with Lessor that to better ensure the availability of such benefits, Lessee shall support any motion, petition or application filed by Lessor with any bankruptcy court having jurisdiction over Lessee whereby Lessor seeks recovery of possession of the Aircraft under said Section 1110 and shall not in any way oppose such action by Lessor unless Lessee shall have complied with the requirements of said Section 1110 to be fulfilled in order to entitle Lessee to continued use and possession of the Aircraft hereunder. In the event said Section 1110 is amended, or if it is repealed and another statute is enacted in lieu thereof, Lessor and Lessee agree to amend the Lease and take such other action not inconsistent with the Lease as Lessor reasonably deems necessary so as to afford to Lessor the rights and benefits as such amended or substituted statute confers upon owners and lessors of aircraft similarly situated to Lessor. 19. USURY LAWS: The parties intend to contract in strict compliance with the usury Laws of the States of New York and Colorado and, to the extent applicable, the United States of America. Notwithstanding anything to the contrary in the Operative Documents, Lessee will not be obligated to pay any interest in excess of the maximum non-usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by Lessor in connection with the Operative Documents. During any period of time in which the then-applicable highest lawful rate is lower than the rate specified in Clauses 5.11 or 13.2, interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will pay interest at the highest lawful rate until the aggregate amount of interest paid by Lessee equals the amount of interest that would have been payable in accordance with the interest rate specified in Clauses 5.11 or 13.2. 20. MODIFICATION OR REVISION: Neither this Agreement nor any term of this Agreement may be modified, rescinded, changed waived, discharged or terminated except by a writing signed by the party to be charged. Lessor and Lessee acknowledge their agreement to the provision of this Clause 20 by their initials below: - LESSOR: __________ LESSEE: ____________ 21. IN WITNESS whereof the parties hereto have executed this Agreement on the date shown at the beginning of this Agreement. WITNESS SIGNED on behalf of AVIATION FINANCIAL SERVICES INC. By: ___________________________ Name: ___________________________ Title: ___________________________ WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC. By: ___________________________ Name: ___________________________ Title: ___________________________ SCHEDULE 1 PART 1 DESCRIPTION OF AIRCRAFT AIRCRAFT MANUFACTURER: Boeing MODEL: 737-36E SERIAL NUMBER: 25264 ENGINES ENGINE TYPE: CFM-56-3B2 SERIAL NOS: SN 727254 and SN 724977 Part D Description of Aircraft On the Delivery Date each Aircraft shall comply with the following conditions: 19. The Aircraft will have accomplished all outstanding airworthiness directives by terminating action, if required, and mandatory orders affecting that model of Aircraft issued by the Air Authority and the DGAC which, if the Aircraft was registered with either of such air authorities, would have to be complied with within * days after the Delivery Date. 20. The Aircraft will have in existence a valid Export Certificate of Airworthiness with respect to the Aircraft issued by the DGAC and shall have all systems operational and shall be eligible for 14 C.F.R. Part 121 operations. 21. The Aircraft shall be in 148Y (tourist/load class seats). 22. The Aircraft shall be fully serviceable with no carried forward defects and shall be clean by airline standards. 23. Airframe: Ex a block MPD 'C7-SI' check in accordance with the Manufactures maintenance planning document, including 100% compliance with the CPCP program and aging aircraft program. Engines: Minimum expected life of * hours and * cycles, verified by power assurance runs. Plus Boroscope inspections to establish the internal condition of the engine. The engines will be able to achieve full take off power at 22,000 thrust rating of minimum OATL of 34 degrees Celsius. Components: Minimum of * hours, * cycles on hard time limited items and * months or full life if Full life is less than * months on calendar limited items and shall be supported by appropriate certification documentation such as JAR form 1 or FAA form 8130-1, where the FAA approval agency is a JAA listed company: for this purpose "Hard Time Component" means any component which has a limited on-wing life in accordance with Manufactures Maintenance Planning Document and which can have life fully restored through appropriate maintenance. The installed components as a group will have an average of total flight time since new of not more than that of the Airframe; and APU: Serviceable and capable of operating under full load without limitation Livery Painting: Freshly painted white. Demonstration Flight: At delivery Lessor will provide a demonstration flight not exceeding two hours in duration. Detail Specification: Aircraft shall comply with the aircraft detail specification No D6-76300-87 except for systems which have been modified to comply with JAR ops requirements and shall have TCAS and VHF 8.33 spacing installed. MTOW: 138,000 LBS 24. FUSELAGE, WINDOWS AND DOORS The aircraft will be ex a D Check as specified in 5 above.The fuselage will be free of major dents and abrasions, and loose or pulled or missing rivets. All repairs will be permanent Class 1 repairs and where possible flush as defined by the Manufacturer's structural repair manual or have specific Manufacturer approval accepted by the FAA. 25. WINGS AND EMPENNAGE (a) Leading edges will be free from damage. (b) Unpainted surfaces will be polished during the D Check; (c) Control surfaces will be cleaned and polished or painted as per Previous operator's policy during the "D" Check; and (d) Wings will be free of fuel leaks. 26. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be serviceable. (b) Carpets and seat covers will be in good condition, and meet JAR/FAR fire resistance regulations; (c) Seats will be serviceable, in good condition having been removed, inspected and repaired. (d) Emergency equipment having a calendar life will have a minimum of * year or *% of its total approved life, whichever is less, remaining; and (e) All signs and decals shall be clean, secure and legible. 27. COCKPIT (a) Fairing panels shall be substantially free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean; (c) Seat covers will be in serviceable , clean and free of stains. (d) Seats will be serviceable, in good condition and will be repainted as necessary; and (e) All signs and decals shall be clean, secure and legible. 10. CARGO COMPARTMENTS (a) Panels will be serviceable; and (b) Nets will be in servicable. PART 2 AIRCRAFT DOCUMENTS Part E A. Certificates A001 Certificate of Airworthiness A002 Current Aircraft Registration A003 C of A for Export (if applicable) A004 Noise Limitation Certificate (AFM page) A005 Radio Station License A007 Aircraft deregistration confirmation A008 Burn Certificates - Cabin Interiors - as follows: Certification of compliance with the fire blocking requirements as outlined in JAR/FAR Part 25 including: - - Seat cushions* - - Back rest cushions* - - Dress covers* - - Carpets - - Curtains - - Interior Surfaces (if refurbished) * Including "in combination" burn certification B. Aircraft Maintenance Status Summaries B001 Certified current Time in Service (Hours & Cycles) and maintenance status B002 Certified status of Airworthiness Directives including method of compliance B003 Certified status of Service Bulletin Status B004 Certified status of SSI B005 Certified status of CPCP (if applicable) B006 Certified inventory of Hard Time Components (Fitted listing) B007 Certified inventory of OC/CM Components (Fitted listing) B008 Certified status of all non-SB and Major Modifications/STC's including acceptable State of Manufacture Certification B009 Certified status of Check/Inspection History & Current Status of Checks B010 List of Deferred Maintenance Items B011 List of Out of Phase Checks, Special Requirements, Time Limited Repairs (if any). B012 Aircraft Accident & Incident Report. B013 Structural repairs and damage (including Dent & Buckle Chart). C. Aircraft Maintenance Records C001 Technical Logs (Minimum of 2 years or as required by the FAA) C002 A Checks Last complete cycle of A Checks (or equivalent) C003 C Checks Last Complete cycle of C Checks (or equivalent) C004 All Major Checks C005 CPCP Tasks (if applicable) C006 Periodic Tasks C007 Dirty Finger Print Certification - AD's C008 Dirty Finger Print Certification - SB's C009 Dirty Finger Print Certification - All other modification C010 Last Weight Report including Schedule C011 Last Test Flight Report C012 Certified ETOPS compliance report (if applicable) C013 Dirty Finger Print certification - All Structural repairs/structural damage C014 Details of State of Manufacture certification basis - A non-SRM Structural repairs C015 Aircraft Log Book(s) if applicable D. Configuration Status D001 Approved and certified LOPA D002 Galley Drawings/Component OHM D003 Emergency Equipment Drawing/Listing D004 Loose Equipment Inventory D005 Inventory Listing of Avonic installed Units. E. Aircraft Historical Records E001 C of A (Export) from State of Manufacture E002 Manufacturer's AD Report E003 Manufacturer's Inspection Report, Initial Equipment list E004 Manufacturer's repair/alteration report E005 Manufacturer's SB Report E006 Service Difficulty Reports (if any) E007 Aircraft Historical Log E008 Last Flight Data Recorder Read-Out & Corrections E009 Weighing report F. Engine Records F001 Certified Statement of Status of Each Engine F002 AD Compliance Report and Compliance Documents F003 Manufacturer's Modifications & SB Status F004 In-house Modifications (if applicable) F005 Certified LLP Listing F006 Certified listing of installed units F007 Manufacturer Delivery Document F008 Complete copies of all historical engine/module Shop Visit Reports F009 State of Manufacture LLP Traceability F010 Conditioning Monitoring Report F011 Engine Log Book/Master Records of Installation/Removals F012 Last Borescope Report, including video if available F013 Test Cell Run Report F014 Last On-Wing Ground Run F015 Certified Statement that Engines are not involved in an Accident F016 Approved Release to Service Certification for installed rotables F017 Approved ETOPS compliance report (if applicable) G. APU G001 Certified Statement on Status of APU (if applicable) G002 Certified SB Compliance Report/AD Status Report G003 Approved Release to Service Certification for installed units G004 APU Log Book/Master Record of Installation/Removals G005 Complete copies of all APU Shop Visit Reports & Reason for Removal G006 Statement of APU Hours to Aircraft Flying Hours G007 LLP Status and Full Traceability to birth G008 APU Borescope Report G009 Last On-Wing/Health Check Data sheets (if applicable) G010 Last Test Cell Run G011 Approved ETOPS compliance report H. Component Records H001 Approved Release to Service Certification for Hard Time Components H002 Approved Release to Service Certification for OC/CM Components I. Landing Gears I001 Approved Release to Service Certification for major assemblies on each Gear I002 Approved LLP Listings for each Gear (with FULL Traceability to Birth) I003 Last Shop Visit Report (OH) J. Manuals All Manufacturer's Manuals delivered with the Aircraft updated to the latest revision standard as may be reasonably requested by Purchaser Microfilm: J006 WDM J007 IPC J008 Maintenance Manual J009 Schematics J010 Hook Up Listing K. Miscellaneous K006 Maintenance Programme Specifications (Operator's) K007 Reference Material for Interpretation of Status Summaries, or cross-reference for Part Numbers SCHEDULE 2 CERTIFICATE OF TECHNICAL ACCEPTANCE This Certificate of Technical Acceptance is delivered, on the date set out below by Frontier Airlines, Inc. ("Lessee"), to AVIATION FINANCIAL SERVICES INC. ("Lessor"), pursuant to the Aircraft Lease Agreement dated as of the 7th of January, 2000 between Lessor and Lessee (the "Agreement"). The capitalized terms used in this Certificate shall have the meaning given to such terms in the Agreement. 1. DETAILS OF ACCEPTANCE Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this [ ] day of [ ], 2000, at [ ], accepted the following, in accordance with the provisions of the Agreement: (a) Boeing Model 737-36E airframe, Manufacturer's Serial No. 25264; (b) CFM-56-3B2 Engines: - Engine Manufacturer's Serial Nos. 1) [______] 2) [______] (Each of which shall have more than 750 rated takeoff horsepower or the equivalent of such horsepower); (c) Fuel on Board Status: [ ] (lbs.) (gals.) (d) Loose Equipment Check List: as per list signed by Lessor and Lessee and attached hereto; and (e) Aircraft Documents: as per list signed by Lessor and Lessee and attached hereto. 2. HOURS AND CYCLES DATA (as of Delivery Date) (a) Airframe: --------- Number of Hours since last block "D" Check (Heaviest Check):___ hours ----------------------------------------------------------- "C" Check (or Equivalent): ------------------------- Interval: ___________________________ Time Since: _______________________ (b) Landing Gear Overhaul: --------------------- Number of Cycles Since Last Overhaul: Left Gear __________________________ cycles Right Gear _________________________ cycles Nose Gear _________________________ cycles Center Gear ________________________ cycles Interval: Left Gear _________________________ Right Gear _________________________ Nose Gear _________________________ Center Gear ________________________ (c) Engines: ------- Number of Hours Since Last Heavy Shop Visit: S/N :______ hours ----------- S/N :______ hours ----------- Number of Hours Since Last Hot Section Refurbishment: S/N :______ hours ----------- S/N :______ hours ----------- Number of Hours Since Last Cold Section Refurbishment: S/N :______ hours ----------- S/N :______ hours ----------- Hot Section Inspection: Interval: ___________________________ Time Since (S/N ): __________________________ -------------- Time Since (S/N ): __________________________ -------------- Time Remaining to First Restriction: Engine S/N: _ ------------------ Hours: __________ Restriction: __________ Cycles: __________ Restriction: __________ Engine S/N: _ ------------------ Hours: __________ Restriction: __________ Cycles: __________ Restriction: __________ Average Cycles in Life Limited Parts (see attached Schedule):________ (d) Auxiliary Power Unit: -------------------- Number of APU Hours Since Last Heavy Shop Visit: __________ hours Date accomplished __________ Hot Section Inspection: Interval: ________________________ Time Since: ________________________ (e) Time Controlled Components: -------------------------- (f) Interior Equipment: ------------------ Number of Passenger Seats and Configuration:_______________ ________ Number of Galleys and Location: _________ __________ Number of Lavatories and Location: _________ __________ LOPA - Attached __________ __________ List of Loose Equipment on Board: -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- (g) Avionics: Description Model Part No. -------- ----------- ----- -------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- 3. ACCEPTANCE: The undersigned hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents are acceptable to it, satisfy all of the Delivery Condition Requirements relating to the technical condition of the Aircraft and are in the condition for delivery to and acceptance by Lessee as required under the Agreement, except as described on the EXCEPTIONS LIST attached hereto. LESSEE'S EXECUTION AND DELIVERY OF THIS CERTIFICATE SIGNIFIES LESSEE'S ABSOLUTE AND IRREVOCABLE TECHNICAL ACCEPTANCE OF THE AIRCRAFT FOR ALL PURPOSES HEREOF AND OF THE AGREEMENT. IN WITNESS WHEREOF, Lessee has, by its duly authorized representative, executed this Certificate on the date in paragraph 1 above. LESSEE: FRONTIER AIRLINES, INC. By: _________________________ Title: _________________________ ATTACHMENT EXCEPTIONS LIST The items set forth below represent non-conformities to the Delivery Condition Requirements as of the Delivery Date, the corrective action (or payment to Lessee in lieu thereof), if any, to be taken by Lessor and the date of accomplishment. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR'S UNDERTAKINGS SET FORTH HEREIN ARE IN FURTHERANCE OF AND SUBJECT TO THE AIRCRAFT LEASE AGREEMENT DATED AS OF JANUARY 7, 2000 BETWEEN LESSOR AND LESSEE (THE "LEASE"), THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, HEREUNDER AND THAT LESSORS UNDERTAKINGS ARE SUBJECT TO EACH AND EVERY DISCLAIMER OF LESSOR SET FORTH IN THE LEASE INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN CLAUSE 17 THEREOF. LESSOR LESSEE By: _________________________ By:___________________________ Title: _________________________ Title:__________________________ -------------------------------------- 1. ______________________________________ -------------------------------------- -------------------------------------- ------------ ---------- 2. ______________________________________ ====================================== -------------------------------------- ------------- ---------- 3. ______________________________________ ====================================== -------------------------------------- ------------- ---------- SCHEDULE 3 OPERATING CONDITION AT REDELIVERY On the Expiry Date the Aircraft, subject to fair wear and tear generally, will be in the condition set out below:- 1. GENERAL CONDITION The Aircraft will:- (a) be in the same configuration as on the Delivery Date or as reasonably requested by Lessor; (b) be clean by commercial airline standards; (c) have installed the full complement of engines and other equipment, parts, furnishings and accessories as is normally installed in the Aircraft and the loose equipment as was installed in the Aircraft at the time of Delivery, and be in a condition suitable for immediate operation in commercial service; (d) have in existence a valid certificate of airworthiness (or if required by Lessor, a valid export certificate of airworthiness) with respect to the Aircraft issued by the Air Authority and be in compliance without waiver with all current FAR Part 121 requirements; (e) comply with the manufacturer's original specifications or as modified by Lessee with the approval of Lessor, and as required to meet the regulations of the Air Authority at the Expiry Date; (f) have undergone, immediately prior to redelivery, a block `C' Check so that all inspections falling due within the next following * Flight Hours, * Cycles or the next following * months of operation in accordance with Lessee's Maintenance Program, have been accomplished; (g) have had accomplished all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority, and/or mandated by any manufacturer of the Aircraft, any Engine or Part, for this purpose, compliance shall be by terminating action if: the latest date permitted by such Airworthiness Directive for compliance by terminating action falls within * days after the Expiry Date; (h) have installed all applicable vendor's and manufacturer's service bulletin kits received free of charge by Lessee that are appropriate for the Aircraft and to the extent not installed, those kits will be furnished free of charge to Lessor; (i) have its fuselage, engine cowlings, and vertical fin and rudder freshly painted in an all white livery and the paint on the wings and the horizontal stabilizer surfaces shall be clean and in good condition, free from cracks, peeling, blistering and erosion and shall be uniform in color and free from areas of local touch up; (j) have all signs and decals clean, secure and legible; (k) shall have no open, deferred, continued, carryover or placarded log book items; and (l) meet the requirements of FAR Part 36, Appendix C, Stage 3 noise compliance as then in effect without waiver or restriction. 2. COMPONENTS (a) Each Flight Hour and Cycle limited component (other than the APU) shall have not less than * Flight Hours and * Cycles (whichever is the more stringent test) of life remaining to the next expected removal, in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul and Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (b) Each calendar-limited component including safety equipment will have not less than * months life remaining to the next scheduled removal in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul, Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (c) Each life-limited component will be supported by certification documentation necessary to demonstrate traceability of utilization since new (i.e. back-to-birth traceability); (d) Each "on-condition" and "condition monitored" component will be serviceable; (e) The APU will be serviceable and capable of operating under full load without limitation; and (f) The installed components as a group will have an average of total flight time since new of not more than that of the Airframe. 3. ENGINES Each Engine will be installed on the Aircraft and if not the engines installed on the Delivery Date will be accompanied by all documentation Lessor may require to evidence that title thereto is properly vested in Owner and will:- (a) have not less than * Engine Flight Hours or * Cycles (whichever is the more restrictive factor) remaining to next scheduled life limited part replacement and have an expected on-wing remaining life of not less than * Engine Flight Hours or * Cycles (whichever is the more restrictive factor). The expected life remaining will be determined by the inspection and checks accomplished by Lessor in accordance with this Agreement; (b) not be "on watch". (For purposes of the Agreement "on watch" shall mean any maintenance condition that would require an Engine removal and/or reinspection or airworthiness directive action that would require an Engine removal within * flight hours and * Cycles of the Expiry Date); and (c) be in a condition which can operate at maximum rated take off power at sea level at a temperature of 34oC. 4. FUSELAGE, WINDOWS AND DOORS (a) The fuselage will be free of major dents and abrasions, and any dents and abrasions that require a repetitive inspection or future repair, temporary repairs, and loose or pulled or missing rivets and all structural repairs shall be in accordance with the manufacturer's and Air Authority's approved data for permanent repair; (b) Windows will be free of delamination, blemishes, crazing and will be properly sealed; and (c) Doors will be free moving, correctly rigged and be fitted with serviceable seals. 5. WINGS AND EMPENNAGE (a) Leading edges will be free from damage; (b) Unpainted control surfaces will be waxed and polished; (c) Unpainted cowlings and fairings will be polished; and (d) Wings will be free of fuel leaks. 6. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks and stains; (b) Carpets and seat covers will be in good condition, clean and free of stains and meet FAR fire resistance regulations; (c) Seats will be serviceable, in good condition and repainted as necessary; and (d) Emergency equipment having a calendar life will have a minimum of * year or *% of its total approved life, whichever is less, remaining. 7. COCKPIT (a) Fairing panels shall be free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean and effectively sealed; (c) Seat covers will be in good condition, clean and free of stains and will conform to FAR fire resistance regulation; and (d) Seats will be serviceable, in good condition and will be repainted as necessary. 8. CARGO COMPARTMENTS (a) Panels will be in good condition; and (b) Nets will be in good condition. 9. LANDING GEAR The landing gear and wheel wells will be clean, free of leaks and repaired as necessary. Wheels and brakes shall be in a half life condition or better. (a) The landing gear and wheel wells will be clean, free of leaks and repaired as necessary. (b) Each wheel and brake assembly shall be in a half life condition or better. 10. CORROSION (a) The Aircraft shall be in compliance with the Manufacturer's corrosion prevention and control program (CPCP) requirements. All CPCP inspections which would normally be accomplished while access is provided during structural inspection in accordance with Lessee's Maintenance Program during the Term shall have been accomplished.; (b) The entire fuselage will be substantially free from corrosion and will be adequately treated and an approved corrosion prevention program will be in operation; and (c) Fuel tanks will be free from contamination and corrosion and a tank treatment program will be in operation. SCHEDULE 4 INSURANCE REQUIREMENTS The Insurances required to be maintained are as follows:- (a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with respect to the Aircraft on an "agreed value basis" for the Agreed Value and with a deductible not exceeding the Deductible Amount set forth in Letter Agreement No. 1, or such other amount agreed by Lessor from time to time; (b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All Risks Policy to the fullest extent available from the leading international insurance markets including confiscation and requisition by the State of Registration for the Agreed Value, however, when the Aircraft is being operated solely in or over the United States of America and/or Canada, coverage may be limited to such perils as are customarily insured by comparable airlines, operating similar equipment in similar circumstances; (c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in transit other than by air) property insurance on all Engines and Parts when not installed on the Aircraft on an "agreed value" basis for their full replacement value and including engine test and running risks; (d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage) of an amount not less than the Minimum Liability Coverage for the time being any one occurrence (but in respect of products and personal injury liability this limit may be an aggregate limit for any and all losses occurring during the currency of the policy). War and Allied Risks are also to be covered under the Policy in line with prudent market practice for comparable airlines, operating similar equipment in similar circumstances; (e) All required hull and spares insurance (as specified above), so far as it relates to the Aircraft will: - (i) name Lessor and its respective successors and assigns as additional assureds for their respective rights and interests, warranted, each as to itself only, no operational interest; (ii) provide that any loss will be settled jointly with Lessor and Lessee and will be payable in Dollars to Lessor except where the loss does not exceed the Damage Notification Threshold, and Lessor has not notified the insurers to the contrary, in which case the loss will be settled with and paid to Lessee; (iii) if separate Hull "all risks" and "war risks" insurances are arranged, include a 50/50 provision in accordance with market practice (AVS. 103 is the current market language); (iv) confirm that the insurers are not entitled to replace the Aircraft in the event of an insured Event of Loss; (v) confirm that the insurers will not obtain a valid discharge of the obligations under the Insurances by payment to the broker, notwithstanding market practice to the contrary; (f) All required liability insurances (specified above) will:- (i) include Lessor, GECASI, GECASL, Viva, and their respective successors and assigns and their respective shareholders, subsidiaries, directors, officers, agents, employees and indemnitees as additional insureds for their respective rights and interests, warranted, each as to itself only, no operational interest; provided, however, that Viva shall be named as an additional assured solely for the period commencing on the Delivery Date and ending on the earlier to occur of (i) * years following the Delivery Date and (ii) the completion of the next heavy maintenance visit; (ii) include a Severability of Interest Clause which provides that the insurance, except for the limit of liability, will operate to give each assured the same protection as if there was a separate policy issued to each assured; (iii) contain a provision confirming that the policy is primary without right of contribution and the liability of the insurers will not be affected by any other insurance of which Lessor or Lessee have the benefit so as to reduce the amount payable to the additional insureds under such policies; (g) All Insurances will:- (i) be in accordance with normal industry practice of persons operating similar aircraft in similar circumstances; (ii) provide cover denominated in Dollars and any other currencies which Lessor may reasonably require in relation to liability insurance; (iii) operate on a worldwide basis subject to such limitations and exclusions as Lessor may agree; (iv) acknowledge the insurer is aware (and has seen a copy) of this Agreement and that the Aircraft is owned by Lessor; (v) provide that, in relation to the interests of each of the additional assureds the Insurances will not be invalidated by any act or omission by Lessee, or any other person other than the respective additional assured seeking protection and shall insure the interests of each of the additional assureds regardless of any breach or violation by Lessee, or any other person other than the respective additional assured seeking protection of any warranty, declaration or condition, contained in such Insurances; (vi) provide that the insurers will hold harmless and waive any rights of recourse and/or subrogation against the additional assureds, including GECASI and GECASL or to be subrogated to any rights of Lessor against Lessee; (vii) provide that the additional assureds will have no obligation or responsibility for the payment of any premiums due (but reserve the right to pay the same should any of them elect so to do) and that the insurers will not exercise any right of set-off or counter-claim in respect of any premium due against the respective interests of the additional assureds other than outstanding premiums relating to the Aircraft, any Engine or Part the subject of the relevant claim; (viii) provide that the Insurances will continue unaltered for the benefit of the additional assureds for at least * days after written notice by registered mail or telex of any cancellation, change, event of non-payment of premium or installment thereof has been sent to Lessor, except in the case of war risks for which * days (or such lesser period as is or may be customarily available in respect of war risks or allied perils) will be given, or in the case of war between the 5 great powers or nuclear peril for which termination is automatic; (ix) if reinsurance is a requirement of this Agreement such reinsurance will (i) be on the same terms as the original insurances and will include the provisions of this Schedule, (ii)provide that notwithstanding any bankruptcy, insolvency, liquidation, dissolution or similar proceedings of or affecting the reinsured that the reinsurers' liability will be to make such payments as would have fallen due under the relevant policy of reinsurance if the reinsured had (immediately before such bankruptcy, insolvency, liquidation, dissolution or similar proceedings) discharged its obligations in full under the original insurance policies in respect of which the then relevant policy of reinsurance has been effected; and (iii) contain a "cut-through" clause in the following form (or otherwise, satisfactory to Lessor): "The Reinsurers and the Reinsured hereby mutually agree that in the event of any claim arising under the reinsurances in respect of a total loss or other claim where as provided by the Aircraft Lease Agreement dated March 25, 1997 and made between Lessor and Lessee such claim is to be paid to the person named as sole loss payee under the primary insurances, the Reinsurers will in lieu of payment to the Reinsured, its successors in interest and assigns pay to the person named as sole loss payee under the primary insurances effected by the Reinsured that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Reinsured (subject to proof of loss), it being understood and agreed that any such payment by the Reinsurers will (to the extent of such payment) fully discharge and release the Reinsurers from any and all further liability in connection therewith"; subject to such provisions not contravening any law of the State of Incorporation; (x) contain a provision entitling Lessor or any insured party to initiate a claim under any policy in the event of the refusal or failure of Lessee to do so; and (xi) accept and insure the indemnity provisions of this Agreement to the extent of the risks covered by the policies. SCHEDULE 5 [Intentionally Omitted] SCHEDULE 6 LEASE SUPPLEMENT NO. __ LEASE SUPPLEMENT NO. ___, dated , 2000, between Aviation Financial Services Inc., a corporation organized under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation (Lessor"), and Frontier Airlines, Inc. a corporation organized under the laws of the State of Colorado (Lessee"). Lessor and Lessee have previously entered into that certain Aircraft Lease Agreement dated as of January 7, 2000 (herein referred to as the "Agreement" and the defined terms therein being hereinafter used with the same meaning). The Agreement provides for the execution and delivery from time to time of a Lease Supplement substantially in the form hereof for the purpose of leasing the aircraft described below under the Agreement as and when delivered by Lessor to Lessee in accordance with the terms thereof. The Agreement and this Lease Supplement relate to the Aircraft, Engines and Parts as more precisely described below. A counterpart of the Agreement is attached hereto and this Lease Supplement and the Agreement shall form one document. In consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: - 1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee hereby accepts, acknowledges receipt of possession and leases from Lessor under the Agreement, that certain Boeing Model 737-300 commercial jet Aircraft, and the two (2) CFM International CFM-56-3-B2 Engines (each of which Engines has 750 or more rated takeoff horsepower or the equivalent of such horsepower) described in Schedule 1 hereto, together with the Aircraft Documents described in the Agreement (the "Delivered Aircraft"). 2. The Delivery Date of the Delivered Aircraft is the date of this Lease Supplement set forth in the opening paragraph hereof. 3. The Term for the Delivered Aircraft shall commence on the Delivery Date and shall end on the Expiry Date. 4. The amount of Rent for the Delivered Aircraft is set forth in Letter Agreement No. 1 to the Agreement. 5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each delivered Engine have been duly marked in accordance with the terms of Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required by the Agreement,(iii) the representations and warranties of Lessee referred to in Clause 2 of the Agreement are hereby repeated with effect as of the date first above written, (iv) having inspected the Delivered Aircraft, Lessee acknowledges that the Delivered Aircraft satisfies all conditions required for Lessee's acceptance of delivery as set forth in the Agreement, except as noted in the Exceptions List attached to the Certificate of Technical Acceptance, and (v) the execution and delivery of this Lease Supplement signifies absolute and irrevocable acceptance by Lessee of the Delivered Aircraft for all purposes hereof and of the Agreement. 6. All of the terms and provisions of the Agreement are hereby incorporated by reference in this Lease Supplement to the same extent as if fully set forth herein. 7. This Lease Supplement may be executed in any number of counterparts, each of such counterparts, shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Lease Supplement. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. __ to be duly executed as of the day and year first above written. LESSOR, LESSEE, AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By:_____________________________ By:_________________________ Name:__________________________ Name:______________________ Title:____________________________ Title:________________________ SCHEDULE 1 TO LEASE SUPPLEMENT NO. One Boeing 737-300 Airframe Registration Mark N_____ Manufacturer's Serial No. Total Time* Total Cycles* ---------- ---------- ------------ 25264 _________ _________ Installed CFM International, Inc. Engines Model No. Serial No. Total Time* Total Cycles* - --------- ---------- ---------- ------------ CFM-56-3-B2 [______] ____________ ____________ CFM-56-3-B2 [______] _____________ ____________ Each of the above-described Aircraft Engines is 750 or more rated takeoff horsepower or its equivalent. * The total time and total cycles referred to above are as of Time, , . Such times and cycles are within hours and cycles of the actual hours and cycles at the time of this Lease Supplement. SCHEDULE 7 FORM OF LEASE TERMINATION CERTIFICATE The undersigned hereby certify that the Aircraft Lease Agreement dated as of January 7, 2000 between the undersigned Lessor and undersigned Lessee, and as further described in the Appendix attached hereto, has terminated and the aircraft and aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this __________ day of ____________________, __________ LESSOR LESSEE AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By:________________________________ By:___________________________ Title:_______________________________ Title:_________________________ APPENDIX FAA Recording Date FAA Conveyance No. SCHEDULE 8 FORM OF AIRCRAFT USAGE REPORT FOR PERIOD BEGINNING ON __________, 2000____ AND ENDING ON ___________, 2000____ The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies as follows: 1. This report is submitted to Aviation Financial Services Inc. ("Lessor") under that certain Aircraft Lease Agreement dated as of January 7, 2000, between Lessor and Lessee (the "Lease"), and capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the Lease. 2. The Aircraft covered by this report is: Aircraft: Boeing 737-36E Serial No: 25264 U.S. Reg. No.: N_____ 3. During the period covered by this report, the Airframe which is the subject of the Lease was operated for the following number of Flight Hours and Cycles as such terms are defined in the Lease: _________ Flight Hours __________ Cycles 4. During the period covered by this report, the CFM-56-B2 Engines Bearing respective serial numbers __________ and ____________ which are the subject of the Lease, where each operated for the following number of Engine Flight Hours and Cycles, as defined in the Lease: Engine Flight Hours Cycles SN ________ _______________ _________________ SN ________ _______________ _________________ This Aircraft Usage Report is dated __________________, 200_, FRONTIER AIRLINES, INC. By:________________________ Title:_____________________ EX-10.50 7 0007.txt AIRCRAFT LEASE AGREEMENT EXECUTION COPY AIRCRAFT LEASE AGREEMENT Dated as of January 7, 2000 between AVIATION FINANCIAL SERVICES INC. a wholly owned subsidiary of General Electric Capital Corporation as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Aircraft : Boeing 737-36E Serial No: 25263 U.S. Reg. No.: N317FL Note: This Aircraft Lease Agreement has been executed in several counterparts of which this is Counterpart No. ___. See Clause 16.15 hereof for information concerning the distinction between various counterparts. INDEX CLAUSE PAGE - ------ ---- 1. Interpretation..............................................................1 1.1 Definitions.......................................................1 1.2 Construction.....................................................15 2. Representations and Warranties.............................................16 2.1 Lessee's Representations and Warranties..........................16 2.2 Lessee's Further Representations and Warranties..................17 2.3 Repetition.......................................................19 2.4 Lessor's Representations and Warranties..........................19 3. Conditions Precedent.......................................................20 3.1 Conditions Precedent.............................................20 3.2 Further conditions precedent.....................................23 3.3 Waiver...........................................................23 4. Commencement...............................................................24 4.1 Leasing..........................................................24 4.2 Delivery.........................................................24 4.3 Delayed Delivery.................................................24 4.4 Licenses.........................................................25 4.5 Inspection.......................................................25 4.6 Indemnity........................................................25 5. Payments...................................................................25 5.1 Deposit..........................................................25 5.2 Rental Periods...................................................25 5.3 Rent.............................................................26 5.4 Maintenance Reserves.............................................26 5.5 Payments.........................................................26 5.6 Withholding......................................................27 5.7 General Tax indemnity............................................27 5.8 Sales and Use Taxes..............................................29 5.9 Information......................................................30 5.10 Indemnity Payments to be Made on an After-Tax Basis.............30 5.11 Default Interest................................................30 5.12 Contest.........................................................31 5.13 Net Lease.......................................................32 5.14 Security........................................................32 5.14 Security........................................................33 6. Manufacturer's Warranties..................................................34 6.1 Assignment.......................................................34 6.2 Proceeds.........................................................34 6.3 Parts............................................................34 6.4 Agreement........................................................34 7. Lessor's Covenants.........................................................35 7.1 Quiet Enjoyment..................................................35 7.2 Release of Maintenance Reserves..................................35 7.3 Lessor Obligations Following Expiry Date.........................36 8. Lessee's Covenants.........................................................36 8.1 Duration.........................................................36 8.2 Information......................................................36 8.3 Lawful and Safe Operation........................................37 8.4 Taxes and other Outgoings........................................39 8.5 Sub-Leasing and Wet-Leasing......................................39 8.6 Inspection.......................................................40 8.7 Title............................................................40 8.8 General..........................................................41 8.9 Records..........................................................41 8.10 Protection......................................................42 8.11 Maintenance and Repair..........................................42 8.12 Removal of Engines and Parts....................................43 8.13 Installation of Engines and Parts...............................44 8.14 Non-Installed Engines and Parts.................................44 8.15 Pooling of Engines and Parts....................................45 8.16 Equipment Changes...............................................45 8.17 Title on an Equipment Change....................................46 8.18 Third Party.....................................................46 9. Insurance..................................................................46 9.1 Insurances.......................................................46 9.2 Requirements.....................................................47 9.3 Change...........................................................47 9.4 Insurance Covenants..............................................47 9.5 Failure to Insure................................................48 9.6 Continuing Indemnity.............................................48 9.7 Application of Insurance Proceeds................................48 9.7 Application of Insurance Proceeds................................49 10. Indemnity.................................................................49 10.1 General.........................................................49 10.2 Duration........................................................50 11. Events of Loss............................................................50 11.1 Events of Loss..................................................50 11.2 Substitute Aircraft.............................................51 11.3 Requisition.....................................................52 12. Return of Aircraft........................................................52 12.1 Return..........................................................52 12.2 Final Inspection................................................52 12.3 Non-Compliance..................................................53 12.4 Redelivery......................................................53 12.5 Acknowledgment.................................................53 12.6 Maintenance Program.............................................53 12.7 Fuel............................................................53 12.8 Automatic Extension of Term....................................54 13. Default...................................................................54 13.1 Events..........................................................54 13.2 Rights..........................................................57 13.3 Deregistration..................................................61 14. Assignment................................................................61 14.1 Lessee's Assignment.............................................61 14.2 Lessor's Assignment.............................................61 14.3 Transfer........................................................61 15. Illegality................................................................61 16. Miscellaneous.............................................................62 16.1 Waivers, Remedies Cumulative....................................62 16.2 Delegation......................................................62 16.3 Certificates....................................................62 16.4 Appropriation...................................................62 16.5 Currency........................................................62 16.6 Set-off.........................................................62 16.7 Severability....................................................63 16.8 Remedy..........................................................63 16.9 Expenses........................................................63 16.10 Time of Essence................................................63 16.11 Notices........................................................64 16.12 Governing Law and Jurisdiction.................................64 16.13 Sole and Entire Agreement......................................66 16.14 Indemnities....................................................66 16.15 Counterparts...................................................66 16.16 Language.......................................................66 16.17 No Brokers.....................................................66 17. Disclaimers and Waivers...................................................68 17.1 Exclusion.......................................................68 17.2 Waiver..........................................................68 17.3 Disclaimer of Consequential Damages.............................69 17.4 Confirmation....................................................69 18. Section 1110..............................................................69 19. Usury Laws................................................................69 20. Modification or Revision..................................................70 21. Witness...................................................................71 SCHEDULES.....................................................................72 SCHEDULE 1. Description of Aircraft.........................................72 SCHEDULE 2. Certificate of Technical Acceptance.............................78 SCHEDULE 3. Operating Condition at Redelivery...............................84 SCHEDULE 4. Insurances Requirements.........................................88 SCHEDULE 5. Intentionally Omitted...........................................91 SCHEDULE 6. Lease Supplement No.____........................................92 SCHEDULE 7. Form of Lease Termination Certificate...........................95 SCHEDULE 8. Form of Aircraft Usage Report..................................97 AIRCRAFT LEASE AGREEMENT THIS AGREEMENT is made as of the 7th day of January, 2000 between:- (1) AVIATION FINANCIAL SERVICES INC., a company incorporated under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation whose principal place of business is at c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, Connecticut, 06927 ("Lessor"); and (2) FRONTIER AIRLINES, INC., a company incorporated under the laws of the State of Colorado whose principal place of business is at 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America ("Lessee"). WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to lease from Lessor the Aircraft on the terms of this Agreement. IT IS AGREED as follows:- 1. INTERPRETATION 1.1 DEFINITIONS In this Agreement the following expressions have the meanings set out opposite:- After-Tax Basis in the case of any amount payable on an "After-Tax Basis" to or for the benefit of any Person (including any amount payable pursuant to this definition) (a "Required Payment"), the total amount that must be paid is the amount such that, after deduction of the net amount of all Taxes required to be paid by such Person with respect to the receipt or accrual by it of such amount (and assuming that such Person is subject to (i) United States Federal income tax at the highest marginal statutory rate imposed on corporations for the relevant period, (ii) United States state and local income taxes at the composite of the highest marginal statutory rates imposed on such Person for the relevant period, as such composite rate shall be certified by a financial officer of such Person, and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on such Person) the net amount received is the amount of the Required Payment. Agreed Value the amount specified for Agreed Value in Letter Agreement No. 1. Air Authority Federal Aviation Administration ("FAA"). Aircraft the aircraft described in Part 1 of Schedule 1, (which term includes where the context admits a separate reference to all Engines, Parts and Aircraft Documents) or any aircraft substituted in place thereof pursuant to Clause 11.1 or 11.2. Aircraft Documents the documents, data and records identified in Part 2 of Schedule 1 and all additions, renewals, revisions and replacements from time to time made in accordance with this Agreement. Airframe the Aircraft, excluding the Engines and Aircraft Documents. Appraisal Procedure the following procedure for determining the "fair market rental value" of the Aircraft: (a) Lessor shall select an independent aircraft appraiser who shall make a determination of "fair market rental value" of the Aircraft; and (b) the fees and expenses of the appraiser shall be paid by Lessee. "Fair market rental value" shall mean the value determined by an appraisal completed on an "as-is" and "where-is" basis. APU the auxiliary power unit installed on the Aircraft on the Delivery Date and any replacement auxiliary power unit installed in accordance with this Agreement. Boeing The Boeing Company, a Delaware corporation with its principal office in Seattle, State of Washington, U.S.A. Business Day a day (other than a Saturday or Sunday) on which business of the nature required by this Agreement is carried out in the State of Incorporation or where used in relation to payments on which banks are open for business in New York. Certificated Air Carrier any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be issued, any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the United States of America, and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated so as to entitle Lessor, as a lessor, to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft. Cold Section Refurbishment with respect to any Engine the completion of the following: completely unstacking either high or low or both compressor sections, if needed, and completing the following for the appropriate section(s): visual inspection; de-blading discs as necessary; visual and NDT (Non-Destructive Testing) inspections as necessary of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the compressor; balance of all rotors; and installation of rotors in the engine. Cycle one take-off and landing of the Aircraft. DGAC means the Civil Aviation Authority of Spain. Damage Notification Threshold the amount specified therefor in Letter Agreement No. 1. Default any Event of Default and any event which with the giving of notice, lapse of time, determination of materiality or fulfillment of other condition would constitute an Event of Default. Delivery Condition Requirements the requirements specified on Part 1 of Schedule 1. Delivery Date the date on which the Aircraft is tendered for delivery by Lessor in accordance with this Agreement. Delivery Location Marana, Arizona. Deposit all amounts payable pursuant to Clause 5.1 whether in cash or by Letter of Credit. Dollars and $ the lawful currency of the United States of America. Engine whether or not installed on the Aircraft:- (a) each engine of the manufacture and model specified in Part 1 of Schedule 1 (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower) which Lessor elects to tender to Lessee with the Aircraft on the Delivery Date, such engines being described as to serial numbers on the certificate of acceptance to be executed by Lessee upon delivery of the Aircraft; or (b) any engine which has replaced that engine, title to which has or should have, passed to Lessor in accordance with this Agreement; and in each case includes all modules and Parts from time to time belonging to or installed in that engine but excludes any properly replaced engine title to which has, or should have, passed to Lessee pursuant to this Agreement. Engine Event of Loss the occurrence with respect to an Engine only, whether or not installed on the Airframe, of any of those events described in provisions (a) through (d) of the definition of Event of Loss. Engine Flight Hour means each hour or part thereof an Engine is operated, elapsing from the moment that wheels of an aircraft on which such Engine is installed leave the ground until the wheels of such aircraft next touch the ground. Engine Refurbishment a complete disassembly, inspection and repair of the modules of an Engine per the engine manufacturer's maintenance manual, so that such Engine shall have a minimum expected on-wing life of * hours and * cycles. ERISA the Employee Retirement Income Security Act of 1974, as amended. Event of Default an event or condition specified in Clause 13.1. Event of Loss with respect to the Aircraft (including for the purposes of this definition the Airframe):- (a) the actual or constructive total loss of the Aircraft (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss, or requisition for use or hire which results in an insurance settlement on the basis of a total loss); or (b) it being destroyed, damaged beyond repair or permanently rendered unfit for normal use for any reason whatsoever; or (c) the requisition of title, or other compulsory acquisition, capture, seizure, deprivation, confiscation or detention for any reason of the Aircraft by the government of the State of Registration or other competent authority (whether de jure or de facto), but excluding requisition for use or hire not involving requisition of title; or (d) the hi-jacking, theft, condemnation, confiscation, seizure or requisition for use or hire of the Aircraft which deprives any person permitted by this Agreement to have possession and/or use of the Aircraft of its possession and/or use for more than * days (or, if earlier, beyond the Expiry Date). Excusable Delay with respect to delivery of the Aircraft, delay or non-performance due to or arising out of acts of God or public enemy, civil war, insurrection or riot, fire, flood, explosion, earthquake, accident, epidemic, quarantine restriction, any act of government, governmental priority, allocation, regulation or order affecting directly or indirectly, the Aircraft, any manufacturer, Lessor or any materials or facilities, strike or labor dispute causing cessation, slowdown or interruption of work, inability after due and timely diligence to procure equipment, data or materials from manufacturers, suppliers, any existing owner, seller or lessee in a timely manner, damage, destruction or loss, or any other cause to the extent that such cause is beyond the control of Lessor whether above mentioned or not and whether or not similar to the foregoing. Expiry Date the day preceding the numerically corresponding day * months after the Delivery Date or if earlier the date on which:- (a) the date Lessor, acting in accordance with the terms of this Agreement terminates the leasing of the Aircraft to Lessee under this Agreement; or (b) Lessor receives the Agreed Value together with any other amounts then due and unpaid by Lessee following an Event of Loss. FAA the Federal Aviation Administration of the United States of America and any successor thereof. FAR the Federal Aviation Regulations set forth in Title 14 of the United States Code of Federal Regulations, as amended and modified from time to time. Federal Aviation Act The Transportation Laws of the United States as set forth at 49 United States Code et seq. or any similar legislation of the United States of America enacted in substitution or replacement thereof. Financing Statements Uniform Commercial Code Financing Statements in respect of the Aircraft and Engines leased hereunder prepared in a form acceptable for filing with the applicable Government Entities in the Habitual Base, the state in which the chief executive office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the Habitual Base) and such other jurisdiction as Lessor shall reasonably require. Flight Hour each hour or part thereof (rounded up to two decimal places) elapsing from the moment the wheels of the Aircraft leave the ground on take off until the wheels of the Aircraft next touch the ground. GAAP generally accepted accounting principles in the United States. Governing Law the laws of the State of New York. Government Entity (a) any national government, political subdivision thereof, or local jurisdiction therein; (b) any instrumentality, board, commission, court, or agency of any thereof, however constituted; and (c) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any of the above is a participant. Gross Negligence means any intentional, conscious or voluntary action or decision which is taken with wanton, reckless, flagrant and culpable disregard for the consequences of such action or decision. Guaranty means a Guaranty of General Electric Capital Corporation to Lessee with respect to Lessor substantially in the form attached hereto as Exhibit A to Letter Agreement No. 1. Habitual Base the State of Colorado or, subject to the prior written consent of Lessor, any other state, country or countries in which the Aircraft is for the time being habitually based. Hot Section Refurbishment with respect to any Engine, the complete visual inspection and repair as necessary of the combustion section of an Engine in an engine repair/overhaul station including without limitation complete unstacking of the high pressure or low pressure turbine or both if needed; complete visual inspection of such turbine(s); de-blading of discs as required; visual and NDT inspections of all discs as required; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of all blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the turbine; balance of all rotors; and installation of rotors in the engine. Indemnitee each of GE Capital Aviation Services, Inc. ("GECASI"), GE Capital Aviation Services Limited ("GECASL"), Lessor, and any of their respective successors and assigns, shareholders, subsidiaries, affiliates, partners, contractors, directors, officers, servants, agents and employees and indemnitees; provided, however, that no such Indemnitee shall be entitled to an indemnification to the extent such Indemnitee is manufacturer of the Aircraft, any Engines, or Parts in its capacity as such. Insurances as defined in Clause 9.1 hereof. Landing Gear the landing gear assembly of the Aircraft excluding any rotable components. Law shall mean and include (a) any statute, decree, constitution, regulation, order judgment or other directive of any Governmental Entity; (b) any treaty, pact, compact or other agreement to which any Governmental Entity is a signatory or party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above. Lease Supplement a Lease Supplement, substantially in the form of Schedule 6 hereto, entered into between Lessor and Lessee. Lessee's Maintenance Program the Maintenance Program specifically approved by the Air Authority for Lessee's maintenance of the Aircraft. Lessor Lien (a) any Security Interest whatsoever from time to time created by or through Lessor in connection with the financing of the Aircraft; (b) any other Security Interest in respect of the Aircraft which results from acts of or claims against Lessor not related to the transactions contemplated by or permitted under this Agreement; and (c) Security Interests in respect of the Aircraft for Lessor Taxes. Lessor Taxes Taxes:- (a) imposed as a direct result of activities of Lessor in the jurisdiction imposing the Tax unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement or the operation of the Aircraft by Lessee; or (b) imposed on the net income, profits or gains of Lessor by any Government Entity in the United State of America; provided, however, that Lessor Taxes shall not include any Tax imposed by any government or taxing authority of any jurisdiction if and to the extent that such Tax results from (i) the use, operation, presence or registration of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax, or (ii) the situs of organization, any place of business or any activity of Lessee or any other Person having use, possession or custody of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax; or (c) imposed with respect to any period commencing or event occurring after the Expiry Date and unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement; provided always, that Lessor Taxes shall not include any income taxes or other amounts payable and subject to indemnification in favor of Lessor pursuant to the Lease. Letter Agreement No. 1 that certain Letter Agreement No. 1 between Lessor and Lessee dated as of the date hereof. MACRS Deductions means cost recovery deductions for *% of the Lessor's cost of the Aircraft pursuant to Section 168(b) of the Internal Revenue Code of 1986, as amended, commencing in the year 2000, computed (i) on the basis that the Aircraft is "7-year property" (within the meaning of Section 168(e) of the Code), (ii) by using the *% declining balance method over a 7 year recovery period, switching to the straight-line method for the first taxable year of the Lessor during the term for which such method yields a larger allowance, (iii) assuming salvage value is zero, (iv) using a half-year convention and (v) assuming that the Aircraft is sold at the end of the Term of * months. Letter of Credit means any letter of credit issued in relation to the Lease pursuant to Section 5.15 and any replacement or renewal of that letter of credit. Maintenance Performer the Lessee, Tramco, USAir Inc., or such other Person as is approved by the FAA to perform maintenance and/or modification services on commercial aircraft and/or commercial aircraft engines, which Person shall be agreed by Lessor and Lessee to have recognized standing and experience, suitable facilities for the level of maintenance being carried out and suitable equipment to perform such services on aircraft and/or engines of the same or improved model as the Aircraft or, in the case of engines, the Engines. Maintenance Program an Air Authority approved maintenance program for the Aircraft based upon the Manufacturer's specifications, service bulletins, planning documents, maintenance manuals and documents and encompassing scheduled maintenance (including block maintenance), condition-monitored maintenance, and/or on-condition maintenance of Airframe, Engines and Parts, including but not limited to, servicing, testing, preventive maintenance, repairs, structural inspections, system checks, overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives, corrosion control, inspections and treatments. Major Checks any C-Check, multiple C-Check, D-Check or annual heavy maintenance visit or segment thereof suggested for commercial aircraft of the same model as the Aircraft by its manufacturer (however denominated) as set out in Lessee's Maintenance Program. Manufacturer Boeing. Minimum Liability Coverage the amount set forth therefore in Letter Agreement No. 1. Mortgage Convention shall mean the Convention for the International Recognition of Rights in Aircraft, signed (ad referendum) at Geneva, Switzerland, on June 19, 1948, and amended from time to time, but excluding the terms of any adhesion thereto or ratification thereof containing reservations to which the United States of America does not accede. Operative Documents shall mean this Agreement, all Lease Supplements hereto, Letter Agreement No. 1, the Guaranty, any schedules or documents prepared in conformance to the Schedules hereto, any side-letters related hereto and any amendments, revisions, supplements or modifications hereto or thereto. Other Agreements any agreement (other than this Agreement) made or to be made between Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) or AerFi Group plc (or an associate or affiliate thereof) and Lessee (or an associate or affiliate thereof). Part whether or not installed on the Aircraft:- (a) any component, furnishing or equipment (other than a complete Engine) furnished with the Aircraft on the Delivery Date; and (b) any other component, furnishing or equipment (other than a complete Engine) title to which has, or should have passed to Lessor pursuant to this Agreement; but excludes any such items title to which has, or should have, passed to Lessee pursuant to this Agreement. Permitted Lien (a) any lien for Taxes not assessed or, if assessed, not yet due and payable, or being contested in good faith by appropriate proceedings; (b) any lien of a repairer, mechanic, carrier, hangarkeeper or other similar lien arising in the ordinary course of business or by operation of Law in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings; and (c) any Lessor Lien. but only if (in the case of both (a) and (b)) (i) adequate resources have been provided by Lessee for the payment of the Taxes or obligations; and (ii) such proceedings, or the continued existence of the lien, do not give rise to any likelihood of the sale, forfeiture or other loss of the Aircraft or any interest therein or of criminal liability on Lessor. Person any individual person, corporation, partnership, firm, joint stock company, joint venture, trust, estate, unincorporated organization, association, Government Entity, or organization or association of which any of the above is a member or a participant. Redelivery Location a location on Lessee's route system in the United States designated by Lessor, or such other location as Lessor and Lessee shall agree. Related Agreements any agreement (other than this Agreement) made or to be made between or with Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) and Lessee (or an associate or affiliate of Lessee). Replacement Engine an engine of the same manufacturer and model, and having equivalent value, utility, modification status, time elapsed since Hot Section Refurbishment and Cold Section Refurbishment and remaining warranty status as the Engine it is intended to replace under Clause 11.1(c), or at Lessee's option, an engine of the same manufacturer as such Engine but of an improved model, and otherwise of an equivalent value and utility and suitable for installation and use on the Airframe without impairing the value or utility of the Airframe and compatible with the remaining installed Engine. Rent all amounts payable pursuant to Clause 5.3. Rental Period each period ascertained in accordance with Clause 5.2. Rent Date the first day of each Rental Period. Required LC Expiry Date means the date being * days after the Expiry Date. Return Occasion the date on which the Aircraft is redelivered to Lessor in accordance with Clause 12 hereof. Scheduled Delivery Month *. Security Interest any mortgage, charge, pledge, lien, assignment, hypothecation, right of set-off or any agreement or arrangement having the effect of creating a Security Interest other than a Permitted Lien. State of Incorporation State of Colorado. State of Registration United States of America. Subsidiary (a) in relation to any reference to accounts, any company whose accounts are consolidated with the accounts of Lessee in accordance with GAAP; (b) for any other purpose an entity from time to time:- (i) of which another has direct or indirect control or owns directly or indirectly more than 50 per cent of the voting share capital; or (ii) which is a direct or indirect subsidiary of another under the laws of the jurisdiction of its incorporation. Supplemental Rent all amounts payable under Clause 5.4(a). Tax Indemnitee means an Indemnitee and for any taxable year in which the Lessor joins in the filing of a consolidated federal income tax return, shall include each member of the affiliated group (within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto) of which the Lessor is a member. Taxes any and all present and future taxes, duties, withholdings, levies, assessments, imposts, fees and other governmental charges of all kinds together with any penalties, fines, surcharges and interest thereon and any additions thereto. Term the period commencing on the Delivery Date and ending on the Expiry Date, except that the Term may be extended beyond the Expiry Date if the Return Occasion is delayed in the circumstances specified, and subject to the limitation described, in Clause 12.3. United States the United States of America Viva collectively means (i) Viva Vuelos Internacionales de Vacaciones, S.A. (ii) Hispamer Servicos Financieros EFC - S.A. and (iii) Leasebanesto S.A Wet Lease any arrangement whereby Lessee agrees to furnish the Aircraft to a third party pursuant to which the Aircraft (i) shall be solely within the operational control of Lessee and shall be operated solely by regular employees of Lessee possessing all current certificates and licenses that would be required under the Federal Aviation Act for the performance by such employees of similar functions within the United States of America, (ii) shall be maintained by Lessee in accordance with Lessee's Maintenance Program and (iii) shall be and remain subject and subordinate to all other terms and conditions of this Agreement; provided, however, that Lessee shall remain primarily liable for the performance of all of the terms of this Agreement (including, without limitation, its obligations set forth in Clause 9 of this Agreement) to the same extent as if such arrangement had not been entered into. 1.2 CONSTRUCTION (a) In this Agreement, unless the contrary intention is stated, a reference to:- (i) each of "Lessor" or "Lessee" or any other person includes without prejudice to the provisions of this Agreement any successor in title to it and any permitted assignee; (ii) words importing the plural shall include the singular and vice versa; (iii) any document shall include that document as amended, novated or supplemented; (iv) a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement; (v) a reference to "Agreement", "the Agreement" or "this Agreement" shall, unless expressly provided otherwise, mean and include this Aircraft Lease Agreement and each of the other Operative Documents; and (b) the headings in this Agreement are to be ignored in construing this Agreement. 2. REPRESENTATIONS AND WARRANTIES 2.1 Lessee's Representations and Warranties: Lessee represents and warrants to Lessor that:- (a) Status: Lessee is a corporation duly incorporated and validly existing under the laws of the State of Incorporation and has the corporate power to own its assets and carry on its business as it is being conducted and is the holder of all necessary air transportation licenses required in connection therewith and with the use and operation of the Aircraft; (b) Power and authority: Lessee has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, this Agreement and the transactions contemplated by this Agreement; (c) Legal validity: this Agreement has been duly entered into and delivered by Lessee, and this Agreement does, and the Operative Documents to which it is a party when executed and delivered by Lessee will, constitute legal, valid and binding obligations of Lessee, enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally, and, to the extent that certain remedies require or may require enforcement by a court of equity, by such principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) as a court having jurisdiction may impose and by Laws which may affect some of such remedies but which do not make the available remedies inadequate for the substantial realization of the benefits provided herein; (d) Non-conflict: the entry into and performance by Lessee of, and the transactions contemplated by, this Agreement do not and will not:- (i) conflict with any laws binding on Lessee; or (ii) conflict with the constitutional documents of Lessee; or (iii) conflict with or result in default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding upon Lessee or any of its assets nor result in the creation of any Security Interest over any of its assets; (e) Authorization: all authorizations, consents, registrations and notifications required in connection with the entry into, performance, validity and enforceability of, this Agreement and the transactions contemplated by this Agreement, have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; (f) No Immunity: (i) Lessee is subject to civil commercial law with respect to its obligations under this Agreement; and (ii) neither Lessee nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Lessee constitute private and commercial acts; (g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries most recently delivered to Lessor, including balance sheets and statements of income and retained earnings:- (i) have been prepared in accordance with GAAP; and (ii) fairly represent the consolidated financial condition of Lessee and its Subsidiaries as at the date to which they were drawn up; (h) Restricted Countries: Lessee does not hold a contract or other obligation to operate the Aircraft to or for any of the countries designated under U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola. (i) Chief Executive's Office: Lessee's Chief Executive Office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) is located at 12015 East 46th Avenue, Suite 200, Denver, Colorado, United States of America; (j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft; and (j) Citizen of the United States: Lessee is a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 2.2 Lessee's Further Representations and Warranties: Lessee further represents and warrants to Lessor that:- (a) No Default: (i) no Default has occurred and is continuing or might result from the entry into or performance of the Operative Documents to which Lessee is a party; and (ii) no other event or condition has occurred and is continuing which constitutes (or with the giving of notice, lapse of time, determination of materiality or the fulfillment of any other applicable condition or any combination of the foregoing, might constitute) a material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding on Lessee or any assets of Lessee; (b) Registration: (i) except for the filing for recordation of this Agreement and a Lease Supplement with the FAA, and the filing of any Financing Statements required (and continuation statements at periodic intervals), no further filing or recording of this Agreement or of any other document (including any financing statement under Article 9 of the Uniform Commercial Code) and no further action, is or will be necessary under the Laws of the United States, the State of Incorporation, and the State of Registration, the Habitual Base or any other states in order to (A) fully establish, perfect and protect Lessor's title to, and interest in, the Aircraft or any Engine or Part as against Lessee or any third party, or (B) ensure the validity, effectiveness and enforceability of this Agreement or any other Operative Document to which the Lessee is a party; and (ii) under the laws of the State of Incorporation, the State of Registration and the Habitual Base the property rights of Lessor in the Aircraft have been fully established, perfected and protected and this Agreement will have priority in all respects over the claims of all creditors of Lessee; (c) Litigation: no litigation, arbitration or administrative proceedings are pending or to its knowledge threatened against Lessee which, if adversely determined, would have a material adverse effect upon its financial condition or business or its ability to perform its obligations under this Agreement; (d) Pari Passu: the obligations of Lessee under the Operative Documents to which it is a party rank at least pari passu with all other present and future unsecured and unsubordinated obligations (including contingent obligations) of Lessee, with the exception of such obligations as are mandatorily preferred by law and not by virtue of any contract; (e) Material Adverse Change: there has been no material adverse change in the consolidated financial condition of Lessee and its Subsidiaries or the financial condition of Lessee since the date to which the accounts most recently provided to Lessor on or prior to the Delivery Date were drawn up; (f) Taxes: Lessee has delivered all necessary returns and payments due to the tax authorities in the State of Incorporation, the State of Registration and the Habitual Base and is not required by Law to deduct any Taxes from any payments under this Agreement; (g) Information: the financial and other information furnished by Lessee in connection with this Agreement does not contain any untrue statement or omit to state facts, the omission of which makes the statements therein, in the light of the circumstances under which they were made, misleading, nor omits to disclose any material matter to Lessor and all forecasts and opinions contained therein were honestly made on reasonable grounds after due and careful inquiry by Lessee; and (h) ERISA: Lessee is not engaged in any transaction in connection with which it could be subjected to either a civil penalty assessed pursuant to Section 502 of ERISA or any tax imposed by Section 4975 of the Internal Revenue Code; no material liability to the Pension Benefit Guaranty Corporation has been or is expected by Lessee to be incurred with respect to any employee pension benefit plan (as defined in Section 3 of ERISA) maintained by Lessee or by any trade or business (whether or not incorporated) which together with Lessee would be treated as a single employer under Section 4001 of ERISA and Section 414 of the Internal Revenue Code; there has been no reportable event (as defined in Section 4043(b) of ERISA) with respect to any such employee pension benefit plan; no notice of intent to terminate any such employee pension benefit plan has been filed or is expected to be filed, nor has any such employee pension benefit been terminated; no circumstance exists or is anticipated that constitutes or would constitute grounds under Section 4042 of ERISA for the Pension Benefit Guaranty Corporation to institute proceedings to terminate, or to appoint a trustee to manage the administration of, such an employee pension benefit plan; and no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived, exists with respect to any such employee pension benefit plan. 2.3 Repetition: The representations and warranties in Clause 2.1 and Clause 2.2 will survive the execution of this Agreement. The representations and warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be repeated by Lessee on the Delivery Date with reference to the facts and circumstances then existing. The representations and warranties contained in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as if made with reference to the facts and circumstances then existing. 2.4 Lessor's Representations and Warranties: Lessor represents and warrants to Lessee that:- (a) Status: Lessor is a company duly incorporated and validly existing under the laws of the State of New York and has the corporate power to own its assets and carry on its business as it is now being conducted; (b) Power and authority: Lessor has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, the Operative Documents to which it is a party and the transactions contemplated by the Operative Documents to which it is a party; (c) Legal validity: the Operative Documents to which it is a party constitute Lessor's legal, valid and binding obligation; (d) Non-conflict: the entry into and performance by Lessor of, and the transactions contemplated by, the Operative Documents to which it is a party do not and will not:- (i) conflict with any laws binding on Lessor; or (ii) conflict with the constitutional documents of Lessor; or (iii) conflict with any document which is binding upon Lessor or any of its assets; (e) Authorization: so far as concerns the obligations of Lessor, all authorizations, consents, registrations and notifications required under the laws of the State of New York in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Operative Documents to which it is a party by Lessor have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; and (f) No Immunity: (i) Lessor is subject to civil commercial law with respect to its obligations under the Operative Documents to which it is a party; and (ii) neither Lessor nor any of its assets is entitled to any right of immunity and the entry into and performance of the Operative Documents to which it is a party by Lessor constitute private and commercial acts. 3. CONDITIONS PRECEDENT 3.1 Conditions Precedent: Lessor's obligation to deliver and lease the Aircraft under this Agreement is subject to satisfaction of each of the following conditions:- (a) receipt by Lessor from Lessee not later than * Business Days prior to the Delivery Date of the following satisfactory in form and substance to Lessor:- (i) Constitutional Documents: a copy of the constitutional documents of Lessee including without limitation articles of incorporation, bylaws and a current certificate of good standing issued by the secretary of the state for the State of Incorporation; (ii) Resolutions: a copy of a resolution of the board of directors of Lessee approving the terms of, and the transactions contemplated by, this Agreement, resolving that it enter into this Agreement, and authorizing a specified person or persons to execute this Agreement and the other Operative Documents to which it is a party and accept delivery of the Aircraft on its behalf; (iii) Opinion: evidence that opinions as reasonably agreed by Lessor will be issued on the Delivery Date by legal counsel acceptable to Lessor; (iv) FAA Opinion: a draft of an opinion of Crowe & Dunlevy P.C. or other counsel acceptable to Lessor who are recognized specialists with regard to FAA registration matters in form acceptable to Lessor as to the due filing for recordation of this Agreement, to be delivered in executed final form to Lessor and Lessee upon such filing and recordation; (v) Approvals: evidence of the issue of each approval, license and consent which may be required in relation to, or in connection with, the performance by Lessee of any of its obligations hereunder (including, without limitation, any consent to the export of the Aircraft from the Habitual Base and consent to the deregistration of the Aircraft upon the termination of the leasing of the Aircraft under this Agreement); (vi) Licenses: copies of Lessee's Certificate of Convenience and Necessity, Radio License, FAR Part 121 operator's certificates and all other licenses, certificates and permits required by Lessee in relation to, or in connection with, the operation of the Aircraft; (vii) Process Agent: a letter from the process agent appointed by Lessee in this Agreement accepting that appointment; (viii) Certificate: a certificate of a duly authorized officer of Lessee:- (a) setting out a specimen of each signature referred to in Clause 3.1(a)(ii); (b) certifying that each copy document specified in this Clause is correct, complete and in full force and effect; (c) certifying that Lessee's representations and warranties contained in Clause 2.1 and 2.2 are true and correct on the Delivery Date as if given on such date; and (d) certifying that there has been no material change in Lessee's Constitutional Documents since originally delivered by Lessee to Lessor; (ix) Air Traffic Control: a letter from Lessee addressed to Transport Canada or other relevant air traffic control authority pursuant to which Lessee authorizes the addressee to issue to Lessor, upon Lessor's request from time to time, a statement of account of all sums due by Lessee to the authority in respect of all aircraft (including, without limitation, the Aircraft) operated by Lessee; (x) Deregistration Power: an irrevocable power of attorney authorizing Lessor or such other person as Lessor may from time to time specify to do any thing or act or to give any consent or approval which may be required to obtain deregistration of the Aircraft and to export the Aircraft from the Habitual Base upon termination of the leasing of the Aircraft under this Agreement, duly notarized and legalized; (xi) Certificate of Lease Termination: a certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 7 hereto, acknowledging that this Agreement is no longer in effect with respect to the Aircraft and Engines, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to the Lessee hereunder; and (xii) General: such other documents as Lessor may reasonably request; (b) the receipt by Lessor on or before the Delivery Date of:- (i) Opinions: a signed original of each of the opinions referred to in Clause 3.1(a)(iii) and 3.1(a)(iv); (ii) Payments: all sums due to Lessor under this Agreement on or before the Delivery Date including, without limitation, the first payment of Rent; (iii) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor that Lessee is taking the required steps to ensure due compliance with the provisions of this Agreement as to Insurances with effect on and after the Delivery Date; (iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be dated the Delivery Date, fully completed and executed by Lessor and Lessee, and filed for recording at the FAA; (v) Certificate of Technical Acceptance: in the form of Schedule 2 hereto, to be dated and fully completed, and executed by Lessor and Lessee certifying that Lessee has completed its inspection of the Aircraft in accordance with Clause 4.5 hereof and that Aircraft conforms to the provisions set forth therein and is in all respects acceptable to Lessee, or if not so acceptable, then setting forth discrepancies and corrective action to be taken; (vi) Accounts: the latest available accounts of Lessee as described in Clause 8.2(b)(i) and (ii); (vii) Documents: a confirmation of receipt of the Aircraft Documents delivered with the Aircraft on the Delivery Date; (viii) UCC-1 Financing Statements: in form acceptable to Lessor, and suitable for filing in the States of Colorado and New York and signed by Lessee; and (ix) General: such other documents as Lessor may reasonably request. (c) receipt by Lessor of such information and documents relating to the proposed Maintenance Program as Lessor may require and Lessor having agreed the proposed Maintenance Program on or prior to the Delivery Date; and (d) evidence that on the Delivery Date that all filings, registrations, recordings and other actions have been or will be taken which are necessary or advisable to ensure the validity, effectiveness and enforceability of this Agreement and the Assignments and to protect the property rights of Lessor in the Aircraft or any Part. 3.2 Further conditions precedent: The obligations of Lessor to deliver and lease the Aircraft under this Agreement are subject to the further conditions precedent that:- (a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are correct and would be correct if repeated on delivery of the Aircraft under this Agreement; and (b) no Default has occurred and is continuing or might result from the leasing of the Aircraft to Lessee under this Agreement. 3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole benefit of Lessor and may be waived or deferred in whole or in part and with or without conditions by Lessor. If any of those conditions are not satisfied on the Delivery Date and Lessor (in its absolute discretion) nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure that those conditions are fulfilled within * days after the Delivery Date and Lessor may treat as an Event of Default the failure of Lessee to do so. 4. COMMENCEMENT 4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the Aircraft on lease in accordance with this Agreement for the duration of the Term. Lessor will deliver and Lessee will accept the Aircraft on the day in the Scheduled Delivery Month notified by Lessor to Lessee at least * Business Days in advance of such date or such other day as may be agreed. In the event (a) Lessee is unwilling or unable to accept delivery of the Aircraft on the date notified by Lessor as the Delivery Date, and (b) the Aircraft meets Delivery Condition Requirements then Lessee's obligation to pay Rent hereunder shall commence on such Delivery Date notwithstanding that Lessee has not accepted possession of the Aircraft. After delivery the Aircraft and every Part will be in every respect at the sole risk of Lessee, who will bear all risk of loss, theft, damage or destruction to the Aircraft from any cause whatsoever. 4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the Delivery Location or such other location as may be agreed. Lessee will effect acceptance of the Aircraft by execution and delivery to Lessor of the duly completed and executed Certificate of Acceptance in the form of Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the form of Schedule 6 hereto and by authorizing the filing at the FAA of an executed copy of such Lease Supplement with an executed copy of this Agreement attached thereto. 4.3 Delayed Delivery: If owing to:- (a) any seller, manufacturer or existing lessee of the Aircraft delaying in the delivery of, or failing to deliver, the Aircraft to Lessor for any reason (other than because of any default of Lessor in the performance of its obligations under an agreement with that seller, manufacturer or lessee unless the default arises from any act or omission of Lessee) whether or not in circumstances entitling that seller, manufacturer or lessee to terminate that agreement; (b) any purchase agreement for the Aircraft terminating prior to delivery of the Aircraft (other than because of any default of Lessor in the performance of its obligations under that agreement unless the default arises from any act or omission of Lessee); (c) any Excusable Delay; or (d) notification of any defect or non-conformity pursuant to Clause 4.5; Lessor delays in the delivery of, or fails to deliver, the Aircraft under this Agreement:- (i) Lessor will not be responsible for any losses, including loss of profit, costs or expenses arising from or in connection with the delay or failure suffered or incurred by Lessee; (ii) subject to Clause 4.5, Lessee will not be entitled to terminate this Agreement or to reject the Aircraft when tendered for delivery by Lessor, on the grounds of any such delay; (iii) in the case of termination of a purchase agreement, Lessor may at any time after the termination terminate this Agreement; and (iv) upon any such termination or termination pursuant to Clause 4.5 neither Lessor nor Lessee will have any further obligation to the other under this Agreement other than as expressly set out in this Agreement, except that Lessor will repay to Lessee the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable. 4.4 Licenses: Lessee will at its expense obtain all licenses, permits and approvals which may be necessary to export the Aircraft from the Delivery Location. Lessor will furnish such data and information as may be reasonably requested by Lessee in connection with obtaining any such license, permit or approval. 4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase or lease agreement, Lessor will give Lessee an opportunity:- (a) to inspect the Aircraft at the Delivery Location; and (b) to assign up to 2 representatives to participate as observers in a demonstration flight to demonstrate the condition of the Aircraft. If Lessee notifies Lessor promptly prior to the Delivery Date of any defect or non-conformity with Schedule 1 observed during the inspection or demonstration flight, Lessor will correct or procure the correction of the defect or non-conformity as promptly as practicable (except to the extent otherwise agreed or to the extent in the opinion of Lessor it is impracticable or prohibitively expensive to do so). Subject to Clause 4.3, Lessor may postpone the Delivery Date in such a case to the date which Lessor notifies Lessee that the defect or non-conformity has been rectified. Lessee will be entitled to terminate this Agreement if Lessor notifies it that Lessor does not intend to correct the defect or non-conformity. 4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from and against all Claims (as defined in Clause 10) arising from death or injury to any observer or any employee of Lessee in connection with any demonstration flight or inspection of the Aircraft by Lessee. 5. PAYMENTS 5.1 Deposit: Lessee shall pay to Lessor a Deposit in cash or pursuant to a Letter of Credit in form and substance reasonably acceptable to Lessor in the amounts set forth in the definition of Deposit in Letter Agreement No. 1 and in accordance with the schedule set forth therein. So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits then held by Lessor upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 5.2 Rental Periods: The Term will consist of consecutive whole or partial Rental Periods set forth in Letter Agreement No. 1. The first Rental Period will commence on the Delivery Date and each subsequent Rental Period will commence on the date succeeding the last day of the previous Rental Period. Each Rental Period will end on the date immediately preceding the calendar day in the next month numerically corresponding to the Delivery Date, except that: (a) if there is no such numerically corresponding day in that month, it will end on the last day of that month; and (b) if a Rental Period would otherwise overrun the Expiry Date, it will end on the Expiry Date. 5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in advance in the amount specified as "Rent" in Letter Agreement No. 1. Payment must be initiated adequately in advance of the Rent Date to ensure that Lessor receives credit for the payment on the Rent Date. If a Rental Period begins on a non-Business Day, the Rent payable in respect of that Rental Period shall be paid on the Business Day immediately preceding the date on which such Rental Period commences. 5.4 Supplemental Rent: (a) Amount: Lessee will further pay to Lessor Supplemental Rent in relation to each calendar month or portion thereof during the Term and for the last Rental Period of the Term no later than the 10th day following the end of such calendar month as follows:- (i) in respect of the Airframe, the product of the Airframe Maintenance Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Aircraft during that calendar month ("Airframe Supplemental Rent"); and (ii) in respect of the life-limited Parts ("LLP") for each Engine, the product of the Life-Limited Parts Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine LLP Refurbishment Reserves"); and (iii) in respect of Engine Refurbishment for each Engine, the product of the Engine Refurbishment Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine Refurbishment Reserves"); and (iv) in respect of the Landing Gear, the product of the Landing Gear Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Landing Gear during that calendar month ("Landing Gear Supplemental Rent"). (b) Adjustment: Lessor may adjust the amount of Supplemental Rent after the Delivery Date upon notice to Lessee not more frequently than annually utilizing the Escalation Adjustment set forth in Letter Agreement No. 1. The Engine Reserve Rate may be further adjusted not more frequently than annually as provided in Section III of Letter Agreement No. 1. 5.5 Payments: All payments by Lessee to Lessor under this Agreement will be made for value on the due date in Dollars and in same day funds settled through the New York Clearing House System or such other funds as may for the time being be customary for the settlement in New York City of international payments in Dollars by telegraphic transfer to Bankers Trust Company, ABA number * for the account of GECC T&I Air Depository Account, Account No. * or to such other account as Lessor may advise Lessee in writing. 5.6 Withholding: All payments by Lessee pursuant to the Operative Documents to which it is a party shall be free of all withholdings of any nature whatsoever except to the extent otherwise required by Law, and if any such withholding is so required, Lessee shall pay on an After-Tax Basis an additional amount such that after the deduction of all amounts required to be withheld, the net amount actually received by Lessor on an After-Tax Basis will equal the amount that Lessor would have received on an After-Tax Basis if such withholding had not been required; provided, however, that if Lessee pays any such additional amount to compensate for the withholding of any Lessor Tax, Lessor shall repay to Lessee within * days after receipt of Lessee's written request therefor (which request shall include a description in reasonable detail of the Lessor Tax involved and the calculation of the additional amount to be repaid) the amount of such additional amount to the extent attributable to any Lessor Tax. 5.7 General Tax Indemnity: (a) General: (i) Lessee will on demand pay and indemnify each Indemnitee against all Taxes (other than Lessor Taxes) levied or imposed against or upon or payable by such Indemnitee or Lessee and arising from, with respect to or in connection with the transactions pursuant to the Operative Documents to which it is a party including (but not limited to) all Taxes relating or attributable to Lessee, any Operative Document or the Aircraft directly or indirectly in connection with the importation, exportation, registration, ownership, leasing, sub-leasing, purchase, delivery, possession, use, operation, repair, maintenance, overhaul, transportation, landing, storage, presence or redelivery of the Aircraft or any part thereof or any rent, receipts, insurance proceeds, income or other amounts arising therefrom. (ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by Lessee directly to the appropriate taxing authority (to the extent permitted by applicable Law) at or before the time prescribed by applicable Law. After any payment by Lessee of any Tax directly to a taxing authority, Lessee shall furnish to Lessor, on request, a certified copy of a receipt for Lessee's payment of such Tax or such other evidence of payment of such Tax as is reasonably obtainable by Lessee and reasonably acceptable to Lessor. (iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause 5.7 shall be paid within * days after receipt of a written demand therefor from the relevant Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable, provided that if an amount of any indemnified Tax is being contested in accordance with Clause 5.12 and Lessee shall have duly performed (and shall continue to perform) all its obligations under Clause 5.12 with respect to such contest, then payment of the indemnity with respect to such Tax under Clause 5.12 shall , at Lessee's election, be deferred until the date the contest has been completed. (b) MACRS Tax Indemnity Lessee will on demand pay and indemnify each Tax Indemnitee for any loss, disallowance, or deferral of, or delay in claiming, the MACRS Deductions resulting from (A) Lessee's using the Aircraft in such a manner as to cause the Aircraft to be treated as "used predominantly outside the United States" within the meaning of Section 168(g) of The Internal Revenue Code of 1986, as amended (the "Code") or (B) the Aircraft being treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code other than as a result of the Lessor being a "tax-exempt entity" under Section 168(h)(2) of the Code (either (A) or (B) hereinafter referred to as a "MACRS Loss"). In determining the indemnity required in connection with a MACRS Loss to the Tax Indemnitee under this Clause, the Tax Indemnitees shall be assumed to be subject to a combined U. S. and state income tax rate of (after giving effect to the deductibility of such state income taxes for U. S. income tax purposes) *% in 2000 and in each year thereafter (the "Assumed Tax Rate"), and the Tax Indemnitee will have sufficient taxable income to be taxed at the Assumed Tax Rate after full utilization of the MACRS Deductions. The amount of the MACRS Loss for any taxable year or years shall be computed as the difference between (X) the present value of the MACRS Deductions for such year or years and all subsequent years using a discount rate of * per cent (*%) per annum, and (Y) the present value of the actual cost recovery deductions attributable to the Aircraft realized by the Tax Indemnitee as a result of the MACRS Loss (but assuming that the Aircraft is sold by the Lessor at the end of the Term of * months using a discount rate of * per cent (*%) per annum. The amount payable under this indemnity shall be the amount that, after deduction by the Tax Indemnitee of the amount of all additional U.S., state, local and foreign taxes required to be paid by the Tax Indemnitee in respect of the receipt or accrual of such amount, will equal the amount of the MACRS Loss as computed in the preceding sentence, plus the amount of any actual interest, penalties and additions to tax payable by the Tax Indemnitee with respect to the MACRS Loss. (c) Foreign Tax Credit Indemnity If, as a result of the use or operation or location of the Aircraft outside the United States by Lessee, more than the *% (the "Permitted Percentage") of any item of income, deduction, or loss with respect to the transactions contemplated by the Lease will be treated for Federal income tax purposes as derived from, or allocable to, sources outside the United States (an "Excess Foreign Allocation"), and if as a result thereof the amount of the foreign tax credits available for utilization by the Lessor for any taxable year shall be less than the amount of the foreign tax credits that would have been available for utilization by the Lessor if the Lessee had not used the Aircraft outside the United States more than the Permitted Percentage (such event being referred to herein as a "Foreign Tax Credit Loss"), then the Lessee shall pay to the Lessor as an indemnity an amount which, after deduction of the amount of all additional federal, state, local and foreign taxes actually required to be paid by the Lessor in respect of the receipt or accrual of such amount, is equal to the actual increase in the Federal income taxes payable by (or not refundable to) the Lessor for such taxable year as a result of such Foreign Tax Credit Loss, plus the amount of any interest, penalties and additions to tax payable by the Lessor as a result of such Foreign Tax Credit Loss. (d) Payment Each payment by the Lessee pursuant to Clauses 5.7(b) and (c) shall be made within * days after receipt of a written demand therefor accompanied by a written statement describing in reasonable detail the MACRS Loss or Foreign Tax Credit Loss in question, the amount of additional Federal income tax, interest, penalties and additions to tax and the calculation of the payment due in request thereof (but in no event shall be required to be paid earlier than * (*) Business Days prior to the date such additional Federal income taxes are due); provided that, if a contest of the MACRS Loss or Foreign Tax Credit Loss is being conducted pursuant to Clause 5.12 hereof, payment (other than payments required under Clause 5.12) shall not be required from the Lessee until * days after the final determination of such contest. 5.8. Sales and Use Taxes: (a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if requested by Lessor, Lessee shall pay to the relevant tax authority for the account of Lessor), in addition to the amounts specified as "Rent" in Letter Agreement No. 1: (i) all sales, use, rental, value added, goods and services and similar taxes ("Sales Taxes") required to be paid to the tax authority of the jurisdiction in which the Delivery Location is situated or to the jurisdiction in which the Aircraft is habitually based with respect to the lease of the Aircraft to Lessee pursuant to the Operative Documents to which it is a party unless Lessee delivers to Lessor on or prior to the Delivery Date such exemption certificate or other document as may be acceptable to Lessor to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party; and (ii) all Sales Taxes required to be paid to the tax authority of any jurisdiction in which the Aircraft may be used, operated or otherwise located from time to time unless Lessee delivers to Lessor such exemption certificates or other documents as may be required by applicable Law to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by each such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents to which Lessee is a party. (b) Lessee will cooperate with Lessor in connection with the preparation and filing of any exemption application or similar document that is reasonably necessary or desirable under applicable Law to avoid the imposition of any Sales Taxes with respect to the transactions contemplated by the Operative Documents to which Lessee is a party. (c) The specific obligations with respect to sales and use taxes set forth in this Clause 5.8 are in addition to, and are not in substitution for, the Lessee's obligation to indemnify for sales and use taxes pursuant to Clause 5.7. 5.9 Information: (a) If Lessee is required by any applicable Law, or by any third party, to deliver any report or return in connection with any Taxes for which Lessee would be obligated to indemnify Lessor under the Operative Documents to which Lessee is a party, Lessee will complete the same and, on request, supply a copy of the report or return to Lessor. (b) If any report, return or statement is required to be made by Lessor with respect to any Tax for which there is an indemnity obligation of Lessee under this Clause 5, Lessee will promptly notify Lessor of the requirement and: (i) if permitted by applicable Law, make and timely file such report, return or statement (except for any report, return or statement that Lessor has notified Lessee that Lessor intends to prepare and file), prepare such return in such manner as will show the ownership of the Aircraft in Lessor if required or appropriate, and provide Lessor upon request a copy of each such report, return or statement filed by Lessee, or (ii) if Lessee is not permitted by applicable Law to file any such report, return or statement, Lessee will prepare and deliver to Lessor a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. Lessee will provide such information and documents as Lessor may reasonably request to enable Lessor to comply with its tax filing, audit and litigation obligations. 5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that, with respect to any payment or indemnity pursuant to Clause 5.7 (Tax Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to or for the benefit of any Indemnitee, Lessee's indemnity obligations shall include such amount as may be necessary to hold such Indemnitee harmless on an After-Tax Basis from all Taxes required to be paid by such Indemnitee with respect to such payment or indemnity (including any payments pursuant to this Clause 5.10), determined based on the assumption that at the time each such payment or indemnity accrues to the relevant Indemnitee, such payment or indemnity will be subject to (i) United States Federal income tax at the highest marginal statutory tax rate applicable to corporations, (ii) United States state and local income taxes at the composite of the highest marginal statutory tax rates applicable to the Indemnitee and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on the relevant Indemnitee. 5.11 Default Interest: If Lessee fails to pay any amount payable under this Agreement on the due date, Lessee will pay on demand from time to time to Lessor interest (both before and after judgment) on that amount, from the due date to the date of payment in full by Lessee to Lessor, at the Interest Rate specified in Letter Agreement No. 1; provided, however, that in no event shall such rate exceed the maximum permitted by Law. All such interest will be compounded monthly and calculated on the basis of the actual number of days elapsed in the month assuming a * day month and a * day year. 5.12 Contest: (a) If an Indemnitee receives a written claim for any Tax for which Lessee would be required to pay an indemnity pursuant to Clause 5.7 or Clause 5.8, such Indemnitee shall notify Lessee promptly of such claim, provided that any failure to provide such notice will not relieve Lessee of any indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If requested by Lessee in writing promptly after receipt of such Indemnitee's notice, such Indemnitee shall, upon receipt of indemnity satisfactory to it and at the expense of Lessee (including, without limitation, all costs, expenses, legal and accountants' fees and disbursements, and penalties, interest and additions to tax incurred in contesting such claim) in good faith contest or (if permitted by applicable Law in the case of Taxes other than those payable pursuant to Clauses 5.7(b) and (c)) permit Lessee to contest such claim by (i) resisting payment thereof if practicable and appropriate, (ii) not paying the same except under protest if protest is necessary and proper, or (iii) if payment is made, using reasonable efforts to obtain a refund of such Taxes in appropriate administrative and judicial proceedings. Such Indemnitee shall determine the method of any contest conducted by such Indemnitee and (in good faith consultation with Lessee) control the conduct thereof. Lessee shall determine the method of any contest conducted by Lessee and (in good faith consultation with such Indemnitee) control the conduct thereof. Lessee shall pay in full all payments of Rent and other amounts payable pursuant to the Operative Documents to which Lessee is a party, without reduction for or on account of any Tax, while such contest is continuing. Such Indemnitee shall not be required to contest, or to continue to contest, a claim for Taxes under this Clause 5.12 if (w) in the case of Taxes payable pursuant to Clauses 5.7(b) or (c), the amount in dispute is less than $*, or (x) such contest would result in a risk of criminal penalties or of a sale, forfeiture or loss of, or the imposition of a Lien (other than a Permitted Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion of independent tax counsel selected by such Indemnitee and reasonably satisfactory to Lessee, that a reasonable basis exists for such contest, or (z) a Default or an Event of Default shall be continuing (unless Lessee shall have provided security reasonably satisfactory to such Indemnitee securing Lessee's performance of its obligations under this Clause 5). If such Indemnitee contests any claim for Taxes by making a payment and seeking a refund thereof, then Lessee shall advance to such Indemnitee, on an interest-free basis, an amount equal to the Taxes to be paid by such Indemnitee in connection with the contest and shall indemnify such Indemnitee on an After-Tax Basis for any adverse tax consequences to such Indemnitee of such interest-free advance. Upon the final determination of any contest pursuant to this Clause 5.12 in respect of any Taxes for which Lessee shall have made an advance to such Indemnitee in accordance with the immediately preceding sentence, the amount of Lessee's obligation shall be determined as if such advance had not been made; any indemnity obligation of Lessee to such Indemnitee under this Clause 5 and such Indemnitee's obligation to repay the advance will be satisfied first by setoff against each other, and any difference owing by either party shall be paid within ten days after such final determination. (b) If an Indemnitee obtains a refund of all or any part of any Taxes for which a full indemnity was paid by Lessee, such Indemnitee shall pay Lessee the amount of such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such refund and increased by any Taxes saved by such Indemnitee by reason of the deductibility of such payment by such Indemnitee. If, in addition to such refund, such Indemnitee receives an amount of interest on such refund, such Indemnitee shall pay to Lessee the portion of such interest which is fairly attributable to such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such interest and increased by any Taxes saved by reason of the deductibility of such payment by such Indemnitee. Such Indemnitee shall not be required to make any payment to Lessee pursuant to this Clause 5.12 if, and for so long as, an Event of Default shall have occurred and be continuing. (c) Any Indemnitee in its sole discretion (by written notice to Lessee) may waive its rights to indemnification pursuant to Clause 5.7 with respect to any claim for any Tax and may refrain from contesting or continuing the contest of such claim, in which event Lessee shall have no obligation to indemnify such Indemnitee for the Taxes that are the subject of such claim. If an Indemnitee agrees to a settlement of any contest conducted pursuant to this Clause 5.11 without the prior written consent of Lessee, which consent shall not be unreasonably withheld, then Lessor shall be deemed to have waived its rights to the indemnification provided for in Clause 5.7 with respect to the Tax liability accepted in such settlement. 5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this Agreement are absolute and unconditional irrespective of any contingency whatsoever including (but not limited to):- (a) any right of set-off, counterclaim, recoupment, defense or other right which either party to this Agreement may have against the other; (b) any unavailability of the Aircraft for any reason, including, but not limited to, a requisition of the Aircraft or any prohibition or interruption of or interference with or other restriction against Lessee's use, operation or possession of the Aircraft; (c) any lack or invalidity of title or any other defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, or operation of any kind or nature of the Aircraft for any particular use or trade, or for registration or documentation under the laws of any relevant jurisdiction, or any Event of Loss in respect of or any damage to the Aircraft; (d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceedings by or against Lessor or Lessee; (e) any invalidity or unenforceability or lack of due authorization of, or other defect in, this Agreement; (f) and Security Interests with respect to the Aircraft or Taxes; and/or (g) any other cause which but for this provision would or might otherwise have the effect of terminating or in any way affecting any obligation of Lessee under this Agreement. 5.14 Security (a) To the fullest extent permitted by Law and by way of continuing security Lessee as sole beneficial owner charges the Deposit and the Supplemental Rent and all rights of Lessee to payment thereof and the debt represented thereby (the "Charged Monies") to Lessor by way of first fixed charge as security for Lessee's obligations and liabilities under this Agreement and the Related Agreements (the "Secured Liabilities"). Except as expressly permitted under this Agreement, Lessee will not be entitled to payment of the Charged Monies. Lessee will not assign, transfer or otherwise dispose of all or part of its rights in the Charged Monies and it will enter into any additional documents and instruments necessary or advisable to evidence, create or perfect Lessor's rights to the Charged Monies; (b) If Lessee fails to comply with any provision of this Agreement or any Event of Default has occurred and is continuing, in addition to all rights and remedies accorded to Lessor elsewhere in this Agreement and under Law as a secured party in respect of the Charged Monies, Lessor may immediately or at any time thereafter, without prior notice to Lessee:- (i) set-off all or any part of the Secured Liabilities against the liabilities of Lessor in respect of the Charged Monies; or (ii) apply or appropriate the Charged Monies in or towards the payment or discharge of the Secured Liabilities in such order as Lessor sees fit; and (c) If Lessor has exercised the set-off described in sub-clause (b) above, Lessee shall, following a demand in writing from Lessor, restore the Charged Monies to the level at which they stood immediately prior to such set-off. 5.15 Letter of Credit (a) If Lessee elects to provide Lessor with a Letter of Credit, the provisions of this Section shall apply. Any Letter of Credit provided by Lessee to Lessor will be issued and payable by USBank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by USBank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, and will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and each Other Agreement (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (b) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than * days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (c) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (d) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, immediately procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. 6. MANUFACTURER'S WARRANTIES 6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to the benefit of each warranty, express or implied, with respect to the Aircraft, any Engine or Part so far as concerns any manufacturer, vendor, subcontractor or supplier. Except to the extent Lessor otherwise directs, Lessor hereby authorizes Lessee to pursue any claim thereunder in relation to defects affecting the Aircraft, any Engine or Part and Lessee agrees diligently to pursue any such claim which arises at its own cost. Lessee will notify Lessor promptly upon becoming aware of any such claim. 6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular case, all proceeds of any such claim will be paid directly to Lessor but if and to the extent that such claim relates:- (a) to defects affecting the Aircraft which Lessee has rectified; or (b) to compensation for loss of use of the Aircraft, an Engine or any Part during the Term; and provided no Default has occurred and is continuing the proceeds will be paid to Lessee by Lessor but in the case of (a) above only on receipt of evidence satisfactory to Lessor that Lessee has rectified the relevant defect. 6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case, Lessee will procure that all engines, components, furnishings or equipment provided by the manufacturer, vendor, subcontractor or supplier in replacement of a defective Engine or Part pursuant to the terms of any warranty will be installed promptly by Lessee and that title thereto free of Security Interests vests in Lessor. On installation each part will be deemed to be a Part. In the case of a Replacement Engine, Lessee will satisfy and perform each of the conditions and covenants set forth in Clause 11.1(c), and upon satisfaction of such conditions, such Replacement Engine will be deemed an "Engine" for all purposes of this Agreement. 6.4 Agreement: To the extent any warranties relating to the Aircraft are made available under an agreement between any manufacturer, vendor, subcontractor or supplier and Lessee, this Clause 6 is subject to that agreement. However Lessee will:- (a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant to Clause 6.2 and pending such payment will hold the claim and the proceeds on trust for Lessor; and (b) Lessee will take all such steps as are necessary at the end of the Term to ensure the benefit of any of those warranties which have not expired are vested in Lessor. 7. LESSOR'S COVENANTS 7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its rights under or in connection with this Agreement will not constitute such an interference. Lessor will procure at Lessee's request an undertaking of quiet enjoyment for the benefit of Lessee with respect to any prospective Lessor Lien. 7.2 Release of Supplemental Rent: Provided no Default has occurred and is continuing Lessor will release funds to Lessee from the Supplemental Rent respecting maintenance work performed upon submission by Lessee to Lessor within * months of the commencement of that maintenance and before * (*) months following the Expiry Date of an invoice and supporting documentation reasonably satisfactory to Lessor evidencing:- (a) with respect to the Airframe, the completion, in accordance with this Agreement, of those items of maintenance (excluding any repairs arising as the result of operational or maintenance mishandling) characterized by the Manufacturer's maintenance planning document and best industry practice as "D" Check and/or individual structural inspections having an interval of not less than * Flight Hours or * years for the Aircraft or any lesser interval for an equivalent major structural inspection if required by the Manufacturer's maintenance planning document subject to retroactive and prospective adjustment of the Reserve Rates as deemed appropriate by Lessor, the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Airframe Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously released by Lessor under this sub-clause; (b) with respect to any Engine, the performance, in accordance with this Agreement, of all shop visits requiring engine disassembly (other than (i) repairs arising as a result of foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Engine Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; (c) with respect to life limited parts within any Engine, the performance, in accordance with this Agreement, of any such parts replacement (other than (i) replacement arising as a result of accidents or incidents (whether or not eligible for recovery under Lessee's insurance), foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of QEC kits) and/or (iii) any elective parts replacement), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate of Engine LLP Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; and (d) with respect to the Landing Gear, the performance in accordance with this Agreement, of all work on the landing gear in the nature of overhaul and requiring removal and disassembly (other than repairs arising as the result of operational or maintenance mishandling), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Landing Gear Supplemental Rent paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid by Lessor under this sub-clause. 7.3 Lessor Obligations Following Expiry Date: Within * Business Days of:- (a) redelivery of the Aircraft to Lessor in accordance with and in the condition required by this Agreement; or (b) payment to Lessor of the Agreed Value following an Event of Loss after the Delivery Date; or in each case such later time as Lessor is reasonably satisfied Lessee has irrevocably paid to Lessor all amounts which may then be outstanding or become payable under this Agreement, the other Operative Documents to which Lessee is a party or the Related Agreements and Lessee, Lessor will pay to Lessee:- (i) the balance of the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable; and (ii) the amount of any Rent received in respect of any period falling after the date of redelivery of the Aircraft or payment of the Agreed Value, as the case may be; and shall return to Lessee the warrant certificate, if not previously exercised, representing the Warrant. 8. LESSEE'S COVENANTS 8.1 Duration: The undertakings in this Clause and in Clause 12 will:- (a) except as otherwise stated, be performed at the expense of Lessee; and (b) remain in force until the Expiry Date in accordance with this Agreement and thereafter to the extent of any accrued rights of Lessor in relation to those undertakings. 8.2 Information: Lessee will:- (a) notify Lessor forthwith of the occurrence of any Default or any other event which might adversely affect Lessee's ability to perform any of its obligations under this Agreement; (b) furnish to Lessor:- (i) upon request, the consolidated management accounts of Lessee (comprising a balance sheet and profit and loss statement) prepared for the most recent previous financial quarter; (ii) as soon as available but not in any event later than * days after the last day of each financial year of Lessee, its audited consolidated balance sheet as of such day and its audited consolidated profit and loss statement for the year ending on such day; (iii) at the same time as it is issued to the shareholders or creditors of Lessee, a copy of each notice or circular issued to Lessee's shareholders or creditors as a group; and (iv) on request from time to time such other information regarding Lessee and its business and affairs as Lessor may reasonably request; (c) keep Lessor informed as to current serial numbers of the Engines and any engine installed on the Aircraft; (d) promptly furnish to Lessor all information Lessor from time to time reasonably requests regarding the Aircraft, any Engine or any Part, its use, location and condition including, without limitation, the hours available on the Aircraft and any Engine until the next scheduled check, inspection, overhaul, refurbishment or shop visit, as the case may be; (e) on request, within * days after the end of any Rental Period, furnish to Lessor evidence satisfactory to Lessor of payment of all Taxes due during that or any previous Rental Period; (f) on request, furnish to Lessor evidence satisfactory to Lessor that all Taxes and charges incurred by Lessee with respect to the Aircraft, including without limitation all payments due to the relevant air traffic control authorities, have been paid and discharged in full; (g) within * days after the end of each calendar month during the Term, provide Lessor with a monthly report on the Aircraft and each Engine in the form set out in Schedule 8 hereto; (h) give Lessor not less than * days' written notice as to the time and location of all Major Checks; and (i) promptly notify Lessor of:- (i) any loss, theft, damage or destruction to the Aircraft, any Engine or any Part, or any modification to the Aircraft if the potential cost may exceed the Damage Notification Threshold; and (ii) any claim or other occurrence likely to give rise to a claim under the Insurances (but in the case of hull claims only in excess of the Damage Notification Threshold) and details of any negotiations with the insurance brokers over any such claim. 8.3 Lawful and Safe Operation: Lessee will:- (a) comply with the law for the time being in force in any country or jurisdiction which may for the time being be applicable to the Aircraft (including without limitation Laws mandating insurance coverage) or, so far as concerns the use and operation of the Aircraft or an owner or operator thereof and take all reasonable steps to ensure that the Aircraft is not used for any illegal purpose; (b) not use the Aircraft in any manner contrary to any recommendation of the manufacturers of the Aircraft, any Engine or any Part or any recommendation or regulation of the Air Authority or for any purpose for which the Aircraft is not designed or reasonably suitable; (c) ensure that the crew and engineers employed by it in connection with the operation and maintenance of the Aircraft have the qualifications and hold the licenses required by the Air Authority and applicable Law; (d) use the Aircraft solely in commercial or other operations for which Lessee is duly authorized by the Air Authority and applicable Law; (e) not use the Aircraft for the carriage of:- (i) whole animals living or dead except in the cargo compartments according to I.A.T.A. regulations, and except domestic pet animals carried in a suitable container to prevent the escape of any liquid and to ensure the welfare of the animal; (ii) acids, toxic chemicals, other corrosive materials, explosives, nuclear fuels, nuclear wastes, or any nuclear assemblies or components, except as permitted for passenger aircraft under the "Restriction of Goods" schedule issued by I.A.T.A. from time to time and provided that all the requirements for packaging or otherwise contained therein are fulfilled; (iii) any other goods, materials or items of cargo which could reasonably be expected to cause damage to the Aircraft and which would not be adequately covered by the Insurances; or (iv) any illegal item or substance; (f) not utilize the Aircraft for purposes of training, qualifying or re-confirming the status of cockpit personnel except for the benefit of Lessee's cockpit personnel, and then only if the use of the Aircraft for such purpose is not disproportionate to the use for such purpose of other aircraft of the same type operated by Lessee; (g) not cause or permit the Aircraft to proceed to, or remain at, any location which is for the time being the subject of a prohibition order (or any similar order or directive) by:- (i) any Government Entity of the State of Registration or the Habitual Base; or (ii) any Government Entity of the country in which such location is situated; or (iii) any Government Entity having jurisdiction over Lessor or the Aircraft; (h) obtain and maintain in full force all certificates, licenses, permits and authorizations required for the use and operation of the Aircraft for the time being, and for the making of payments required by, and the compliance by Lessee with its other obligations under, this Agreement; (i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to or for any country or entity that is the subject of sanctions under the U.S. International Economic Emergency Powers Act or U.N. Security Council directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola). Lessee also covenants and agrees (i) not to operate or locate, or suffer or permit to be operated or located, the Aircraft in any country restricted under the U.S. Trading with the Enemy Act and the U.S. Export Administration Act except as may be permitted by operating in accordance with the conditions specified by the U.S. Export Administration Regulations (15 CFR Parts 730-799), General License GATS (15 CFR Part 771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii) not to operate the Aircraft between Cuba and the United States; and (j) not use, operate, or locate the Aircraft, or cause suffer or permit the Aircraft to be used, operated or located during the Term in any manner not covered by the Insurances or in any area excluded from coverage by the Insurances or in any manner which would prejudice the interests of the Indemnitees in the Insurances, the Aircraft, any Engine or any Part. 8.4 Taxes and other Outgoings: Lessee will promptly pay:- (a) all license and registration fees, Taxes (other than Lessor Taxes) and other amounts of any nature imposed by any Government Entity with respect to the Aircraft, including without limitation the purchase, ownership, delivery, leasing, possession, use, operation, return, sale or other disposition of the Aircraft; and (b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts in respect of any premises where the Aircraft or any Part thereof is located from time to time; except to the extent that in the reasonable opinion of Lessor such payment is being contested in good faith by appropriate proceedings, in respect of which adequate resources have been provided by Lessee and non-payment of which does not give rise to any material likelihood of the Aircraft or any interest therein being sold, forfeited or otherwise lost or of criminal liability on the part of Lessor. 8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8 AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF. 8.6 Inspection: (a) Lessor and any person designated by Lessor may at any time visit, inspect and survey the Aircraft, any Engine or any Part and for such purpose may, subject to any applicable Air Authority regulation, travel on the flight deck as observer; (b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable out-of-pocket expenses incurred by Lessor in connection with any such visit, inspection or survey; and (c) Lessor will:- (i) have no duty or liability to make, or arising out of making or failing to make, any such visit, inspection or survey; and (ii) so long as no Default has occurred and is continuing, not exercise such right other than on reasonable notice and so as not to disrupt unreasonably the commercial operations of Lessee, provided, however, Lessee will take such action as may be reasonably required to facilitate Lessor's inspection. 8.7 Title: Lessee will:- (a) not do or knowingly permit to be done or omit or knowingly permit to be omitted to be done any act or thing which might reasonably be expected to jeopardize the rights of Lessor as owner of the Aircraft; (b) on all occasions when the ownership of the Aircraft, any Engine or any Part is relevant, make clear to third parties that title is held by Lessor; (c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation or carriage (whether for hire or reward or gratuitously) which may be undertaken by Lessee or (ii) pledge the credit of Lessor; (d) ensure that there is always affixed, and not removed or in any way obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7 cm.) in a reasonably prominent position in the cockpit of the Aircraft and on each Engine stating:- "This Aircraft/Engine is owned by Aviation Financial Services Inc. and is leased to Frontier Airlines, Inc. and may not be operated by any other person without the prior written consent of Aviation Financial Services Inc."; (e) not create or permit to exist any Security Interest upon the Aircraft, any Engine or any Part; (f) not do or permit to be done anything which may reasonably be expected to expose the Aircraft, any Engine or any Part to penalty, forfeiture, impounding, detention, appropriation, damage or destruction and without prejudice to the foregoing, if any such penalty, forfeiture, impounding, detention or appropriation, damage or destruction occurs, give Lessor notice and use best endeavors to procure the immediate release of the Aircraft, any Engine or the Part, as the case may be; (g) not abandon the Aircraft, the Engine or any Part; (h) pay and discharge or cause to be paid and discharged when due and payable or make adequate provision by way of security or otherwise for all debts, damages, claims and liabilities which have given or might give rise to a Security Interest over or affecting the Aircraft, any Engine or any Part; and (i) not attempt, or hold itself out as having any power, to sell, lease or otherwise dispose of the Aircraft, any Engine or any Part; and (j) obtain a waiver of any mechanic's lien or right thereto from any vendor providing maintenance services for Lessee prior to delivering the Aircraft or any Engine or Part to such vendor. 8.8 General: Lessee will:- (a) not make any substantial change in the nature of the business in which it is engaged, will preserve its corporate existence (other than in connection with a solvent reconstruction the terms of which have been approved by Lessor, such approval not to be unreasonably withheld), and will conduct its business in an orderly and efficient and will maintain all rights, privileges, licenses and franchises material thereto or material to performing its obligations under this Agreement; (b) ensure that no change will occur in the Habitual Base of the Aircraft without the prior written consent of Lessor; (c) not without giving Lessor * days prior notice (in accordance with this Agreement), change its chief executive office (as such term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) from 12015 East 46th Avenue, Denver, Colorado, 80239, United States of America; (d) remain a Certified Air Carrier and maintain, without limitation, its status so as to fall within the preview of Section 1110 of Title 11 of the United States Code or any analogous Statute; and (e) remain a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 8.9 Records: Lessee will:- (a) procure that accurate, complete and current records of all flights made by, and all maintenance carried out on, the Aircraft (including in relation to each Engine and Part subsequently installed, before the installation) are kept; keep the_records in such manner as the Air Authority may from time to time require. All records must be maintained in English. The records will form part of the Aircraft Documents; and (b) maintain, with appropriate revisions in English, all Aircraft Documents, records, logs, and other materials required by applicable Laws and best practice of major international air transport operators in respect of the Aircraft. 8.10 Protection: Lessee will:- (a) maintain the registration of the Aircraft with the Air Authority reflecting (so far as permitted by applicable Law) the interest of Lessor and not do or suffer to be done anything which might adversely affect that registration; and (b) do all acts and things (including, without limitation, making any filing or registration with the Air Authority or any other Government Entity or as required to comply with the Mortgage Convention where applicable) and execute and deliver all documents (including, without limitation, any amendment of this Agreement) as may be required by Lessor:- (i) following any change or proposed change in the ownership or financing of the Aircraft; or (ii) following any modification of the Aircraft, any Engine or any Part or the permanent replacement of any Engine or Part in accordance with this Agreement, so as to ensure that the rights of Lessor under this Agreement apply with the same effect as before; or (iii) to establish, maintain, preserve, perfect and protect the rights of Lessor under this Agreement and the interest of Lessor in the Aircraft. 8.11 Maintenance and Repair: Lessee will:- (a) keep the Aircraft airworthy in all respects and in good repair and condition; (b) not change the Maintenance Performer without providing the Lessor with prior written notice; (c) not materially change the Lessee's Maintenance Program or the schedule of the Lessee's Maintenance Program without the prior written consent of Lessor; (d) maintain the Aircraft in accordance with Lessee's Maintenance Program through the Maintenance Performer and perform (at the respective intervals provided in Lessee's Maintenance Program) all Major Checks; (e) maintain the Aircraft in accordance with the standard of maintenance required by FAR Part 121, Subpart L and any other rules and regulations of the FAA and in at least the same manner and with at least the same care, including, without limitation, maintenance scheduling, modification status and technical condition, as is the case with respect to similar aircraft owned or otherwise operated by Lessee and as if Lessee were to retain and continue operating the Aircraft in its fleet after the Expiry Date, including, without limitation, all maintenance to the Airframe, any Engine or any Part required to maintain all warranties, performance guarantees or service life policies in full force and effect except to the extent of conflict with the rules and regulations of the Air Authority; (f) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority and/or mandated by any manufacturer of the Aircraft, any Engine or Part (an "Airworthiness Directive); (g) comply with all applicable Laws and the regulations of the Air Authority and other aviation authorities with jurisdiction over Lessee or the Aircraft, any Engine or Part regardless of upon whom such requirements are imposed and which relate to the maintenance, condition, use or operation of the Aircraft or require any modification or alteration to the Aircraft, any Engine or Part; (h) maintain in good standing a current certificate of airworthiness (in the appropriate category for the nature of the operations of the Aircraft) for the Aircraft issued by the Air Authority except where the Aircraft is undergoing maintenance, modification or repair required or permitted by this Agreement and will from time to time provide to Lessor a copy on request; (i) if required by the Air Authority, maintain a current certification as to maintenance issued by or on behalf of the Air Authority in respect of the Aircraft and will from time to time provide to Lessor a copy on request; and (j) procure promptly the replacement of any Engine or Part which has become time, cycle or calendar expired, lost, stolen, seized, confiscated, destroyed, damaged beyond repair, unserviceable or permanently rendered unfit for use, with an engine or part complying with the conditions set out in Clause 8.13(a) and in the case of any Engine which suffers an Engine Event of Loss, shall procure that such engine complies with the provisions of Clause 11.1(c). 8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part installed on the Aircraft is at any time removed from the Aircraft other than:- (a) if replaced as expressly permitted by this Agreement; or (b) if the removal is of an obsolete item and is in accordance with Lessee's Maintenance Program; or (c) (i) during the course of maintaining, servicing, repairing, overhauling or testing that Engine or the Aircraft, as the case may be; or (ii) as part of a normal engine or part rotation program; or (iii) for the purpose of making such modifications to the Engine or the Aircraft, as the case may be, as are permitted under this Agreement; and then in each case (A) with respect to a Part, only if it is reinstalled or replaced by a part complying with Clause 8.13(a) as soon as practicable and in any event no later than the Expiry Date, and (B) with respect to an Engine, title to such Engine shall remain vested in Lessor. 8.13 Installation of Engines and Parts: Lessee will:- (a) ensure that, except as permitted by this Agreement, no engine or part is installed on the Aircraft unless:- (i) in the case of an engine, it is an engine of the same model as, or an improved or advanced version of the Engine it replaces, which is in the same or better operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits and has the same or greater value and utility as the replaced Engine; (ii) in the case of a part, it is in as good operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits, is of the same or a more advanced make and model and is of the same interchangeable modification status as the replaced Part; (iii) in the case of a part, it has become and remains the property of Owner free from Security Interests and on installation on the Aircraft will without further act be subject to this Agreement; and (iv) in each case, Lessee has full details as to its source and maintenance records; (b) if no Default has occurred which is continuing, be entitled to install any engine or part on the Aircraft by way of replacement notwithstanding Clause 8.13(a) if:- (i) there is not available to Lessee at the time and in the place that that engine or part is required to be installed on the Aircraft, a replacement engine or, as the case may be, part complying with the requirements of Clause 8.13(a); (ii) it would result in an unreasonable disruption of the operation of the Aircraft and/or the business of Lessee to ground the Aircraft until an engine or part, as the case may be, complying with Clause 8.13(a) becomes available for installation on the Aircraft; and (iii) as soon as practicable after installation of the same on the Aircraft but, in any event, no later than the Expiry Date, Lessee removes any such engine or part and replaces it with the Engine or Part replaced by it or by an engine or part, as the case may be, complying with Clause 8.13(a). 8.14 Non-Installed Engines and Parts: Lessee will:- (a) ensure that any Engine or Part which is not installed on the Aircraft (or any other aircraft as permitted by this Agreement) is, except as expressly permitted by this Agreement, properly and safely stored, and kept free from Security Interests; (b) notify Lessor whenever any Engine is removed from the Aircraft and, from time to time, on request procure that any person to whom possession of an Engine is given acknowledges in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in the Engine and will not seek to exercise any rights whatsoever in relation to it; (c) (notwithstanding the foregoing provisions of this sub-clause), be permitted, if no Default has occurred and is continuing, to install any Engine or Part on an aircraft, or in the case of a Part on an engine:- (i) owned and operated by Lessee free from Security Interests; or (ii) leased or hired to Lessee pursuant to a lease or conditional sale agreement on a long-term basis and on terms whereby Lessee has full operational control of that aircraft or engine; or (iii) acquired by Lessee and/or financed or refinanced, and operated by Lessee, on terms that ownership of that aircraft or engine, as the case may be, pursuant to a lease or conditional sale agreement, or a Security Interest therein, is vested in or held by any other Person; provided that in the case of (ii) and (iii):- (1) the terms of any such lease, conditional sale agreement or Security Interest will not have the effect of prejudicing the interest of Lessor in that Engine or Part; and (2) the lessor under such lease, the seller under such conditional sale agreement or the holder of such Security Interest, as the case may be, has confirmed and acknowledged in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in respect of that Engine or Part and that it will not seek to exercise any rights whatsoever in relation thereto. 8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any pooling agreement or arrangement in respect of an Engine or Part without the prior written consent of Lessor. 8.16 Equipment Changes: (a) Lessee will not make any modification or addition to the Aircraft (each an "Equipment Change"), except for an Equipment Change which:- (i) is expressly permitted by this Agreement, or (ii) has the prior written approval of Lessor and which does not diminish the value, utility, condition, or airworthiness of the Aircraft; (b) So long as a Default has not occurred and is continuing, Lessee may remove any Equipment Change if it can be removed from the Aircraft without diminishing or impairing the value, utility, condition or airworthiness of the Aircraft; and (c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes payable by Lessor as the case may be, as a result of an Equipment Change. 8.17 Title on an Equipment Change: (a) Title to all Parts installed on the Aircraft whether by way of replacement, as the result of an Equipment Change or otherwise (except those installed pursuant to Clause 8.13(b)) will on installation, without further act, vest in Lessor subject to this Agreement free and clear of all Security Interests. Lessee will at its own expense take all such steps and execute, and procure the execution of, all such instruments as Lessor may require and which are necessary to ensure that title so passes to Lessor according to all applicable Laws. At any time when requested by Lessor, Lessee will provide evidence to Lessor's satisfaction (including the provision, if required, to Lessor of one or more legal opinions) that title has so passed to Lessor; (b) Lessor may require Lessee to remove any Equipment Change and to restore the Aircraft to its condition prior to that Equipment Change; and (c) Except as referred to in Clause 8.17(b) any Engine or Part at any time removed from the Aircraft will remain the property of Owner until a replacement has been made in accordance with this Agreement and until title in that replacement has passed, according to applicable Laws, to Lessor subject to this Agreement and free of all Security Interests. Upon title to such replacement so passing to Lessor, title to the replaced Engine or Part, will, provided no Default has occurred and is continuing, pass to Lessee. 8.18 Third Party: Lessee will procure that no person (other than Lessor) will act in any manner inconsistent with its obligations under this Agreement and that all persons will comply with those obligations as if references to "Lessee" included a separate reference to those persons. 9. INSURANCE 9.1 Insurances: Lessee will maintain in full force during the Term, and thereafter as expressly required in this Agreement, insurances in respect of the Aircraft in form and substance satisfactory to Lessor (the "Insurances" which expression includes, where the context so admits, any relevant re-insurance(s)) through such brokers and with such insurers and having such deductibles and being subject to such exclusions as may be approved by Lessor from time to time. The Insurances will be effected either:- (a) on a direct basis with insurers of recognized standing who normally participate in aviation insurances in the leading international insurance markets and led by reputable underwriter(s) approved by Lessor; or (b) with a single insurer or group of insurers approved by Lessor who does not retain the risk but effects substantial reinsurance with reinsurers in the leading international insurance markets and through brokers each of recognized standing and acceptable to Lessor for a percentage acceptable to Lessor of all risks insured (the "Reinsurances"). 9.2 Requirements: Lessor's current requirements as to required Insurances are as specified in this Clause and in Schedule 4. Lessor may from time to time stipulate other requirements for the Insurances so that the scope and level of cover is maintained in line with best industry practice and the interests of Lessor protected. 9.3 Change: If at any time Lessor wishes to revoke its approval of any insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers will consult with Lessee and Lessee's brokers (as for the time being approved by Lessor) regarding whether that approval should be revoked to protect the interests of the parties insured. If, following the consultation, Lessor considers that any change should be made, Lessee will then arrange or procure the arrangement of alternative cover satisfactory to Lessor. 9.4 Insurance Covenants: Lessee will:- (a) ensure that all legal requirements as to insurance of the Aircraft, any Engine or any Part which may from time to time be imposed by the laws of the State of Registration or any state to, from or over which the Aircraft may be flown, in so far as they affect or concern the operation of the Aircraft, are complied with and in particular those requirements compliance with which is necessary to ensure that (i) the Aircraft is not in danger of detention or forfeiture, (ii) the Insurances remain valid and in full force and effect, and (iii) the interests of the Indemnitees in the Insurances and the Aircraft or any Part are not thereby prejudiced; (b) not use, cause or permit the Aircraft, any Engine or any Part to be used for any purpose or in any manner not covered by the Insurances or outside any geographical limit imposed by the Insurances; (c) comply with the terms and conditions of each policy of the Insurances and not do, consent or agree to any act or omission which:- (i) invalidates or may invalidate the Insurances; or (ii) renders or may render void or voidable the whole or any part of any of the Insurances; or (iii) brings any particular liability within the scope of an exclusion or exception to the Insurances; (d) not take out without the prior written approval of Lessor any insurance or reinsurance in respect of the Aircraft other than those required under this Agreement unless relating solely to hull total loss, business interruption, profit commission and deductible risk; (e) commence renewal procedures at least * days prior to expiry of any of the Insurances and provide to Lessor:- (i) if requested by Lessor, a written status report of renewal negotiation * days prior to each expiry date; (ii) telexed telecopy confirmation of completion of renewal prior to each expiry date; and (iii) certificates of insurance (and where appropriate certificates of reinsurance), and broker's (and any reinsurance brokers') letter of undertaking in a form acceptable to Lessor in English, detailing the coverage and confirming the insurers' (and any reinsurers') agreement to the specified insurance requirements of this Agreement within * days after each renewal date; (f) on request, provide to Lessor copies of documents or other information evidencing the Insurances; (g) on request, provide to Lessor evidence that the Insurance premiums have been paid; (h) not make any modification or alteration to the Insurances material and adverse to the interests of any of the Indemnitees; (i) be responsible for any deductible under the Insurances; and (j) provide any other insurance and reinsurance related information, or assistance, in respect of the Insurances as Lessor may reasonably require. 9.5 Failure to Insure: If Lessee fails to maintain the Insurances in compliance with this Agreement, each of the Indemnitees will be entitled but not bound, (without prejudice to any other rights of Lessor under this Agreement):- (a) to pay the premiums due or to effect and maintain insurances satisfactory to it or otherwise remedy Lessee's failure in such manner (including, without limitation to effect and maintain an "owner's interest" policy) as it considers appropriate. Any sums so expended by it will become immediately due and payable by Lessee to Lessor on an After-Tax Basis together with interest thereon at the rate specified in Clause 5.11, from the date of expenditure by it up to the date of reimbursement by Lessee; and (b) at any time while such failure is continuing to require the Aircraft to remain at any airport or to proceed to and remain at any airport designated by it until the failure is remedied to its satisfaction. 9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the Expiry Date with respect to its liability under the Indemnity in Clause 10 for * years which provides for each Indemnitee to be named as additional insured. Lessee's obligation in this Clause shall not be affected by Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees ceasing to have any interest in respect of the Aircraft. 9.7 Application of Insurance Proceeds:- As between Lessor and Lessee:- (a) all insurance payments received as the result of an Event of Loss or Engine Event of Loss occurring during the Term will be paid to Lessor and Lessor will pay the balance of those amounts to Lessee after deduction of all amounts which may be or become payable by Lessee to Lessor under this Agreement (including under Clause 11.1(b)); (b) all insurance proceeds of any property, damage or loss to the Aircraft, any Engine or any Part occurring during the Term not constituting an Event of Loss or Engine Event of Loss and in excess of the Damage Notification Threshold will be applied in payment (or to reimburse Lessee) for repairs or replacement property upon Lessor being satisfied that the repairs or replacement have been effected in accordance with this Agreement. Insurance proceeds in amounts below the Damage Notification Threshold may be paid by the insurer directly to Lessee. Any balance remaining may be retained by Lessor; (c) all insurance proceeds in respect of third party liability will, except to the extent paid by the insurers to the relevant third party, be paid to Lessor to be paid directly in satisfaction of the relevant liability or to Lessee in reimbursement of any payment so made; and (d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment of any such insurance proceeds a Default has occurred and is continuing, all such proceeds will be paid to or retained by Lessor to be applied toward payment of any amounts which may be or become payable by Lessee in such order as Lessor sees fit or as Lessor may elect. To the extent insurance proceeds are paid to Lessee, Lessee agrees to comply with the foregoing provisions and apply or pay over such proceeds as so required. 9.8 Previous Owner as Additional Insured:- Lessee shall effect and maintain insurance naming Viva as an additional insured under Lessee's public liability policy, to the extent of Viva's interest, for the period commencing on the Delivery Date and ending on the earlier to occur of (i) the second anniversary of the Delivery Date or (ii) the date of completion of the next scheduled annual heavy maintenance visit. 10. INDEMNITY 10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS, PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES, PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):- (A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY, PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL, MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE, OPERATION, DATE PROCESSING OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE; (B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH RENDERS VOIDABLE ANY OF THE INSURANCES; AND (C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT, COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON; BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE EXTENT THAT THAT CLAIM IS COVERED PURSUANT TO ANOTHER INDEMNITY PROVISION OF THIS AGREEMENT OR TO THE EXTENT IT ARISES SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN. 10.2 Duration: The indemnities contained in this agreement will continue in full force following the end of the Term notwithstanding any breach or repudiation by Lessor or Lessee of this Agreement or any termination of the lease of the Aircraft hereunder. 11. EVENTS OF LOSS 11.1 (a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft of the same manufacture, model, value and utility as the Aircraft. If Lessor exercises such option, Lessee shall be obliged to lease such substitute aircraft pursuant to the terms and conditions of this Agreement and such substitute aircraft shall constitute the Aircraft for all purposes of this Agreement. Lessor shall provide Lessee with details of the substitute aircraft as soon as may be practicable after the occurrence of the Event of Loss. If Lessor advises Lessee that Lessor does not wish to exercise such option, this Agreement will immediately terminate and except as expressly stated in this Agreement neither party will have any further obligation or liability under this Agreement other than pursuant to Clause 16.9 except that Lessor will return the Deposit if paid in cash or cancel and return the Letter of Credit, as applicable, to Lessee; and (b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the earlier of (i) * Business Days after the Event of Loss and (ii) the date of receipt of insurance proceeds in respect of that Event of Loss. Subject to the rights of any insurers and reinsurers or other third party, upon irrevocable payment in full to Lessor of that amount and all other amounts which may be or become payable to Lessor under this Agreement, Lessor will without recourse or warranty (except as to Lessor's Liens) and without further act, be deemed to have transferred to Lessee all of Lessor's rights to any Engines and Parts not installed when the Event of Loss occurred, all on an as-is where-is basis, and will at Lessee's expense, execute and deliver such bills of sale and other documents and instruments as Lessee may reasonably request to evidence (on the public record or otherwise) the transfer and the vesting of Lessor's rights in such Engines and Parts in Lessee, free and clear of all rights of Lessor and Lessor Liens. (c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss, Lessee shall give Lessor prompt written notice thereof and shall, within * days after such occurrence, convey to Lessor, as replacement for the Engine suffering such event, title to a Replacement Engine. Each Replacement Engine shall be free of all Security Interests and shall be in as good an operating condition as the Engine being replaced, assuming the Engine being replaced was in the condition and repair required by the terms hereof immediately prior to the Engine Event of Loss. Upon full compliance by Lessee with the terms of this Clause 11.1(c), Lessor will transfer to Lessee title to the Engine which suffered the Engine Event of Loss. Prior to or at the time of any such conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a full warranty bill of sale, in form and substance reasonably satisfactory to Lessor, with respect to such Replacement Engine; (ii) cause a lease supplement (in form and substance satisfactory to Lessor) subjecting such Replacement Engine to this Agreement, to be duly executed by Lessee, and recorded pursuant to applicable Law; (iii) furnish Lessor with such evidence of title to such Replacement Engine as Lessor may reasonably request; (iv) furnish Lessor with an opinion of Lessee's counsel to the effect that title to such Replacement Engine has been duly conveyed to Lessor subject to this Agreement, free and clear of all Security Interests, and that such Replacement Engine is duly leased hereunder; (v) furnish a certificate signed by a duly authorized financial officer or executive of Lessee certifying that, upon consummation of such replacement, no Event of Default will have occurred or be continuing; (vi) furnish Lessor with such documents as Lessor may reasonably request in connection with the consummation of the transactions contemplated by this Clause 11.1(c), in each case in form and substance satisfactory to Lessor; and (vii) furnish such Financing Statements incorporating the Replacement Engine as may be requested by Lessor. For all purposes hereof, each such Replacement Engine shall be deemed part of the property leased hereunder, shall be deemed an "Engine" as defined herein and shall be deemed part of the same Aircraft as was the Engine replaced thereof. No Engine Event of Loss covered by this Clause 11.1(c) shall result in any reduction in Rent or affect Lessee's obligation to pay Engine Supplemental Rent or the amount thereof to be paid by Lessee. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of one or more Engines pursuant to this Clause 11.1. 11.2 Substitute Aircraft: (a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft (the "Substitute Aircraft") of the same manufacture and model as the Aircraft and having a value, utility and condition equal to or greater than the Aircraft as at the date of occurrence of the Event of Loss which Substitute Aircraft will be leased by Lessor to Lessee for the remainder of the Term pursuant to the terms and conditions of this Agreement. If Lessor exercises such option, the Substitute Aircraft will constitute the Aircraft for all purposes of this Agreement in respect of facts and circumstances arising after the date of delivery thereof to Lessee. Lessor shall provide Lessee with details of the Substitute Aircraft as soon as may be practicable after the occurrence of the Event of Loss; (b) Lessor will use all reasonable endeavors to deliver the Substitute Aircraft to Lessee as soon as may be practicable following the date of occurrence of the Event of Loss but not later than * months after such date; and (c) Lessee agrees to enter into such documentation as Lessor may require in order to reflect the leasing of the Substitute Aircraft as aforesaid including, without limitation, documentation in respect of the Insurances. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of the Aircraft or Airframe pursuant to this Clause 11.2. 11.3 Requisition: During any requisition for use or hire of the Aircraft, any Engine or Part which does not constitute an Event of Loss:- (a) the Rent and other charges payable under this Agreement will not be suspended or abated either in whole or in part, and Lessee will not be released from any of its other obligations under the Agreement (other than operational obligations with which Lessee is unable to comply solely by virtue of the requisition); and (b) so long as no Default has occurred and is continuing, Lessee will be entitled to any hire paid by the requisitioning authority in respect of the Term. Lessee will, as soon as practicable after the end of any such requisition, cause the Aircraft to be put into the condition required by this Agreement. Lessor will be entitled to all compensation payable by the requisitioning authority in respect of any change in the structure, state or condition of the Aircraft arising during the period of requisition, and Lessor will apply such compensation in reimbursing Lessee for the cost of complying with its obligations under this Agreement in respect of any such change, but so that, if any Default has occurred and is continuing, Lessor may apply the compensation or hire in or towards settlement of any amounts owing by Lessee under this Agreement. 12. RETURN OF AIRCRAFT 12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to Clause 13.2 or termination of the leasing of the Aircraft under this Agreement Lessee will, unless an Event of Loss has occurred, at its expense, redeliver the Aircraft and Aircraft Documents to Lessor at the Redelivery Location or such other airport as is mutually acceptable to the parties hereto, in accordance with the procedures and in compliance with the conditions set forth in Schedule 3, free and clear of all Security Interests and Permitted Liens (other than Lessor Liens) and in a condition qualifying for immediate certification of airworthiness by the FAA or as otherwise agreed by Lessor and Lessee. 12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee will make the Aircraft available to Lessor for inspection ("Final Inspection") in order to verify that the condition of the Aircraft complies with this Agreement. The Final Inspection will permit, and be of sufficient duration for, Lessor to:- (a) inspect the Aircraft Documents; (b) inspect the Aircraft and uninstalled Parts; (c) inspect the Engines, including without limitation (i) a borescope inspection of (A) the low pressure and high pressure compressors and (B) turbine and combustion areas, (ii) engine condition runs and (iii) review of Engine trend monitoring data and technical log reports covering the last * (*) days of operation; and (d) perform a complete borescope inspection of the APU; and (e) observe a * hour demonstration flight (with Lessor's representatives as on-board observers). 12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the condition of the Aircraft does not comply with this Agreement, Lessee will at Lessor's option:- (a) immediately rectify the non-compliance and to the extent the non-compliance extends beyond the Expiry Date, the Term will be automatically extended and this Agreement will remain in force until the non-compliance has been rectified as provided in Clause 12.8; or (b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax Basis, and provide to Lessor's satisfaction cash as security for that indemnity, against the cost of putting the Aircraft into the condition required by this Agreement. 12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's request, all documents necessary to export the Aircraft from the Habitual Base (including, without limitation, a valid and subsisting export license for the Aircraft) and required in relation to the deregistration of the Aircraft with the Air Authority. 12.5 Acknowledgment: Provided Lessee has complied with its obligations under this Agreement, following redelivery of the Aircraft by Lessee to Lessor at the Redelivery Location, Lessor will deliver to Lessee an acknowledgment confirming that Lessee has redelivered the Aircraft to Lessor in accordance with this Agreement. 12.6 Maintenance Program: (a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide Lessor or its agent reasonable access to Lessee's Maintenance Program and the Aircraft Documents in order to facilitate the Aircraft's integration into any subsequent operator's fleet; and (b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft deliver to Lessor a certified true current and complete copy of Lessee's Maintenance Program. Lessor agrees that it will not disclose the contents of Lessee's Maintenance Program to any person or entity except to the extent necessary to monitor Lessee's compliance with this Agreement and/or to bridge the maintenance program for the Aircraft from Lessee's Maintenance Program to another program after the Expiry Date. 12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be made in respect of fuel on board on the Delivery Date and the Expiry Date at the price then prevailing at the Redelivery Location. 12.8 Automatic Extension of Term: In the event of Lessee's failure to make the Aircraft available to Lessor for timely inspection pursuant to Clauses 12.1 hereof, non-compliance of the condition of the Aircraft under Clause 12.3 hereof or any other failure of Lessee which prevents timely Redelivery of the Aircraft to Lessor, the Term of this Agreement will be automatically extended and this Agreement will remain in force until such non-compliance has been rectified, with Lessee being obligated to pay Rent at a rate specified in Clause 5.3 plus * percent on a per diem basis with respect to the period of such extension. 13. DEFAULT 13.1 Events: Each of the following events will constitute an Event of Default and a repudiation (but not a termination) of this Agreement by Lessee (whether any such event or condition is voluntary or involuntary or occurs by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Government Entity). Lessee acknowledges that the occurrence of any Event of Default would represent a material default in the performance of its obligations under this Agreement:- (a) Non-payment: Lessee fails to make any payment under this Agreement on the due date; or (b) Insurance: Lessee fails to comply with any provision of Clause 9 or any insurance required to be maintained under this Agreement is canceled or terminated or notice of cancellation is given in respect of any such insurance; or (c) Breach: Lessee fails to comply with any other provision of this Agreement and, if such failure is in the reasonable opinion of Lessor capable of remedy, the failure continues for * days after notice from Lessor to Lessee; or (d) Representation: any representation or warranty made (or deemed to be repeated) by Lessee in or pursuant to this Agreement or in any document or certificate or statement is or proves to have been incorrect in any material respect when made or deemed to be repeated; or (e) Cross Default: (i) a final judgment for the payment of money not covered by insurance in excess of * Dollars ($*), or final judgments for the payment of money not covered by insurance in excess of * Dollars ($*) in the aggregate, shall be rendered against Lessee and the same shall remain undischarged for a period of * (*) days during which execution thereof shall not be effectively stayed by agreement of the parties involved, stayed by court order or adequately bonded; or (ii) attachments or other Security Interests shall be issued or entered against substantially all of the property of Lessee and shall remain undischarged or unbonded for * (*) days except for Security Interests created in connection with monies borrowed or obligations agreed to by Lessee in the ordinary course of its business; or (iii) Lessee shall default in the payment of any sum which by itself is in excess of $* or any sums which in aggregate exceed $* notwithstanding that any particular individual sum thereof does not exceed $* of any one or more obligations for the payment of borrowed money, for the deferred purchase price of property or for the payment of rent or hire under any lease of aircraft when the same becomes due if such nonpayment results in or would permit an acceleration of such indebtedness, or Lessee shall default in the performance of any other term, agreement, or condition contained in any agreement or instrument under or by which any such obligation is created, evidenced or secured, if the effect of such default is to cause or permit such obligation to become due prior to its stated maturity; or (iv) any event of default or termination event, howsoever described, occurs under the Other Agreements; or (f) Approvals: any consent, authorization, license, certificate or approval of or registration with or declaration to any Government Entity in connection with this Agreement (including, without limitation): - (i) any authorization required by Lessee to obtain and transfer freely Dollars (or any other relevant currency) out of any relevant country; or (ii) required by Lessee to authorize, or in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of this Agreement or the performance by Lessee of its obligations under this Agreement; or (iii) the registration of the Aircraft; or (iv) any airline license or air transport license including, without limitation, authority to operate the Aircraft under FAR Part 121 and a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code; is modified in a manner unacceptable to Lessor or is withheld, or is revoked, suspended, canceled, withdrawn, terminated or not renewed, or otherwise ceases to be in full force; or (g) Bankruptcy, etc.: (i) Lessee or any Subsidiary consents to the appointment of a custodian, receiver, trustee or liquidator of itself or all or any material part of Lessee's property or Lessee's consolidated property, or Lessee or any Subsidiary admits in writing its inability to, or is unable to, or does not, pay its debts generally as they come due, or makes a general assignment for the benefit of creditors, or Lessee or any Subsidiary files a voluntary petition in bankruptcy or a voluntary petition seeking reorganization in a proceeding under any bankruptcy or insolvency Laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee or any Subsidiary in any such proceeding, or Lessee or any Subsidiary by voluntary petition, answer or consent seeks relief under the provisions of any other bankruptcy, insolvency or other similar Law providing for the reorganization or winding-up of corporations, or provides for an agreement, composition, extension or adjustment with its creditors, or any corporate action (including, without limitation, any board of directors or shareholder action) is taken by Lessee or any Subsidiary in furtherance of any of the foregoing, whether or not the same is fully effected or accomplished; or (ii) an order, judgment or decree is entered by any court appointing, without the consent of Lessee or any of its Subsidiaries, a custodian, receiver, trustee or liquidator of Lessee or any Subsidiary, or of all or any material part of Lessee's property or Lessee's consolidated property is sequestered, and any such order, judgment or decree of appointment or sequestration remains in effect, undismissed, unstayed or unvacated for a period of * days after the date of entry thereof or at any time an order for relief is granted; or (iii) an involuntary petition against Lessee or any Subsidiary in a proceeding under the United States Federal Bankruptcy Laws or other insolvency Laws (as now or hereafter in effect) is filed and is not withdrawn or dismissed within * days thereafter or at any time an order for relief is granted in such proceeding, or if, under the provisions of any Law providing for reorganization or winding-up of corporations which may apply to Lessee or any Subsidiary, any court of competent jurisdiction assumes jurisdiction over, or custody or control of, Lessee or any Subsidiary or of all or any material part of Lessee's property, or Lessee's consolidated property and such jurisdiction, custody or control remains in effect, unrelinquished, unstayed or unterminated for a period of 30 days or at any time an order for relief is granted in such proceeding; or (h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations under this Agreement or this Agreement becomes wholly or partly invalid or unenforceable; or (i) Suspension of Business: Lessee or any of its Subsidiaries suspends or ceases or threatens to suspend or cease to carry on all or a substantial part of its business; or (j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers or threatens to dispose, convey or transfer of all or a material part of its assets, liquidates or dissolves or consolidates or merges with any other Person whether by one or a series of transactions, related or not, other than for the purpose of a reorganization of the terms of which have received the previous consent in writing of Lessor; or (k) Rights and Remedies: the existence, validity, enforceability or priority of the rights of Lessor as owner and the rights of Lessor as lessor in respect of the Aircraft are challenged by Lessee or any other person claiming by or through Lessee; or (l) Delivery: Lessee fails to timely comply with its obligations under Clause 4 to accept delivery of the Aircraft; or (m) Ownership, Security Interests and Related Matters: Lessee fails to timely comply with its obligations under Clause 8.7; or (n) Transfer: Lessee makes or permits any assignment or transfer of this Agreement, or any interest herein, or of the right to possession of the Aircraft, the Airframe, or any Engine; or (o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry Date in accordance with Clause 12. (p) Adverse Change: any event or series of events occurs which, in the reasonable opinion of Lessor might have a material adverse effect on the financial condition or operations of Lessee and its Subsidiaries or on the ability of Lessee to comply with its obligations under this Agreement; or (q) Letter of Credit: (i) the issuer of the Letter of Credit (if any) fails to make any payment under that Letter of Credit when due; or (ii) any such Letter of Credit is not in full force or, for any reason ceases to constitute the legal, valid and binding obligation of the issuer; or (iii) any of the events listed in paragraph (f)(i) above, with respect to the performance by the issuer of its obligations under any Letter of Credit, or paragraph (g) above applies to such issuer (references in those sub-paragraphs to Lessee being deemed to be to the issuer); or (iv) where applicable, any Letter of Credit is not renewed within the time required by Section 5.15; and each reference in this paragraph (q) to "the issuer" shall include a reference to any confirming bank for the Letter of Credit. 13.2 Rights: If an Event of Default occurs, Lessor may at its option (and without prejudice to any of its other rights under this Agreement), at any time thereafter (without notice to Lessee except as required under applicable Law):- (a) by notice to Lessee and with immediate effect on dispatch of such notice terminate the letting of the Aircraft (but without prejudice to the continuing obligations of Lessee under this Agreement), whereupon all rights of Lessee under this Agreement shall cease; and/or (b) proceed by appropriate court action or actions to enforce performance of this Agreement, including, without limitation, the payment of all Rent and all other amounts payable to Lessor or any Indemnitee pursuant to the terms hereof; and/or (c) proceed by appropriate court action or actions to recover damages for the breach of this Agreement which shall include, without limitation: - (i) all Rent and other amounts which are or become due and payable hereunder prior to the date Lessor recovers possession of the Aircraft; (ii) at Lessor's election, either one of the amounts determined pursuant to Clause 13.2(e) or Clause 13.2(f) below or any lost profits suffered by Lessor as a consequence of Lessor's inability to place the Aircraft with another lessee on financial terms that are as favorable to Lessor as the terms of this Agreement; (iii) all costs associated with Lessor's exercise of its remedies hereunder, including, but not limited to, repossession costs, legal fees, Aircraft storage costs, Aircraft re-lease or sale costs and Lessor's internal costs and expenses (including the cost of personnel time calculated based upon the compensation paid to the individuals involved on an annual basis and a general Lessor overhead allocation); (iv) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Aircraft; (v) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to redeliver the Aircraft in the condition required by this Agreement; and (vi) any other losses (including lost profits), damage, expense, cost or liability which Lessor suffers or incurs as a result of the Event of Default and/or termination of this Agreement, including an amount sufficient to fully compensate Lessor for any loss of or damage to Lessors residual interest in the Aircraft caused by Lessee's default; and/or (d) either: - (i) enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and, at Lessor's sole option, remove the same (and/or any engine which is not an Engine but which is installed on the Airframe, subject to the rights of the owner, lessor or secured party thereof) or cause it to be redelivered to Lessor at a location in the United States identified by Lessor (or such other location as Lessor may require) (the "Return Location"), by summary proceedings or otherwise, all without liability accruing to Lessor for or by reason of such entry or taking of possession whether for the restoration of damage to property, or otherwise, caused by such entry or taking, except damages caused by gross negligence or willful misconduct; and Lessor is hereby irrevocably, by way of security for Lessee's obligations under this Agreement, appointed attorney for Lessee in causing the redelivery or in directing the pilots of Lessee or other pilots to fly the Aircraft to that airport and will have all the powers and authorizations necessary for taking that action; or (ii) by serving notice require Lessee to redeliver the Aircraft to Lessor at a point within the continental United States designated by Lessor; and/or (e) sell at private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee; and/or (f) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under paragraph (a), paragraph (b), paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2, Lessor, by * days written notice to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts owing under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus the amount, if any, by which the aggregate Rent for the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the interest rate of * percent (*%) per annum, exceeds the fair market rental value (determined pursuant to the Appraisal Procedure) of the Aircraft for the remainder of the Term, after discounting such fair market rental value periodically (equal to installment frequency) to present worth as of the payment date specified in such notice at the interest rate of * percent (*%) per annum; and/or (g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have relet the Aircraft under a lease which extends at least to the date upon which the Term for the Aircraft would have expired but for Lessee's default, Lessor, in lieu of exercising its rights under Clause 13.2(f) above with respect to the Aircraft, may, if it shall so elect, demand that Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft due after the time of reletting) any unpaid Rent for the Aircraft due up to the date of reletting and any other amounts owing under this Agreement, plus the amount, if any, by which the aggregate Rent for the Aircraft, which would otherwise have become due over the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth as of the date of reletting at the interest rate of * percent (*%) per annum, exceeds the aggregate basic rental payments to become due under the reletting from the date of such reletting to the date upon which the Term for the Aircraft would have expired but for Lessee's default, discounted periodically (equal to installment frequency) to present worth as of the date of the reletting at the interest rate of * percent (*%) per annum; and/or (h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f), and (g) of this Clause 13.2, by * days written notice to Lessee specifying a payment date, Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor on the payment date specified in such notice as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts payable under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus an amount equaling the aggregate Rent for the remainder of the Term, discounted periodically (equal to installment frequency) to present worth at the interest rate of * per cent (*%) per annum; (i) draw upon the Deposit (including the Letter of Credit) or the Supplemental Rent furnished under this Agreement or the Related Agreements (as those times are defined in such agreements) and apply such amounts to amounts owing to Lessor hereunder. Lessee, for itself and for its successors and assigns, hereby agrees that, to the extent now or hereafter permitted by applicable Law, notwithstanding any provision of the Federal Bankruptcy Code as amended from time to time, the title of Lessor to the Aircraft and any right of Lessor to take possession of the Aircraft in compliance with the provisions of this Agreement, in each case, upon the occurrence and continuance of an Event of Default, shall not be affected by the provisions of the Federal Bankruptcy Code, as amended from time to time. In addition to the foregoing, Lessee shall be liable for any and all unpaid Rent and other amounts payable under this Agreement during or after the exercise of any of the aforementioned remedies, together with interest on such unpaid amounts at the Interest Rate set forth in Letter Agreement No. 1, and until satisfaction of all of Lessee's obligations to Lessor hereunder and (on an After-Tax Basis) for all reasonable legal fees and other reasonable costs and expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the return of the Aircraft in accordance with the terms of Clause 12 hereof or in placing the Aircraft in the condition and with airworthiness certification as required by such Clause. In effecting any repossession, Lessor and its representatives and agents, to the extent permitted by Law, shall: (i) have the right to enter upon any premises where it reasonably believes the Aircraft, the Airframe, an Engine or Part to be located; (ii) not be liable, in conversion or otherwise, for the taking of any personal property of Lessee which is in or attached to the Aircraft, the Airframe, an Engine or Part which is repossessed; provided, however, that Lessor shall return to Lessee all personal property of Lessee or its passengers which was on the Aircraft at the time Lessor re-takes possession of the Aircraft; (iii) not be liable or responsible, in any manner, for any inadvertent damage or injury to any of Lessee's property in repossessing and holding the Aircraft, the Airframe, an Engine or Part, except for that caused by or in connection with Lessor's gross negligence or willful acts; (iv) have the right to maintain possession of and dispose of the Aircraft, the Airframe, an Engine or Part on any premises owned by Lessee or under Lessee's control; and (v) have the right to obtain a key to any premises at which the Aircraft, the Airframe, an Engine or Part may be located from the landlord or owner thereof. If reasonably required by Lessor, Lessee, at its sole expense, shall assemble and make the Aircraft, the Airframe, an Engine or Part available at a place designated by Lessor in accordance with Clause 12 hereof. Lessee hereby agrees that, in the event of the return to or repossession by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express or implied) previously assigned to Lessee or otherwise held by Lessee shall without further act, notice or writing be assigned or reassigned to Lessor, if assignable. Lessee shall be liable to Lessor on an After-Tax Basis for all reasonable expenses, disbursements, costs and fees incurred in (i) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby authorized and instructed, at its option, to make reasonable expenditures which Lessor considers advisable to repair and restore the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof, all at Lessee's sole expense. At any public sale of the Aircraft, the Airframe, an Engine or Part pursuant to this Clause, Lessor may bid for and purchase such property and Lessee agrees that the amounts paid therefor shall be used in the computation contemplated herein. With the exception that the remedy in Clause 13.2(g) can be elected only if the remedy in Clause 13.2(f) is not elected and the remedy in Clause 13.2(h) can be elected only in lieu of all other remedies save the remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this Clause 13 is intended to be exclusive, but, to the extent permissible hereunder or under applicable Law, each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at Law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies; provided, however, that nothing in this Clause 13 shall be construed to permit Lessor to obtain a duplicate recovery of any element of damages to which Lessor is entitled. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default. 13.3 Deregistration: If an Event of Default occurs, Lessor may sell or otherwise deal with the Aircraft free and clear of any leasehold or other interest of Lessee as if this Agreement had never been made and Lessee will at the request of Lessor take all steps necessary to effect (if applicable) deregistration of the Aircraft and its export from the country where the Aircraft is for the time being situated and any other steps necessary to enable the Aircraft to be redelivered to Lessor in accordance with this Agreement including without limitation execution and filing of a certificate or other instrument of lease termination with the Air Authority and; Lessee hereby irrevocably and by way of security for its obligations under this Agreement appoints (which appointment is coupled with an interest) Lessor as its attorney to execute and deliver any documentation and to do any act or thing required in connection with the foregoing. 14. ASSIGNMENT 14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT. 14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its rights under this Agreement and in the Aircraft. In the case of an assignment other than by way of security, Lessor will be released from and will have no further obligation under this Agreement following the assignment of all its rights under this Agreement and the assumption by the assignee or transferee of all of Lessor's obligations under this Agreement. Notwithstanding any such assignment, Lessor will remain entitled to the benefit of each indemnity and the liability insurances effected under this Agreement. Lessee will comply with all reasonable requests of Lessor, its successors and assigns in respect of any such assignment. Lessor will promptly notify Lessee of any assignment. 14.3 Transfer: If Lessor desires to effect any assignment or transfer of its rights and obligations under this Agreement, Lessee agrees to cooperate and take all such steps as Lessor may reasonably request to give the transferee the benefit of this Agreement and to acknowledge the release of Lessor from its obligations hereunder as of the time of such assignment or transfer. 15. ILLEGALITY If it is or becomes unlawful in any jurisdiction for Lessor to give effect to any of its obligations as contemplated by this Agreement or to continue this Agreement, Lessor may by notice in writing to Lessee terminate the leasing of the Aircraft under this Agreement and Lessee will forthwith redeliver the Aircraft to Lessor in accordance with Clause 12. Without prejudice to the foregoing Lessor will consult in good faith with Lessee as to any steps which may be taken to restructure the transaction to avoid that unlawfulness but will be under no obligation to take any such steps. 16. MISCELLANEOUS 16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:- (i) may be exercised as often as necessary; (ii) are cumulative and not exclusive of its rights under any Law; and (iii) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right will not constitute a waiver of that right. 16.2 Delegation: Lessor may delegate to any person or persons all or any of the trusts, powers or discretions vested in it by these presents and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate) as Lessor in its absolute discretion thinks fit. 16.3 Certificates: Save where expressly provided in this Agreement, any certificate or determination by Lessor as to any rate of interest or as to any other amount payable under this Agreement will, in the absence of manifest error, be conclusive and binding on Lessee. 16.4 Appropriation: If any sum paid or recovered in respect of the liabilities of Lessee under this Agreement is less than the amount then due, Lessor may apply that sum to amounts due under this Agreement in such proportions and order and generally in such manner as Lessor may determine at its sole discretion. 16.5 Currency: Lessee acknowledges that the specification of Dollars in this Agreement is of the essence and that Dollars shall be the currency of account in any and all events. Lessee waives any right it may have in any jurisdiction to pay any amount under this Agreement in a currency other than Dollars. 16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee against any obligation (whether or not matured) owed by Lessor to Lessee, regardless of the place of payment or currency. If the obligations are in different currencies, Lessor may convert either obligation at the market rate of exchange available in New York or at its option London for the purpose of the set-off. If an obligation is unascertained or unliquidated, Lessor may in good faith estimate that obligation and set off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained or liquidated. Lessor will not be obliged to pay any amounts to Lessee under this Agreement so long as any sums which are then due from Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee remain unpaid and any such amounts which would otherwise be due will fall due only if and when Lessee has paid all such sums except to the extent Lessor otherwise agrees or sets off such amounts against such payment pursuant to the foregoing. 16.7 Severability: If a provision of this Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect:- (a) the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or (b) the legality, validity or enforceability in any other jurisdiction of that or any other provision of this Agreement. 16.8 Remedy: If Lessee fails to comply with any provision of this Agreement, Lessor may, without being in any way obliged to do so or responsible for so doing and without prejudice to the ability of Lessor to treat the non-compliance as a Default or an Event of Default, effect compliance on behalf of Lessee, whereupon Lessee shall become liable to pay immediately any sums expended by Lessor together with all costs and expenses (including legal costs) in connection therewith. 16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to this Agreement, Lessee is to pay to Lessor on an After-Tax Basis on demand:- (a) all costs associated with perfecting Lessor's rights in the Aircraft and/or this Agreement in the State of Registration, the Habitual Base of the Aircraft (and other states as appropriate given the operation of the Aircraft), including (but not limited to) the provision of legal opinions, tax advice, stamp duties, translations and registrations, whether required by Lessor or Lessee. (b) all expenses (including legal, professional, and out-of-pocket expenses) incurred or payable by Lessor related to any amendment to or extension of or other documentation in connection with, or the granting of any waiver or consent under this Agreement requested by Lessee or the monitoring of compliance by Lessee with this Agreement; and (c) all expenses (including legal, survey and other costs) payable or incurred by Lessor in contemplation of, or otherwise in connection with, the enforcement of or preservation of any of Lessor's or Owner's rights under this Agreement, or in respect of the repossession of the Aircraft. All expenses payable pursuant to this Clause 16.9 will be paid in the currency in which they are incurred by Lessor. 16.10 Time of Essence: The time stipulated in this Agreement for all payments payable by Lessee to Lessor and the prompt, punctual and performance of Lessee's other obligations under this Agreement are of the essence of this Agreement. 16.11 Notices: All notices under, or in connection with, this Agreement will, unless otherwise stated, be given in writing by letter, facsimile or SITA. Any such notice is deemed effectively to be given as follows:- (i) if by letter, on the earlier of the date when delivered or the *th day after dispatch; (ii) if by facsimile or SITA, when transmitted and full transmission has been separately notified by telephone by the transmitting party. The address, telex numbers, SITA, facsimile and telephone numbers of Lessee, Lessor and Owner are as follows:- Lessee: Address: 12015 East 46th Avenue, Suite 200 Denver, Colorado 80239 United States of America Attn: General Counsel SITA: DENGAF9 Facsimile: (303) 371-7007 Telephone: (303) 371-7400 Lessor: Address: Aviation Financial Services, Inc. c/o GE Capital Aviation Services, Inc. 201 High Ridge Road Stamford, CT 06927-4900 Attn: Contracts - Leader North America Facsimile: (203) 961-5965 Telephone: (203) 357-4585 16.12 Governing Law and Jurisdiction: (a) THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES); (b) Pursuant to and in accordance with Section 5-1402 of the New York General Obligations Law, Lessee and Lessor each agree that the United States District Court for the Southern District of New York and any New York state court sitting in the City of New York, New York are to have nonexclusive jurisdiction to settle any disputes arising out of or relating to this Agreement and each party submits itself and its property to the nonexclusive jurisdiction of the foregoing courts with respect to such disputes; (c) Without prejudice to any other mode of service, (i) (A) Lessee appoints Corporation Service Company, 80 State Street, 6th Floor, Albany, New York 12207-2543 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessor and (B) Lessor appoints General Electric Capital Corporation, a New York corporation, 260 High Ridge Road, Stamford, Connecticut 06927 as its agent for service of process relating to any proceedings before the New York courts in connection with this Agreement and agrees to maintain the process agent in New York notified to Lessee; (ii) Each of Lessor and Lessee agrees that failure by a process agent to notify the other party of the process shall not invalidate the proceedings concerned; (iii) Each of Lessor and Lessee consents to the service of process relating to any such proceedings by prepaid mailing of a copy of the process to the other party's agent at the address identified in paragraph (i)(A) or (i) (B), respectively, or by prepaid mailing by air mail, certified or registered mail of a copy of the process to Lessee or Lessor, respectively, at the address set forth in Clause 16.11; (d) Lessee: - (i) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the COURTS REFERRED TO IN CLAUSE 16.12(b) ABOVE on grounds of inconvenient forum or otherwise as regards proceedings in connection with this Agreement; (ii) waives to the fullest extent permitted by Law any objection which lessee may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this agreement brought in the courts REFERRED TO IN CLAUSE 16.12(b); (iii) agrees that a judgment or order of any court REFERRED TO IN CLAUSE 16.12(b) in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction; (e) Nothing in this Clause 16.12 limits the right of Lessor to bring proceedings against Lessee in connection with this Agreement: - (i) in any other court of competent jurisdiction; or (ii) concurrently in more than one jurisdiction; (f) Lessee irrevocably and unconditionally: - (i) agrees that if Lessor brings legal proceedings against it or its assets in relation to this Agreement no immunity from such legal proceedings (which will be deemed to include without limitation, suit, attachment prior to judgment, other attachment, the obtaining of judgment, execution or other enforcement) will be claimed by or on behalf of itself or with respect to its assets; (ii) waives any such right of immunity which it or its assets now has or may in the future acquire; (iii) consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such proceedings. 16.13 Sole and Entire Agreement: This Agreement and the other Operative Documents to which each is a party are the sole and entire agreement between Lessor and Lessee in relation to the leasing of the Aircraft, and supersede all previous agreements in relation to that leasing. 16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under this Agreement (other than Lessor) are given to Lessor on behalf of that Indemnitee. 16.15 Counterparts: This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. To the extent, if any, that this Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no Security Interest in this Agreement may be created through the transfer or possession of any counterpart other than the counterpart that has been marked "Counterpart No. 1" on the cover page thereof. 16.16 Language: All notices to be given under this Agreement will be in English. All documents delivered to Lessor pursuant to this Agreement will be in English, or if not in English, will be accompanied by a certified English translation. If there is any inconsistency between the English version of this Agreement and any version in any other language, the English version will prevail. 16.17 No Brokers: Lessee hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessor or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. Lessor hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessee or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. For the purposes hereof, the term "Excluded Persons" shall mean (x) in the case of Lessor, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere, and (y) in the case of Lessee, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere. Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, but not limited to reasonable attorneys' fees) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon this Agreement or the Operative Documents to which Lessor and Lessee are a party or the Aircraft, if such claim damage, cost or expense arises out of any action or alleged action by the indemnifying party, its employees or agents. 17. DISCLAIMERS AND WAIVERS 17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS, WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: - (a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: - (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH; (ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO; (iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES; (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE 2.4. 17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS. 17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN CALCULATED BASED ON ITS PROVISIONS. 18. SECTION 1110 Lessee acknowledges that Lessor would not have entered into the Lease unless it had available to it the benefits of a lessor under Section 1110 of Title 11 of the U.S.C. Lessee covenants and agrees with Lessor that to better ensure the availability of such benefits, Lessee shall support any motion, petition or application filed by Lessor with any bankruptcy court having jurisdiction over Lessee whereby Lessor seeks recovery of possession of the Aircraft under said Section 1110 and shall not in any way oppose such action by Lessor unless Lessee shall have complied with the requirements of said Section 1110 to be fulfilled in order to entitle Lessee to continued use and possession of the Aircraft hereunder. In the event said Section 1110 is amended, or if it is repealed and another statute is enacted in lieu thereof, Lessor and Lessee agree to amend the Lease and take such other action not inconsistent with the Lease as Lessor reasonably deems necessary so as to afford to Lessor the rights and benefits as such amended or substituted statute confers upon owners and lessors of aircraft similarly situated to Lessor. 19. USURY LAWS: The parties intend to contract in strict compliance with the usury Laws of the States of New York and Colorado and, to the extent applicable, the United States of America. Notwithstanding anything to the contrary in the Operative Documents, Lessee will not be obligated to pay any interest in excess of the maximum non-usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by Lessor in connection with the Operative Documents. During any period of time in which the then-applicable highest lawful rate is lower than the rate specified in Clauses 5.11 or 13.2, interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will pay interest at the highest lawful rate until the aggregate amount of interest paid by Lessee equals the amount of interest that would have been payable in accordance with the interest rate specified in Clauses 5.11 or 13.2. 20. MODIFICATION OR REVISION: Neither this Agreement nor any term of this Agreement may be modified, rescinded, changed waived, discharged or terminated except by a writing signed by the party to be charged. Lessor and Lessee acknowledge their agreement to the provision of this Clause 20 by their initials below: - LESSOR: __________ LESSEE: ____________ 21. IN WITNESS whereof the parties hereto have executed this Agreement on the date shown at the beginning of this Agreement. WITNESS SIGNED on behalf of AVIATION FINANCIAL SERVICES INC. By: ___________________________ Name: ___________________________ Title: ___________________________ WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC. By: ___________________________ Name: ___________________________ Title: ___________________________ SCHEDULE 1 PART 1 DESCRIPTION OF AIRCRAFT AIRCRAFT MANUFACTURER: Boeing MODEL: 737-36E SERIAL NUMBER: 25263 ENGINES ENGINE TYPE: CFM-56-3B2 SERIAL NOS: SN 726226 and SN 727257 Part A Description of Aircraft On the Delivery Date each Aircraft shall comply with the following conditions: 1. The Aircraft will have accomplished all outstanding airworthiness directives by terminating action, if required, and mandatory orders affecting that model of Aircraft issued by the Air Authority and the DGAC which, if the Aircraft was registered with either of such air authorities, would have to be complied with within * days after the Delivery Date. 2. The Aircraft will have in existence a valid Export Certificate of Airworthiness with respect to the Aircraft issued by the DGAC and shall have all systems operational and shall be eligible for 14 C.F.R. Part 121 operations. 3. The Aircraft shall be in 148Y (tourist/load class seats). 4. The Aircraft shall be fully serviceable with no carried forward defects and shall be clean by airline standards. 5. Airframe: Ex a block MPD 'C7-SI' check in accordance with the Manufactures maintenance planning document, including 100% compliance with the CPCP program and aging aircraft program. Engines: Minimum expected life of * hours and * cycles, verified by power assurance runs. Plus Boroscope inspections to establish the internal condition of the engine. The engines will be able to achieve full take off power at 22,000 thrust rating of minimum OATL of 34 degrees Celsius. Components: Minimum of * hours, * cycles on hard time limited items and * months or full life if Full life is less than * months on calendar limited items and shall be supported by appropriate certification documentation such as JAR form 1 or FAA form 8130-1, where the FAA approval agency is a JAA listed company: for this purpose "Hard Time Component" means any component which has a limited on-wing life in accordance with Manufactures Maintenance Planning Document and which can have life fully restored through appropriate maintenance. The installed components as a group will have an average of total flight time since new of not more than that of the Airframe; and APU: Serviceable and capable of operating under full load without limitation Livery Painting: Freshly painted white. Demonstration Flight: At delivery Lessor will provide a demonstration flight not exceeding two hours in duration. Detail Specification: Aircraft shall comply with the aircraft detail specification No D6-76300-87 except for systems which have been modified to comply with JAR ops requirements and shall have TCAS and VHF 8.33 spacing installed. MTOW: 138,000 LBS 6. FUSELAGE, WINDOWS AND DOORS The aircraft will be ex a D Check as specified in 5 above.The fuselage will be free of major dents and abrasions, and loose or pulled or missing rivets. All repairs will be permanent Class 1 repairs and where possible flush as defined by the Manufacturer's structural repair manual or have specific Manufacturer approval accepted by the FAA. 7. WINGS AND EMPENNAGE (a) Leading edges will be free from damage. (b) Unpainted surfaces will be polished during the D Check; (c) Control surfaces will be cleaned and polished or painted as per Previous operator's policy during the "D" Check; and (d) Wings will be free of fuel leaks. 8. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be serviceable. (b) Carpets and seat covers will be in good condition, and meet JAR/FAR fire resistance regulations; (c) Seats will be serviceable, in good condition having been removed, inspected and repaired. (d) Emergency equipment having a calendar life will have a minimum of * year or *% of its total approved life, whichever is less, remaining; and (e) All signs and decals shall be clean, secure and legible. 9. COCKPIT (a) Fairing panels shall be substantially free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean; (c) Seat covers will be in serviceable , clean and free of stains. (d) Seats will be serviceable, in good condition and will be repainted as necessary; and (e) All signs and decals shall be clean, secure and legible. 10. CARGO COMPARTMENTS (a) Panels will be serviceable; and (b) Nets will be in servicable. PART 2 AIRCRAFT DOCUMENTS Part A A. Certificates A001 Certificate of Airworthiness A002 Current Aircraft Registration A003 C of A for Export (if applicable) A004 Noise Limitation Certificate (AFM page) A005 Radio Station License A007 Aircraft deregistration confirmation A008 Burn Certificates - Cabin Interiors - as follows: Certification of compliance with the fire blocking requirements as outlined in JAR/FAR Part 25 including: - - Seat cushions* - - Back rest cushions* - - Dress covers* - - Carpets - - Curtains - - Interior Surfaces (if refurbished) * Including "in combination" burn certification B. Aircraft Maintenance Status Summaries B001 Certified current Time in Service (Hours & Cycles) and maintenance status B002 Certified status of Airworthiness Directives including method of compliance B003 Certified status of Service Bulletin Status B004 Certified status of SSI B005 Certified status of CPCP (if applicable) B006 Certified inventory of Hard Time Components (Fitted listing) B007 Certified inventory of OC/CM Components (Fitted listing) B008 Certified status of all non-SB and Major Modifications/STC's including acceptable State of Manufacture Certification B009 Certified status of Check/Inspection History & Current Status of Checks B010 List of Deferred Maintenance Items B011 List of Out of Phase Checks, Special Requirements, Time Limited Repairs (if any). B012 Aircraft Accident & Incident Report. B013 Structural repairs and damage (including Dent & Buckle Chart). C. Aircraft Maintenance Records C001 Technical Logs (Minimum of 2 years or as required by the FAA) C002 A Checks Last complete cycle of A Checks (or equivalent) C003 C Checks Last Complete cycle of C Checks (or equivalent) C004 All Major Checks C005 CPCP Tasks (if applicable) C006 Periodic Tasks C007 Dirty Finger Print Certification - AD's C008 Dirty Finger Print Certification - SB's C009 Dirty Finger Print Certification - All other modification C010 Last Weight Report including Schedule C011 Last Test Flight Report C012 Certified ETOPS compliance report (if applicable) C013 Dirty Finger Print certification - All Structural repairs/structural damage C014 Details of State of Manufacture certification basis - A non-SRM Structural repairs C015 Aircraft Log Book(s) if applicable D. Configuration Status D001 Approved and certified LOPA D002 Galley Drawings/Component OHM D003 Emergency Equipment Drawing/Listing D004 Loose Equipment Inventory D005 Inventory Listing of Avonic installed Units. E. Aircraft Historical Records E001 C of A (Export) from State of Manufacture E002 Manufacturer's AD Report E003 Manufacturer's Inspection Report, Initial Equipment list E004 Manufacturer's repair/alteration report E005 Manufacturer's SB Report E006 Service Difficulty Reports (if any) E007 Aircraft Historical Log E008 Last Flight Data Recorder Read-Out & Corrections E009 Weighing report F. Engine Records F001 Certified Statement of Status of Each Engine F002 AD Compliance Report and Compliance Documents F003 Manufacturer's Modifications & SB Status F004 In-house Modifications (if applicable) F005 Certified LLP Listing F006 Certified listing of installed units F007 Manufacturer Delivery Document F008 Complete copies of all historical engine/module Shop Visit Reports F009 State of Manufacture LLP Traceability F010 Conditioning Monitoring Report F011 Engine Log Book/Master Records of Installation/Removals F012 Last Borescope Report, including video if available F013 Test Cell Run Report F014 Last On-Wing Ground Run F015 Certified Statement that Engines are not involved in an Accident F016 Approved Release to Service Certification for installed rotables F017 Approved ETOPS compliance report (if applicable) G. APU G001 Certified Statement on Status of APU (if applicable) G002 Certified SB Compliance Report/AD Status Report G003 Approved Release to Service Certification for installed units G004 APU Log Book/Master Record of Installation/Removals G005 Complete copies of all APU Shop Visit Reports & Reason for Removal G006 Statement of APU Hours to Aircraft Flying Hours G007 LLP Status and Full Traceability to birth G008 APU Borescope Report G009 Last On-Wing/Health Check Data sheets (if applicable) G010 Last Test Cell Run G011 Approved ETOPS compliance report H. Component Records H001 Approved Release to Service Certification for Hard Time Components H002 Approved Release to Service Certification for OC/CM Components I. Landing Gears I001 Approved Release to Service Certification for major assemblies on each Gear I002 Approved LLP Listings for each Gear (with FULL Traceability to Birth) I003 Last Shop Visit Report (OH) J. Manuals All Manufacturer's Manuals delivered with the Aircraft updated to the latest revision standard as may be reasonably requested by Purchaser Microfilm: J006 WDM J007 IPC J008 Maintenance Manual J009 Schematics J010 Hook Up Listing K. Miscellaneous K006 Maintenance Programme Specifications (Operator's) K007 Reference Material for Interpretation of Status Summaries, or cross-reference for Part Numbers SCHEDULE 2 CERTIFICATE OF TECHNICAL ACCEPTANCE This Certificate of Technical Acceptance is delivered, on the date set out below by Frontier Airlines, Inc. ("Lessee"), to AVIATION FINANCIAL SERVICES INC. ("Lessor"), pursuant to the Aircraft Lease Agreement dated as of the 7th of January, 2000 between Lessor and Lessee (the "Agreement"). The capitalized terms used in this Certificate shall have the meaning given to such terms in the Agreement. 1. DETAILS OF ACCEPTANCE Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this [ ] day of [ ], 2000, at [ ], accepted the following, in accordance with the provisions of the Agreement: (a) Boeing Model 737-36E airframe, Manufacturer's Serial No. 25263; (b) CFM-56-3B2 Engines: - Engine Manufacturer's Serial Nos. 1) [______] 2) [______] (Each of which shall have more than 750 rated takeoff horsepower or the equivalent of such horsepower); (c) Fuel on Board Status: [ ] (lbs.) (gals.) (d) Loose Equipment Check List: as per list signed by Lessor and Lessee and attached hereto; and (e) Aircraft Documents: as per list signed by Lessor and Lessee and attached hereto. 2. HOURS AND CYCLES DATA (as of Delivery Date) (a) Airframe: Number of Hours since last block "D" Check (Heaviest Check): ______ hours "C" Check (or Equivalent): Interval: ________________________ Time Since: _______________________ (b) Landing Gear Overhaul: --------------------- Number of Cycles Since Last Overhaul: Left Gear __________________________ cycles Right Gear _________________________ cycles Nose Gear _________________________ cycles Center Gear ________________________ cycles Interval: Left Gear _________________________ Right Gear _________________________ Nose Gear _________________________ Center Gear ________________________ (c) Engines: ------- Number of Hours Since Last Heavy Shop Visit: S/N :______ hours ----------- S/N :______ hours ----------- Number of Hours Since Last Hot Section Refurbishment: S/N :______ hours ----------- S/N :______ hours ----------- Number of Hours Since Last Cold Section Refurbishment: S/N :______ hours ----------- S/N :______ hours ----------- Hot Section Inspection: Interval: ___________________________ Time Since (S/N ): __________________________ -------------- Time Since (S/N ): __________________________ -------------- Time Remaining to First Restriction: Engine S/N: _ ------------------ Hours: __________ Restriction: __________ Cycles: __________ Restriction: __________ Engine S/N: _ ------------------ Hours: __________ Restriction: __________ Cycles: __________ Restriction: __________ Average Cycles in Life Limited Parts (see attached Schedule):________ (d) Auxiliary Power Unit: -------------------- Number of APU Hours Since Last Heavy Shop Visit: __________ hours Date accomplished __________ Hot Section Inspection: Interval: ________________________ Time Since: ________________________ (e) Time Controlled Components: -------------------------- (f) Interior Equipment: ------------------ Number of Passenger Seats and Configuration:_______________ _________ Number of Galleys and Location: _________ __________ Number of Lavatories and Location: _________ __________ LOPA - Attached __________ __________ List of Loose Equipment on Board: -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- -------------------------------------- ----------------- (g) Avionics: Description Model Part No. -------- ----------- ----- -------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- -------------------------------------- --------- ----------- 3. ACCEPTANCE: The undersigned hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents are acceptable to it, satisfy all of the Delivery Condition Requirements relating to the technical condition of the Aircraft and are in the condition for delivery to and acceptance by Lessee as required under the Agreement, except as described on the EXCEPTIONS LIST attached hereto. LESSEE'S EXECUTION AND DELIVERY OF THIS CERTIFICATE SIGNIFIES LESSEE'S ABSOLUTE AND IRREVOCABLE TECHNICAL ACCEPTANCE OF THE AIRCRAFT FOR ALL PURPOSES HEREOF AND OF THE AGREEMENT. IN WITNESS WHEREOF, Lessee has, by its duly authorized representative, executed this Certificate on the date in paragraph 1 above. LESSEE: FRONTIER AIRLINES, INC. By: _________________________ Title: _________________________ ATTACHMENT EXCEPTIONS LIST The items set forth below represent non-conformities to the Delivery Condition Requirements as of the Delivery Date, the corrective action (or payment to Lessee in lieu thereof), if any, to be taken by Lessor and the date of accomplishment. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR'S UNDERTAKINGS SET FORTH HEREIN ARE IN FURTHERANCE OF AND SUBJECT TO THE AIRCRAFT LEASE AGREEMENT DATED AS OF JANUARY 7, 2000 BETWEEN LESSOR AND LESSEE (THE "LEASE"), THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, HEREUNDER AND THAT LESSORS UNDERTAKINGS ARE SUBJECT TO EACH AND EVERY DISCLAIMER OF LESSOR SET FORTH IN THE LEASE INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN CLAUSE 17 THEREOF. LESSOR LESSEE By: _________________________ By:___________________________ Title: _________________________ Title:__________________________ -------------------------------------- 1. ______________________________________ -------------------------------------- -------------------------------------- ------------ ---------- 2. ______________________________________ ====================================== -------------------------------------- ------------- ---------- 3. ______________________________________ ====================================== -------------------------------------- ------------- ---------- SCHEDULE 3 OPERATING CONDITION AT REDELIVERY On the Expiry Date the Aircraft, subject to fair wear and tear generally, will be in the condition set out below:- 1. GENERAL CONDITION The Aircraft will:- (a) be in the same configuration as on the Delivery Date or as reasonably requested by Lessor; (b) be clean by commercial airline standards; (c) have installed the full complement of engines and other equipment, parts, furnishings and accessories as is normally installed in the Aircraft and the loose equipment as was installed in the Aircraft at the time of Delivery, and be in a condition suitable for immediate operation in commercial service; (d) have in existence a valid certificate of airworthiness (or if required by Lessor, a valid export certificate of airworthiness) with respect to the Aircraft issued by the Air Authority and be in compliance without waiver with all current FAR Part 121 requirements; (e) comply with the manufacturer's original specifications or as modified by Lessee with the approval of Lessor, and as required to meet the regulations of the Air Authority at the Expiry Date; (f) have undergone, immediately prior to redelivery, a block `C' Check so that all inspections falling due within the next following * Flight Hours, * Cycles or the next following * months of operation in accordance with Lessee's Maintenance Program, have been accomplished; (g) have had accomplished all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within * days after the Expiry Date and which are required by the Air Authority, and/or mandated by any manufacturer of the Aircraft, any Engine or Part, for this purpose, compliance shall be by terminating action if: the latest date permitted by such Airworthiness Directive for compliance by terminating action falls within * days after the Expiry Date; (h) have installed all applicable vendor's and manufacturer's service bulletin kits received free of charge by Lessee that are appropriate for the Aircraft and to the extent not installed, those kits will be furnished free of charge to Lessor; (i) have its fuselage, engine cowlings, and vertical fin and rudder freshly painted in an all white livery and the paint on the wings and the horizontal stabilizer surfaces shall be clean and in good condition, free from cracks, peeling, blistering and erosion and shall be uniform in color and free from areas of local touch up; (j) have all signs and decals clean, secure and legible; (k) shall have no open, deferred, continued, carryover or placarded log book items; and (l) meet the requirements of FAR Part 36, Appendix C, Stage 3 noise compliance as then in effect without waiver or restriction. 2. COMPONENTS (a) Each Flight Hour and Cycle limited component (other than the APU) shall have not less than * Flight Hours and * Cycles (whichever is the more stringent test) of life remaining to the next expected removal, in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul and Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (b) Each calendar-limited component including safety equipment will have not less than * months life remaining to the next scheduled removal in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul, Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (c) Each life-limited component will be supported by certification documentation necessary to demonstrate traceability of utilization since new (i.e. back-to-birth traceability); (d) Each "on-condition" and "condition monitored" component will be serviceable; (e) The APU will be serviceable and capable of operating under full load without limitation; and (f) The installed components as a group will have an average of total flight time since new of not more than that of the Airframe. 3. ENGINES Each Engine will be installed on the Aircraft and if not the engines installed on the Delivery Date will be accompanied by all documentation Lessor may require to evidence that title thereto is properly vested in Owner and will:- (a) have not less than * Engine Flight Hours or * Cycles (whichever is the more restrictive factor) remaining to next scheduled life limited part replacement and have an expected on-wing remaining life of not less than * Engine Flight Hours or * Cycles (whichever is the more restrictive factor). The expected life remaining will be determined by the inspection and checks accomplished by Lessor in accordance with this Agreement; (b) not be "on watch". (For purposes of the Agreement "on watch" shall mean any maintenance condition that would require an Engine removal and/or reinspection or airworthiness directive action that would require an Engine removal within * flight hours and * Cycles of the Expiry Date); and (c) be in a condition which can operate at maximum rated take off power at sea level at a temperature of 34oC. 4. FUSELAGE, WINDOWS AND DOORS (a) The fuselage will be free of major dents and abrasions, and any dents and abrasions that require a repetitive inspection or future repair, temporary repairs, and loose or pulled or missing rivets and all structural repairs shall be in accordance with the manufacturer's and Air Authority's approved data for permanent repair; (b) Windows will be free of delamination, blemishes, crazing and will be properly sealed; and (c) Doors will be free moving, correctly rigged and be fitted with serviceable seals. 5. WINGS AND EMPENNAGE (a) Leading edges will be free from damage; (b) Unpainted control surfaces will be waxed and polished; (c) Unpainted cowlings and fairings will be polished; and (d) Wings will be free of fuel leaks. 6. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks and stains; (b) Carpets and seat covers will be in good condition, clean and free of stains and meet FAR fire resistance regulations; (c) Seats will be serviceable, in good condition and repainted as necessary; and (d) Emergency equipment having a calendar life will have a minimum of * year or *% of its total approved life, whichever is less, remaining. 7. COCKPIT (a) Fairing panels shall be free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean and effectively sealed; (c) Seat covers will be in good condition, clean and free of stains and will conform to FAR fire resistance regulation; and (d) Seats will be serviceable, in good condition and will be repainted as necessary. 8. CARGO COMPARTMENTS (a) Panels will be in good condition; and (b) Nets will be in good condition. 9. LANDING GEAR The landing gear and wheel wells will be clean, free of leaks and repaired as necessary. Wheels and brakes shall be in a half life condition or better. (a) The landing gear and wheel wells will be clean, free of leaks and repaired as necessary. (b) Each wheel and brake assembly shall be in a half life condition or better. 10. CORROSION (a) The Aircraft shall be in compliance with the Manufacturer's corrosion prevention and control program (CPCP) requirements. All CPCP inspections which would normally be accomplished while access is provided during structural inspection in accordance with Lessee's Maintenance Program during the Term shall have been accomplished.; (b) The entire fuselage will be substantially free from corrosion and will be adequately treated and an approved corrosion prevention program will be in operation; and (c) Fuel tanks will be free from contamination and corrosion and a tank treatment program will be in operation. SCHEDULE 4 INSURANCE REQUIREMENTS The Insurances required to be maintained are as follows:- (a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with respect to the Aircraft on an "agreed value basis" for the Agreed Value and with a deductible not exceeding the Deductible Amount set forth in Letter Agreement No. 1, or such other amount agreed by Lessor from time to time; (b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All Risks Policy to the fullest extent available from the leading international insurance markets including confiscation and requisition by the State of Registration for the Agreed Value, however, when the Aircraft is being operated solely in or over the United States of America and/or Canada, coverage may be limited to such perils as are customarily insured by comparable airlines, operating similar equipment in similar circumstances; (c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in transit other than by air) property insurance on all Engines and Parts when not installed on the Aircraft on an "agreed value" basis for their full replacement value and including engine test and running risks; (d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage) of an amount not less than the Minimum Liability Coverage for the time being any one occurrence (but in respect of products and personal injury liability this limit may be an aggregate limit for any and all losses occurring during the currency of the policy). War and Allied Risks are also to be covered under the Policy in line with prudent market practice for comparable airlines, operating similar equipment in similar circumstances; (e) All required hull and spares insurance (as specified above), so far as it relates to the Aircraft will: - (i) name Lessor and its respective successors and assigns as additional assureds for their respective rights and interests, warranted, each as to itself only, no operational interest; (ii) provide that any loss will be settled jointly with Lessor and Lessee and will be payable in Dollars to Lessor except where the loss does not exceed the Damage Notification Threshold, and Lessor has not notified the insurers to the contrary, in which case the loss will be settled with and paid to Lessee; (iii) if separate Hull "all risks" and "war risks" insurances are arranged, include a 50/50 provision in accordance with market practice (AVS. 103 is the current market language); (iv) confirm that the insurers are not entitled to replace the Aircraft in the event of an insured Event of Loss; (v) confirm that the insurers will not obtain a valid discharge of the obligations under the Insurances by payment to the broker, notwithstanding market practice to the contrary; (f) All required liability insurances (specified above) will:- (i) include Lessor, GECASI, GECASL, Viva, and their respective successors and assigns and their respective shareholders, subsidiaries, directors, officers, agents, employees and indemnitees as additional insureds for their respective rights and interests, warranted, each as to itself only, no operational interest; provided, however, that Viva shall be named as an additional assured solely for the period commencing on the Delivery Date and ending on the earlier to occur of (i) * years following the Delivery Date and (ii) the completion of the next heavy maintenance visit; (ii) include a Severability of Interest Clause which provides that the insurance, except for the limit of liability, will operate to give each assured the same protection as if there was a separate policy issued to each assured; (iii) contain a provision confirming that the policy is primary without right of contribution and the liability of the insurers will not be affected by any other insurance of which Lessor or Lessee have the benefit so as to reduce the amount payable to the additional insureds under such policies; (g) All Insurances will:- (i) be in accordance with normal industry practice of persons operating similar aircraft in similar circumstances; (ii) provide cover denominated in Dollars and any other currencies which Lessor may reasonably require in relation to liability insurance; (iii) operate on a worldwide basis subject to such limitations and exclusions as Lessor may agree; (iv) acknowledge the insurer is aware (and has seen a copy) of this Agreement and that the Aircraft is owned by Lessor; (v) provide that, in relation to the interests of each of the additional assureds the Insurances will not be invalidated by any act or omission by Lessee, or any other person other than the respective additional assured seeking protection and shall insure the interests of each of the additional assureds regardless of any breach or violation by Lessee, or any other person other than the respective additional assured seeking protection of any warranty, declaration or condition, contained in such Insurances; (vi) provide that the insurers will hold harmless and waive any rights of recourse and/or subrogation against the additional assureds, including GECASI and GECASL or to be subrogated to any rights of Lessor against Lessee; (vii) provide that the additional assureds will have no obligation or responsibility for the payment of any premiums due (but reserve the right to pay the same should any of them elect so to do) and that the insurers will not exercise any right of set-off or counter-claim in respect of any premium due against the respective interests of the additional assureds other than outstanding premiums relating to the Aircraft, any Engine or Part the subject of the relevant claim; (viii) provide that the Insurances will continue unaltered for the benefit of the additional assureds for at least * days after written notice by registered mail or telex of any cancellation, change, event of non-payment of premium or installment thereof has been sent to Lessor, except in the case of war risks for which * days (or such lesser period as is or may be customarily available in respect of war risks or allied perils) will be given, or in the case of war between the 5 great powers or nuclear peril for which termination is automatic; (ix) if reinsurance is a requirement of this Agreement such reinsurance will (i) be on the same terms as the original insurances and will include the provisions of this Schedule, (ii) provide that notwithstanding any bankruptcy insolvency, liquidation, dissolution or similar proceedings of or affecting the reinsured that the reinsurers' liability will be to make such payments as would have fallen due under the relevant policy of reinsurance if the reinsured had (immediately before such bankruptcy, insolvency, liquidation, dissolution or similar proceedings) discharged its obligations in full under the original insurance policies in respect of which the then relevant policy of reinsurance has been effected; and (iii) contain a "cut-through" clause in the following form (or otherwise, satisfactory to Lessor): "The Reinsurers and the Reinsured hereby mutually agree that in the event of any claim arising under the reinsurances in respect of a total loss or other claim where as provided by the Aircraft Lease Agreement dated March 25, 1997 and made between Lessor and Lessee such claim is to be paid to the person named as sole loss payee under the primary insurances, the Reinsurers will in lieu of payment to the Reinsured, its successors in interest and assigns pay to the person named as sole loss payee under the primary insurances effected by the Reinsured that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Reinsured (subject to proof of loss), it being understood and agreed that any such payment by the Reinsurers will (to the extent of such payment) fully discharge and release the Reinsurers from any and all further liability in connection therewith"; subject to such provisions not contravening any law of the State of Incorporation; (x) contain a provision entitling Lessor or any insured party to initiate a claim under any policy in the event of the refusal or failure of Lessee to do so; and (xi) accept and insure the indemnity provisions of this Agreement to the extent of the risks covered by the policies. SCHEDULE 5 [Intentionally Omitted] SCHEDULE 6 LEASE SUPPLEMENT NO. __ LEASE SUPPLEMENT NO. ___, dated , 2000, between Aviation Financial Services Inc., a corporation organized under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation (Lessor"), and Frontier Airlines, Inc. a corporation organized under the laws of the State of Colorado (Lessee"). Lessor and Lessee have previously entered into that certain Aircraft Lease Agreement dated as of January 7, 2000 (herein referred to as the "Agreement" and the defined terms therein being hereinafter used with the same meaning). The Agreement provides for the execution and delivery from time to time of a Lease Supplement substantially in the form hereof for the purpose of leasing the aircraft described below under the Agreement as and when delivered by Lessor to Lessee in accordance with the terms thereof. The Agreement and this Lease Supplement relate to the Aircraft, Engines and Parts as more precisely described below. A counterpart of the Agreement is attached hereto and this Lease Supplement and the Agreement shall form one document. In consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: - 1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee hereby accepts, acknowledges receipt of possession and leases from Lessor under the Agreement, that certain Boeing Model 737-300 commercial jet Aircraft, and the two (2) CFM International CFM-56-3-B2 Engines (each of which Engines has 750 or more rated takeoff horsepower or the equivalent of such horsepower) described in Schedule 1 hereto, together with the Aircraft Documents described in the Agreement (the "Delivered Aircraft"). 2. The Delivery Date of the Delivered Aircraft is the date of this Lease Supplement set forth in the opening paragraph hereof. 3. The Term for the Delivered Aircraft shall commence on the Delivery Date and shall end on the Expiry Date. 4. The amount of Rent for the Delivered Aircraft is set forth in Letter Agreement No. 1 to the Agreement. 5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each delivered Engine have been duly marked in accordance with the terms of Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required by the Agreement,(iii) the representations and warranties of Lessee referred to in Clause 2 of the Agreement are hereby repeated with effect as of the date first above written, (iv) having inspected the Delivered Aircraft, Lessee acknowledges that the Delivered Aircraft satisfies all conditions required for Lessee's acceptance of delivery as set forth in the Agreement, except as noted in the Exceptions List attached to the Certificate of Technical Acceptance, and (v) the execution and delivery of this Lease Supplement signifies absolute and irrevocable acceptance by Lessee of the Delivered Aircraft for all purposes hereof and of the Agreement. 6. All of the terms and provisions of the Agreement are hereby incorporated by reference in this Lease Supplement to the same extent as if fully set forth herein. 7. This Lease Supplement may be executed in any number of counterparts, each of such counterparts, shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Lease Supplement. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. __ to be duly executed as of the day and year first above written. LESSOR, LESSEE, AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By:_____________________________ By:_________________________ Name:__________________________ Name:______________________ Title:____________________________ Title:________________________ SCHEDULE 1 TO LEASE SUPPLEMENT NO. One Boeing 737-300 Airframe Registration Mark N_____ Manufacturer's Serial No. Total Time* Total Cycles* ---------- ---------- ------------ 25263 _________ _________ Installed CFM International, Inc. Engines Model No. Serial No. Total Time* Total Cycles* - --------- ---------- ---------- ------------ CFM-56-3-B2 [______] ____________ ____________ CFM-56-3-B2 [______] _____________ ____________ Each of the above-described Aircraft Engines is 750 or more rated takeoff horsepower or its equivalent. * The total time and total cycles referred to above are as of Time, , . Such times and cycles are within hours and cycles of the actual hours and cycles at the time of this Lease Supplement. SCHEDULE 7 FORM OF LEASE TERMINATION CERTIFICATE The undersigned hereby certify that the Aircraft Lease Agreement dated as of January 7, 2000 between the undersigned Lessor and undersigned Lessee, and as further described in the Appendix attached hereto, has terminated and the aircraft and aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this __________ day of ____________________, __________ LESSOR LESSEE AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By:________________________________ By:___________________________ Title:_______________________________ Title:_________________________ APPENDIX FAA Recording Date FAA Conveyance No. SCHEDULE 8 FORM OF AIRCRAFT USAGE REPORT FOR PERIOD BEGINNING ON __________, 2000____ AND ENDING ON ___________, 2000____ The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies as follows: 1. This report is submitted to Aviation Financial Services Inc. ("Lessor") under that certain Aircraft Lease Agreement dated as of January 7, 2000, between Lessor and Lessee (the "Lease"), and capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the Lease. 2. The Aircraft covered by this report is: Aircraft: Boeing 737-36E Serial No: 25263 U.S. Reg. No.: N_____ 3. During the period covered by this report, the Airframe which is the subject of the Lease was operated for the following number of Flight Hours and Cycles as such terms are defined in the Lease: _________ Flight Hours __________ Cycles 4. During the period covered by this report, the CFM-56-B2 Engines Bearing respective serial numbers __________ and ____________ which are the subject of the Lease, where each operated for the following number of Engine Flight Hours and Cycles, as defined in the Lease: Engine Flight Hours Cycles SN ________ _______________ _________________ SN ________ _______________ _________________ This Aircraft Usage Report is dated __________________, 200_, FRONTIER AIRLINES, INC. By:________________________________ Title:_____________________________ EX-10.51 8 0008.txt AIRBUS PURCHASE AGREEMENT AIRBUS A318/A319 PURCHASE AGREEMENT Dated as of March 10, 2000 between AVSA, S.A.R.L., Seller and FRONTIER AIRLINES, INC. Buyer C O N T E N T S CLAUSES TITLE 0 DEFINITIONS 1 SALE AND PURCHASE 2 SPECIFICATION 3 PRICE 4 PRICE REVISION 5 PAYMENT TERMS 6 INSPECTION 7 CERTIFICATION 8 TECHNICAL ACCEPTANCE 9 DELIVERY 10 EXCUSABLE DELAY AND TOTAL LOSS 11 INEXCUSABLE DELAY 12 WARRANTIES AND SERVICE LIFE POLICY 13 PATENT AND COPYRIGHT INDEMNITY 14 TECHNICAL DATA AND DOCUMENTATION 15 FIELD ASSISTANCE 16 TRAINING AND TRAINING AIDS 17 EQUIPMENT SUPPLIER PRODUCT SUPPORT 18 BUYER FURNISHED EQUIPMENT AND DATA 19 INDEMNITIES AND INSURANCE 20 ASSIGNMENTS AND TRANSFERS 21 TERMINATION EVENTS 22 MISCELLANEOUS PROVISIONS 23 CERTAIN REPRESENTATIONS OF THE PARTIES C O N T E N T S EXHIBITS EXHIBIT A-1 A318 STANDARD SPECIFICATION APPENDIX 1 TO SCNs EXHIBIT A-1 EXHIBIT A-2 A319 STANDARD SPECIFICATION APPENDIX 1 TO SCNs EXHIBIT A-2 EXHIBIT B SCN FORM EXHIBIT C SELLER SERVICE LIFE POLICY EXHIBIT D CERTIFICATE OF ACCEPTANCE EXHIBIT E BILL OF SALE EXHIBIT F TECHNICAL DATA AND DOCUMENTATION APPENDIX 1 TO LICENSE FOR USE OF THE PERFORMANCE ENGINEER'S EXHIBIT F PROGRAM APPENDIX 2 TO LICENSE FOR USE OF CD-ROM EXHIBIT F EXHIBIT G SELLER PRICE REVISION FORMULA EXHIBIT H PROPULSION SYSTEMS PRICE REVISION FORMULA EXHIBIT I CONFIDENTIALITY TERMS P U R C H A S E A G R E E M E N T This agreement is made this 10th day of March 2000 between AVSA, a societe a responsabilite limitee organized and existing under the laws of the Republic of France, having its registered office located at 2, rond-point Maurice Bellonte 31700 BLAGNAC FRANCE (hereinafter referred to as the "Seller") and Frontier Airlines, Inc., a corporation organized and existing under the laws of the State of Colorado, United States of America, having its principal corporate offices located at 12015 East 46th Avenue, Suite 200 Denver, CO 80239-3116 (hereinafter referred to as the "Buyer") WHEREAS the Buyer wishes to purchase and the Seller is willing to sell up to twenty-nine (29) Airbus Industrie A318-100 and A319-100 model aircraft, on the terms and conditions herein provided; and WHEREAS the Seller is a sales subsidiary of Airbus Industrie, G.I.E., and will purchase the Aircraft from Airbus Industrie, G.I.E.,for resale to the Buyer, NOW THEREFORE IT IS AGREED AS FOLLOWS: 0 - DEFINITIONS For all purposes of this agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms will have the following meanings: A318 Aircraft - any or all of the A318 Firm Aircraft, A318 Option Aircraft and Additional Option Aircraft that the Buyer orders as A318-100 aircraft. A319 Aircraft - any or all of the A319 Firm Aircraft, A319 Option Aircraft and Additional Option Aircraft that the Buyer orders as A319-100 aircraft. A318 Firm Aircraft - any or all of the five (5) firm A318-100 aircraft for which the delivery schedule is set forth in Clause 9.1.1 hereof to be sold by the Seller and purchased by the Buyer pursuant to this Agreement, together with all components, equipment, parts and accessories installed in or on such aircraft and the A318 Propulsion Systems installed thereon upon delivery. A318 Option Aircraft - any or all of the five (5) A318-100 aircraft on option order for which the delivery schedule is set forth in Clause 9.1.1 hereof, and which may be sold by the Seller and purchased by the Buyer pursuant to this Agreement, together with all components, equipment, parts and accessories installed in or on such aircraft and the A318 Propulsion Systems installed thereon upon delivery. A318 Propulsion Systems - the two (2) Pratt & Whitney PW 6124 powerplants installed on an A318 Aircraft at delivery, each composed of the powerplant (as such term is defined in Chapters 70-80 of ATA Specification 100 (Revision 21), but limited to the equipment, components, parts and accessories included in the powerplant, as so defined) that have been sold to the Manufacturer by Pratt & Whitney. A318 Specification - the A318 Standard Specification as amended by the SCNs set forth in Appendix 1 to Exhibit A-1 hereto as may be further amended or modified in accordance with this Agreement. A318 Standard Specification - the A318 standard specification document number P.000.01000, Issue A, dated November 25, 1998, published by the Manufacturer, which includes an MTOW of 145,505 pounds, a copy of which is annexed as Exhibit A-1 hereto. A319 Firm Aircraft - any or all of the six (6) firm A319-100 aircraft for which the delivery schedule is set forth in Clause 9.1.1 hereof to be sold by the Seller and purchased by the Buyer pursuant to this Agreement, together with all components, equipment, parts and accessories installed in or on such aircraft and the A319 Propulsion Systems installed thereon upon delivery. A319 Option Aircraft - any or all of the four (4) A319-100 aircraft on option order for which the delivery schedule is set forth in Clause 9.1.1 hereof, and which may be sold by the Seller and purchased by the Buyer pursuant to this Agreement, together with all components, equipment, parts and accessories installed in or on such aircraft and the A319 Propulsion Systems installed thereon upon delivery. A319 Propulsion Systems - the two (2) CFM 56-5B5/P powerplants installed on an A319 Aircraft at delivery, each composed of the powerplant (as such term is defined in Chapters 70-80 of ATA Specification 100 (Revision 21), but limited to the equipment, components, parts and accessories included in the powerplant, as so defined) that have been sold to the Manufacturer by CFM International. A319 Specification - the A319 Standard Specification as amended by the SCNs set forth in Appendix 1 to Exhibit A-2 hereto as may be further amended or modified in accordance with this Agreement. A319 Standard Specification - the A319 standard specification document number J.000.01000, Issue 4, dated January 30, 1998, published by the Manufacturer, which includes an MTOW of 154,324 pounds, a copy of which is annexed as Exhibit A-2 hereto. Additional Option Aircraft - up to nine (9) A318-100 and A319-100 model aircraft other than Firm Aircraft and Option Aircraft that may be purchased by the Seller and sold to the Buyer pursuant to this Agreement, together with all components, equipment, parts and accessories installed in or on such aircraft and the Propulsion Systems installed thereon upon delivery. Affiliate - with respect to any person or entity, any other person or entity directly or indirectly controlling, controlled by or under common control with such person or entity, not including any of the Associated Contractors. Agreement - this Airbus A318/A319 Purchase Agreement, including all Exhibits and Appendixes attached hereto, as the same may be amended or modified and in effect from time to time. Aircraft - any or all of the Firm Aircraft or Option Aircraft that have been converted to a firm order. Airframe - any Aircraft, excluding the Propulsion Systems therefor. ASCO - Airbus Service Company, Inc., a corporation organized and existing under the laws of Delaware, having its registered office located at 198 Van Buren Street, Suite 300, Herndon, VA 20170, or any successor thereto. Associated Contractors - collectively, the members and, for certain purposes, subcontractors of the Manufacturer from time to time, which members presently are: (1) AEROSPATIALE MATRA S.A. ("Aerospatiale"), whose principal office is at 37, Boulevard de Montmorency 75016 Paris France (2) BRITISH AEROSPACE (OPERATIONS) LTD, whose principal office is at Warwick House PO Box 87 Farnborough Aerospace Centre Farnborough Hants GU14 6YU England (3) CONSTRUCCIONES AERONAUTICAS,S.A., whose principal office is at 404 Avenida de Aragon 28022 Madrid Spain (4) DAIMLERCHRYSLER AEROSPACE AIRBUS,GmbH("DASA"), whose principal office is at Kreetslag 10 Postfach 95 01 09 21111 Hamburg Germany ATA Specification 100 - the specification issued by the Air Transport Association of America relating to manufacturers' technical data. ATA Specification 101 - the specification issued by the Air Transport Association of America relating to ground equipment technical data. ATA Specification 102 - the specification issued by the Air Transport Association of America relating to software programs. ATA Specification 200 - the specification issued by the Air Transport Association of America relating to integrated data processing. ATA Specification 300 - the specification issued by the Air Transport Association of America relating to the packaging of spare parts shipments. ATA Specification 2000 - the specification issued by the Air Transport Association of America relating to an industry-wide communication system linking suppliers and users for the purposes of spares provisioning, purchasing, order administration, invoicing and information or data exchange. ATA Specification 2100 - the specification issued by the Air Transport Association of America relating to the standards for the presentation of technical information prepared as digital media (magnetic tape or CD ROM). Aviation Authority -when used with respect to any jurisdiction, the government entity that, under the laws of such jurisdiction, has control over civil aviation or the registration, airworthiness or operation of civil aircraft in such jurisdiction. Balance of the Final Contract Price - means the amount payable by the Buyer to the Seller on the Delivery Date for an Aircraft after deducting from the Final Contract Price for such Aircraft the amount of all Predelivery Payments received by the Seller from the Buyer in respect of such Aircraft on or before the Delivery Date for such Aircraft. Base Price - for any Aircraft, Airframe or Propulsion Systems, as more completely defined in Clause 3.1 of this Agreement. Buyer Furnished Equipment (BFE) - for any Aircraft, all the items of equipment that will be furnished by the Buyer and installed in the Aircraft by the Seller, as defined in the Specification. Buyer Termination Event - as defined in Clause 21.1.1 of this Agreement. Certificate of Airworthiness for Export - an export certificate of airworthiness issued by the Aviation Authority of the Delivery Location. Customer Originated Changes (COC) - Buyer-originated data that are introduced into Seller's Technical Data and Documentation, as more completely set forth in Clause 14.4.3 of this Agreement. Delivery - the transfer of title to the Aircraft from the Seller to the Buyer, in accordance with Clause 9. Delivery Date - the date on which Delivery will occur. Delivery Location - the facilities of the Seller at the location of final assembly of the Aircraft, which is currently at DASA's works in Hamburg, Germany, for the A318 and A319 model aircraft. Deposit - Each of the deposit amounts described in Clause 5.3 of this Agreement. DGAC - the Direction Generale de l'Aviation Civile of France, or any successor thereto. Excusable Delay - delay in delivery or failure to deliver an Aircraft due to causes specified in Clause 10.1 of this Agreement. FAA - the U.S. Federal Aviation Administration, or any successor thereto. Final Contract Price - as defined in Clause 3.2 of this Agreement. Firm Aircraft - any or all of the eleven (11) A318 Firm Aircraft and A319 Firm Aircraft. Free Carrier (FCA) - defined in the April 1990 edition of publication No. 460, published by the International Chamber of Commerce. In-house Warranty - as referred to in Clause 12.1.7 of this Agreement. In-house Warranty Labor Rate - as defined in Clause 12.1.7(v) of this Agreement. Interface Problem - as defined in Clause 12.4.1 of this Agreement. JAA - Joint Aviation Authorities or any successor thereto. LBA - Luftfahrt-Bundesamt of Germany or any successor thereto. LIBOR - the London Interbank Offered Rate for each stated interest period, the rate determined on the basis of the offered rates for deposits in US dollars, which appear on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on the day that is two (2) days (other than a Saturday, Sunday or a day that is a legal holiday or a day on which banking institutions are authorized to close in the City of New York, New York, London, England, or Paris, France) before the first day of an interest period. If at least two (2) such offered rates appear on the Reuters Screen LIBO Page, the rate for that interest period will be the arithmetic mean of such offered rates rounded to the nearest basis point (0.5 rounds to 1). If only one (1) offered rate appears, the rate for that interest period will be "LIBOR" as quoted by National Westminster Bank, plc. "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or any successor to such page or service). Manufacturer - Airbus Industrie, a "Groupement d'Interet Economique" established under "Ordonnance" No. 67-821 dated September 23, 1967, of the Republic of France. Option Aircraft - any or all of the nine (9) A318 Option Aircraft and A319 Option Aircraft. Predelivery Payment - any of the payments made in accordance with Clause 5.2.3 or 5.2.4 of this Agreement, which, in the case of the first such payment, will include the Deposit. Predelivery Payment Reference Price - as defined in Clause 5.2.2 of this Agreement. Propulsion Systems - the A318 Propulsion Systems and/or A319 Propulsion Systems, as applicable. Propulsion Systems Price Revision Formula - the price revision formula for A319 Propulsion Systems, set forth in Exhibit H hereto. Ready for Delivery - the state of an Aircraft when it (i) has successfully completed the Technical Acceptance Process (as defined in Clause 8.1.1 of the Agreement) and (ii) has been issued the Certificate of Airworthiness for Export. Reference Price - as set forth in Clause 3.1.2 of the Agreement. Scheduled Delivery Month - as defined in Clause 9.1.1 of the Agreement. Seller Price Revision Formula - the price revision formula set forth in Exhibit G hereto. Seller Termination Event - as defined in Clause 21.1.3 of this Agreement. Service Life Policy - as referred to in Clause 12.2 of this Agreement. Specification - the A318 Specification and/or the A319 Specification, as applicable. Specification Change Notice (SCN) - an agreement in writing between the Seller and the Buyer amending the Specification pursuant to Clause 2. Supplier - any supplier of Supplier Parts. Supplier Parts - any component, equipment, accessory or part installed in an Aircraft at the time of Delivery thereof, not including the Propulsion Systems or Buyer Furnished Equipment, for which there exists a Supplier Product Support Agreement. Supplier Product Support Agreement -an agreement between the Seller and each Supplier of Seller Furnished Equipment listed in the Specification containing enforceable and transferable warranties (and in the case of landing gear suppliers, service life policies for selected structural landing gear elements). Technical Data and Documentation - the documents, manuals and data listed and described in Exhibit F hereto. Training Conference - as defined in Clause 16.4.1 of this Agreement. Warranted Part - as defined in Clause 12.1.1 of this Agreement. Warranty Claim - as defined in Clause 12.1.6(v) of this Agreement. Working Day - with respect to any action to be taken hereunder, a day other than a Saturday, Sunday or other day designated as a holiday in the jurisdiction in which such action is required to be taken. The terms "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement, and not a particular Clause thereof. The definition of a singular in this Clause will apply to plurals of the same words. Technical and trade items not otherwise defined herein will have the meanings assigned to them as generally accepted in the aircraft manufacturing industry. 1 - SALE AND PURCHASE ----------------- The Seller will cause to be manufactured and will sell and deliver, and the Buyer will buy and take delivery of, the Aircraft at the Delivery Location, subject to the terms and conditions in this Agreement. 2 - SPECIFICATION ------------- 2.1 Specification Documents 2.1.1 The Aircraft will be manufactured in accordance with, as applicable, the A318 Specification or the A319 Specification. The Specifications may be further modified from time to time pursuant to the provisions of this Clause 2. 2.1.2 Specification Change Notice Each Specification may be amended by written agreement between the parties in an SCN. Each SCN will be substantially in the form set out in Exhibit B hereto and will set out in detail the particular change to be made to the Specification and the effect, if any, of such change on design, performance, weight, time of delivery of the Aircraft, and text of the Specification. An SCN may result in an upward or downward adjustment of the Base Price. 2.1.3 In the event that a duly authorized representative of the Buyer makes a written request that the Seller proceed with a proposed change, the Seller will consider such request. If the Seller believes that the cost of studying the proposed change will be significant, the Seller will provide the Buyer with an estimate of such cost but will not proceed without the Buyer's written approval * if the change is subsequently incorporated into the Aircraft, the cost of design and other work will be included in the pricing of such change. 2.1.4 Development Changes Each Specification may also be amended by the Seller without the Buyer's consent when changes are made to the basic specification for A318 or A319 model aircraft generally, which do not adversely affect price, time of delivery, weight or performance of the Aircraft, interchangeability or replaceability requirements under the Specification. These changes are hereinafter defined as "Development Changes." The Seller will notify the Buyer on a regular basis of all Development Changes and furnish to the Buyer without charge revised pages for the amended Specification. 2.2 Propulsion Systems The A318 Aircraft will be equipped with A318 Propulsion Systems and the A319 Aircraft will be equipped with A319 Propulsion Systems. 2.3 Customization Milestones Chart Within a reasonable period after signature of the Agreement, the Seller will provide the Buyer with a Customization Milestones Chart. The Customization Milestones Chart will state the lead times before Delivery needed to reach agreement on items requested by the Buyer from the specification changes catalogs made available to the Seller. 3 - PRICE ----- 3.1 Base Price of the Aircraft 3.1.1 A318 Aircraft The Base Price of each A318 Aircraft is the sum of (i) the Base Price of the A318 Aircraft as defined in the A318 Standard Specification (excluding Buyer Furnished Equipment and SCNs), at delivery conditions prevailing in January 1999, which is: US $ * (US dollars--* ), and (ii) the Base Price of any and all SCNs mutually agreed upon prior to the signature of this Agreement and set forth in Appendix 1 to Exhibit A-1 hereto, at delivery conditions prevailing in January 1999, which is: US $ * (US dollars--* ). 3.1.2 A319 Aircraft 3.1.2.1 The Base Price of each A319 Aircraft is the sum of: (i) the Base Price of the Airframe of the A319 Aircraft, and (ii) the Base Price of the A319 Propulsion Systems. 3.1.2.2 Base Price of the Airframe The Base Price of the Airframe of the A319 Aircraft is the sum of (i) the Base Price of the Airframe, as defined in the A319 Standard Specification (excluding Buyer Furnished Equipment and SCNs), at delivery conditions prevailing in January 1999, which is: US $ * (US dollars--* ), and (ii) the Base Price of any and all SCNs mutually agreed upon prior to the signature of this Agreement and set forth in Appendix 1 to Exhibit A-2 hereto, at delivery conditions prevailing in January 1999, which is: US $ * (US dollars--* ). 3.1.2.3 Base Price of the A319 Propulsion Systems 3.1.2.3.1 The Base Price of the A319 Propulsion Systems, at delivery conditions prevailing in January 1999, is: US $ * (US dollars--* ). Said Base Price has been calculated in accordance with the Propulsion Systems Price Revision Formula from the Reference Price published by * of US $ * (US dollars-- * ) at economic conditions prevailing in July 1996. 3.1.2.3.2 Validity of A319 Propulsion Systems Prices It is understood that the prices and Propulsion Systems Price Revision Formula cited above for the A319 Propulsion Systems and related equipment are based on information received from CFM International and remain subject to any modification that might be communicated by CFM International to the Manufacturer, the Seller and/or the Buyer. 3.2 Final Contract Price 3.2.1 The Final Contract Price of an A318 Aircraft will be the sum of: (i) the Base Price of the A318 Aircraft, as adjusted to the Delivery Date of such Aircraft in accordance with the Seller Price Revision Formula; (ii) the price (as of delivery conditions prevailing in January 1999) of any SCNs for A318 Aircraft entered into after the date of execution of this Agreement, as adjusted to the Delivery Date in accordance with the Seller Price Revision Formula; and (iii) any other amount that is expressly stated to be included in the Final Contract Price of an A318 Aircraft pursuant to any other provisions of this Agreement and/or any other written agreement between the Buyer and the Seller relating to the A318 Aircraft. 3.2.2 The Final Contract Price of an A319 Aircraft will be the sum o (i) the Base Price of the Airframe constituting a part of such Aircraft, as adjusted to the Delivery Date of such Aircraft in accordance with the Seller Price Revision Formula; (ii) the price (as of delivery conditions prevailing in January 1999) of any SCNs for A319 Aircraft entered into after the date of execution of this Agreement, as adjusted to the Delivery Date in accordance with the Seller Price Revision Formula; (iii) the Reference Price of the installed A319 Propulsion Systems constituting a part of such Aircraft, as adjusted to the Delivery Date in accordance with the Propulsion Systems Price Revision Formula; and (iv) any other amount that is expressly stated to be included in the Final Contract Price of an A319 Aircraft pursuant to any other provisions of this Agreement and/or any other written agreement between the Buyer and the Seller relating to the A319 Aircraft. 3.3 Taxes, Duties and Imposts 3.3.1 The Seller will bear and pay the amount of any and all taxes (excluding taxes on the income of the Buyer), duties, imposts or similar charges of any nature whatsoever that are (i) imposed upon the Buyer, (ii) imposed upon the Seller with an obligation on the Buyer to withhold or collect the amount thereof from the Seller or (iii) imposed upon the Buyer with an obligation on the Seller to withhold or collect such amount from the Buyer, and that a re levied, assessed, charged or collected for or in connection with the fabrication, manufacture, modification, assembly, sale, delivery, use of or payment under this Agreement for any Aircraft, component, accessory, equipment or part delivered or furnished hereunder, provided such taxes, duties, imposts or similar charges have been levied, assessed, charged or collected under laws promulgated and enforceable under the laws of the country of the Delivery Location *. 3.3.2 The Buyer will bear and pay the amount of any and all taxes (excluding taxes on the income of the Seller), duties, imposts or similar charges of any nature whatsoever that are (i) imposed upon the Seller, (ii) imposed upon the Buyer with an obligation on the Seller to withhold or collect the amount thereof from the Buyer or (iii) imposed upon the Seller with an obligation for the Buyer to withhold or collect such amount from the Seller, and that are levied, assessed, charged or collected for or in connection with the fabrication, manufacture, modification, assembly, sale, delivery or use of or payment under this Agreement for any Aircraft, component, accessory, equipment or part delivered or furnished hereunder, provided such taxes, duties, imposts or similar charges have been levied, assessed, charged or collected under laws promulgated and enforceable in countries other than the country of the Delivery Location *. 3.3.3 If a claim is made against either party (the "Indemnitee") by any governmental authority for taxes, duties, imposts or similar charges of any nature for which liability has been assumed by the other party under this Clause 3.3 (the "Indemnitor"), the Indemnitee will promptly give notice of such claim to the Indemnitor and the Indemnitor (unless otherwise requested by the Indemnitee) will assume the defense or settlement of such claim, as the Indemnitor will deem prudent. Notwithstanding the foregoing, if the Indemnitor will request that the claim be contested, the Indemnitee will contest (or will permit the Indemnitor, if so desired by the Indemnitee, to contest) the claim in good faith; provided that, (i) the Indemnitee will be required to contest any claim beyond the level of administrative proceedings only if timely requested by the Indemnitor, and (ii) the Indemnitee will keep the Indemnitor informed as to the progress of any litigation. The Indemnitee will not be required to take any action pursuant to this Clause 3.3.3 unless (A) the Indemnitor will have agreed to pay all costs and expenses that the Indemnitee may incur in connection with contesting such claim (including, without limitation, reasonable legal and accounting fees and disbursements, bonding fees, penalties and interest); and (B) the action to be taken will not result in any sale, forfeiture or loss of, or the creation of any Lien on, the Aircraft or any interest therein, or if, in the opinion of the Indemnitor, there is a reasonable risk thereof, the Indemnitor will have provided to the Indemnitee a bond in form and substance reasonably satisfactory to the Indemnitee to protect against such risk. The provisions of this Clause 3.3 will survive the expiration or earlier termination of this Agreement. 3.3.4 The Seller will arrange for the exportation of the Aircraft from the country of the Delivery Location and will pay any customs duties, taxes and fees required to be paid with respect to such exportation of the Aircraft *. 3.3.5 The Buyer will arrange for the importation of the Aircraft into any country or jurisdiction and will pay any customs duties, taxes and fees required to be paid with respect to such importation of the Aircraft. 4 - PRICE REVISION -------------- 4.1 Seller Price Revision Formula The Base Prices of the A318 Aircraft, the Airframe of the A319 Aircraft, and of SCNs are subject to revision up to and including the Delivery Date, in accordance with the Seller Price Revision Formula. 4.2 Propulsion Systems Price Revision Formula The Reference Price of the Propulsion Systems for the A319 Aircraft will be revised to the Delivery Date corresponding to the Aircraft on which these Propulsion Systems are installed, in accordance with the Propulsion Systems Price Revision Formula. 5 - PAYMENT TERMS ------------- 5.1 The Buyer will pay the Predelivery Payments, the Balance of the Final Contract Price and any other amount due hereunder in immediately available funds in United States dollars to Credit Lyonnais, New York Branch, for transfer by Credit Lyonnais to the Seller's account with Credit Lyonnais at 1, Esplanade Compans Caffarelli, 31000 Toulouse, France, or to such other account as may be designated by the Seller. 5.2 Predelivery Payments 5.2.1 Predelivery Payments will be paid by the Buyer to the Seller for each Aircraft and will, in the aggregate, amount to * of the Predelivery Payment Reference Price of the Aircraft defined below in Clause 5.2.2. 5.2.2 The Buyer will pay Predelivery Payments to the Seller calculated on the Predelivery Payment Reference Price of each Aircraft. The Predelivery Payment Reference Price is defined as: A = Pb (1 + 0.04N) where A = the Predelivery Payment Reference Price for Aircraft to be delivered in calendar year T. Pb = the Base Price of the Aircraft as defined in Clause 3 above. N = (T - 1999). T = the year of delivery of the relevant Aircraft. 5.2.3 Predelivery Payments w ill be paid according to the following schedules. 5.2.3.1 The schedule of Predelivery Payments for Firm Aircraft is as follows: Percentage of Aircraft Predelivery Payment Payment Date Reference Price * * TOTAL PAYMENT PRIOR TO DELIVERY * 5.2.3.2 The schedule of Predelivery Payments for Option Aircraft is as follows: Percentage of Aircraft Predelivery Payment Payment Date Reference Price * * TOTAL PAYMENT PRIOR TO DELIVERY 15% 5.2.4 SCN Predelivery Payments The Seller will be entitled to request Predelivery Payments for each SCN executed after signature of this Agreement. (i) For each SCN executed before the first day of the * month before the Scheduled Delivery Month, the Buyer will make a Predelivery Payment equal to * of the SCN price. This Predelivery Payment will be paid on the first day of the * before the Scheduled Delivery Month. (ii) For each SCN executed after the first day of * and before the first day of the * before the Scheduled Delivery Month, this Predelivery Payment will amount to * of the SCN price, and for each SCN executed after the first day of the * and before the first day of the * month before the Scheduled Delivery Month this payment will amount to * of the SCN price. These payments will be paid on the first day of the * month before the Scheduled Delivery Month. 5.3 Deposit The Seller acknowledges that it has already received from the Buyer the sum of US$ * (US dollars-- * ), which represents a deposit of US$ * (US dollars-- * ) for each Firm Aircraft and of US $* (US dollars-- * ) for each Option Aircraft. The deposit paid with respect to each particular Aircraft will be credited without interest against the first Predelivery Payment for such Aircraft. 5.4 Payment of Balance of the Final Contract Price Concurrently with the delivery of each Aircraft, the Buyer will pay to the Seller the Balance of the Final Contract Price for such Aircraft. The Seller's receipt of the full amount of all Predelivery Payments and of the Balance of the Final Contract Price, including any amounts due under Clause 5.5 or 5.6, will be a condition precedent to the Seller's obligation to deliver such Aircraft. 5.5 Payment of Other Amounts 5.5.1 Unless otherwise expressly provided for herein, any payments due hereunder or in respect of an Aircraft in addition to those referred to in Clauses 5.2 and 5.4 above will be paid by the Buyer concurrently with the delivery of the corresponding Aircraft or, if the Seller elects to invoice such amounts after delivery of such Aircraft, within one (1) month after the invoice date. 5.5.2 The Seller will give the Buyer written notice of any amount (whether under this Agreement or under any other agreement between the Buyer and the Seller and whether at the stated maturity of such amount, by acceleration or otherwise) that is due and payable by the Buyer or its Affiliates and is not paid in full in immediately available funds on the date due. * the Seller will have the right to debit and apply, in whole or in part, the unused amount of any credit made available by the Seller to the Buyer against such unpaid amount. The Seller's rights under this Clause 5.5.2 are in addition to any other rights the Seller may have at contract or at law and do not contravene its rights under Clause 21 herein. 5.6 Overdue Payments 5.6.1 If one or more Predelivery Payments in respect of any Aircraft is or are received after the due date specified in Clause 5.2.3, such that the aggregate number of days of delay in respect of such Aircraft reaches thirty (30), then the Seller will have the right to set back the Scheduled Delivery Month for such Aircraft by a period of one (1) month for every thirty (30) days of such delay. Furthermore, if such delays in payment exceed sixty (60) days in the aggregate for any Aircraft, in addition to any other rights the Seller may have under Clause 21, the Seller will have no obligation to deliver such Aircraft within the Scheduled Delivery Month as modified pursuant to the preceding paragraph. Upon receipt of the full amount of all late Predelivery Payments, together with interest due under Clause 5.6, provided that the Seller has not exercised its right of termination under Clause 21, the Seller will inform the Buyer of a new Scheduled Delivery Month for such Aircraft, consistent with Seller's other commitments and production capabilities. The Seller's rights under this Clause 5.6.1 are in addition to any other rights and remedies available to the Seller. 5.6.2 If any payment due the Seller is not received by the Seller on the date or dates agreed on between the Buyer and the Seller, the Seller will have the right to claim from the Buyer and the Buyer will promptly pay to the Seller on receipt of such claim interest at the rate of one and one-half percent (1.5%) per month on the amount of such overdue payment, to be calculated from and including the due date of such payment to (but excluding) the date such payment is received by the Seller. The Seller's right to receive such interest will be in addition to any other rights of the Seller hereunder or at law. 5.7 Refund of Predelivery Payments The Buyer will have no right to any refund of any Deposit or Predelivery Payment received by the Seller *. 5.8 Proprietary Interest Notwithstanding any provision of law to the contrary, the Buyer will not, by virtue of anything contained in this Agreement (including, without limitation, any Predelivery Payments hereunder, or any designation or identification by the Seller of a particular Aircraft as an Aircraft to which any of the provisions of this Agreement refers) acquire any proprietary, insurable or other interest whatsoever in any Aircraft before Delivery of and payment for such Aircraft, as provided in this Agreement. 5.9 Payment in Full The Buyer's obligation to make payments to the Seller hereunder will not be affected by and will be determined without regard to any setoff, counterclaim, recoupment, defense or other right that the Buyer may have against the Seller or any other person. The Buyer will make all payments to the Seller under this Agreement without deduction or withholding on account of, and free from, any and all taxes, duties, imposts or similar charges for which the Buyer is responsible pursuant to Clause 3.3.2(iii) of this Agreement, except that if the Buyer is compelled by law to make any such deduction or withholding the Buyer will pay such additional amounts as may be necessary so that the net amount received by the Seller after such deduction or withholding will equal the amounts that would have been received in the absence of such deduction or withholding. If timely requested by the Buyer in writing, the Seller will, at the Buyer's expense, take such action as the Buyer may reasonably direct with respect to any claim for taxes, duties, imposts and similar charges, and any payment by the Seller of such amounts will be made under protest, if, in the Buyer's judgment, protest is appropriate, and, in the reasonable opinion of the Seller such protest will not involve significant risk of any sale, forfeiture or loss of, or creation of any lien on, the Aircraft or any interest therein, or on any other aircraft manufactured by the Manufacturer or sold by the Seller. If payment is made, the Seller will, at the Buyer's expense, take such action as the Buyer may reasonably direct to recover such payment and will, if requested, permit the Buyer in the Seller's name to file a claim or prosecute an action to recover such payment. If a refund is obtained by the Seller of all or any part of such amount, the Seller will pay the Buyer the amount of any such refund, plus interest on the refunded taxes, if any. 6 - INSPECTION 6.1 Inspection Procedures 6.1.1 All work to be carried out on the Aircraft and all materials and parts thereof will at all reasonable times during business hours be open to inspection by duly authorized representatives of the Buyer or its designee at the respective works of the Associated Contractors and, if possible, at the works of their respective subcontractors. These representatives will have access to such relevant technical data as are reasonably necessary for this purpose (except that, if access to any part of the respective works where construction is in progress or materials or parts are stored is restricted for security reasons, the Associated Contractors will be allowed a reasonable time to make the items available for inspection elsewhere). The actual detailed inspection of the Aircraft, materials and parts thereof will take place only in the presence of the respective inspection department personnel of the Associated Contractors or their subcontractors. The procedures for such inspections will be agreed on with the Buyer before any inspection. 6.1.2 All inspections, examinations and discussions with the Seller's, the Associated Contractors' or their respective subcontractors' engineering or other personnel by the Buyer and its said representatives will be performed in such a manner as not to delay or hinder the work to be carried out on the Aircraft or the proper performance of this Agreement. In no event will the Buyer or its representatives be permitted to inspect any aircraft other than the Aircraft. 6.2 Representatives For the purposes of Clause 6.1 above, at a mutually agreed date that will not, in any event, be later than twelve (12) months before the date on which the first Aircraft is scheduled to be delivered to the Buyer, the Seller will furnish free-of-charge adequate secretarial assistance and suitable office space, office equipment and facilities in or conveniently located with respect to the Delivery Location for the use of not more than four (4) representatives of the Buyer during the aforementioned period. The Seller will provide telecommunications facilities at the Buyer's cost to be invoiced on a monthly basis. 10. 7 - CERTIFICATION 7.1 Type Certification The A318 aircraft will be and the A319 aircraft has been type certificated under JAA procedures for joint certification in the transport category. The Seller will obtain or cause to be obtained the relevant type certificate (the "Type Certificate") to allow the issuance of the Certificate of Airworthiness for Export. 7.2 Certificate of Airworthiness for Export Subject to the provisions of Clause 7.3, each Aircraft will be delivered to the Buyer with the Certificate of Airworthiness for Export which, assuming compliance by the Buyer with all requirements of the FAA other than those applicable only to the Aircraft, will entitle the Buyer (or an eligible person under then applicable law) to obtain at the time of Delivery a Standard Airworthiness Certificate issued pursuant to Title 14, Part 21 of the U.S. Code of Federal Regulations. 7.3 Specification Changes Before Delivery: Export and Import Requirements 7.3.1 If, any time before the date on which the Aircraft is Ready for Delivery, any law, rule or regulation is enacted, promulgated, becomes effective and/or an interpretation of any law, rule or regulation is issued that requires any change to the Specification for the purposes of obtaining the Certificate of Airworthiness for Export (a "Change in Law"), the Seller will make the required modification and the parties hereto will sign an SCN that specifies the effects, if any, on the guaranteed performances, weights, interchangeability, Delivery Date, price of the Aircraft and text of the Specification. 7.3.2 The Seller will as far as practicable (in its sole discretion and without prejudice to Clause 7.3.3 (ii)) take into account the information available to it concerning any proposed law, rule or regulation or interpretation that could become a Change in Law, in order to minimize the costs of changes to the Specification as a result of such proposed law, regulation or interpretation becoming effective before the applicable Aircraft is Ready for Delivery. 7.3.3 The cost of implementing the modifications referred to in Clause 7.3.1 above will be (i) for the account of the Seller if a Change in Law becomes effective before the date of this Agreement, and (ii) shared equally by the Seller and the Buyer if a Change in Law becomes effective after the date of this Agreement. 7.3.4 Notwithstanding the provisions of Clauses 7.3.3 (i) and (ii), if a Change in Law relates to the Propulsion Systems and, in particular, to engine accessories, quick engine change units or thrust reversers, the costs will be borne in accordance with such arrangements as may be made separately between the Buyer and the Propulsion Systems manufacturer; the Seller will have no obligation with respect thereto. 7.4 Specification Changes After Delivery Clause 7.3 will not require the Seller to make any changes or modifications to, or to make any payments or take any other action with respect to,any Aircraft that is Ready for Delivery before the compliance date of any law or regulation referred to in Clause 7.3. Any such changes or modifications made to an Aircraft after it is Ready for Delivery will be at the Buyer's expense. 7.5 Seller's Responsibility Except as set forth in this Clause 7 and as may be required under Clause 9.3.1, the Seller will not be required to obtain any certificate or approval with respect to the Aircraft. 8 - TECHNICAL ACCEPTANCE 8.1 Technical Acceptance Process 8.1.1 Prior to Delivery, the Aircraft will undergo the Manufacturer's approved technical acceptance process, with such variations as may be proposed by the Seller and reasonably acceptable to the Buyer (the "Technical Acceptance Process"). Satisfactory completion of the Technical Acceptance Process will demonstrate the satisfactory functioning of the Aircraft and will be deemed to demonstrate compliance with the Specification. If the Aircraft fails to complete the Technical Acceptance Process satisfactorily, the Seller will without hindrance f rom the Buyer be entitled to carry out any necessary changes and, as so on as practicable thereafter, resubmit the Aircraft in order to complete the Technical Acceptance Process. On any such resubmission, the Technical Acceptance Process will include such additional tests as are necessary to demonstrate that the repairs or modifications have not adversely affected other systems or components of the Aircraft. 8.1.2 The Technical Acceptance Process will (i) start on a date notified by the Seller to the Buyer at least * days in advance, (ii) take place at the Delivery Location, (iii) be carried out by the personnel of the Seller, and (iv) include a technical acceptance flight, which will not exceed three (3) hours, unless an extended time is reasonably necessary to demonstrate the satisfactory functioning of the Aircraft. 8.2 Buyer's Attendance 8.2.1 The Buyer will be entitled to attend the Technical Acceptance Process. 8.2.2 If the Buyer elects to attend the Technical Acceptance Process, the Buyer (i) will cooperate in complying with the reasonable requirements of the Seller, with the intention of completing the Technical Acceptance Process within * Working Days, and (ii) may have a maximum of four (4) of its representatives (no more than three (3) of whom will have access to the cockpit at any one time) accompany the Seller's representatives on a technical acceptance flight, during which the Buyer's representatives will comply with the instructions of the Seller's representatives. 8.2.3 If the Buyer does not attend or fails to cooperate in the Technical Acceptance Process, the Seller will be entitled to complete the Technical Acceptance Process without the Buyer's attendance, and, * the Buyer will be deemed to have accepted the Technical Acceptance Process as satisfactory in all respects. *. The Seller will make available such data with respect to the Technical Acceptance Process as the Buyer may reasonably request. 8.3 Certificate of Acceptance Upon (i) successful completion of the Technical Acceptance Process and (ii) issuance of the Certificate of Airworthiness for Export, the Buyer will, on or before the Delivery Date, sign and deliver to the Seller a certificate of acceptance in respect of the Aircraft in the form of Exhibit D (the "Certificate of Acceptance") hereto. 8.4 Finality of Acceptance The Buyer's acceptance of delivery of each Aircraft will constitute waiver by the Buyer of any right it may have under the Uniform Commercial Code as adopted by the State of New York or otherwise to revoke such acceptance for any reason, whether known or unknown to the Buyer at the time of acceptance. 8.5 Aircraft Utilization The Seller will, without payment or other liability, be entitled to use the Aircraft before Delivery if necessary to obtain the certificates required under Clause 7. Such use will not, in and of itself, prejudice the Buyer's obligation to accept Delivery hereunder. * 9 - DELIVERY 9.1 Delivery Schedule 9.1.1 Subject to Clauses 2, 7, 8, 10 and 18, the Seller will have the Aircraft Ready for Delivery at the Delivery Location within the following months (each a "Scheduled Delivery Month"). Where no month is specified but only a quarter, the Seller will notify the Buyer of the Scheduled Delivery Month by * months before the beginning of the quarter. Firm Aircraft No. Aircraft Type Delivery ----------------- ------------- -------- 1 * 2 * 3 * 4 * 5 * 6 * 7 * 8 * 9 * 10 * 11 * Option Aircraft No. Aircraft Type Delivery ------------------- ------------- -------- 1 * 2 * 3 * 4 * 5 * 6 * 7 * 8 * 9 * 9.1.2 The Seller will give the Buyer at least *. Thereafter the Seller will promptly notify the Buyer of any change in such date necessitated by the conditions of manufacture or flight. 9.2 Delivery 9.2.1 The Buyer will send its representatives to the Delivery Location to take Delivery within seven (7) days after the date notified to it by the Seller in accordance with Clause 9.1.2 above on which the Aircraft is to be Ready for Delivery. 9.2.2 The Seller will transfer title to the Aircraft to the Buyer free and clear of all liens, claims, charges or encumbrances of any kind whatsoever, provided that the Balance of the Final Contract Price has been paid by the Buyer pursuant to Clause 5.4 and that the Certificate of Acceptance has been signed and delivered to the Seller pursuant to Clause 8.3. The Seller will provide the Buyer with a bill of sale in the form of Exhibit E hereto and such other documentation confirming transfer of title and receipt of the Final Contract Price as may reasonably be requested by the Buyer. Title to, property interest in and risk of loss or damage to the Aircraft will be transferred to the Buyer on Delivery. 9.2.3 In respect of each Aircraft that is (a) Ready for Delivery and (b) has been duly tendered to the Buyer hereunder, should the Buyer fail to (i) deliver the signed Certificate of Acceptance to the Seller on or before the Delivery Date, or (ii) pay the Balance of the Final Contract Price for the Aircraft to the Seller on the Delivery Date, then the Seller will retain title to the Aircraft and the Buyer will indemnify and hold the Seller harmless against any and all costs (including but not limited to any parking, storage and insurance costs) associated with the Buyer's failure to accept Delivery. It is understood that the Seller will be obliged only to exercise reasonable care with respect to the Aircraft following the Buyer's failure to accept Delivery and will have no duty to park, store or insure the Aircraft in a manner inconsistent with the Seller's other business and industrial constraints or obligations. 9.3 Flyaway 9.3.1 The Seller will obtain any licenses, permits or approvals required for the purpose of exporting the Aircraft from the Delivery Location, and the Buyer, at its expense, will provide any reasonably necessary information and assistance. 9.3.2 Subject to Clauses 9.3.1 and 3.3.4 hereof, all expenses of, or connected with, the post-Delivery flight from the Delivery Location will be borne by the Buyer. The Buyer will make direct arrangements with the supplying companies for the fuel and oil required for all post-Delivery flights. 10 - EXCUSABLE DELAY AND TOTAL LOSS 10.1 Scope of Excusable Delay Neither the Seller nor the Manufacturer will be responsible for or be deemed to be in default on account of delays in delivery or failure to deliver or otherwise in the performance of this Agreement or any part hereof due to causes reasonably beyond the Seller's, the Manufacturer's or any Associated Contractor's control ("Excusable Delay"), including, but not limited to: (i) acts of God or the public enemy, natural disasters, fires, floods, storms beyond ordinary strength, explosions or earthquakes; epidemics or quarantine restrictions; serious accidents; total or constructive total loss; any law, decision, regulation, directive or other act (whether or not having the force of law) of any government or of the Council of the European Community or the Commission of the European Community or of any national, Federal, State, municipal or other governmental department, commission, board, bureau, agency, court or instrumentality, domestic or foreign; governmental priorities, regulations or orders affecting allocation of materials, facilities or a completed Aircraft; war, civil war or warlike operations, terrorism, insurrection or riots; failure of transportation; strikes or labor troubles causing cessation, slow down or interruption of work; delay in obtaining any airworthiness or type certification; inability after due and timely diligence to procure materials, accessories, equipment or parts; general hindrance in transportation; or failure of a subcontractor or Supplier to furnish materials, components, accessories, equipment or parts; (ii) any delay caused directly or indirectly by the action or inaction of the Buyer; and (iii) delay in delivery or otherwise in the performance of this Agreement by the Seller due in whole or in part to any delay in or failure of the delivery of, or any other event or circumstance relating to, the Propulsion Systems or Buyer Furnished Equipment. Notwithstanding the foregoing, Excusable Delays will not include any delay occasioned by the Seller's, the Manufacturer's or any Associated Contractor's fault or negligence. 10.2 Consequences of Excusable Delay If an Excusable Delay occurs the Seller will (i) notify the Buyer of such Excusable Delay * as soon as practicable after becoming aware of the same; (ii) not be deemed to be in default in the performance of its obligations hereunder as a result of such Excusable Delay (iii) * (iv) not be responsible for any damages arising from or in connection with such Excusable Delay suffered or incurred by the Buyer; (v) as soon as practicable after the removal of the cause of the delay resume performance of its obligations under this Agreement and in particular will notify the Buyer of the revised Scheduled Delivery Month. 10.3 Termination on Excusable Delay 10.3.1 If the Delivery of any Aircraft is delayed as a result of an Excusable Delay for a period of more than twelve (12) months after the last day of the Scheduled Delivery Month, then either party may terminate this Agreement with respect to the affected Aircraft, by giving written notice to the other party within thirty (30) days after the expiration of such twelve (12)month period. However, the Buyer will not be entitled to terminate this Agreement pursuant to this Clause if the Excusable Delay is caused directly or indirectly by the action or inaction of the Buyer. 10.3.2 In the event that the Seller notifies the Buyer of a revised Scheduled Delivery Month pursuant to Clause 10.2(v), in respect of a delay in Delivery of an Aircraft of more than twelve (12) months after the last day of the Scheduled Delivery Month, then either party may terminate this Agreement with respect to the affected Aircraft. Termination will be made by giving written notice to the other party within thirty (30) days after the Buyer's receipt of the notice of a revised Scheduled Delivery Month. 10.3.3 If this Agreement is not terminated under the terms of Clause 10.3.1 or 10.3.2 above, then the Seller will be entitled to reschedule Delivery. In the case of delays described in Clause 10.3.1, *. In the case of delays described in Clause 10.3.2, the new Scheduled Delivery Month will be the month specified in the notice delivered pursuant to Clause 10.2.1 (iv). The Seller will notify the Buyer of the new Scheduled Delivery Month after the thirty (30) day period referred to in Clause 10.3.1 or 10.3.2, and this new Scheduled Delivery Month will be deemed to be an amendment to the applicable Scheduled Delivery Month in Clause 9.1.1 of the Agreement. 10.4 Total Loss: Lost, Destroyed or Damaged Aircraft If, before delivery thereof, an Aircraft is lost, destroyed or, in the reasonable opinion of the Seller, damaged beyond economic repair ("Total Loss"), then the Seller will notify the Buyer to this effect as soon as reasonably possible. The Seller will include in its notice, or as soon after the notice as possible, a revised Scheduled Delivery Month, which will be the earliest date that an aircraft to replace the Aircraft may be delivered to the Buyer consistent with the Seller's other obligations and production capabilities. However, in the event the specified revised Scheduled Delivery Month is more than twelve (12) months after the last day of the original Scheduled Delivery Month, then this Agreement will terminate with respect to such Aircraft unless the Buyer notifies the Seller within one (1) month of the date of receipt of the Seller's notice that it desires the Seller to provide a replacement aircraft during the month quoted in the Seller's notice, in which case the parties will execute an amendment to this Agreement recording the variation in the Scheduled Delivery Month. The other terms and conditions of this Agreement applicable to such Aircraft will apply to the replacement aircraft. Notwithstanding the above, nothing herein will require the Seller to manufacture and deliver a replacement aircraft if manufacture would require the reactivation of the Manufacturer's production line for the model or series of aircraft that includes the Aircraft. 10.5 Termination Rights Exclusive In the event that this Agreement is terminated as provided for under the terms of Clauses 10.3 or 10.4, such termination will discharge all obligations and liabilities of the parties hereunder with respect to such affected Aircraft and undelivered material, services, data or other items applicable thereto and to be furnished hereunder and neither party will have any claim against the other for any loss resulting from such nondelivery, *. The Seller will in no circumstances have any liability whatsoever for Excusable Delay other than as set forth in this Clause 10. 10.6 REMEDIES THIS CLAUSE 10 SETS FORTH THE SOLE AND EXCLUSIVE REMEDY OF THE BUYER FOR EXCUSABLE DELAYS OR FAILURE TO DELIVER DUE TO TOTAL LOSS, AND THE BUYER HEREBY WAIVES ALL RIGHTS TO WHICH IT WOULD OTHERWISE BE ENTITLED IN RESPECT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY RIGHTS TO INCIDENTAL AND CONSEQUENTIAL DAMAGES OR SPECIFIC PERFORMANCE. THE BUYER WILL NOT BE ENTITLED TO CLAIM THE REMEDIES AND RECEIVE THE BENEFITS PROVIDED IN THIS CLAUSE 10 TO THE EXTENT THE DELAY REFERRED TO IN THIS CLAUSE 10 IS CAUSED BY THE NEGLIGENCE OR FAULT OF THE BUYER OR ITS REPRESENTATIVES. 11 - INEXCUSABLE DELAY 11.1 Liquidated Damages Should an Aircraft not be Ready for Delivery to the Buyer within thirty (30) days after the * last day of the Scheduled Delivery Month (as such month may be changed pursuant to Clauses 2, 7 or 10) (*, the "Delivery Period"), and such delay is not as a result of Excusable Delay or Total Loss, then such delay will be termed an "Inexcusable Delay," and the Buyer will have the right to claim, and the Seller will pay the Buyer, liquidated damages of US $ * (US dollars--* ) for each day of Inexcusable Delay, starting on the first day after the Delivery Period. The amount of liquidated damages will in no event exceed the total of US $ * (US dollars-- *) in respect of any one Aircraft. The Buyer's right to liquidated damages in respect of an Aircraft is conditional on the Buyer's submitting a written claim for liquidated damages to the Seller, as applicable, not later than (i) thirty (30) days after Delivery or (ii) thirty (30) days after a termination under Clause 11.3 below. 11.2 Renegotiation If as a result of an Inexcusable Delay, Delivery does not occur within six (6) months after the Delivery Period, the Buyer will have the right, exercisable by written notice to the Seller given between fifteen (15) days and one (1) month after the six (6) months, to require from the Seller a renegotiation of the Scheduled Delivery Month for the affected Aircraft. Unless otherwise agreed between the Seller and the Buyer during such renegotiation, the said renegotiation will not prejudice the Buyer's right to receive liquidated damages in accordance with Clause 11.1 during the period of Inexcusable Delay. 11.3 Termination If as a result of an Inexcusable Delay, Delivery does not occur within twelve (12) months after the Delivery Period and the parties have not renegotiated the Delivery Date pursuant to Clause 11.3, then both parties will have the right, exercisable by written notice to the other party, given between one (1) and two (2) months after the twelve (12) months, to terminate this Agreement in respect of the affected Aircraft. In the event of termination pursuant to this Clause 11.2, neither party will have any claim against the other, except that the Seller will pay to the Buyer, any amounts due pursuant to Clause 11.1 and will pay the Buyer an amount equal to the Predelivery Payments received from the Buyer in respect of the affected Aircraft. 11.4 Setoff Payments Notwithstanding anything to the contrary contained herein, the Seller will have the right to apply any and all sums previously paid by the Buyer to the Seller with respect to a terminated Aircraft to the payment of any other amounts the Buyer owes the Seller or any Affiliate thereof under any agreement between them, before being required to make any payments under 11.1 or 11.3. 11.5 REMEDIES THIS CLAUSE 11 SETS FORTH THE SOLE AND EXCLUSIVE REMEDY OF THE BUYER FOR DELAYS IN DELIVERY OR FAILURE TO DELIVER ONE OR MORE AIRCRAFT UNDER THIS AGREEMENT, OTHER THAN (A) SUCH DELAYS AS ARE COVERED BY CLAUSE 10, AND *, THE BUYER HEREBY WAIVES ALL RIGHTS TO WHICH IT WOULD OTHERWISE BE ENTITLED IN RESPECT THEREOF, INCLUDING WITHOUT LIMITATION ANY RIGHTS TO INCIDENTAL OR CONSEQUENTIAL DAMAGES OR SPECIFIC PERFORMANCE. THE BUYER WILL NOT BE ENTITLED TO CLAIM THE REMEDIES AND RECEIVE THE BENEFITS PROVIDED IN THIS CLAUSE 11 WHERE THE DELAY REFERRED TO IN THIS CLAUSE 11 IS CAUSED BY THE NEGLIGENCE OR FAULT OF THE BUYER OR ITS REPRESENTATIVES. 12 - WARRANTIES AND SERVICE LIFE POLICY The Seller represents and warrants that the Manufacturer has provided to the Seller the following Warranty, Service Life Policy, Supplier Warranties and Interface Commitment with respect to the Aircraft, subject to the terms, conditions, limitations and restrictions (including, but not limited to, the Exclusivity of Warranties and General Limitations of Liability and Duplicate Remedies provisions) as hereinafter set out, and that the same are in full force and effect and have not been amended. The Seller hereby assigns to the Buyer, and the Buyer hereby accepts, all of the Seller's rights and obligations as the "Buyer" under the said Warranty, Service Life Policy, Supplier Warranties and Interface Commitment, and the Seller subrogates the Buyer to all such rights and obligations in respect of the Aircraft. The Seller hereby warrants to the Buyer that (i) it has all requisite authority to make the foregoing assignment to and to effect the foregoing subrogation in favor of the Buyer, (ii) such assignment and subrogation are effective to confer on the Buyer all of the foregoing rights and obligations of the Seller, and (iii) the Seller will not enter into any amendment of the provisions so assigned without the prior written consent of the Buyer. It is understood that, in the provisions below between the words QUOTE and UNQUOTE, capitalized terms have the meanings assigned thereto in this Agreement, except that (i) the term "Seller," which means the Manufacturer as between the Manufacturer and the Seller, also means the Manufacturer in this Agreement, and (ii) the term "Buyer," which means the Seller as between the Manufacturer and the Seller, means the Buyer in this Agreement. QUOTE 12.1 WARRANTY 12.1.1 Nature of Warranty Subject to the limitations and conditions as hereinafter provided, and except as provided in Clause 12.1.2, the Seller warrants to the Buyer that each Aircraft and each Warranted Part will at the time of delivery to the Buyer: (i) be free from defects in material, (ii) be free from defects in workmanship, including, without limitation, processes of manufacture, (iii) be free from defects in design (including, without limitation, selection of materials) having regard to the state of the art at the date of such design, and (iv) be free from defects arising from failure to conform to the Specification, except as to those portions of the Specification that are expressly stated in the Specification to be estimates or approximations or design aims. For the purposes of this Agreement, the term "Warranted Part" will mean any Seller proprietary component, equipment, accessory or part that at the time of delivery of an Aircraft (a) is installed on such Aircraft, (b) is manufactured to the detail design of the Seller or a subcontractor of it and (c) bears a part number of the Seller. 12.1.2 Exceptions The warranties set forth in Clause 12.1.1 will not apply to Buyer Furnished Equipment, nor to the Propulsion Systems, nor to any component, accessory, equipment or part purchased by the Buyer that is not a Warranted Part, provided, however, that: (i) any defect in the Seller's workmanship in respect of the installation of such items in the Aircraft, including any failure by the Seller to conform to the installation instructions of the manufacturers of such items that invalidates any applicable warranty from such manufacturers, will constitute a defect in workmanship for the purpose of this Clause 12.1 and be covered by the warranty set forth in Clause 12.1.1(ii), and (ii) any defect inherent in the Seller's design of the installation, in view of the state of the art at the date of such design, that impairs the use of such items will constitute a defect in design for the purposes of this Clause 12.1 and be covered by the warranty set forth in Clause 12.1.1(iii). 12.1.3 Warranty Periods The warranties described in Clauses 12.1.1 and 12.1.2 hereinabove will be limited to those defects that become apparent within thirty-six (36) months after delivery of the affected Aircraft. 12.1.4 Limitations of Warranty 12.1.4.1 The Buyer's remedy and the Seller's obligation and liability under Clauses 12.1.1 and 12.1.2 hereinabove are limited to, at the Seller's expense and option, the repair, replacement or correction of, or the supply of modification kits rectifying the defect to any defective Warranted Part. Alternatively, the Seller may, at its option and with the Buyer's consent, furnish a credit to the Buyer for the future purchase of goods and services (not including Aircraft) equal to the price at which the Buyer is then entitled to acquire a replacement for the defective Warranted Part. Nothing herein contained will obligate the Seller to correct any failure to conform to the Specification with respect to components, equipment, accessories or parts that the parties agree in a writing other than the Certificate of Acceptance at the time of delivery of the affected Aircraft are acceptable deviations or have no material adverse effect on the use, operation or performance of an Aircraft. 12.1.4.2 In the event that the Seller corrects a defect covered by Clause 12.1.1(iii) that becomes apparent within the applicable period set forth in Clause 12.1.3, the Seller will also, if so requested by the Buyer in writing, make such correction in any Aircraft that has not already been delivered to the Buyer. However, the Seller will not be responsible nor deemed to be in default on account of any delay in delivery of any Aircraft or otherwise, in respect of performance of this Agreement, due to the Seller's undertaking to make such correction and, rather than accept a delay in delivery of any such Aircraft, the Buyer and the Seller may agree to deliver such Aircraft with subsequent correction of the defect by the Buyer at the Seller's expense, or the Buyer may elect to accept delivery and thereafter file a Warranty Claim as though the defect had become apparent immediately after delivery of such Aircraft. 12.1.5 Warranty Claim Requirements The Buyer's remedy and the Seller's obligation and liability under this Clause 12.1, with respect to each claimed defect, are subject to the following conditions precedent: (i) the existence of a defect covered by the provisions of this Clause 12.1, (ii) the Buyer's having submitted to the Seller proof reasonably satisfactory to the Seller of the existence of a defect covered by the provisions of this Clause 12.1, (iii) the defect's having become apparent within the applicable warranty period, as set forth in Clause 12.1.3, (iv) the defect's not having resulted from any act or omission of the Buyer, including, but not limited to, any failure to operate and maintain the affected Aircraft or part thereof in accordance with the standards or any matter set forth or covered in Clause 12.1.10, (v) the Buyer's having returned as soon as reasonably practicable the Warranted Part claimed to be defective to such repair facilities as may be designated by the Seller, except where the Buyer elects to repair a defective Warranted Part in accordance with the provisions of Clause 12.1.7, and (vi) the Seller's having received a Warranty Claim fulfilling the conditions of and in accordance with the provisions of Clause 12.1.6 below. 12.1.6 Warranty Administration The warranties set forth in Clause 12.1 will be administered as hereinafter provided: (i) Claim Determination Warranty Claim determination by the Seller will be reasonably based on the claim details, reports from the Seller's representative, historical data logs, inspections, tests, findings during repair, defect analysis and other suitable documents and information. (ii) Transportation Costs Transportation costs associated with the sending of a Warranted Part claimed to be defective to the facilities designated by the Seller will be borne by the Buyer. *. (iii) Return of an Aircraft If an Aircraft must be returned to the Seller's facility or to a repair facility designated by the Seller for accomplishment of a warranted repair or correction, pursuant to a Warranty Claim, *. If the Seller desires to accomplish a warranted repair or correction at the Buyer's facilities in Denver or wherever the Aircraft is located and the Buyer nevertheless desires to return the Aircraft to the Seller for such repair or correction, the Seller will designate the facility where the repair will be accomplished, and the Buyer will pay the costs of the ferry flights to and from such facility. (iv) On-Aircraft Work by the Seller If the work to accomplish a repair or correction pursuant to a Warranty Claim must be accomplished by a Seller working party, the Seller will be responsible for all costs of labor and material *. If such repair or correction is not required to be accomplished by a Seller working party, but the Buyer nevertheless desires a Seller working party to accomplish the same, the Seller will be responsible for all costs of labor and material *. If the repair or correction is performed by a Seller working party, the Seller and the Buyer will agree on a schedule and place for the work to be performed. (v) Warranty Claim Substantiation For each claim under this Clause 12.1 the Buyer will give written notice to the Seller that contains at least the data listed below with respect to a part or Aircraft, as applicable ("Warranty Claim"). The Buyer will * give the Seller such Warranty Claim within sixty (60) days of discovering the defect giving rise to such Warranty Claim, *. (a) Description of defect and action taken, if any. (b) Date of incident and/or of removal. (c) Description of the defective part. (d) Part number. (e) Serial number (if applicable). (f) Position on Aircraft, according to Catalog Sequence Number (CSN) of the Illustrated Parts Catalog, Component Maintenance Manual or Structural Repair Manual (as such documents are defined in Clause 14 and Exhibit F hereto) as applicable. (g) Total flying hours or calendar times, as applicable, at the date of appearance of a defect. (h) Time since last shop visit at the date of defect appearance. (i) Manufacturer's serial number of the Aircraft and/or its registration number. (j) Aircraft total flying hours and/or number of landings at the date of defect appearance. (k) Claim number. (l) Date of claim. (m) Date of delivery of an Aircraft or part to the Buyer. Claims are to be addressed as follows: AIRBUS INDUSTRIE CUSTOMER SERVICE DIVISION SG-C WARRANTY ADMINISTRATION 1, ROND-POINT MAURICE BELLONTE B.P. 33 F-31707 BLAGNAC FRANCE (vi) Replacements Replacements made pursuant to this Clause 12.1 will be made within the lead time defined in the Seller's Spare Parts Price Catalog. Replaced components, equipment, accessories or parts will become the Seller's property. The Seller will * to expedite replacement upon the Buyer's request. Title to and risk of loss of any Aircraft, component, accessory, equipment or part returned by the Buyer to the Seller will at all times remain with the Buyer, except that (i) when the Seller has possession of a returned Aircraft, component, accessory, equipment or part to which the Buyer has title, the Seller will have such responsibility therefor as is chargeable by law to a bailee for hire, but the Seller will not be liable for loss of use, and (ii) title to and risk of loss of a returned component, accessory, equipment or part will pass to the Seller on shipment by the Seller to the Buyer of any item furnished by the Seller to the Buyer as a replacement therefor. Upon the Seller's shipment to the Buyer of any replacement component, accessory, equipment or part provided by the Seller pursuant to this Clause 12.1, title to and risk of loss of such component, accessory, equipment or part will pass to the Buyer. (vii) Rejection The Seller will provide reasonable written substantiation in case of rejection of a Warranty Claim. The Buyer will (a) pay to the Seller reasonable inspection and test charges incurred by the Seller in connection with the investigation and processing of a rejected Warranty Claim and (b) pay the costs of transportation to the ASCO Spares Center in Ashburn, VA, insurance, and any other costs associated with the sending of any Warranted Part or any other item, equipment, component or part for which the Seller rejects the Buyer's Warranty Claim. (viii) Inspection The Seller will have the right to inspect the affected Aircraft and documents and other records relating thereto in the event of any Warranty Claim under this Clause 12.1. 12.1.7 In-house Warranty (i) Authorization The Buyer is hereby authorized to perform the repair of Warranted Parts, subject to the terms of this Clause 12.1.7 ("In-house Warranty"). When the estimated cost of an In-house Warranty repair exceeds $* (US dollars-- *), the Buyer will notify the Seller's representative of its decision to perform any in-house repairs before such repairs are commenced. The Buyer's notice will include sufficient detail regarding the defect, estimated labor hours and material to allow the Seller to ascertain the reasonableness of the estimate. The Seller will use reasonable efforts to ensure a prompt response and will not unreasonably withhold authorization. (ii) Conditions of Authorization The Buyer will be entitled to the benefits under this Clause 12.1.7 for repair of Warranted Parts (a) only if adequate facilities and qualified personnel are available to the Buyer, (b) provided that repairs are to be performed in accordance with the Seller's written instructions set forth in applicable Technical Data and Documentation, and (c) only to the extent specified by the Seller, or, in the absence of the Seller's specifying, to the extent reasonably necessary to correct the defect, in accordance with the standards set forth in Clause 12.1.10. (iii) Seller's Rights The Seller will have the right to have any Warranted Part, or any part removed therefrom, which is claimed to be defective, returned to the Seller, as set forth in Clause 12.1.6(ii), if, in the judgment of the Seller, the nature of the defect requires technical investigation. The Seller will further have the right to have a representative present during the disassembly, inspection and testing of any Warranted Part claimed to be defective, subject to its presence being practical and not unduly delaying the repair. (iv) n-house Warranty Claim Substantiation Claims for In-house Warranty credit will be filed within the time period set forth in, and will contain the same information required in, Warranty Claims under Clause 12.1.6(v) and in addition will include: (a) a report of technical findings with respect to the defect, (b) for parts required to remedy the defect: - part numbers, - serial numbers (if applicable), - description of the parts, - quantity of parts, - unit price of parts, - total price of parts, - related Seller's or third party's invoices (if applicable), (c) detailed number of labor hours, (d) agreed In-house Warranty Labor Rate (defined below in Clause 12.1.7(v) (a)), and (e) total claim value. (v) Credit The Buyer's sole remedy, and the Seller's sole obligation and liability, in respect of In-house Warranty claims, will be a credit to the Buyer's account. The credit to the Buyer's account will be equal to the direct labor cost expended in performing a repair and to the direct cost of materials incorporated in the repair. Such costs will be determined as set forth below. (a) To determine direct labor costs, only manhours spent on disassembly, inspection, repair, reassembly, and final inspection and test (including flight tests if flight tests prove necessary to complete a repair under the In-house Warranty) of the Warranted Part alone will be counted. Manhours required for maintenance work concurrently being carried out on the Aircraft or Warranted Part will not be included. The manhours counted as set forth above will be multiplied by an agreed hourly labor rate of US$ * (US dollars--*) at economic conditions prevailing in January 1999 (the "In-house Warranty Labor Rate"). The In-house Warranty Labor Rate is subject to adjustment annually by multiplying by the ratio HEn/HEb. For the purposes of this Subclause 12.1.7(v) only, HEn is equal to the Labor Index defined in Exhibit G hereto for January of the year in which manhours are spent and HEb is equal to such Labor Index for January 1999. (b) Direct material costs are determined by the prices at which the Buyer acquired such material, excluding any parts and materials used for overhaul furnished free of charge by the Seller. (vi) Limitation on Credit The Buyer will in no event be credited for repair costs (labor and material) for any Warranted Part to the extent that such costs exceed (a) sixty-five percent (65%) of the Seller's current catalog price for a replacement of such defective Warranted Part, (b) repair costs (labor and material) that would have resulted if repairs had been carried out at the Seller's facilities or (c) $* (US dollars-- *), unless the repair has been previously approved by the Seller in accordance with Clause 12.1.7(ii). (vii) Scrapped Material The Buyer may, with the agreement of the Seller's Resident Customer Support Representative, scrap any such defective parts that are beyond economic repair and not required for technical evaluation. If the Buyer does not obtain the agreement of the Seller's Resident Customer Support Representative to scrap a Warranted Part defective beyond economic repair, then the Buyer will retain such Warranted Part and any defective part removed from a Warranted Part during repair for a period of either * days after the date of completion of repair or * days after submission of a claim for In-house Warranty credit relating thereto, whichever is longer. Such parts will be returned to the Seller within * days of receipt of the Seller's request to that effect. Scrapped Warranted Parts will be evidenced by a record of scrapped material certified by an authorized representative of the Buyer, which will be kept in the Buyer's file for at least the duration of the warranty periods set forth in this Clause 12.1. (viii) DISCLAIMER OF SELLER LIABILITY FOR BUYER'S REPAIR THE SELLER WILL NOT BE LIABLE FOR ANY RIGHT, CLAIM OR REMEDY, AND THE BUYER WILL INDEMNIFY THE SELLER AGAINST THE CLAIMS OF ANY THIRD PARTIES OTHER THAN THE MANUFACTURER AND THE ASSOCIATED CONTRACTORS AND AFFILIATES OF THE FOREGOING, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS (EACH AN "EXCLUDED PERSON"), FOR PERSONAL INJURIES, DEATH OR PROPERTY LOSSES DUE TO ANY DEFECT, NONCONFORMANCE OF ANY KIND, ARISING OUT OF OR IN CONNECTION WITH ANY REPAIR OF WARRANTED PARTS UNDERTAKEN BY THE BUYER UNDER THIS SUBCLAUSE 12.1.7 OR ANY OTHER ACTIONS UNDERTAKEN BY THE BUYER UNDER THIS SUBCLAUSE 12.1.7, WHETHER SUCH CLAIM IS ASSERTED IN CONTRACT OR IN TORT, OR IS PREMISED ON ALLEGED, ACTUAL, IMPUTED OR ORDINARY NEGLIGENCE OR INTENTIONAL ACTS OR OMISSIONS OF THE BUYER OR THE SELLER, PROVIDED THAT THE FOREGOING INDEMNITY WILL NOT APPLY TO THE EXTENT THAT ANY SUCH CLAIM IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE SELLER OR ANY EXCLUDED PERSON. 12.1.8 Warranty Transferability The warranties provided for in this Clause 12.1 for any Warranted Part will accrue to the benefit of any airline in revenue service other than the Buyer, if the Warranted Part enters into the possession of any such airline as a result of a pooling agreement between such airline and the Buyer, in accordance with the terms and subject to the limitations and exclusions of the foregoing warranties and to applicable laws or regulations. 12.1.9 Warranty for Corrected, Replacement or Repaired Warranted Part Whenever any Warranted Part that contains a defect for which the Seller is liable under Clause 12.1 has been corrected, repaired or replaced pursuant to the terms of this Clause 12, the period of the Seller's warranty with respect to such corrected, repaired or replacement Warranted Part, whichever may be the case, will be the remaining portion of the original warranty in respect of such corrected, repaired or replacement Warranted Part. In the event that a defect is attributable to a defective repair or replacement by the Buyer, a Warranty Claim with respect to such defect will not be allowable, notwithstanding any subsequent correction or repair, and will immediately terminate the remaining warranties under this Clause 12.1 in respect of the affected Warranted Part, unless such defective repair is caused solely by an error in the Seller's written repair instructions. 12.1.10 Good Airline Operation - Normal Wear and Tear The Buyer's rights under this Clause 12.1 are subject to the Aircraft and each component, equipment, accessory and part thereof being maintained, overhauled, repaired and operated in accordance with good commercial airline practice, all technical documentation and any other instructions issued by the Seller, the Suppliers or the manufacturer of the Propulsion Systems and all applicable rules, regulations and directives of the relevant Aviation Authorities. The Seller's liability under this Clause 12.1 will not extend to normal wear and tear nor to (i) any Aircraft or component, equipment, accessory or part thereof that has been repaired, altered or modified after delivery by any party in a manner other than that approved by the Seller; (ii) any Aircraft or component, equipment, accessory or part thereof that has been operated in a damaged state; or (iii) any component, equipment, accessory or part from which the trademark, trade name, part or serial number or other identification marks have been removed. The foregoing limitation of the Seller's liability will not apply in the cases of Clause 12.1.10(i) and Clause 12.1.10(ii) above if the Buyer submits evidence satisfactory to the Seller that the defect did not arise from nor was contributed to by either of said causes. 12.2 SELLER SERVICE LIFE POLICY 12.2.1 Scope and Definitions In addition to the warranties set forth in Clause 12.1 above, the Seller further agrees that should a Failure occur in any Item, then, subject to the general conditions and limitations set forth in Clause 12.2.4 below, the provisions of this Clause 12.2 will apply. For the purposes of this Clause 12.2, the following definitions will apply: (i) "Item" means any of the Seller components, equipment, accessories or parts listed in Exhibit C hereto which are installed on an Aircraft at any time during the period of effectiveness of the Service Life Policy as defined below in Clause 12.2.2. (ii) "Failure" means any breakage of, or defect in, an Item that materially impairs the utility or safety of the Item, provided that (a) any such breakage of, or defect in, any Item did not result from any breakage or defect in any other Aircraft part or component or from any other extrinsic force and (b) has occurred or can reasonably be expected to occur on a repetitive or fleetwide basis. 12.2.2 Periods and Seller's Undertaking Subject to the general conditions and limitations set forth in Clause 12.2.4 below, the Seller agrees that if a Failure occurs in an Item before the Aircraft in which such Item is installed has completed * (*) flight cycles or within * (*) years after the delivery of the applicable Aircraft to the Buyer, whichever occurs first, the Seller will, at its own discretion, as promptly as practicable and for a price that reflects the Seller's financial participation as hereinafter provided, either: (i) design and furnish to the Buyer a correction for such Item subject to a Failure and provide any parts required for such correction (including Seller designed standard parts but excluding industry standard parts), or, (ii) replace such Item. 12.2.3 Seller's Participation in the Cost Any part or Item that the Seller is required to furnish to the Buyer under this Service Life Policy in connection with the correction or replacement of an Item will be furnished to the Buyer at the Seller's current sales price therefor, less the Seller's financial participation, which will be determined in accordance with the following formula: C (N - T) ------------ P = N where P: financial participation of the Seller, C: the Seller's then current sales price for the required Item or required Seller designed parts, and, (i) T: total number of flight cycles since delivery that have been accumulated by the particular Aircraft in which the Item subject to a Failure was originally installed, and, N: * flight cycles, or, (ii) T: total time in months since delivery of the particular Aircraft in which the Item subject to a Failure was originally installed, and, N: * months, whichever of the foregoing clauses (i) and (ii) yields the lower ratio of: N - T N 12.2.4 General Conditions and Limitations 12.2.4.1 Notwithstanding Clause 12.2.3, the undertakings given in this Clause 12.2 will not be valid during the warranty period applicable to an Item under Clause 12.1.3. 12.2.4.2 The Buyer's remedy and the Seller's obligation and liability under this Service Life Policy are subject to compliance by the Buyer with the following conditions precedent: (i) The Buyer will maintain log books and other historical records with respect to each Item adequate to enable the Seller to determine whether the alleged Failure is covered by this Service Life Policy and, if so, to define the portion of the cost to be borne by the Seller in accordance with Clause 12.2.3 above. (ii) The Buyer will keep the Seller informed of any significant incidents relating to an Aircraft, howsoever occurring or recorded. (iii) The conditions of Clause 12.1.10 will have been complied with. (iv) The Buyer will carry out specific structural inspection programs for monitoring purposes as may be established from time to time by the Seller. Such programs will be, to the extent possible, compatible with the Buyer's operational requirements and will be carried out at the Buyer's expense. Reports relating thereto will be regularly furnished to the Seller. (v) In the case of any breakage or defect, the Buyer will * to report the same in writing to the Seller within *, after any breakage or defect in an Item becomes apparent, whether or not said breakage or defect can reasonably be expected to occur in any other Aircraft, and the Buyer will inform the Seller in sufficient detail about the breakage or defect to enable the Seller to determine whether said breakage or defect is subject to this Service Life Policy. 12.2.4.3 Except as otherwise provided in this Clause 12.2, any claim under this Service Life Policy will be administered as provided in, and will be subject to the terms and conditions of, Clause 12.1.6. 12.2.4.4 In the event that the Seller has issued a modification applicable to an Aircraft, the purpose of which is to avoid a Failure, the Seller may elect to supply the necessary modification kit free of charge or under a pro rata formula established by the Seller. If such a kit is so offered to the Buyer, then, in respect of such Failure and any Failures that could ensue therefrom, the validity of the Seller's commitment under this Clause 12.2 will be subject to the Buyer's incorporating such modification in the relevant Aircraft, within a reasonable time, as promulgated by the Seller and in accordance with the Seller's instructions. 12.2.4.5 THIS SERVICE LIFE POLICY IS NEITHER A WARRANTY, PERFORMANCE GUARANTEE, NOR AN AGREEMENT TO MODIFY ANY AIRCRAFT OR AIRFRAME COMPONENTS TO CONFORM TO NEW DEVELOPMENTS OCCURRING IN THE STATE OF AIRFRAME DESIGN AND MANUFACTURING ART. THE SELLER'S OBLIGATION UNDER THIS SUBCLAUSE 12.2 IS TO MAKE ONLY THOSE CORRECTIONS TO THE ITEMS OR FURNISH REPLACEMENTS THEREFOR AS PROVIDED IN THIS SUBCLAUSE 12.2. THE BUYER'S SOLE REMEDY AND RELIEF FOR THE NONPERFORMANCE OF ANY OBLIGATION OR LIABILITY OF THE SELLER ARISING UNDER OR BY VIRTUE OF THIS SERVICE LIFE POLICY WILL BE IN MONETARY DAMAGES, LIMITED TO THE AMOUNT THE BUYER REASONABLY EXPENDS IN PROCURING A CORRECTION OR REPLACEMENT FOR ANY ITEM THAT IS THE SUBJECT OF A FAILURE COVERED BY THIS SERVICE LIFE POLICY AND TO WHICH SUCH NONPERFORMANCE IS RELATED, LESS THE AMOUNT THAT THE BUYER OTHERWISE WOULD HAVE BEEN REQUIRED TO PAY UNDER THIS SUBCLAUSE 12.2 IN RESPECT OF SUCH CORRECTED OR REPLACEMENT ITEM. WITHOUT LIMITING THE EXCLUSIVITY OF WARRANTIES AND GENERAL LIMITATIONS OF LIABILITY PROVISIONS SET FORTH IN SUBCLAUSE 12.5, THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL CLAIMS TO ANY FURTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES, ARISING UNDER OR BY VIRTUE OF THIS SERVICE LIFE POLICY. 12.2.5 Transferability Except as specifically provided for in Clause 20 of this Agreement, the Buyer's rights under this Clause 12.2 will not be assigned, sold, leased, transferred or otherwise alienated by operation of law or otherwise, without the Seller's prior written consent. Any unauthorized assignment, sale, lease, transfer or other alienation of the Buyer's rights under this Service Life Policy will, as to the particular Aircraft involved, immediately void this Service Life Policy in its entirety. 12.3 SUPPLIER WARRANTIES 12.3.1 Seller's Support Prior to delivery of the first Aircraft, the Seller will provide the Buyer with the warranties, service life policies and patent indemnities that the Seller has obtained pursuant to the Supplier Product Support Agreements. 12.3.2 Supplier's Default 12.3.2.1 In the event that any Supplier under any warranty obtained by the Seller pursuant to Clause 12.3.1 hereof defaults in the performance of any material obligation under such warranty with respect to a Supplier Part, and the Buyer submits within a reasonable time to the Seller reasonable proof that such default has occurred, then Clause 12.1 of this Agreement will apply to the extent it would have applied had such Supplier Part been a Warranted Part except that, for obligations covered under Clause 12.1, the shorter of (i) the Supplier's warranty period indicated in the Supplier Product Support Agreements manual and (ii) the Seller's warranty period indicated in Clause 12.1.3 of this Agreement will apply. 12.3.2.2 In the event that any Supplier under any Supplier service life policy obtained by the Seller pursuant to Clause 12.3.1 hereof defaults in the performance of any material obligation with respect thereto, and the Buyer submits within reasonable time to the Seller reasonable proof that such default has occurred, then Clause 12.2 of this Agreement will apply to the extent the same would have applied had such component, equipment, accessory or part been listed in Exhibit C hereto. 12.3.2.3 At the Seller's request, the Buyer will assign to the Seller, and the Seller will be subrogated to, all of the Buyer's rights against the relevant Supplier, with respect to and arising by reason of such default and the Buyer will provide reasonable assistance to enable the Seller to enforce the rights so assigned. 12.4 INTERFACE COMMITMENT 12.4.1 Interface Problem If the Buyer experiences any technical problem in the operation of an Aircraft or its systems due to a malfunction, the cause of which, after due and reasonable investigation, is not readily identifiable by the Buyer, but which the Buyer reasonably believes to be attributable to the design characteristics of one or more components of the Aircraft (an "Interface Problem"), the Seller will, if requested by the Buyer, and without additional charge to the Buyer, except for transportation of the Seller's personnel to the Buyer's facilities, promptly conduct or have conducted an investigation and analysis of such problem to determine, if possible, the cause or causes of the problem and to recommend such corrective action as may be feasible, provided, however, that if it is determined, after such due and reasonable investigation, that the Interface Problem was due to or caused by any act or omission of the Buyer in its performance of its obligations hereunder, the Buyer will pay to the Seller *. The Buyer will furnish to the Seller all data and information in the Buyer's possession relevant to the Interface Problem and will cooperate with the Seller in the conduct of the Seller's investigations and such tests as may be required. At the conclusion of such investigation the Seller will promptly advise the Buyer in writing of the Seller's opinion as to the cause or causes of the Interface Problem and the Seller's recommendations as to corrective action. 12.4.2 Seller's Responsibility If the Seller determines that the Interface Problem is primarily attributable to the design of a Warranted Part, the Seller will, if requested by the Buyer, correct the design of such Warranted Part, pursuant to the terms and conditions of Clause 12.1. 12.4.3 Supplier's Responsibility If the Seller determines that the Interface Problem is primarily attributable to the design of any Supplier Part, the Seller will, if requested by the Buyer, reasonably assist the Buyer in processing any warranty claim the Buyer may have against the manufacturer of such Supplier Part. 12.4.4 Joint Responsibility If the Seller determines that the Interface Problem is attributable partially to the design of a Warranted Part and partially to the design of any Supplier Part, the Seller will, if requested by the Buyer, seek a solution to the Interface Problem through cooperative efforts of the Seller and any Supplier involved. The Seller will promptly advise the Buyer of any corrective action proposed by the Seller and any such Supplier. Such proposal will be consistent with any then existing obligations of the Seller hereunder and of any such Supplier to the Buyer. Such corrective action, unless reasonably rejected by the Buyer, will constitute full satisfaction of any claim the Buyer may have against either the Seller or any such Supplier with respect to such Interface Problem. 12.4.5 General 12.4.5.1 All requests under this Clause 12.4 will be directed both to the Seller and the affected Suppliers. 12.4.5.2 Except as specifically set forth in this Clause 12.4, this Clause 12.4 will not be deemed to impose on the Seller any obligations not expressly set forth elsewhere in this Agreement. 12.4.5.3 All reports, recommendations, data and other documents furnished by the Seller to the Buyer pursuant to this Clause 12.4 will be deemed to be delivered under this Agreement and will be subject to the terms, covenants and conditions set forth in this Clause 12 and in Clause 22.5. 12.5 EXCLUSIVITY OF WARRANTIES THIS CLAUSE 12 (INCLUDING ITS SUBPROVISIONS) SETS FORTH THE EXCLUSIVE WARRANTIES, EXCLUSIVE LIABILITIES AND EXCLUSIVE OBLIGATIONS OF THE SELLER, AND THE EXCLUSIVE REMEDIES AVAILABLE TO THE BUYER, WHETHER UNDER THIS AGREEMENT OR OTHERWISE, ARISING FROM ANY DEFECT OR NONCONFORMITY OF ANY KIND IN ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY, PART OR SERVICE DELIVERED UNDER THIS AGREEMENT. THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL OTHER WARRANTIES, OBLIGATIONS, GUARANTEES AND LIABILITIES OF THE SELLER AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF THE BUYER AGAINST THE SELLER, WHETHER EXPRESS OR IMPLIED BY CONTRACT, TORT, OR STATUTORY LAW OR OTHERWISE, WITH RESPECT TO ANY NONCONFORMITY OR DEFECT OF ANY KIND IN ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY, PART OR SERVICE DELIVERED UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO: (1) ANY IMPLIED WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR ANY GENERAL OR PARTICULAR PURPOSE; (2) ANY IMPLIED OR EXPRESS WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; (3) ANY RIGHT, CLAIM OR REMEDY FOR BREACH OF CONTRACT RELATING TO OR A RISING OUT OF THIS CLAUSE 12; (4) ANY RIGHT, CLAIM OR REMEDY FOR TORT, UNDER ANY THEORY OF LIABILITY, HOWEVER ALLEGED, INCLUDING, BUT NOT LIMITED TO, ACTIONS AND/OR CLAIMS FOR NEGLIGENCE, GROSS NEGLIGENCE, INTENTIONAL ACTS, WILLFUL DISREGARD, IMPLIED WARRANTY, PRODUCT LIABILITY, STRICT LIABILITY OR FAILURE TO WARN; (5) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER THE UNIFORM COMMERCIAL CODE OR ANY OTHER STATE OR FEDERAL STATUTE; (6) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER ANY REGULATIONS OR STANDARDS IMPOSED BY ANY INTERNATIONAL, NATIONAL, STATE OR LOCAL STATUTE OR AGENCY; (7) ANY RIGHT, CLAIM OR REMEDY TO RECOVER OR BE COMPENSATED FOR: (a) LOSS OF USE OR REPLACEMENT OF ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY OR PART PROVIDED UNDER THIS AGREEMENT; (b) LOSS OF, OR DAMAGE OF ANY KIND TO, ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY OR PART PROVIDED UNDER THIS AGREEMENT; (c) LOSS OF PROFITS AND/OR REVENUES; (d) ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGE. THE WARRANTIES AND SERVICE LIFE POLICY PROVIDED BY THIS AGREEMENT WILL NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT SIGNED BY THE SELLER AND THE BUYER. IN THE EVENT THAT ANY PROVISION OF THIS CLAUSE 12 SHOULD FOR ANY REASON BE HELD UNLAWFUL, OR OTHERWISE UNENFORCEABLE, THE REMAINDER OF THIS CLAUSE 12 WILL REMAIN IN FULL FORCE AND EFFECT. 12.6 DUPLICATE REMEDIES The remedies provided to the Buyer under this Clause 12 as to any defect in respect of the Aircraft or any part thereof are mutually exclusive and not cumulative. The Buyer will be entitled to the remedy that provides the maximum benefit to it, as the Buyer may elect, pursuant to the terms and conditions of this Clause 12 for any such particular defect for which remedies are provided under this Clause 12; provided, however, that the Buyer will not be entitled to elect a remedy under one part of this Clause 12 that constitutes a duplication of any remedy elected by it under any other part hereof for the same defect. The Buyer's rights and remedies herein for the nonperformance of any obligations or liabilities of the Seller arising under these warranties will be in monetary damages limited to the amount the Buyer expends in procuring a correction or replacement for any covered part subject to a defect or nonperformance covered by this Clause 12, and the Buyer will not have any right to require specific performance by the Seller. Nothing contained in the foregoing Clause 12.5 will be interpreted to deprive the Buyer of its right to enforce the rights and remedies set forth in this Clause 12. UNQUOTE In consideration of the assignment and subrogation by the Seller under this Clause 12 in favor of the Buyer in respect of the Seller's rights against and obligations to the Manufacturer under the provisions quoted above, the Buyer hereby accepts such assignment and subrogation and agrees to be bound by all of the terms, conditions and limitations therein contained, specifically including, without limitation, the Exclusivity of Warranties and General Limitations of Liability provisions and Duplicate Remedies provisions. THIS CLAUSE 12 (INCLUDING ITS SUBPROVISIONS) SETS FORTH THE EXCLUSIVE WARRANTIES, EXCLUSIVE LIABILITIES AND EXCLUSIVE OBLIGATIONS OF THE SELLER, AND THE EXCLUSIVE REMEDIES AVAILABLE TO THE BUYER, WHETHER UNDER THIS AGREEMENT OR OTHERWISE, ARISING FROM ANY DEFECT OR NONCONFORMITY OF ANY KIND IN ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY, PART OR SERVICE DELIVERED UNDER THIS AGREEMENT. THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL OTHER WARRANTIES, OBLIGATIONS, GUARANTEES AND LIABILITIES OF THE SELLER AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF THE BUYER AGAINST THE SELLER, WHETHER EXPRESS OR IMPLIED BY CONTRACT, TORT, OR STATUTORY LAW OR OTHERWISE, WITH RESPECT TO ANY NONCONFORMITY OR DEFECT OF ANY KIND IN ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY, PART OR SERVICE DELIVERED UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO: (1) ANY IMPLIED WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR ANY GENERAL OR PARTICULAR PURPOSE; (2) ANY IMPLIED OR EXPRESS WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; (3) ANY RIGHT, CLAIM OR REMEDY FOR BREACH OF CONTRACT RELATING TO OR ARISING OUT OF THIS CLAUSE 12; (4) ANY RIGHT, CLAIM OR REMEDY FOR TORT, UNDER ANY THEORY OF LIABILITY, HOWEVER ALLEGED, INCLUDING, BUT NOT LIMITED TO, ACTIONS AND/OR CLAIMS FOR NEGLIGENCE, GROSS NEGLIGENCE, INTENTIONAL ACTS, WILLFUL DISREGARD, IMPLIED WARRANTY, PRODUCT LIABILITY, STRICT LIABILITY OR FAILURE TO WARN; (5) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER THE UNIFORM COMMERCIAL CODE OR ANY OTHER STATE OR FEDERAL STATUTE; (6) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER ANY REGULATIONS OR STANDARDS IMPOSED BY ANY INTERNATIONAL, NATIONAL, STATE OR LOCAL STATUTE OR AGENCY; (7) ANY RIGHT, CLAIM OR REMEDY TO RECOVER OR BE COMPENSATED FOR: (a) LOSS OF USE OR REPLACEMENT OF ANY AIRCRAFT,COMPONENT,EQUIPMENT, ACCESSORY OR PART PROVIDED UNDER THIS AGREEMENT; (b) LOSS OF, OR DAMAGE OF ANY KIND TO, ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY OR PART PROVIDED UNDER THIS AGREEMENT; (c) LOSS OF PROFITS AND/OR REVENUES; (d) ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGE. THE WARRANTIES AND SERVICE LIFE POLICY PROVIDED BY THIS AGREEMENT WILL NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT SIGNED BY THE SELLER AND THE BUYER. IN THE EVENT THAT ANY PROVISION OF THIS CLAUSE 12 SHOULD FOR ANY REASON BE HELD UNLAWFUL, OR OTHERWISE UNENFORCEABLE, THE REMAINDER OF THIS CLAUSE 12 WILL REMAIN IN FULL FORCE AND EFFECT. The remedies provided to the Buyer under this Clause 12 as to any defect in respect of the Aircraft or any part thereof are mutually exclusive and not cumulative. The Buyer will be entitled to the remedy that provides the maximum benefit to it, as the Buyer may elect, pursuant to the terms and conditions of this Clause 12 for any such particular defect for which remedies are provided under this Clause 12; provided, however, that the Buyer will not be entitled to elect a remedy under one part of this Clause 12 that constitutes a duplication of any remedy elected by it under any other part hereof for the same defect. The Buyer's rights and remedies herein for the nonperformance of any obligations or liabilities of the Seller arising under these warranties will be in monetary damages limited to the amount the Buyer expends in procuring a correction or replacement for any covered part subject to a defect or nonperformance covered by this Clause 12, and the Buyer will not have any right to require specific performance by the Seller. Nothing contained in the foregoing Clause 12.6 will be interpreted to deprive the Buyer of its right to enforce the rights and remedies set forth in this Clause 12. 12.7 NEGOTIATED AGREEMENT The Buyer specifically acknowledges that (i) this Agreement, and in particular this Clause 12, has been the subject of discussion and negotiation and is fully understood by the Buyer; (ii) the price of the Aircraft and the other mutual agreements of the Buyer set forth in this Agreement were arrived at in consideration of, inter alia, the provisions of this Clause 12, specifically including the Exclusivity of Warranties set forth in Clause 12.5. 13 - PATENT AND COPYRIGHT INDEMNITY ------------------------------ The Seller represents and warrants that the Manufacturer has provided to the Seller the following indemnity against patent and copyright infringements with respect to the Aircraft, subject to the terms, conditions, limitations and restrictions (including, but not limited to, the Exclusivity of Warranties and Duplicate Remedies provisions) as hereinafter set out, and that the same are in full force and effect and have not been amended. The Seller hereby assigns to the Buyer, and the Buyer hereby accepts, all of the Seller's rights and obligations as the "Buyer" under the said indemnity against patent and copyright infringements, and the Seller subrogates the Buyer to all such rights and obligations in respect of the Aircraft. The Seller hereby warrants to the Buyer that (i) it has all requisite authority to make the foregoing assignment and to effect the foregoing subrogation in favor of the Buyer, (ii) such assignment and subrogation are effective to confer on the Buyer all of the foregoing rights and obligations of the Seller, and (iii) the Seller will not enter into any amendment of the provisions so assigned without the prior written consent of the Buyer. It is understood that, in the provisions below between the words QUOTE and UNQUOTE, capitalized terms have the meanings assigned thereto in this Agreement, except that (i) the term "Seller," which means the Manufacturer as between the Manufacturer and the Seller, also means the Manufacturer in this Agreement, and (ii) the term "Buyer," which means the Seller as between the Manufacturer and the Seller, means the Buyer in this Agreement. QUOTE 13.1 Indemnity 13.1.1 Subject to the provisions of Clause 13.2.3, the Seller will indemnify the Buyer and its officers, directors, agents and employees from and against any damages, costs and expenses including legal costs (excluding damages, costs, expenses, loss of profits and other liabilities in respect of or resulting from loss of use of the Aircraft) resulting from a claim that the Airframe or any part or software installed therein at Delivery infringes (i) any British, French, German, Spanish or U.S. patent; and (ii) any patent issued under the laws of any other country in which the Buyer may lawfully operate the Aircraft, provided that from the time of design of such Airframe or any part or software installed therein at Delivery and until infringement claims are resolved, the country of the patent and the flag country of the Aircraft are both parties to (1) the Chicago Convention on International Civil Aviation of December 7, 1944 and are each fully entitled to all benefits of Article 27 thereof, or, (2) the International Convention for the Protection of Industrial Property of March 20, 1883 (the "Paris Convention"); and (iii) in respect of computer software installed on the Aircraft, any copyright, provided that the Seller's obligation to indemnify will be limited to infringements in countries which, at the time of infringement, are members of The Berne Union and recognize computer software as a "work" under the Berne Convention. 13.1.2 Clause 13.1.1 will not apply to (i) Buyer Furnished Equipment; (ii) the Propulsion Systems; (iii) parts supplied pursuant to a Supplier Product Support Agreement; or (iv) software not created by the Seller. 13.1.3 In the event that the Buyer, due to circumstances contemplated in Clause 13.1.1 is prevented from using the Aircraft (whether by a valid judgment of a court of competent jurisdiction or by a settlement arrived at among the claimant, the Seller and the Buyer), the Seller will at its expense either (i) procure for the Buyer the right to use the affected Airframe, part or software free of charge; or (ii) replace the infringing part or software as soon as possible with a noninfringing substitute. 13.2 Administration of Patent and Copyright Indemnity Claims 13.2.1 If the Buyer receives a written claim or a suit is threatened or begun against the Buyer for infringement of a patent or copyright referred to in Clause 13.1, the Buyer will (i) forthwith notify the Seller, giving particulars thereof; (ii) furnish to the Seller all data, papers and records within the Buyer's control or possession relating to such patent or claim; (iii) refrain from admitting any liability or making any payment, or assuming any expenses, damages, costs or royalties,or otherwise acting in a manner prejudicial to the defense or denial of the suit or claim, it being agreed that nothing in this Clause 13.2.1(iii) will prevent the Buyer from paying the sums that may be required to obtain the release of the Aircraft, provided that paymentis accompanied by a denial of liability and is made without prejudice; (iv) fully cooperate with, and render * assistance to, the Seller as may be pertinent to the defense or denial of the suit or claim; (v) * mitigate damages and/or to reduce the amount of royalties that may be payable, and to minimize costs and expenses. 13.2.2 The Seller will be entitled either in its own name or on behalf of the Buyer to conduct negotiations with the party or parties alleging infringement and may assume and conduct the defense or settlement of any suit or claim in the manner that, in the Seller's opinion, it deems proper. 13.2.3 The Seller's liability hereunder will be conditional on the strict and timely compliance by the Buyer with the terms of this Clause and is in lieu of any other liability to the Buyer, whether express or implied, which the Seller might incur at law as a result of any infringement or claim of infringement of any patent or copyright. UNQUOTE In consideration of the assignment and subrogation by the Seller under this Clause 13 in favor of the Buyer in respect of the Seller's rights against and obligations to the Manufacturer under the provisions quoted above, the Buyer hereby accepts such assignment and subrogation and agrees to be bound by all of the terms, conditions and limitations therein contained (specifically including, without limitation, the waiver, release and renunciation provision). THE INDEMNITY PROVIDED IN THIS CLAUSE 13 AND THE OBLIGATIONS AND LIABILITIES OF THE SELLER UNDER THIS CLAUSE 13 ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL OTHER INDEMNITIES, WARRANTIES, OBLIGATIONS, GUARANTEES AND LIABILITIES ON THE PART OF THE SELLER AND RIGHTS, CLAIMS AND REMEDIES OF THE BUYER AGAINST THE SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE (INCLUDING WITHOUT LIMITATION ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY ARISING FROM OR WITH RESPECT TO LOSS OF USE OR REVENUE OR CONSEQUENTIAL DAMAGES), WITH RESPECT TO ANY ACTUAL OR ALLEGED PATENT INFRINGEMENT OR THE LIKE BY ANY AIRFRAME, PART OR SOFTWARE INSTALLED THEREIN AT DELIVERY, OR THE USE OR SALE THEREOF, PROVIDED THAT, IN THE EVENT THAT ANY OF THE AFORESAID PROVISIONS SHOULD FOR ANY REASON BE HELD UNLAWFUL OR OTHERWISE INEFFECTIVE, THE REMAINDER OF THIS CLAUSE WILL REMAIN IN FULL FORCE AND EFFECT. THIS INDEMNITY AGAINST PATENT AND COPYRIGHT INFRINGEMENTS WILL NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT SIGNED BY THE SELLER AND THE BUYER. 14 - TECHNICAL DATA AND DOCUMENTATION 14.1 General This Clause covers the terms and conditions for the supply of Technical Data and Documentation. The Technical Data and Documentation will be supplied in the English language using aeronautical terminology in common use. 14.2 Scope Range, form, type, format, ATA/non-ATA compliance, revision and quantity of the Technical Data and Documentation are covered in Exhibit F hereto. 14.3 Delivery The Technical Data and Documentation and corresponding revisions to be supplied by the Seller will be sent to one address only as advised by the Buyer. Technical Data and Documentation and their revisions will be delivered Free Carrier (FCA) Toulouse, France and/or Free Carrier (FCA) Hamburg, Germany, as determined by the Seller. The delivery schedule of the Technical Data and Documentation will be phased as mutually agreed to correspond with Aircraft deliveries. The Buyer agrees to provide forty (40) days' notice when requesting a change to the delivery schedule. Subject to the Seller's performance of its obligations pursuant to Clause 7.3.5, the Buyer will coordinate and satisfy local Aviation Authorities needs for the Technical Data and Documentation. Technical Data and Documentation will correspond to the Specification as defined six (6) months before delivery of each Aircraft. If the full Specification will not be introduced into a scheduled revision of the Technical Data and Documentation before delivery of any Aircraft, temporary revisions for outstanding Specification items will be issued. Such temporary revisions will remain in effect until incorporation of the full Specification into the Technical Data and Documentation for such Aircraft. Full incorporation will be effected by no later than eight (8) months after delivery of such Aircraft. The Seller will supply a list of the differences between the Specification and the Technical Data and Documentation at delivery of each Aircraft. 14.4 Revision Service 14.4.1 General Unless otherwise specifically stated, revision service will be offered free of charge * . Mandatory changes will be incorporated into the Technical Data and Documentation at no charge for as long as * Aircraft is in service with the Buyer. 14.4.2 Service Bulletins (SB) On the Buyer's request, Service Bulletin information will be incorporated into the Technical Data and Documentation for the Aircraft after formal notification by the Buyer of its intention to accomplish a Service Bulletin. The Buyer will make this request within * after the Seller issues a Service Bulletin. For Technical Data and Documentation relating to maintenance, the split effectivity for the corresponding Service Bulletin will remain in such Technical Data and Documentation until the Buyer notifies the Seller that it has accomplished the Service Bulletin on all applicable Aircraft. For Technical Data and Documentation relating to flight operations, only the pre- or post-Service Bulletin status will be shown in the Technical Data and Documentation. This clause will remain in effect so long as the Buyer has revision service. This Clause applies only to the following Technical Data and Documentation: * 14.4.3 Customer Originated Changes 14.4.3.1 Customer Originated Changes (COC) data may be incorporated into the following customized Technical Data and Documentation: - Aircraft Maintenance Manual - Illustrated Parts Catalog - Trouble Shooting Manual - Wiring Manual (Schematics, Wirings, Lists) COC data will be established by the Buyer according to the "Guidelines for Customer Originated Changes" issued by the Seller. The COC data will be labeled "COC" to show that they are Buyer originated. The Seller will endeavor to incorporate COC data into the customized Technical Data and Documentation within two (2) revisions following the receipt of complete and accurate data for processing. COC data will be incorporated by the Seller in all affected customized Technical Data and Documentation, unless the Buyer specifies in writing into which Technical Data and Documentation the COC data will be incorporated. The customized Technical Data and Documentation into which the COC data are incorporated will only show the Aircraft configuration that reflects the COC data and not the configuration before incorporation of the COC data. 14.4.3.2 The Buyer will ensure that any such COC data have received prior agreement from its local Aviation Authorities. 14.4.3.3 The Buyer hereby acknowledges and accepts that the incorporation of any COC into the Technical Data and Documentation issued by the Seller will be entirely at the Buyer's risk. Accordingly, the Seller will be under no liability whatsoever in respect of either the contents of any COC, including any omissions or inaccuracies therein, or the effect that the incorporation of such COC may have on the Technical Data and Documentation. The Seller will not be required to check any COC data submitted for incorporation as aforesaid. Further, the Buyer acknowledges full liability for the effects, including all related costs, that any COC may have on all subsequent Service Bulletins and modifications. 14.4.3.4 In the event that the Seller is required under any judgment or settlement to indemnify any third party for injury, loss or damage incurred directly or indirectly as a result of incorporation of any COC into the Technical Data and Documentation issued by the Seller, the Buyer agrees to reimburse the Seller for all payments or settlements made in respect of such injury, loss or damage including any expenses (including reasonable legal fees) incurred by the Seller in defending such claims, *. The Seller's liability will in no event be affected by any communication, whether written or oral, that the Seller may make to the Buyer with respect to such documentation. 14.4.3.5 The Seller's costs with respect to the incorporation of any COC will be invoiced to the Buyer under conditions specified in ASCO's Customer Services Catalog in effect at the time of the Buyer's request for incorporation. 14.5 Supplier Equipment Information relating to Supplier equipment that is installed on the Aircraft by the Seller will be included free of charge in the basic issue of the Technical Data and Documentation to the extent necessary for the understanding of the systems concerned. The Buyer will supply or cause to be supplied to the Seller the data related to Buyer Furnished Equipment and to any other equipment not covered in the Seller's Standard Furnished Equipment definition at least * months before the scheduled delivery of the customized Technical Data and Documentation. The Buyer will supply these data in English. The Seller will introduce into the basic issue of the Technical Data and Documentation the data related to Buyer Furnished Equipment. Costs for shipping these data will be the Buyer's responsibility. 14.6 Aircraft Identification Technical Data and Documentation For the customized Technical Data and Documentation the Buyer agrees to the allocation of Fleet Serial Numbers (FSNs) in the form of a block of numbers selected in the range from 001 to 999. The sequence will be interrupted only if two (2) different Propulsion Systems or different Aircraft models are selected. The Buyer will indicate to the Seller the FSNs allocated to the Aircraft within * days after execution of this Agreement. The allocation of FSNs to Manufacturer's Serial Numbers (MSNs) will not constitute any proprietary, insurable or other interest of the Buyer in any Aircraft before delivery of and payment for Aircraft as provided in this Agreement. The affected customized Technical Data and Documentation are: - Aircraft Maintenance Manual - Illustrated Parts Catalog - Trouble Shooting Manual - Wiring Manual (Schematics, Wirings, Lists) 14.7 Performance Engineer's Programs Complementary to the standard Operational Manuals, covered in Exhibit F hereto, the Seller will provide to the Buyer Performance Engineer's Programs (PEPs) under license conditions defined in Exhibit F hereto. 14.8 CD-ROM Certain Technical Data and Documentation are provided on CD-ROM under license conditions defined in Exhibit F hereto. The affected Technical Data and Documentation are the following: - Trouble Shooting Manual - Aircraft Maintenance Manual - Illustrated Parts Catalog From time to time, the Seller may extend this list to include other Technical Data and Documentation and related license conditions specified by the Seller. 14.9 Warranty Disclaimer The Seller represents that the Technical Data and Documentation are prepared in accordance with the state of the art at the date of their conception. Should any of the Technical Data and Documentation prepared by the Seller contain error or omission, the sole and exclusive liability of the Seller will be to take all reasonable and proper steps to, at its option, correct or replace any such Technical Data and Documentation. Notwithstanding the above, no warranties of any kind are given for the Customer Originated Changes addressed in Clause 14.4.3. The provisions of Clauses 12.5, 12.6 and 12.7 will apply to all Technical Data and Documentation. 14.10 Proprietary Rights 14.10.1 All proprietary rights, including but not limited to patent, design and copyrights, relating to Technical Data and Documentation will remain with the Seller. All Technical Data and Documentation are supplied to the Buyer for the Buyer's sole use. These proprietary rights will also apply to any translation into a language or languages or media that may have been performed or caused to be performed by the Buyer. 14.10.2 Whenever this Agreement provides for manufacturing by the Buyer, the consent given by the Seller will not be construed as express or implicit approval of the manufactured products. The supply of the Technical Data and Documentation will not be construed as any further right for the Buyer to design or manufacture any Aircraft or part thereof or spare part. 15 - FIELD ASSISTANCE 15.1 Seller's Service The Seller will provide or cause to be provided at no charge to the Buyer the services described in this Clause 15, at the Buyer's main base or at other locations to be mutually agreed. 15.1.1 The Seller will provide a Resident Customer Support Manager starting at or about delivery of the first Aircraft and continuing for as long *. 15.1.2 The Seller will also provide the services of a team of Customer Support Representatives acting in an advisory capacity at the Buyer's main base starting at or about delivery of the first Aircraft for a total of * man-months. The actual number of Customer Support Representatives assigned to the Buyer at any one time will be mutually agreed, but will not be fewer than one (1) or more than three (3) persons. 15.1.3 The Seller has set up a global technical services network available for the nonexclusive use of operators of aircraft manufactured by the Manufacturer. The Buyer will have free access to this global network at any time in the course of its operation of the Aircraft. In particular, the Buyer will have access to the regional Customer Support Representatives closest to the Buyer's main base after the end of the period referred to above in Clause 15.1.1, or to cover for the temporary absence of the Customer Support Representative(s). A list of the contacts for the global technical services network, including the regional Customer Support Representatives, will be provided to the Buyer. 15.2 Customer Support Director The Seller will provide the services of one (1) Customer Support Director based in Herndon, Virginia, to liaise between the Manufacturer and the Buyer on product support matters after signature of this Agreement for as long as the Buyer operates at least one (1) Aircraft. 15.3 Buyer's Service 15.3.1 For as long as the Customer Support Representative(s) specified in Clause 15.1.1 above remain(s) with the Buyer, the Buyer will furnish without charge secretarial assistance, suitable office space, office equipment and facilities in or conveniently near the Buyer's maintenance facilities *. 15.3.2 In accordance with the Buyer's regulations, the Buyer will provide at no charge to the Seller (i) airline tickets * confirmed and guaranteed between the locations mentioned above in Subclause 15.1 and the international airport nearest Toulouse, France, that is on the Buyer's network for the Customer Support Representative(s) mentioned in Clauses 15.1.1 and 15.1.2; and (ii) when said Customer Support Representative(s) are assigned away from the locations mentioned above in Clause 15.1 at the Buyer's request, transportation on a space-available coach class basis between the said locations and the place of assignment. 15.3.3 The parties will give each other all necessary reasonable assistance with general administrative functions specific to their respective countries and procurement of the documents necessary to live and work there. 15.4 Representatives' Status In providing the above technical service, the Seller's employees, including Customer Support Representative(s) and the Customer Support Director, are deemed to be acting in an advisory capacity only and at no time will they be deemed to be acting, either directly or indirectly, as the Buyer's employees or agents. 15.5 Temporary Assignment of Customer Support Representative ------------------------------------------------------- The Buyer agrees that, subject to Clause 15.1.2, the Seller will have the right to transfer or recall any individual Customer Support Representative(s) on a temporary or permanent basis. 16 - TRAINING AND TRAINING AIDS -------------------------- 16.1. General This Clause covers the terms and conditions for the supply of training and training aids for the Buyer's personnel to support the Aircraft operation. 16.2. Scope 16.2.1 The range and quantities of training and training aids to be provided free of charge under this Agreement are covered in Appendix A to this Clause 16. The Seller will arrange availability of such training and training aids in relation to the delivery of the Aircraft. 16.2.2 The contractual training courses, defined in Appendix A to this Clause 16, will be provided up to one (1) year after delivery of the last Aircraft. 16.2.3 In the event that the Buyer should use none or only part of the training or training aids to be provided pursuant to this Clause, no compensation or credit of any sort will be provided. 16.3. Training Organization / Location 16.3.1 The Seller will provide the training at the Airbus Training Center in Miami, or * at of one of its affiliated training centers. 16.3.2 In the event of the nonavailability of facilities or scheduling imperatives making training by the Seller impractical, the Seller will make arrangements for the provision to the Buyer of such training support elsewhere, *. 16.3.3 Upon the Buyer's request the Seller may also provide certain training at one of the Buyer's bases, if and when practicable for the Seller, under terms and conditions to be mutually agreed upon. In this event, all additional charges listed in Clause 16.6.2 will be borne by the Buyer. 16.4 Training Courses 16.4.1 Training courses, as well as the minimum and maximum numbers of trainees per course provided for the Buyer's personnel, are defined in the Seller's applicable Training Course Catalog and will be scheduled as mutually agreed upon during a training conference (the "Training Conference") to be held at least twelve (12) months prior to delivery of the first Aircraft. 16.4.2 The following terms will apply when training is performed by the Seller : (i) Training courses will be the Seller's standard courses as described in the Seller's current Training Course Catalog. The Seller will be responsible for all training course syllabi, training aids and training equipment necessary for the organization of the training courses (ii) The training curricula and the training equipment may not be fully customized. However, academic curricula may be modified to include the most significant aspects of the Specification (to the exclusion of Buyer Furnished Equipment) as known at the latest six (6) months prior to the date of the first training course planned for the Buyer. The equipment used for training of flight and maintenance personnel will not be fully customized; however, this equipment will be configured in order to obtain the relevant Aviation Authority's approval and to support the Seller's teaching programs. (iii) Training data and documentation necessary for training detailed in Appendix A to this Clause 16 will be free-of-charge and will not be revised. Training data and documentation will be marked "FOR TRAINING ONLY" and as such will be supplied for the sole and express purpose of training. (iv) Upon the request of the Buyer, the Seller will collect and pack for consolidated shipment to the Buyer's facility, all training data and documentation of the Buyer's trainees attending training at the Airbus Training Center in Miami, Florida. This training data and documentation will be delivered Free Carrier (FCA) Miami. It is understood that title to and risk of loss of the training data and documentation will pass to the Buyer upon delivery. 16.4.3 In the event the Buyer decides to cancel or reschedule a training course, a minimum advance notice of sixty (60) calendar days will be required. Any later cancellation or change, when courses cannot be allocated to other customers, will be deducted from the training allowances defined herein or will be charged to the Buyer, as applicable. 16.4.4 In fulfillment of its obligation to provide training courses, when the Seller performs the training courses, the Seller will deliver to the trainees a certificate of completion at the end of any such training course. The Seller's certificate does not represent authority or qualification by any official Aviation Authorities but may be presented to such officials in order to obtain relevant formal qualification. In the event that training is provided by a training provider selected by the Seller, the Seller will cause such training provider to deliver a certificate of completion at the end of any such training course. Such certificate will not represent authority or qualification by any official Aviation Authorities but may be presented to such officials in order to obtain relevant formal qualification. 16.5 Prerequisites 16.5.1 Training will be conducted in English and all training aids and materials are written in English using common aeronautical terminology. Trainees must have the prerequisite jet transport category experience as defined in Appendix B to this Clause 16. It is clearly understood that the Seller's training courses are "Transition Training Courses" and not "Ab Initio Training Courses." Furthermore, the Buyer will be responsible for the selection of the trainees and for any liability with respect to the entry knowledge level of the trainees. 16.5.2 The Buyer will provide the Seller with an attendance list of the trainees for each course with the validated qualification of each trainee. The Seller reserves the right to check the trainees' proficiency and previous professional experience. The Seller will in no case warrant or otherwise be held liable for any trainee's performance as a result of any training services provided. 16.5.3 Upon the Buyer's request, the Seller may be consulted to direct the above mentioned trainee(s) through a relevant entry level training program, which will be at the Buyer's charge, and, if necessary, to coordinate with competent outside organizations for this purpose. Such consultation will be held during the Training Conference. In the event the Seller should determine that a trainee lacks the required entry level, such trainee will, following consultation with the Buyer, be withdrawn from the program and will then be considered to be at the Buyer's disposal. 16.6. Logistics 16.6.1 Trainees 16.6.1.1 When training is done at the Airbus Training Center in Miami, Florida, the Seller will provide a free-of-charge rental car for all of the Buyer's trainees at the beginning of the training course on the basis of one rental car per four maintenance, operations and cabin attendant trainees and one rental car per flight crew. The Seller will provide rental cars from a nationally recognized vendor of its choosing with unlimited mileage and buy-back of collision damage waiver (CDW), and the Buyer will pay for gas, and fines, if any. However, the Buyer will indemnify and hold the Seller harmless from and against all liabilities, claims, damages, costs and expenses for any injury to or death of any of the Buyer's trainees occasioned during the course of such transportation. 16.6.1.2 When training is done at the Airbus Training Center in Blagnac, France, or Beijing, China, the Seller will provide free local transportation by bus for the Buyer's trainees to and from designated pick up points and the training center. 16.6.1.3 Living expenses for the Buyer's trainees are to be borne by the Buyer. 16.6.2 Training at External Location 16.6.2.1 Seller's Instructors In the event that, at the Buyer's request, training is provided by the Seller's instructors at any location other than the Seller's training centers, the Buyer will reimburse the Seller for all the expenses, defined below in Clauses 16.6.2.2, 16.6.2.3, 16.6.2.4 and 16.6.2.5 related to the assignment of such instructors and their performance of the duties as aforesaid. 16.6.2.2 Living Expenses for the Seller's Instructors Such expenses, covering the entire period from day of secondment to day of return to the Seller's base, will include but will not be limited to lodging, food and local transportation to and from the place of lodging and the training course location. The Buyer will reimburse the Seller for such expenses on the basis of a per diem rate corresponding to the current per diem rate used by the Seller for its personnel. 16.6.2.3 Air Travel The Buyer will reimburse the Seller for the costs of the Seller's * the Buyer's designated training site and the Seller's training center. 16.6.2.4 Instructor's Material The Buyer will reimburse the Seller for the cost of shipping the instructor's material needed to conduct such courses. 16.6.2.5 Buyer's Indemnity The Buyer will be solely liable for any and all cancellation or delay in the performance of the training outside of the Seller's training centers associated with the transportation services described above and will indemnify and hold the Seller harmless from such delay and any consequences arising therefrom. 16.6.2.6 Training Equipment Availability Training equipment necessary for course performance at any course location other than the Seller's training centers or the facilities of the training provider selected by the Seller will be provided by the Buyer in accordance with the Seller's specifications. 16.7 Flight Operations Training 16.7.1 Flight Crew Training Course 16.7.1.1 The Seller will perform a flight crew transition training course program for the Buyer's flight crews, each of which will consist of one captain (1) and one (1) first officer, as defined in Appendix A to this Clause 16. The training manual used will be the Seller's Flight Crew Operating Manual. 16.7.1.2 The Buyer will use its delivered Aircraft for any required Aircraft in-flight training. This training will not exceed one (1) session of one and a half (1.5) hours per pilot. When Aircraft in-flight crew training is performed in Blagnac, France, the Seller will provide free-of-charge line maintenance, including servicing, preflight checks and changing of minor components, subject to conditions agreed in the present Agreement. 16.7.1.3 The Buyer will provide mutually agreed spare parts as required to support said Aircraft in-flight training and will provide insurance in line with Clause 16.12. 16.7.1.4 In all cases, the Buyer will bear all expenses such as fuel, oil and landing fees. 16.7.2. Flight Crew Line Initial Operating Experience 16.7.2.1 In order to assist the Buyer with initial operating experience after delivery of the first Aircraft, the Seller will provide to the Buyer pilot instructor(s) as defined in Appendix A to this Clause 16. 16.7.2.2 The Buyer will reimburse the expenses for each such instructor in accordance with Clause 16.6.2. Additional pilot instructors can be provided at the Buyer's expense and upon conditions to be mutually agreed upon. 16.7.3 Cabin Attendants' Familiarization Course The Seller will provide cabin attendants' course(s) to the Buyer's cabin attendants, as defined in Appendix A to this Clause 16. The cabin attendants' course, when incorporating the features of the Aircraft, can be given at the earliest two (2) weeks before the delivery date of the first Aircraft. 16.7.4 Performance / Operations Course The Seller will provide performance/operations training for the Buyer's personnel as defined in Appendix A to this Clause 16. The available courses are listed in the Seller's applicable Training Course Catalog. 16.8 Maintenance Training 16.8.1 The Seller will provide maintenance training for the Buyer's ground personnel as defined in Appendix A to this Clause 16. The available courses are listed in the Seller's applicable Training Course Catalog. 16.8.2 On-the-Job Training Upon the Buyer's request, the Seller may be consulted to identify competent outside organizations to provide on-the-job training, which will be at the Buyer's charge. 16.8.3 Line Maintenance Initial Operating Experience Training In order to assist the Buyer during the entry into service of the Aircraft, the Seller will provide to the Buyer maintenance instructor(s) at the Buyer's base as defined in Appendix A to this Clause 16. 16.8.3.1 This line maintenance initial operating experience training will cover training in handling and servicing of Aircraft, flight crew and maintenance coordination, use of paper and/or electronic documentation, and/or any other activities which may be deemed necessary after delivery of the first Aircraft. 16.8.3.2 The Seller will pay the expenses for said instructor(s). Additional maintenance instructors can be provided at the Buyer's expense. 16.9 Supplier and Engine Manufacturer Training A copy of the Supplier Training Catalogue, listing the suppliers that provide training, will be supplied to the Buyer on request. 16.10 Training Aids and Materials for the Buyer's Training Organization 16.10.1 The Seller will provide to the Buyer the Airbus Computer Based Training (CBT) System, training aids and material, as used in the Seller's training centers, free of charge as defined in Appendix A to this Clause 16. The Airbus CBT System, training aids and material supplied to the Buyer will be similar to those used in the Manufacturer's training centers for the training provided for the Buyer. The Seller has no obligation to cause the Manufacturer to revise the Airbus CBT System. 16.10.2 Delivery 16.10.2.1 The Seller will deliver to the Buyer the Airbus CBT System, training aids and materials as defined in Appendix A to this Clause 16, at a date to be mutually agreed during the Training Conference. 16.10.2.2 Those items supplied to the Buyer pursuant to Clause 16.10.1 above will be delivered FCA Toulouse, Blagnac Airport. Title to and risk of loss of said items will pass to the Buyer upon delivery. 16.10.2.3 All costs related to transportation and insurance of said items from the FCA point to the Buyer's facilities will be at the Buyer's expense. 16.10.3 Installation 16.10.3.1 Upon the Buyer's request, the Seller may assist the Buyer with the initial installation of the Airbus CBT System at the Buyer's facility following notification in writing that the various components, which are in accordance with specifications defined in the Airbus CBT Technical Catalog, are ready for installation and available at the Buyer's facility. 16.10.3.2 The Buyer will provide any and all the necessary hardware on which the Airbus CBT System will be installed and Seller will not be responsible for any incompatibility of such hardware with the Airbus CBT System. 16.10.3.3 The Airbus CBT System will be installed by the Buyer's personnel who have completed the Airbus CBT training, and the Seller will be held harmless from any damage to person and/or to property caused by or in any way connected with the handling and/or installation of the Airbus CBT System by the Buyer's personnel. 16.10.3.4 The Buyer will reimburse the expenses in accordance with Clause 16.6.2, for the Seller's personnel required at the Buyer's facility to conduct Airbus CBT Training and/or provide installation assistance. 16.10.4 License 16.10.4.1 The Seller will grant the Buyer a license to use the Airbus CBT System, as defined in Appendix C to this Clause 16. 16.10.4.2 Supply of additional sets of courseware supports, as well as any extension to the license for such courseware, will be subject to terms and conditions to be mutually agreed. 16.10.5 The Seller will not be responsible and hereby disclaims any and all liabilities resulting from or in connection with the use by the Buyer of the training aids and materials at the Buyer's facilities. 16.11 Proprietary Rights The Seller's training data and documentation, Airbus CBT System, training aids and material are proprietary to the Manufacturer and its suppliers and the Buyer agrees not to disclose the content of the courseware or any information or documentation provided by the Seller in relation to training in whole or in part, to any third party without the prior written consent of the Seller. 16.12 Indemnification and Insurance Indemnification provisions additional to those in Clause 16.6.2.5 and insurance requirements are as set forth in Clause 19. APPENDIX A TO CLAUSE 16 TRAINING ALLOWANCE 1. FLIGHT OPERATIONS TRAINING 1.1 Flight Crew Training The Seller will provide flight crew training (regular transition or CCQ as applicable) free of charge for * of the Buyer's flight crews. *. 1.2 Flight Crew Line Initial Operating Experience The Seller will provide to the Buyer pilot instructor(s) for one (1) pilot instructor month to assist with flight-crew initial operating experience. The maximum number of pilot instructors present at any one time will be limited to two (2) pilot instructors. 1.3 Cabin Attendants' Familiarization Course The Seller will provide to the Buyer cabin attendants' training free of charge for twenty-four (24) of the Buyer's cabin attendants. 1.4 Performance/Operations Course(s) The Seller will provide to the Buyer two hundred (200) trainee days of performance/operations training free of charge for the Buyer's personnel. The above trainee days will be used solely for the performance/operations training courses as defined in the Seller's applicable Training Course Catalog. APPENDIX A TO CLAUSE 16 2. MAINTENANCE TRAINING 2.1 Maintenance Training Courses The Seller will provide to the Buyer * trainee days of maintenance training free of charge for the Buyer's personnel. These trainee days will be used solely for the Maintenance training courses as defined in the Seller's applicable Training Course Catalog. The number of Engine Run-up courses will be limited to one (1) course for three (3) trainees per Aircraft. 2.2 Line Maintenance Initial Operating Experience Training The Seller will provide to the Buyer maintenance instructor(s) at the Buyer's base free of charge for a period of * weeks. 3. TRAINEE DAYS ACCOUNTING Trainee days are counted as follows: - For instruction at the Seller's training centers, one (1) day of instruction for one (1) trainee equals one (1) trainee day, and the number of trainees at the beginning of the course will be counted as the number of trainees considered to have taken the course. - For instruction outside of the Seller's training centers, one (1) day of secondment of one (1) Seller instructor equals the actual number of trainees attending the course or a minimum of twelve (12) trainee days. 4. TRAINING AIDS AND CBT SYSTEM FOR BUYER'S TRAINING ORGANIZATION 4.1 The Seller will provide the Buyer with the following training aids: - * sets of cockpit color paper panel drawings (scale 1/1) and one (1) reproducible CD ROM - * set of cockpit color paper panel drawings (scale1/2) and one (1) reproducible CD ROM 4.2 The Seller will provide to the Buyer one (1) "Airbus CBT System," defined in Clause 2.1.3 of Appendix C hereto, related to the Aircraft. The Seller will also provide free of charge updates to courseware in Clause 4.2 below when developed by the Manufacturer, for five (5) years after initial delivery of the courseware. The Airbus CBT System supplied to the Buyer will consist of - one (1) Airbus CBT installation/utilization guide - one (1) set of CD-ROM with run time software related to the delivered courseware. For Flight Operations Training The A320 Family flight crew Airbus CBT courseware will be delivered with - one (1) set of CD ROM with Airbus CBT courseware files, including ADOPT/ACOPI tools - one (1) set of Training Interface for Performance and Weight and Balance (TIPWB) For Maintenance Training The A320 Family maintenance Airbus CBT courseware will be delivered with - one (1) set of CD ROM with Airbus CBT courseware files - one (1) set of training documentation master, whenever applicable - one (1) set of menu listings - six (6) sets of videodisks, whenever applicable APPENDIX B TO CLAUSE 16 MINIMUM RECOMMENDED QUALIFICATION IN RELATION TO TRAINING REQUIREMENTS (Regular Transition Courses) The prerequisites listed below are the minimum recommended requirements specified for Airbus training. If the appropriate regulatory agency or the specific airline policy of the trainee demand greater or additional requirements, they will apply as prerequisites. - - CAPTAIN prerequisites --------------------- . Fluency in English . 1500 hours minimum flying experience as pilot . 1000 hours experience on FAR/JAR 25 aircraft . 200 hours experience as airline, corporate pilot or military pilot . Must have flown transport type aircraft, as flying pilot, within the last 12 months. - - FIRST OFFICER prerequisites --------------------------- . Fluency in English . 500 hours minimum flying experience as pilot of fixed wing aircraft . 300 hours experience on FAR/JAR 25 aircraft . 200 hours flying experience as airline pilot or a corporate pilot or military pilot . Must have flown transport type aircraft, as flying pilot, within the last 12 months. For both CAPTAIN and FIRST OFFICER, if one or several of the above criteria are not met, the trainee must follow (i) an adapted course (example: if not fluent in English, an adapted course with a translator), or (ii) an Entry Level Training ELT) program before entering the regular or the adapted course. Such course(s), if required, will be at the Buyer's expense. - - MAINTENANCE PERSONNEL prerequisites . Fluency in English . Experience on first or second generation jet transport category aircraft. Knowledge of digital techniques, including ARINC 429, for electrics / avionics specialists. If this criterion is not met the trainee must follow a Basic Digital Course. APPENDIX C TO CLAUSE 16 LICENSE FOR USE OF AIRBUS COMPUTER BASED TRAINING 1. GRANT The Seller grants the Buyer the right, pursuant to the terms and conditions herein, to use the Airbus CBT System for the term (defined in Clause 4 below) of this license (the "License"). 2. DEFINITIONS 2.1 For the purpose of this Appendix C to Clause 16, the following definitions will apply : 2.1.1 "Airbus CBT Courseware" means the programmed instructions that provide flight crew and maintenance training. 2.1.2 "Airbus CBT Software" means the system software that permits the use of the Airbus CBT Courseware. 2.1.3 "Airbus CBT System" means the combination of the Airbus CBT Software and the Airbus CBT Courseware. 2.1.4 "Student/Instructor Mode" means the mode that allows the user to run the Airbus CBT Courseware. 2.1.5 "Airbus CBT Training" means the training enabling the Buyer to load and use the Airbus CBT System. 2.2 For the purpose of clarification, it is hereby stated that all related hardware required for the operation of the Airbus CBT System is not part of the Airbus CBT System and will be procured under the sole responsibility of the Buyer. 3. COPIES 3.1 The Buyer will be permitted to copy the Airbus CBT Software for back-up and archiving purposes and for loading of the Airbus CBT Software exclusively on the Buyer's workstations. In such cases, the Buyer will advise the Seller in writing stating the number and purpose of any copies made. Any other copying is strictly prohibited. 3.2 The Buyer agrees to reproduce the copyright and other notices as they appear on or within the original media on any copies that the Buyer makes of the Airbus CBT Software. 4. TERM The rights under this License will be granted to the Buyer for as long as the Buyer operates the aircraft model to which the Airbus CBT Software and the Airbus CBT courseware apply. When the Buyer stops operating said Aircraft model, the Buyer will return the Airbus CBT System and any copies thereof to the Seller, accompanied by a note certifying that the Buyer has returned all existing copies. 5. PERSONAL ON-SITE LICENSE 5.1 The above described License is personal to the Buyer for use of the Airbus CBT System within the Buyer's premises only, and is nontransferable and nonexclusive. 5.2 The Buyer may not (i) distribute or sublicense any portion of the Airbus CBT System, (ii) modify or prepare derivative works from the Airbus CBT Software, (iii) publicly display visual output of the Airbus CBT Software, or (iv) transmit the Airbus CBT Software electronically by any means. 6. CONDITIONS OF USE 6.1 Use of the Airbus CBT Software For the student delivery mode, the Buyer will use the Airbus CBT Software for the exclusive purpose of (i) including students on the roster for one or several courses syllabi in order to follow students' progression, (ii) rearranging course syllabi or creating new ones using available courseware modules, it being understood that the Seller disclaims any responsibility regarding any course(s) that may be modified or rearranged by the Buyer. 6.2 Use of the Airbus CBT Courseware The Buyer will use the Airbus CBT Courseware for the exclusive purpose of performing training instructions for its personnel, or for third party personnel contracted to perform work on the Aircraft on behalf of the Buyer. Such training will be performed at the Buyer's facility or at a subcontractor's facility provided it is conducted by the Buyer's personnel. 7. PROPRIETARY RIGHTS AND NONDISCLOSURE The Airbus CBT Software and Airbus CBT Courseware, the copyrights and any and all other author rights, intellectual, commercial or industrial proprietary rights of whatever nature in the Airbus CBT Software and Airbus CBT Courseware are and will remain with the Seller or its suppliers, as the case may be. The Airbus CBT Software and Airbus CBT Courseware and their contents are designated as confidential. The Buyer will not take any commercial advantage by copy or presentation to third parties of the Airbus CBT Software, the documentation, the Airbus CBT Courseware, and/or any rearrangement, modification or copy thereof. The Buyer acknowledges the Manufacturer's proprietary rights in the Airbus CBT System and undertakes not to disclose the Airbus CBT Software or Airbus CBT Courseware or parts thereof or their contents to any third party without the prior written consent of the Seller. Insofar as it is necessary to disclose aspects of the Airbus CBT Software and Airbus CBT Courseware to the Buyer's personnel, such disclosure is permitted only for the purpose for which the Airbus CBT Software and Airbus CBT Courseware are supplied to the Buyer under the License. 8. LIMITED WARRANTY 8.1 The Seller warrants that the Airbus CBT System is prepared in accordance with the state of the art at the date of its conception. Should the Airbus CBT System be found to contain any nonconformity or defect, the Buyer will notify the Seller promptly thereof and the sole and exclusive liability of the Seller under this Clause 8.1 of the Airbus CBT License will be to correct the same at its own expense. 8.2 WAIVER, RELEASE AND RENUNCIATION THE WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER AND REMEDIES OF THE BUYER SET FORTH IN THIS LICENSE ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES, ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER AND RIGHTS, CLAIMS AND REMEDIES OF THE BUYER AGAINST THE SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE WITH RESPECT TO ANY NONCONFORMITY OR DEFECT IN AIRBUS CBT SYSTEM DELIVERED UNDER THIS LICENSE INCLUDING BUT NOT LIMITED TO: (A) ANY WARRANTY AGAINST HIDDEN DEFECTS; (B) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS; (C) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; (D) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY, WHETHER CONTRACTUAL OR IN TORT AND WHETHER OR NOT ARISING FROM THE SELLER'S NEGLIGENCE, ACTUAL OR IMPUTED; AND (E) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OR DAMAGE TO ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY OR PART THEREOF. THE SELLER WILL HAVE NO OBLIGATION OR LIABILITY, HOWSOEVER ARISING, FOR LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER DIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY NONCONFORMITY OR DEFECT IN THE AIRBUS CBT SYSTEM DELIVERED UNDER THIS LICENSE. Nothing contained in the foregoing Clause 8.2 will be interpreted to deprive the Buyer of its right to enforce the rights and remedies set forth in this License. 17 - EQUIPMENT SUPPLIER PRODUCT SUPPORT ---------------------------------- 17.1 Equipment Supplier Product Support Agreements 17.1.1 The Seller has obtained Supplier Product Support Agreements transferable to the Buyer from Suppliers of Seller Furnished Equipment listed in the Specification. 17.1.2 These agreements are based on the "World Airlines and Suppliers Guide" and include Supplier commitments contained in the Supplier Product Support Agreements, which include the following: (i) Technical data and manuals required to operate, maintain, service and overhaul the Supplier items will (a) be prepared in accordance with the applicable provisions of ATA Specification 100 and 101 in accordance with Clause 14 of this Agreement, (b) include revision service, and (c) be published in the English language. The Seller recommends that software data, supplied in the form of an appendix to the Component Maintenance Manual, be provided in compliance with ATA Specification 102 up to level 3 to protect Supplier's proprietary interests. (ii) Warranties and guarantees, including Suppliers' standard warranties, and in the case of Suppliers of landing gear, service life policies for selected landing gear structures. (iii) Training to ensure efficient operation, maintenance and overhaul of the Suppliers' items for the Buyer's instructors, shop and line service personnel. (iv) Spares data in compliance with ATA Specification 200 or 2000, initial provisioning recommendations, spares and logistics service, including routine and emergency deliveries. (v) Technical service to assist the Buyer with maintenance, overhaul, repair, operation and inspection of Supplier items as well as required tooling and spares provisioning. 17.2 Supplier Compliance The Seller will monitor Supplier compliance with support commitments defined in the Supplier Product Support Agreements and will take action together with the Buyer if necessary. 17.3 Supplier Part Repair Stations 17.3.1 The Manufacturer has developed with the Suppliers a comprehensive network of repair stations in North America for those Supplier Parts originating from outside this territory. As a result, most Supplier Parts are repairable in North America, and corresponding repair stations are listed in the AOG and Repair Guide, which is issued and regularly updated by the Manufacturer. The Seller undertakes that the Supplier Parts that have to be forwarded for repair outside North America will be sent back to the Buyer with proper tagging as required by the FAA. 17.3.2 The Seller will support the Buyer in cases where the agreed repair turn time of an approved repair station is not met by causing free-of-charge loans or exchanges as specified in the relevant Supplier Product Support Agreements to be offered to the Buyer. 18 - BUYER FURNISHED EQUIPMENT ------------------------- 18.1 Administration 18.1.1 Without additional charge and in accordance with the Specification, the Seller will cause the Manufacturer to provide for the installation of the BFE, provided that the BFE is referred to in the Airbus BFE Catalog of Approved Suppliers by Products valid at the time the BFE is ordered. The Seller will cause the Manufacturer to advise the Buyer of the dates by and location to which, in the planned release of engineering for the Aircraft, the Manufacturer requires a written detailed engineering definition. This description will include the description of the dimensions and weight of BFE, the information related to its certification and information necessary for the installation and operation thereof. The Buyer will furnish such detailed description and information by the dates specified. Thereafter, no information, dimensions or weights will be revised unless authorized by an SCN. The Seller will also provide the Buyer in due time with a schedule of dates and shipping addresses for delivery of BFE and (when requested by the Seller) additional spare BFE to permit installation of the BFE in the Aircraft and delivery of the Aircraft in accordance with the delivery schedule. The Buyer will provide the BFE by such dates in a serviceable condition, to allow performance of any assembly, test, or acceptance process in accordance with the industrial schedule. The Buyer will also provide, when requested by the Manufacturer, at Aerospatiale works and/or at DASA works, adequate field service, including support from BFE suppliers to act in a technical advisory capacity to the Seller in the installation, calibration and possible repair of any BFE. 18.1.2 The BFE will be imported into France or into Germany by the Buyer under a suspensive customs system ("Regime de l'entrepot industriel pour fabrication coordonnee" or "Zollverschluss") without application of any French or German tax or customs duty, and will be Delivered Duty Unpaid (DDU) (as defined in the April 1990 edition of publication No. 460, published by the International Chamber of Commerce), to AEROSPATIALE MATRA S.A. 316 Route de Bayonne 31300 TOULOUSE FRANCE or DAIMLER CHRYSLER AEROSPACE AIRBUS GmbH Division Hamburger Flugzeugbau Kreetslag 10 21129 HAMBURG FEDERAL REPUBLIC OF GERMANY as provided in Clause 18.1.1. 18.1.3 If the Buyer requests the Seller to supply directly certain items that are considered BFE according to the Specification, and if such request is notified to the Seller in due time in order not to affect the delivery date of the Aircraft, the Seller may agree to order such items subject to the execution of an SCN reflecting the effect on price, escalation adjustment, and any other conditions of the Agreement. In such a case the Seller will be entitled to the payment of a reasonable handling charge and will bear no liability in respect of delay and product support commitments for such items. 18.2 Requirements The Buyer is responsible for, at its expense, and warrants that BFE will (i) be manufactured by a qualified supplier, (ii) meet the requirements of the applicable Specification, (iii) comply with applicable requirements incorporated by reference to the Type Certificate and listed in the Type Certificate Data Sheet, and (iv) be approved by the Aviation Authorities delivering the Certificate of Airworthiness for Export and by the Buyer's Aviation Authority for installation and use on the Aircraft at the time of Delivery of such Aircraft. The Seller will be entitled to refuse any item of BFE that is incompatible with the Specification, the engineering definition mentioned in the second paragraph of Clause 18.1.1 or the certification requirements. 18.3 Buyer's Obligation and Seller's Remedies 18.3.1 Any delay or failure in (i) furnishing the BFE in serviceable condition at the requested delivery date, (ii) complying with the warranty in Clause 18.2 or in providing the descriptive information or service representatives mentioned in Clause 18.1.1, or (iii) in obtaining any required approval for such equipment under the above mentioned Aviation Authorities regulations may delay the performance of any act to be performed by the Seller, and cause the Final Contract Price of the Aircraft to be adjusted in accordance with the updated delivery schedule, including, in particular, the costs the Seller incurs that are attributable to the delay or failure described above, such as storage, taxes, insurance and costs of out-of sequence installation. 18.3.2 In addition to the consequences outlined in Clause 18.3.1, in the event of a delay or failure described in Clause 18.3.1, (i) the Seller may, after consultation with the Buyer, select, purchase and install equipment similar to the BFE at issue, in which event the Final Contract Price of the affected Aircraft will also be increased by the purchase price of such equipment, plus reasonable costs and expenses incurred by the Seller for handling charges, transportation, insurance, packaging and, if required and not already provided for in the price of the Aircraft, for adjustment and calibration; or (ii) if the BFE is delayed more than thirty (30) days beyond, or unapproved within thirty (30) days of the date pursuant to Clause 18.1.1, then the Seller may deliver or the Buyer may elect to have the Aircraft delivered without the installation of such equipment, notwithstanding the terms of Clause 7.2 insofar as it may otherwise have applied,whereon the Seller will be relieved of all obligations to install such equipment 18.4 Title and Risk of Loss Title to and risk of loss of BFE will at all times remain with the Buyer, except that risk of loss (limited to cost of replacement of said BFE and excluding in particular loss of use) will be with the Seller for as long as the BFE is in the care, custody and control of the Seller. 19- Indemnities and Insurance 19.1 Seller's Indemnities The Seller will be solely liable for and will indemnify and will hold the Buyer, its directors, officers, agents or employees, harmless against all losses, liabilities, costs, expenses and damages, including court costs and reasonable attorneys' fees ("Losses"), arising from (i) claims for injuries to, or deaths of, the Seller's, Manufacturer's or any Associated Contractor's respective directors, officers, agents or employees, or loss or damage to property of the Seller, Manufacturer or any Associated Contractor or their respective employees when such losses occur during or are incidental to (a) the Buyer's exercise of its inspection rights under Clause 7, (b) the Technical Acceptance Process described in Clause 8, (c) the provision of Field Assistance pursuant to Clause 15 or (d) the provision of training pursuant to Clause 16, and (ii) claims for injuries to or deaths of third parties, or loss of property of third parties, occurring during, or incidental to (a) the Buyer's exercise of its inspection rights pursuant to Clause 7 or (b) the Technical Acceptance Process described in Clause 8, provided that such Losses do not result from the gross negligence or willful misconduct of the Buyer, its directors, officers, agents or employees. 19.2 Buyer's Indemnities The Buyer will be solely liable for and will indemnify and will hold the Seller, the Manufacturer, each of the Associated Contractors and their respective subcontractors, Affiliates of the Seller, the Seller's representatives, and the respective assignees, directors, officers, agents, and employees of each of the foregoing, harmless against all Losses arising from (i) claims for injuries to or deaths of the Buyer's directors, officers, agents or employees, or loss or damage to property of the Buyer or its employees, when such losses occur during or are incidental to (a) the Buyer's exercise of its inspection rights under Clause 7; (b) the Technical Acceptance Process described in Clause 8, (c) the provision of Field Assistance pursuant to Clause 15, or (d) the provision of training pursuant to Clause 16; and (ii) claims for injuries to or deaths of third parties, or loss of property of third parties, where such losses occur during or incidental to (a) the provision of Field Services under Clause 15 or (b) arise out of the provision of training pursuant to Clause 16, provided that such Losses do not result from the gross negligence or willful misconduct of the Seller. 19.3 Notice and Defense of Claims (i) If any claim is made or suit is brought against a party or entity entitled to indemnification under this Clause 19 (the "Indemnitee") for damages for which liability has been assumed by the other party under this Clause 19, (the "Indemnitor"), the Indemnitee will promptly give notice to the Indemnitor and the Indemnitor (unless otherwise requested by the Indemnitee) will assume and conduct the defense, or settlement, of such suit, as the Indemnitor will deem prudent. Notice of the claim or suit will be accompanied by all information pertinent to the matter as is reasonably available to the Indemnitee and will be followed by such cooperation by the Indemnitee as the Indemnitor or its counsel may reasonably request at the expense of the Indemnitor. (ii) In the event that the Indemnitor fails or refuses to assume the defense of any claim or lawsuit notified to it under this Clause 19, the Indemnitee will have the right to proceed with the defense or settlement of the claim or lawsuit as it deems prudent and will have a claim over against the Indemnitor for any judgments, settlements, costs or expenses, including reasonable attorneys' fees. Further, in such event, the Indemnitor will be deemed to have waived any objection or defense to the Indemnitee's claim based on the reasonableness of any settlement. 19.4 Insurance (i) Each party will maintain adequate insurance to support its undertakings under this Clause 19, and will bear any deductible amounts set forth in the applicable policies. With respect to Clause 19.1(i) and 19.2(i), the Buyer and the Seller will each provide a certificate of insurance, if requested by the other party, prepared by an insurance broker licensed and skilled in the field of aviation insurance, in English and containing such specifics as the requesting party may reasonably demand. (ii) With respect to the Buyer's undertaking in Clause 19.2(ii), the Buyer will (a) cause the Seller, its Affiliates, the Manufacturer, each of the Associated Contractors and their respective subcontractors, Seller's representatives, and the respective assignees, officers, directors, agents and employees of the foregoing, to be named as additional insureds under the Buyer's liability policies; (b) obtain and cause the carriers of its hull all risks and hull war risk policies to waive all rights of subrogation against the Seller, its Affiliates, the Manufacturer, each of the Associated Contractors, Seller's representatives and the respective assignees, officers, directors, agents and employees of the foregoing; and (c) not less than seven (7) Working Days before the commencement of training to be provided under Clause 16, furnish to the Seller certificates of insurance, in English, from a licensed insurance broker skilled in the field of aviation insurance, certifying that (1) the requirements of the foregoing Clauses 19.4 (ii)(a) and (b) have been met; (2) the limits and insurance periods of each applicable policy; (3) the applicable policies are primary and noncontributory to any other insurance maintained by the Seller; (4) the applicable policies contain a cross-liability provision; and (5) the insurance coverage will not become ineffective, canceled, or materially decreased or changed except on seven(7)Working Days' notice to the Seller. 20 - ASSIGNMENTS AND TRANSFERS ------------------------- 20.1 Successors and Assigns Subject to the provisions of this Clause 20, this Agreement will inure to the benefit of and be binding upon the successors and assigns of the parties hereto. This Agreement may not be assigned in whole or in part by either party without the prior written consent of the other, except as specifically provided herein. 20.2 Assignments and Transfers by the Seller ---------------------------------------- 20.2.1 Seller Designations The Seller may at any time, with notice to the Buyer, designate the Manufacturer, ASCO, any Associated Contractor or any Affiliate of the Seller, or any particular facilities or particular personnel of each, to be responsible for, and/or to provide the goods and services to be provided or performed under this Agreement. No such designation will release the Seller from any of its obligations hereunder. 20.2.2 Seller Assignments The Seller may at any time assign any of its rights to receive money, and any of its duties to effect sale and delivery of the Aircraft, or any of its responsibilities, duties or obligations to perform any other obligations hereunder, to the Manufacturer, any of the Associated Contractors, ASCO or any Affiliate of the Seller, the Manufacturer, the Associated Contractors or ASCO. No such assignment will release the Seller from any of its obligations hereunder. 20.2.3 Transfer of Rights and Obligations upon Reorganization If at any time until the date upon which all the obligations and liabilities of the Seller under this Agreement have been discharged, the legal structure, the membership or the business of the Seller is reorganized or the legal form of the Seller is changed and as a consequence thereof the Seller wishes the Buyer to accept the substitution of the Seller by another entity within the restructured Airbus group (or the Seller in its new legal form) ("Newco") as contemplated below, the Seller will promptly notify the Buyer of its wish. In such event, the Seller may request the Buyer to enter into a novation agreement and/or other agreement having the same effect whereby the Seller's rights and obligations under this Agreement are novated or transferred in favor of Newco. Upon receipt of such request, the Buyer will enter into a novation agreement and/or other appropriate agreement, provided that the Buyer's rights and obligations under this Agreement are not materially adversely affected by such novation and/or other agreement. *. Until any such novation agreement/other appropriate documentation has come into effect, this Agreement will remain in full force and effect, and each party will act diligently and in good faith to implement the novation agreement and/or other appropriate documentation as soon as practicable after Newco has come into existence. 20.3 Assignments by the Buyer 20.3.1 Assignment on Sale, Merger or Consolidation * 20.3.2 Assignment to Affiliate The Buyer may assign its rights and obligations hereunder with respect to one or more Aircraft to any of its Affiliates, provided that (i) such Affiliate has executed an assumption agreement, in form and substance satisfactory to the Seller, agreeing to assume all of the Buyer's obligations under this Agreement, and (ii) the Buyer remains obligated to the Seller under this Agreement as though the assignment had not taken place. 20.3.3 Assignments for Financing Purposes (i) At or following delivery, the Buyer will be entitled to assign its rights and obligations under Clauses 12, 13 and 17 hereof to any provider of financing with respect to one or more Aircraft, to the extent that such Clauses apply to the Aircraft that are being financed, as security for the Buyer's obligations with respect to such financing, provided that such assignment does not, in the Seller's reasonable judgment, adversely affect the Seller's rights hereunder. (ii) The Buyer will be entitled to assign its rights to take title to one or more Aircraft at delivery, and its rights and obligations under Clauses 12, 13, 17 and this Clause 20, to the extent such Clauses apply to the Aircraft being delivered, to a trust or other special purpose entity, in each case in connection with the financing of one or more Aircraft, provided that the assignment does not, in the Seller's reasonable judgment, adversely affect the Seller's rights hereunder. 20.3.4 Post-Delivery Sale or Lease The Seller agrees that, upon the post-delivery sale or lease of an Aircraft (including a sale or lease for financing purposes) all of the Buyer's rights and obligations remaining at the time of such sale or lease under Clauses 12, 13, and 17 of this Agreement and this Clause 20.3.4 with respect to the affected Aircraft will inure to the benefit of the transferee upon delivery to the Seller of notice of such sale or lease and written agreement by the transferee, in form and substance satisfactory to the Seller, to be bound by the terms thereof. 20.3.5 Seller's Cooperation with Financing The Seller agrees to cooperate with the Buyer's financing of the Aircraft by providing written consents, legal opinions and such other documents as the Buyer or its lender may reasonably request. 21 - TERMINATION FOR CERTAIN EVENTS ------------------------------ 21.1 Buyer Termination Events 21.1.1 Each of the following will constitute a "Buyer Termination Event" under this Agreement and immediately upon the occurrence of a Buyer Termination Event, the Buyer will notify the Seller of such occurrence in writing as provided in Clause 22.2 hereof, provided, however, that any failure by the Buyer to notify the Seller will not prejudice the Seller's rights hereunder: (1) The Buyer or any of its Affiliates commences any case, proceeding or other action with respect to the Buyer or any of its Affiliates in any jurisdiction relating to bankruptcy, insolvency, reorganization, relief from creditors, arrangement, winding-up, liquidation, dissolution or other relief with respect to its debts (a "Buyer Insolvency Proceeding") or any other party commences a Buyer Insolvency Proceeding against the Buyer or any of its Affiliates and such Insolvency Proceeding remains unstayed, undismissed or undischarged for * days. (2) An action is commenced seeking the appointment of a receiver, trustee, custodian or other similar official for the Buyer or any of its Affiliates for all or substantially all of its assets, and such action remains unstayed, undismissed or undischarged for * days, or the Buyer or any of its Affiliates makes a general assignment for the benefit of its creditors. (3) An action is commenced against the Buyer or any of its Affiliates seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets, and such action remains unstayed, undismissed or undischarged for * days. (4) The Buyer or any of its Affiliates becomes insolvent or fails generally to pay its debts as they become due. (5) The Board of Directors (or other governing corporate body) of the Buyer directs or authorizes the Buyer's management to commence negotiations with one or more of its significant creditors with a view to general readjustment or rescheduling of all or any material part of its indebtedness which it would otherwise not be able to pay as it falls due. (6) The Buyer or any permitted assignee or transferee of the Buyer fails to make any payment of a deposit, Predelivery Payment, Final Contract Price or amount due for Initial Provisioning when such payment comes due. (7) The Buyer or any of its Affiliates fails to make any other payment when due under this Agreement or under any other agreement between the Buyer or any of its Affiliates and the Seller or any of its Affiliates within * of receiving notice from Seller that such payment is due. (8) The Buyer defaults in its obligations under Clause 9.2 of this Agreement to take delivery of an Aircraft which is Ready for Delivery and has been duly tendered to the Buyer, which failure will be deemed to be a rejection of the Aircraft without warrant. (9) The Buyer defaults in the observance or performance of any material covenant, undertaking or obligation contained in this Agreement or any other material agreement between the Buyer and the Seller and, if such breach or default is capable of being cured, such breach or default is not cured within any specified cure period, or if no cure period is specified, within * of receiving notice of such breach or default. 21.1.2 In the event of any Buyer Termination Event the Seller will have the right to elect one or more of the remedies in this Clause 21.1.2. The Seller's remedies will specifically include, without limitation, the right by written notice to the Buyer, effective immediately, to (i) suspend its performance under this Agreement and under any other agreements between the Buyer and the Seller; (ii) terminate this Agreement or any other agreement between the Buyer and the Seller with respect to any or all Aircraft or aircraft, equipment, services, data and other items undelivered or unfurnished on the effective date of such termination; (iii) reschedule the Delivery Date of any and all Aircraft remaining to be delivered under this Agreement as of the date of the occurrence of the Buyer Termination Event; (iv) reschedule delivery of any and all aircraft remaining to be delivered under any other agreement between the Buyer and the Seller as of the date of the occurrence of the Buyer Termination Event; and (v) in the event of termination of this Agreement, retain, as damages for breach and not as a penalty, an amount equal to (a) all Predelivery Payments previously received by the Seller from the Buyer under this Agreement in respect of the Aircraft terminated, (b) any other advance payments to the Seller made theretofore under this Agreement or any other agreement between the Buyer or any of its Affiliates and the Seller or any of its Affiliates in respect of the Aircraft terminated, and (c) any other amounts agreed to between the Buyer and the Seller pursuant to this Agreement in respect of the Aircraft terminated. The Seller will have the right to elect one or more of the foregoing remedies, and exercise of any one or more of such remedies will not be deemed a waiver of any other remedy or remedies provided herein or under applicable law. 21.2 Seller Termination Events *. 21.3 Insecurity Events 21.3.1 Each of the following will constitute an "Insecurity Event" and any remedies therefor provided in this Clause 21.3 will be without prejudice to and will be in addition to, and not as a substitute for any rights the Seller may have, at law or as set forth in Clause 21.1 hereof, to terminate this Agreement: (1) With respect to any credit or lease financing facility or similar agreement, including but not limited to any agreement signed subsequent to the date hereof, for the lease or use of aircraft, either (i) the commitment to lend, finance or lease, as the case may be, is terminated (other than by the Buyer or for reasons unrelated to the financial condition or performance of the Buyer) or (ii) a financial covenant thereunder is breached and such breach is not waived or cured within *. (2) The Buyer or any of its Affiliates fails to make any payments as they become due to or for the benefit of the Propulsion Systems manufacturer or an A320 family operating lessor, under their respective agreements, provided that the applicable cure period, if any, has expired. (3) The Buyer is involuntarily removed from active membership and participation in any airline clearinghouse (or any substitute or replacement arrangement), or the Buyer is placed on a cash basis by such clearinghouse (or such substitute or replacement arrangement), in either case as a result of the Buyer's failure to meet financial tests mandated by such clearinghouse or to make payments to or for the benefit of such clearinghouse when due. (4) The Buyer defaults in (i) the payment of principal or interest under one or more agreements for borrowed money and/or (ii) the payment of rent or indemnities under one or more lease agreements that, in the aggregate, have a principal amount of $* (US dollars-- *) or more (determined in the case of borrowed money by the amount outstanding and, in the case of a lease, by the present value of the remaining rent payable thereunder discounted at * when the same becomes due, if such nonpayment either allows or results in the acceleration of such indebtedness. (5) At the end of each calendar month, the Buyer fails to have a minimum of $* (US dollars-- *) of liquidity resources represented by the aggregate of the following: (a) any unencumbered cash balances, (b) any trade receivables created by the Buyer in the ordinary course of business that have been outstanding for fewer than * days and that are current, due and payable within * days and against which no provisions have been made by the Buyer and (c) any unused lines of credit available to the Buyer from reputable financial institutions on which, under the terms of the applicable credit agreement, the Buyer is then eligible to draw. 21.3.2 Within * of the occurrence of an Insecurity Event, the Buyer will notify the Seller of such occurrence in writing and by courier or facsimile (in either case in accordance with the notice provisions of this Agreement), provided however, that any failure by the Buyer to notify the Seller will not prejudice the Seller's rights hereunder. 21.3.3 Upon receipt of notice from the Buyer under Clause 21.3.2, or on becoming aware by any other means of the occurrence of an Insecurity Event, the Seller will be entitled to request assurance from the Buyer of the Buyer's ability to duly perform each of the Buyer's obligations under this Agreement and any other agreement between the Buyer and the Seller (or any of their respective Affiliates) ("Assurance"). Such Assurance will be evidenced in writing and will consist of either (i) evidence that the event or circumstance giving rise to the Insecurity Event has been cured or eliminated or (ii) assurance substantially identical to that constituting "adequate assurance of due performance" within the meaning of Article 2-609 of the Uniform Commercial Code as in effect in the state of New York on the date of this Agreement. 21.3.4 In the event that the Buyer does not provide Assurance to the Seller within * of the request therefor by the Seller, the Seller will have the right, at its option, to exercise any one or more of the remedies in this Clause 21.3.4. The Seller's remedies will specifically include, without limitation, the right by written notice to the Buyer, effective immediately, to (i) suspend its performance under this Agreement and under any other agreements between the Buyer and the Seller; (ii) terminate this Agreement or any other agreement between the Buyer and the Seller with respect to any or all Aircraft or aircraft, equipment, services, data and other items undelivered or unfurnished on the effective date of such termination; (iii) reschedule the Delivery Date of any and all Aircraft remaining to be delivered under this Agreement as of the date of the occurrence of the Insecurity Event; (iv) reschedule delivery of any and all aircraft remaining to be delivered under any other agreement between the Buyer and the Seller as of the date of the occurrence of the Insecurity Event; and (v) in the event of termination of this Agreement retain, as damages for breach and not as a penalty, an amount equal to (a) all Predelivery Payments previously received by the Seller from the Buyer under this Agreement in respect of the Aircraft terminated, (b) any other advance payments to the Seller made theretofore under this Agreement or any other agreement between the Buyer or any of its Affiliates and the Seller of any of its Affiliates in respect of the Aircraft terminated, and (c) any other amounts agreed to between the Buyer and the Seller pursuant to this Agreement in respect of the Aircraft terminated. The Seller will have the right to elect one or more of the foregoing remedies, and exercise of any one or more of such remedies will not be deemed a waiver of any other remedy or remedies provided herein or under applicable law. 21.4 Information Covenants The Buyer hereby covenants and agrees that, from the date of this Agreement until no further Aircraft are to be delivered hereunder, the Buyer will furnish or cause to be furnished to the Seller the following: (a) Annual Financial Statements. As soon as available and in any event within 120 days after the close of each fiscal year of the Buyer, (i) a copy of the SEC Form 10-K filed by the Buyer with the Securities and Exchange Commission or any successor thereto (the "SEC") for such fiscal year, or, if no such Form 10-K was filed by the Buyer for such a fiscal year, the consolidated balance sheet of the Buyer and its Subsidiaries, as at the end of such fiscal year and the related consolidated statements of operations, of common stockholders' equity (deficit) and of cash flows for such fiscal year, setting forth comparative consolidated figures as of the end of and for the preceding fiscal year, and examined by (x) any "Big Five" accounting firm or (y) any other firm of independent public accountants of recognized standing selected by the Buyer and reasonably acceptable to the Seller, whose opinion will not be qualified as to the scope of audit or as to the status of the Buyer as a going concern, and (ii) a certificate of such accounting firm stating that its audit of the business of the Buyer was conducted in accordance with generally accepted auditing standards. (b) Quarterly Financial Statements. As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Buyer, a copy of the SEC Form 10-Q filed by the Buyer with the SEC for such quarterly period, or, if no such Form 10-Q was filed by the Buyer with respect to any such quarterly period, the consolidated balance sheet of the Buyer and its Subsidiaries, as at the end of such quarterly period and the related consolidated statements of operations for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period and in each case setting forth comparative consolidated figures as of the end of and for the related periods in the prior fiscal year, all of which will be certified by an Authorized Officer of the Buyer, subject to changes resulting from audit and normal year-end audit adjustments. (c) Other Information. Promptly upon transmission thereof, copies of any filings and registrations with, and reports to, the SEC by the Buyer or any of its Subsidiaries, and, with reasonable promptness, such other information or documents (financial or otherwise) as the Seller may reasonably request from time to time. For the purposes of this Subclause 21.4, (x) an "Authorized Officer" of the Buyer will mean the Chief Executive Officer, the Chief Financial Officer or any Vice President and above who reports directly or indirectly to the Chief Financial Officer and (y) "Subsidiaries" will mean, as of any date of determination, those companies owned by the Buyer whose financial results the Buyer is required to include in its statements of consolidated operations and consolidated balance sheets. 21.5 Nothing contained in this Clause 21 will be deemed to waive or limit the rights and remedies available to the parties under the Uniform Commercial Code as in effect in the State of New York as of the effective date of this Agreement (the "UCC"), including, but not limited to, those rights and remedies described in Article 2, Section 609 of the UCC. 21.6 NOTWITHSTANDING ANY PROVISIONS OF THIS CLAUSE 21, OR OF ANY OTHER PROVISION OF THIS AGREEMENT, INCLUDING CLAUSE 11.5, NEITHER THE BUYER NOR THE SELLER WILL BE LIABLE FOR INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE RIGHTS AND OBLIGATIONS ARISING HEREUNDER. 22 - MISCELLANEOUS PROVISIONS ------------------------ 22.1 Data Retrieval On the Seller's reasonable request, the Buyer will provide the Seller with all the necessary data, as customarily compiled by the Buyer and pertaining to the operation of the Aircraft, to assist the Seller in making an efficient and coordinated survey of all reliability, maintenance, operational and cost data with a view to improving the safety, availability and operational costs of the Aircraft. 22.2 Notices All notices and requests required or authorized hereunder will be given in writing either by personal delivery to a responsible officer of the party to whom the same is given or by commercial courier, certified air mail (return receipt requested) or facsimile at the addresses and numbers set forth below. The date on which any such notice or request is so personally delivered, or if such notice or request is given by commercial courier, certified air mail or facsimile, the date on which sent, will be deemed to be the effective date of such notice or request. The Seller will be addressed at: 2, rond-point Maurice Bellonte 31700 BLAGNAC FRANCE Attention: Director - Contracts Telephone: 33 05 61 30 40 12 Telecopy: 33 05 61 30 40 11 The Buyer will be addressed at: 12015 East 46th Avenue, Suite 200 Denver, CO 80239-3116 Attention: Vice President Administration and General Counsel Telephone: 303-371-7400, Ext. 1004 Fax: 303-371-9669 From time to time, the party receiving the notice or request may designate another address or another person. 22.3 Waiver The failure of either party to enforce at any time any of the provisions of this Agreement, to exercise any right herein provided or to require at any time performance by the other party of any of the provisions hereof will in no way be construed to be a present or future waiver of such provisions nor in any way to affect the validity of this Agreement or any part hereof or the right of the other party thereafter to enforce each and every such provision. The express waiver by either party of any provision, condition or requirement of this Agreement will not constitute a waiver of any future obligation to comply with such provision, condition or requirement. 22.4 INTERPRETATION AND LAW THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND THE PERFORMANCE THEREOF WILL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. Each of the Seller and the Buyer (i) hereby irrevocably submits itself to the nonexclusive jurisdiction of the courts of the state of New York, New York County, of the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement, the subject matter hereof or any of the transactions contemplated hereby brought by any party or parties hereto, and (ii) hereby waives, and agrees not to assert, by way of motion, as a defense or otherwise, in any such suit, action or proceeding, to the extent permitted by applicable law, any defense based on sovereign or other immunity or that the suit , action or proceeding which is referred to in clause (i) above is brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper, or that this Agreement or the subject matter hereof or any of the transactions contemplated hereby may not be enforced in or by these courts. The Seller hereby designates and appoints CT Corporation, New York City offices, to receive for and on its behalf service of process in any proceeding with respect to any matter as to which it submits to jurisdiction as set forth above, it being agreed that service on CT Corporation will constitute valid service on the Seller. The Buyer hereby generally consents to service of process by registered mail, return receipt requested, at its address for notice under this Agreement. THE PARTIES HEREBY ALSO AGREE THAT THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS WILL NOT APPLY TO THIS TRANSACTION. 22.5 Confidentiality and Disclosure 22.5.1 Subject to any legal or governmental requirements of disclosure, the parties (which for this purpose will include their employees and agents) will maintain the terms and conditions of this Agreement and any reports or other data, including Technical Data and Documentation (the "Confidential Material"), furnished hereunder strictly confidential. 22.5.2 Without limiting the generality of the foregoing, the Buyer * limit the disclosure of the Confidential Material to the extent legally permissible in any filing required to be made by the Buyer with any governmental agency and will make such applications as will be reasonably necessary to implement the foregoing. With respect to any public disclosure or filing, the Buyer agrees to submit to the Seller a copy of the document proposed to be filed or disclosed. The Buyer will give the Seller a reasonable period of time in which to review the said document, and will consult with the Seller before the making of any such public disclosure or filing. 22.5.3 The Buyer may disclose the Technical Data and Documentation to parties providing maintenance of the Aircraft, provided that the Buyer causes any such maintenance provider to execute a confidentiality agreement containing, at a minimum, terms substantially the same in scope and effect as the terms in Exhibit I hereto. 22.5.4 Notwithstanding any other provision of this Clause 22.5, the Buyer will be permitted to disclose the Confidential Material without the Seller's consent (i) to its professional advisors, (ii) * (iii) * (iv) where necessary, and o nly to the extent necessary, for the Buyer to prosecute, or defend itself in, a legal action to which the Buyer may become a party, and (v) to the extent that such Confidential Information: (a) becomes generally available to the public other than as a result of a violation of this Agreement; (b) was available to the Buyer on a non-confidential basis prior to its disclosure hereunder; (c) becomes available on a non-confidential basis from a third party source under circumstances reasonably believed by the Buyer not to violate this or any other confidentiality agreement. 22.5.5 The provisions of this Clause 22.5 will survive any termination of this Agreement. 22.6 Severability In the event that any provision of this Agreement should for any reason be held to be without effect, the remainder of this Agreement will remain in full force and effect. To the extent permitted by applicable law, each party hereto hereby waives any provision of law which renders any provision of this Agreement prohibited or unenforceable in any respect. 22.7 Alterations to Contract This Agreement, including its Exhibits and Appendixes, contains the entire agreement between the parties with respect to the subject matter hereof and thereof and supersedes any previous understanding, commitments or representations whatsoever, whether oral or written. This Agreement will not be varied except by an instrument in writing of even date herewith or subsequent hereto executed by both parties or by their fully authorized representatives. 22.8 Inconsistencies In the event of any inconsistency between the terms of this Agreement and the terms contained in either (i) the Specification annexed in Exhibit A-1 or Exhibit A-2 hereto, or (ii) any other Exhibit hereto, in each such case the terms of this Agreement will prevail over the terms of the Specification or any other Exhibit hereto. For the purpose of this Clause 22.8, the term Agreement will not include the Specification or any other Exhibit hereto. 22.9 Language All correspondence, documents and any other written matters in connection with this Agreement will be in English. 22.10 Headings All headings in this Agreement are for convenience of reference only and do not constitute a part of this Agreement. 22.11 Counterparts This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered will be an original, but all such counterparts will together constitute but one and the same instrument. 23. CERTAIN REPRESENTATIONS OF THE PARTIES 23.1. Buyer's Representations The Buyer represents and warrants to the Seller: (i) the Buyer is a corporation organized and existing in good standing under the laws of the State of Colorado and has the corporate power and authority to enter into and perform its obligations under this Agreement; (ii) neither the execution and delivery by the Buyer of this Agreement, nor the consummation of any of the transactions by the Buyer contemplated thereby, nor the performance by the Buyer of the obligations hereunder, constitutes a breach of any agreement to which the Buyer is a party or by which its assets are bound; (iii) this Agreement has been duly authorized, executed and delivered by the Buyer and constitutes the legal, valid and binding obligation of the Buyer enforceable against the Buyer in accordance with its terms. 23.2 Seller's Representations The Seller represents and warrants to the Buyer: (i) the Seller is a societe a responsabilite limitee organized and existing in good standing under the laws of the Republic of France and has the corporate power and authority to enter into and perform its obligations under the Agreement; (ii) neither the execution and delivery by the Seller of this Agreement, nor the consummation of any of the transactions by the Seller contemplated thereby, nor the performance by the Seller of the obligations hereunder, constitutes a breach of any agreement to which the Seller is a party or by which its assets are bound; (iii) this Agreement has been duly authorized, executed and delivered by the Seller and constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms. IN WITNESS WHEREOF, these presents were entered into as of the day and year first above written. AVSA, S.A.R.L. By: ________________________ Title: FRONTIER AIRLINES, INC. By: __________________________ Title: EXHIBIT A-1 The A318 Standard Specification is contained in a separate folder. APPENDIX 1 TO EXHIBIT A-1 SCNs for the A318 Aircraft. Reference Subject Price US$ 1/99 CN25.11.208 Second Observer $* CN31.14.103 Overhead Panel toggle switch re-orientation $* CN32.40.103 Brake Cooling Fans $* CN34.41.200 Weather radar with predictive windshear $* (forward looking) CN35.11.201 Crew Oxygen Cylinder115 cubic feet $* GN25.33.051 Install G5 full-width galley $* GN25.43.450 Delete Lavatory LF $* GN25.43.200 Install Lavatory LD $* GN25.43.220 Install Lavatory LE $* $* EXHIBIT A-2 The A319 Standard Specification is contained in a separate folder. APPENDIX 1 TO EXHIBIT A-2 SCNs for the A319 Aircraft. Reference Subject Price US$ 1/99 CN25.11.208 Second Observer $* CN31.14.103 Overhead Panel toggle switch re-orientation $* CN32.40.103 Brake Cooling Fans $* CN34.41.200 Weather radar with predictive windshear $* (forward looking) CN35.11.201 Crew Oxygen Cylinder115 cubic feet $* GN25.33.051 Install G5 full-width galley $* GN25.43.450 Delete Lavatory LF $* GN25.43.220 Install Lavatory LE $* $* EXHIBIT B AVSA SCN No. SPECIFICATION CHANGE NOTICE Issue (SCN) Dated Page No. TITLE DESCRIPTION EFFECT ON WEIGHT - ---------------- Manufacturer's Weight Empty Change: Operational Weight Empty Change: Allowable Payload Change: REMARKS/REFERENCES Response to RFC SPECIFICATION CHANGED BY THIS SCN THIS SCN REQUIRES PRIOR OR CONCURRENT ACCEPTANCE OF THE FOLLOWING SCN(s) - ------------------------------------------------------------------------ PRICE PER AIRCRAFT US DOLLARS: AT DELIVERY CONDITIONS: This change will be effective on Aircraft No. and subsequent provided approval is received by . BUYER APPROVAL SELLER APPROVAL - -------------- --------------- By: By: Title: (Authorized Finance Department Officer) Date: By: Title: (Authorized maintenance or flight operations officer) Date: AVSA SCN No. SPECIFICATION CHANGE NOTICE Issue (SCN) Dated Page No. SCOPE OF CHANGE (FOR INFORMATION ONLY) EXHIBIT C SELLER SERVICE LIFE POLICY 1. The Items of primary and auxiliary structure described hereunder are covered by the Service Life Policy described in Subclause 12.2 of the Agreement. 2. WINGS - CENTER AND OUTER WING BOX --------------------------------- 2.1 Spars 2.2 Ribs Inside the Wing Box 2.3 Upper and Lower Panels of the Wing Box -------------------------------------- 2.4 Fittings 2.4.1 Attachment fittings for the flap structure 2.4.2 Attachment fittings for the engine pylons 2.4.3 Attachment fittings for the main landing gear 2.4.4 Attachment fittings for the center wing box 2.5 Auxiliary Support Structure 2.5.1 For the slats: ------------- 2.5.1.1 Ribs supporting the track rollers on wing box structure 2.5.1.2 Ribs supporting the actuators on wing box structure 2.5.2 For the ailerons: ---------------- 2.5.2.1 Hinge brackets and ribs on wing box rear spar or shroud box 2.5.2.2 Actuator fittings on wing box rear spar or shroud box 2.5.3 For airbrakes, spoilers, lift dumpers: ------------------------------------- 2.5.3.1 Hinge brackets and ribs on wing box rear spar or shroud box 2.5.3.2 Actuator fittings on wing box rear spar or shroud box 3. FUSELAGE 3.1 Fuselage Structure 3.1.1 Fore and aft bulkheads 3.1.2 Pressurized floors and bulkheads surrounding the main and nose gear wheel well and center wing box 3.1.3 Skins with doublers, stringers and frames from the forward pressure bulkheads to the frame supporting the rear attachment of horizontal stabilizer 3.1.4 Window and windscreen attachment structure but excluding transparencies 3.1.5 Passenger and cargo doors internal structure 3.1.6 Sills excluding scuff plates and upper beams surrounding passenger and cargo door apertures 3.1.7 Cockpit floor structure and passenger cabin floor beams excluding floor panels and seat rails 3.1.8 Keel beam structure 3.2 Fittings 3.2.1 Landing gear attachment fittings 3.2.2 Support structure and attachment fittings for the vertical and horizontal stabilizers 4. STABILIZERS 4.1 Horizontal Stabilizer Main Structural Box 4.1.1 Spars 4.1.2 Ribs 4.1.3 Upper and lower skins and stringers 4.1.4 Attachment fittings to fuselage and trim screw actuator 4.1.5 Elevator support structure 4.1.5.1 Hinge bracket 4.1.5.2 Servocontrol attachment brackets 4.2 Vertical Stabilizer Main Structural Box 4.2.1 Spars 4.2.2 Ribs 4.2.3 Skins and stringers 4.2.4 Attachment fittings to fuselage 4.2.5 Rudder support structure 4.2.5.1 Hinge brackets 4.2.5.2 Servocontrol attachment brackets 5. Bearing and roller assemblies, bearing surfaces, bushings, bolts, rivets, access and inspection doors, including manhole doors, latching mechanisms, all system components, commercial interior parts, insulation and related installation and connecting devices are excluded from this Seller Service Life Policy. EXHIBIT D CERTIFICATE OF ACCEPTANCE for A318 Aircraft In accordance with the terms of that certain A318/A319 Purchase Agreement dated as of March 10, 2000, between Frontier Airlines, Inc., ("FRONTIER") and AVSA, S.A.R.L. ("AVSA") (the "Purchase Agreement"), the Technical Acceptance Process relating to the Airbus A318 aircraft, Manufacturer's Serial Number: _____, U.S. Registration Number: ______ with two (2) Pratt & Whitney PW 6124 series propulsion systems installed thereon, serial nos. ______ (position #1) and _______ (position #2) (the "A318 Aircraft"), has taken place at _______________ on the ____ day of _____________, ____. In view of said Technical Acceptance Process having been carried out with satisfactory results, FRONTIER hereby approves the A318 Aircraft as being in conformity with the provisions of the Purchase Agreement. Said acceptance does not affect the rights of FRONTIER under the warranties relating to the A318 Aircraft set forth in the Purchase Agreement. FRONTIER specifically recognizes that it has waived any right it may have at law or otherwise to revoke this acceptance of the A318 Aircraft. RECEIPT AND ACCEPTANCE OF THE ABOVE-DESCRIBED A318 AIRCRAFT ACKNOWLEDGED FRONTIER AIRLINES, INC. By: __________________________ Its: __________________________ CERTIFICATE OF ACCEPTANCE for A319 Aircraft In accordance with the terms of that certain A318/A319 Purchase Agreement dated as of March 10, 2000, between Frontier Airlines, Inc., ("FRONTIER") and AVSA, S.A.R.L. ("AVSA") (the "Purchase Agreement"), the Technical Acceptance Process relating to the Airbus A319 aircraft, Manufacturer's Serial Number: _____, U.S. Registration Number: ______ with two (2) CFM International 56-5B5\P series propulsion systems installed thereon, serial nos. ______ (position #1) and _______ (position #2) (the "A319 Aircraft"), has taken place at _______________ on the ____ day of _____________, ____. In view of said Technical Acceptance Process having been carried out with satisfactory results, FRONTIER hereby approves the A319 Aircraft as being in conformity with the provisions of the Purchase Agreement. Said acceptance does not affect the rights of FRONTIER under the warranties relating to the A319 Aircraft set forth in the Purchase Agreement. FRONTIER specifically recognizes that it has waived any right it may have at law or otherwise to revoke this acceptance of the A319 Aircraft. ECEIPT AND ACCEPTANCE OF THE ABOVE-DESCRIBED A319 AIRCRAFT ACKNOWLEDGED FRONTIER AIRLINES, INC. By: __________________________ Its: __________________________ EXHIBIT E BILL OF SALE for A318 Aircraft Know all persons by these presents that AVSA, S.A.R.L. ("AVSA"), a societe a responsabilite limitee organized and existing under the laws of the Republic of France,whose address is 2 rond-point Maurice Bellonte, 31700 Blagnac, FRANCE, is the owner of the title to the following airframe (the "Airframe"), the attached engines as specified (the "Engines") and all appliances, components, parts, instruments, accessories, furnishings, modules and other equipment of any nature, excluding Buyer Furnished Equipment, incorporated therein, installed thereon or attached thereto on the date hereof (the "Parts"): MANUFACTURER OF AIRFRAME: MANUFACTURER OF ENGINES: - ------------------------ ----------------------- AIRBUS INDUSTRIE G.I.E. PRATT & WHITNEY MODEL: A318-100 MODEL: PW 6124 - ----- ----- MANUFACTURER'S SERIAL NUMBERS: - -------------- -------------- SERIAL NUMBER: [ ] LH : [ ] - ------------- RH : [ ] REGISTRATION NO: [ ] - --------------- The Airframe, Engines and Parts are hereafter together referred to as the aircraft (the "Aircraft"). AVSA does this ___ day of _______________ sell, transfer and deliver all of its above described rights, title and interest to the Aircraft to the following company and its successors and assigns forever, said Aircraft to be the property thereof: ----------------------------------- (the "Buyer") AVSA hereby warrants to the Buyer, its successors and assigns that AVSA has on the date hereof good and lawful right to sell, deliver and transfer title to the Aircraft to the Buyer and that there is hereby conveyed to the Buyer on the date hereof good, legal and valid title to the Aircraft, free and clear of all liens, claims, charges, encumbrances and rights of others and that the Seller will warrant and defend such title forever against all claims and demands whatsoever. THIS BILL OF SALE WILL BE GOVERNED BY AND CONSTRUED AND THE PERFORMANCE THEREOF WILL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly authorized representative this ______ day of [ ] AVSA, S.A.R.L. By: Title: Signature: BILL OF SALE for A319 Aircraft Know all persons by these presents that AVSA, S.A.R.L. ("AVSA"), a societe a responsabilite limitee organized and existing under the laws of the Republic of France,whose address is 2 rond-point Maurice Bellonte, 31700 Blagnac, FRANCE, is the owner of the title to the following airframe (the "Airframe"), the attached engines as specified (the "Engines") and all appliances, components, parts, instruments, accessories, furnishings, modules and other equipment of any nature, excluding Buyer Furnished Equipment, incorporated therein, installed thereon or attached thereto on the date hereof (the "Parts"): MANUFACTURER OF AIRFRAME: MANUFACTURER OF ENGINES: - ------------------------ ----------------------- AIRBUS INDUSTRIE G.I.E. CFM INTERNATIONAL MODEL: A319-100 MODEL: CFM 56-5B5\P - ----- ----- MANUFACTURER'S SERIAL NUMBERS: - -------------- -------------- SERIAL NUMBER: [ ] LH : [ ] - ------------- RH : [ ] REGISTRATION NO: [ ] - --------------- The Airframe, Engines and Parts are hereafter together referred to as the aircraft (the "Aircraft"). AVSA does this ___ day of _______________ sell, transfer and deliver all of its above described rights, title and interest to the Aircraft to the following company and its successors and assigns forever, said Aircraft to be the property thereof: ----------------------------------- (the "Buyer") AVSA hereby warrants to the Buyer, its successors and assigns that AVSA has on the date hereof good and lawful right to sell, deliver and transfer title to the Aircraft to the Buyer and that there is hereby conveyed to the Buyer on the date hereof good, legal and valid title to the Aircraft, free and clear of all liens, claims, charges, encumbrances and rights of others and that the Seller will warrant and defend such title forever against all claims and demands whatsoever. THIS BILL OF SALE WILL BE GOVERNED BY AND CONSTRUED AND THE PERFORMANCE THEREOF WILL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly authorized representative this ______ day of [ ] AVSA, S.A.R.L. By: Title: Signature: EXHIBIT F TECHNICAL DATA AND DOCUMENTATION GENERAL This Exhibit F lists the form, type, quantity and delivery dates for the Technical Data and Documentation to be provided to the Buyer pursuant to Clause 14 of the Agreement. The Technical Data and Documentation are published in accordance with ATA Specification 100 revision 23, with the exception of certain Component Maintenance Manuals, which may be written to an ATA Specification 100 revision other than revision 23. The designation "C" after the title of a Technical Publication indicates that such Technical Publication may be customized. EXHIBIT F 1. ENGINEERING DOCUMENTS 1.1 Installation and Assembly Drawings (IAD)--C The IAD will be delivered according to the Buyer's standard for the major Assembly and Installation drawings, including detail drawings. 1.2 Drawing Number Index (DNI)--C The DNI lists applicable drawings of the Aircraft delivered under the Agreement. 1.3 Process and Material Specification (PMS) The PMS contains data related to manufacturing processes, material identification and treatments used in the construction and assembly of the Aircraft. 1.4 Standards Manual (SM) The SM contains data about Seller approved standards and includes cross reference lists. The SM will include US standards/equivalents for all hardware clamps, O-rings, bearings, fasteners, sealants, adhesive and compounds, raw materials, processes and procedures. 2. MAINTENANCE AND ASSOCIATED MANUALS 2.1 APU Build-up Manual (ABM) The ABM follows the format adopted for the Power Plant Build-up Manual. 2.2 Aircraft Maintenance Manual (AMM)--C The component location section of the AMM will show those components detailed in the AMM maintenance procedures. The troubleshooting part is covered in Subparagraph 2.21 below. *Aircraft Maintenance Manual Chapter 05 Time Limits (Service Life Limits) and Maintenance Checks are only delivered in hard copies. EXHIBIT F 2.3 Aircraft Schematics Manual (ASM)--C The ASM is part of the Wiring Manual. Supplied as a separate manual for schematics. 2.4 Aircraft Wiring Manual (AWM)--C The AWM is part of the Wiring Manual. Supplied as a separate manual for wirings. 2.5 Aircraft Wiring Lists (AWL)--C The AWL is part of the Wiring Manual. Supplied as a separate document for lists. The AWL includes wire terminations, connector, terminal, strip locations, wire routings, and clamping diagrams. 2.6 Consumable Material List (CML) The CML details the characteristics and gives procurement sources of consumable materials such as grease, oil, etc. 2.7 Duct Repair Manual (DRM) The DRM contains all the data necessary to locate, identify, repair and/or replace sub-assemblies of metallic ducts. It also includes details of tests necessary after repair. 2.8 Fuel Pipe Repair Manual (FPRM) The FPRM provides workshop repair procedures and data for specific fuel pipes, after removal from any aircraft of the Manufacturer of the type of the Aircraft. 2.9 Illustrated Parts Catalog (IPC)--C The IPC identifies and illustrates all line replaceable parts and units of the aircraft, excluding the power plant parts. 2.10 Illustrated Parts Catalog (power plant) (PPIPC)--C The PPIPC covers line replaceable parts and units of the power plant, provided by the Propulsion Systems manufacturer. 2.11 Illustrated Tool and Equipment Manual (TEM) The TEM provides information on Ground Equipment and Tools listed in the Seller's Aircraft Maintenance Manual. 2.12 Maintenance Facility Planning (MFP) The MFP provides information that will assist airline personnel concerned with long term planning of ramp or terminal operations, Aircraft maintenance on the ramp and in the hangar, overhaul and testing of structure and system components. 2.13 Maintenance Planning Document (MPD) The MPD provides maintenance data necessary to plan and conduct Aircraft maintenance checks and inspections. 2.14 Power Plant Build-up Manual (PPBM) The PPBM provides instructions for the installation of a quick engine change kit on a bare engine. 2.15 Support Equipment Summary (SES) The SES lists support equipment recommended by the Seller, the Propulsion Systems manufacturer and Vendors. 2.16 Time Limits and Maintenance Checks/Service Limits and Maintenance Checks (TLMC\SLMC) The TLMC\SLMC document provides the Manufacturer's recommended scheduled time limits for inspections and maintenance checks. 2.17 Tool\Equipment Drawings (TED) TEDs will be supplied in the form of aperture cards for the Seller and, when available, Vendor maintenance tools. 2.18 Tool and Equipment Drawing Index (TEI) The TEI is an alpha-numeric listing of the TED's. 2.19 Tool and Equipment Bulletin (TEB) The TEB provides advance information related to tools and test equipment development. 2.20 Trouble Shooting Manual (TSM)--C The TSM complements the CFDS and provides trouble-shooting data in the following three levels: Level 1 - Aimed at line use. Fault isolation guidance for systems or parts of systems monitored mainly by CFDS. Also guidance for systems not monitored by CFDS. Level 2 - Aimed at hangar use. Fault isolation guidance for non-CFDS monitored systems in the form of functional block diagrams, charts and tables. Level 3 - Aimed at engineering use. List of CFDS messages and decoding of troubleshooting data (decoding of coded messages provided by the CFDS). Level 3 is supplied on floppy disk. 3. MISCELLANEOUS DOCUMENTATION 3.1 Airplane Characteristics for Airport Planning (AC) The AC will be in general accordance with Specification NAS 3601. 3.2 Aircraft Recovery Manual (ARM) The ARM provides the following planning information: preparing and moving a disabled aircraft that may be obstructing airport traffic. 3.3 Cargo Loading System Manual (CLS) The CLS details handling procedures for the Cargo Loading System. 3.4 Crash Crew Chart (CCC) The CCC provides information concerning access to the Aircraft interior, location of safety equipment, hazardous liquids, etc. 3.5 Guidelines for Customer Originated Changes (GCOC) The GCOC provides production and presentation rules for the data covering Buyer originated changes on the Aircraft to be incorporated by the Seller in the Technical Data and Documentation as per Subclause 14.11 of the Agreement. 3.6 List of Radioactive and Hazardous Elements (LRE) The LRE provides information on components and materials for which specific precautions have to be taken. 3.7 List of Applicable Publications (LAP)--C The LAP will record the Seller's various Airframe Technical Data and Documentation indicating the last valid revision number and issue date. 3.8 Livestock Transportation Manual (LTM) The LTM details the facilities, equipment and procedures necessary for live animal transportation in aircraft of the Manufacturer of the type of the Aircraft. 3.9 Service Bulletins (SB)--C The Buyer will receive all Service Bulletins applicable to the Aircraft. 3.10 Service Bulletin Index (SBI) The SBI is a listing of all Service Bulletins issued in ATA 100 chapter sequence. The SBI provides details of SB number, SB title, associated modification number, issue status, Vendor SB number (if applicable) and affected fleet. 3.11 Service Information Letters (SIL) SILs give information of a general nature and also about minor changes or inspections the Buyer may wish to apply under the Buyer's authority. 3.12 Transportability Manual (TM) The TM gives cargo hold dimensions for currently available cargo Aircraft, transportation information and requirements for large Aircraft components. Component dimensions, weights and shelf life limitations are also given. 3.13 Supplier Product Support Agreements (SPSA) The SPSA is a collection of product support conditions negotiated by the Manufacturer with the suppliers of Aircraft equipment. 3.14 Vendor Information Manual (VIM) The VIM provides Vendor contact information. 3.15 Vendor Information Manual (GSE) (VIM/GSE) The VIM/GSE gives contact names and addresses of Ground Support Equipment (GSE) vendors and their product support organizations. 4. OPERATIONAL MANUALS 4.1 Abnormal\Emergency Check List\Quick Reference Handbook (CL\QRH)--C The CL is an extract from the FCOM presented as a booklet for quick in-flight use. 4.2 FAA Approved Flight Manual (FM)--C The AFM provides Aircraft performance operating limitations and other flight data required by the relevant Airworthiness Authorities for certification. It includes the Configuration Deviation List (CDL). 4.3 Flight Crew Operating Manual (FCOM)--C The FCOM provides Aircraft and systems descriptions, normal, abnormal and emergency procedures as well as operational performance. 4.4 Master Minimum Equipment List (MMEL) The MMEL defines the components and the related conditions under which, when the components are defective, the Aircraft may be cleared for flight. In addition, the MMEL provides the necessary information to establish the Buyer's own Minimum Equipment List (MEL). 4.5 Performance Engineering Program (PEP) The PEP consists of a Low Speed Performance data base and a High Speed Performance data base together with their respective programs. The Performance Engineering Program may be used by the Buyer under the license conditions set forth in Appendix A to this Exhibit F. The Low Speed Performance programs consist of the Take-off and Landing Chart computation program (TLC) which permits the computation of: - regulatory take-off and landing performance, - noncertified take-off performance accounting for runway data and weather, together with the Tabulation and Interpolation program (TAB), issued with the AFM, which permits the reading, editing and interpolation of the tables listed in the AFM. The High Speed Performance programs are the In Flight Performance computation program (IFP) which permits computation of Aircraft performance for each flight phase and the Aircraft Performance Monitoring program (APM) which permits analysis of Aircraft cruise performance from data recorded during stabilized flight periods. 4.6 Performance Program Manual (PPM) The PPM is the users' guide for the Performance Engineering Program (PEP). 4.7 Weight and Balance Manual (WBM) and Weight and Balance Manual Supplements--C The corresponding supplements: -Delivery Weighing Report, -Equipment List, will be delivered with each Aircraft. 5. OVERHAUL DATA 5.1 Cable Fabrication Manual (CFM) The CFM contains all the data necessary to locate, identify, manufacture and test control cables used on the Aircraft. An appendix contains cable end fitting specification sheets, and detailed manufacturing instructions. 5.2 Component Documentation Status (CDS)--C The CDS lists Component Maintenance Manuals in accordance with Subparagraphs 5.4 and 5.5 below. 5.3 Component Evolution List (CEL) The CEL is a noncustomized document listing all components on the Aircraft and also gives the evolution of each component. The information is provided in order of: - part number - FSCM - ATA reference. 5.4 Component Maintenance Manual Manufacturer (CMMM) The CMMM contains all the data necessary to locate, identify and maintain Aircraft components manufactured by the Seller. 5.5 Component Maintenance Manual Vendor (CMMV) The Seller will ensure that each Vendor of repairable components will deliver to the Buyer a Component Maintenance Manual Vendor with revision service. 6. STRUCTURAL MANUALS 6.1 Nondestructive Testing Manual (NTM) The NTM supplies Airframe data necessary to carry out nondestructive testing. 6.2 Structural Repair Manual (SRM) The SRM contains descriptive information for identification and repair of the Airframe primary and secondary structure and will include substantial structural analysis. FORM AC APERTURE CARD. Refers to 35mm film contained on punched aperture cards CD CD-ROM. D FLOPPY DISK F MICROFILM. Refers to 16mm roll film in 3M type cartridges. MP Refers to paper printed one side, unpunched quality will be suitable for further reproduction or microfilming. MT MAGNETIC TAPE P1 PRINTED ONE SIDE. Refers to manuals in paper with print on one side of the sheets only. P2 PRINTED BOTH SIDES. Refers to manuals with print on both sides of the sheets. SMF SILVER MASTER FILM. Refers to thick diazo film suitable for further reproduction. + Denotes a combined A319/A320/A321 Technical Publication. * Denotes Technical Data and Documentation will be supplied in SGML format if such format becomes available from the Manufacturer. TYPE C CUSTOMIZED. Refers to manuals which are customized to specific MSNs. E ENVELOPE. Refers to manuals which are not customized. P PRELIMINARY Refers to preliminary data or manuals which may consist of: -either one time issue not maintained by revision service, or -preliminary issues maintained by revision service until final manual or data delivery, or -supply of best available data under final format with progressive completion through revision service. DELIVERY Delivery of Technical Data and Documentation is expressed either as the number of days prior to delivery of the first Aircraft or as nil (0), which designates the date of delivery of the first Aircraft. It is agreed that the number of days indicated will be rounded up to the next regular revision release date. MANUALS AVAILABLE (headlines) 1 - ENGINEERING DOCUMENTS 2 - MAINTENANCE & ASSOCIATED MANUALS 3 - MISCELLANEOUS PUBLICATIONS 4 - OPERATIONAL MANUALS AND DATA 5 - OVERHAUL DATA 6 - STRUCTURAL MANUALS EXHIBIT "F" MANUALS AVAILABLE (detailed) Abbr Form Type Qty. Rev Deliv. ---- ---- ---- ---- --- ------ 1. ENGINEERING DOCUMENTS +* Installation and Assembly Drawings IAD C AN1 0 (including detail drawings) + Parts Usage (Effectivity) PU E AN 0 + Schedule (Drawing Nomenclature) S E AN 0 * + Drawing Number Index DNI C AN 0 + Process and Material Specification PMS E AN 0 * + Standards Manual SM E AN 0 + Electrical Load Analysis ELA E 2 AN 0 2. MAINTENANCE & ASSOCIATED MANUALS + APU Build-up Manual ABM E AN 90 + Aircraft Maintenance Manual AMM C 4 90 + Aircraft Schematics Manual ASM C 4 90 + Aircraft Wiring Manual AWM C 4 90 + Aircraft Wiring Lists AWL C 4 90 + Consumable Material List CML E AN 90 + Component Location Manual CLM 4 90 + Duct Repair Manual DRM E AN 90 + Fuel Pipe Repair Manual FPRM E AN 90 + Illustrated Parts Catalog IPC C 4 90 (Airframe) + Illustrated Parts Catalog PIPC C 4 90 (Power Plant)2 + Illustrated Tool and Equipment TEM E AN 360 * Manual + Maintenance Facility Planning MFP E AN 90 + Maintenance Planning Document MPD E AN 360 * + Power Plant Build-up Manual 3 PPBM E AN 90 + Support Equipment Summary SES E AN 360 + Time Limits and Maintenance TLMC/ C 4 90 Checks/Service Limits and SLMC Maintenace Checks + Tool and Equipment Drawings TED E AN 360 + Tool and Equipment Drawing Index TEI E AN 360 * + Trouble Shooting Manual TSM C 4 90 + Aircraft Documentation Retrieval ADRES C 4 90 * System + Computer Assisted Aircraft CAATS C 4 90 * Troubleshooting + Time Limits and Maintenance Checks TLMC C 4 90 3. MISCELLANEOUS PUBLICATIONS + Airplane Characteristics for AC E AN 360 * Airport Planning + Aircraft Recovery Manual ARM E AN 90 Crash Crew Chart CCC E AN 180 + Guidelines for Customer Originated GCOC E AN 0 Changes + List of Radioactive and Hazardous LRE E AN 90 Elements + List of Applicable Publications LAP C 4 90 + Livestock Transportation Manual LTM E AN 90 + Service Bulletins SB C AN 0 + Service Bulletin Index SBI E AN 90 + Service Information Letters SIL E AN 0 + Technical Publications Combined TPCI C AN 90 * Index + Transportability Manual TM E AN 90 Supplier Product Support Agreements SPSA E AN 360 (SPSA) * Vendor Information Manual VIM E AN 360 + Vendor Information Manual GSE VIM\ E AN 360 * GSE 4. OPERATIONAL MANUALS AND DATA + Check List/Abnormal/Emergency/ CL/QRH C AN 90 Quick Reference Handbook + FAA Approved Flight Manual AFM C AN 0 + Flight Crew Operating Manual FCOM C AN 90 + Master Minimum Equipment List MMEL E AN 90 + Performance Engineering Program PEP E AN 90 + Performance Program Manual PPM E AN 90 + Weight and Balance Manual WBM C AN 0 5. OVERHAUL DATA + Cable Fabrication Manual CFM E AN 90 + Component Documentation Status CDS C AN 180 * + Component Evolution List4 CEL E AN 180 + Component Maintenance Manual CMMM E AN 180 * Airframe Manufacturer + Component Maintenance Manual Vendor CMMV P2 E 10 AN 180 * 6. STRUCTURAL MANUALS + Nondestructive Testing Manual NTM E 4 90 + Structural Repair Manual SRM E 4 90 APPENDIX 1 TO EXHIBIT F LICENSE FOR USE OF THE PERFORMANCE ENGINEER'S PROGRAMS 1. Grant The Seller grants the Buyer the right to use the Performance Engineer's Program (PEP) in machine-readable form during the term of this license on a single computer. Use of the PEP in readable form will be limited to one (1) copy other than the copies contained in the single computer and copies produced for checkpoint and restart purposes or additional copies made with the consent of the Seller for a specific need. 2. Merging The PEP may be used and adapted in machine-readable form for the purpose of merging it into other program material of the Buyer but on termination of this Agreement; the PEP will be removed from the other program material with which it has been merged. The Buyer agrees to reproduce the copyright and other notices as they appear on or within the original media on any copies, which the Buyer makes of the PEP. 3. Personal License The above-described license is personal to the Buyer, non-transferable and non-exclusive. 4. Installation It is the Buyer's responsibility to install the PEP and to perform any merging and checks. The Seller will however assist the Buyer's operations engineers in the initial phase following the delivery of the PEP until such personnel reach the familiarization level required to make inputs and correlate outputs. 5. Proprietary Rights and Nondisclosure 5.1 The PEP and the copyright and other proprietary rights of whatever nature in the PEP are and will remain with the Seller. The PEP and its contents are designated as confidential. 5.2 The Buyer undertakes not to disclose the PEP or parts thereof and its contents to any third party without the prior written consent of the Seller. In so far as it is necessary to disclose aspects of the PEP to employees, such disclosure is permitted only for the purpose for which the PEP is supplied and only to the employee who needs to know the same. 6. Conditions of Use 6.1 The Seller does not warrant that the PEP will not contain errors. However, should the PEP be found to contain any error within thirty (30) days of delivery, the Buyer will notify the Seller promptly thereof and the Seller will take all proper steps to correct the same at its own expense. 6.2 The Buyer will ensure that the PEP is correctly used in appropriate machines as indicated in the Performance Programs Manual (PPM) and that staff are properly trained to use the same, to trace and correct running faults, to restart and recover after fault and to operate suitable checks for accuracy of input and output. 6.3 It is understood that the PPM is the user's guide of the PEP and the Buyer will undertake to use the PEP in accordance with the PPM. 6.4 THE WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER AND REMEDIES OF THE BUYER SET FORTH IN THIS LICENCE ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER AND THE RIGHTS, CLAIMS OR REMEDIES OF THE BUYER AGAINST THE SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY NON CONFORMITY OR DEFECT IN THE PEP DELIVERED UNDER THIS LICENCE. 7. Duration The rights under this license will be granted to the Buyer as long as the Buyer operates a Seller's Aircraft model to which the PEP refers. When the Buyer stops operating said Aircraft model, the Buyer will return the PEP and any copies thereof to the Seller, accompanied by a notice certifying that the Buyer has returned all existing copies. APPENDIX 2 TO EXHIBIT F LICENSE FOR USE OF CD-ROM 1. Grant 1.1 The Seller grants the Buyer the right to use the Aircraft Documentation Retrieval System (ADRES) and/or the Computer Assisted Aircraft Trouble Shooting (CAATS) on CD-ROM for the term of this License. Use of ADRES and/or CAATS will be limited to the number of copies defined between the parties. For clarification, it is hereby stated that the Power Plant IPC is not part of the electronic IPC and is only available on other media (paper or film). 1.2 The above grant will be free of charge for as long as the revisions of CAATS and ADRES are free of charge in accordance with Clause 14. At the end of such period(s) license fees will be charged to the Buyer at the price stated in the then current Seller's Customer Services Catalog. 2. Term The rights under the License will be granted from the date of first delivery of ADRES and/or CAATS as long as the Buyer operates the Aircraft or until a replacement product will be provided by the Seller, whichever occurs first. Within thirty (30) days of termination, the Buyer will return ADRES and/or CAATS and all copies thereof to the Seller. 3. Revision Service The Seller will provide revision service for ADRES and/or CAATS during the term. The revision service will be based on the revision service, which the Seller provides for the documentation in paper or film format. ADRES and/or CAATS CD-ROM will be revised concurrently with the paper and film deliveries. Temporary revisions will be provided in digital format under the form of 3-1/2 floppy disk. The retrieval software for such temporary revisions will be embodied on the CAATS and ADRES CD-ROM. 4 Personal License The License is personal to the Buyer, nontransferable and nonexclusive. The Buyer will not permit any third party to use ADRES and/or CAATS, nor will it transfer or sublicense ADRES and/or CAATS to any third party, without prior written consent from the Seller. 5. Installation The Seller will provide the list of hardware on which ADRES and/or CAATS will be installed. The Buyer will be responsible for procuring such hardware and installing ADRES and/or CAATS. 6. Proprietary Rights ADRES and/or CAATS are proprietary to the Seller and the copyright and all other proprietary rights in ADRES and/or CAATS are and will remain the property of the Seller. 7. Copyright Indemnity The Seller will defend and indemnify the Buyer against any claim that the normal use of ADRES and/or CAATS infringes the intellectual property rights of any third party, provided that the Buyer (i) immediately notifies the Seller of any such claim; (ii) makes no admission or settlement of any claim; (iii) allows the Seller to have sole control of all negotiations for its settlement; (iv) gives the Seller all reasonable assistance in connection therewith. 8. Confidentiality ADRES and/or CAATS and their contents are designated as confidential. The Buyer undertakes not to disclose ADRES and/or CAATS or parts thereof to any third party without the prior written consent of the Seller. In so far as it is necessary to disclose aspects of ADRES and/or CAATS to the employees, such disclosure is permitted solely for the purpose for which ADRES and/or CAATS are supplied and only to those employees who need to know the same. 9. Conditions of Use 9.1 The Buyer will not make any copies of ADRES and/or CAATS, except for installation purposes. 9.2 The Seller does not warrant that the operation of ADRES and/or CAATS will be error free. In the event of an error occurring within thirty (30) days of delivery, the sole and exclusive liability of the Seller will be, at its expense, to correct ADRES and/or CAATS in the following revision. 9.3 THE WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER AND REMEDIES OF THE BUYER SET FORTH IN THIS LICENCE ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER AND THE RIGHTS, CLAIMS OR REMEDIES OF THE BUYER AGAINST THE SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY NON CONFORMITY OR DEFECT IN THE ADRES AND/OR CAATS DELIVERED UNDER THIS LICENCE. 10. Training In addition to the user guide supplied with ADRES and/or CAATS, training and other assistance may be provided on the Buyer's request at conditions to be mutually agreed. 11. Replacement of Product For clarification purposes it is hereby expressly stated that ADRES and/or CAATS will be offered for a limited time period, not exceeding the term of this License. In the event that the Seller should offer a replacement product, the conditions for using such product will be subject to a separate agreement. EXHIBIT G SELLER PRICE REVISION FORMULA l. BASE PRICE ---------- The Base Price of the A318 Aircraft is as quoted in Clause 3.1.1 of the Agreement. The Base Price of the Airframe of the A319 Aircraft is as quoted in Clause 3.1.2.2 of the Agreement. 2. BASE PERIOD The above Base Prices have been established in accordance with the averaged economic conditions prevailing in December 1997/January 1998/February 1998 and corresponding to theoretical delivery conditions prevailing in January 1999 as defined by ECIb and ICb index values indicated in Paragraph 4 of this Exhibit G. These Base Prices are subject to adjustment for changes in economic conditions as measured by data obtained from the US Department of Labor, Bureau of Labor Statistics, and in accordance with the provisions of Paragraphs 4 and 5 of this Exhibit G. ECIb and ICb index values indicated in Paragraph 4 of this Exhibit G will not be subject to any revision of these indexes. 3. REFERENCE INDEXES Labor Index: Published quarterly by the US Department of Labor, Bureau of Labor Statistics, in "News" (Table 6: "Employment Cost Index for wages and salaries for private industry workers by industry and occupational group" (NOT SEASONALLY ADJUSTED), or such other names that may be from time to time used for the publication title and/or table. The index is found under aircraft manufacturing with a standard industrial classification code of SIC 3721 and hereinafter is referred to as "ECI-SIC-3721W" (Base month and year June 1989 = 100). Material Index: "Industrial Commodities" (hereinafter referred to as "IC-Index"), published monthly by the US Department of Labor, Bureau of Labor Statistics, in "PPI Detailed Report" (Table 6: Producer prices indexes and percent changes for commodity groupings and individual items, not seasonally adjusted) (Base year 1982 = 100) or such other names which may be from time to time used for the publication title and/or table. 4 - REVISION FORMULA Pn = (Pb + F) (0.75 ECIn/ECIb + 0.25 ICn/ICb) Where Pn = Revised Base Price of the Airframe. Pb = Base Price of the Airframe at economic conditions December 1997/January 1998/February 1998 averaged (January 1999 delivery conditions). F = (0.005 x N x Pb) Where N = The calendar year of delivery of the Aircraft minus 1999. ECIn = The arithmetic average of the latest published values available at the date of Aircraft delivery for ECI-SIC-3721W for the llth, l2th and l3th months prior to the month of delivery of the Aircraft (1 decimal), where the quarterly value for the third month of a quarter (March, June, September and December) will be deemed to apply for the two preceding months. ECIb = ECI-SIC-3721W for December l997/January 1998/February 1998 averaged (= 134.7). ICn = The arithmetic average of the latest published values available at the date of Aircraft delivery for the IC-Index for the llth, l2th and l3th months prior to the month of delivery of the Aircraft (l decimal). ICb = IC-Index for December 1997/January 1998/February 199 averaged (=126.1). In determining the Revised Base Price at delivery of the Aircraft, each quotient will be calculated to the nearest ten thousandth (4 decimals). If the next succeeding place is five (5) or more, the preceding decimal place will be raised to the next higher figure. The final factor will be rounded to the nearest ten thousandth (4 decimals). After final computation, Pn will be rounded to the next whole number (0.5 or more rounded to l). 5. GENERAL PROVISIONS 5.1 Substitution of Indexes In the event that: (i) the US Department of Labor substantially revises the methodology of calculation of any of the indexes referred to hereabove, or (ii) the US Department of Labor discontinues, either temporarily or permanently, any of the indexes referred to hereabove, or (iii) the data samples used to calculate any of the indexes referred to hereabove are substantially changed, the Seller will select a substitute index. Such substitute index will reflect as closely as possible the actual variations of the wages or of the material costs, as the case may be, used in the calculation of the original index. As a result of this selection of a substitute index, the Seller will make an appropriate adjustment to its price revision formula, allowing to combine the successive utilization of the original index and of the substitute index. 5.2 Final Index Values The Revised Base Price at the date of Aircraft delivery will be final and will not be subject to further adjustments of any kind and for any reason to the applicable indexes as published at the date of Aircraft delivery. EXHIBIT H PROPULSION SYSTEMS PRICE REVISION FORMULA l. REFERENCE PRICE --------------- The Reference Price of a set of two (2) CFM International 56-5B5/P engines and additional equipment is as quoted in Clause 3.1.2.3 of the Agreement. This Reference Price is valid for Aircraft delivered no later than December 31, 2007, and is subject to adjustment for changes in economic conditions as measured by data obtained from the US Department of Labor, Bureau of Labor Statistics, and in accordance with the provisions of Paragraphs 4 and 5 of this Exhibit H. 2. REFERENCE PERIOD - REFERENCE COMPOSITE PRICE INDEX The above Reference Price has been established in accordance with the economic conditions prevailing in July 1996 (January 1997 theoretical delivery conditions), as defined, according to CFM International, by the Reference Composite Price Index of 145.03. 3. REFERENCE INDEXES Labor Index: "Aircraft Engines and Engine Parts," Standard Industrial Classification 3724--Average hourly earnings (hereinafter referred to as "HE SIC 3724"), published by the US Department of Labor, Bureau of Labor Statistics, in "Employment and Earnings," (Table B-15: Average hours and earnings of production or nonsupervisory workers on private nonfarm payrolls by detailed industry) or such other names that may be from time to time used for the publication title and/or table. Material Index (I): "Industrial Commodities" (hereinafter referred to as "IC-Index"), published monthly by the US Department of Labor, Bureau of Labor Statistics, in "PPI Detailed Report" (Table 6: Producer prices indexes and percent changes for commodity groupings and individual items, not seasonally adjusted) (Base year 1982 = 100) or such other names that may be from time to time used for the publication title and/or table. Material Index (II): "Metals and Metal Products" Code l0 (hereinafter referred to as "MMP-Index"), published monthly by the US Department of Labor, Bureau of Labor Statistics, in "PPI Detailed Report" (Table 6: Producer prices indexes and percent changes for commodity groupings and individual items, not seasonally adjusted) (Base year 1982 = 100) or such other names that may be from time to time used for the publication title and/or table. Energy Index: "Fuels and Related Products and Power" Code 5 (hereinafter referred to as "EP-Index"), published monthly by the US Department of Labor, Bureau of Labor Statistics, in "PPI Detailed Report" (Table 6: Producer prices indexes and percent changes for commodity groupings and individual items, not seasonally adjusted) (Base year 1982 = 100) or such other names that may be from time to time used for the publication title and/or table. 4. REVISION FORMULA Pn = Pb x CPIn 145.03 Where Pn = Revised Reference Price of a set of two (2)engines at delivery of the Aircraft. Pb = Reference Price as defined above. CPIn = Composite Price Index for the sixth month prior to the month of delivery of the Aircraft. Said Composite Price Index is composed as follows: CPIn = 0.55 (HEn x 100) + 0.10 ICn + 0.25 MMPn + 0.10 EPn --- (11.16 ) Where HEn = HE SIC 3724 for the sixth month prior to the month of delivery of the Aircraft; the quotient HEn/11.16 is rounded to the nearest third decimal place. The product by 0.55 is rounded to the nearest second decimal place. ICn = IC-Index for the sixth month prior to the month of delivery of the Aircraft. MMPn = MMP-Index for the sixth month prior to the month of delivery of th Aircraft. The product by 0.25 is rounded to the nearest second decimal place. EPn = EP-Index for the sixth month prior to the month of delivery of the Aircraft. The Composite Price Index will be determined to the second decimal place. If the next succeeding decimal place is five (5) or more, the preceding decimal figure will be raised to the next higher figure. The final factor will be rounded to the nearest thousandth (3 decimals). 5. GENERAL PROVISIONS 5.1 The Revised Reference Price at delivery of the Aircraft will be the final price and will not be subject to further adjustments in the indexes. 5.2 If no final index value is available for any of the applicable months, the published preliminary figures will be the basis on which the Revised Reference Price will be computed. 5.3 If the US Department of Labor substantially revises the methodology of calculation of the indexes referred to in this Exhibit H or discontinues any of these indexes, AVSA will, in agreement with CFM International, apply a substitute for the revised or discontinued index, such substitute index to lead in application to the same adjustment result, insofar as possible, as would have been achieved by continuing the use of the original index as it may have fluctuated had it not been revised or discontinued. Appropriate revision of the formula will be made to accomplish this result. 5.4 Should the above escalation provisions become null and void by action of the US Government, the Reference Price will be adjusted to reflect increases in the cost of labor, material and fuel which have occurred from the period represented by the applicable Reference Price Indexes to the sixth month prior to the scheduled delivery of the Aircraft. 5.5 The Revised Reference Price at delivery of the Aircraft in no event will be less than the Reference Price defined in Paragraph 1 of this Exhibit H. EXHIBIT I CONFIDENTIALITY TERMS The minimum requirements for confidentiality agreements pertaining to the disclosure of any Confidential Material ("Confidentiality Agreement(s)") are as follow. 1. Confidential Material is identified as nonpublic, proprietary and confidential, provided that Confidential Material will not include information to the extent that such information (i) is already known to the recipient, or (ii) is or becomes public knowledge or ceases to remain confidential, other than as a result of a breach by the recipient of its obligations under the Confidentiality Agreement. 2. The Confidentiality Agreement will cover oral, electronic or written disclosures of the contents of Confidential Material, whether in full or in summary form. 3. Subject to any legal or governmental disclosure requirements, the receiving party will disclose Confidential Material only to those of its agents, employees and/or advisors who have a need to know in order to accomplish the purpose for which the Confidential Material is given, and will be used only to accomplish such purpose. 4. All originals and any copy made of Confidential Material will be clearly marked as confidential and subject to the Confidentiality Agreement, and copies that are no longer needed for the purposes for which they were given will be returned to the Buyer. 5. Confidentiality Agreements, insofar as they pertain to Technical Data and Documentation, will be for a term of *. With respect to all other Confidential Material, a term of * after delivery of the last Aircraft will be applied to Confidentiality Agreements. EX-10.52 9 0009.txt AIRCRAFT LEASE COMMON TERMS AGREEMENT AIRCRAFT LEASE COMMON TERMS AGREEMENT DATED AS OF APRIL 20, 2000 BETWEEN GENERAL ELECTRIC CAPITAL CORPORATION And FRONTIER AIRLINES INC. CONTENTS Page CLAUSE 1. INTERPRETATION...............................................1 2. REPRESENTATIONS AND WARRANTIES...............................2 3. CONDITIONS PRECEDENT........................................2 4. COMMENCEMENT.................................................3 5. PAYMENTS.....................................................5 6. MANUFACTURER'S WARRANTIES...................................19 7. LESSOR'S COVENANTS..........................................20 8. LESSEE'S COVENANTS..........................................22 9. INSURANCE...................................................35 10. INDEMNITY...................................................37 11. EVENTS OF LOSS..............................................40 12. RETURN OF AIRCRAFT..........................................41 13. DEFAULT.....................................................43 14. TRANSFER....................................................47 15. MISCELLANEOUS...............................................49 16. DISCLAIMERS AND WAIVERS.....................................54 17. BROKERS AND OTHER THIRD PARTIES.............................56 INDEX OF SCHEDULES Schedule 1 Definitions Schedule 2 Representations and Warranties Schedule 3 Conditions Precedent Schedule 4 Pre-Delivery Procedures and Delivery Condition Requirements Part 1 (New Aircraft) Part 2 (Used Aircraft) Schedule 5 Certificate of Technical Acceptance Part 1 (New Aircraft) Part 2 (Used Aircraft) Schedule 6 Procedures and Operating Condition at Redelivery Schedule 7 Insurance Requirements Schedule 8 Form of Legal Opinion Schedule 9 Events of Default Schedule 10 Form of Lease Termination Certificate Schedule 11 Intentionally Omitted Schedule 12 Lease Supplement No. 1 Schedule 13 Technical Report on Aircraft Usage Schedule 14 Form of Redelivery Certificate Schedule 15 Form of GECC Guaranty COMMON TERMS AGREEMENT THIS COMMON TERMS AGREEMENT (this "CTA") is made as of April 20, 2000 BETWEEN: (1) GENERAL ELECTRIC CAPITAL CORPORATION; and (2) FRONTIER AIRLINES, INC. WHEREAS: (A) From time to time, Frontier Airlines, Inc. or one of its Affiliates may wish to lease commercial aircraft from General Electric Capital Corporation ("GECC") or one of its Affiliates, and GECC or one of its Affiliates may wish to lease commercial aircraft to Frontier Airlines, Inc. or one of its Affiliates; (B) Each party hereto wishes to provide in one document for certain common terms and conditions, as hereinafter provided in this CTA, that will be applicable, unless otherwise stated, to each such lease referred to in Recital (A); (C) Each such lease transaction will be concluded only on the terms of an agreement entitled "Aircraft Lease Agreement," which together with this CTA (which will be incorporated into and become part of such Aircraft Lease Agreement), will constitute the lease for the applicable aircraft as identified therein. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. INTERPRETATION 1.1 Definitions All references herein to "Lease" mean the integrated agreement consisting of the various documents comprising the Lease as defined in Schedule 1. In the Lease, capitalized words and expressions have the meanings set out for them in Schedule 1 and in the Aircraft Lease Agreement. 1.2 Construction (a) In the Lease, unless otherwise stated, a reference (i) "Lessor," "Lessee," "GECAS," "Owner" or any other Person includes any of their successors and assignees; (ii) plural concepts shall include the singular and vice versa; (iii) any document (except this CTA unless Lessor and Lessee otherwise expressly agree) shall include such document as amended and supplemented from time to time and any replacement for it; (iv) a Section or a Schedule is a reference to a clause of or a schedule to this CTA; (v) any Regulation shall include any changes to that Regulation and any replacement for it; (vi) an obligation of a Person refers to any obligation that Person has under or in relation to the Lease; and (vii) "includes," "including", "include" or similar terms shall not be construed as limiting and shall mean "including, without limitation." (b) Headings to Sections and Schedules in the Lease are not intended to affect their meaning. 2. REPRESENTATIONS AND WARRANTIES 2.1 Lessee's Representations and Warranties Lessee hereby makes the representations and warranties set out in Section 1.1 of Schedule 2 as of the date of execution of the Aircraft Lease Agreement and as of each Delivery Date, and Lessee understands that these statements shall be true, both when the Aircraft Lease Agreement is executed and on each Delivery Date. 2.2 Lessor's Representations and Warranties Lessor hereby makes the representations and warranties set out in Section 1.2 of Schedule 2 as of the date of execution of each Aircraft Lease Agreement and as of each Delivery Date, and Lessor understands that these statements shall be true, both when each Aircraft Lease Agreement is executed and on each Delivery Date. 3. CONDITIONS PRECEDENT 3.1 Conditions Precedent Lessor need not deliver any Aircraft under each Lease, and Lessee need not accept Delivery unless each of their respective Conditions Precedent listed in Schedule 3 is satisfied. 3.2 Waiver (a) Lessor's Waiver. If any Condition Precedent in Section 1 of Schedule 3 is not satisfied on the Delivery Date and Lessor (in its absolute discretion) nonetheless agrees to deliver the Aircraft to Lessee and to start the leasing of the Aircraft, Lessee will ensure that such Condition Precedent is fulfilled within * days after the Delivery Date, and Lessor may treat as an Event of Default the failure of Lessee to do so. (b) Lessee's Waiver. If any Condition Precedent in Section 2 of Schedule 3 is not satisfied on the Delivery Date and Lessee (in its absolute discretion) nonetheless agrees to accept Delivery of the Aircraft from Lessor and to start the leasing of the Aircraft, Lessor will ensure that such Condition Precedent is fulfilled within * days after the Delivery Date, and Lessee may treat Lessor's failure to do so as a breach of the Lease. 4. COMMENCEMENT 4.1 Leasing (a) Lessor shall notify Lessee as soon as possible, but no later than at least * (*) days prior to the Scheduled Delivery Month, of the Scheduled Delivery Week and Lessor shall notify Lessee as soon as possible, but no later than at least * (*) week prior to the Scheduled Delivery Week, of the Scheduled Delivery Date. Subject to Section 4.4, Lessor will lease the Aircraft to Lessee and Lessee will take the Aircraft on lease for the Term, which shall commence upon Lessee's execution and delivery of the Lease Supplement on the Delivery Date. (b) If (i) Lessee is unwilling or unable to accept delivery of the Aircraft on the date on which Lessor tenders the Aircraft for Delivery to Lessee under and in accordance with Section 4.3(a), or Lessee fails to fulfil any Condition Precedent in Section 1 of Schedule 3 on or before such date and (ii) each of the Delivery Condition Requirements and the Conditions Precedent in Section 2 of Schedule 3 are met or waived, then the Rent Commencement Date for the Aircraft shall be deemed to have occurred on the date on which it is tendered by Lessor for Delivery in accordance with subclause (ii) of this Section 4.1(b), and Lessee shall be obligated to pay Rent for the Aircraft on and from such date regardless of whether the Delivery Date occurs, but Lessor shall have no obligation to deliver, and Lessee shall have no lease interest in the Aircraft or other right to, possession of the Aircraft, unless and until Lessee fulfils all Conditions Precedent specified in Section 1 of Schedule 3 as and when provided in the Lease and Lessee accepts delivery of the Aircraft by executing and delivering Lease Supplement No. 1 or a Lease Supplement substantially in the form of Lease Supplement No. 1 for subsequent Aircraft deliveries, and so long as no Default has occurred and is continuing. (c) Lessee will be responsible for all risks associated with any loss of or damage to the Aircraft from the Delivery Date until the Return Occasion. 4.2 Procedure Before Delivery Lessor and Lessee will follow the Pre-Delivery Procedure. 4.3 Delivery and Acceptance After the Pre-Delivery Procedure has been carried out and so long as the Delivery Condition Requirements are met, the Conditions Precedent in Section 2 of Schedule 3 are satisfied and Lessor's representations and warranties referred to in Section 2.2 are true and correct on such date: (a) Lessor will tender the Aircraft for Delivery to Lessee at the Delivery Location. (b) Lessee will accept the Aircraft by signing Lease Supplement No. 1, if the first Aircraft to deliver under the Lease, or a Lease Supplement substantially in the form of Lease Supplement No. 1 for each subsequent Aircraft to deliver under the Lease, and delivering the same to Lessor. (c) Lessee's acceptance of the Aircraft shall be regarded as absolute, unconditional and irrevocable. 4.4 Delayed Delivery If Delivery(i)takes place after the Scheduled Delivery Date or (ii) does not occur, in either case, for any reason other than the gross negligence or wilful misconduct of Lessor, or a breach by Lessor hereunder or a payment default under any purchase agreement relating to any Aircraft: (a) Lessor will not be responsible for any Losses that Lessee suffers resulting from the delay or from the non-delivery of the Aircraft; (b) Lessee will not be entitled to terminate the Lease or to reject the Aircraft when it is tendered for Delivery because of the delay; provided, however, that if the Aircraft has not been tendered for Delivery, in accordance with Section 4.3, by the Final Delivery Date, either party may terminate the Lease by delivering notice to the other party within * days of such Final Delivery Date (and if such notice is not delivered within such *-day period the Final Delivery Date will be deemed extended for one additional period of * days); provided, further, however, that with respect to a new Aircraft delivery, in the event of an Excusable Delay, and upon receipt of written notice of Lessee to Lessor requesting an extension of the Final Delivery Date, Lessor agrees, subject to its rights under any purchase agreement to do so, to extend the Final Delivery Date to a delivery date notified to Lessor by the Manufacturer, which occurs within twelve months following the originally Scheduled Delivery Month and each of Lessee and Lessor agree that upon delivery of such written notice, neither party shall have the right to terminate until the Final Delivery Date as so extended. The foregoing *-day automatic extension of the Final Delivery Date shall not apply to an extension requested by Lessee based on an Excusable Delay. Upon the delivery of any such notice or automatically on the expiration of such *-day period if no such notice has been delivered, all obligations of each party under the Lease with respect to such Aircraft will end on the date of such notice or the date of the expiration of such period, as the case may be, except that Lessor will repay to Lessee the Deposit (if any) with respect to such Aircraft or return to Lessee or cancel any Letter of Credit relating to such Aircraft and the parties will remain obligated under their respective indemnities set forth in Section 3 of Schedule 4. (c) Lessee hereby agrees that its only right or remedy for such delay in delivery of the Aircraft is the remedy set forth in Section 4.4(b) above and Lessee hereby waives any rights it may have under Section 2A-406 of the UCC or otherwise for any delay in delivery; provided, however, that with respect only to a new Aircraft, if Lessor receives payment of any liquidated damages from the Manufacturer pursuant to its purchase agreement with the Manufacturer relating to an inexcusable delay in the delivery of such new Aircraft, Lessor shall pay to Lessee all such liquidated damages received which exceed all Losses of Lessor resulting from delay. 5. PAYMENTS 5.1 Deposit Lessee shall pay Lessor any Deposit that is specified in Section 3 of the Aircraft Lease Agreement. 5.2 Rental Periods The first Rental Period will start on the Rent Commencemen Date and each subsequent Rental Period will start on the date immediately following the last day of the previous Rental Period. Each Rental Period will end on the date immediately before the numerically corresponding day in the next month, except that: (a) if there is no numerically corresponding day in that month, it will end on the last day of that month; and (b) if a Rental Period would otherwise extend beyond the Expiry Date, it will end on the Expiry Date. 5.3 Rent (a) Time of Payment: Lessee will pay to Lessor or its order Rent in advance on each Rent Date. If a Rental Period begins on a day which is not a Business Day, the Rent payable in respect of that Rental Period shall be paid on the immediately preceding Business Day. (b) Amount: The Rent payable during the Term shall be calculated in accordance with Schedule B of the Aircraft Lease Agreement. 5.4 Supplemental Rent and Maintenance Adjustment (a) Amount: If, under the Aircraft Lease Agreement, Lessee is required to pay Supplemental Rent or any Maintenance Adjustment, Lessee will pay (i) Supplemental Rent, at the rates referred to in Section 3 of the Aircraft Lease Agreement, to Lessor in relation to each calendar month (or part of a month) of the Term, on the * (*) day following the end of that calendar month (except that the last payment of Supplemental Rent during the Term shall be paid on the Expiry Date) or (ii) any Maintenance Adjustment in the amounts and at the time specified in Section 3.3 of the Aircraft Lease Agreement. (b) Adjustment: The Supplemental Rent rates shall be adjusted after the Delivery Date not more frequently than annually, for the previous year's utilization, as appropriate, to reflect the provisions of paragraphs (ii) and (iii) below) based on the following: (i) Annual Supplemental Rent Adjustment: The Supplemental Rent rates shall be increased annually by the Annual Supplemental Rent Adjustment, compounded annually commencing on the first anniversary of the Delivery Date. (ii) Hour to Cycle Ratio Adjustment: Lessor and Lessee acknowledge that the Engine Supplemental Rent Rate and the Engine LLP Supplemental Rent Rate are based upon the assumption that the Aircraft will operate on an Assumed Ratio. If that assumption proves to be incorrect at any time during the Term based upon Lessee's actual operating experience during the previous * (*) months, and the hour to cycle ratio differs from the Assumed Ratio by more than * during such * (*) month period, Lessor shall have the right, upon written notice to Lessee, to adjust the Engine Supplemental Rent Rate and the Engine LLP Supplemental Rent Rate (in the case of a decrease in the ratio below the Assumed Ratio) and Lessor, upon written request from Lessee, will make that adjustment (in the case of an increase in the ratio above the Assumed Ratio). Any such adjustment shall be based on the table contained in Schedule B, Part V of each Aircraft Lease Agreement. Actual hour to cycle ratios may fall outside the ratios identified in that table. In that case, the actual values shall be determined by extrapolating the closest observed intervals in the table. (iii)Assumed Utilization Adjustment: Lessor and Lessee acknowledge that Airframe Supplemental Rent, APU Supplemental Rent and Landing Gear Supplemental Rent payable by Lessee are based upon the assumption that the Aircraft will operate on an Assumed Utilization. If that assumption proves to be incorrect at any time during the Term based upon Lessee's actual operating experience during the previous * (*) months such that Lessee's actual utilization of the Aircraft during the previous * (*) months differs from the Assumed Utilization by more than * during such * (*) month period, Lessor may make, and notify Lessee of, such adjustment as Lessor determines is necessary (in the case of a decrease in actual utilization below the Assumed Utilization) in its reasonable discretion to maintain the rates of Airframe Supplemental Rent, APU Supplemental Rent and Landing Gear Supplemental Rent at levels which accurately reflect the costs associated with obtaining relevant maintenance services at prevailing industry rates and Lessor, upon written request from Lessee, will make such adjustment (in the case of an increase in the ratio above the Assumed Utilization). (iv) Material Revision to Maintenance Program: If the Lessee's Maintenance Program is materially revised, (A) Lessor may make, and notify Lessee of, and (B) upon written request from Lessee, Lessor may make, such adjustment as Lessor determines is necessary in its reasonable discretion to maintain the Supplemental Rent at levels which accurately reflect the costs associated with obtaining relevant maintenance services at prevailing industry rates. (v) Each notice or request delivered pursuant to paragraphs (ii), (iii) and (iv) above shall specify (A) the revised Supplemental Rent rates, (B) the reason for such revision, (C) the method by which such revision was calculated (with sufficient specificity to enable the party receiving such notice or request to verify such calculation, and (D) the effective date of such revision and Lessee shall be bound by such revision, absent manifest error. (c) Lessor's Property: Lessee acknowledges and agrees that Supplemental Rent is additional rent for the leasing of the Aircraft and not cash collateral or other collateral security for Lessee's maintenance obligations under the Lease. Once paid all Supplemental Rent is the property of Lessor, it is not refundable to Lessee under any circumstances whatsoever and Lessee has no interest therein whatsoever. 5.5 Payments All payments by Lessee to Lessor under the Lease will be made for value on the due date in Dollars and in immediately available funds by wire transfer to the Lessor's Account as specified in the Aircraft Lease Agreement. 5.6 Withholding and Tax Credit (a) Withholding: Lessee shall not deduct any amount from any of its payments under the Lease, for or on account of any Taxes, unless it is required by law to do so, in which case Lessee shall: (i) deduct the minimum amount necessary to comply with applicable Law; (ii) except as provided in Section 5.7(c), pay Lessor an additional amount so that Lessor receives a net amount on the relevant payment date, that is equal to the amount that it would have received if the deduction had not been made. The amount of any such payment to Lessor shall take into account the tax treatment of that payment to Lessor applying the principles of Section 5.9 such that Lessor shall be in no worse position than it would have been if the deduction had not applied in the first place; (iii)pay the Tax to the relevant taxing authority according to applicable Law; and (iv) obtain a receipt (if one is available) from the relevant taxing authority and furnish a certified copy thereof to Lessor. (b) Tax Credit: If Lessor, in good faith, determines that it has realized a tax benefit (by way of deduction, credit or otherwise) as a result of any payment for which Lessee is liable under Section 5.6(a), and such tax benefit was not taken into account in calculating the amount of such payment in accordance with the definition of "After-Tax Basis," Lessor shall pay to Lessee as soon as practicable after the tax benefit has been realized (but not before Lessee has made all payments and indemnities to Lessor required under this Section), an amount which will ensure that (after taking account of the payment itself) Lessor is in no better and no worse position than it would have been if the deduction had not applied. Nothing in this Section 5.6(b) shall: (i) interfere with the right of Lessor to arrange its tax affairs in whatever manner it thinks fit; or (ii) oblige Lessor to disclose any information relating to its Tax affairs or any Tax computations. 5.7 Tax Indemnity (a) General: (i) Except as provided in Section 5.7(c), Lessee will on demand pay and indemnify each Tax Indemnitee against any and all Taxes levied or imposed against or upon or payable by such Tax Indemnitee or Lessee and arising from, with respect to or in connection with the transactions pursuant to the Lease, including all Taxes relating or attributable to Lessee, the Lease or the Aircraft, directly or indirectly, in connection with the importation, exportation, registration, ownership (but only to the extent relating to or attributable to or arising as a result of the possession, operation, use or maintenance of the Aircraft by Lessee), leasing, sub-leasing, purchase, delivery, possession, use, operation, repair, maintenance, overhaul, transportation, landing, storage, presence or redelivery of the Aircraft or any part thereof or any rent, receipts, insurance proceeds, income, indemnification payment or other amounts arising therefrom, or the making of any Equipment Change or the permanent replacement of any Engine. (ii) All Taxes indemnified pursuant to this Section 5.7(a) shall be paid by Lessee directly to the appropriate taxing authority (to the extent permitted by applicable Law) at or before the time prescribed by applicable Law. After any payment by Lessee of any Tax directly to a taxing authority, Lessee shall furnish to Lessor, on request, a certified copy of a receipt for Lessee's payment of such Tax or such other evidence of payment of such Tax as is reasonably obtainable by Lessee and reasonably acceptable to Lessor. (iii)Any amount payable by Lessee to a Tax Indemnitee pursuant to this Section 5.7(a) shall be paid within ten days after receipt of a written demand therefor from the relevant 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 if an amount of any indemnified Tax is being contested in accordance with Section 5.8 and Lessee shall have duly performed (and shall continue to perform) all its obligations under Section 5.8 with respect to such contest, then payment of the indemnity with respect to such Tax under Section 5.7(a) shall, at Lessee's election, be deferred until the date the contest has been completed. (b) Sales and Use Taxes: (i) Without limiting Section 5.7(a) above, Lessee shall pay to Lessor (or, if permitted by applicable Law and if requested by Lessor, Lessee shall pay to the relevant tax authority for the account of Lessor): (y) all sales, use, rental, value added, goods and services and similar taxes ("Sales Taxes") required to be paid to the tax authority of the jurisdiction in which the Delivery Location is situated or to the jurisdiction of the Habitual Base or the State of Incorporation with respect to the lease of the Aircraft to Lessee pursuant to the Lease unless Lessee delivers to Lessor on or prior to the Delivery Date such exemption certificate or other document as may be required by applicable Law to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by such jurisdiction with respect to the lease of the Aircraft pursuant to the Lease; and (z) all Sales Taxes required to be paid to the tax authority of any jurisdiction in which the Aircraft may be used, operated or otherwise located from time to time unless Lessee delivers to Lessor such exemption certificates or other documents as may be required by applicable Law to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by each such jurisdiction with respect to the lease of the Aircraft pursuant to the Lease. (ii) Lessee and Lessor will cooperate with each other in connection with the preparation and filing of any exemption application or similar document that is reasonably necessary or desirable under applicable Law to avoid the imposition of any Sales Taxes with respect to the transactions contemplated by the Lease. (iii)The specific obligations with respect to Sales Taxes set forth in this Section 5.7(b) are in addition to, and are not in substitution for, Lessee's obligation to indemnify for such Sales Taxes pursuant to Section 5.7(a). (c) Notwithstanding anything to the contrary contained or implied in the Lease, Lessee shall not be required to pay any additional amounts under Section 5.6(a)(ii) on account of, or indemnify a Tax Indemnitee under Section 5.7(a) to the extent that the Tax arises solely as a result of : (i) the willful misconduct or gross negligence of such Tax Indemnitee; (ii) a Tax liability of such Tax Indemnitee has which would have arisen even if the Lease had not been entered into; (iii)a Tax liability charged on the net income, profits or gains of such Tax Indemnitee by any Government Entity in the United States; but excluding any taxes indemnified under Sections 5.7 (d) or (e) below and any Tax that is a Sales Tax; or (iv) a Tax liability charged with respect to the period, or an event occurring, (x) prior to the Delivery Date or (y) after the Expiry Date and, in either case, unrelated to Lessor's dealings with Lessee or to the transactions contemplated by the Lease. (d) MACRS Tax Indemnity. Lessee will on demand pay and indemnify each Tax Indemnitee for any loss, disallowance, or deferral of, or delay in claiming, the MACRS Deductions resulting from (A) Lessee's using the Aircraft in such a manner as to cause the Aircraft to be treated as "used predominantly outside the United States" within the meaning of Section 168(g) of The Internal Revenue Code of 1986, as amended (the "Code") or (B) the Aircraft being treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code other than as a result of the Lessor being a "tax-exempt entity" under Section 168(h)(2) of the Code (either (A) or (B) hereinafter referred to as a "MACRS Loss"). In determining the indemnity required in connection with a MACRS Loss to the Tax Indemnitee under this Clause, the Tax Indemnitees shall be assumed to be subject to a combined U. S. and state income tax rate of (after giving effect to the deductibility of such state income taxes for U. S. income tax purposes) * in 2000 and in each year thereafter (the "Assumed Tax Rate"), and the Tax Indemnitee will have sufficient taxable income to be taxed at the Assumed Tax Rate after full utilization of the MACRS Deductions. The amount of the MACRS Loss for any taxable year or years shall be computed as the difference between (X) the present value of the MACRS Deductions for such year or years and all subsequent years using a discount rate of * (*) per annum, and (Y) the present value of the actual cost recovery deductions attributable to the Aircraft realized by the Tax Indemnitee as a result of the MACRS Loss (but assuming that the Aircraft is sold by the Lessor at the end of the Term of [X] months using a discount rate of * (*) per annum. The amount payable under this indemnity shall be the amount that, after deduction by the Tax Indemnitee of the amount of all additional U.S., state, local and foreign taxes required to be paid by the Tax Indemnitee in respect of the receipt or accrual of such amount, will equal the amount of the MACRS Loss as computed in the preceding sentence, plus the amount of any actual interest, penalties and additions to tax payable by the Tax Indemnitee with respect to the MACRS Loss. (e) Foreign Tax Credit Indemnity. If, as a result of the use or operation or location of the Aircraft outside the United States by Lessee, more than the * (the "Permitted Percentage") of any item of income, deduction, or loss with respect to the transactions contemplated by the Lease will be treated for Federal income tax purposes as derived from, or allocable to, sources outside the United States (an "Excess Foreign Allocation"), and if as a result thereof the amount of the foreign tax credits available for utilization by a Tax Indemnitee for any taxable year shall be less than the amount of the foreign tax credits that would have been available for utilization by any Tax Indemnitee if the Lessee had not used the Aircraft outside the United States more than the Permitted Percentage (such event being referred to herein as a "Foreign Tax Credit Loss"), then the Lessee shall pay to the Lessor as an indemnity an amount which, after deduction of the amount of all additional federal, state, local and foreign taxes actually required to be paid by the Lessor in respect of the receipt or accrual of such amount, is equal to the actual increase in the Federal income taxes payable by (or not refundable to) the Tax Indemnitee for such taxable year as a result of such Foreign Tax Credit Loss, plus the amount of any interest, penalties and additions to tax payable by the Tax Indemnitee as a result of such Foreign Tax Credit Loss. (f) Payment. Each payment by the Lessee pursuant to Clauses 5.7(d) and (e) shall be made within * days after receipt of a written demand therefor accompanied by a written statement describing in reasonable detail the MACRS Loss or Foreign Tax Credit Loss in question, the amount of additional Federal income tax, interest, penalties and additions to tax and the calculation of the payment due in request thereof (but in no event shall be required to be paid earlier than * (*) Business Days prior to the date such additional Federal income taxes are due); provided that, if a contest of the MACRS Loss or Foreign Tax Credit Loss is being conducted pursuant to Clause 5.8 hereof, payment (other than payments required under Clause 5.8) shall not be required from the Lessee until * days after the final determination of such contest. (g) Tax Indemnity Lessee shall indemnify, on an After-Tax Basis, Lessor, Owner and each other Tax Indemnitee for all fees, expenses and Taxes incurred by Lessor, Owner or any other Tax Indemnitee in connection with any transfer pursuant to Sections 8.13 and 11.1 herein. 5.8 Tax Contest and Information (a) If a Tax Indemnitee receives a written claim for any Tax for which Lessee would be required to pay an indemnity pursuant to Section 5.7(a, such Tax Indemnitee shall notify Lessee promptly of such claim, provided that, any failure to provide such notice will not relieve Lessee of any indemnification obligation pursuant to Section 5.7, but only to the extent that Lessee's right to contest is not precluded by such failure. If requested by Lessee in writing promptly after receipt of such Tax Indemnitee's notice, such Tax Indemnitee shall, upon receipt of indemnity satisfactory to it and at the expense of Lessee (including, without limitation, all costs, expenses, legal and accountants' fees and disbursements, and penalties, interest and additions to tax incurred in contesting such claim) in good faith contest or (if permitted by applicable Law) permit Lessee to contest such claim by (i) resisting payment thereof if practicable and appropriate, (ii) not paying the same except under protest if protest is necessary and proper, or (iii) if payment is made, using reasonable efforts to obtain a refund of such Taxes in appropriate administrative and judicial proceedings. Such Tax Indemnitee shall determine the method of any contest conducted by such Tax Indemnitee and (in good faith consultation with Lessee) control the conduct thereof. Lessee shall determine the method of any contest conducted by Lessee and (in good faith consultation with such Tax Indemnitee) control the conduct thereof. Lessee shall pay in full all payments of Rent and other amounts payable pursuant to the Lease, without reduction for or on account of any Tax, while such contest is continuing. Such Tax Indemnitee shall not be required to contest, or to continue to contest, a claim for Taxes under this Section 5.8 if (x) such contest would result in a risk of criminal penalties or of a sale, forfeiture or loss of, or the imposition of a Lien (other than a Permitted Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion of independent tax counsel selected by such Tax Indemnitee and reasonably satisfactory to Lessee, that a reasonable basis exists for such contest, or (z) a Default shall be continuing (unless Lessee shall have provided security reasonably satisfactory to such Tax Indemnitee securing Lessee's performance of its obligations under this Section 5.8). If a Tax Indemnitee contests any claim for Taxes by making a payment and seeking a refund thereof, then Lessee shall advance to such Tax Indemnitee, on an interest-free basis, an amount equal to the Taxes to be paid by such Tax Indemnitee in connection with the contest and shall indemnify Such Tax Indemnitee on an After-Tax Basis for any adverse tax consequences to such Tax Indemnitee of such interest-free advance. Upon the final determination of any contest pursuant to this Section 5.8 in respect of any Taxes for which Lessee shall have made an advance to a Tax Indemnitee in accordance with the immediately preceding sentence, the amount of Lessee's obligation shall be determined as if such advance had not been made; any indemnity obligation of Lessee to such Tax Indemnitee under this Section 5.8 and such Tax Indemnitee's obligation to repay the advance will be satisfied first by setoff against each other, and any difference owing by either party shall be paid within ten days after such final determination. (b) If a Tax Indemnitee obtains a refund or reimbursement of all or any part of any Taxes for which a full indemnity was paid by Lessee, such Tax Indemnitee shall pay Lessee the amount of such refund or reimbursement, reduced by any Taxes imposed on such Tax Indemnitee on receipt or accrual of such refund or reimbursement and increased by any Taxes saved by such Tax Indemnitee by reason of the deductibility of such payment by Lessor. If, in addition to such refund or reimbursement, a Tax Indemnitee receives an amount of interest on such refund or reimbursement, such Tax Indemnitee shall pay to Lessee the portion of such interest which is fairly attributable to such refund, reduced by any Taxes imposed by such Tax Indemnitee on receipt or accrual of such interest and increased by any Taxes saved by reason of the deductibility of such payment by such Tax Indemnitee. No Tax Indemnitee shall be required to make any payment to Lessee pursuant to this Section 5.8 if, and for so long as, a Default shall have occurred and be continuing. (c) Any Tax Indemnitee, in its sole discretion (by written notice to Lessee), may waive its rights to indemnification pursuant to Section 5.7 with respect to any claim for any Tax and may refrain from contesting or continuing the contest of such claim, in which event Lessee shall have no obligation to indemnify such Tax Indemnitee for the Taxes that are the subject of such claim. If a Tax Indemnitee agrees to a settlement of any contest conducted pursuant to this Section 5.8 without the prior written consent of Lessee, which consent shall not be unreasonably withheld, then such Tax Indemnitee shall be deemed to have waived its rights to the indemnification provided for in Section 5.7 with respect to the Tax liability accepted in such settlement. (d) Information: (i) If Lessee is required by any applicable Law, or by any third party, to deliver any report or return in connection with any Taxes for which Lessee would be obligated to indemnify any Tax Indemnitee under the Lease, Lessee will complete the same and, on request, supply a copy of the report or return to such Tax Indemnitee. (ii) If any report, return or statement is required to be made by any Tax Indemnitee with respect to any Tax for which there is an indemnity obligation of Lessee under the Lease, Lessee will promptly notify such Tax Indemnitee of the requirement and: (y) if permitted by applicable Law, make and timely file such report, return or statement (except for any report, return or statement that any Tax Indemnitee has notified Lessee that such Tax Indemnitee intends to prepare and file), prepare such return in such manner as will show Lessor as lessor of the Aircraft and the ownership of the Aircraft in Lessor if required or appropriate, and provide Lessor upon request a copy of each such report, return or statement filed by Lessee, or (z) if Lessee is not permitted by return or statement, Lessee will prepare and deliver to Lessor a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. (iii)Lessee will provide such information and documents as Lessor may reasonably request to enable any Tax Indemnitee to comply with its tax filing, audit and litigation obligations. 5.9 Indemnity Payments - After-Tax Basis The amount of any payment made under Section 5.7 (Tax Indemnity) (including Section 5.7(d)), Section 5.20 (Expenses) or Section 10 (Indemnity) to or for the benefit of any Indemnitee, shall include such amount as may be necessary to hold such Indemnitee harmless on an After-Tax Basis from all Taxes required to be paid by such Indemnitee with respect to such payment or indemnity (including any payments pursuant to this Section 5.9). 5.10 Lessor Obligations Following Expiry Date Within * days (or such shorter period of not less than * days after the Expiry Date to which Lessor may agree after Lessee demonstrates to Lessor's reasonable satisfaction that there is no risk whatsoever of any payment made or to be made under the Lease being avoided (or otherwise rescinded) under Section 547 of the United States Bankruptcy Code of 1978, as amended, or any similar occurrence under any analogous provision of applicable United States federal or state law) after: (a) redelivery of the Aircraft to Lessor in accordance with and in the condition required by the Lease; or (b) payment to Lessor of the Agreed Value following an Event of Loss after the Delivery Date; or in each case such later time as Lessor is reasonably satisfied that Lessee has irrevocably paid to Lessor all amounts which may then be outstanding under the Lease and the Other Agreements and no Default has occurred and is continuing: (i) Lessor will pay to Lessee the balance of the Deposit (if any); (ii) Lessor will pay to Lessee the amount of any Rent received in respect of any period falling after the date of redelivery of the Aircraft or payment of the Agreed Value, as the case may be; and (iii)Lessor will return to Lessee or cancel any Letter of Credit. 5.11 Net Lease The Lease is a net lease. The Lessee's obligation to pay Rent and to perform all of its other obligations under the Lease is absolute and unconditional no matter what happens and no matter how fundamental or unforeseen the event, including any of the following: (a) any right of set-off, counterclaim, recoupment, defense or other right which either party to the Lease may have against the other (including any right of reimbursement) or which Lessee may have against the Manufacturer, any manufacturer or seller of or any Person providing services with respect to the Aircraft, any Engine or any Part or any other Person, for any reason whatsoever; (b) any unavailability of the Aircraft for any reason, including a requisition of the Aircraft or any prohibition or interruption of or interference with or other restriction against Lessee's use, operation or possession of the Aircraft (whether or not the same would, but for this provision, result in the termination of the Lease by operation of law); (c) any lack or invalidity of title or any other defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, or operation of any kind or nature of the Aircraft for any particular use or trade, or for registration or documentation under the Laws of any relevant jurisdiction, or any Event of Loss in respect of or any damage to the Aircraft; (d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceedings by or against Lessor, Lessee or any other Person; (e) any invalidity or unenforceability or lack of due authorization of, or other defect in, the Lease; (f) any Security Interests or Taxes; and/or (g) any other cause or circumstance which but for this provision would or might otherwise have the effect of terminating or in any way affecting any obligation of Lessee under the Lease. Lessee acknowledges and agrees that it has used its own judgement in selecting the Aircraft, and has not relied on Lessor or on any information supplied by Lessor, that Lessor is not a manufacturer of or dealer in aircraft and that Lessor has all of the rights and benefits of a lessor under a lease to which Section 2A-407 of the UCC applies as provided in such Section 2A-407. Except as expressly set forth elsewhere in the Lease, Lessee hereby waives, to the extent permitted by applicable Law, any and all right which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, abate, cancel, quit, reduce, defer, suspend or surrender the Lease or the Aircraft or any obligation imposed upon Lessee under the Lease (including payment of Rent or Supplemental Rent). Each payment of Rent or Supplemental Rent made by Lessee shall be final. Lessee will not seek to recover all or any part of any payment of Rent or Supplemental Rent for any reason whatsoever except manifest error. If for any reason whatsoever the Lease shall be terminated in whole or in part by operation of Law, except as specifically provided in the Lease, Lessee waives all rights (if any) to any termination or diminution in its Rent or Supplemental Rent obligations hereunder and nonetheless agrees to pay to Lessor an amount equal to each Rent and Supplemental Rent payment at the time such payments would have become due and payable in accordance with the terms thereof had the Lease not been terminated in whole or in part and so long as such payments are made and all other terms and conditions hereof are complied with by Lessee, Lessor and Lessee will deem the Lease to remain in full force and effect and Lessee shall continue in possession of the Aircraft under the terms and conditions of the Lease. Nothing in this Section 5.11 will be construed to limit Lessee's right to institute separate legal proceedings against Lessor in the event of Lessor's breach of the Lease or to limit Lessee's rights and remedies against any other person. 5.12 Further Provisions regarding Deposit (a) If, under the Lease, Lessee is required to pay a Deposit, Lessee hereby grants a security interest in the Deposit to Lessor and the remaining provisions of this Section shall apply. Lessee agrees that Lessor shall be entitled to commingle the Deposit with Lessor's general or other funds, Lessor will have no obligation to pay any interest thereon and Lessor will not hold any such funds as agent or in trust for Lessee or in any similar fiduciary capacity. In this regard, Lessee acknowledges and agrees that it is not located in the State of New York within the meaning of Section 7-101 1-c. (b) of the New York General Obligations Law and, therefore, the requirements of Section 7-101 of the New York General Obligations Law to the effect that Lessor hold the Deposit in a separate, interest bearing account do not apply. (b) If any Event of Default shall have occurred and be continuing under the Lease or any Other Agreement, in addition to all rights and remedies accorded to Lessor elsewhere in the Lease or under Law in respect of the Deposit, Lessor may immediately or at any time thereafter, without prior notice to Lessee, apply all or part of the Deposit in or towards the payment or discharge of any matured obligation owed by Lessee or any Affiliate of Lessee under the Lease or the Other Agreements, in such order as Lessor sees fit, and/or exercise any of the rights of set-off described in Section 5.19 against all or part of the Deposit. (c) If Lessor exercises the rights described in Section 5.12(b) above, Lessee shall, following a demand in writing from Lessor, promptly restore the Deposit to the level at which it stood immediately prior to such exercise. 5.13 Letter of Credit (a) If, under the Lease, Lessee is required or elects to provide Lessor with a Letter of Credit, the provisions of this Section shall apply. Any Letter of Credit provided by Lessee to Lessor will be issued and payable by a Pre-Approved Bank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by a Pre-Approved Bank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, and will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and each Other Agreement (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (b) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than * days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (c) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (d) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. 5.14 Guarantee If, under the Aircraft Lease Agreement, Lessee is required to provide Lessor with a Guarantee, Lessee will on or prior to the Delivery Date provide Lessor with the Guarantee. 5.15 Late Payment Interest If Lessee fails to pay any amount payable under the Lease on the due date, Lessee will pay on demand from time to time to Lessor interest (both before and after judgement) on that amount, from the due date to the date of payment in full by Lessee to Lessor, at the Interest Rate. All such interest will be compounded monthly and calculated on the basis of the actual number of days elapsed in the month, assuming a * day month and a * day year. 5.16 Currency (a) Except for Losses and expenses suffered or incurred by Lessor, which shall be payable by Lessee to Lessor in the currency and in the amount in which such Loss is suffered or incurred, all amounts payable to Lessor under the Lease shall be payable in Dollars in New York and payment in Dollars in New York is of the essence. Lessee shall indemnify Lessor against any Loss Lessor suffers if: (i) Lessor receives an amount relating to Lessee's obligations in a different currency from that in which payments should be made under the Lease; or (ii) Lessee pays a judgement or claim in a different currency from that in which payments should be made under the Lease. (b) Lessee relinquishes any right to pay any amount under the Lease in a currency which is different from the currency provided in the Lease. Notwithstanding any such receipt, judgement or claim described in Section 5.16(a), Lessee shall have a separate obligation to pay, and Lessor shall have a separate claim against Lessee for, amounts to be indemnified by Lessee under this Section 5.16. 5.17 Certificates Except where expressly provided in the Lease, any certificate or determination by Lessor as to any rate of interest or as to any other amount payable under the Lease will, in the absence of manifest error, be presumed to be correct. 5.18 Appropriation If any sum paid or recovered by Lessor in respect of the liabilities of Lessee under the Lease is less than the amount then due, Lessor may apply that sum to amounts due under the Lease in such proportions and order and generally in such manner as Lessor may determine in its sole discretion. 5.19 Set-off (a) In this sub-clause, references to Lessee will also include Lessee Affiliates. (b) Lessor may set-off any obligations owed by Lessee under the Lease or under the Other Agreements against any obligation Lessor owes Lessee under the Lease or owed to Lessee by any Person under the Other Agreements or otherwise, regardless of the place of payment or currency. Promptly after making any such set-off, Lessor shall notify Lessee thereof, but failure to give such notice shall not affect the effectiveness of any such set-off. (c) If the obligations are in different currencies, Lessor may convert either obligation at the market rate of exchange available in New York. If the amount of an obligation is unknown, Lessor may estimate the amount. Any difference between the estimated obligation and the actual obligation will be paid by either Lessor or Lessee, as appropriate, when the amount becomes known. 5.20 Expenses Whether or not the Aircraft is delivered to Lessee, Lessee will pay to Lessor on demand all reasonable expenses (including all reasonable legal fees and expenses and the reasonable fees and expenses of other professional advisers) that the Lessor has to pay: (a) to deal with any amendments, extensions, consents or waivers that are required in connection with the Lease (but excluding any expenses incurred in connection with the financing or any change in the ownership of the Aircraft or a change in the Lease that is otherwise requested by Lessor or Owner or required by Lessor, Owner or any Financing Party outside of the terms and conditions of this Agreement, and in each case unrelated to any consent, waiver or amendment requested by Lessee or any Default by Lessee under the Lease) or to deal with any replacement of any Engine or Part (except for the replacement of an Engine by or at the request of Lessor prior to the Delivery Date); (b) for FAA counsel and otherwise to act upon any advice and obtain assistance to perfect the Lease in the State of Registry and the State of Incorporation (and any other appropriate place); and (c) in connection with, the enforcement or preservation of any of Lessor's rights under the Lease (including under Section 10) or in respect of the repossession of any Aircraft. (d) All amounts payable pursuant to this Section 5.20 will be paid in the currency in which they are incurred by Lessor. 5.21 Other Payments Lessee will promptly pay all Taxes, other than any Taxes described in Section 5.7 (which are addressed separately in such Section), which it is required to pay and all other amounts of any nature imposed by any Government Entity with respect to the Aircraft and/or the Lease except to the extent that, such payment is being contested in good faith by appropriate proceedings in respect of which adequate reserves have been provided by Lessee and non-payment of which does not give rise to any material likelihood of the Aircraft or any interest therein being sold, forfeited or otherwise lost or of criminal liability on the part of Lessor or Owner. 6. MANUFACTURER'S WARRANTIES (a) So long as no Event of Default has occurred which is continuing and with effect from Delivery, Lessor assigns to Lessee, and authorizes Lessee to exercise such rights as Lessor may have under any warranty with respect to the Aircraft, any Engine or any Part made by any manufacturer, vendor, sub-contractor or supplier (including compensation for loss of use of the Aircraft) to the extent that the same may be assigned or otherwise made available to Lessee. In furtherance of the foregoing, Lessor shall take such actions, at Lessee's cost and expense, as Lessee may reasonably request to make such warranties available to Lessee. The Manufacturer shall deliver its consent to the assignment of any such warranties upon Delivery of the Aircraft. Lessee will give Lessor prompt written notice of any warranty claim which is settled with Lessee on the basis of a cash payment other than reimbursements for work performed directly by Lessee. (b) With effect from Delivery, or such earlier date as Lessor, Manufacturer and Lessee may mutually agree, Lessor shall transfer over to the Manufacturer such rights as Lessor may have under any product support agreement Lessor may have with the Manufacturer relating to the Aircraft. In consideration for such transfer, Lessee shall agree with the Manufacturer an independent package of product support. If an Event of Default shall have occurred and is continuing on or before Delivery, Lessee shall promptly pay Lessor upon receipt of a written invoice the value, as determined by the Manufacturer or vendor, as applicable, of such product support as used by Lessee if such support has been used by Lessee prior to Delivery. and Lessee does not accept Delivery of the Aircraft in accordance with the provisions set forth herein. (c) If an Event of Default has occurred and is continuing Lessor may immediately recover from Lessee the proceeds of any warranty claims previously paid to Lessee to the extent that such claims relate to any defect in the Aircraft not fully and completely rectified by Lessee before such Event of Default and Lessor may: (i) retain for its own account any such proceeds previously paid to Lessor which would have been remitted to Lessee under this Section 6 in the absence of such Event of Default; and (ii) cause any proceeds of any pending claims to be paid to Lessor, rather than Lessee. (d) Upon Redelivery of each Aircraft, Lessee assigns to Lessor, and authorizes Lessor to exercise such rights as Lessee may have under any warranty with respect to the Aircraft, any Engine or any Part made by any manufacturer, vendor, sub-contractor or supplier (including compensation for loss of use of the Aircraft) to the extent that the same may be assigned or otherwise made available to Lessor.In furtherance of the foregoing, Lessee shall take such actions, at Lessee's cost and expense, as Lessor may reasonably request to make such warranties available to Lessor. 7. LESSOR'S COVENANTS 7.1 Quiet Enjoyment So long as no Event of Default has occurred and is continuing, neither Lessor nor a Person lawfully claiming through Lessor (excluding a Person claiming through Lessor with respect to any Losses, Taxes or other liability for which Lessee is obligated to indemnify Lessor under the Lease or for which Lessee is otherwise responsible under the Lease), will interfere with Lessee's right to quiet use and possession of the Aircraft during the Term. Exercise by Lessor of its rights of inspection or other rights expressly provided to it under the Lease in the absence of an Event of Default shall not be considered to be a breach of the foregoing covenant. Lessee agrees that its only right with respect to a default by Lessor under the Lease is to make a claim against Lessor for actual damages resulting directly therefrom and in any event subject to Section 16.3 hereof, and Lessee hereby waives any and all other rights or remedies it may have under Section 2A-211 of the UCC or Sections 2A-508 through 2A-522 of the UCC or otherwise. 7.2 Maintenance Contributions (a) If, under the Aircraft Lease Agreement for the Aircraft, Lessee is required to pay Supplemental Rent, then provided no Event of Default has occurred and is continuing, Lessor will pay (as a separate and independent obligation and not as a return of Supplemental Rent) the following amounts to Lessee by way of contribution to the cost of maintenance of the Aircraft, UPON RECEIPT BY LESSOR, WITHIN * MONTHS AFTER CONCLUSION OF SUCH MAINTENANCE AND IN ANY EVENT WITHIN * MONTHS AFTER THE EXPIRY DATE, of an invoice and supporting documentation reasonably satisfactory to Lessor evidencing performance of any of the following work by the Maintenance Performer: (i) Airframe: With respect to the Airframe, the completion, in accordance with the Lease, of the Airframe Structural Check , the lesser of (aa) the amount of that invoice and (bb) an amount equal to the aggregate amount of the Airframe Supplemental Rent paid under the Lease at the date such work starts less the aggregate amount previously paid by Lessor under this sub-clause; (ii) Engine Life-Limited Parts: With respect to life-limited Parts within any Engine, the performance, in accordance with the Lease, of any replacement or repair of those Parts ("Engine LLP Replacement"), the lesser of (x) the amount of that invoice and (y) an amount equal to the aggregate amount of the Engine LLP Supplemental Rent paid in respect of that Engine under the Lease at the date such work starts less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; (iii)Engine Refurbishment: With respect to any Engine, the performance, in accordance with the Lease, of Engine Refurbishment in respect of that Engine the lesser of (x) the amount of that invoice and (y) an amount equal to the aggregate amount of the Engine Supplemental Rent paid under the Lease in respect of that Engine at the date such work starts less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; (iv) APU: With respect to the APU, the performance, in accordance with the Lease, of all shop visits requiring APU removal and disassembly, the lesser of (x) the amount of that invoice and (y) an amount equal to the aggregate amount of the APU Supplemental Rent paid under the Lease at the date such work starts less the aggregate amount previously paid by Lessor under this sub-clause; and (v) Landing Gear: With respect to the Landing Gear, the performance in accordance with the Lease, of all work on the landing gear in the nature of overhaul and requiring removal and disassembly, the lesser of (x) the amount of that invoice and (y) an amount equal to the aggregate amount of the Landing Gear Supplemental Rent paid under the Lease at the date such work starts less the aggregate amount previously paid by Lessor under this sub-clause. PROVIDED THAT Lessor will not pay any such contribution: (b) in respect of paragraphs (i)-(v) above, for repairs arising as a result of accidents or incidents (whether or not eligible for recovery under Lessee's insurance), operational or maintenance mishandling or, except as and to the extent otherwise expressly agreed by Lessor, airworthiness directive work; nor (c) in respect of paragraphs (ii) and (iii) above, for repairs arising as a result of foreign object damage, the removal, installation, maintenance and repair of QEC (Quick Engine Change Kits) and/or any replacement of parts not required under the Maintenance Program to be replaced as part of the maintenance described in clause (i) through (v) above, as the case may be. 8. LESSEE'S COVENANTS 8.1 Duration: Lessee shall perform and comply with its undertakings and covenants in the Lease at all times during the Term. All such undertakings and covenants shall, except where expressly otherwise stated, be performed at the expense of Lessee. 8.2 Information Lessee will: (a) provide Lessor with a Technical Report for the Aircraft within * days after the end of each calendar month throughout the Term; (b) provide Lessor with the Financial Information; (c) promptly notify Lessor of any Event of Loss and, promptly after Lessee becomes aware thereof, of any event which is likely to result in an insurance claim in excess of the Damage Notification Threshold and details of any negotiations with insurers or insurance brokers relating to such claim; (d) promptly notify Lessor of any Default; (e) provide Lessor, upon request, with evidence that all Taxes and charges incurred by Lessee in connection with the Aircraft, its location and its operations, including those invoiced by airports and air traffic control authorities have been paid in full; (f) provide Lessor with such other information concerning the location, condition, use and operation of the Aircraft or concerning the business or financial affairs of Lessee, as Lessor may from time to time reasonably request; (g) give Lessor not less than * days written notice as to the scheduled tim and location of all Major Checks; (h) notify Lessor, promptly, of the removal of any Engine for the purpose of Engine Refurbishment; and (i) provide Lessor with all information concerning the Aircraft, or its location, condition, use and/or operation or concerning Lessee as reasonably requested by Lessor. 8.3 Lawful and Safe Operation Lessee will operate the Aircraft for commercial purposes from the Delivery Date until the Return Occasion from a base within the State of Registry or from such other base outside the State of Registry pursuant to a sub-lease or a wet-lease complying with Section 8.4(a),provided, always that Lessee shall not use or operate the Aircraft or suffer or permit the Aircraft to be used or operated (a) in violation of any applicable Regulations or in a manner causing Lessor to be in violation of any applicable Regulations; (b) for any purpose for which the Aircraft was not designed or which is illegal (c) to carry cargo which could reasonably be expected to damage the Aircraft; (d) in any circumstances or place where the Aircraft is not covered by the Insurances; or (e) for purposes of training, qualifying or re-confirming the status of cockpit personnel except for the benefit of Lessee's cockpit personnel, and then only if the use of the Aircraft for such purpose is not disproportionate to the use for such purpose of other aircraft of the same type operated by Lessee. 8.4 Subleasing (a) AT NO TIME WILL LESSEE SUB-LEASE, WET-LEASE OR OTHERWISE GIVE POSSESSION OR CONTROL OF THE AIRCRAFT OR ANY ENGINE TO, OR OTHERWISE PERMIT THE AIRCRAFT OR ANY ENGINE TO BE IN THE POSSESSION OR CONTROL OF, ANY PERSON EXCEPT: (i) when the prior written consent of Lessor has been obtained such consent no to be unreasonably withheld; or (ii) where the Aircraft or Engine is delivered to a manufacturer or maintenance facility for testing or work to be done on it as required or permitted under the Lease; or (iii)to a Permitted Sub-Lessee pursuant to a sub-lease which complies with the conditions set out in Clause 8.4(b) and provided that no Default shall have occurred and be continuing (a "Permitted Sub-lease"); (iv) on a wet- lease which complies with Section 8.4(c); or (v) with respect to an Engine, as permitted under Section 8.11. (b) Lessor will not unreasonably withhold or delay its consent to a proposed Permitted Sub-Lease and to a proposed Permitted Sub-Lessee; provided that, if Lessor grants its consent, then in addition to any conditions required by Lessor as part of such consent, each of the following conditions shall be required to be satisfied in relation to any Permitted Sub-Lease prior to any sub-leasing pursuant to this Section: (i) Notification: at least * days prior to entering into any Permitted Sub-Lease, Lessee shall give Lessor written notice, specifying the identity of the Permitted Sub-Lessee, the term of the Permitted Sub-Lease, the scheduled delivery date under the Permitted Sub-Lease and the habitual base of the Permitted Sub-Lessee; (ii) Term: the term of the Permitted Sub-Lease shall not extend beyond the scheduled Expiry Date; (iii)Form: a Permitted Sub-Lease shall: (aa) not contain provisions inconsistent with the provisions of the Lease (but may impose additional or more stringent obligations on any Permitted Sub-Lessee than are imposed on Lessee under the Lease); (bb) provide that no further subleases of the Aircraft by such Permitted Sub-Lessee are permitted; and (cc) include provisions substantially identical to or having substantially the same effect as Sections 2.1, 5.6, 5.7, 5.9, 5.11, 5.15, 5.16, 5.21, 8, 9, 10, 11, 13, 15.1, 15.8 and 16 and Schedules 2 (Section 1.1), 7 and 9 of the Lease (but the Permitted Sub- Lease may impose additional or more stringent obligations on any Permitted Sub-Lessee than are imposed on Lessee under the Lease); (iv) Subordination and Assignment: the Permitted Sub-Lease shall provide that (aa) the Permitted Sub- Lease is subject and subordinate to the Lease in all respects and the rights of the Permitted Sub-Lessee under the Permitted Sub-Lease are subject and subordinate in all respects to the rights of Lessor under the Lease; and (bb) prior to delivery of the Aircraft to the Permitted Sub-Lessee (as a condition precedent thereof), the Permitted Sub-Lessee shall provide an acknowledgement to Lessor and Owner in a form reasonably satisfactory to Lessor, confirming its agreement to this provision and confirming that its rights to possession of the Aircraft under the Permitted Sub-Lease will terminate immediately upon the termination of the Lease, and that it will redeliver the Aircraft to Lessor, upon notification from Lessor that an Event of Default has occurred and that it has, as a result thereof, terminated Lessee's right to possession of the Aircraft under the Lease (the "Subordination Acknowledgement"). The Permitted Sub-Lease shall be assigned to Lessor pursuant to an agreement reasonably acceptable to Lessor (the "Sub-Lease Assignment"); (v) Quiet Enjoyment: the Permitted Sub-Lease shall provide that the Permitted Sub-Lessee shall have the right to quiet enjoyment of the Aircraft for so long as no Event of Default has occurred under the Lease and/or no event of default or termination event (howsoever described) has occurred under the Permitted Sub-Lease; (vi) Obligations of Lessee: Lessee shall remain primarily liable under the Lease for the performance and observance of all its obligations to the same extent as if no Permitted Sub-Lease had been entered into. To the extent that the Permitted Sub-Lessee properly performs an obligation under the Permitted Sub-Lease, Lessor agrees that such performance shall also be regarded as discharging (to such extent) Lessee's corresponding obligation; (vii)Insurances: all insurance requirements herein shall be complied with either by Lessee or by the Permitted Sub-Lessee as if references in the insurance provisions of the Lease to "Lessee" were references to "the Permitted Sub-Lessee", and Lessee shall cause the Permitted Sub-Lessee to provide the insurance certificate and brokers' letter of undertaking referred to in Section 9.3(c)(ii) at least * (*) Business Days prior to the commencement of the Permitted Sub-Lease; (viii)Registration: there shall be no change in the registration of the Aircraft from its State of Registry; (ix) Repossession or Political Risk Insurance: if reasonably required by Lessor repossession or political risk insurance, as the case may be, shall be obtained by Lessor at Lessee's cost, provided that repossession or political risk insurance , as the case may be, will not be required if the Permitted Sub-Lessee meets the requirements of Sections 8.7(a)(iv) and (v). If repossession or political risk insurance is required, the Permitted Sub-Lease shall provide that, if any such repossession or political risk, as the case may be, insurance cannot be obtained or renewed, a termination event will occur upon notice by Lessor to Lessee or the Permitted Sub-Lessee of an inability to procure repossession or political risk, as the case may be, insurance; (x) Legal Opinions: as a condition precedent to the effectiveness of the Permitted Sub-Lease, Lessee shall provide to Lessor the following legal opinions (at Lessee's or Permitted Sub-Lessee's expense) addressed to Lessor, Owner and the Financing Parties' Representative from counsel reasonably acceptable to Lessor; (aa) a legal opinion in relation to the Permitted Sub-Lease in form and substance reasonably satisfactory to, and containing such other matters set out in Schedule 8 requested by, Lessor and confirming further that each of the Subordination Acknowledgement, the Permitted Sub-Lease and the Sub-Lease Assignment is valid, binding and (except as limited by any equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' or lessors' rights generally) enforceable against Permitted Sub-Lessee and, in the case of the Sub-Lease Assignment, properly perfected as against Lessee; and (bb) one or more legal opinions in a form and from counsel reasonably acceptable to Lessor in the State of Registration, the State of Incorporation for each of Lessee and the Permitted Sub-Lessee and, if not in the United States, State of the Habitual Base to the effect, inter alia, that Lessor's, Owner's and Financing Parties' Representative's interests in the Aircraft will be recognized under the laws of such country or countries. The foregoing opinion or opinions (x) shall be forwarded promptly to Lessor at least * Business Days prior to the effective date of the Permitted Sub-Lease, and (y) may, if different opinions are required hereunder, be made by a single counsel qualified to render opinions in each such country; (xi) Filings: Lessee shall co-operate with Lessor (at no cost to Lessor) in connection with the execution and filing of any documents reasonably required by Lessor to be executed and filed from time to time with any registry or authority in the Habitual Base, the State of Registration and State of Incorporation (of each of Lessee and the Permitted Sub-Lessee) in order to protect the interests of Lessor, Owner and Financing Parties' Representative in and to the Aircraft, the Lease or the Permitted Sub- Lease and/or to ensure the validity, enforcement or priority thereof; (xii)Expenses: Lessee will pay to Lessor on demand all reasonable out of pocket expenses (including legal, survey and other costs) and Taxes payable or incurred by Lessor, Owner or Financing Parties' Representative in connection with the review and approval of the documentation required pursuant to this Section or otherwise incurred in connection with any requested sub-lease or the sub-leasing of the Aircraft thereunder; (xiii)Permitted Sub-Lease: Promptly after its execution, Lessee shall provide Lessor with a copy of the signed Permitted Sub-Lease; (xiv)Acknowledgement by Guarantor: If a Guarantee is required under the Aircraft Lease Agreement, Lessee shall provide to Lessor at least * Business Days prior to the effective date of the Permitted Sub-Lease an acknowledgement by Guarantor of the Permitted Sub-Lease and confirmation that the Guarantee will remain in full force and effect during the term of such Permitted Sub-Lease. (c) Notwithstanding Section 8.4 (a), Lessee shall be permitted to make the Aircraft available to the United States under the CRAF program as provided in Section 12.7 and Lessee shall be permitted to otherwise wet lease the Aircraft provided the Aircraft (i) shall be operated solely by regular employees of Lessee possessing all current certificates and licenses that are required by applicable Regulations, including by the State of Registry, and shall remain in the operational control and possession of Lessee, (ii) shall be subject to insurance coverage as provided for in the Lease, (iii) shall be used and operated in accordance with the Lease and shall be maintained or caused to be maintained by Lessee in accordance with Lessee's Maintenance Program and Lessee's normal maintenance practices, and (iv) shall not be subject to any change in its State of Registry; and provided always that, except in respect of CRAF, such arrangement is expressly subordinated to the Lease and the rights of Lessor thereunder and to the Aircraft, and Lessee provides Lessor with all opinions, certificates and other documents requested by Lessor which are required to be provided, and takes all other action requested by Lessor. 8.5 Inspection (a) Lessee will permit Lessor's representatives to inspect the Aircraft at any time. Unless an Event of Default has occurred and is continuing, any such Person will give Lessee reasonable notice of inspection and such inspection will not result in a disruption to the scheduled operation of the Aircraft. Lessee shall comply with the reasonable requests of Lessor's representatives during the course of an inspection, including any request to travel on the flight deck of the Aircraft as an observer, subject to any applicable Regulations. (b) The cost of conducting an inspection shall be borne by Lessor, unless, as a result of that inspection, Lessee is found to be in default of its obligations under the Lease in which case the cost shall be borne by Lessee. (c) No liability or obligation will be incurred by Lessor by reason of non-exercise by it of the inspection rights referred to in this Section. (d) Lessor hereby indemnifies and agrees to hold harmless Lessee from and against all Losses relating to or arising out of the death or injury to any such observer or any employee of Lessor in connection with any such inspection. 8.6 Ownership; Property Interests; Related Matters (a) Lessee will: (i) fix and maintain Nameplates containing the Nameplate Inscription in a prominent position in the cockpit or cabin of the Aircraft and on each Engine; and (ii) take all reasonable steps as Lessor may reasonably request to make sure that such Persons as Lessor reasonably specifies know about the interests of Owner, Lessor and Financing Parties' Representative in the Aircraft. (b) Lessee will not: (i) represent that it is the owner of the Aircraft or that it has an economic interest (equivalent to ownership) in the Aircraft for Tax treatment or other purposes; (ii) represent to others that Owner, Lessor or Financing Parties' Representative is associated with or responsible for the business activities and/or flight operations of Lessee; (iii)allow the Aircraft or the Lease to become or remain subject to any Security Interest (other than a Permitted Lien); or (iv) allow the name of any Person other than Lessor, Owner or any Financing Party to be placed on the Aircraft or any Engine as a designation that could reasonably be interpreted as a claim of ownership or as a Security Interest; provided, that Lessee may place thereon, or allow a Permitted Sub-Lessee to place thereon, its customary insignia and colors. 8.7 General (a) Lessee will: (i) maintain its business as a commercial airline, will preserve its corporate existence (other than as permitted in Section 8.7 (vii) below) and will maintain all rights, privileges, licenses and franchises material thereto or material to performing its obligations under the Lease; (ii) not operate, maintain, insure or deal with, or keep records with respect to, the Aircraft in a manner which discriminates against the Aircraft adversely insofar as Lessor's, Owner's or Financing Parties' interests are concerned, when compared with the manner in which Lessee operates, maintains, insures or deals with, or keep records with respect to, similar aircraft, engines or parts in Lessee's fleet; (iii)not change the location of its chief executive office from that described in the heading of the Aircraft Lease Agreement or otherwise be located (as defined in Section 9-103(3)(d) of the UCC) at any place in the United States other than the location described the heading of the Aircraft Lease Agreement, except upon 30 days prior written notice thereof to Lessor; (iv) remain a Certificated Air Carrier and maintain its status so as to fall within the purview of Section 1110 of Title 11 of the U.S.C. or any analogous statute; (v) remain a "citizen of the United States" as defined in Section 40102(a) (15) (c) of Title 49 of the U.S.C.; (vi) not liquidate or dissolve; and (vii)not consolidate with or merge into or with any other corporation or other Person, and not convey, transfer, lease or otherwise dispose of all or substantially all of its property and other assets to, or acquire all or any substantial part of the property or other assets or capital stock of (if such acquisition is analogous in either purpose or effect to a consolidation or merger), any corporation or other Person, unless: (x) such transaction shall not have any material adverse effect on the rights of Lessor under or in respect of the Lease or the Aircraft; (y) the Person formed by or surviving such consolidation or merger or the Person which acquires by conveyance, transfer, lease or other disposition all or substantially all of such property and other assets or stock (the "Successor Entity"):(A)shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (B) immediately after giving effect to such transaction, shall be Lessee or shall have acquired or succeeded to all or substantially all of the property and other assets of Lessee (if such assets are being transferred) as an entirety, and shall have a tangible net worth (determined in accordance with GAAP) of not less than Lessee's tangible net worth (determined in accordance with GAAP) immediately prior to such transaction; (C) shall be a "citizen of the United States" of America as defined in Section 40102(a)(15)(c) of Title 49 of the U.S.C. and Certificated Air Carrier; and (D) shall execute and deliver to Lessor such recordations and filings with any Governmental Entity and such other documents as Lessor determines shall be reasonably necessary or advisable to evidence, or in connection with, such consolidation, merger, sale, lease, transfer or other disposition and an agreement, in form and substance reasonably satisfactory to Lessor which is a legal, valid, binding and enforceable assumption by such Successor Entity of the due and punctual performance and observance of each covenant and condition of the Lease and the other related documents to which Lessee is a party, and an officer's certificate to such effect and to the effect that the other requirements of this Section have been satisfied, and a legal opinion from counsel to such effect and otherwise in such form and substance reasonably satisfactory to Lessor; and (z) no Default shall have occurred and be continuing or shall occur as a result thereof. 8.8 Records Lessee will keep all Aircraft Documents and Records in English and so they meet the requirements of applicable Regulations (including FAR 91.417) and Lessee's Maintenance Program. 8.9 Protection Lessee will: (a) take all actions reasonably requested by Lessor that are within its control to keep the Aircraft registered with the Air Authority in the name of Owner and subject to the first-priority Security Interest in favor of Financing Parties' Representative; and (b) make any and all filings required to be made with the Air Authority registry that are within its control and take all other actions within its control that are necessary or advisable to reflect on the Air Authority registry any (i) change in the ownership of the Aircraft, or (ii) change in the interests of Lessor, Owner or the Financing Parties' Representative in the Lease or the Aircraft, (iii) modification to the Aircraft (such as the permanent replacement of any Engine or Part in accordance with the Lease) or (iv) change in applicable Regulation. Lessor will bear any costs incurred as a consequence of a transfer by Lessor, Owner or the Financing Parties' Representative in the interests of Lessor, Owner or the Financing Parties' Representative in the Lease or the Aircraft or a change in the identity of Lessor, Owner or the Financing Parties' Representative (in each case, unrelated to the replacement of any Engine or Part or a Default) in connection with the preceding sub-clauses (i) and (ii), and Lessee will bear any other costs incurred in complying with this Section, including in connection with the replacement of any Engine or Part. 8.10 Maintenance and Repair Lessee will maintain, overhaul and repair the Aircraft (or arrange for the Aircraft to be maintained, overhauled and repaired, through the Maintenance Performer), so that: (a) the Aircraft is kept in as good operating condition and repair as the condition of the Aircraft as at Delivery and after giving effect to any post-Delivery modifications, repairs or maintenance paid for or otherwise provided by or on behalf of Lessor, except for ordinary wear and tear; (b) the Lessee has a current certificate of airworthiness (issued by the Air Authority in the appropriate public transport category) for the Aircraft in good standing at all times; (c) the Aircraft complies with (i) all applicable Regulations including the standard stipulated by FAR Part 121 Subpart L and any other rules and regulations of the FAA and in at least the same manner and with at least the same care, including record keeping, maintenance scheduling, modification status and technical condition, as is the case with respect to similar aircraft owned or otherwise operated by Lessee and as if Lessee were to retain and continue operating the Aircraft in its fleet after the Expiry Date, including all maintenance to the Airframe, any Engine or any Part required to maintain all warranties, performance guaranties or service life policies in full force and effect; and (ii) the requirements of all Airworthiness Directives and all service bulletins issued during the Term designated by the State of Design or State of Registry as "mandatory," and to be carried out before the Return Occasion or within a period of * days after the Return Occasion; provided, that, Lessor shall reimburse Lessee for a portion of the cost of certain Airworthiness Directives in excess of the AD Threshold, in accordance with Schedule B, Part VI of the Aircraft Lease Agreement; and (d) all maintenance is carried out according to Lessee's Maintenance Program in at least the same manner and with at least the same care, including maintenance scheduling, modification status and technical condition, as is the case with respect to similar aircraft owned or otherwise operated by Lessee. 8.11 Removal of Engines and Parts (a) General: Lessee shall replace, within * (*) days thereof, any Engine that has suffered an Engine Event of Loss in accordance with Section 8.11(b), and any Part which is permanently removed from the Aircraft shall be replaced in accordance with Section 8.11(b). Any Engine or Part which otherwise is lost, stolen, destroyed, seized, obsolete, confiscated, damaged beyond repair or permanently rendered unfit for any reason, shall be replaced in accordance with Section 8.11(b). Any Engine or Part may be installed on another aircraft Lessee owns or leases in accordance with Section 8.11(c). Lessee may temporarily install an engine or part in accordance with Section 8.11(d). Lessee shall obtain from any person to whom possession of an Engine is given, and from the lessor of any airframe on which an Engine is installed and from any holder of a Security Interest in any airframe on which an Engine is installed, an agreement in writing (which agreement, in the case of a lease or Security Interest, may be contained in the applicable lease or Security Interest agreement covering such airframe) to Lessor, Owner and Financing Parties' Representative, in form and substance reasonably satisfactory to Lessor, that such Person and its successors and assigns will respect the interests of Owner and Lessor as owner and lessor, respectively, and of the Financing Parties' Representative as holding a Security Interest in, such Engine and will not seek to acquire, claim or exercise any rights whatsoever in relation to such Engine. In the event Lessee shall have received from a lessor of or secured party holding a Security Interest in any airframe leased to Lessee or owned by Lessee a written agreement pursuant to the foregoing sentence and the lease or Security Interest covering such airframe also covers an engine or engines owned by the lessor under such lease or subject to such Security Interest in favor of the secured party under such Security Interest, Lessor hereby agrees for the benefit of such lessor or secured party that Lessor will not acquire, claim or exercise as against such lessor or secured party, any right, title or interest in any such engine as the result of such engine being installed on the Airframe at any time while such engine is subject to such lease or Security Interest and owned by such lessor or subject to a Security Interest in favor of such secured party. (b) Permanent Replacement: If Lessee permanently replaces an Engine or Part: (i) in the case of an Engine, the replacement engine shall be of the same manufacturer and model, or at Lessee's option an engine of an improved model, and have equivalent or better remaining useful life, modification status, time elapsed since hot section refurbishment, cold section refurbishment, reduction gear overhaul, life limited part utility, serviceability and equivalent remaining warranty status as the Engine it replaces, and is otherwise of an equivalent or better value and utility and suitable for installation and use on the Airframe without impairing the value or utility of the Airframe and compatible with the remaining installed Engine(s); (ii) in the case of a Part, the replacement part shall be in good operating condition, have a value and utility the same or better than the Part it is replacing, have as much useful life available until the next scheduled maintenance procedure, be of the same or a more advanced make and model and of the same interchangeable modification status as the Part it is replacing; (iii)the replacement engine or part shall have become and remain, until replaced in accordance with this Section, the property of Owner free from Security Interests (other than Permitted Liens), and subject to the applicable Financing Documents; and (iv) Lessee shall have full details of the source and maintenance records of the replacement engine or part and in the case of serialized rotable parts, also have a complete service history as required by the Air Authority. (c) Other Aircraft: An Engine or Part may be installed on an aircraft which Lessee owns or leases if: (i) no payment Default or Event of Default has occurred and is continuing; (ii) Lessee has operational control over the aircraft; (iii)Owner keeps the ownership of the Engine or Part concerned until replaced in accordance with this Section; (iv) the Engine or Part does not become subject to a Security Interest and the applicable airframe is not subject to any Security Interest except a Permitted Lien or a lease or Security Interest described in Section 8.11(a) above; and (v) the Engine or Part is removed from the aircraft not later than the Expiry Date; (d) Temporary Replacement:Lessee may install any engine or part on the Aircraft as a temporary replacement if: (i) no payment Default or Event of Default has occurred and is continuing; (ii) there is not available an engine or part complying with the requirements of the Lease for a replacement Engine or Part; (iii)it would result in an unreasonable disruption of the operation of the Aircraft or the business of Lessee to have the Aircraft grounded until such time as an engine or part complying with the requirements of the Lease for a replacement Engine or Part becomes available for installation; (iv) as soon as practicable after an engine or part is installed on the Aircraft, but before the Expiry Date, Lessee removes that engine or part and replaces it with the original Engine or Part (or by an engine or part which is allowed by Section 8.11(b)); and (v) the Insurances for the Aircraft are not adversely affected. (e) Pooling/Interchange: Lessee shall not subject any Engine or Part to any pooling, interchange, lease or similar arrangement unless Lessee obtains Lessor's prior written consent thereto, which consent shall not be unreasonably withheld. 8.12 Equipment Changes Lessee will not make any modification or addition to the Aircraft (each an "Equipment Change"), except for an Equipment Change which: (i) is required by applicable Law or expressly permitted or required by the Lease; or (ii) has the prior written approval of Lessor or does not diminish the condition, utility, airworthiness or value of the Aircraft and costs less than $*; or (iii)is otherwise permitted by Section 8.14 herein. So long as no Default has occurred and is continuing, Lessee may remove any Equipment Change provided that the Equipment Change is not required pursuant to the terms of the Lease or to maintain the Insurances and removal does not diminish the value, utility, airworthiness or condition of the Aircraft below what it would have been if such Equipment Change had never occurred. Furthermore, Lessor may require Lessee to remove any Equipment Change (other than those required by applicable Law) on the Expiry Date and to restore the Aircraft to its condition prior to that Equipment Change. Any Equipment Change not so removed becomes the property of Lessor or Owner, as the case may be. 8.13 Title on an Equipment Change Title to any equipment that becomes a Part or an Engine after the Delivery Date shall vest in Owner solely by virtue of its attachment to the Airframe or an Engine and it shall then be subject to the Lease and, if applicable, the Financing Documents, as if it were attached to the Aircraft at Delivery. If so requested by Lessor, Lessee will provide a properly executed bill of sale or similar instrument to evidence the vesting of good and marketable title, free and clear of Liens (except Lessor Liens), to any such equipment in Owner. After Lessee has permanently replaced an Engine in accordance with Section 8.11(b) and this Section 8.13, Lessor will, or will procure that Owner will transfer to Lessee, all of Lessor's or Owner's, as the case may be, rights to the engine that has been replaced, on an AS IS, WHERE IS basis without recourse or warranty (except as to the absence of Lessor's Liens), and will at Lessee's expense provide or will procure that Owner provides a bill of sale or similar instrument as Lessee may reasonably request to evidence such transfer. Lessee shall indemnify, on an After-Tax Basis, Lessor, Owner and each other Tax Indemnitee for all fees and expenses incurred by Lessor, Owner or any other Tax Indemnitee in connection with any such transfer. 8.14 Inflight Equipment Notwithstanding any other provision of this Agreement, Lessor acknowledges that Lessee may at any time during the Term install a telephone system and/or an inflight entertainment system for passenger use (collectively, the "Inflight Equipment") on the Aircraft notwithstanding that the Inflight Equipment may not be owned by Lessee provided that: (a) Lessee shall give Lessor notice of the installation of any Inflight Equipment on the Aircraft and the name and address of the owner of such Inflight Equipment (including Lessee as owner, if applicable); (b) the documents pursuant to which the owner of the Inflight Equipment installs same on the Aircraft shall provide that such owner shall not have any lien, security interest, claim or other encumbrance on or against the Aircraft, and such owner's only right with respect to the Aircraft shall be to remove the Inflight Equipment from the Aircraft and, such documents shall also provide that such owner shall remove the Inflight Equipment from the Aircraft not later than the earlier of (A) * (*) days after notice from Lessor of the occurrence of an Event of Default, and (B) the Expiry Date; (c) such right of removal is subject to and conditional upon such owner restoring, or causing Lessee to restore, all alterations made to the Aircraft in connection with the installation of the Inflight Equipment to the condition prior to the installation thereof (ordinary wear and tear excepted). Lessor acknowledges that at all times: (i) the owner of the Inflight Equipment has and will retain sole and exclusive right and title to and in the Inflight Equipment; (ii) the Inflight Equipment shall not constitute a Part or a part of the Aircraft; (iii)title to the Inflight Equipment shall not transfer to or from Lessor pursuant to Clauses 8.12 and 8.13; and (iv) the Inflight Equipment shall not become subject to the Security Interest of any person to whom Lessor grants a Security Interest in the Aircraft pursuant to Clause 14.1. 9. INSURANCE 9.1 Insurances Lessee will maintain the Insurances in full force during the Term, and thereafter as expressly required in the Lease, which Insurance shall be through such brokers and with such insurers of recognised standing and reputation and shall be subject to such exclusions consistent with the customary standard for similar operators, operating similar equipment in similar circumstances. The Insurances shall in any event meet the requirements set forth in Schedule 7. If the Insurances do not meet the requirements set forth in Schedule 7, Lessor may require that the Insurances be amended if the scope and level of cover does not protect the interests of Lessor and each Indemnitee to at least the same extent as they were at the commencement of the Term. 9.2 Insurance Undertakings and Information: Lessee will: (a) comply with the terms and conditions of each policy of the Insurances and not do, consentor agree to any act or omission which: (i) invalidates or may invalidate the Insurances; or (ii) renders or may render void or voidable the whole or any part of any of the Insurances; or (iii)brings any particular liability within the scope of an exclusion or exception to the Insurances; (b) not take out without the prior written approval of Lessor any insurance or reinsurance in respect of the Aircraft other than that which is required under the Lease unless relating solely to hull total loss, business interruption, profit commission and deductible risk and which does not in any event adversely affect the Insurances required to be maintained hereunder; (c) commence renewal procedures at least * days prior to expiry of any of th Insurances and provide to Lessor: (i) if requested by Lessor, a written status report of renewal negotiation * days prior to each expiry date; (ii) telecopy confirmation of completion of renewal prior to each policy expiry date; (iii)certificates of insurance (and where appropriate certificates of reinsurance), and broker's (and any reinsurance broker's) letter of undertaking in a form reasonably acceptable to Lessor, detailing the coverage and confirming the insurers' (and any reinsurers') agreement to the specified insurance requirements of the Lease on or before each renewal date; (d) on request, provide to Lessor copies ofdocuments or other information evidencing the Insurances; and (e) provide any other insurance and reinsurance related information, or assistance, in respect of the Insurances as Lessor may reasonably require. 9.3 Failure to Insure If Lessee fails to maintain any of the Insurances in compliance with the Lease, each of the Indemnitees will be entitled but not bound (without prejudice to any other rights of Lessor under the Lease): (a) to pay the premiums due or to effect and maintain insurances satisfactory to it or otherwise remedy Lessee's failure in such manner (including, without limitation to effect and maintain an "owner's interest" policy) as it considers appropriate. Any sums so expended by it will become immediately due and payable by Lessee to Lessor together with interest thereon at the Interest Rate, from the date of expenditure by it up to the date of reimbursement by Lessee; and (b) at any time while such failure is continuing to require the Aircraft to remain at any airport or to proceed to and remain at any airport designated by it until the failure is remedied to its satisfaction. 9.4 Continuing Indemnity Lessee shall effect and maintain insurance after the Expiry Date with respect to its liability under Section 10 (Indemnity) for * years, and such insurance shall name each Indemnitee as an additional insured. 10. INDEMNITY (a) Except as provided in Section 10(b) below, Lessee agrees to assume liability for and to indemnify each of the Indemnitees against and agrees to pay on demand any and all Losses which an Indemnitee may at any time suffer or incur at any time, whether directly or indirectly, arising out of, related to or in any way connected with: (i) the ownership, maintenance, overhaul, service, repair, delivery, possession, transfer of ownership or possession, import, export, registration, control, storage, modification, leasing, insurance, inspection, testing, design, date processing, sub-leasing, use, condition, redelivery or other matters relating to the Aircraft, any Engine or any Part (regardless of whether in the air or on the ground, and regardless of whether such Losses are based on strict liability in tort, any act or omission, including the negligence, of any Indemnitee, or otherwise); or (ii) any breach by the Lessee of any of its obligations under the Lease; or (iii)the design, testing or use of or any article or material in, the Aircraft, any Engine or any Part or its use or operation, including any defect in design and regardless of whether it is discoverable, and any infringement of patent, copyright, trademark, design or other proprietary right claimed by any Person or a breach of any obligation of confidentiality claimed to be owed to any Person. For the avoidance of doubt, the reference to "ownership" in clause (i) shall not require Lessee to indemnify Lessor in respect of (y) any defect in Lessor's or Owner's title to the Aircraft or (z) any decline in residual value of the Aircraft if Lessee shall have fully complied with its obligations under the Lease. (b) Lessee is not required to indemnify any particular Indemnitee under this Section, to the extent a particular Loss: (i) is caused by the willful misconduct of that Indemnitee or gross negligence of that Indemnitee, other than gross negligence imputed to that Indemnitee by reason of its interest in the Aircraft or the Lease; (ii) is caused by Lessor's breach of the Lease which does not result from a Default; (iii)is related to any Taxes (but without prejudice to any Indemnitee's rights under any other provision of this Lease relating to Taxes); (iv) arises from a claim made, or is based on any event occurring, prior to the commencement of the Term; (v) arises from a claim made, and is based on any event occurring, after the redelivery of the Aircraft to Lessor in compliance with the Lease; (vi) caused as a result of any sale, assignment, transfer or other disposition (whether voluntary or involuntary) by such Indemnitee of the Aircraft or Engine or any interest therein, unless such sale, transfer or other disposition has resulted from or occurred following an Event of Default; or (vii)consists of normal administrative costs and expenses of such Indemnitee (but excluding any such costs or expenses resulting from the occurrence of any Default); or (viii)consists of costs or expenses for which Lessor has expressly agreed to be responsible under any other provision of the Lease; or (ix) related to a Lessor Lien. (c) Notwithstanding anything to the contrary in this Section 10 and subject in all cases to such Losses not being subject to coverage under the Insurances or any contest being commenced in violation of the exercise of rights of any insurer pursuant to the Insurances, (i) if requested by Lessee for any Losses, each Indemnitee shall contest (or, if Lessee desires and such Indemnitee consents (which consent shall not be unreasonably withheld or delayed), allow Lessee to contest in the name of such Indemnitee) the payment for which it seeks indemnification hereunder; (ii) if Lessee desires to contest the payment of any amount for which an Indemnitee seeks indemnification hereunder and such Indemnitee is required to make a payment of any such amount as a condition precedent to contesting payment of such amount, Lessee shall advance to such Indemnitee the amount of such payment on an interest-free basis; (iii)in the event of a contest Lessee shall indemnify each Indemnitee promptly for all reasonable out-of-pocket expenses incurred by each Indemnitee in connection with any participation by such Indemnitee in such contest, including without limitation, all reasonable legal, accounting and investigatory fees and disbursements; (iv) in the event any contest is conducted by an Indemnitee (rather than by Lessee in the name of such Indemnitee) such Indemnitee shall consider in good faith any views with respect to such contest offered by Lessee and shall keep Lessee reasonably informed as to the progress of such contest and Lessee shall have no liability hereunder for any portion of such dispute settled by such Indemnitee without the prior consent of Lessee; (v) Lessee shall not be entitled to undertake, or to request than an Indemnitee undertake, any contest without first providing to such Indemnitee (1) an opinion (obtained at Lessee's expense) of legal counsel (reasonably acceptable to such Indemnitee) to the effect that a reasonable basis exists to contest and (2) evidence satisfactory to such Indemnitee that such Losses are not covered by the Insurances required pursuant to Section 9 and Schedule 7 herein; (vi) Lessee shall not have any right to contest such Losses if an Event of Default has occurred and is outstanding, including without limitation failure to comply with any operational conditions set forth in the Insurances pursuant to Section 9 or Schedule 7 herein; (vii)Lessee shall not be entitled to contest, or to require an Indemnitee to contest, any Losses if such Indemnitee agrees in writing not to seek indemnification from Lessee for (or not to require Lessee to pay) the Losses that would be the subject of such contest; and (viii) Lessee shall not be entitled to contest, or require an Indemnitee to contest, any Losses in a proceeding which involves any possibility of the sale, forfeiture or loss of the Aircraft or any interest therein, the loss of any coverage under any Insurances or the imposition of any criminal penalties or sanctions against any Indemnitee. 11. EVENTS OF LOSS 11.1 Events of Loss (a) If an Event of Loss occurs prior to Delivery of an Aircraft, the Lease will immediately terminate with respect to such Aircraft and except as expressly stated in the Lease neither party will have any further obligation with respect to such Aircraft other than pursuant to Section 5.20 and Section 3 of Schedule 4, except that Lessor will return the Deposit (if any) to Lessee and return to Lessee or cancel any Letter of Credit. (b) If an Event of Loss occurs after Delivery, Lessee will pay the Agreed Value to Lessor on or prior to the earlier of (i) * (*) days after the Event of Loss and (ii) the date of receipt of insurance proceeds in respect of that Event of Loss. (c) Subject to the rights of any insurers and reinsurers or other third party, upon irrevocable payment in full to Lessor of the Agreed Value and all other amounts which may be or become payable to Lessor under the Lease, and if Lessee requests such transfer, Lessor will, or will procure that Owner will transfer to Lessee all of Lessor's or Owner's, as the case may be, rights to the Aircraft, on an AS IS, WHERE IS basis, without recourse or warranty (except as to the absence of Lessor's Liens) and will at Lessee's expense, execute and deliver or will procure that Owner executes and delivers such bills of sale and other documents and instruments as Lessee may reasonably request to evidence (on the public record or otherwise) such transfer, free and clear of all rights of Lessor and Owner and Lessor Liens. Lessee shall indemnify, on an After-Tax Basis, Lessor, Owner and each other Tax Indemnitee for all fees and expenses incurred by Lessor, Owner or any other Tax Indemnitee in connection with any such transfer. 11.2 Requisition During any requisition for use or hire of the Aircraft, any Engine or Part which does not constitute an Event of Loss: (a) the Rent and other charges payable under the Lease will not be suspended or abated either in whole or in part, and Lessee will not be released from any of its other obligations (other than operational obligations with which Lessee is unable to comply solely by virtue of the requisition); and (b) so long as no (i) Default relating to payment hereunder or under any Other Agreement or (ii) Event of Default has occurred and is continuing, Lessee will be entitled to any compensation paid by the requisitioning authority in respect of such authority's use of the Aircraft, such Engine or such Part during the Term. Lessee will, as soon as practicable after the end of any such requisition, cause the Aircraft to be put into the condition required by the Lease. Lessor will be entitled to all compensation payable by the requisitioning authority in respect of any change in the structure, state or condition of the Aircraft arising during the period of requisition, and Lessor will apply such compensation in reimbursing Lessee for the cost of complying with its obligations under the Lease in respect of any such change, but, if (y) any Default relating to payment hereunder or under any Other Agreement or (z) an Event of Default has occurred and is continuing, Lessor may apply the compensation in or towards settlement of any amounts owing by Lessee under the Lease and/or under any Other Agreement. 12. RETURN OF AIRCRAFT 12.1 Return On the Expiry Date, Lessee will, unless an Event of Loss has occurred, redeliver the Aircraft and the Aircraft Documents and Records at Lessee's expense to Lessor at the Redelivery Location, in accordance with the procedures and in compliance with the conditions set forth in Schedule 6, free and clear of all Security Interests (other than Lessor Liens) and in a condition qualifying for and having a valid and fully effective certification of airworthiness under FAR Part 121. 12.2 Non-Compliance If at the time of Final Inspection Lessee has not fully complied with any of its obligations under the Lease (including Schedule 6), or Lessee fails to make the Aircraft available to Lessor on a timely basis for inspection and redelivery pursuant to Section 12.1 and Schedule 6 (whether such failure is due to any act or omission of Lessee or any other circumstance whatsoever), the Term shall be extended until the time when the Aircraft has been redelivered to Lessor in full compliance with the Lease, for the sole purpose of enabling such non-compliance or failure to be promptly rectified, and during such extension period: (a) Lessee shall not use the Aircraft in flight operations except those related directly to the redelivery of the Aircraft to Lessor; (b) all Lessee's obligations and covenants under the Lease will remain in full force until Lessee so redelivers the Aircraft; and (c) Lessee shall pay Rent to Lessor at a rate per month equal to the amount of Rent payable in respect of the last scheduled Rental Period during the first * (*) days of such extension period and at a rate equal to the monthly Rent plus * percent (*) during the next * (*) days next succeeding such first * (*) days of such extension period and at a rate equal to the monthly Rent plus * (*) thereafter, calculated on a per diem basis. Any such extension shall not prejudice Lessor's right to treat such non-compliance or failure as an Event of Default at any time, and to enforce such rights and remedies as may be available to Lessor in respect thereof under the terms of the Lease or applicable Law. Without limiting the generality of the foregoing, Lessee's Rent obligation under paragraph (c) above shall be without prejudice to Lessor's rights to terminate the letting of the Aircraft and to indemnification pursuant to Section 13.3. Lessor may agree (either on first tender of the Aircraft by Lessee or at any time during the said extension period) to accept redelivery of the Aircraft notwithstanding non-compliance with Section 12.1 or Schedule 6, in which case Lessee will indemnify Lessor on an After-Tax Basis, and provide cash to Lessor (in an amount satisfactory to Lessor) as security for that indemnity, in respect of the cost to Lessor of putting the Aircraft into the condition required by the Lease. 12.3 Redelivery Upon redelivery Lessee will provide to Lessor, upon Lessor's written notice received within a reasonable period in advance of the Expiry Date, (i) a valid and subsisting export certificate of airworthiness for the Aircraft; (ii) such other documents, which are unrelated to the export certificate of airworthiness or the condition of the Aircraft, necessary to export the Aircraft from the United States which documents cannot be obtained by Lessor and (iii) are required in relation to the deregistration of the Aircraft with the Air Authority if the Aircraft is subject to a Permitted Sub-Lease outside of the United States. 12.4 Acknowledgement Provided Lessee has complied with its obligations under Section 12 and Schedule 6 of the Lease, following redelivery of the Aircraft by Lessee to Lessor at the Redelivery Location, Lessor will deliver to Lessee an acknowledgement, substantially in the form attached as Schedule 14 confirming that Lessee has redelivered the Aircraft to Lessor in accordance with the Lease. 12.5 Storage If Lessor so requests, Lessee shall provide up to * days storage for the Aircraft following the last day of the Term at the Lessor's risk and expense. 12.6 Civil Reserve Air Fleet: Lessor consents and agrees to the allocation of the Aircraft by Lessee to the Civil Reserve Air Fleet ("CRAF") in terms of the laws and regulations of the government of the Untied States and its agencies. Lessor understands that the United States government has the right to activate the CRAF fleet in times of air lift emergency and in such event the Lessee may not be able to return the Aircraft at the termination of the Lease. Accordingly, the Term shall be extended through the period that CRAF remains activated and all the terms and conditions of the Lease shall continue to apply during this extended period. Lessee shall give Lessor notice in advance if the Aircraft is to be allocated to CRAF. In the event that CRAF activation occurs with respect to the Aircraft then (i) Lessor will accept indemnification by the United States government in lieu of the Insurances, provided that such indemnification is at least substantially equivalent to the Insurances, as and to the extent provided in Schedule 7; and (ii) Lessor shall inform such United States government official or agency as shall be advised by Lessee to Lessor prior to CRAF activation if an Event of Default shall occur. 13. DEFAULT 13.1 Events The occurrence of any of the events or conditions set forth in Schedule 9 will constitute an Event of Default by Lessee (whether the occurrence of any such Event of Default is voluntary or involuntary or occurs by operation of Law or pursuant to or in compliance with any judgement, decree or order of any court or any order, rule or regulation of any Government Entity). 13.2 Rights and Remedies If an Event of Default occurs, Lessor may at its option (and without prejudice to any of its other rights under the Lease), at any time thereafter (without notice to Lessee except as required under applicable Law): (a) by notice to Lessee and with immediate effect cancel the leasing of the Aircraft (but without prejudice to the continuing obligations of Lessee under the Lease), whereupon all rights of Lessee under the Lease shall cease; and/or (b) proceed by appropriate court action or actions to enforce performance of the Lease including the payment of all Rent and all other amounts payable to Lessor or any Indemnitee pursuant to the terms of the Lease; and/or (c) proceed by appropriate court action or actions to recover damages for the breach of the Lease which shall include: (i) all Rent and other amounts which are or become due and payable hereunder prior to the earlier to occur of the date Lessor sells or re-leases the Aircraft or receives payment of the amount calculated pursuant to clause (ii) below; (ii) an amount equaling the aggregate Rent for the remainder of the Term (determined without reference to any right of Lessor to cancel the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the Discount Rate to the date of payment by Lessee to Lessor, less the amount, if any, of the Mitigation Credit (calculated as provided below in Section 13.4); (iii)all costs and other incidental damages associated with Lessor's exercise of its remedies hereunder or otherwise incurred by Lessor as a result of an Event of Default, including repossession costs, legal fees, Aircraft storage, maintenance and insurance costs, Aircraft re-lease or sale costs (including, in the case of a re-lease, any costs incurred to transition the Aircraft to the next operator's maintenance program) and Lessor's internal costs and expenses (including the cost of personnel time calculated based upon the compensation paid to the individuals involved on an annual basis and a general Lessor overhead allocation), all such costs and incidental damages being referred to herein collectively as "Enforcement and Remarketing Costs"; (iv) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Aircraft, all such amounts being referred to herein collectively as "Unwind Expenses"; (v) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to maintain the Aircraft in accordance with the terms of this Agreement or Lessee's failure to redeliver the Aircraft in the condition required by this Agreement, including any consequential loss of revenues or profits, (collectively, the "Aircraft Condition Damages"; and (vi) such additional amount, if any, as may be necessary to place Lessor in the same economic position, on an After-Tax Basis, as Lessor would have been in if Lessee had timely performed each of its obligations under this Agreement; and/or (d) either: (i) enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and, at Lessor's sole option, remove the same (and/or any engine which is not an Engine but which is installed on the Airframe, subject to the rights of the lessor or secured party thereof), all without liability accruing to Lessor for or by reason of such entry or taking of possession whether for the restoration of damage to property, conversion or otherwise, caused by such entry or taking, except damages caused by gross negligence or willful misconduct; or (ii) by delivering notice to Lessee, require Lessee to redeliver the Aircraft to Lessor at Denver (or such other location as Lessor may require) on the date specified in such notice and in all respects in the condition required by the Lease upon the Return Occasion (it being understood that Lessee shall not delay any such return for the purpose of placing the Aircraft in such condition, but shall nevertheless be liable to Lessor for the failure of the Aircraft to be in such condition); and/or (e) sell at private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee; and/or (f) by written notice to Lessee specifying a payment date (which shall be a date not earlier than * (*) Business Days following the date of such notice), Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor on the payment date specified in such notice (in lieu of the Rent due for the period commencing after the date specified for payment in such notice) the sum of the following amounts: (i) all Rent and other amounts which are or are expected to become due and payable hereunder prior to the payment date specified by Lessor; (ii) an amount equaling the aggregate Rent for the remainder of the Term (determined without reference to any right of Lessor to cancel the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the Discount Rate to the payment date specified by Lessee to Lessor, less the amount, if any, of the Mitigation Credit (calculated as provided in Section 13.4 below); (iii)an amount equaling Lessor's actual Enforcement and Remarketing Costs, Unwind Expenses and Aircraft Condition Damages; (iv) such additional amount, if any, as may be necessary to place Lessor in the same economic position, on an After-Tax Basis, as Lessor would have been in if Lessee had timely performed each of its obligations under this Agreement; and (g) draw upon the Deposit or the Letter of Credit and apply such amounts to any amounts owing to Lessor hereunder and/or make demand against any Guarantor for any or all of the foregoing. In addition to the foregoing, Lessor shall be entitled to exercise such other rights and remedies as may be available under applicable Law and Lessee shall be liable on an After-Tax Basis for, and shall pay Lessor on demand: (i) interest on all unpaid amounts at the Interest Rate, from the due date until the date of payment in full; (ii) all reasonable legal fees and other reasonable costs and expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto; and (iii) all reasonable expenses, disbursements, costs and fees incurred in (A) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, any Engine or Part to the condition required by Section 12 hereof and (B) preparing the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby authorized and instructed, but shall have no obligation, to make any expenditures which Lessor, in its sole discretion, considers advisable to repair and restore the Aircraft, the Airframe, an Engine or Part to the condition required by Section 12 hereof (it being understood that Lessee shall be liable for all such expenditures). Lessee hereby agrees that, in the event of the return to or repossession by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express or implied) previously assigned to Lessee or otherwise held by Lessee shall without further act, notice or writing be assigned or reassigned to Lessor, if assignable. No remedy referred to in this Section 13 is intended to be exclusive, but, to the extent permissible under the Lease or under applicable Law, each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at Law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies; provided, however, that nothing in this Section 13 shall be construed to permit Lessor to obtain a duplicate recovery of any element of damages to which Lessor is entitled. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default. 13.3 Power of Attorney: Lessee hereby appoints Lessor as the attorney-in-fact of Lessee, with full authority in the place and stead of Lessee and in the name of Lessee or otherwise, for the purpose of carrying out the provisions of the Lease and taking any action and executing any instrument that Lessor may deem necessary or advisable to accomplish the purposes hereof; provided, however, that Lessor may only take action or execute instruments under this Section 13 after an Event of Default has occurred and is continuing. Lessee hereby declares that the foregoing powers are granted for valuable consideration, constitute powers granted as security for the performance of the obligations of Lessee hereunder and are coupled with an interest and shall be irrevocable. Without limiting the generality of the foregoing or any other rights of Lessor under the Lease, upon the occurrence and during the continuation of an Event of Default, Lessor shall have the sole and exclusive right and power to (i) settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to or pertaining to the Aircraft, Airframe or any Engine, or the Lease and (ii) make proof of loss, appear in and prosecute any action arising from any policy or policies of insurance maintained pursuant to the Lease, and settle, adjust or compromise any claims for loss, damage or destruction under, or take any other action in respect of, any such policy or policies. 13.4 Mitigation Credit: Lessee shall be entitled to have a Mitigation Credit deducted from any recovery by Lessor from Lessee of Rent for the unexpired portion of the Term. Such "Mitigation Credit" shall be in one of the following amounts, with Lessor to select the amount which in its reasonable judgement will place Lessor in the same economic position, on an After-Tax Basis, as Lessor would have been in if Lessee had timely performed each of its obligations under the Lease: (a) in the event that Lessor has re-let the Aircraft on terms (other than rental payment terms) which, taken as a whole, Lessor reasonably regards as being substantially similar to the terms of the Lease, an amount equaling the aggregate basic rental payments to become due for the period coinciding with the remainder of the Term (determined without reference to any right of Lessor to cancel the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the Discount Rate to the date of payment by Lessee; or (b) in the event that Lessor has not re-let the Aircraft or has re-let the Aircraft on terms (other than rental payment terms) which, taken as a whole, Lessor does not reasonably regard as being substantially similar to the terms of the Lease, an amount equaling the fair market rental value (determined pursuant to the Appraisal Procedure) of the Aircraft for the period commencing with the date that Lessor reasonably anticipates that the Aircraft could be re-let at such rental rate and ending with the date that the Term was scheduled to expire (determined without reference to any right of Lessor to cancel the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the Discount Rate to the date of payment by Lessee. 13.5 Sale or Re-Lease If an Event of Default occurs, Lessor may sell or re-lease or otherwise deal with the Aircraft at such time and in such manner and on such terms as Lessor considers appropriate in its absolute discretion, free and clear of any interest of Lessee, as if the Lease had never been entered into. Lessor shall have no duty or obligation to sell the Aircraft, and Lessor shall be obligated to attempt to re-lease the Aircraft only to the extent, if any, that it is required to do so under Article 2A of the UCC, and Lessee hereby disclaims any right to compel Lessor to sell or otherwise re-lease the Aircraft. 13.6 Removal of Lease from FAA Registry If an Event of Default occurs, Lessee will at the request of Lessor immediately take all steps necessary to enable the Aircraft to be redelivered to Lessor in accordance with and free and clear of the Lease and Lessee hereby irrevocably and by way of security for its obligations under the Lease appoints (which appointment is coupled with an interest) Lessor as its attorney-in-fact to execute and deliver any documentation and to do any act or thing not prohibited by Law required in connection with the foregoing. Without limiting the foregoing, Lessor may file with the FAA the Lease Termination provided to Lessor under the Lease. 14. TRANSFER 14.1 Lessee LESSEE WILL NOT ASSIGN, DELEGATE OR OTHERWISE TRANSFER (VOLUNTARILY, INVOLUNTARILY, BY OPERATION OF LAW OR OTHERWISE), EXCEPT TO A SUCCESSOR ENTITY AS PERMITTED BY THIS AGREEMENT IN SECTION 8.7(a)(vii) HEREOF, ANY OF ITS RIGHTS OR OBLIGATIONS UNDER THE LEASE (INCLUDING THE AIRCRAFT LEASE AGREEMENT OR THIS CTA), OR CREATE OR PERMIT TO EXIST ANY SECURITY INTEREST (OTHER THAN PERMITTED LIENS) OVER ANY OF ITS RIGHTS UNDER THE LEASE (INCLUDING THE AIRCRAFT LEASE AGREEMENT OR THIS CTA), AND ANY ATTEMPT TO DO SO SHALL BE NULL AND VOID. 14.2 Lessor Lessee acknowledges and agrees that Lessor will, if applicable under the Financing Documents, assign as security Lessor's interest in the Lease as described in the Acknowledgement and Agreement referred to in Schedule 3. In addition insofar as Lessee is concerned, Lessor may, without the consent of Lessee, further transfer all or any of its rights or obligations under the Lease or all or any of its right, title or interest in and to the Aircraft (each a "Transfer"), including pursuant to: (a) a sale and leaseback; or (b) a novation or assignment of the Lease and/or a sale of the Aircraft (including to a special purpose or securitization or monetization trust, fund, limited liability company, corporation, partnership or other vehicle or in connection with any other direct or indirect raising of capital); or (c) a secured loan financing. Lessor will promptly notify Lessee of any transfer and Lessee agrees promptly to execute and deliver in connection with any transfer such documents and assurances (including an acknowledgement of the transfer and a certificate as to the absence of any Default under the Lease) and to take such further action as Lessor may reasonably request to establish or protect the rights and remedies created or intended to be created in favor of the transferee in connection with any transfer. After any transfer, the transferee shall be entitled to be an Indemnitee and to such other rights under the Lease as Lessor shall specify. Upon an assignment or novation described in clause (b), Lessor shall be released from all obligations and liabilities under the Lease to the extent such obligations and liabilities are assumed by such transferee, and the Lease, including this CTA as in effect at that time and as incorporated in the Aircraft Lease Agreement, shall be deemed applicable as between Lessee and the transferee of the Lease and may be amended, supplemented or otherwise modified without the consent of the transferor (if this CTA is applicable to the Other Agreements not so transferred, it shall remain in full force and effect and may be amended, supplemented or otherwise modified without the consent of the transferee). Notwithstanding any such assignment or novation, Lessor, Owner, Financing Parties' Representative and each other Indemnitee shall continue to be entitled to indemnification under Section 10, and shall continue to be named as an additional insured under all Insurances referred to in Section 9 for a period of not less than two years after such transfer. The agreements, covenants, obligations and liabilities contained in the Lease, including all obligations to pay Rent and indemnify each Indemnitee, are made for the benefit of Lessor (and, in the case of Section 10, each other Indemnitee) and its or their respective successors and assigns, notwithstanding the possibility that any such Person was not originally a party to the Lease or may, at the time such enforcement is sought, not be a party to the Lease. 14.3 Conditions In connection with any such transfer by Lessor: (a) Quiet Enjoyment: as a condition precedent to such transfer becoming effective, Lessor will procure that the transferee or any new owner of the Aircraft (except where such new owner is also the "Lessor" hereunder) or any new holder of a Security Interest in the Aircraft or any holder of an interest in the Aircraft or the Lease (by way of security or otherwise), as the case may be, shall execute and deliver to Lessee a letter of quiet enjoyment in respect of Lessee's use and possession of the Aircraft in a form substantially similar to Section 7.1 hereof; (b) Costs: Lessor shall reimburse to Lessee its reasonable out-of-pocket expenses (including reasonable legal fees and expenses) actually incurred in connection with co-operating with Lessor in relation to any such transfer referred to in this Section 14, provided that such expenses are substantiated to Lessor's reasonable satisfaction; (c) Net Worth of Transferee. Without Lessee's prior written consent, Lessor shall not effect such assignment, transfer, sale, encumbrance or other disposition to any proposed transferee having a net worth of less than the greater of (i) * US Dollars ($*) and (ii) * US Dollars ($*) multiplied by the number of Aircraft so transferred in one or more transactions to the proposed transferee. The foregoing requirement as to net worth shall not apply if the obligations of the relevant transferee to the Lessee are guaranteed by an entity which meets the requirements set forth in this Clause 14.3; and (d) Permitted Transferee. Any Transfer shall be made by Lessor only to a Permitted Transferee. 15. MISCELLANEOUS 15.1 Survival Section 3 of Schedule 4, Sections 5.6, 5.7, 5.9, 5.20, 9.5, 10, 12, and 13.3 and any other provision of the Lease providing for an obligation on the part of either party to indemnify the other party or any other Indemnitee shall survive the expiration or any termination of the Lease and continue in full force and effect. 15.2 Waivers, Remedies Cumulative The rights of Lessor under the Lease may be exercised as often as necessary, are cumulative and not exclusive of its rights under any Law; and may be waived only in writing and specifically. Delay by Lessor in exercising, or non-exercise of, any such right will not constitute a waiver of that right. 15.3 Delegation Lessor may delegate to any Person all or any of the rights, powers or discretions vested in it by the Lease, and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate) as Lessor in its absolute discretion thinks fit. 15.4 Severability If a provision of the Lease is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect: (a) the legality, validity or enforceability in that jurisdiction of any other provision of the Lease; or (b) the legality, validity or enforceability in any other jurisdiction of that or any other provision of the Lease. 15.5 Remedy If Lessee fails to comply with any provision of the Lease, Lessor may, without being in any way obliged to do so or responsible for so doing and without prejudice to the ability of Lessor to treat such non-compliance as a Default, effect compliance on behalf of Lessee, whereupon Lessee shall become liable to pay immediately any sums expended by Lessor together with all costs and expenses (including legal fees and expenses) in connection with the non-compliance. 15.6 Time of Essence The time stipulated in the Lease for all payments payable by Lessee and the prompt, punctual performance of Lessee's other obligations under the Lease are of the essence of the Lease. 15.7 Notices All notices under, or in connection with, the Lease will, unless otherwise stated, be given in writing by letter or facsimile. Any such notice is deemed effectively to be given as follows: (i) If by letter, on the earlier of the date when delivered and the seventh day after dispatch; and (ii) if by facsimile, when transmitted and full transmission has been separately notified by telephone by the transmitting party. The addresses and facsimile and telephone numbers of Lessee and Lessor are as set forth in the Aircraft Lease Agreement. 15.8 Governing Law; Jurisdiction; WAIVER OF JURY TRIAL (a) PURSUANT TO AND IN ACCORDANCE WITH SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, THE PARTIES HERETO AGREE THAT THE LEASE IN ALL RESPECTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES, AS APPLIED TO CONTRACTS TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK (EXCLUSIVE OF SECTION 7-101 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH IS INAPPLICABLE TO THE LEASE). THE PARTIES AGREE THAT THE LEASE WAS EXECUTED AND DELIVERED IN THE STATE OF NEW YORK. (b) Pursuant to and in accordance with Section 5-1402 of the New York General Obligations Law, Lessee and Lessor each agree that the United States District Court for the Southern District of New York and any New York state court sitting in The City of New York, New York, and all related appellate courts, are to have non-exclusive jurisdiction to settle any disputes arising out of or relating to the Lease and submits itself and its property to the non-exclusive jurisdiction of the foregoing courts with respect to such disputes. (c) Without prejudice to any other mode of service: (i) (1) Lessee appoints Corporation Service Company, 80 State Street, 6th Floor, Albany, New York 12207-2543 as its agent for service of process relating to any proceedings before the New York courts in connection with the Lease and agrees to maintain the process agent in New York notified to Lessor and (2) Lessor appoints General Electric Capital Corporation, 260 Long Ridge Road, Stamford, Connecticut 06927 as its agent for service of process relating to any proceedings before the New York courts in connection with the Lease and agrees to maintain the process agent in New York notified to Lessee (ii) Lessee and Lessor each agrees that failure by a process agent to notify the other party of the process shall not invalidate the proceedings concerned; (iii)Lessee and Lessor each consents to the service of process relating to any such proceedings by prepaid mailing of a copy of the process to the other party's agent at the address identified in paragraph (i) or by prepaid mailing by air mail, certified or registered mail of a copy of the process to the other party at the address set forth in Section 15.7. (d) Each of Lessee and Lessor: (i) waives to the fullest extent permitted by Law any objection which either may now or hereafter have to the courts referred to in Section 15.8(b) above on grounds of inconvenient forum or otherwise as regards proceedings in connection with the Lease; (ii) waives to the fullest extent permitted by Law any objection which either may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to the Lease brought in the courts referred to in Section 15.8(b); and (iii)agrees that a judgement or order of any court referred to in Section 15.8(b) in connection with the Lease is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction. (e) Nothing in this Section 15.8 limits the right of Lessor to bring proceedings against Lessee in connection with the Lease: (i) in any other court of competent jurisdiction; or (ii) concurrently in more than one jurisdiction. (f) Lessee irrevocably and unconditionally: (i) agrees that if Lessor brings legal proceedings against it or its assets in relation to the Lease no sovereign or other immunity from such legal proceedings (which will be deemed to include suit, court jurisdiction, attachment prior to judgement, attachment in aid of execution of a judgement, other attachment, the obtaining of judgement, execution of a judgement or other enforcement or legal process or remedy) will be claimed by or on behalf of itself or with respect to its assets; (ii) waives any such right of immunity which it or its assets now has or may in the future acquire and agrees that the foregoing waiver shall have the fullest extent permitted under the Foreign Sovereign Immunities Act of 1976 of the United States and is intended to be irrevocable for the purposes of such Act; and (iii)consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgement which may be made or given in such proceedings. (g) EACH OF LESSEE AND LESSOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TO A JURY TRIAL IN RESPECT OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE LEASE OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED THEREBY OR THE LESSOR/LESSEE RELATIONSHIP BEING ESTABLISHED, including, without limitation, contract claims, tort claims, breach of duty claims and other common law and statutory claims. Each of Lessor and Lessee represents and warrants that each has reviewed and voluntarily waives its jury trial rights following consultation with its legal counsel. THIS WAIVER IS IRREVOCABLE, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THE LEASE. In the event of litigation, this Section may be filed as a written consent to a trial by the court. 15.9 Sole and Entire Agreement; True Lease; Section 1110 (a) Entire Agreement: The Lease is the sole and entire agreement between Lessor and Lessee in relation to the leasing of the Aircraft, and supersedes all previous agreements in relation to that leasing. Any amendments to the Lease shall be made in writing and signed on behalf of Lessor and Lessee. (b) True Lease: The parties intend and agree that the Lease: (i) constitutes a "true lease", and not a "security interest" as defined in Section 1-201(37) of the UCC; (ii) constitutes a "true lease" for United States Federal income tax purposes; and (iii)confers only a leasehold interest on Lessee in and to the Aircraft on and subject to the terms of the Lease, and no ownership or other interest with respect to the Aircraft is provided to Lessee under the Lease. Lessee shall not file a tax return that is inconsistent with the provisions of this Section 15.9(b). (c) Section 1110: Lessee acknowledges that Lessor would not have entered into the Lease unless it had available to it the benefits of a lessor under Section 1110 of Title 11 of the U.S.C. Lessee covenants and agrees with Lessor that to better ensure the availability of such benefits, Lessee shall support any motion, petition or application filed by Lessor with any bankruptcy court having jurisdiction over Lessee whereby Lessor seeks recovery of possession of the Aircraft under said Section 1110 and shall not in any way oppose such action by Lessor unless Lessee shall have complied with the requirements of said Section 1110 to be fulfilled in order to entitle Lessee to continued use and possession of the Aircraft hereunder. In the event said Section 1110 is amended, or if it is repealed and another statute is enacted in lieu thereof, Lessor and Lessee agree to amend the Lease and take such other action not inconsistent with the Lease as Lessor reasonably deems necessary so as to afford to Lessor the rights and benefits as such amended or substituted statute confers upon owners and lessors of aircraft similarly situated to Lessor. 15.10 Indemnitees All rights expressed to be granted to each Indemnitee (other than Lessor) under the Lease are given to Lessor on behalf of that Indemnitee, and each Indemnitee is an express third party beneficiary thereof. 15.11 Counterparts The Lease (including the Aircraft Lease Agreement and this CTA) may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. To the extent, if any, that the Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no security interest in the Lease may be created through the transfer or possession of any counterpart other than the original counterpart, which shall be identified as the counterpart designated as the "original" on the signature page of the Aircraft Lease Agreement by Financing Parties' Representative, Owner or Lessor, as the case may be. 15.12 Language All notices to be given under the Lease will be in English. All documents delivered to Lessor pursuant to the Lease (including any documents to be delivered pursuant to the Conditions Precedent) will be in English. 16. DISCLAIMERS AND WAIVERS LESSOR AND LESSEE AGREE THAT THE DISCLAIMERS, WAIVERS AND CONFIRMATIONS SET FORTH IN CLAUSES 16.1 TO 16.4 BELOW SHALL APPLY AT ALL TIMES DURING THE TERM. LESSEE'S ACCEPTANCE OF THE AIRCRAFT IN ACCORDANCE WITH SECTION 4.3 SHALL BE CONCLUSIVE EVIDENCE THAT LESSEE HAS FULLY INSPECTED THE AIRCRAFT AND EVERY PART THEREOF AND THAT THE AIRCRAFT, THE ENGINES, THE PARTS AND THE AIRCRAFT DOCUMENTS AND RECORDS ARE TECHNICALLY ACCEPTABLE TO LESSEE AND SATISFY THE DELIVERY CONDITION REQUIREMENTS AND ARE IN SUITABLE CONDITION FOR DELIVERY TO AND ACCEPTANCE BY LESSEE. 16.1 Exclusion THE AIRCRAFT IS LEASED AND DELIVERED UNDER THE LEASE "AS IS, WHERE IS," AND LESSEE AGREES AND ACKNOWLEDGES THAT: (a) LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE ACCEPTED, MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THE LEASE OR OTHERWISE), ANY GUARANTEES, COVENANTS, WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT OR ANY ENGINE OR PART OR ANY SERVICES PROVIDED BY LESSOR UNDER THE LEASE, INCLUDING (BUT NOT LIMITED TO) THE TITLE (EXCEPT AS AND TO THE EXTENT EXPRESSLY PROVIDED IN SECTIONS 2.2 AND 7.1), DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, QUALITY, FREEDOM FROM INFRINGEMENT OF PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHTS, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER MATTER WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART OR ANY SERVICES PROVIDED BY LESSOR UNDER THE LEASE; AND (b) LESSOR SHALL NOT HAVE ANY OBLIGATION OR LIABILITY WHATSOEVER TO LESSEE (WHETHER ARISING IN CONTRACT OR IN TORT, AND WHETHER ARISING BY REFERENCE TO NEGLIGENCE, MISREPRESENTATION OR STRICT LIABILITY OF LESSOR OR OTHERWISE) FOR: (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH (EXCEPT AS AND TO THE EXTENT EXPRESSLY PROVIDED IN SECTIONS 2.2 and 7.1 HEREOF); (ii) THE USE, OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO; (iii)ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR ANY OTHER DIRECT, INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE; OR (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART. 16.2 Waiver LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND LESSOR, ALL ITS RIGHTS IN RESPECT OF ANY CONDITION, WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF ANY OF THE MATTERS REFERRED TO IN SECTION 16.1. 16.3 Disclaimer of Consequential Damages LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, LOST PROFITS OR REVENUES OR CONSEQUENTIAL DAMAGES (AS DEFINED IN SECTION 2A-520 OF THE UCC OR OTHERWISE) AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF THE OTHER PARTY CONTAINED IN THE LEASE. 16.4 Confirmation LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS SECTION 16 AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS PAYABLE UNDER THE LEASE HAVE BEEN CALCULATED BASED ON ITS PROVISIONS. 17. BROKERS AND OTHER THIRD PARTIES 17.1 No Brokers Each of the parties hereby represents and warrants to the other that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of the Lease, to any Person (other than fees payable to legal advisers or portfolio services). 17.2 Indemnity Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, reasonable legal fees and expenses) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon the Lease or the Aircraft, if such claim, suit, damage, cost or expense arises out of any breach by the indemnifying party, its employees or agents of Section 17.1. IN WITNESS WHEREOF the parties hereto have executed the Common Terms Agreement on the date shown at the beginning of the document. GENERAL ELECTRIC CAPITAL CORPORATION By: ___________________________ Name: ___________________________ Title: ___________________________ FRONTIER AIRLINES INC. By: ___________________________ Name: ___________________________ Title: ___________________________ SCHEDULE 1 Definitions The following words and expressions have the respective meanings set forth below: AD Threshold has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Act means the Federal Aviation Act of 1958, as amended, and as recodified in Title 49 U.S.C. pursuant to Public Law 103-272, or any similar legislation of the United States enacted in substitution or replacement thereof. Affiliate means as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote more than * of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. After-Tax Basis means in the case of any amount payable on an "After-Tax Basis" to or for the benefit of any Person (including any amount payable pursuant to this definition), after deduction of the net amount of all Taxes required to be paid by such Person with respect to the receipt or accrual by it of such amount (and assuming that such Person is subject to (i) United States Federal income tax at the highest marginal statutory rate imposed on corporations for the relevant period, (ii) United States state and local income taxes at the composite of the highest marginal statutory rates imposed on such Person for the relevant period, as such composite rate shall be certified by a financial officer of such Person, and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on such Person). Agreed Value has the meaning given in the Aircraft Lease Agreement. Air Authority means the FAA. Aircraft has the meaning given in the Aircraft Lease Agreement. Aircraft Lease Agreement means the specific aircraft lease agreement for the lease of any Aircraft entered or to be entered into between the parties hereto or Affiliates thereof and incorporating therein by reference the CTA. Aircraft Documents and Records means the documents, data and records identified in the list attached to the Certificate of Technical Acceptance, and any other documents and records required in connection with Lessee's obligations under Section 8.8, and all additions, renewals, revisions and replacements from time to time made to any of the foregoing in accordance with the Lease. Airframe means the Aircraft, excluding the Engines and Aircraft Documents and Records. Airframe Flight Hour means each hour or part thereof elapsing from the moment the wheels of the Aircraft leave the ground on take off until the wheels of the Aircraft next touch the ground. Airframe Structural Check has the meaning given in the Aircraft Lease Agreement. Airframe Supplemental Rent has the meaning given in Schedule B, Part V of the Aircraft Lease Agreement. Airworthiness Directive means an airworthiness directive issued by the State of Design or the State of Registry. Annual Supplemental Rent Adjustment has the meaning given in Schedule B, Part V of the Aircraft Lease Agreement. Appraisal Procedure means the following procedure for determining the "fair market rental value" of the Aircraft pursuant to Sections 13.2 and 13.4 of the CTA: (a) Lessor shall select BK Associates, Avitas or Airclaims (other their successors or assigns) who shall make a determination of "fair market rental value" of the Aircraft; and (b) the fees and expenses of the appraiser shall be paid by Lessee. "Fair market rental value" shall mean the value determined by an appraisal completed on an "as-is" and "where-is" basis. APU means the auxiliary power unit installed on the Aircraft on the Delivery Date and any replacement auxiliary power unit installed on the Aircraft and title to which is transferred to Owner in accordance with the Lease. APU Supplemental Rent has the meaning given in Schedule B, Part V of the Aircraft Lease Agreement. Assumed Ratio has the meaning given in the Aircraft Lease Agreement. Assumed Utilization has the meaning given in the Aircraft Lease Agreement. Business Day means any day other than a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by Law to be closed. "C" Check means a "C" check in accordance with the Lessee's Maintenance Program and the Manufacturer's Maintenance Planning Document each in effect on the relevant date. Certificate of Technical Acceptance means a certificate of technical acceptance in the form of Part 1 or Part 2, as applicable, of Schedule 5. Certificated Air Carrier means any Person (except the United States Government) that is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of U.S.C. by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be applicable, any Person (except the United States Government) that is a citizen of the United States (as defined in Section 40102 of Title 49 of the U.S.C.) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the United States of America, and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated so as to entitle Lessor, as a lessor, to the benefits of Section 1110 of Title 11 of U.S.C. with respect to the Aircraft. Conditions Precedent means the conditions specified in Schedule 3. Cycle means one take-off and landing of the Aircraft. Damage Notification Threshold has the meaning given in the Aircraft Lease Agreement. Deductible Amount has the meaning given in the Aircraft Lease Agreement. Default means any Event of Default or any event or circumstance which, with the giving of notice and/or lapse of time and/or determination of materiality and/or fulfillment of any other condition, would constitute an Event of Default. Defect means any defect or non-conformity with the Delivery Condition Requirements notified by Lessee to Lessor during the Pre-Delivery Procedure. Delivery means the delivery of the Aircraft by Lessor to Lessee under the Lease. Delivery Condition Requirements has the meaning given in the Aircraft Lease Agreement. Delivery Date means with respect to any Aircraft, the date on which Lessee executes and delivers the Lease Supplement with respect to such Aircraft and Delivery occurs. Delivery Location has the meaning given in the Aircraft Lease Agreement. Deposit has the meaning given in the Aircraft Lease Agreement. Discount Rate has the meaning given in the Aircraft Lease Agreement. Dollars and $ means the lawful currency of the United States. Engine means, whether or not installed on the Aircraft: (a) each engine of the manufacture and model specified in the Aircraft Lease Agreement for the Aircraft which Lessor offers to Lessee for delivery with the Airframe on the Delivery Date, such engines being described as to serial numbers on the Certificate of Technical Acceptance; and (b) any Replacement Engine, with effect from the time when title thereto has passed to Owner in accordance with the Lease; and in each case includes all modules and Parts from time to time belonging to or installed in that engine but excludes any properly replaced engine title to which should have passed to Lessee pursuant to the Lease. Engine Cycle means operation of an engine on an aircraft from and including a take-off to and including the landing of that aircraft. Engine Event of Loss means the occurrence, with respect to the Engine only, whether or not installed on the Airframe, of any of those events described in the definition of Event of Loss. Engine Flight Hour means each hour or part thereof an Engine is operated, elapsing from the moment the wheels of an aircraft on which such Engine is installed leave the ground until the wheels of such aircraft next touch the ground. Engine LLP Replacement has the meaning given in Section 7.2(a)(ii); Engine LLP Supplemental Rent has the meaning given in Schedule B, Part V of the Aircraft Lease Agreement. Engine Refurbishment means all scheduled and unscheduled off the wing Engine maintenance and repair accomplished for each module in accordance with the performance restoration or full overhaul sections of the Manufacturer's workscope planning guide. Engine Supplemental Rent has the meaning given in the Aircraft Lease Agreement. Equipment Change has the meaning given in Section 8.12. ERISA means the Employee Retirement Income Security Act of 1974, as amended. Event of Default means any event or condition referred to in Section 13.1 and further specified in Schedule 9. Event of Loss means with respect to the Aircraft (including for the purposes of this definition the Airframe): (a) the actual or constructive, compromised, arranged or agreed total loss of the Aircraft (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss); or (b) the Aircraft being destroyed, damaged beyond economic repair or permanently rendered unfit for normal use [by Lessee] for any reason whatsoever; or (c) the Aircraft being condemned, confiscated or requisitioned for title, or title to the Aircraft being otherwise compulsorily acquired by the government of the State of Registry or any other Government Entity; or (d) the Aircraft being hijacked, stolen, confiscated, detained, seized, condemned or requisitioned for use or hire for the lesser of (i) a period of more than * days (or * days in the case of requisition for use or hire by the government of the State of Registry) or (ii) a period equal to or exceeding the remaining balance of the Term; or (e) as a result of any rule, regulation, order or other action by the FAA the use of the Aircraft by Lessee or any Permitted Sub Lessee shall have been prohibited for a period of * (*) consecutive months. Expiry Date means the Scheduled Expiry Date or, if earlier (i) the date when Lessor acting in accordance with the provisions of the Lease, terminates the leasing of the Aircraft to Lessee under the Lease, or (ii) subject to the provisions of Section 11.1 and 11.2, the date when Lessor receives the Agreed Value together with any other amounts then due and unpaid under the Lease and the Other Agreements following an Event of Loss; provided, that if the Term is extended pursuant to Section 12.2, the Expiry Date shall be extended to the date when the Aircraft has been redelivered to Lessor in full compliance with the Lease; FAA means the Federal Aviation Administration of the United States and any successor thereof. FAR means the Federal Aviation Regulations set forth in Title 14 of the United States Code of Federal Regulations, as amended and modified from time to time. Final Delivery Date has the meaning given in the Aircraft Lease Agreement. Final Inspection has the meaning given in Section 1.1 of Schedule 6. Financial Indebtedness means any indebtedness in respect of: (a) moneys borrowed or raised; (b) any liability under any debenture, bond, note, loan stock, acceptance, documentary credit or other security; (c) the acquisition cost of any asset to the extent payable before or after the time of acquisition or possession; or (d) any guarantee, indemnity or similar assurance against financial loss of any person in respect of the above. Financial Information means: (a) as soon as available but not in any event later than * days after the last day of each fiscal quarter of Lessee, the consolidated financial statements of Lessee (consisting of a balance sheet and statements of operations and of retained earnings and cash flows) prepared for the most recent previous fiscal quarter certified by a qualified financial officer of Lessee as being true and correct; and (b) as soon as available but not in any event later than * days after the last day of each fiscal year of Lessee, the audited consolidated financial statements of Lessee (consisting of a balance sheet and statements of operations and of retained earnings and cash flows), prepared for the fiscal year then most recently ended certified by the independent auditors of Lessee without qualification. Financing Parties (if applicable) has the meaning given in the Aircraft Lease Agreement. Financing Parties' Representative (if applicable) has the meaning given in the Aircraft Lease Agreement. Financing Statements means Uniform Commercial Code Financing Statements in respect of the Lease and the Aircraft and Engines leased thereunder prepared in a form acceptable for filing with the applicable Government Entities in the state in which Lessee's chief executive office is located (as the term "chief executive office" is defined in Article 9 of the Uniform Commercial Code as in effect in such state) and such other jurisdictions as Lessor shall reasonably require. Flight Hour means each hour or part thereof elapsing from the moment the wheels of the Aircraft leave the ground on take off until the wheels of the Aircraft next touch the ground. GAAP means generally accepted accounting principles in the United States. GE Capital means General Electric Capital Corporation. GE Capital Guaranty means the guaranty substantially in the form of Schedule 15 to be delivered by GE Capital to Lessee. GECAS means either or both of GE Capital Aviation Services, Limited and GE Capital Aviation Services, Inc. Government Entity means: (a) national government, political subdivision thereof, or local jurisdiction therein; (b) any instrumentality, board, commission, court, or agency of any of the above, however constituted; and (c) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any of the above is a participant. Guarantee means a guarantee in a form to be agreed by Lessor and Lessee, including any guarantee of Lessee's maintenance obligations under the applicable Lease; and references to the Guarantee include references to any replacement or re-issued guarantee. Guarantor (if applicable) has the meaning given in the Aircraft Lease Agreement. Habitual Base means the United States and the state thereof in which Lessee's primary aircraft operations center is located. Indemnitee has the meaning given in the Aircraft Lease Agreement. Interest Rate has the meaning given in Schedule B, Part II of the Aircraft Lease Agreement. Insurances means insurances in respect of the Aircraft in form and substance satisfactory to Lessor, and includes (without limitation) any insurances and reinsurances required by Section 9 and Schedule 7. Landing Gear means the landing gear assembly of the Aircraft excluding any rotable components. Landing Gear Supplemental Rent has the meaning given in the Aircraft Lease Agreement. Law means and includes (a) any statute, decree, constitution, regulation, order, judgement or other directive of any Government Entity; (b) any treaty, pact, compact or other agreement to which any Government Entity is a signatory or party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above. LC Amount has the meaning given in the Aircraft Lease Agreement. Lease means the Aircraft Lease Agreement for the Aircraft (of which this CTA forms a part), any schedules or documents executed pursuant to the Schedules hereto or pursuant to the Aircraft Lease Agreement, any Lease Supplement to the Lease (including Lease Supplement No. 1), and any side letters related to the Lease. Lease Supplement means any Lease Supplement executed and delivered with respect to the Lease. Lease Supplement No. 1 means a Lease Supplement No. 1 substantially in the form of Schedule 12. Lessee means the Person named as Lessee in the applicable Aircraft Lease Agreement. Lessee Affiliate means any Subsidiary or other Affiliate for the time being of Lessee. Lessee's Maintenance Program means the Maintenance Program specifically approved by the Air Authority for Lessee's maintenance of the Aircraft. Lessor means the Person named as Lessor in the applicable Aircraft Lease Agreement. Lessor Lien means any Security Interest whatsoever from time to time created by Lessor or Owner in connection with the financing of the Aircraft, including the Financing Documents, and any other Security Interest in the Aircraft which results from acts of or claims against Lessor or Owner not related to the transactions contemplated by or permitted under the Lease. Lessor/Owner Tax Jurisdiction has the meaning given in the Aircraft Lease Agreement. Letter of Credit means any letter of credit issued in relation to the Lease pursuant to Section 5.13 and any replacement or renewal of that letter of credit. Losses means any and all cost, expense (including any and all reasonable legal fees and expenses and the fees and expenses of other professional advisers), claims, proceedings, losses, liabilities, obligations, damages (whether direct, indirect, special, incidental or consequential), suits, judgements, fees, penalties or fines (whether criminal or civil) of any kind or nature whatsoever, including any of the foregoing arising or imposed with or without any Indemnitee's fault or negligence, whether passive or active or under the doctrine of strict liability. Maintenance Adjustment means all the amounts payable by Lessee pursuant to Clause 5.4 of this Agreement and Section 3 of each Aircraft Lease Agreement. Maintenance Contributions means, as and if applicable, all amounts payable by Lessor pursuant to Section 7.2. Maintenance Performer means Lessee and such other Person or Persons as are approved by the Air Authority to perform maintenance and/or modification services on commercial aircraft and/or commercial aircraft engines, which Person shall be agreed by Lessor and Lessee to have recognized standing and experience and facilities and equipment suitable to perform such services on aircraft and/or engines of the same or improved model as the Aircraft or, in the case of engines, the Engines. Maintenance Program means an Air Authority approved maintenance program for the Aircraft in accordance with the Manufacturer's specifications, service bulletins, planning documents, maintenance manuals and documents and encompassing scheduled maintenance (including block maintenance), condition-monitored maintenance, and/or on-condition maintenance of Airframe, Engines and Parts, including servicing, testing, preventive maintenance, repairs, structural inspections, system checks, overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives, corrosion control, inspections and treatments. Major Checks means any C-check, multiple C-check or heavier check (including structural inspections and CPCP) suggested for commercial aircraft of the same model as the Aircraft by its manufacturer (however denominated) as set out in the Lessee's Maintenance Program. Manufacturer has the meaning given in the Aircraft Lease Agreement. Manufacturer's Maintenance Planning Document means the recommended maintenance program for the Aircraft issued by the Manufacturer as in effect at the time of any applicable determination. Minimum APU Limit has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Component Calendar Life has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Component Cycles has the meaning give in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Component Flight Hour has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum "D" Check Redelivery Status has the meaning given in the Aircraft Lease Agreement. Minimum Engine Cycles has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Engine Flight Hours has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Hard Time Component Cycles has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Hard Time Component Flight Hours has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Landing Gear Calendar Time has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Landing Gear Cycles has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Landing Gear Flight Hours has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Minimum Liability Coverage has the meaning given in the Aircraft Lease Agreement. Minimum Measurable Fuel Requirement has the meaning given in Schedule B, Part VI of the Aircraft Lease Agreement. Mitigation Credit has the meaning given in Section 13.4. Nameplate Inscription means the inscription to be included on the Nameplates as requested by Lessor from time to time. Nameplates means the fireproof plates to be installed on the Aircraft in accordance with Section 8.6(a). Other Agreements means any aircraft lease agreement or other material agreement from time to time entered into between Lessor (or any Subsidiary, Associate or Affiliate of Lessor), on the one hand, and Lessee (or any Subsidiary, associate or Affiliate of Lessee), on the other hand. Owner has the meaning given in the Aircraft Lease Agreement. Part means, whether or not installed on the Aircraft: (a) any component, part, furnishing or equipment (other than a complete Engine or engine) incorporated or installed in or attached to or furnished with the Aircraft (including any Engine) on the Delivery Date or thereafter if paid for or otherwise provided by or on behalf of Lessor or so long as title to such Parts shall remain vested in Lessor in accordance with Section 8 hereof after removal from the Airframe or any Engine; and (b) any other component, part, furnishing or equipment (other than a complete Engine or engine and a temporary replacement part as provided for in Section 8.11(d)), with effect from the time when title thereto has passed to Lessor pursuant to the Lease; but excludes any such items title to which should have passed to Lessee pursuant to the Lease. Part 36 or FAR Part 36 means Part 36 of the FAR, as amended or modified from time to time. Part 121 or FAR Part 121 means Part 121 of the FAR, as amended or modified from time to time. Permitted Lien means: (a) any lien for Taxes not assessed or, if assessed, not yet due and payable, or being diligently contested in good faith by appropriate proceedings; (b) any lien of a repairer, mechanic, hangar-keeper or other similar lien arising in the ordinary course of business by operation of Law in respect of obligations which are not overdue or are being diligently contested in good faith by appropriate proceedings; (c) any Lessor Lien; and (d) the rights of others under any sub-lease or arrangements to the extent expressly permitted under Section 8.4. (e) but only if (in the case of both (a) and (b)) (i) adequate reserves have been provided by Lessee for the payment of such Taxes or obligations; and (ii) such proceedings, or the continued existence of the lien, do not give rise to any material danger of the sale, forfeiture or other loss of the Aircraft or any interest therein or of criminal liability on Lessor or Owner. Permitted Sub-Lease means any sub-lease of the Aircraft to a Permitted Sub-Lessee as provided for in Section 8.4(a) to which Lessor has consented. Permitted Sub-Lessee means any sub-lessee of the Aircraft to which Lessor has consented as provided in Section 8.4(a). Permitted Transferee means any Person who (a) is a "citizen of the United States" as defined in Section 40102 of Title 49 of the U.S.C. with the requisite power and authority to enter into and carry out the transactions contemplated by the Lease; (b) is not, and is not affiliated with, a Certificated Air Carrier; and (c) enters into a binding agreement pursuant to which it agrees to be bound by the terms of the Lease and agrees to perform all of the obligations of Lessor thereunder. Person means any individual person, any form of corporate or business association, trust, Government Entity, or organization or association of which any of the above is a member or a participant. Pre-Approved Bank has the meaning given in the Aircraft Lease Agreement. Pre-Delivery Procedure means the procedure leading to Delivery as specified in Schedule 4. Pre-Delivery Termination Value has the meaning given in Schedule B, Part II of the Aircraft Lease Agreement. Redelivery Location has the meaning given in the Aircraft Lease Agreement. Regulations means any Law or regulation (including any internal corporate regulation), official directive or recommendation, mandatory requirement or contractual undertaking, or airworthiness requirements or limitations. Rent has the meaning given in the Aircraft Lease Agreement. Rent Commencement Date has the meaning given in the Aircraft Lease Agreement. Rental Period means each period ascertained in accordance with Section 5.2. Rent Date means the first day of each Rental Period. Replacement Engine means an "Engine" that has duly replaced an "Engine" in accordance with the requirements of Section 8.11(b). Required LC Expiry Date means the date being * days after the Expiry Date. Return Occasion means the date on which the Aircraft is redelivered to Lessor in accordance with Section 12. Scheduled Delivery Date has the meaning given in the Aircraft Lease Agreement. Scheduled Delivery Month has the meaning given in the Aircraft Lease Agreement. Scheduled Delivery Week has the meaning given in the Aircraft Lease Agreement. Scheduled Expiry Date has the meaning given in the Aircraft Lease Agreement. Security Interest means any mortgage, chattel mortgage, security interest, charge, pledge, lien, conditional sale agreement, title retention agreement, equipment trust agreement, encumbrance, assignment, hypothecation, right of detention, right of set-off or any other agreement or arrangement having the effect of conferring security. State of Design means the state having jurisdiction over the Person responsible for the type design of the Aircraft or any Engine or Part. State of Incorporation means the United States and the state of organization of Lessee as identified in the heading of the Aircraft Lease Agreement. State of Registry has the meaning given in the Aircraft Lease Agreement. Subsidiary means in relation to any reference to accounts, any company whose accounts are consolidated with the accounts of Lessee in accordance with accounting principles generally accepted under accounting standards of the State of Incorporation or for any other purpose, an entity from time to time of which another has direct or indirect control or owns directly or indirectly more than * (*) of the voting share capital Supplemental Rent has the meaning given in the Aircraft Lease Agreement. Taxes means any and all present and future taxes, duties, withholdings, levies, assessments, imposts, fees and other governmental charges of all kinds (including any value added or similar tax and any stamp, documentary, license, registration or similar fees or tax), together with any penalties, fines, surcharges and interest thereon and any additions thereto. Tax Indemnitee has the meaning given in the Aircraft Lease Agreement. Technical Report means a monthly report of the Flight Hours, Cycles, Engine Flight Hours and Engine Cycles operated by the Airframe and Engines in respect of each calendar month in the form set forth in Schedule 13 attached hereto or as otherwise agreed between Lessor and Lessee. Term means the period commencing on the Delivery Date and ending on the Expiry Date. UCC means the Uniform Commercial Code as in effect in the State of New York. Unforeseen Event means: (a) civil disturbance or act of any Government Entity; (b) natural disaster or any other act of God; (c) Law of, or any allocation or other action by, a Government Entity or any unexpected shortage of labor, materials or facilities affecting the Aircraft; (d) any damage or Defect; (e) labor disputes; (f) breach of contract by any Person (other than Lessor), or other failure to deliver or redeliver the Aircraft by any Person (whether or not a breach) with possession or control of the Aircraft (other than by Lessor, if it has possession and control of the Aircraft), including any failure to deliver or delay in delivery by any prior lessee and any breach by any prior lessee or failure to cooperate by any prior lessee under any previous lease, or any "excusable" or "inexcusable" delay under any previous lease or purchase agreement for the Aircraft, or any purchase agreement for the Aircraft terminating prior to Delivery (including due to Lessor or an Affiliate of Lessor voluntarily terminating such agreement); (g) delays in obtaining the Aircraft or any equipment or services for the Aircraft; (h) any delay due to Air Authority certifications; or (i) any other cause beyond the control of Lessor or not occasioned by Lessor's gross negligence or willful misconduct. United States means the United States of America. U.S.C. means the United States Code. SCHEDULE 2 REPRESENTATIONS AND WARRANTIES 1. Lessee's Representations and Warranties Lessee's representations and warranties to Lessor are as follows: (a) Status: It is duly organized, validly existing and in good standing in its State of Incorporation. (b) Non-Conflict: Execution, delivery and performance of the Lease do not contravene or breach any Regulation applicable to Lessee. (c) Power and Authority: It has all corporate and other power and authority to execute, deliver and perform the Lease, and the Lease has been duly authorized, executed and delivered by Lessee. (d) Legal Validity: The Lease is its legal, valid and binding obligation, enforceable against Lessee in accordance with its terms. (e) No Event of Default: No Event of Default has occurred and is continuing or would occur because of Delivery. (f) Litigation: It is not involved in any litigation or other dispute which, if adversely determined, would materially and adversely affect its financial condition or its ability to perform its obligations under the Lease. (g) Financial Information: Its audited financial statements most recently delivered to Lessor: (i) have been prepared in accordance with GAAP; and (ii) present fairly the financial condition and results of operations of Lessee as at the date thereof and for the period then ending. (h) Full Disclosure: Neither its audited financial statements referred to in paragraph (g) nor any other financial, operational or credit-related information provided to Lessor by Lessee for the purposes of the Lease contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein not misleading. (i) Location: Lessee's chief executive office (as that term is defined in Article 9 of the UCC) is located at the address set forth in the heading of the Aircraft Lease Agreement; and the records of the Lessee concerning the Aircraft are maintained at such chief executive office or at the operations center in Denver, Colorado where Lessee normally maintains aircraft records. (j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and Lessor, as lessor of the Aircraft to Lessee, is entitled to the benefits of Section 1110 of Title 11 of the U.S.C. with respect to the Aircraft. (k) Citizen of the United States: Lessee is a "citizen of the United States" as defined in Section 40102 of Title 49 of the U.S.C. (l) ERISA: Lessee is not engaged in any transaction in connection with which it could be subjected to either a civil penalty assessed pursuant to Section 502 of ERISA or any tax imposed by Section 4975 of the Internal Revenue Code; no material liability to the Pension Benefit Guaranty Corporation has been or is expected by Lessee to be incurred with respect to any employee pension benefit plan (as defined in Section 3 of ERISA) maintained by Lessee or by any trade or business (whether or not incorporated) which together with Lessee would be treated as a single employer under Section 4001 of ERISA and Section 414 of the Internal Revenue Code; there has been no reportable event (as defined in Section 4043(b) of ERISA) with respect to any such employee pension benefit plan; no notice of intent to terminate any such employee pension benefit plan has been filed or is expected to be filed, nor has any such employee pension benefit been terminated; no circumstance exists or is anticipated that constitutes or would constitute grounds under Section 4042 of ERISA for the Pension Benefit Guaranty Corporation to institute proceedings to terminate, or to appoint a trustee to manage the administration of, such an employee pension benefit plan; and no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived, exists with respect to any such employee pension benefit plan. (m) Material Adverse Change: there has been no material adverse change in the financial condition or operations of Lessee and Lessee Affiliates or in the ability of Lessee to comply with its obligations under the Lease since the date of the financial statements most recently provided to Lessor on or prior to the Delivery Date. 1.2 Lessor's Representations and Warranties Lessor's representations and warranties to Lessee are as follows: (a) Status: It is duly organized, validly existing and in good standing in its State of Incorporation. (b) Non-Conflict: Execution, delivery and performance of the Lease do not contravene or breach any Regulation applicable to Lessor. (c) Power and Authority: It has all corporate and other power and authority to execute, deliver and perform the Lease, and the Lease has been duly authorized, executed and delivered by Lessor. (d) Legal Validity: The Lease is its legal, valid and binding obligation, enforceable against Lessor in accordance with its terms. (e) Title: On each Delivery Date, Lessor will have good and valid title to the Aircraft being delivered on such date and, with respect to new Aircraft, will be entitled to the benefit of the Manufacturer's warranties under the purchase agreement with respect to such Aircraft. (f) Citizen of the United States: Lessor is a "citizen of the United States" as defined in Section 40102 of Title 49 of the U.S.C. SCHEDULE 3 CONDITIONS PRECEDENT 2. Lessor's Conditions Precedent The conditions precedent to Lessor's obligation to deliver and to commence the leasing of the Aircraft are as follows. All documents delivered to Lessor pursuant to this Schedule 3 will be in English, or if not in English, will be accompanied by a certified English translation: 2.1 Preliminary Conditions Lessor will receive from Lessee, not later than two Business Days prior to the Scheduled Delivery Date, each of the following, reasonably satisfactory in form and substance to Lessor: (a) Opinion(s): evidence that an opinion(s) in the form of Schedule 8 will be issued on the Delivery Date by legal counsel(s) reasonably acceptable to Lessor with respect to the laws of the State of the Governing Law and the State of Incorporation; (b) Approvals: evidence of the issue of each approval, license and consent which is required in relation to, or in connection with the performance by Lessee of any of its obligations under the Lease; (c) Import: evidence that any required import license, and all customs formalities, relating to the import of the Aircraft into the Habitual Base have been obtained or complied with, and that the import of the Aircraft into the Habitual Base is exempt from Taxes; (d) Process Agent: a letter from the process agent appointed by Lessee in the Lease accepting that appointment; (e) Licenses: copies of Lessee's air transport license, air operator's certificates and all other licenses, certificates and permits required by Lessee in relation to, or in connection with, the operation of the Aircraft, including authority to operate the Aircraft under FAR Part 121 and a Certificate of Public Convenience and Necessity issued under Section 40102 of Title 49 of U.S.C.; (f) UCC: Financing Statements with respect to the Lease and the Aircraft in a form acceptable to Lessor shall have been executed and delivered by Lessee and duly filed in each jurisdiction reasonably requested by Lessor; (g) Letter of Credit (if applicable): the form of the Letter of Credit; and (h) General: such other documents as Lessor may reasonably request. 2.2 Final Conditions (a) Final Documents: Lessor shall receive on or before the Delivery Date each of the following: (i) Certificate of Technical Acceptance and Lease Supplement No. 1: each of the Certificate of Technical Acceptance and Lease Supplement No. 1, or a Lease Supplement substantially in the form of Lease Supplement No. 1 for subsequent Aircraft deliveries, dated and fully completed, and executed by Lessor and Lessee, and, in the case of the Lease Supplement, filed for recording at the FAA; (ii) Opinions: a signed original of each of the opinions referred to in Section 1.1(a) of this Schedule, dated the Delivery Date; (iii)Payments: all sums due to Lessor under the Lease on or before the Delivery Date, including the first payment of Rent and, if applicable, the balance of the Deposit; (iv) Insurances: certificates of insurance, an opinion and undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor that Lessee is taking the required steps to ensure due compliance with the provisions of the Agreement as to Insurances with effect on and after the Delivery Date; (v) Financial Information: the latest Financial Information of Lessee as requested by Lessor; (vi) Letter of Credit (if applicable): the Letter of Credit; (vii)Lessee's Maintenance Program: such information and documents relating to the Lessee's Maintenance Program as Lessor may reasonably require, and Lessor having acknowledged in writing the Lessee's Maintenance Program; (viii) Filings: evidence that on the Delivery Date all filings, registrations, recordings and other actions have been or will be taken which are necessary or advisable to ensure the validity, effectiveness and enforceability of the Lease and to protect the interests of Owner and the Financing Parties in the Aircraft, any Engine or any Part and in the Lease; (ix) FAA Opinion: evidence that there will be issued an opinion of Crowe & Dunlevy or other counsel reasonably acceptable to Lessor who are recognized specialists with regard to FAA registration matters in a form reasonably acceptable to Lessor as to the due filing for recordation of the Lease (the costs for which shall be paid by Lessee); (x) Certificate of Lease Termination: a certificate of lease termination executed by a duly authorized officer of Lessee substantially in the form of Schedule 10 acknowledging that the Lease is no longer in effect with respect to the Aircraft and Engines, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration or other termination of the Lease in accordance with its terms; (xi) Acknowledgement and Agreement re Assignment (if applicable): an acknowledgement of and certain agreements with respect to the assignment by Lessor of this Lease to Owner and Financing Parties' Representative in the form previously provided to Lessee or as Owner or Financing Parties' Representative may otherwise reasonably request; and (xii) General: such other documents as Lessor may reasonably request; (b) Representations/Warranties: the representations and warranties of Lessee in Schedule 2 shall be correct, and would be correct if repeated on Delivery; and (c) No Default: no Default shall have occurred and be continuing on Delivery or might result from the leasing of the Aircraft to Lessee under the Lease. 20. LESSEE'S CONDITIONS PRECEDENT The conditions precedent to Lessee's obligations to accept delivery of and lease the aircraft from Lessor are as follows: (a) Lessor shall tender delivery of the Aircraft meeting all of the Delivery Condition Requirements as specified by Part III of Schedule A to the aircraft Lease Agreement or otherwise as permitted by a waiver of Lessee or mutual agreement between Lessor and Lessee; (b) Delivery to Lessee of a Lease Supplement in the form of Schedule 12 hereto, dated and fully completed, and executed by Lessor, to be filed for recording at the FAA; (c) Representations and Warranties: the representations and warranties of Lessor in Schedule 2 shall be correct and would be correct if repeated on Delivery and (d) Delivery to Lessee of the Manufacturer's Consent and the Participation Agreement pursuant to Section 6 of the Lease, as applicable for any new aircraft. Manufacturer's Consent means, with respect to any new Aircraft, the Manufacturer's consent to the assignment to Lessee of the warranteis with respect to such Aircraft, in form and substance reasonably satisfactory to Lessee. (e) Delivery of the GE Capital Guaranty. SCHEDULE 4 PRE-DELIVERY PROCEDURES AND DELIVERY CONDITION REQUIREMENTS - PART 1 (NEW AIRCRAFT) 1. Licenses (a) It is the responsibility of Lessee to obtain all licenses, permits or approvals necessary to export or transport the Aircraft from the Delivery Location; provided, however that Lessor shall provide, or cause the manufacturer to provide Lessee with an Export Certificate of Airthworthiness from the Delivery Location to the United States. (b) Lessor will provide Lessee with any required data and information for the purposes of obtaining any such licenses, permits or approvals. 2. Inspection Except as otherwise provided in the Aircraft Lease Agreement: (a) Subject to any applicable purchase agreement, Lessee may inspect the Aircraft at the Delivery Location (including such rights as Lessor has to be present and inspect, on an ongoing basis, the manufacture of the Aircraft and including a demonstration flight with up to two (2) representatives of Lessee on the Aircraft as observers) to ensure that the Aircraft fulfils the Delivery Condition Requirements. (b) If Lessee's inspection of the Aircraft shows that the Aircraft does not fulfil the Delivery Condition Requirements, Lessor will, as promptly as practicable, correct any defects and make the Aircraft available for re-inspection by Lessee provided that, in Lessor's reasonable opinion, the cost of repair of such defect does not exceed the Pre-Delivery Termination Value. If the cost of repair of such defect may exceed the Pre-Delivery Termination Value with respect to the Delivery of any new Aircraft, Lessor shall not be required to correct such defect. Lessor will conduct further demonstration flights as may be necessary to verify compliance with the Delivery Condition Requirements. (c) If Lessor notifies Lessee that it does not intend to correct the defect, either party may terminate the Lease with respect to such Aircraft. 3. Indemnity (a) Lessee is responsible for and will indemnify each Indemnitee against all Losses arising from death or injury to any observer or any employee of Lessee in connection with the inspection of the Aircraft; provided that Lessee shall not be required to indemnify any Indemnitee for Losses caused by the gross negligence or willful misconduct of any such Indemnitee. (b) Lessor is responsible for and will indemnify Lessee against all Losses arising from death or injury to any observer or any employee of Lessor in connection with the inspection of the Aircraft; provided that Lessor shall not be required to indemnify Lessee for Losses caused by the gross negligence or willful misconduct of Lessee. SCHEDULE 4 PRE-DELIVERY PROCEDURES AND DELIVERY CONDITION REQUIREMENTS - PART 2 (USED AIRCRAFT) 1. Licenses (a) It is the responsibility of Lessee to obtain all licenses, permits or approvals necessary to export or transport the Aircraft from the Delivery Location. (b) Lessor will provide Lessee with any required data and information for the purposes of obtaining any such licenses, permits or approvals. 2. Inspection Except as otherwise provided in the Aircraft Lease Agreement: (a) Subject to any applicable purchase agreement or prior lease, Lessee may inspect the Aircraft (including a demonstration flight with up to two (2) representatives of Lessee on the Aircraft as observers) to ensure that the Aircraft fulfils the Delivery Condition Requirements. (b) If Lessee's inspection of the Aircraft shows that the Aircraft does not fulfil the Delivery Condition Requirements, Lessor will, as promptly as practicable, correct any defects and make the Aircraft available for re-inspection by Lessee provided that, in Lessor's reasonable opinion, the cost to correct such defect does not exceed the Pre-Delivery Termination Value. If the cost to correct such defect may exceed the Pre-Delivery Termination Value with respect to the Delivery of any used Aircraft, Lessor shall not be required to correct such defect. Lessor will conduct further demonstration flights as may be necessary to verify compliance with the Delivery Condition Requirements. (c) If Lessor notifies Lessee that it does not intend to correct the defect, either party may terminate the Lease. 3. Indemnity (a) Lessee is responsible for and will indemnify each Indemnitee against all Losses arising from death or injury to any observer or any employee of Lessee in connection with the inspection of the Aircraft; provided that Lessee shall not be required to indemnify any Indemnitee for Losses caused by the gross negligence or willful misconduct of any such Indemnitee. (b) Lessor is responsible for and will indemnify Lessee against all Losses arising from death or injury to any observer or any employee of Lessor in connection with the inspection of the Aircraft; provided that Lessor shall not be required to indemnify Lessee for Losses caused by the gross negligence or willful misconduct of Lessee. SCHEDULE 5 CERTIFICATE OF TECHNICAL ACCEPTANCE - PART 1 (NEW AIRCRAFT) This Certificate of Technical Acceptance is delivered, on the date set out below by ________ ("Lessee") to ________ ("Lessor") pursuant to the Aircraft Lease Agreement dated ________ between Lessor and Lessee (the "Lease"). The capitalized terms used in this Certificate shall have the meaning given to such terms in the Lease. DETAILS OF ACCEPTANCE Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this ________ day of ________, at ________ , technically accepted the following, in accordance with the provisions of the Lease: ________ Aircraft, Manufacturer's Serial Number ________; ________ Engines: Engine Number Manufacturer's Serial Number [To be completed at Delivery] (each of which has 750 or more rated take off horsepower or the equivalent of such horsepower) Fuel Status: Kilos/lbs ________ ; and Loose Equipment Check List: in accordance with the list signed by Lessor and Lessee and attached hereto. Aircraft Documents and Records: in accordance with the list signed by Lessor and Lessee and attached hereto. LOPA drawing attached. HOURS AND CYCLES DATA (as of Delivery Date) Airframe: Time Since New :--------------- Cycles Since New :--------- Landing Gear (Main and Nose) Time Since New : [, Center] Cycles Since New :--------- Engines Position: Time Since New: ----------- Cycles Since New: --------- Auxiliary Power Unit : Number of Flight Hours/APU Hours (as applicable) since New : -------------------- ACCEPTANCE: Lessee hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents and Records are technically acceptable to it, satisfy all of the Delivery Condition Requirements and, except as noted on the attached Exceptions Schedule, are in the condition for delivery and acceptance as required under the Lease. IN WITNESS WHEREOF, Lessee and Lessor have, by their duly authorized representative, executed this Certificate of Technical Acceptance on the date in paragraph 1 above. LESSEE: ________________________ By: _________________________ Title: _________________________ LESSOR: _______________________ By: _________________________ Title: _________________________ ATTACHMENT EXCEPTIONS LIST The items set forth below represent non-conformities to the Delivery Condition Requirements as of the Delivery Date, the corrective action (or payment to Lessee in lieu thereof), if any, to be taken by Lessor and the date of accomplishment. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR'S UNDERTAKINGS SET FORTH HEREIN ARE IN FURTHERANCE OF AND SUBJECT TO THE AIRCRAFT LEASE AGREEMENT DATED AS OF _____________ BETWEEN LESSOR AND LESSEE (THE "LEASE"), THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, HEREUNDER AND THAT LESSORS UNDERTAKINGS ARE SUBJECT TO EACH AND EVERY DISCLAIMER OF LESSOR SET FORTH IN THE LEASE INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN CLAUSE 17 THEREOF. LESSOR LESSEE 19. BY:_______________________ BY:_____________________ 20. TITLE:______________________ TITLE:____________________ SCHEDULE 5 CERTIFICATE OF TECHNICAL ACCEPTANCE - PART 2 (USED AIRCRAFT) This Certificate of Technical Acceptance is delivered, on the date set out below by ________ ("Lessee") to ________ ("Lessor") pursuant to the Aircraft Lease Agreement dated ________ between Lessor and Lessee (the "Lease"). The capitalized terms used in this Certificate shall have the meaning given to such terms in the Lease. DETAILS OF ACCEPTANCE Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this ________ day of ________, at ________ , technically accepted the following, in accordance with the provisions of the Lease: ________ Aircraft, Manufacturer's Serial Number ________; ________ Engines: Engine Number Manufacturer's Serial Number [to be completed at Delivery] (each of which has 750 or more rated take off horsepower or the equivalent of such horsepower) Fuel Status: Kilos/lbs ________ ; and Loose Equipment Check List: in accordance with the list signed by Lessor and Lessee and attached hereto. Aircraft Documents and Records: in accordance with the list signed by Lessor and Lessee and attached hereto. HOURS AND CYCLES DATA (as of Delivery Date) Airframe: Number of Hours since last Airframe Structural Check: ________ hours "C" Check (or Equivalent) Interval: _______________________ Time Since: _____________________ Landing Gear Overhaul: Number of Cycles Since Last Overhaul: [ ] Gear __________________________ cycles Interval: __________________________ Engines: Number of Hours Since Last Engine Refurbishment: S/N __________ : __________ hours Hot Section Inspection: Interval: ___________________________ Time Since (S/N __________) : ______________ Time Remaining to First Restriction: Engine S/N: Hours: _____________ Restriction: _____________ Cycles: _____________ Restriction: _____________ Average Cycles in Life Limited Parts (see attached Schedule): _______________ Auxiliary Power Unit: Number of APU Hours since Last Heavy Shop Visit: ______________ hours Date accomplished ___________ Hot Section Inspection: Interval: _______________________ Time Since: _______________________ Interior Equipment: LOPA - attached _______________________ Emergency drawing - attached _______________________ Galley Equipment _______________________ ACCEPTANCE: Lessee hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents and Records are technically acceptable to it, satisfy all of the Delivery Condition Requirements and, except as noted on the attached Exceptions Schedule, are in the condition for delivery and acceptance as required under the Lease. IN WITNESS WHEREOF, Lessee and Lessor have, by their duly authorized representative, executed this Certificate of Technical Acceptance on the date in paragraph 1 above. LESSEE: By: _________________________ Title: _________________________ LESSOR: By: _________________________ Title: _________________________ ATTACHMENT EXCEPTIONS LIST The items set forth below represent non-conformities to the Delivery Condition Requirements as of the Delivery Date, the corrective action (or payment to Lessee in lieu thereof), if any, to be taken by Lessor and the date of accomplishment. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR'S UNDERTAKINGS SET FORTH HEREIN ARE IN FURTHERANCE OF AND SUBJECT TO THE AIRCRAFT LEASE AGREEMENT DATED AS OF FEBRUARY 7, 2000 BETWEEN LESSOR AND LESSEE (THE "LEASE"), THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, HEREUNDER AND THAT LESSORS UNDERTAKINGS ARE SUBJECT TO EACH AND EVERY DISCLAIMER OF LESSOR SET FORTH IN THE LEASE INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN CLAUSE 17 THEREOF. LESSOR LESSEE 21. BY:_______________________ BY:_____________________ 22. TITLE:______________________ TITLE:____________________ SCHEDULE 6 Procedures And Operating Condition At Redelivery On the Return Occasion the Aircraft, subject to fair ordinary wear and tear of a kind and to an extent consistent with similar aircraft engaged in commercial airline operations, will be redelivered to Lessor by Lessee in accordance with the procedures and in any event in the condition set out below. For the avoidance of doubt, any damage assessment and/or rectification criteria used in assessing the redelivery condition shall be as prescribed in the Manufacturer's structural repair manual ("SRM") and/or the Manufacturer's maintenance manual, as appropriate. Any damage outside the scope of the SRM shall require FAA 8110-3 certification. 3.1 FINAL INSPECTION Immediately prior to the Return Occasion, Lessee will make the Aircraft available to Lessor and Owner at Denver, Colorado for inspection ("Final Inspection") in order to verify that the condition of the Aircraft complies with the Lease. The Final Inspection will include, and be long enough to permit Lessor to: (a) inspect the Aircraft Documents and Records; (b) inspect the Aircraft (including an examination of all compartments and bays, with Lessee to open or remove panels as reasonably required by Lessor or Owner), uninstalled Parts and the APU (including a complete video borescope inspection of the APU); (c) inspect the Engines, including (i) a complete video borescope inspection of (A) the low pressure and high pressure compressors and (B) turbine area and (ii) engine condition runs (including full take-off power engine run-up performed in accordance with the performance test in the Manufacturer's maintenance manual, and the Engines shall not exceed corrected limits for all parameters using temperature corrected charts), and power assurance runs; and (d) observe a two hour demonstration flight at Lessee's cost (with up to 3 of Lessor's and Owner's representatives as on-board observers). Furthermore, Lessee acknowledges that a purchaser or the next operator of the Aircraft will need to inspect the Aircraft, the Engines and the Aircraft Documents and Records prior to redelivery and Lessee hereby agrees to cooperate reasonably at all times during the Term with Lessor, Owner and/or such purchaser or such next operator, who shall accompany Lessor, to participate in such inspections in order to coordinate, assist and grant access for the above inspections and/or meetings as necessary. Lessor or Owner, as the case may be, is responsible for and will indemnify Lessee against all Losses arising from the death or injury to any observer or any employee of Lessor or Owner, as the case may be, in connection with the inspection of the Aircraft and any ferry flight under this Section 1.1. 3.2 GENERAL CONDITION The Aircraft will: (a) be in the same configuration as at Delivery after giving effect to any post-Delivery modifications, repairs or maintenance to the Aircraft paid for or otherwise provided by or on behalf of Lessor (or as otherwise mutually agreed), be in as good operating condition and appearance as when delivered to Lessee (after giving effect to any post-Delivery modifications, repairs or maintenance paid for or otherwise provided by or on behalf of Lessor, hereafter, the "Modifications"), except for ordinary wear and tear and alterations and modifications authorized or required under the Lease and paid for by Lessee or a Sub-Lessee, and be clean by major commercial airline standards, and all structural damage shall have been repaired to a permanent standard as per the SRM or, if the SRM is not applicable as per the requirements of the Manufacturer; (b) have installed the full complement of equipment, parts, accessories, furnishings and loose equipment as when originally delivered to Lessee (and after giving effect to any Modifications) and as normally installed in the Aircraft for continued regular service and the Aircraft (including the Aircraft Documents and Records) shall be in a condition suitable for immediate registration with the FAA (assuming that the Owner qualifies for such registration) and immediate operations under FAR Part 121 with a new operator, without waiver, unless the benefit of such waiver is applicable to the next operator of the Aircraft, or restriction; and if any of the engines or parts tendered for redelivery with the Aircraft is not one of the Engines referred to in the Certificate of Technical Acceptance or a Replacement Engine installed pursuant to Section 8.11(b) following an Engine Event of Loss, Lessor shall have no obligation to accept such engine or part unless Lessee furnishes to Lessor all the documents and evidence in respect of such engine or part in accordance with Section 8.11(b), as if such engine were a Replacement Engine or replacement part, and otherwise complies with such Section 8.11(b) with respect thereto; (c) have in existence a valid and effective certificate of airworthiness (and if required by Lessor, a valid and effective export certificate of airworthiness) with respect to the Aircraft issued by the Air Authority (in the case of an export certificate of airworthiness no earlier than 30 days prior to the redelivery); (d) comply with the manufacturer's original specifications as at the Delivery Date (after giving effect to the Modifications), except as modified during the Term in accordance with the Manufacturer's service bulletins or letters, Airworthiness Directives, Air Authority approved data or otherwise as permitted by the Lease; (e) have undergone, immediately prior to redelivery, the next relevant "C" Check (or higher check if applicable) in block format so that all airframe inspections falling due within the next "C" Check interval, as defined in, and in accordance with, Lessee's Maintenance Program on the Redelivery Date and the Manufacturer's Maintenance Planning Document have been accomplished; (f) have had accomplished all outstanding Airworthiness Directives affecting that model of Aircraft issued by the FAA prior to the Expiry Date and requiring action during the Term or within * days after the Expiry Date; for this purpose, compliance shall be by terminating action if: (i) Lessee has complied by terminating action for other aircraft of the same model and series then operated by Lessee; or (ii) the latest date permitted by such Airworthiness Directive for required compliance by terminating action falls within * days after the Expiry Date. In no event shall there be any non transferable time extensions, waivers, deviations or alternative means of compliance with any Airworthiness Directives or other regulations. (g) have installed all applicable vendor's and manufacturer's service bulletin kits received free of charge by Lessee during the Term that are appropriate for the Aircraft and to the extent not installed, those kits will be furnished free of charge to Lessor; (h) have the fuselage, empennage, wings and pylons stripped (or sanded if only three or less coats of paint) and painted white in accordance with standard industry practice; (i) have all signs and decals clean, secure and legible; (j) meet the requirements of FAR Part 36, Appendix C, Stage 3 noise compliance as in effect at the Delivery Date, without waiver or restriction; (k) have no open, deferred, continued, carry over or placarded maintenance items or watch items or placarded log book items, and all other log book discrepancies shall be cleared; (l) all discrepancies discovered during the inspections described above which exceed the Manufacturer's maintenance manual allowable limits for in-service aircraft shall have been repaired in accordance with FAA-approved procedures; (m) all repairs of a temporary or interim nature, requiring repetitive inspections or future upgrading, including external doublers with blind fasteners, shall be upgraded to permanent repair in accordance with the Manufacturer's maintenance manual or structural repair manual; and (n) all systems shall be fully operational for their intended functions in accordance with the Manufacturer's -maintenance manual specifications. 3.3 COMPONENTS (a) Each Airframe Flight Hour and Cycle controlled Hard Time Component (as defined below and other than the APU) shall have not less than the Minimum Component Flight Hours and the Minimum Component Cycles of life remaining to the next scheduled removal, in accordance with the Lessee's Maintenance Program and shall be supported by appropriate certification documentation indicating TSN, CSN, TSO and CSO such as FAA form 8130-1; for this purpose "Hard Time Component" means any component which has a limited on-wing life in accordance with the Manufacturer's Maintenance Planning Document and which can have life fully restored through appropriate maintenance; (b) Each calendar-limited component including safety equipment will have not less than its Minimum Component Calendar Life remaining to the next scheduled removal in accordance with the Lessee's Maintenance Program; (c) Each "on-condition" and "condition-monitored" component will be serviceable; (d) The installed components as a group will have an average of total flight time since new of not more than that of the Airframe; (e) Each Airframe Life-Limited Component (as defined below) will have not less than the Minimum Component Flight Hours and the Minimum Component Cycles remaining to next scheduled removal in accordance with Lessee's Maintenance Program and will be supported by certification documentation necessary to demonstrate back-to-birth traceability; for this purpose "Airframe-Life Limited Component" means a component with an ultimate life which cannot be restored through appropriate maintenance. 3.4 ENGINES Each Engine will be installed on the Aircraft and comply with the following: (a) Each Engine will have not less than the Minimum Engine Flight Hours and Minimum Engine Cycles expected life remaining to the next expected removal. The expected life remaining will be as reasonably determined by the inspection and checks accomplished by Lessor in accordance with the Lease; (b) Each Engine shall have completed during the Final Inspection a hot (including combustion chamber) and cold section video borescope inspection, which inspection shall be performed at Lessor's expense, and a power assurance run performed at Lessee's expense in accordance with the Lessee's Maintenance Program or Manufacturer's maintenance manual and any defects discovered in such inspections which exceed the Engine manufacturer's in-service limits shall be corrected at Lessee's expense. Lessee shall cause such borescope inspections to be performed and to be recorded on videotape by Lessee, or if Lessee does not perform the same, by an agency selected by Lessor and shall provide Lessor with a copy of such videotape on the Return Occasion. No Engine shall be on "watch" for any reason requiring any special or out of sequence inspection. Each Engine shall comply with the operations specification of Lessee without waiver or exceptions. All items beyond the Engine manufacturer's in-service limits shall be repaired; (c) Each Engine Life-Limited Component (as defined below) will have not less than the Minimum Engine Cycles remaining per the manufacturer's then current limitations for the part number in question, and will be supported by certification documentation necessary to demonstrate back-to-birth traceability; for this purpose "Life Limited Component" means a component with an ultimate life which cannot be restored through appropriate maintenance; and (d) Each Engine will have no defect which places less than the Minimum Engine Flight Hours and the Minimum Engine Cycles of remaining life pursuant to Manufacturer's or airworthiness requirements until scheduled removal. 3.5 FUSELAGE, WINDOWS AND DOORS (a) The fuselage will be free of major dents and abrasions in excess of the limits specified in Manufacturer's maintenance manual or structural repair manual, loose or pulled or missing rivets and all structural repairs shall be permanent repairs; (b) Windows will be free of delamination, blemishes, crazing, in excess of the limits specified in the Manufacturer's maintenance manual or structural repair manual and will be properly sealed; and (c) Doors will be free moving, correctly rigged and be fitted with serviceable seals. 3.6 WINGS AND EMPENNAGE (a) Leading edges will be free from damage in excess of the limits specified in the Manufacturer's maintenance manual or structural repair manual; and (b) Unpainted surfaces will be polished. 3.7 INTERIOR AND COCKPIT Carpets and seat covers will be in good condition, clean and free of stains and meet FAR fire resistance regulations. 3.8 LANDING GEAR; WHEELS AND BRAKES (a) The Landing Gear and wheel wells will be clean, free of leaks and repaired as necessary; (b) Each installed Landing Gear shall have no more than * of the Cycles accumulated on the Airframe; provided, however, that if such Cycles exceed * of the Cycles accumulated on the Airframe, then Lessee shall pay to Lessor an amount equal to the product of the number of Cycles by which each Landing Gear exceeds the Cycles accumulated on the Airframe multiplied by the Landing Gear Supplemental Rent Rate. In any event, each Landing Gear shall have not less than the Minimum Landing Gear Flight Hours and the Minimum Landing Gear Cycles and the Minimum Landing Gear Calendar Time to the next scheduled overhaul or removal, as the case may be, in accordance with the then current Manufacturer's Maintenance Planning Document and Lessee's Maintenance Program; and (c) The wheels and brakes will have not less than half of their useful life remaining. 3.9 RETURN OF AUXILIARY POWER UNIT (APU) The APU shall have completed a borescope inspection during the Final Inspection and shall meet all air outputs and temperature limitations under load in accordance with the Lessee's Maintenance Program and the Manufacturer's maintenance manual, and any defects discovered in such inspection, which exceed the APU manufacturer's in-service limits, shall be corrected at Lessee's expense. The APU shall have not more than the Minimum APU Limit since the last gas path refurbishment. APU Life Limited Parts shall have not less than one half useful life remaining on average. 3.10 CORROSION (a) The Aircraft shall be in compliance with the Manufacturer's corrosion prevention and control program (CPCP) requirements. All CPCP inspections which would normally be accomplished while access is provided during structural inspection in accordance with the Lessee's Maintenance Program during the Term shall have been accomplished; (b) The entire fuselage will be substantially free from corrosion and will be adequately treated in accordance with Lessee's corrosion prevention program and the Manufacturer's Maintenance Planning Document; and (c) (c) Fuel tanks will be free from contamination and corrosion and a tank treatment program will be in operation. 3.11 FUEL At redelivery, the Aircraft fuel tanks shall contain the Minimum Measurable Fuel Requirement. 3.12 MAINTENANCE PROGRAM (a) Prior to the Return Occasion and upon Lessor's or Owner's request, Lessee will provide Lessor or Owner or its agent reasonable access to the Lessee's Maintenance Program and the Aircraft Documents and Records in order to facilitate the Aircraft's integration into any subsequent operator's fleet; and (b) Lessee will, if requested by Lessor or Owner to do so, provide sufficient access to Lessee's Maintenance Program in order to integrate the Aircraft to the next operator's maintenance program. Lessor and any Person to whom Lessor grants access to Lessee's Maintenance Program shall agree that it will not disclose the contents of the Lessee's Maintenance Program to any Person except to the extent necessary to monitor Lessee's compliance with the Lease and/or to bridge the maintenance program for the Aircraft from the Lessee's Maintenance Program to another program after the Return Occasion. 3.13 AIRCRAFT DOCUMENTS At redelivery Lessee will deliver to Lessor and Owner all current and complete historical records required to be maintained relevant to the Aircraft, including documents, manuals, data, overhaul records, life limited part traceability to "zero time since new", log books, original delivery documents serviceable parts tags, FAA forms, modification records and inspection records, and including each of the following Aircraft Documents and Records: A. Certificates A001 Certificate of Airworthiness A002 Current Aircraft Registration A003 C of A for Export (if applicable) A004 Noise Limitation Certificate (AFM page) A005 Radio Station License A007 Aircraft deregistration confirmation A008 Burn Certificates - Cabin Interiors - as follows: Certification of compliance with the fire blocking requirements as outlined in FAR Part 25 including: - - Seat cushions* - - Back rest cushions* - - Dress covers* - - Carpets - - Curtains - - Interior Surfaces (if refurbished) * Including "in combination" burn certification B. Aircraft Maintenance Status Summaries B001 Certified current Time in Service (Hours & Cycles) and maintenance status B002 Certified status of Airworthiness Directives including method of compliance B003 Certified status of Service Bulletin Status B004 Certified status of SSI B005 Certified status of CPCP (if applicable) B006 Certified inventory of Hard Time Components (Fitted listing) B007 Certified inventory of OC/CM Components (Fitted listing) B008 Certified status of all non-SB and Major Modifications/STC's including acceptable State of Manufacture Certification B009 Certified status of Check/Inspection History & Current Status of Checks B010 List of Deferred Maintenance Items B011 List of Out of Phase Checks, Special Requirements, Time Limited Repairs (if any). B012 Aircraft Accident & Incident Report. B013 Structural repairs and damage (including Dent & Buckle Chart). C. Aircraft Maintenance Records C001 Technical Logs (Minimum of 2 years) C002 A Checks Last complete cycle of A Checks (or equivalent) C003 C Checks Last Complete cycle of C Checks (or equivalent) C004 All Major Checks C005 CPCP Tasks (if applicable) C006 Periodic Tasks C007 Dirty Finger Print Certification - AD's C008 Dirty Finger Print Certification - SB's C009 Dirty Finger Print Certification - All other modification C010 Last Weight Report including Schedule C011 Compass Swing Report C012 Last Test Flight Report C013 Certified ETOPS compliance report (if applicable) C014 Dirty Finger Print certification - All Structural repairs/structural damage C015 Details of State of Manufacture certification basis - A non-SRM Structural repairs C016 Aircraft Log Book(s) if applicable D. Configuration Status D001 Approved and certified LOPA D002 Galley Drawings/Component OHM D003 Emergency Equipment Drawing/Listing D004 Loose Equipment Inventory D005 Inventory Listing of Avonic installed Units. E. Aircraft Historical Records E001 C of A (Export) from State of Manufacture E002 Manufacturer's AD Report E003 Manufacturer's Inspection Report, Initial Equipment list E004 Manufacturer's repair/alteration report E005 Manufacturer's SB Report E006 Service Difficulty Reports (if any) E007 Aircraft Historical Log E008 Last Flight Data Recorder Read-Out & Corrections E009 Weighing report F. Engine Records F001 Certified Statement of Status of Each Engine F002 AD Compliance Report and Compliance Documents F003 Manufacturer's Modifications & SB Status F004 In-house Modifications (if applicable) F005 Certified LLP Listing F006 Certified listing of installed units F007 Manufacturer Delivery Document F008 Complete copies of all historical engine/module Shop Visit Reports F009 State of Manufacture LLP Traceability F010 Conditioning Monitoring Report F011 Engine Log Book/Master Records of Installation/Removals F012 Last Borescope Report, including video if available F013 Test Cell Run Report F014 Last On-Wing Ground Run F015 Certified Statement that Engines are not involved in an Accident F016 Approved Release to Service Certification for installed rotables F017 Approved ETOPS compliance report (if applicable) G. APU G001 Certified Statement on Status of APU (if applicable) G002 Certified SB Compliance Report/AD Status Report G003 Approved Release to Service Certification for installed units G004 APU Log Book/Master Record of Installation/Removals G005 Complete copies of all APU Shop Visit Reports & Reason for Removal G006 Statement of APU Hours to Aircraft Flying Hours G007 LLP Status and Full Traceability to birth G008 APU Borescope Report G009 Last On-Wing/Health Check Data sheets (if applicable) G010 Last Test Cell Run G011 Approved ETOPS compliance report H. Component Records H001 Approved Release to Service Certification for Hard Time Components H002 Approved Release to Service Certification for OC/CM Components I. Landing Gears I001 Approved Release to Service Certification for major assemblies on each Gear I002 Approved LLP Listings for each Gear (with FULL Traceability to Birth) I003 Last Shop Visit Report (OH) J. Manuals All Manufacturer's Manuals delivered with the Aircraft under the Lease updated to the latest revision standard (applicable as at the Return Occasion) as may be reasonably requested by Lessor K. Microfilm: J006 WDM J007 IPC J008 Maintenance Manual J009 Schematics J010 Hook Up Listing L. Miscellaneous K006 Maintenance Program Specifications (Operator's) K007 Reference Material for Interpretation of Status Summaries, or cross-reference for Part Numbers SCHEDULE 7 INSURANCE REQUIREMENTS 3.1 Types of Insurance The Insurances required to be maintained are as follows: (a) Hull All Risks of loss or damage while flying, taxiing and on the ground with respect to the Aircraft on an agreed value basis for the Agreed Value and with a deductible not exceeding the Deductible Amount, or such other amount agreed by Lessor from time to time; (b) Hull War and Allied Perils, being such risks excluded from the Hull All Risks Policy to the fullest extent available from the leading international insurance markets, including confiscation and requisition by the State of Registry for the Agreed Value; provided that, when the Aircraft is being operated solely in or over the United States or Canada, coverage may be limited to such coverage as is usual and customary for similar airlines operating similar equipment in similar circumstances, namely, the North American buy-backs; (c) All Risks (including War and Allied Risk except when on the ground or in transit other than by air) property insurance on all Engines and Parts when not installed on the Aircraft on an "agreed value" basis for their full replacement value and including engine test and running risks; (d) Comprehensive Aircraft Third Party, Property Damage, Passenger, Baggage, Cargo and Mail and Airline General Third Party (including Products) Legal Liability for a combined single limit (bodily injury/property damage) of an amount not less than the Minimum Liability Coverage for the time being for any one occurrence (but in respect of products and personal injury liability, this limit may be an aggregate limit for any and all losses occurring during the currency of the policy). War and Allied Risks are also to be covered under the policy in line with prudent market practice for comparable airlines operating similar equipment in similar circumstances; 3.2 Terms of Hull and Spares Insurance All required hull and spares insurance, so far as it relates to the Aircraft, will: (a) Additional Insureds: name Lessor, Owner, Financing Parties' Representative as additional insureds for their respective rights and interests (without imposing on any such Person any obligation imposed on the insured, including the liability to pay any calls, commissions or premiums); (b) Settlement of Losses: provide that any loss will be settled jointly with Lessor and Lessee, and will be payable in Dollars to Owner and/or the Financing Parties' Representative, if any, as sole loss payee, for the account of all interests, except where the insurance payment does not exceed the Damage Notification Threshold, and no material Default is in existence, in which case the loss will be settled with and paid to Lessee; (c) 50/50 Provision: if separate Hull "all risks" and "war risks" insurances are arranged, include a 50/50 provision in accordance with market practice (AVS. 103 is the current London market language); (d) No Option to Replace: confirm that the insurers are not entitled to replace the Aircraft in the event of an insured Event of Loss. 3.3 Terms of Liability Insurance All required liability insurances will: (a) Additional Insureds: include each Indemnitee, as additional insureds for its respective rights and interests, warranted, each as to itself only, no operational interest (without imposing on any such Person any obligation imposed on the insured, including the liability to pay any calls, commissions or premiums); (b) Severability: include a severability of interests clause which provides that the insurance, except for the limit of liability, will operate to give each insured the same protection as if there was a separate policy issued to each insured; (c) Primary Policy: contain a provision confirming that the policy is primary without right of contribution and the liability of the insurers will not be affected by any other insurance of which Lessor, each Indemnitee or Lessee have the benefit so as to reduce the amount payable to the additional insureds under such policies; 3.4 Terms of All Insurances All Insurances will: (a) Best Industry Practice: be in accordance with normal industry practice of persons operating similar aircraft in similar circumstances; (b) Dollars: provide cover denominated in Dollars and any other currencies which Lessor may reasonably require in relation to liability insurance; (c) Worldwide: operate on a worldwide basis subject to such limitations and exclusions as Lessor may agree; (d) Breach of Warranty: provide that, in relation to the interests of each of the additional assureds, the Insurances will not be invalidated by any act or omission by Lessee, or any other person other than the respective additional assureds seeking protection and shall insure the interests of each of the additional assureds regardless of any breach or violation by Lessee, or any other person other than the respective additional assured seeking protection of any warranty, declaration or condition, contained in such Insurances; (e) Subrogation: provide that the insurers will hold harmless and waive any rights of recourse or subrogation against the additional insureds; (f) Premiums: provide that the additional insureds will have no obligation or responsibility for the payment of any premiums due (but reserve the right to pay the same should any of them elect so to do) and that the insurers will not exercise any right of set-off, counter-claim or other deduction, by attachment or otherwise, in respect of any premium due against the respective interests of the additional insureds other than outstanding premiums relating to the Aircraft, any Engine or Part the subject of the relevant claim; (g) Cancellation/Change: provide that the Insurances will continue unaltered for the benefit of the additional insureds for at least * days after written notice by registered mail or telex of any cancellation, change, event of non-payment of premium or installment thereof has been sent by insurer(s) to Lessor, or where an insurance broker is appointed to the insurance broker who shall promptly send on such notice to Lessor, except in the case of war risks for which * days (or such lesser period as is or may be customarily available in respect of war risks or allied perils) will be given, or in the case of war between the 5 great powers or nuclear peril for which termination is automatic; (h) Reinsurance: if reinsurance is a requirement of the Lease such reinsurance will: (i) be on the same terms as the original insurances and will include the provisions of this Schedule; (ii) provide that notwithstanding any bankruptcy, insolvency, liquidation, dissolution or similar proceedings of or affecting the reinsured that the reinsurers' liability will be to make such payments as would have fallen due under the relevant policy of reinsurance if the reinsured had (immediately before such bankruptcy, insolvency, liquidation, dissolution or similar proceedings) discharged its obligations in full under the original insurance policies in respect of which the then relevant policy of reinsurance has been effected; and (iii)contain a "cut-through" clause in the following form (or otherwise satisfactory to Lessor): "The Reinsurers and the Reinsured hereby mutually agree that in the event of any claim arising under the reinsurances in respect of a total loss or other claim where as provided by the Agreement dated [ ] and made between [ ] and [ ] such claim is to be paid to the person named as sole loss payee under the primary insurances, the Reinsurers will in lieu of payment to the Reinsured, its successors in interest and assigns pay to the person named as sole loss payee under the primary insurances effected by the Reinsured that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Reinsured (subject to proof of loss), it being understood and agreed that any such payment by the Reinsurers will (to the extent of such payment) fully discharge and release the Reinsurers from any and all further liability in connection therewith"; subject to such provisions not contravening any Law of the State of Incorporation; and (i) Initiating Claims: contain a provision entitling any Indemnitee to initiate a claim under any policy in the event of the refusal or failure of Lessee to do so; and (j) Indemnities: accept and insure the indemnity provisions of the Lease to the extent of the risks covered by the policies. 3.5 Deductibles Lessee shall be responsible for any and all deductibles under the Insurances. 3.6 Application of Insurance Proceeds The Insurances will be endorsed to provide for payment of proceeds as follows: (a) Event of Loss: all insurance payments received as the result of an Event of Loss occurring during the Term will be paid to Financing Parties' Representative as sole loss payee, and Lessor will pay or cause to be paid any remaining balance of those amounts to Lessee after deduction of all amounts which may be or become payable by Lessee to Lessor under the Lease and the Other Agreements (including under Section 11.1(b)); (b) Exceeding Damage Notification Threshold: all insurance proceeds of any property, damage or loss to the Aircraft, any Engine or any Part occurring during the Term not constituting an Event of Loss and in excess of the Damage Notification Threshold will be paid to Financing Parties' Representative as sole loss payee, and applied in payment (or to reimburse Lessee) for repairs or replacement property upon Lessor, being satisfied that the repairs or replacement have been effected in accordance with the Lease. Any balance remaining may be retained by Lessor or Owner, as the case may be; (c) Below Damage Notification Threshold: insurance proceeds in amounts below the Damage Notification Threshold may be paid by the insurer directly to Lessee; (d) Liability Proceeds: all insurance proceeds in respect of third party liability will, except to the extent paid by the insurers to the relevant third party, be paid to Lessor, Owner or Financing Parties' Representative to be paid directly in satisfaction of the relevant liability or to Lessee in reimbursement of any payment so made; (e) Default: notwithstanding any of the foregoing paragraphs, if at the time of the payment of any such insurance proceeds a payment Default or an Event of Default has occurred and is continuing, all such proceeds will be paid to Lessor, Owner or Financing Parties' Representative, as the case may be, or retained to be applied toward payment of any amounts which may be or become payable by Lessee in such order as Lessor or Owner, as the case may be, may elect; and To the extent that insurance proceeds are paid to Lessee which are required to be paid to another Person hereunder, Lessee agrees to hold such proceeds in trust and comply with the foregoing provisions and apply or pay over such proceeds as so required. 3.7 United States Governmental Indemnity Notwithstanding any of the foregoing paragraphs, in the event of a Permitted Sub-Lease to, or a requisition of use by, or activation of the CRAF program with respect to the Aircraft by, the United States or any Governmental Entity whose obligations have the full faith and credit of the federal Government of the United States, Lessor agrees to accept in lieu of insurance required hereunder indemnification or insurance from the United States or such a Governmental Entity in a form reasonable acceptable to Lessor and Owner and against such risks and in such amounts and on such terms such that when added to the Insurances maintained by Lessee, Lessee is in full compliance with the requirements of Section 9 and this Schedule. SCHEDULE 8 FORM OF LEGAL OPINION The following form shall be delivered by Lessee's counsel to Lessor or such other form as Lessor shall reasonably agree. [Lessor] [Owner] [Financing Parties' Representative] Ladies and Gentlemen: 3.1 You have asked us to render an opinion in connection with the transaction governed by or subject to, inter alia, the under-mentioned documents. 3.2 the Agreement as defined in paragraph 1.3 below; 3.3 the [Articles/Certificate of Incorporation and By-laws]* of Lessee; and [*Counsel should amend this reference as necessary to describe the actual constitutional documents of Lessee]. 3.4 all other documents, approvals and consents of whatever nature and wherever kept which it was, in our judgement and to our knowledge, necessary or appropriate to examine to enable us to give the opinion expressed below. Words and expressions used and not otherwise defined herein will bear the same meanings as defined in an Aircraft Lease Agreement dated ________, ____ between ________ ("Lessor") and ________ ("Lessee") in respect of one ________ aircraft with manufacturer's serial number ________ together with the ____ installed ________ engines (the "Aircraft"). As used herein the term "Lease" means and includes the Aircraft Lease Agreement which incorporates the Common Terms Agreement (as defined therein) and Lease Supplement No. Also, for the purposes of this opinion, the term "Lease" includes the Acknowledgment and Agreement dated as of the date hereof executed by Lessee in favor of Owner and Financing Parties' Representative. 4. Having considered the documents listed in paragraph 1 above, and having regard to the relevant laws of ________ we are pleased to advise that in our opinion: - (a) Lessee is a company duly incorporated and in good standing under the laws of ________, and is qualified to do business as a foreign corporation in each jurisdiction where failure to so qualify would have a materially adverse effect on Lessee's business or its ability to perform its obligations under the Lease; (b) Lessee has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, and the execution, delivery and performance by it of, the Lease and the transactions contemplated by the Lease; (c) the entry into and performance by Lessee of, and the transactions contemplated by, the Lease do not and will not: (i) conflict with any laws binding on Lessee; or (ii) conflict with the [Articles/Certificate of Incorporation or By-laws] of Lessee; or (iii)conflict with or result in default under any agreement or instrument which is binding upon Lessee or any of its assets or result in the creation of any Security Interest on any of its assets. (d) no authorizations, consents, licenses, approvals and registrations (other than those which have been obtained and of which copies are attached hereto) are necessary or desirable to be obtained from any governmental or other regulatory authorities in the United States or any other jurisdiction having jurisdiction over Lessee, its operations or its properties to enable Lessee: (i) to enter into and perform the transactions contemplated by the Lease; (ii) to import the Aircraft into ______ for the duration of the Term; (iii)to operate the Aircraft in ______ and on international flights for the transport of fare-paying passengers; or (iv) to make the payments provided for in the Lease; (e) except for the filing and recordation of [ a bill of sale in favor of the Owner,] the Financing Documents and the Lease with the FAA (which filing has been duly made on or before this date) and the filing of Financing Statements in ________, it is not necessary or desirable, to ensure the priority, validity and enforceability of all the obligations of Lessee under the Lease, as against Lessee and all third parties, or to perfect the interests of Lessor, Owner or Financing Parties' Representative in and to the Aircraft or the Lease, that the Lease be filed, registered, recorded or notarized in any public office or elsewhere or that any other instrument be signed, delivered, filed, registered or recorded, that any tax or duty be paid or that any other action whatsoever be taken; (f) the Lease has been duly executed and delivered on behalf of Lessee and constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms; (g) there is no withholding tax or other Tax to be deducted from any payment whatsoever which may be made by Lessee pursuant to the Lease; with respect to any withholdings, the provisions of Section 5.6 of the Lease are fully effective; and the arrangements contemplated by the Lease do not give rise to Taxes in ________; (h) there is no applicable usury or interest limitation law in ________ applicable to payments in accordance with the Lease; (i) there are no registration, stamp or other taxes or duties of any kind payable in ________ in connection with the execution, performance or enforcement by legal proceedings of the Lease; (j) the choice of New York law to govern the Lease will be upheld as a valid choice of law in any action in the courts of ________; (k) the consent to the jurisdiction by Lessee contained in the Lease is valid and binding on Lessee; (l) Lessee is a Certificated Air Carrier; (m) Lessee is a "citizen of the United States" as defined in 49 U.S.C. Section 40102(a)(15); (n) Lessee's "chief executive office" (as referenced in the Uniform Commercial Code adopted in the State of _________________) is _____________________; (o) Lessor will not violate any law or regulation of the States of _________ or New York or any federal laws or regulations of the United States of America and Lessor will not become liable to income tax in the State of ____________ solely by reason of Lessor entering into the Lease with Lessee or performing its obligations thereunder; (p) It is not necessary for Lessor to establish a place of business or be licensed or qualified to do business in the State of _________ or New York in order for Lessor to enforce any provisions of the Lease; and (q) Lessor is entitled to the benefits of Section 1110 of Title 11 of the U.S.C. with respect to the Aircraft and the Lease. Very truly yours, [If there is a Guarantor/Guarantee the opinion shall also include paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (o) and (p) revised to be applicable to the Guarantor/Guarantee] SCHEDULE 9 EVENTS OF DEFAULT Each of the following events or conditions constitutes an Event of Default: (a) Non-payment: Lessee fails to make any payment of Rent or Supplemental Rent under the Lease on the due date and such failure continues for * (*) Business Days or more, or Lessee fails to make any other payment under the Lease within * Business Days of the due date therefor under the Lease; or (b) Insurance: Lessee fails to comply with any provision of Section 9 or Schedule 7, or any insurance required to be maintained under the Lease is cancelled or terminated, or a notice of cancellation is given in respect of any such insurance; or (c) Breach: Lessee fails to comply with any other provision of the Lease not referenced in this Schedule 9 and, if such failure is capable of remedy, such failure continues for * days after notice from Lessor to Lessee; or (d) Representation: any representation or warranty made (or deemed to be repeated) by Lessee in or pursuant to the Lease or in any document or certificate or statement delivered to Lessor thereunder or in connection therewith is or proves to have been incorrect in any material respect when made or deemed to be repeated; or (e) Cross-Default: (i) any Financial Indebtedness of Lessee or any Lessee Affiliate having a principal amount in excess of $* becomes due as a result of an event of default or termination event, howsoever described, on the part of Lessee or any Affiliate of Lessee prior to the date when it would otherwise have become due; or (ii) material steps are taken by the holder of any such Financial Indebtedness to realize on the security for any such Financial Indebtedness; or (iii)any event of default or termination event, howsoever described, occurs under (a) any Other Agreement, or any aircraft lease agreement or other material agreement from time to time entered into between GE Capital, GECAS or any Person whose aircraft or engines are managed by GE Capital or GECAS (or in each case any Subsidiary of GE Capital), on the one hand, and Lessee (or any Subsidiary of Lessee), on the other hand or (b) any other material lease, hire purchase, conditional sale or credit sale agreement of Lessee relating to aircraft or aviation related equipment; or (f) Approvals: any consent, authorization, licence, certificate or approval of or registration with or declaration to any Government Entity required to be obtained or maintained by Lessee in connection with the Lease and/or the operation of the Aircraft (including any airline licence or air transport licence including authority to operate the Aircraft under Part 121 of the FARs, a Certificate of Convenience and Necessity issued under the Act and an aircarrier operating certificate issued under the Act) is modified in a materially prejudicial manner or is withheld, or is revoked, suspended, cancelled, withdrawn, terminated or not renewed, or otherwise ceases to be in full force, (each a "De-registration") in each case for a period of * (*) days or more and such De-registration has a material adverse effect on (i) Lessee's ability to perform its obligations under the Lease or (ii) the interests of Lessor or Owner in the Aircraft; or (g) Bankruptcy, etc: (i) Lessee consents to the appointment of a custodian, receiver, trustee or liquidator of itself or all or substantially all of Lessee's property or Lessee's consolidated property, or Lessee admits in writing its inability to, or is unable to, or does not, pay its debts generally as they come due, or makes a general assignment for the benefit of creditors, or Lessee files a voluntary petition in bankruptcy or voluntary petition seeking reorganization in a proceeding under any bankruptcy or insolvency laws (as now or hereafter in effect), or an answer admitting the material allegations of a petition filed against Lessee in any such proceeding, or Lessee by voluntary petition, answer or consent seeks relief under the provisions of any other bankruptcy, insolvency or other similar law providing for the reorganization or winding-up of corporations, or provides for an agreement, composition, extension or adjustment with its creditors, or any board of directors or shareholder action is taken by Lessee in furtherance of any of the foregoing, whether or not the same is fully effected or accomplished; or (ii) An order, judgement or decree is entered by any court appointing, without the consent of Lessee, a custodian, receiver, trustee or liquidator of Lessee's property is sequestered, and any such order, judgement or decree of appointment or sequestration remains in effect, undismissed, unstayed or unvacated for a period of * days after the date of entry thereof or at any time an order for relief is granted; or (iii)An involuntary petition against Lessee is a proceeding under the United States Federal Bankruptcy laws or other insolvency laws (as now or hereafter in effect) is filed and is not withdrawn or dismissed within * days thereafter or at any time an order for relief is granted in such proceeding, or if, under the provisions of any law providing for reorganisation or winding-up of corporations which may apply to Lessee, any court of competent jurisdiction assumes jurisdiction over, or custody or control of, Lessee or of all or any material part of Lessee's property, or Lessee's property and such jurisdiction, custody or control remains in effect, unrelinquished, unstayed or unterminated for a period of [*] days or at any time an order for relief is granted in such proceeding; or (h) Suspension of Business: Lessee suspends or ceases or takes substantive steps to suspend or cease to carry on all or a substantial part of its business as a Certificated Air Carrier (other than as a result of a labor dispute with Lessee's employees); or (i) Rights and Remedies: Lessee or any other Person claiming by or through Lessee challenges the existence, validity, enforceability or priority of the Lease or the rights of Lessor as lessor or of Owner as owner in respect of the Aircraft or Financing Parties' Representative as holder of a first priority Security Interest in the Aircraft and the Lease; or (j) Delivery: Lessee fails to comply with its obligation under Section 4 to accept delivery of the Aircraft; or (k) Adverse Change: any event or series of events occurs which has a material adverse effect on the financial condition or operations of Lessee and on the ability of Lessee to comply with its obligations under the Lease; or (l) Letter of Credit: (i) the issuer of the Letter of Credit (if any) fails to make any payment under that Letter of Credit when due; or (ii) any such Letter of Credit is not in full force or, for any reason ceases to constitute the legal, valid and binding obligation of the issuer; or (iii)any of the events listed in paragraph (g) above applies to the issuer of any Letter of Credit (references in such paragraph to Lessee being deemed to be to the issuer); or (iv) where applicable, any Letter of Credit is not renewed within the time required by Section 5.13; and each reference in this paragraph (m) to "the issuer" shall include a reference to any confirming bank for the Letter of Credit. (m) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry Date in accordance with Section 12; or (n) Litigation: a judgement for the payment of money not covered by insurance in excess of $* (or the equivalent thereof in other currencies) shall be rendered against Lessee and the same shall remain undischarged for a period of * days, unless during such period, execution of such judgement shall have been effectively stayed by agreement of the parties involved or by court order or such judgement shall have been adequately bonded; or (o) Unlawful: if the State of Registration is outside of the United States and it becomes unlawful in such State of Registration or other jurisdiction outside of the United States for Lessee to perform any of its material obligations under the Lease or the Lease becomes invalid or unenforceable in whole or in material part ; or (p) Transfer: Lessee makes or permits any assignment or transfer of the Lease, or any interest herein, or of the right to possession of the Aircraft, the Airframe, or any Engine, or any obligations under the Lease, or Lessee subleases the Aircraft, in any case except as expressly permitted in the Lease; or (q) Disposal: Lessee disposes, conveys or transfers or has taken material steps to dispose, convey or transfer all or substantially all of its assets, liquidates or dissolves or consolidates or merges with any other Person whether by one or a series of transactions, related or not, other than for the purpose of a reorganization of the terms of which have received the previous consent in writing of Lessor or as permitted pursuant to Section 8.7(a)(vii) herein. SCHEDULE 10 FORM OF LEASE TERMINATION CERTIFICATE The undersigned hereby certify that the Aircraft Lease Agreement dated as of _________, ____ between the undersigned Lessor and undersigned Lessee, and as further described in the Appendix attached hereto, has terminated (except as described in Section 15.1 thereof) and the aircraft and aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this __________ day of ____________________, __________ LESSOR LESSEE [ INSERT LESSOR'S NAME ] [ INSERT LESSEE'S NAME ] By:________________________________ By:_______________________________ Title:_______________________________ Title:_____________________________ Schedule 11 Intentionally Omitted SCHEDULE 12 LEASE SUPPLEMENT NO. 1 LEASE SUPPLEMENT NO. 1, dated ___________, ______, between ____________________________________________, [a corporation organized under the laws of ______________] [, not in its individual capacity, but solely as owner trustee] ("Lessor"), and ___________________________________, a corporation organized under the laws of the ____________________("Lessee"). Lessor and Lessee have previously entered into that certain Aircraft Lease Agreement dated as of _____________________, including the Common Terms Agreement as defined therein (collectively, herein referred to as the "Agreement" and the defined terms therein being hereinafter used with the same meaning). The Agreement provides for the execution and delivery from time to time of a Lease Supplement substantially in the form hereof for the purpose of leasing the aircraft described below under the Agreement as and when delivered by Lessor to Lessee in accordance with the terms thereof. The Agreement and this Lease Supplement relate to the Aircraft, Engines and Parts as more precisely described below and in the Certificate of Technical Acceptance. A counterpart of the Agreement is attached hereto and this Lease Supplement and the Agreement shall form one document. In consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: 1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee hereby accepts, acknowledges receipt of possession and leases from Lessor under the Agreement, that certain ______________ aircraft, and the ________ (___) _____________________ Engines (each of which Engines has 750 or more rated takeoff horsepower or the equivalent of such horsepower) described in Schedule 1 hereto, together with the Aircraft Documents and Records described in the Agreement (the "Delivered Aircraft"). 2. The Delivery Date of the Delivered Aircraft is the date of this Lease Supplement set forth in the opening paragraph hereof. 3. The Term for the Delivered Aircraft shall commence on the Delivery Date and shall end on the Expiry Date, which shall be [insert date]. 4. The amount of Rent for the Delivered Aircraft is set forth in Schedule B to the Agreement. 5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each delivered Engine have been duly marked in accordance with the terms of Section 8.6(a) of the Agreement, (ii) the Aircraft is insured as required by the Agreement, (iii) the representations and warranties of Lessee referred to in Section 2.1 of the Agreement are hereby repeated with effect as of the date first above written, (iv) having inspected the Delivered Aircraft, Lessee acknowledges that the Delivered Aircraft satisfies all conditions required for Lessee's acceptance of delivery as set forth in the Agreement, and (v) the execution and delivery of this Lease Supplement signifies absolute and irrevocable acceptance by Lessee of the Delivered Aircraft for all purposes hereof and of the Agreement. 6. All of the terms and provisions of the Agreement are hereby incorporated by reference in this Lease Supplement to the same extent as if fully set forth herein. 7. This Lease Supplement may be executed in any number of counterparts; each of such counterparts, shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Lease Supplement. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. 1 to be duly executed as of the day and year first above written. LESSOR, LESSEE, [INSERT LESSOR'S NAME] [INSERT LESSEE'S NAME] By:_____________________________ By:_____________________________ Name:__________________________ Name:__________________________ Title:____________________________ Title:____________________________ SCHEDULE 13 TECHNICAL REPORT ON AIRCRAFT USAGE Aircraft Hours/Cycles Monthly Report SCHEDULE 14 FORM OF REDELIVERY CERTIFICATE REDELIVERY CERTIFICATE dated _______________, ____, between Aviation Financial Services Inc., a corporation organized under the laws of Delaware ("Lessor"), and Frontier Airlines, Inc., a corporation organized under the laws of the Colorado ("Lessee"). Lessor and Lessee have previously entered into that certain Aircraft Lease Agreement dated as of April 20, 2000 (herein referred to as the "Agreement", the defined terms therein being hereinafter used with the same meaning). The Agreement and this Redelivery Certificate relate to the Aircraft, Engines and Parts as more precisely described below. 1. Lessee hereby redelivers to Lessor under the Agreement and Lessor hereby accepts and acknowledges receipt of possession from Lessee under the Agreement, of that certain [insert aircraft type] commercial jet Aircraft, and the two (2) CFM International CFM-56-[____]Engines (each of which Engines has 750 or more rated takeoff horsepower or the equivalent of such horsepower) described in Schedule 1 hereto, together with the Aircraft Documents described in the Agreement (the "Redelivered Aircraft"). 2. Lessor hereby confirms to Lessee that (i) having inspected the Redelivered Aircraft, Lessor acknowledges that the Redelivered Aircraft satisfies all conditions required for Lessor's acceptance of redelivery as set forth in the Agreement, except as noted in the Discrepancy List attached to the Certificate of Technical Acceptance annexed as Schedule 2 hereof, and (ii) the execution and delivery of this Redelivery Certificate signifies absolute and irrevocable acceptance by Lessor of the Redelivered Aircraft for all purposes hereof and of the Agreement. 3. This Redelivery Certificate may be executed in any number of counterparts, each of such counterparts, shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Redelivery Certificate. IN WITNESS WHEREOF, Lessor and Lessee have caused this Redelivery Certificate to be duly executed as of the day and year first above written. LESSOR, LESSEE, AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By: By: ------------------------- -------------------------- Name: Name: ----------------------- ------------------------ Title: Title: ---------------------- ----------------------- SCHEDULE 1 TO REDELIVERY CERTIFICATE One Used [Airbus A319/Boeing 737-3B7] Airframe Registration Mark Manufacturer's Serial No. Total Time* Total Cycles* Installed CFM International, Inc. Engines Model No. Serial No. Total Time* Total Cycles* - --------- ---------- ---------- ------------ CFM-56-[____] ____________ ____________ ____________ CFM-56-3-B2 ____________ ____________ ____________ Each of the above-described Aircraft Engines is 750 or more rated takeoff horsepower or its equivalent. * The total time and total cycles referred to above are as of ________[AM][PM], _______ Time. Such times and cycles are with ____ hours and ____ cycles of the actual hours and cycles at the time of this Redelivery Certificate. SCHEDULE 2 TO REDELIVERY CERTIFICATE CERTIFICATE OF TECHNICAL ACCEPTANCE This Certificate of Technical Acceptance is delivered, on the date set out below to Aviation Financial Services Inc.("Lessor"), by Frontier Airlines, Inc. ("Lessee"), pursuant to the Aircraft Lease Agreement dated as of __________, 2000 between Lessor and Lessee (the "Agreement"). The capitalized terms used in this Certificate shall have the meaning given to such terms in the Agreement. 1. DETAILS OF ACCEPTANCE Lessor hereby confirms to Lessee that Lessor has at [__] o'clock of this [__] day of [____________], 20__, at [ ], technically accepted the following, in accordance with the provisions of the Agreement: (a) [Airbus/Boeing Model ________ [Aircraft] airframe, Manufacturer's Serial No. [___________]. (b) CFM International, Inc. Model CFM 56-[_____] (operating at [B-1] power) Engines: Engine Number Manufacturer's Serial No. ------------------------------------------------------------ 1.____________; and _____________ 2.____________; and _____________ (Each of which shall have more than 750 rated takeoff horsepower or the equivalent of such horsepower). (c) Fuel Status: Pounds [________________]; and (d) Loose Equipment Check List: as per list signed by Lessor and Lessee and attached hereto. (e) Aircraft Documents: as per list signed by Lessor and Lessee and attached hereto. 2. HOURS AND CYCLES DATA (as of Redelivery Date) (a) Airframe: -------- Number of Hours since last phase "D" Check (Heaviest Check): Flight Hours ----------------------------------------------------------- "C" Check (or Equivalent): ------------------------- Interval: _ ------------------------- Time Since: _ ----------------------- (b) Landing Gear Overhaul: --------------------- Number of Cycles Since Last Overhaul: Left Gear Cycles Right Gear Cycles Nose Gear Cycles Center Gear Cycles Interval: Left Gear Cycles Right Gear Cycles Nose Gear Cycles Center Gear Cycles (c) Engines: ------- Number of Hours Since Last Heavy Shop Visit (Refurbishment): S/N ________:________ Engine Flight Hours S/N ________:________ Engine Flight Hours Number of Hours Since Last Hot Section Refurbishment: S/N ________:________ Engine Flight Hours S/N ________:________ Engine Flight Hours Number of Hours Since Last Cold Section Refurbishment: S/N ________:________ Engine Flight Hours S/N ________:________ Engine Flight Hours Hot Section Inspection: Interval: _ ------------------------- Time Since (S/N_________): _ ----------------------- Time Since (S/N_________): _ ----------------------- Time Remaining to First Restriction: Engine S/N: ________ Engine Flight Hours: ________ Restriction: ________ Cycles: _______ Restriction: ________ Engine S/N: ________ Engine Flight Hours: ________ Restriction: ________ Cycles: _______ Restriction: ________ Average Cycles in Life Limited Parts (see attached Schedule):\ -------------------- Number of APU Hours Since Last Heavy Shop Visit: ________ hours Date Accomplished ________ Hot Section Inspection: Interval: ------------------------ Time Since: ---------------------- (e) Time Controlled Components: [See attached DUJX Report] -------------------------- (f) Fuel on Board on Inspection Date: -------------------------------- ----------------------- (g) Interior Equipment: ------------------ Number of Passenger Seats and Configuration: Number of Galleys and Location: ________ ________ Number of Lavatories and Location: ________ ________ LOPA - Attached: ________ ________ List of Loose Equipment on Board: -------------------------------------- --------------- -------------------------------------- --------------- -------------------------------------- --------------- -------------------------------------- --------------- -------------------------------------- --------------- (h) Avionics: -------- Description Model Part No. ---------------------------------- --------- --------- ---------------------------------- --------- --------- ---------------------------------- --------- --------- ---------------------------------- --------- --------- ---------------------------------- --------- --------- (i) Audio System 3. ACCEPTANCE: The undersigned hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents are technically acceptable to it, satisfy all Redelivery Condition Requirements and, except as noted on the attached Discrepancies Schedule, are in the condition for redelivery and acceptance required under the Agreement. IN WITNESS WHEREOF, Lessor has, by its duly authorized representative, executed this Certificate on the date in paragraph 1 above. LESSOR: AVIATION FINANCIAL SERVICES INC. By: -------------------------- Title: ----------------------- SCHEDULE 15 FORM OF GECC GUARANTY GUARANTY GUARANTY (this "Guaranty"), dated April __, 2000 by GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Guarantor") in favor of Frontier Airlines, Inc., a company incorporated under the laws of Colorado ("Lessee"). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Lease (as defined below). Recitals WHEREAS, Aviation Financial Services Inc., a company incorporated under the laws of Delaware ("Lessor") and Lessee have entered into [an Aircraft Lease Agreement, dated as of April 20, 2000 (the "Lease"), relating to * (*) Airbus A319 aircraft bearing manufacturer's serial numbers to be determined] (collectively, the "Aircraft" and each an "Aircraft"); and WHEREAS, in order to induce Lessee to lease the Aircraft from Lessor under each Lease, Guarantor, as the parent of Lessor, is entering into this Guaranty; NOW, THEREFORE, Guarantor hereby agrees as follows: Section 1. Guaranty. (a) Guarantor hereby unconditionally guarantees the payment and performance, and not of collection, of the obligations of Lessor under each Lease, in each case after any applicable notice requirements in accordance with each Lease (such obligations of Lessor being referred to herein as the "Guaranteed Obligations"); provided, however, that Guarantor shall not be liable to perform the Guaranteed Obligations unless Lessee makes written demand upon the Guarantor for the performance of the Guaranteed Obligations then due and owing and such Guaranteed Obligations are not performed in full within ten Business Days (as used herein a "Business Day" shall refer to a day other than a Saturday or Sunday on which commercial banks are open for business in New York City) of such demand. Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Lease, any change in or amendment thereto, the absence of any action to enforce the same, any waiver or consent by Lessee with respect to any provision thereof, the recovery of any judgment against Lessor or any action to enforce the same, or any other circumstances which may otherwise constitute a legal or equitable discharge or defense of a guarantor (other than complete performance) and (ii) any difference between the law selected as the governing law of the Lease and the law selected as the governing law of this Guaranty; provided, however, that nothing contained herein shall be construed to be a waiver by Guarantor of presentment, demand of performance as described above, protest or notice with respect to the Lease and the obligations evidenced thereby or hereby. Guarantor covenants that this Guaranty will not be discharged except by complete performance of the Guaranteed Obligations and the obligations in this Guaranty. (b) Guarantor shall be subrogated to all rights of the Lessee in respect of any amounts paid by Guarantor pursuant to the provisions of this Guaranty, provided, however, that Guarantor shall be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation only after the Guaranteed Obligations and all amounts owed to Lessee thereunder have been paid in full. (c) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Guaranteed Obligations or any other amount owed to the Lessee hereunder or thereunder is rescinded or must otherwise be returned by the Lessee upon the insolvency, bankruptcy or reorganisation of the Guarantor, the Lessor or otherwise, all as though such payment had not been made. Section 2. Miscellaneous. 2.1 Notices. All notices to Guarantor under this Guaranty and copies of all notices to Lessor under the Lease shall, until Guarantor furnishes written notice to the contrary, be mailed or delivered to Guarantor at 260 Long Ridge Road, Stamford, Connecticut 06927-9400, and directed to the attention of the Senior Vice President - Corporate Treasury and Global Funding Operation of General Electric Capital Corporation. All notices shall be effective when received by the addressee thereof. 2.2 Governing Law. This Guaranty shall be construed and enforced in accordance with, and governed by, the laws of the State of New York, United States of America. 2.3 Interpretation. The headings of the section and other subdivisions of this Guaranty are inserted for convenience only and shall not be deemed to constituted a part hereof. 2.4 Attorney's Cost. Guarantor agrees to pay all reasonable attorney's fees and disbursements and all other reasonable and actual costs and expenses which may be incurred by Lessee in the enforcement of this Guaranty. 2.5 Termination. This Guaranty shall continue in full force and effect until the earliest to occur of the following: (i) the complete performance of the Guaranteed Obligations, (ii) the transfer (other than to an affiliate of Guarantor) of Lessor's interest in the Lease under and in compliance with the terms and conditions of the Lease, or (iii) the transfer (other than to an affiliate of Guarantor) by Guarantor (or, if applicable, the affiliate of Guarantor that owns the stock of Lessor) of all of its right, title and interest in and to the stock of Lessor, provided that (a) the transferee enters into a guaranty substantially in the form of this Guaranty pursuant to which the transferee guarantees the Guaranteed Obligations of Lessor and (b) any such entity complies with the terms and conditions of the Lease. In connection with any such termination, Lessee shall provide such documents or release or discharge as Guarantor may reasonably request. 2.6 Indemnity; No Set-off. (a) In consideration of the execution and delivery of this Guaranty by Guarantor, Lessee hereby agrees, as evidenced by its signature set forth on the signature page of this Guaranty, to indemnify Guarantor as an "Indemnitee" in accordance with Clause 10 of the Common Terms Agreement, and such Clause is incorporated by reference in full for the benefit of Guarantor with the same force and effect and subject to the same limitations and exclusions as though fully set forth herein. (b) By acceptance of this Guaranty, Lessee shall be deemed to have waived any right to set-off, combine, consolidate, or otherwise appropriate and apply (i) any assets of Guarantor at any time held by Lessee or (ii) any indebtedness or other liabilities at any time held or owing by Lessee to Guarantor, as the case may be, or on account of, the obligations or liabilities owed by Guarantor to the Lessee under this Guaranty. 2.7 Counterparts. This Guaranty may be executed by the parties hereto 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. 2.8 Currency of Payment. Any payment to be made by Guarantor shall be made in the same currency as designated for payment in the Lease and such designation of the currency of payment is of the essence. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed as of the day and year first above written. GENERAL ELECTRIC CAPITAL CORPORATION By: ________________________ Name: Title: Accepted and Agreed: FRONTIER AIRLINES, INC. By: ________________________ Name: Title: EX-10.53 10 0010.txt AIRCRAFT LEASE AGREEMENT TO THE EXTENT THAT THIS AIRCRAFT LEASE AGREEMENT CONSTITUTES CHATTEL PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS AIRCRAFT LEASE AGREEMENT MAY BE CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE COUNTERPART DESIGNATED AS THE ORIGINAL ON THE SIGNATURE PAGE OF THIS AGREEMENT BY AVIATION FINANCIAL SERVICES INC. AIRCRAFT LEASE AGREEMENT Dated as of April 20, 2000 between AVIATION FINANCIAL SERVICES INC. as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Fifteen Airbus A319 Aircraft as further identified herein incorporating the provisions of a COMMON TERMS AGREEMENT AIRCRAFT LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT is made as of April 20, 2000 and is BETWEEN: (1) Aviation Financial Services, Inc., a corporation incorporated under the laws of Delaware and a wholly owned subsidiary of General Electric Capital Corporation, a New York corporation ("GECC") having its principal place of business at c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, Connecticut 06927 ("Lessor"); and FRONTIER AIRLINES, INC., a corporation incorporated under the laws of Colorado with its principal place of business and chief executive office at 12015 East 46th Avenue, Suite 200 Denver, Colorado 80239 ("Lessee"). WHEREAS: (A) Lessee wishes to lease the Aircraft (as defined below) from Lessor, and Lessor wishes to lease the Aircraft to Lessee, on the terms and subject to the conditions provided herein; (B) GECC and Lessee have entered into the Common Terms Agreement (as defined below) in respect of aircraft that may be leased from time to time by Lessee or one of its Affiliates from Lessor or one of its Affiliates; and (C) Lessor and Lessee wish to incorporate by reference such Common Terms Agreement, as well as Schedules A and B attached hereto, into this Aircraft Lease Agreement for each of the Aircraft; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 16. INTERPRETATION 16.1 Definitions: In this Aircraft Lease Agreement,the following capitalized words and expressions have the respective meanings set forth below: Agreed Lessee Modifications means any modifications or changes to the GECC A319 Baseline Specification as requested by Lessee and agreed by Lessor for incorporation on any Aircraft prior to Delivery of such Aircraft. Lessor agreement to such modifications shall not be unreasonably withheld. All requests for any Agreed Lessee Modification shall be made no later than * months prior to the Delivery of any Aircraft. Airbus Aircraft means individually each of the * A319-100 Aircraft with installed Engines, Parts and Aircraft Documents and Records as further described in Schedule A hereto and each Lease Supplement upon delivery. Aircraft means individually, each of the Airframes, Engines, Parts and Aircraft Documents and Records relating to each individual Aircraft described on Schedule A hereto, and collectively all of the Airbus Aircraft as so further described. Airframe Maintenance Adjustment shall have the meaning as set forth in Schedule B, Part VI hereof. Airframe 4C Check means the 4C check including 5 year structural inspections all in accordance with Lessee's Maintenance Program which, at a minimum, shall comply with the Manufacturer's Maintenance Planning Document and Manufacturer's Maintenance Review Board Report. Airframe 8C Check means the 8C check including 10 year structural inspections all in accordance with Lessee's Maintenance Program which, at a minimum, shall comply with the Manufacturer's Maintenance Planning Document and Manufacturer's Maintenance Review Board Report. Airframe Structural Check means a heavy maintenance visit which shall include but not be limited to accomplishment of either or both of an Airframe 4C Check and an Airframe 8C Check. Airframe 4C Supplemental Rent and Airframe 4C Supplemental Rent Rate shall have the respective meanings set forth in Clause (a) of Schedule B, Part V hereof. Airframe 8C Supplemental Rent and Airframe 8C Supplemental Rent Rate shall have the respective meanings set forth in Clause (a) of Schedule B, Part V hereof. Alternate Scheduled Delivery Month means one Aircraft in each * as alternative delivery months to a Scheduled Delivery Month; subject, however to the continued availability of any Aircraft in any month other than an originally Scheduled Delivery Month. APU Supplemental Rent and APU Supplemental Rent Rate shall have the respective meanings set forth in Clause (d) of Schedule B, Part V hereof. Common Terms Agreement means the "Aircraft Lease Common Terms Agreement" dated as of April 20, 2000 executed by GECC and Lessee (as in effect on the date hereof without, unless Lessor and Lessee otherwise expressly agree, giving any effect to any subsequent amendment, supplement, waiver or other modification thereto), and which forms part of this Aircraft Lease Agreement. Delivery Condition Requirements means the requirements specified in Part III of Schedule A. Delivery Location means Hamburg, Germany or such other location as Lessor and Lessee mutually agree. Deposit means all amounts payable pursuant to Section 3.1 hereof. Discount Rate means *. Engine LLP Supplemental Rent and Engine LLP Supplemental Rent Rate shall have the respective meanings set forth in Clause (b) of Schedule B, Part V hereof. Engine Refurbishment Maintenance Adjustment shall have the meaning as set forth in Schedule B, Part VI hereof. Engine Refurbishment Supplemental Rent and Engine Refurbishment Supplemental Rent Rate shall have the respective meanings set forth in Clause (c) of Schedule B, Part V hereof. Final Delivery Date means the date that is * months after the last day of the Scheduled Delivery Month for each Aircraft, respectively. Financing Documents means any documentation reflecting a mortgage or other debt financing for any of the Aircraft as the same may be restated, refinanced, replaced or refunded, from time to time as notified by Lessor to Lessee. Financing Parties means the holders of any indebtedness relating to the Aircraft. Financing Parties' Representative means any lender under the Financing Documents, if any, and its successors or assigns. Guarantor means any guarantor, if any, of the Lessee's obligations hereunder. Indemnitee means each of Lessor, Owner, GE Capital, GECAS, the Financing Parties' Representative and the Financing Parties, and their successors and assigns, and each of their shareholders, contractors, directors, officers, representatives, agents and employees. Landing Gear Supplemental Rent and Landing Gear Supplemental Rent Rate shall have the respective meanings set forth in Clause (e) of Schedule B, Part V hereof. Maintenance Adjustment means collectively the Airframe Maintenance Adjustment, the Engine Refurbishment Maintenance Adjustment, the Engine LLP Maintenance Adjustment, the APU Maintenance Adjustment and the Landing Gear Maintenance Adjustment payable by Lessee pursuant to Section 5.4 of the Common Terms Agreement, Section 3 of this Agreement and Schedule B, Part VI of this Agreement. Manufacturer means the manufacturer of each of the Airframe or an Engine, as the case may be, as set forth on Schedule A hereto. Owner means Lessor or such other entity as notified by Lessor to Lessee in writing in accordance with the terms of the Lease, including Section 14 of the Common Terms Agreement. Redelivery Location means Denver, Colorado, or such other location on Lessee's route system within the Continental United States as Lessor shall advise Lessee in writing at least * prior to the Expiry Date; provided that, if an Event of Default has occurred and is continuing, such notice may be delivered on the Expiry Date. Rent means all amounts payable pursuant to Section 3.2 hereof for each of the Aircraft, respectively. Rent Commencement Date means each respective date on which Lessor tenders an Aircraft for Delivery to Lessee in accordance with Clause 4.3(a) of the Common Terms Agreement. Scheduled Delivery Date means the date notified by Lessor to Lessee in accordance with Clause 4.1(a) of the Common Terms Agreement for the delivery of each Aircraft in the Scheduled Delivery Month. Scheduled Delivery Month means one Aircraft in each of *. Scheduled Expiry Date means the date immediately preceding the date corresponding to the Delivery Date in the month that is the * month after the Delivery Date for each Aircraft, which date shall be specifically set forth in Lease Supplement for such Aircraft State of Registry means United States. Supplemental Rent means, as applicable, all amounts payable under the Lease in respect of each of Airframe Supplemental Rent, Engine Supplemental Rent, APU Supplemental Rent and Landing Gear Supplemental Rent. Supplemental Rental Cap shall have the meaning set forth in Schedule B, Part V hereof. Tax Indemnitee means each of Owner, Lessor, Financing Parties' Representative, and each member of the consolidated group of which Lessor or Owner is a member for United States Federal Income Tax purposes, and their successors and assigns. 16.2 Interpretation: Unless otherwise defined herein, words and expressions defined in the Common Terms Agreement have the same respective meanings for the purposes of this Aircraft Lease Agreement. The construction provisions of Section 1.2 of the Common Terms Agreement shall apply to this Aircraft Lease Agreement. 17. LEASING 17.1 Agreement to Lease: Subject to the terms and conditions of the Lease, Lessor will lease each Aircraft to Lessee and Lessee will take delivery of and lease each Aircraft from Lessor in accordance with the Lease for the duration of the Term for each such Aircraft respectively. 17.2 Term: Subject to Sections 4.1 through 4.4 of the Common Terms Agreement, Delivery of each Aircraft will occur at the Delivery Location specified for such Aircraft, whereupon Lessee shall accept each such Aircraft hereunder by executing and delivering a Lease Supplement substantially in the form of Lease Supplement No. 1 as provided in Section 4.3 of the Common Terms Agreement. The Term for each Aircraft will commence on the Delivery Date for such Aircraft, which Delivery Date is scheduled to occur on the Scheduled Delivery Date for such Aircraft, and will expire on the Scheduled Expiry Date for such Aircraft unless terminated earlier in accordance with the provisions of the Lease. 18. PAYMENTS 18.1 Deposit and Letter of Credit: Lessee shall pay to Lessor the Deposit for each Aircraft in cash or by Letter of Credit (to which each such Deposit, Sections 5.12 and 5.13, as applicable of the Common Terms Agreement shall apply) in the amount and at the times provided in Schedule B hereto. 18.2 Rent: Lessee shall pay Rent for each Aircraft to Lessor on each Rent Date for such Aircraft during the Term in the amount determined in accordance with Schedule B hereto and as provided in Sections 5.2 and 5.3 of the Common Terms Agreement. The first instalment of Rent for each Aircraft shall be due and payable on the Rent Commencement Date for such Aircraft as defined herein. Provided no Event of Default has occurred and is continuing, (i) during the first * Rental Periods with respect to each of the first * A319 Aircraft to deliver, Lessor shall grant Lessee a credit in an amount equal to the Initial Aircraft Rental Credit and (ii) during the first three Rental Periods of this Agreement with respect to each of the remaining * A319 Aircraft to deliver, Lessor shall grant Lessee a credit in an amount equal to the Second Aircraft Rental Credit. Each such credit shall be applied against the Rent for the applicable Aircraft then due and payable for the applicable Rental Periods as set forth above following each Aircraft Delivery Date or in such other manner as Lessor and Lessee may agree. 18.3 Supplemental Rent and Maintenance Adjustment: Lessee shall pay (a) Supplemental Rent for each Aircraft to Lessor on each applicable date during the Term in accordance with Section 5.4 of the Common Terms Agreement and in the amounts provided in Schedule B hereto; and (b) the Maintenance Adjustments for each Airbus Aircraft to Lessor on the Return Occasion in the amounts provided in Schedule B hereto and as provided in Section 5.4 of the Common Terms Agreement. Lessor shall retain all Supplemental Rent and Maintenance Adjustments, subject to Section 3.4 below. Lessee's obligation to pay Supplemental Rent for any Airbus Aircraft shall be suspended when the Supplemental Rental Cap for such Aircraft has been reached. The Supplemental Rental Cap for each Airbus Aircraft shall be maintained during the Term and increased from time to time by an amount equal to any Lessor Maintenance Contribution made by Lessor with respect to such Aircraft, whereupon Lessee shall recommence payment of Supplemental Rent until the Supplemental Rental Cap for each such Airbus Aircraft shall again have been reached. 18.4 Lessor's Maintenance Contribution: Lessor shall make Maintenance Contribution payments as and to the extent provided in Section 7.2 of the Common Terms Agreement. 18.5 Lessor's Bank Account: For the purposes of Section 5.5 of the Common Terms Agreement, Lessor's bank account and wire transfer particulars, to which all payments to Lessor shall be made, are at the date hereof Bankers Trust Company, ABA number * for the account of GECC T&I Air Depository Account, Account No. *. 19. Condition of the aircraft at delivery 19.1 On each Delivery Date, as a condition to Lessee's obligation to accept delivery thereof, each Aircraft shall be in the condition provided in Part III of Schedule A hereto. 20. CONDITION OF THE AIRCRAFT AT REDELIVERY 20.1 On the Return Occasion for each Aircraft, Lessee shall redeliver each such Aircraft to Lessor at the Redelivery Location and at such redelivery each such Aircraft shall be in the condition provided in Part IV of Schedule A hereto and in the Common Terms Agreement, including Schedule 6 of the Common Terms Agreement. 21. ADDRESSES FOR NOTICES The addresses and facsimile and telephone numbers of Lessor and Lessee are as follows: Lessor: Aviation Financial Services Inc. c/o GE Capital Aviation Services, Inc. 201 High Ridge Road Stamford, CT 06927 Attention: Contracts Leader Facsimile: (203) 357-3201 Telephone: (203) 357-4482 Lessee: Frontier Airlines, Inc. Address: 12015 East 46th Avenue, Suite 200 Denver, Colorado 80239 Attention: General Counsel Facsimile: (303) 371-7007 Telephone: (303) 371-7400 22. THE SCHEDULES AND COMMON TERMS AGREEMENT All the provisions of Schedule A, Schedule B and the Common Terms Agreement are incorporated by reference herein and are part of this Aircraft Lease Agreement as if they were set out in full herein. Without limiting the generality of the foregoing, by its signature below, the Lessee acknowledges and agrees that the Lease of the Aircraft hereunder is on an "AS IS, where is" basis and that the disclaimers, exculpations and limitations of liability, indemnities, the choice of New York Law as the governing law, THE LESSEE'S submission to personal jurisdiction in New York, and THE waiver of any right to a trial by jury provided for in the Common Terms Agreement are incorporated herein by sUCH reference and ARE PART OF this Agreement as if the same were set out in full herein. 8. RIGHTS AND REMEDIES. The exercise by Lessor of its rights and remedies pursuant to Section 13.2 of the CTA is subject to Part VII of Schedule B of the Lease. 9. No amendment except in writing No provision of this Lease, including any provision of Schedule A, Schedule B or the Common Terms Agreement, may be amended, rescinded, changed, waived, discharged, terminated or otherwise modified in any way whatsoever, except by a writing signed by the party to be charged. Lessor and Lessee acknowledge their agreement to the provisions of this Section 8 by their initials below: Lessor: Lessee: IN WITNESS whereof, the parties hereto have executed this Aircraft Lease Agreement, each by their duly authorized representative(s), as of the date shown at the beginning of this Aircraft Lease Agreement. LESSOR: LESSEE: AVIATION FINANCIAL SERVICES INC. FRONTIER AIRLINES, INC. By: __________________________ By: __________________________ Name: __________________________ Name: __________________________ Title: __________________________ Title: __________________________ SCHEDULE A PART I-Airframe and engines description AIRBUS AIRCRAFT Manufacturer: Airbus Model: (15) x A319-100 Serial Number: To be advised MTOW 154,300 pounds ENGINES (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower) Engine Type: CFM56-5B5/P Serial Nos: To be advised at Delivery and included in each respective Lease Supplement. The serial numbers stated under "Aircraft" and "Engines" above are those advised to Lessor by the Manufacturer. If the Manufacturer advises of any change to any serial number, the new number will be deemed inserted under "Serial Number" under "Aircraft" and "Engines" above, as the case may be, above. SCHEDULE A PART II-AIRCRAFT DOCUMENTS MANUALS AVAILABLE (headlines) 1 - ENGINEERING DOCUMENTS 2 - MAINTENANCE & ASSOCIATED MANUALS 3 - MISCELLANEOUS PUBLICATIONS 4 - OPERATIONAL MANUALS AND DATA 5 - OVERHAUL DATA 6 - STRUCTURAL MANUALS MANUALS AVAILABLE (detailed) Abbr Form Type Qty. Delivery --------------------------------------------- 1. ENGINEERING DOCUMENTS Process and Material Specification PMS F E 1 0*** Standards Manual SM F E 1 -90 2. MAINTENANCE & ASSOCIATED MANUALS APU Build-up Manual ABM P2 E 2 -90 Aircraft Maintenance Manual AMM F C 10 0 to +90 MF C 1 0 to +90 Aircraft Time Limits/Maintenance Checks TLMC P2 C 3 90 Aircraft Schematics Manual ASM F C 10 0 to +90 MF C 1 0 to +90 Aircraft Wiring Manual AWM F C 5 0 to +90 MF C 1 0 to +90 Aircraft Wiring Lists AWL F C 5 0 to +90 MF C 1 0 to +90 Consumable Material List CML P2 E 1 -90 Duct Repair Manual DRM P2 E 1 90*** Fuel Pipe Repair Manual FPRM P2 E 1 90*** Illustrated Parts Catalog (Airframe) IPC F C 10 0 to +90 MF C 1 0 to +90 Illustrated Parts Catalog (Power Plant)**PIPC F C 10 0 to +90 MF C 1 0 to +90 Illustrated Tools and Equipment Manual TEM P2 E 3 -180 Maintenance Facility Planning MFP P2 E 2 -360 Maintenance Planning Document MPD P2 P 1 -180 E 3 -90 Power Plant Build-up Manual** PBM P2 C 2 -90 Support Equipment Summary SES P1 E 2 -180 Tool and Equipment Drawings TED AC E 1 -180 Tool and Equipment Index TEI P2 E 2 360 Tool and Equipment Bulletins TEB P1 E 3 0 Trouble Shooting Manual TSM F C 10 0 to +90 MF C 1 0 to +90 3. MISCELLANEOUS PUBLICATIONS Airplanes Characteristics for Airport Planning AC P2 E 2 -360*** Aircraft Recovery Manual ARM P2 E 2 0*** Cargo Loading System Manual CLS P2 E 2 -90 Crash Crew Chart CCC P1 E 5 -180 List of Radioactive and Hazardous Elements LRE P2 E 1 90*** List of Applicable Publications LAP P1 C 1 -180 Livestock Transportation Manual LTM P2 E 1 90*** Service Bulletin SB P2 C 2 0 F E 1 -90 Technical Publications Combined Index TPCI D E 1 -90 Service Information Letters SIL P1 E 1 0 Transportability Manual TM P1 E 1 -90*** Vendor Information Manual VIM D E 1 360 Vendor Information Manual GSE VIM/GSE P2 E 2 360 The quantities listed below are in addition to the set of one copy of each operational manual to be delivered with the Aircraft (except PEP/PPM). 4. OPERATIONAL MANUALS AND DATA Quick Reference Handbook QRH P2 C 3 -90 Flight Crew Operating Manual FCOM P2 C 3 0 Flight Manual FM P2 C 1 -90 C 3 0 Master Minimum Equipment List MMEL P2 C 3 0 Performance Engineering Program PEP MT C 1 -90 D C 1 -90 Performance Program Manual PPM P2 C 3 90 Weight and Balance Manual WBM P2 C 3 0 5. OVERHAUL DATA Component Documentation Status CDS D C 1 180*** Component Evolution List CEL P2 E 1 *** Cable Fabrication Manual CFM P2 E 1 90*** Component Maintenance Manual Airframe Manufacturer CMMM F E 2 -180 to +180* 6. STRUCTURAL MANUALS Nondestructive Testing Manual NTM P2 E 2 -90*** Structural Repair Manual SRM F E 2 -90***
** Supplied by the Propulsion Systems manufacturer. *** Optional. Delivered as follow-on for CDS. MANUAL FORMAT AND TYPE IDENTIFICATION FORM AC APERTURE CARD. Refers to 35mm film contained in punched aperture cards. D FLOPPY DISK 3"1/2 F MICROFILM. Refers to 16mm roll film on 3M type cartridges. MF MASTER FILM. Refers to thick diaz film suitable for further reproduction. MP Refers to paper printed one side, unpunched quality shall be suitable for further reproduction or microfilming. MT MAGNETIC TAPE P1 PRINTED ONE SIDE. Refers to manuals in paper with print on one side of the sheets only. P2 PRINTED BOTH SIDES. Refers to manuals with print on both sides of the sheets. TYPE C CUSTOMIZED. Refers to manuals which are customized. E ENVELOPE. Refers to manuals which are not customized. P PRELIMINARY. Refers to preliminary data or manuals which may consist of: o either one time issue not maintained by revision service, or o preliminary issues maintained by revision service until final manual or data delivery, or o supply of best available data under final format with progressive completion through revision service. DELIVERY Manual delivery is expressed either as the number of days prior to delivery of the first Aircraft or as nil (0), which designates the date of delivery of the first Aircraft. It is agree that the number of days indicated will be rounded up to the next regular revision release date. SCHEDULE A PART III-DELIVERY CONDITION REQUIREMENTS Set forth below is a description of the condition in which each Airbus Aircraft must be in order for Lessee to be obligated to accept each such Aircraft under the Lease. It is solely a description of such condition precedent and shall not be construed as a representation, warranty or agreement of any kind whatsoever, express or implied, by Lessor with respect to each such Aircraft or its condition, all of which have been disclaimed by Lessor and waived by Lessee as set forth in the Lease, including in the Common Terms Agreement. Airbus Delivery Condition Requirements: 1. The "Delivery Condition Requirements" for each Airbus Aircraft are as follows: On Delivery,each Airbus Aircraft shall (i) be new, ex factory and painted in Lessee's livery; (ii)have a valid Export Certificate of Airworthiness for the United States; (iii)have an issued FAR 121 Compliance Statement from the Manufacturer; (iv) on or prior to the Delivery Date, have had accomplished all outstanding mandatory service bulletins, Airworthiness Directives and similar requirements applicable to the Aircraft having a compliance date prior to the Delivery Date or within * days after the Delivery Date and which are required by the State of Design, the FAA or the Manufacturer. (v) and otherwise be in the condition required for delivery pursuant to each of two Purchase Agreements, dated July 16, 1996 and September 29, 1998, respectively, each between the Manufacturer and GE Capital (each a "Purchase Agreement" and together, the "Purchase Agreements") and the Airbus Aircraft Specification Number D.000.0200, Issue Number 4, dated April 30, 1995, except as amended by change orders initiated by Lessor under the terms of the Purchase Agreement, including as modified to include the additional GECC baseline SCNs in accordance with the GECC A319 baseline specification Issue 1 (the "GECC A319 Baseline Specification.") 2. Modifications (a) The Agreed Lessee Modifications shall be accomplished pre-delivery at the sole cost and expense of Lessee. Lessor shall use reasonable efforts to accomplish all Agreed Lessee Modifications prior to Delivery. Cost of all Agreed Lessee Modifications, including charges for any "out of sequence production", shall be invoiced to Lessee upon Lessor's receipt of invoice applicable to each individual Agreed Lessee Modification from the relevant third party vendor. If Lessor notifies Lessee that any Agreed Lessee Modification cannot be accomplished prior to the Delivery Date, including without limitation any delays in accomplishing such Modifications caused by failure of Lessee to deliver any materials or parts to the Manufacturer by the required on-dock dates as advised by Manufacturer, such Agreed Lessee Modification shall be excluded from the Delivery Condition Requirements. (b) Cost Adjustment. Lessor and Lessee agree that if all fees, costs and expenses invoiced to Lessor directly attributable to the Agreed Lessee Modifications, including without limitation, the order, purchase, delivery and installation on the Aircraft of the galleys, seats, avionics, APU and wheels and brakes (collectively, the "BFE/SFE") selected by Lessee as part of the Agreed Lessee Modifications are less than such fees, costs and expenses invoiced to Lessor for the BFE/SFE selected by Lessor as part of the GECC A319 Baseline Specification , then upon the delivery of each new Aircraft, Lessor shall pay to Lessee the difference between (i) the Lessee selected BFE/SFE , pro-rata for each Aircraft leased by Lessee from Lessor , and (ii) the Lessor selected BFE/SFE for such Aircraft. Lessee acknowledges that Lessor is subject to confidentiality agreements with its vendors relating the price of the above referenced BFE/SFE. Lessor shall certify to Lessee the net difference between the costs of Lessee selected BFE/SFE if less than the Lessor selected BFE/SFE. (c) Specification Credit. Lessee has requested that the items listed below in this clause (c ) (the "Listed Items") be removed from the GECC A319 Baseline Specification and not be included in any Aircraft. Lessor shall, in its discretion, determine whether each Listed Item is, or is not, removed from any Aircraft. In consideration thereof, Lessee hereby receives a credit for each Aircraft in the amount of * (the "Specification Credit") (i) first, against any amounts due and payable by Lessee to Lessor relating to the cost of any additions to the GECC A319 Baseline Specification selected by Lessee; (ii) second, to the extent any Specification Credit remains, against any amounts due and payable by Lessee to Lessor relating to the cost of any increase in BFE or SFE not already included in the GECC A319 Baseline Specification and (iii) third, to the extent any Specification Credit remains, against any amounts due and payable by Lessee to Lessor under this Agreement. No Listed Items shall be included in the cost adjustments provided in clause 2 (b) above. Listed Items: Ozone Catalytic Converters (G8EO2J1011101S1H) HF LRU (G8E23J1113004S1H) Third Radio Management Panel (G8E23J1310102S1H) System Prov. For Audio Pax Entertainment Sys. (G8E23J3670000G1H) System Provisions for PES Video (G8E23J3670000G1H, G8E23J3610501S1H) Lav. D Mod. for Stretcher Loading (G8E25J2070000G1H) Prov. For Mech. Bulk Loading (G8E25J5231501S1H, System in Fwd. And Aft Cargo Holds MCG8E25.52.003J1MO1) SCHEDULE B COMMERCIAL TERMS Lessor and Lessee hereby agree that the definitions and other commercial and financial terms set forth in this Schedule B shall apply to the leasing of the Aircraft under the Lease. In addition, Lessor and Lessee understand and agree that the commercial and financial information contained in this Schedule B are considered by Lessor and Lessee as proprietary and confidential. Lessor and Lessee each hereby agree, and any of their assignees, upon becoming such shall agree that it will treat this Schedule B as proprietary and confidential and will not, without the prior written consent of the other, disclose or cause to be disclosed, the terms hereof or thereof to any Person, except to its agents, representatives, advisors, employees, counsel, underwriters, auditors, investors, financing parties and head lessors as necessary or appropriate for the leasing transaction which is the subject hereof, or except (a) as may be required by applicable Law or pursuant to an order, or a valid and binding request, issued by any court or other Government Entity having jurisdiction over Lessor, Lessee or the assignee of either of them, as the case may be, or (b) as necessary to enable Lessor or its assignee to make transfers, assignments or other dispositions to potential transferees, assignees or participants of its interest in and to the Lease. In connection with any such disclosure or any filing of the information contained herein or therein pursuant to any such applicable Law, Lessor, Lessee or the assignee of either of them, as the case may be, shall request and use its best reasonable efforts to obtain confidential treatment of this Schedule B and the other party will cooperate in making and supporting any such request for confidential treatment. PART I PART I-CASUALTY OCCURRENCE DEFINITIONS Agreed Value The Agreed Value shall be $* for each Airbus Aircraft. Damage Notification Threshold means $*. Deductible Amount means $*. Minimum Liability Coverage means $*. PART II DEPOSIT; LC AMOUNT; INTEREST RATE Deposit means, for the purposes of Section 3.1 hereof, for each Airbus Aircraft $*, * of which shall have been paid on or before the date hereof; and the balance of which shall be paid no later than * days prior to delivery of each Aircraft; provided, however, that Lessee may elect to provide Lessor with a Letter of Credit in an amount, from a financial institution and otherwise in form and substance, reasonably acceptable to Lessor. Lessee acknowledges and agrees that it is not located in the State of New York within the meaning of Section 7-101 1-c(b) of the New York General Obligations Law, and therefore the requirements of Section 7-101 of the New York General Obligations Law do not apply to the Deposit. Initial Aircraft Rental Credit means, in respect of the first * Airbus Aircraft to deliver, an amount equal to $* per Airbus Aircraft. Interest Rate: The Interest Rate shall be the "prime rate" as quoted in the Wall Street Journal from time to time during the applicable period plus * per annum, but not to exceed the maximum amount permitted by Law. LC Amount means, for the purposes of Section 3.1 hereof, the amount of one or more Deposits for each Aircraft secured by a Letter of Credit. Pre-Delivery Termination Value means $* per Airbus Aircraft. Quotation Date means the day two Business Days before the Scheduled Delivery Date. Second Aircraft Rental Credit means, in respect of the last * Airbus Aircraft to deliver, an amount equal to $* per Airbus Aircraft. PART III RENT Assumed Rent means (i) for the first * Rental Periods (a) $* with respect to each of the first * Aircraft to be delivered hereunder (the "Initial Aircraft") and (b) $* with respect to each of the last * Aircraft to be delivered hereunder (the "Subsequent Aircraft"); (ii) for Rental Periods * through * (a) $* with respect to each Initial Aircraft and (b) $* with respect to each Subsequent Aircraft; and (iii) for each of the Aircraft for each Rental Period thereafter, $*. The foregoing amounts are based upon the Manufacturer's Aircraft Price in June, 1999 and an eight year swap rate between *% and *%. The Assumed Rent shall be (A) increased by an amount equal to $* per month if Lessee elects to pay the Deposit for any Aircraft pursuant to a Letter of Credit and (B) increased by (i) $* per month if Lessee elects, upon no less than * months prior written notice, to reschedule Delivery of such Aircraft to any Alternate Scheduled Delivery Month in lieu of the current Scheduled Delivery Month as herein defined or (ii) $* per month if Lessee elects, upon no less than * months prior written notice, to reschedule Delivery of such Aircraft to a month which is not a Scheduled Delivery' Month or an Alternate Scheduled Delivery Month. Rent. The Rent payable in respect of each Rental Period during the Term for each Airbus Aircraft shall be payable in * consecutive monthly installments, in advance on each Rent Date, with each such installment equal to an amount calculated as follows: Rent = * where: * is the Assumed Rent for the applicable Rental Period; * means the assumed 8-year U.S. Dollar Swap rate expressed as a number determined as follows: (i) ifs is less than or equal to *, then * is equal to *%, (ii) ifs is greater than *% and less than *%, then * is equal to *, and (iii) ifs is equal to or greater than *%, then * is equal to *%; * is (i) the actual 8 year Dollar swap rate ("Open" rate per Bloomberg screen "IRSB" ) expressed as a number and obtained by Lessor on the Quotation Date: or, if on the Quotation Date the Bloomberg Screen "IRSB" is not available or does not display rates for the required period, the 8-year Dollar swap rate quoted on the applicable Reuters page, expressed as a number and obtained by Lessor on the Quotation Date; or (ii) the sum of(a) the actual 8 year Dollar swap rate as set forth in (i) above fixed on a date, at Lessee's option, which is earlier than title Quotation Date upon 30 days' prior written notice to Lessor; and (b) 15 basis points for each year from the effective date of such notice (which effective date shall be 30 days after the date of such notice) until the Scheduled Delivery Date, pro rated for any partial year; * is $*; and * is *, rounded to the nearest * places of decimals, where: * is the Manufacturer's Gross Invoice Price for the Aircraft on the basis of delivery of the Aircraft on the Delivery Date; provided, however, that * shall not be disclosed by Lessor to Lessee and * is the Manufacturer's Gross Invoice Price for the Aircraft which would apply if the Aircraft were delivered in *; provided, however, that * shall not be disclosed by Lessor to Lessee. PART IV [INTENTIONALLY OMITTED] PART V SUPPLEMENTAL RENT The Supplemental Rent payable will be determined with reference to the following: Airframe Supplemental Rent means all (i) Airframe 4C Supplemental Rent and (ii) Airframe 8C Supplemental Rent in each case payable by Lessee pursuant to Clause (a) below. Annual Supplemental Rent Adjustment means (*%) APU Supplemental Rent means all Supplemental Rent payable by Lessee pursuant to Clause (d) below. Assumed Ratio Adjustment: For the purposes of Section 5.4 of the Common Terms Agreement, Assumed Ratio means a * hour to one cycle ratio (*) for each Airbus Aircraft and any adjustment pursuant to Clause 5.4 shall be based on the following table: Airbus A319 Aircraft - FH/CYC * * * * * * Ratio Airframe 4C Supplemental Rent $* $* $* $* $* $* Rate Airframe 8C Supplemental Rent $* $* $* $* $* $* Rate Engine Refurbishment $* $* $* $* $* $* Supplemental Rent Rate Engine LLP Supplemental Rent Rate $* $* $* $* $* $* APU Supplemental Rent Rate $* $* $* $* $* $* Landing Gear Supplemental Rent $* $* $* $* $* $* Rate Assumed Utilization means an annual utilization of * hours per annum for each Airbus Aircraft. Engine Supplemental Rent means all (i) Engine LLP Supplemental Rent payable by Lessee pursuant to Clause (b) below, and (ii) Engine Refurbishment Supplemental Rent payable by Lessee pursuant to Clause (c) below. Landing Gear Supplemental Rent means all Supplemental Rent payable by Lessee pursuant to Clause (e) below. Supplemental Rent equals each of the following amounts: (a) Airframe: in respect of each Airframe 4C Check, $* ("Airframe 4C Supplemental Rent Rate") for each Flight Hour operated by each Airbus Aircraft during each calendar month during the Term ("Airframe 4C Supplemental Rent") and Airframe 8C Check, $* ("Airframe 8C Supplemental Rent Rate") for each Flight Hour operated by each Airbus Aircraft during each calendar month during the Term ("Airframe 8C Supplemental Rent"); (b) Engine Life-Limited Parts: in respect of the life-limited Parts for each Engine installed on an Airbus Airframe, $* ("Engine LLP Supplemental Rent Rate") for each Flight Hour operated by that Engine during each calendar month during the Term ("Engine LLP Supplemental Rent"); (c) Engine Refurbishment: in respect of each Engine installed on an Airbus Airframe, $* ("Engine Refurbishment Supplemental Rent Rate") for each Engine Flight Hour (or fraction thereof) operated by that Engine during each calendar month during the Term ("Engine Refurbishment Supplemental Rent"); - (d) APU: in respect of the APU relating to each Airbus Airframe, $* ("APU Supplemental Rent Rate") for each Flight Hour operated by the APU during each calendar month during the Term ("APU Supplemental Rent"); and (d) Landing Gear: in respect of the Landing Gear installed on an Airbus Airframe, $* ("Landing Gear Supplemental Rent Rate") for each Flight Hour operated by the Landing Gear during each calendar month during the Term ("Landing Gear Supplemental Rent"). Supplemental Rental Cap means an aggregate amount of all Supplemental Rent paid in respect of each Airbus Aircraft during the Term in an amount equal to the sum of (I) $* plus (ii) the amount of all Maintenance Contributions made by Lessor in respect of each such Airbus Aircraft. PART VI RETURN CONDITION DEFINITIONS; MAINTENANCE PAYMENTS AT REDELIVERY; AIRWORTHINESS DIRECTIVE SHARING PAYMENTS DEFINITIONS: Engine Cycles Restriction means * Engine Cycles. Engine Flight Hours Restriction means * Engine Flight Hours. Engine Refurbishment means all scheduled and unscheduled off-the-wing Engine maintenance and repair accomplished for each module in accordance with the performance restoration, minimum restoration or full overhaul sections of the Manufacturer's workscope planning guide and including performing the following for each of the modules, for each of the Engines: Hot Section Module means the combustor, combustor casing, HPT nozzle, HPT rotor, LPT nozzle (stage one). Hot Section Module Refurbishment means, with respect to any Engine, the accomplishment of a "Performance Level" refurbishment, per the CFMI Workscope Planning Guide, of the Hot Section Module including the complete inspection and repair as necessary per the shop manual of the combustor, combustor casing, high pressure turbine nozzle section, high pressure turbine rotor, and low pressure turbine nozzle stage 1 in an engine repair/overhaul station, including (without limitation) complete unstacking of the high pressure turbine; de-blading of discs; visual inspections of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for tip condition, blade length and cracking. Repair or replacement of all blades below minimum with new or refurbished blades; blade-up of discs using new lock plates; assembly of rotors in the turbine; balance of all rotors; installation of rotor in the Engine. HPC Module means the high pressure compressor rotor and the high pressure compressor forward and aft stator . HPC Module Refurbishment means, with respect to any Engine, the accomplishment of a "Performance Level" refurbishment, per the CFMI Workscope Planning Guide, of the HPC Module including the completion of the following: complete unstacking of the high pressure compressor and complete shop manual inspection; of the forward and aft stator cases, de-blading discs; visual inspections of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions, cracking; and erosion on leading and trailing edges; repair or replacement of blades below minimum; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotor in the compressor; balance of all rotors; and installation of rotor in the Engine.. Fan and Booster Module means the fan rotor and booster, the number 1 and 2 bearing support, inlet gearbox and number 3 bearing assembly, and the fan frame assembly. Fan and Booster Module Refurbishment means, with respect to any Engine, the accomplishment of a "Minimum Level" refurbishment, per the CFMI Workscope Planning Guide, of the fan and booster module including the completion of the following: removal from engine and shop manual inspection of fan/booster assembly, removal and shop manual inspection of fan blades, booster blades, and spacers. The fan disk should be separated from the booster spool only for cause. Visually inspect the exposed areas of the fan disk and booster spool. Recontour fan blades, inspection of all blades for proper chord dimensions and cracking; repair or replacement of blades below minimum; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the compressor; balance of all rotors; installation of rotor in the Engine.. LPT Module means the low pressure turbine, LPT shaft, and LPT Frame. LPT Module Refurbishment means, with respect to any Engine, the accomplishment of a "Minimum Level" refurbishment, per the CFMI Workscope Planning Guide, of the LPT Module including the complete visual inspection and repair as necessary of the low pressure turbine module of an Engine in an engine repair/overhaul station, including (without limitation) complete unstacking of the low pressure turbine; complete visual inspection; de-blading of discs ; visual inspections of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of all blades below minimum; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the turbine; balance of all rotors; and installation of rotor in the Engine. Accessory Drive Module means the Transfer Gearbox and Accessory Gearbox. Accessory Drive Module Refurbishment means with respect to any engine the inspection and repair per shop manual. Minimum APU Limit means * Flight Hours since the last gas path refurbishment. Minimum Component Calendar Life means * months. Minimum Component Cycles means * Cycles Minimum Component Flight Hours means * Flight Hours Minimum Engine Cycles means * Cycles. Minimum Engine Flight Hours means * Flight Hours. Minimum Landing Gear Calendar Time means * months Minimum Landing Gear Cycles means * Cycles. Minimum Landing Gear Flight Hours means * Flight Hours. Minimum Measurable Fuel Requirement means the amount of fuel as at Delivery. Redelivery "C" Check means the next sequential Block `C' check in accordance with the Lessee's Maintenance Program including those bridging tasks identified in the Manufacturer's Maintenance Planning Document, Appendix J, to bridge the Aircraft back to a block program and "Block `C' Structural Check" with at least * Flight Hours remaining to the next "C" or higher check. AD Sharing AD Threshold means $*. If any Airworthiness Directive is issued by the FAA for which terminating action is required to be performed by Lessee pursuant to Section 8.10(c)(ii) of the Common Terms Agreement and FAR Part 121 and if the actual cost incurred by Lessee (as documented in the same manner and paid within the same time as required under Section 7.2 of the Common Terms Agreement for a Maintenance Contribution payment by Lessor) in performing or causing to be performed such Airworthiness Directive exceeds the AD Threshold, Lessor shall, following receipt of the invoice in such amount and provided no (i) Default relating to any payment under the Lease or (ii) any other Event of Default has occurred and is continuing, reimburse to Lessee an amount calculated in accordance with the following formula: * where: * = Total actual invoiced cost of such Airworthiness Directive * = AD Threshold. * = * months. * = Months remaining to the Scheduled Expiry Date. MAINTENANCE ADJUSTMENTS: Maintenance Adjustment: In respect of each calendar month (or part thereof) during the Term, Lessee will pay to Lessor at the end of the Term in accordance with Section 5.4 of the Common Terms Agreement and Section 3.3 of this Agreement the following Maintenance Adjustments for each Airbus Aircraft: (a) Airframe Maintenance Adjustment: in respect of the Airframe 4C Check and Airframe 8C Check, upon redelivery of the Aircraft to Lessor (but not after the occurrence of an Event of Loss with respect to the Aircraft), Lessee shall pay to Lessor for each Flight Hour since new or since the last Airframe Structural Check, as applicable, an amount equal to (i)(A) the number of Flight Hours on the Airframe since new or since the last Airframe Structural Check, as applicable, multiplied by (B) the Airframe 4C Supplemental Rent Rate less (C) the Remaining Airframe 4C Supplemental Rent and an amount equal to (ii)(A) the number of Flight Hours on the Airframe since new or since the last Airframe Structural Check, as applicable, multiplied by (B) the Airframe 8C Supplemental Rent Rate less (C) the Remaining Airframe 8C Supplemental Rent (collectively, the "Airframe Maintenance Adjustment"). (b) Engine Refurbishment Maintenance Adjustment: in respect of each Engine, upon redelivery of the Aircraft to Lessor (but not after the occurrence of an Event of Loss with respect to the Aircraft or any Engine), for any life used since new or since the latest Engine Refurbishment of each defined module (as further described below, each a "Defined Module") in accordance with the applicable percentage, whichever is less, to the date of Redelivery, Lessee shall pay to Lessor an amount equal to (i) for each Engine Flight Hour (or fraction thereof) operated by that Engine in the aggregate during each calendar month during the Term since new or since the last Engine Refurbishment multiplied by (ii) the Engine Refurbishment Supplemental Rent Rate less (iii) Remaining Engine Refurbishment Supplemental Rent (the "Engine Refurbishment Maintenance Adjustment"). For purposes of this Clause, Defined Modules shall include each of the Combustion Chamber/ High Pressure Turbine (*% of the Engine Refurbishment Supplemental Rent Rate); High Pressure Compressor (*% of the Engine Refurbishment Supplemental Rent Rate); the Low Pressure Turbine (*% of the Engine Refurbishment Supplemental Rent Rate) and the Fan Booster (*% of Engine Refurbishment Supplemental Rent Rate). provided, however, if any of the amounts described above is less than zero then the applicable Maintenance Adjustment shall be equal to zero. (c) Engine Life Limited Parts: with respect to Engine Life-Limited Parts ("Engine LLPs"), upon redelivery of the Aircraft to Lessor (but not after the occurrence of an Event of Loss with respect to the Aircraft or any Engine), within any Engine, Lessee shall pay to Lessor an amount equal to (i) for each Engine Flight Hour (or fraction thereof) operated by that Engine in the aggregate during each calendar month during the Term since new or since the last Engine Refurbishment multiplied by (ii) the Engine LLP Supplemental Rent Rate less (iii) Remaining Engine LLP Supplemental Rent (the "Engine LLP Maintenance Adjustment"). (d) APU: with respect to the APU, upon redelivery of the Aircraft to Lessor (but not after the occurrence of an Event of Loss with respect to the Aircraft), Lessee shall pay to Lessor an amount equal to (i) $* per Flight Hour since new or HSI in accordance with the Manufacturer's recommendations less (ii) the Remaining APU Supplemental Rent (the "APU Maintenance Adjustment"). (e) Landing Gear Adjustment: with respect to Landing Gear (per shipset), upon redelivery of the Aircraft to Lessor (but not after the occurrence of an Event of Loss with respect to the Aircraft), Lessee shall pay to Lessor an amount equal to (i) $* per Flight Hour since new or since complete overhaul in accordance with the Manufacturer's recommendations, whichever is less, minus (ii) the Remaining Landing Gear Supplemental Rent (the "Landing Gear Maintenance Adjustment") For purposes of this section: "Remaining Airframe Supplemental Rent" means the amount equal to the aggregate amount of Airframe 4C Supplemental Rent and the Airframe 8C Supplemental Rent paid under the Lease during the Term minus the aggregate amount previously paid by Lessor under Section 7.2(a)(i) of the Common Terms Agreement. "Remaining Engine LLP Supplemental Rent" means the amount equal to the aggregate amount of Engine LLP Supplemental Rent paid under the Lease during the Term minus the aggregate amount previously paid by Lessor under Section 7.2(a)(ii) of the Common Terms Agreement. "Remaining Engine Supplemental Rent" means the amount equal to the aggregate amount of Engine Supplemental Rent paid under the Lease during the Term minus the aggregate amount previously paid by Lessor under Section 7.2(a)(iii) of the Common Terms Agreement. "Remaining APU Supplemental Rent" means the amount equal to the aggregate amount of APU Supplemental Rent paid under the Lease during the Term minus the aggregate amount previously paid by Lessor under Section 7.2(a)(iv) of the Common Terms Agreement. "Remaining Landing Gear Supplemental Rent" means the amount equal to the aggregate amount of Landing Gear Supplemental Rent paid under the Lease during the Term minus the aggregate amount previously paid by Lessor under Section 7.2(a)(v) of the Common Terms Agreement. SCHEDULE B INTENTIONALLY DELETED FROM THE VERSION OF THIS DOCUMENT FILED WITH THE FAA AS CONTAINING CONFIDENTIAL AND PROPRIETARY INFORMATION. EX-10.54 11 0011.txt AIRCRAFT LEASE AGREEMENT AIRCRAFT LEASE AGREEMENT Dated as of May 25, 2000 BETWEEN FRONTIER AIRLINES, INC. as LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION as LESSOR Aircraft Make and Model: New Airbus A318-100 Aircraft Manufacturer's Serial Number: Per Exhibit E Aircraft Registration Mark: Per Exhibit E Make and Model of Engines: PW 6124 Serial Numbers of Engines: Per Exhibit E NEW AIRCRAFT NO. 1 TABLE OF CONTENTS ARTICLE 1 SUMMARY OF TRANSACTION.........................................2 1.1 Description of Aircraft........................................2 1.2 Scheduled Delivery Date and Location...........................2 1.3 Initial Lease Term.............................................2 1.4 Lease Extension Options........................................2 1.5 Security Deposit...............................................2 1.6 Transaction Fee................................................3 1.7 Rent During Initial Lease Term.................................3 1.8 Rent During Lease Extension Term...............................3 1.9 Reserves.......................................................4 1.10 Country of Aircraft Registration...............................5 1.11 Maintenance Program............................................5 1.12 Agreed Value of Aircraft.......................................5 1.13 LESSOR's Bank Account..........................................5 ARTICLE 2 DEFINITIONS....................................................7 2.1 General Definitions............................................7 2.2 Specific Definitions..........................................12 ARTICLE 3 PLACE AND DATE OF DELIVERY....................................14 3.1 Place of Delivery.............................................14 3.2 Scheduled Delivery Date.......................................14 3.3 Delivery subject to Manufacturer Delivery.....................14 3.4 No LESSOR Liability...........................................14 3.5 Total Loss of Aircraft prior to Delivery......................14 3.6 Cancellation for Delay........................................14 3.7 Delay.........................................................15 ARTICLE 4 LEASE TERM AND EXTENSION OPTION...............................16 4.1 Initial Lease Term............................................16 4.2 Lease Extension Options.......................................16 4.3 "Lease Term" and "Expiration Date"............................16 4.4 "Termination Date"............................................16 ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER PAYMENTS...................................18 5.1 Security Deposit..............................................18 5.2 Transaction Fee...............................................19 5.3 Rent..........................................................19 5.4 Reserves......................................................21 5.5 LESSOR's Bank Account.........................................22 5.6 Default Interest..............................................23 5.7 No Deductions or Withholdings.................................23 5.8 Value Added Taxes.............................................23 5.9 Wire Transfer Disbursement Report.............................24 5.10 Net Lease.....................................................24 5.11 LESSOR Performance of LESSEE Obligation.......................25 5.12 Consideration for Rent and other Amounts......................25 ARTICLE 6 INVOLVEMENT WITH AIRCRAFT MANUFACTURER........................26 6.1 LESSEE Selection of Aircraft..................................26 6.2 Participation Agreement.......................................26 6.3 Procurement of BFE............................................26 6.4 LESSEE Inspection of Aircraft.................................26 6.5 Aircraft at Delivery..........................................26 6.6 Delivery of the Aircraft to LESSEE............................27 6.7 LESSEE Acceptance of Aircraft.................................27 ARTICLE 7 PRE-DELIVERY, DELIVERY AND POST-DELIVERY DOCUMENTARY AND OTHER REQUIREMENTS........................................28 7.1 Pre-Delivery Requirements.....................................28 7.2 LESSOR's Pre-Delivery Requirements............................29 7.3 Delivery Requirements.........................................29 7.4 Post-Delivery Requirements....................................30 ARTICLE 8 DISCLAIMERS...................................................31 8.1 "As Is, Where Is".............................................31 8.2 Waiver of Warranty of Description.............................31 8.3 LESSEE Waiver.................................................32 8.4 Conclusive Proof..............................................32 8.5 No LESSOR Liability for Losses................................32 8.6 No Liability to Repair or Replace.............................33 8.7 No Waiver.....................................................33 ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES........................34 9.1 Warranties....................................................34 9.2 Non-Assignable Warranties.....................................34 9.3 Reassignment..................................................34 9.4 Warranty Claims...............................................34 ARTICLE 10 OPERATION OF AIRCRAFT.........................................35 10.1 Costs of Operation............................................35 10.2 Compliance with Laws..........................................35 10.3 Training......................................................35 10.4 No Violation of Insurance Policies............................35 10.5 Flight Charges................................................35 ARTICLE 11 SUBLEASES.....................................................37 11.1 No Sublease without LESSOR Consent............................37 11.2 LESSOR Costs..................................................37 11.3 Any Approved Sublease.........................................37 11.4 Assignment of Sublease........................................38 11.5 Continued Responsibility of LESSEE............................38 ARTICLE 12 MAINTENANCE OF AIRCRAFT.......................................39 12.1 General Obligation............................................39 12.2 Specific Obligations..........................................39 12.3 Replacement of Parts..........................................41 12.4 Removal of Engines............................................42 12.5 Pooling of Engines and Parts..................................42 12.6 Installation of Engines on other aircraft.....................42 12.7 Engine Thrust Rating..........................................43 12.8 Modifications.................................................43 12.9 Performance of Work by Third Parties..........................45 12.10 Reporting Requirements........................................45 12.11 Information Regarding Maintenance Program.....................45 12.12 LESSOR Rights to Inspect Aircraft.............................45 ARTICLE 13 USE OF RESERVES...............................................46 13.1 Airframe Reserves.............................................46 13.2 Engine Performance Restoration Reserves.......................46 13.3 Engine LLP Reserves...........................................47 13.4 Landing Gear Reserves.........................................47 13.5 Reimbursement.................................................47 13.6 Reimbursement Adjustment......................................48 13.7 Costs in Excess of Reserves...................................48 13.8 Reimbursement after Termination Date..........................48 ARTICLE 14 TITLE AND REGISTRATION........................................49 14.1 Title to the Aircraft During Lease Term.......................49 14.2 Registration of Aircraft......................................49 14.3 Filing of this Lease..........................................49 14.4 Evidence of Registration and Filings..........................49 ARTICLE 15 IDENTIFICATION PLATES.........................................50 15.1 Airframe Identification Plates................................50 15.2 Engine Identification Plates..................................50 ARTICLE 16 TAXES.........................................................51 16.1 General Obligation of LESSEE..................................51 16.2 Exceptions to Indemnity.......................................51 16.3 After-Tax Basis...............................................52 16.4 Timing of Payment.............................................52 16.5 Contests......................................................53 16.6 Refunds.......................................................53 16.7 Cooperation in Filing Tax Returns.............................53 16.8 Survival of Obligations.......................................53 ARTICLE 17 INDEMNITIES...................................................54 17.1 General Indemnity.............................................54 17.2 Exceptions to General Indemnities.............................55 17.3 After-Tax Basis...............................................56 17.4 Timing of Payment.............................................56 17.5 Subrogation...................................................56 17.6 Notice........................................................56 17.7 Refunds.......................................................56 17.8 Defense of Claims.............................................56 17.9 Survival of Obligation........................................57 ARTICLE 18 INSURANCE.....................................................58 18.1 Categories of Insurance.......................................58 18.2 Write-back of any Date Recognition Exclusion..................58 18.3 Insurance for Indemnities.....................................58 18.4 Insurance required by Manufacturer............................58 18.5 Renewal.......................................................58 18.6 Assignment of Rights by LESSOR................................58 18.7 Other Insurance...............................................59 18.8 Information...................................................59 18.9 Currency......................................................59 18.10 Grounding of Aircraft.........................................59 18.11 Failure to Insure.............................................59 18.12 Reinsurance...................................................59 18.13 Limit on Hull in favor of LESSEE..............................60 ARTICLE 19 LOSS, DAMAGE AND REQUISITION..................................61 19.1 Definitions...................................................61 19.2 Notice of Total Loss..........................................62 19.3 Total Loss of Aircraft or Airframe............................62 19.4 Surviving Engine(s)...........................................63 19.5 Total Loss of Engine and not Airframe.........................63 19.6 Other Loss or Damage..........................................64 19.7 Copy of Insurance Policy......................................65 19.8 Government Requisition........................................65 19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent................65 ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE...........67 20.1 Representations and Warranties................................67 20.2 Covenants.....................................................68 ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR...........71 21.1 Representations and Warranties................................71 21.2 Covenant of Quiet Enjoyment...................................72 ARTICLE 22 FINANCIAL AND RELATED INFORMATION.............................73 ARTICLE 23 RETURN OF AIRCRAFT............................................74 23.1 Date of Return................................................74 23.2 Technical Report..............................................74 23.3 Return Location...............................................74 23.4 Full Aircraft Documentation Review............................74 23.5 Aircraft Inspection...........................................74 23.6 Certificate of Airworthiness Matters..........................75 23.7 General Condition of Aircraft at Return.......................76 23.8 Checks Prior to Return........................................79 23.9 Part Lives....................................................81 23.10 Export and Deregistration of Aircraft.........................83 23.11 LESSEE's Continuing Obligations...............................83 23.12 Airport and Navigation Charges................................84 23.13 Return Acceptance Certificate.................................84 23.14 Indemnities and Insurance.....................................85 23.15 Civil Reserve Air Fleet.......................................85 ARTICLE 24 ASSIGNMENT....................................................87 24.1 No Assignment by LESSEE.......................................87 24.2 Sale or Assignment by LESSOR..................................87 24.3 LESSOR's Lender...............................................87 24.4 LESSEE Cooperation............................................87 24.5 Protections...................................................88 ARTICLE 25 DEFAULT OF LESSEE.............................................89 25.1 LESSEE Notice to LESSOR.......................................89 25.2 Events of Default.............................................89 25.3 LESSOR's General Rights.......................................91 25.4 Deregistration and Export of Aircraft.........................91 25.5 LESSEE Liability for Damages..................................91 25.6 Waiver of Default.............................................92 25.7 Present Value of Payments.....................................92 25.8 Use of "Termination Date".....................................93 25.9 LESSEE's Remedies.............................................93 25.10 Waiver of Consequential Damages...............................93 ARTICLE 26 NOTICES.......................................................94 26.1 Manner of Sending Notices.....................................94 26.2 Notice Information............................................94 ARTICLE 27 GOVERNING LAW AND JURISDICTION................................95 27.1 California Law................................................95 27.2 Non-Exclusive Jurisdiction in California......................95 27.3 Service of Process............................................95 27.4 Prevailing Party in Dispute...................................95 27.5 Waiver........................................................95 ARTICLE 28 MISCELLANEOUS.................................................96 28.1 Transportation of Personnel...................................96 28.2 Press Releases................................................96 28.3 Power of Attorney.............................................96 28.4 LESSOR Performance for LESSEE.................................96 28.5 LESSOR's Payment Obligations..................................96 28.6 Application of Payments.......................................96 28.7 Usury Laws....................................................96 28.8 Delegation by LESSOR..........................................97 28.9 Confidentiality...............................................97 28.10 Rights of Parties.............................................97 28.11 Further Assurances............................................97 28.12 Use of Word "including".......................................98 28.13 Headings......................................................98 28.14 Invalidity of any Provision...................................98 28.15 Time is of the Essence........................................98 28.16 Amendments in Writing.........................................98 28.17 Counterparts..................................................98 28.18 Delivery of Documents by Fax..................................98 28.19 Entire Agreement..............................................98 28.20 Expenses......................................................99 EXHIBIT A AIRCRAFT DESCRIPTION.........................................101 EXHIBIT B PARTICIPATION AGREEMENT......................................102 EXHIBIT C CERTIFICATE OF INSURANCE.....................................112 EXHIBIT D BROKERS' LETTER OF UNDERTAKING...............................119 EXHIBIT E ESTOPPEL AND ACCEPTANCE CERTIFICATE..........................121 EXHIBIT F OPINION OF COUNSEL...........................................123 EXHIBIT G FORM OF POWER OF ATTORNEY....................................124 EXHIBIT H ASSIGNMENT OF RIGHTS (AIRFRAME)..............................126 EXHIBIT I ASSIGNMENT OF RIGHTS (ENGINES)...............................133 EXHIBIT J RETURN ACCEPTANCE RECEIPT....................................135 EXHIBIT K MONTHLY REPORT...............................................145 EXHIBIT L AIRCRAFT DOCUMENTATION.......................................148 EXHIBIT M TECHNICAL EVALUATION REPORT..................................150 AIRCRAFT LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT is made and entered into as of May 25, 2000. BETWEEN: FRONTIER AIRLINES, INC., a Colorado corporation whose address and principal place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado 80239 ("LESSEE") and ------ INTERNATIONAL LEASE FINANCE CORPORATION, a California corporation whose address and principal place of business is at 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, United States of America ("LESSOR"). The subject matter of this Lease is one (1) new Airbus A318-100 aircraft as more particularly described on Exhibit A attached hereto. In consideration of and subject to the mutual covenants, terms and conditions contained in this Lease, LESSOR hereby agrees to lease to LESSEE and LESSEE hereby agrees to lease from LESSOR the aircraft and the parties further agree as follows: ARTICLE 1 SUMMARY OF TRANSACTION The following is a summary of the lease transaction between LESSEE and LESSOR. It is set forth for the convenience of the parties only and will not be deemed in any way to amend, detract from or simplify the other provisions of this Lease. 1.1 Description of Aircraft One new Airbus A318-100 aircraft with two (2) installed PW 6124 engines, all as more particularly described on Exhibit A hereto 1.2 Scheduled Delivery Date and Location In the month of February 2003 at Hamburg, Germany 1.3 Initial Lease Term 145 months 1.4 Lease Extension Options Six (6) Lease extension options of one (1) year each 1.5 Security Deposit * 1.6 Transaction Fee * 1.7 Rent During Initial Lease Term * 1.8 Rent During Lease Extension Term * 1.9 Reserves * 1.10 Country of Aircraft Registration United States 1.11 Maintenance Program LESSEE's Maintenance Program 1.12 Agreed Value of Aircraft * 1.13 LESSOR's Bank Account * ARTICLE 2 DEFINITIONS Except where the context otherwise requires, the following words have the following meanings for all purposes of this Lease. The definitions are equally applicable to the singular and plural forms of the words. Any agreement defined below includes each amendment, modification, supplement and waiver thereto in effect from time to time. 2.1 General Definitions. "Aircraft" means the Aircraft described on Exhibit A hereto, including the Airframe, two (2) Engines, Parts and Aircraft Documentation, collectively. As the context requires, "Aircraft" may also mean the Airframe, any Engine, any Part, the Aircraft Documentation or any part thereof individually. For example, in the context of return to LESSOR the term "Aircraft" means the Airframe, Engines, Parts and Aircraft Documentation collectively, yet in the context of LESSEE not creating any Security Interests other than Permitted Liens on the Aircraft, the term "Aircraft" means any of the Airframe, any Engine, any Part or the Aircraft Documentation individually. "Aircraft Documentation" means all (a) log books, Aircraft records, manuals and other documents provided to LESSEE in connection with the Aircraft, (b) documents listed in Exhibits E and L and (c) any other documents required to be maintained during the Lease Term by the Aviation Authority, LESSEE's Maintenance Program and this Lease. "Airframe" means the airframe listed in the Estoppel and Acceptance Certificate executed at Delivery together with all Parts relating thereto (except Engines or engines). "Airframe Warranty Assignment" means the Assignment of Rights (Airframe) to be entered into between LESSOR and LESSEE in the form of Exhibit H. "Airworthiness Directives" or "ADs" means all airworthiness directives (or equivalent) of the FAA and the Aviation Authority applicable to the Aircraft. "APU" means the auxiliary power unit of the Aircraft. "Aviation Authority" means the FAA or any Government Entity which under the Laws of U.S. from time to time has control over civil aviation or the registration, airworthiness or operation of aircraft in U.S. If the Aircraft is registered in a country other than the U.S., "Aviation Authority" means the agency which regulates civil aviation in such other country. "Aviation Documents" means any or all of the following which at any time may be obtainable from the Aviation Authority: (a) if required, a temporary certificate of airworthiness from the Aviation Authority allowing the Aircraft to be flown after Delivery to the State of Registration, (b) an application for registration of the Aircraft with the appropriate authority in the State of Registration, (c) the certificate of registration for the Aircraft issued by the State of Registration, (d) a full certificate of airworthiness for the Aircraft specifying transport category (passenger), (e) an air transport license, (f) an air operator's certificate, (g) such recordation of LESSOR's title to the Aircraft and interest in this Lease as may be available in the State of Registration and (h) all such other authorizations, approvals, consents and certificates in the State of Registration as may be required to enable LESSEE lawfully to operate the Aircraft. "AVSA" means AVSA S.A.R.L., a societe a responsabilite limitee organized and existing under the laws of the Republic of France. "Basic Engine" means those units and components of the Engine which are used to induce and convert fuel/air mixture into thrust/power; to transmit power to the fan and accessory drives; to supplement the function of other defined systems external to the Engine; and to control and direct the flow of internal lubrication, plus all essential accessories as supplied by Engine manufacturer. The nacelle, installed components related to the Aircraft systems, thrust reversers, QEC and the primary flight nozzle are excluded. "BFE" means any equipment which is to be provided by the purchaser of the Aircraft (whether actually provided by LESSOR as buyer-furnished equipment or Manufacturer as seller-purchased equipment). "Business Day" means a day other than a Saturday or Sunday on which the banks in New York City are open for the transaction of business of the type required by this Lease. "Certificated Air Carrier" means any Person (except the U.S. Government) that is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of U.S.C. by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be applicable, any Person (except the U.S. Government) that is a citizen of the U.S. (as defined in Section 40102 of Title 49 of the U.S.C.) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the U.S., and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated. "Creditor" means any lessor, owner, bank, lender, mortgagee or other Person which is the owner of or has any interest in an aircraft engine or aircraft operated by LESSEE. "Creditor Agreement" means the applicable agreement between a Creditor and LESSEE or between Creditors pursuant to which such Creditor owns, leases or has an interest in either an aircraft operated by LESSEE on which an Engine may be installed or in an aircraft engine which may be installed on the Airframe. "Default" means any event which, upon the giving of notice or the lapse of time would constitute an Event of Default. "Delivery" means the delivery of the Aircraft from LESSOR to LESSEE pursuant to Article 6.6. "Delivery Date" means the date on which Delivery takes place. "DGAC" means the French Direction Generale a l'Aviation Civile or any successor thereto. "Dollars" and "$" means the lawful currency of the U.S. "Engine" means (a) each of the engines listed on the Estoppel and Acceptance Certificate; (b) any replacement engine acquired by LESSOR and leased to LESSEE pursuant to Article 19.5 following a Total Loss of an Engine; and (c) all Parts installed in or on any of such engines at Delivery (or substituted, renewed or replacement Parts in accordance with this Lease) so long as title thereto is or remains vested in LESSOR in accordance with the terms of Article 12.3. "Engine Warranty Assignment" means the Assignment of Rights (Engines) to be entered into between LESSOR and LESSEE in the form of Exhibit I. "Estoppel and Acceptance Certificate" means that certain estoppel and acceptance certificate in the form of Exhibit E pursuant to which LESSEE accepts Delivery of the Aircraft. "Event of Default" means any of the events referred to in Article 25.2. "FAA" means the Federal Aviation Administration of the Department of Transportation or any successor thereto under the Laws of the U.S. "FARs" means the U.S. Federal Aviation Regulations embodied in Title 14 of the U.S. Code of Federal Regulations, as amended from time to time, or any successor regulations thereto. "Geneva Convention" means the Convention on the International Recognition of Rights in Aircraft signed in Geneva, Switzerland on June 19, 1948. "Government Entity" means any (a) national, state or local government, (b) board, commission, department, division, instrumentality, court, agency or political subdivision thereof and (c) association, organization or institution of which any of the entities listed in (a) or (b) is a member or to whose jurisdiction any such entity is subject. "Landing Gear" means the installed main and nose landing gear, components and their associated actuators, side braces and parts. "Law" means any (a) statute, decree, constitution, regulation, order or any directive of any Government Entity, (b) treaty, pact, compact or other agreement to which any Government Entity is a signatory or party and (c) judicial or administrative interpretation or application of any of the foregoing. "Lease" means this Aircraft Lease Agreement, together with all Exhibits hereto. "LESSOR's Lien" means any Security Interest created by LESSOR or otherwise arising solely as a result of any act or omission of LESSOR or any Person claiming by or through LESSOR. "LESSOR's Taxes" means any Taxes referred to in Article 16.2. "Maintenance Program" means LESSEE's maintenance program as approved by the Aviation Authority or such other maintenance program as LESSOR may, in its reasonable discretion, accept in writing. "Manufacturer" means Airbus Industrie, G.I.E. "MPD" means the Maintenance Planning Document published by Manufacturer and applicable to the Aircraft. With respect to the hour/cycle/calendar time limitation of Parts and inspections, references to the MPD mean the most restrictive limitation set forth therein. "Operative Documents" means this Lease, the Participation Agreement, the Airframe Warranty Assignment, the Engine Warranty Assignment, the Estoppel and Acceptance Certificate and any Side Letter or other document or agreement entered into on or after the date hereof between LESSEE and LESSOR relating to the leasing of the Aircraft hereunder or the transactions contemplated hereby. "Overhaul" means the full reconditioning of the Aircraft, an Engine, APU, Landing Gear, module or Part, as the case may be, in which such equipment has been fully disassembled; cleaned; thoroughly inspected; and returned to the highest standard specified by the applicable manufacturer's manual. "Part" means any part, component, appliance, system module, engine module, accessory, material, instrument, communications equipment, furnishing, LESSEE-furnished or LESSOR-purchased equipment, the APU, or other item of equipment (other than complete Engines or engines) for the time being installed in or attached to the Airframe or any Engine, or which, having been removed from the Airframe or any Engine, remains the property of LESSOR. "Participation Agreement" means the Participation Agreement to be entered into by LESSEE, LESSOR and AVSA and the Manufacturer in the form of Exhibit B. "Permitted Lien" means (a) LESSOR's Liens; (b) Security Interests arising in the ordinary course of LESSEE's business for Taxes either not yet assessed or, if assessed, not yet due or being contested in good faith in accordance with Article 16.5 or (c) materialmen's, mechanics', workmen's, repairmen's, employees' liens or similar Security Interests arising by operation of Law after the Delivery Date in the ordinary course of LESSEE's business for amounts which are either not yet due or are being contested in good faith by appropriate proceedings (and for which adequate reserves have been made or, when required in order to pursue such proceedings, an adequate bond has been provided) so long as such proceedings do not involve any danger of sale, forfeiture or loss of the Aircraft. "Permitted Sublessee" has the meaning ascribed thereto in Article 11.1.1. "Permitted Transferee" means any Person who: (a) is a "citizen of the United States" as defined in Section 40102 of Title 49 of the U.S.C. with the requisite power and authority to enter into and carry out the transactions contemplated by this Lease; (b) is not, and is not affiliated with, a Certificated Air Carrier; (c) enters into a binding agreement with LESSEE pursuant to which it agrees to be bound by the terms of this Lease and agrees to perform all of the obligations of LESSOR hereunder; and (d) is either (i) a U.S. bank, insurance company or other financial institution with a consolidated net worth of at least $25,000,000, (ii) a corporation which has (or a general partnership whose general partners have) a consolidated net worth of at least $25,000,000 and which is a sophisticated entity, experienced in participating as an equity investor in commercial aircraft leases, (iii) the trustee or agent of an aircraft income or similar fund; provided that such trustee or agent has a consolidated net worth of at least $25,000,000, or (iv) such other Person as LESSEE shall approve in writing, such approval not to be unreasonably withheld or delayed. "Person" means any individual, firm, partnership, joint venture, trust, corporation, Government Entity, committee, department, authority or any body, incorporated or unincorporated, whether having distinct legal personality or not. "Prime Rate" means the rate of interest from time to time announced by Chase Manhattan Bank in New York as its prime commercial lending rate. "Security Interest" means any encumbrance or security interest, however and wherever created or arising including (without prejudice to the generality of the foregoing) any right of ownership, security, mortgage, pledge, charge, encumbrance, lease, lien, statutory or other right in rem, hypothecation, title retention, attachment, levy, claim or right of possession or detention. "State of Registration" means U.S. or such other country or state of registration of the Aircraft as LESSOR may, in its absolute discretion, approve in writing. "U.S." means the United States of America. 2.2 Specific Definitions. The following terms are defined in the Articles referenced below: Terms Article Agreed Value 19.1 Airframe Reserves 5.4.1 CRAF 23.15.1 CRAF Program Requisition Period 23.15.1 Default Interest 5.6 Delivery Location 3.1 Engine LLP Reserves 5.4.1 Engine Performance Restoration Reserves 5.4.1 Expenses 17.1 Expiration Date 4.3 Extension Lease Term 4.2.1 Indemnitees 17.1 Initial Lease Term 4.1 Landing Gear Reserves 5.4.1 Lease Term 4.3 LESSEE Customization Costs 5.3.1 LESSOR's Assignee 24.2.1 LESSOR's Bank 5.5 LESSOR's Lender 24.3 Manufacturer's Escalation Rate 5.3.1 Modification 12.8.1 Net Total Loss Proceeds 19.1 Outside Delivery Date 3.6 Passenger Service Equipment 12.8.1 Rent 5.3.1 Reserves 5.4.1 Scheduled Delivery Date 3.2 Security Deposit 5.1.1 Taxes 16.1 Termination Date 4.4 Total Loss 19.1 Total Loss Date 19.1 Total Loss Proceeds 19.1 Transaction Fee 5.2 ARTICLE 3 PLACE AND DATE OF DELIVERY 3.1 Place of Delivery. LESSOR will deliver the Aircraft to LESSEE at Manufacturer's facility at Hamburg, Germany or such other place as may be agreed in writing between the parties (the "Delivery Location"). 3.2 Scheduled Delivery Date. As of the date of this Lease, Delivery of the Aircraft from Manufacturer to LESSOR is scheduled to occur in the month of February 2003. LESSOR will notify LESSEE from time to time and in a timely manner but no later than ninety (90) days prior to the scheduled month of delivery of the scheduled week of delivery and no later than ten (10) Business Days prior to the exact date on which LESSOR expects Delivery to take place (the "Scheduled Delivery Date"). 3.3 Delivery subject to Manufacturer Delivery. Subject to the provisions of this Article 3, LESSOR and LESSEE expressly acknowledge that Delivery of the Aircraft to LESSEE is subject to and conditioned upon delivery of the Aircraft by Manufacturer to LESSOR. 3.4 No LESSOR Liability. LESSOR will not be liable for any loss or expense, or any loss of profit, arising from any delay or failure in Delivery to LESSEE unless such delay or failure arises as a direct consequence of the willful misconduct of LESSOR or the breach by LESSOR of its obligations under the purchase agreement with respect to the Aircraft, and in no event will LESSOR be liable for any delay or failure which is caused by any breach or delay on the part of Manufacturer or any BFE supplier. 3.5 Total Loss of Aircraft prior to Delivery. If a Total Loss of the Aircraft occurs prior to Delivery, neither party will have any further liability to the other except that LESSOR will return to LESSEE the Security Deposit in accordance with Article 5.1.3 and any prepaid Rent, whereupon this Lease shall terminate. 3.6 Cancellation for Delay. Promptly after LESSOR becomes aware that in Manufacturer's opinion a delay will cause Delivery to be delayed beyond February 29, 2004 (the "Outside Delivery Date"), LESSOR will notify LESSEE. By written notice given within thirty (30) days after the first to occur of (i) LESSEE's receipt of such LESSOR notice or (ii) the Outside Delivery Date, either party may by written notice to the other party terminate this Lease and this Lease will terminate on the date of receipt of such notice. In the event of such termination, neither party will have any further liability to the other party except that LESSOR will return to LESSEE the Security Deposit in accordance with Article 5.1.3 and any prepaid Rent. If neither party gives notice of termination within such thirty (30) day period, then the period for termination shall be deemed to be extended for an additional one hundred and eighty (180) days after the expiration of such thirty (30) day period. In the event that neither party gives a notice of termination within such one hundred and eighty (180) day period, the Lease will automatically terminate upon the expiration of such period, and LESSOR will return to LESSEE the Security Deposit and any prepaid Rent as provided above. 3.7 Delay. In the event that the Delivery of the Aircraft is delayed beyond the Scheduled Delivery Date, then LESSEE and LESSOR will meet to discuss the action that they will take against Manufacturer or any vendor as a result of such delay and what compensation they desire from the Manufacturer or such vendor. In the event that LESSOR receives compensation from Manufacturer as a result of any delay, LESSOR after deducting its costs and expenses resulting from such delay will provide to LESSEE the balance of such compensation received from Manufacturer. In the event that LESSOR receives an abatement or other concession by Manufacturer in respect of Manufacturer's Escalation Rate as a result of any delay, LESSOR will pass through such abatement or concession to LESSEE. ARTICLE 4 LEASE TERM AND EXTENSION OPTION 4.1 Initial Lease Term. The term of leasing of the Aircraft will commence on the Delivery Date and continue for an initial lease term of One Hundred Forty-Five (145) months (the "Initial Lease Term"). 4.2 Lease Extension Options. 4.2.1So long as no payment Default or Event of Default has occurred and is continuing hereunder on the date of exercise of the option or on the commencement date of the lease term with respect to such option, LESSEE will have six (6) options to extend the term of the Lease for a period of one (1) year each (the "Extension Lease Term"). 4.2.2 In order to exercise an option, LESSEE must give written notice to LESSOR not less than nine (9) months prior to the then-existing Expiration Date of this Lease. Any notice given by LESSEE in accordance herewith will be irrevocable. LESSEE may not exercise its option to extend the lease of the Aircraft for any year unless it has also exercised its option to extend the lease for all prior lease years. 4.3 "Lease Term" and "Expiration Date". "Lease Term" means the term of leasing commencing on the Delivery Date and terminating on the Expiration Date. "Expiration Date" means the date on which LESSEE is required to redeliver the Aircraft to LESSOR in the condition required by this Lease on the last day of the Initial Lease Term or Extension Lease Term, if and as applicable. 4.4 "Termination Date". This Lease may in fact terminate on any of the dates set forth below: (a) the Expiration Date, provided LESSEE returns the Aircraft to LESSOR on the Expiration Date in the condition required by Article 23; or (b) a date earlier than the Expiration Date, if: (i) there is a Total Loss of the Aircraft prior to Delivery pursuant to Article 3.5; (ii) cancellation of this Lease occurs pursuant to Article 3.6; (iii)there is a Total Loss of the Aircraft and payment is made to LESSOR in accordance with Article 19.3; or ---- (iv) an Event of Default occurs and LESSOR repossesses the Aircraft or otherwise terminates this Lease pursuant to Article 25.3. (c) a date later than the Expiration Date, if: (i) LESSEE fails to return the Aircraft in the condition required by this Lease on the Expiration Date in accordance with Article 23; or (ii) an Event of Default occurs and LESSOR repossesses the Aircraft or otherwise terminates this Lease pursuant to Article 25.3. The "Termination Date" is the date on which this Lease terminates because one of the above has occurred. ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER PAYMENTS 5.1 Security Deposit. 5.1.1 * 5.1.2 The Security Deposit may be commingled with LESSOR's general funds and any interest earned on such Security Deposit will be for LESSOR's account. If the Security Deposit is reduced below the required amount by application to meet LESSEE's unperformed obligations under this Lease, LESSEE will replenish the Security Deposit within ten (10) days after LESSOR's demand therefor. The Security Deposit will serve as security for the performance by LESSEE of its obligations under this Lease and any other agreements between LESSEE and LESSOR relating to aircraft, engines, aircraft equipment or the extension of credit and may be applied by LESSOR upon the occurrence of an Event of Default hereunder or of an event of default by LESSEE under any such other agreements. 5.1.3 Upon termination of this Lease in accordance with Article 4.4 other than if an Event of Default has occurred and is continuing, LESSOR will return to LESSEE the amount of the Security Deposit then held by LESSOR (so long as no default by LESSEE exists under any other agreement between LESSEE and LESSOR relating to aircraft, engines or aircraft equipment or the extension of credit by LESSOR to LESSEE in which case LESSOR will be entitled to set off amounts owing to it), without interest, less an amount determined to be a reasonable estimate of the costs, if any, which LESSOR will incur to remedy any unperformed obligations of LESSEE under this Lease, including the correction of any discrepancies from the required condition of the Aircraft on return of the Aircraft. 5.2 Transaction Fee. * 5.3 Rent. 5.3.1 * *** All extension term rent amounts are expressed in January 2000 U.S. Dollars and subject to escalation for the period from and including the 1st of January 2000 through and including the Delivery Date in accordance with the Manufacturer's Escalation Rate. 5.3.2 The first payment of Rent during the Lease Term will be paid no later than the Delivery Date. Each subsequent payment of Rent will be due monthly thereafter no later than the same day of the month as the Delivery Date of the Aircraft except that, if such day is not a Business Day, the Rent will be due on the immediately preceding Business Day. If Delivery occurred on the 29th, 30th or 31st of the month and in any given month during the Lease Term there is no such corresponding date, Rent will be payable on the last Business Day of such month. 5.4 Reserves. 5.4.1 * 5.4.2 The amount of the Engine Performance Restoration Reserves set forth in Article 5.4.1 may be increased by LESSOR in the event of an increase in the thrust rating of an Engine in accordance with Article 12.7. 5.4.3 Such Reserves will be paid on or before the 10th day of the calendar month next following the month in which the Delivery Date occurs and on or before the 10th day of each succeeding calendar month for flying performed during the calendar month prior to payment. All Reserves for flying performed during the month in which the Termination Date occurs will be paid on the Termination Date, unless otherwise agreed by the parties. 5.4.4 No interest will accrue or be paid at any time to LESSEE on such Reserves and, subject to LESSOR's obligations under Article 13, LESSOR may commingle the Reserves with LESSOR's general funds. 5.5 LESSOR's Bank Account. The Security Deposit, Transaction Fee, Rent,Reserves and any other payment due under this Lease will be paid by wire transfer of immediately available U.S. Dollar funds to LESSOR's bank account at: * or to such other bank account as LESSOR may from time to time designate by written notice ("LESSOR's Bank"). When it is stated in this Lease that an installment of the Security Deposit, the monthly Rent, Reserves or any other payment is due or must be paid or made by LESSEE by a specific date, then such payment actually must be received by LESSOR's Bank on or before such specific date, even if, in order for such payment to be received by LESSOR's Bank by such specific date, LESSEE must initiate the wire transfer prior to such specific date. 5.6 Default Interest. * 5.7 No Deductions or Withholdings. All payments by LESSEE under this Lease, including the Security Deposit, Transaction Fee, Rent, Reserves, Default Interest, fees, indemnities or any other item, will be made in full without any deduction or withholding whether in respect of set-off, counterclaim, duties, or Taxes (as defined in Article 16) imposed in the State of Registration or any jurisdiction from which such payments are made except to the extent otherwise required by Law, in which event LESSEE will pay any additional amount such that the net payment received by LESSOR after any required deduction or withholding equals the amount that LESSOR would have received if such withholding had not been required; provided, however, that if LESSEE pays any such additional amount to compensate for the withholding of any LESSOR Taxes, LESSOR shall pay to LESSEE promptly after receipt of LESSEE's written request therefor (which request shall include a description in reasonable detail of the LESSOR Taxes involved and the calculation of the amounts to be paid) such amounts as are necessary so that the net additional amounts received by LESSOR under this Article 5.7 do not exceed the amounts that LESSOR would have received if no amounts in respect of LESSOR Taxes had been required to be withheld or deducted by LESSEE. 5.8 Value Added Taxes. The Rent and other amounts payable by LESSEE under this Lease are exclusive of any value added tax, turnover tax or similar tax or duty. 5.9 Wire Transfer Disbursement Report. At the time of each Rent or other payment, LESSEE will advise LESSOR in writing of the amount of the payment being made by LESSEE and the allocation of such payment to the Security Deposit, Rent, Reserves, Default Interest and other charges. Notwithstanding the allocation set forth in LESSEE's report, in the event an Event of Default has occurred and is continuing under this Lease, LESSOR will have complete discretion to allocate LESSEE's payments as LESSOR determines. 5.10 Net Lease. 5.10.1 This Lease is a net lease and LESSEE's obligation to pay Rent and make other payments in accordance with this Lease will be absolute and unconditional under any and all circumstances and regardless of other events, including the following: (a) any right of set-off, counterclaim, recoupment, defense or other right (including any right of reimbursement) which LESSEE may have against LESSOR, Manufacturer, the Engine manufacturer or any other person for any reason, including any claim LESSEE may have for the foregoing; (b) unavailability or interruption in use of the Aircraft for any reason, including a requisition thereof or any prohibition or interference with or other restriction against LESSEE's use, operation or possession of the Aircraft (whether by Law or otherwise), any defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, specification or operation of any kind or nature of the Aircraft, the ineligibility of the Aircraft for any particular use or trade or for registration under the Laws of any jurisdiction or Total Loss of the Aircraft; (c) insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation, receivership, administration or similar proceedings by or against LESSOR, LESSEE, Manufacturer, the Engine manufacturer or any other Person; (d) invalidity or unenforceability or lack of due authorization of or other defect in this Lease; (e) failure or delay on the part of any party to perform its obligations under this Lease; or (f) any other circumstance which but for this provision would or might have the effect of terminating or in any other way affecting any obligation of LESSEE hereunder. 5.10.2 Nothing in Article 5.10 will be construed to limit LESSEE's rights and remedies in the event of LESSOR's breach of its warranty of quiet enjoyment set forth in Article 21.2 or to limit LESSEE's rights and remedies to pursue in a court of law any claim it may have against LESSOR or any other Person; provided, however, that LESSEE will have no obligation to pay Rent as aforesaid, except in respect of Rent accrued at the time, for the number of days that LESSEE is deprived of the possession and use of the Aircraft as the result of the breach by LESSOR of its warranty of quiet enjoyment obligations set forth Article 21.2. 5.11 LESSOR Performance of LESSEE Obligation. If LESSEE fails to make any payment due under this Lease to a third party in connection with the Aircraft or fails to perform any other obligation required under this Lease, LESSOR may (but is not required to) at its election and without waiver of its rights perform such obligation and/or pay such amount. Within five (5) Business Days after written notice to LESSEE of the amount paid by LESSOR on behalf of LESSEE, LESSEE will repay such amount to LESSOR together with Default Interest. Such payment to LESSOR will constitute additional Rent payable by LESSEE to LESSOR hereunder. Any payment, performance or compliance by LESSOR of a LESSEE obligation hereunder will not affect the occurrence or continuance of a Default or Event of Default, as the case may be. 5.12 Consideration for Rent and other Amounts. The amount of the Rent and other payments contained herein are in consideration of LESSEE's waiver of warranties and indemnities set forth in Articles 8 and 17, respectively, and the other provisions of this Lease. ARTICLE 6 INVOLVEMENT WITH AIRCRAFT MANUFACTURER 6.1 LESSEE Selection of Aircraft. LESSEE ACKNOWLEDGES THAT THE DESCRIPTION OF THE AIRCRAFT SET FORTH IN THIS LEASE IS BASED UPON INFORMATION SUPPLIED BY MANUFACTURER. LESSEE COVENANTS TO LESSOR THAT LESSEE HAS USED ITS OWN JUDGMENT IN SELECTING THE AIRCRAFT AND HAS DONE SO BASED ON ITS SIZE, DESIGN AND TYPE. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT A MANUFACTURER, REPAIRER OR SERVICING AGENT OF THE AIRCRAFT. 6.2 Participation Agreement. LESSEE shall have the right to inspect the Aircraft during the manufacture process and to attend and observe the acceptance tests of the Aircraft pursuant to the terms of a Participation Agreement to be entered into between LESSEE and LESSOR in the form set forth in Exhibit B. 6.3 Procurement of BFE. LESSEE's and LESSOR's technical representatives will meet and determine which of LESSEE or LESSOR will provide specific items of BFE. Such BFE will then be provided to Manufacturer by LESSEE or LESSOR, as applicable, within the time frames required by Manufacturer. 6.4 LESSEE Inspection of Aircraft. During the course of final assembly of the Aircraft, and at Delivery, LESSEE may have its own representative present to inspect the Aircraft and to ensure its conformity with LESSEE's needs and the terms of this Lease. LESSEE will have ground inspection and acceptance flight rights with respect to the Aircraft. If LESSEE's inspection reveals that the Aircraft does not comply in any material respect with the terms of this Lease, LESSOR will promptly cause the Manufacturer to correct any such defects and make the Aircraft available for reinspection to LESSEE, and to conduct such further demonstration flights as may be necessary to verify compliance with the requirements of this Lease, including but not limited to Exhibit A attached hereto. LESSEE acknowledges that, as between LESSEE and LESSOR, in accepting the Aircraft LESSEE is relying on its own inspection and knowledge of the Aircraft in determining whether the Aircraft meets the requirements of this Lease. 6.5 Aircraft at Delivery. At Delivery, the Aircraft will be as set forth in Exhibit A, as such description may be modified by any change requests agreed to among LESSEE, LESSOR and Manufacturer (which will be reflected in amendment(s) to this Lease). In the event of any discrepancies, LESSEE and LESSOR will cooperate in good faith with one another and with Manufacturer and Engine manufacturer, as applicable, in order to arrive at a mutually acceptable resolution of any such discrepancies. 6.6 Delivery of the Aircraft to LESSEE. Subject to LESSEE having performed all of the conditions precedent to Delivery set forth herein, immediately following delivery of the Aircraft from Manufacturer to LESSOR, LESSOR will tender the Aircraft to LESSEE at the Delivery Location. Provided that the Aircraft is in the condition required by Article 6.5 and provided that LESSOR shall have performed all conditions precedent noted in Article 7.2 and 7.3 hereof, upon the tender of the Aircraft by LESSOR to LESSEE, LESSEE will accept the Aircraft by executing and delivering to LESSOR the Estoppel and Acceptance Certificate, whereupon Delivery will be deemed to have occurred for all purposes under this Lease, including, but not limited to, the commencement of LESSEE's obligation to pay Rent hereunder. 6.7 LESSEE Acceptance of Aircraft. If LESSEE fails to (a) comply with the conditions contained in Articles 7.1 and 7.3 so as to allow Delivery to take place immediately following delivery of the Aircraft by Manufacturer to LESSOR or (b) take delivery of the Aircraft when properly tendered for delivery by LESSOR in the condition required hereunder, LESSEE will indemnify LESSOR for all costs and expenses incurred by LESSOR as a result thereof including (but without limitation) any payments other than the purchase price which LESSOR becomes obliged to make to Manufacturer. ARTICLE 7 PRE-DELIVERY, DELIVERY AND POST-DELIVERY DOCUMENTARY AND OTHER REQUIREMENTS 7.1 Pre-Delivery Requirements. LESSEE will do each of the following prior to the Scheduled Delivery Date of the Aircraft within the time frames set forth below: 7.1.1 Within one (1) month after execution of this Lease, LESSEE will deliver to LESSOR each of the following: (a) copies of resolutions of the Board of Directors of LESSEE or other written evidence of appropriate corporate action, duly certifying and authorizing the lease of the Aircraft hereunder and the execution, delivery and performance of this Lease, together with an incumbency certificate as to the person or persons authorized to execute and deliver documents on behalf of LESSEE hereunder; and (b) an opinion of counsel in the form and substance of Exhibit F. 7.1.2 At least fourteen (14) days prior to the Scheduled Delivery Date, LESSEE will have delivered to LESSOR a Certificate of Insurance and Brokers' Letter of Undertaking in the form and substance of Exhibits C and D, respectively, from LESSEE's insurance brokers evidencing insurance of the Aircraft in accordance with this Lease from the Delivery Date. 7.1.3 At least three (3) Business Days prior to the Scheduled Delivery Date, LESSEE will do each of the following: (a) provide LESSOR with documents evidencing that LESSEE has obtained any necessary permits or approvals to ferry and import the Aircraft to the U.S. and that all applicable customs duties and sales taxes in respect of the Aircraft have been discharged by LESSEE (or arrangements satisfactory to LESSOR have been made for obtaining or paying for the same); (b) provide LESSOR with a copy of LESSEE's Air Operator's Certificate; (c) provide LESSOR with a power of attorney empowering LESSEE's representative, who may be an officer or employee of LESSEE, to accept the Aircraft on behalf of LESSEE; d) provide LESSOR with a power of attorney in the form of Exhibit G; and - (e) provide LESSOR with such other documents as LESSOR may reasonably request. 7.2 LESSOR's Pre-Delivery Requirements. LESSEE's obligation to accept delivery of and lease the Aircraft hereunder is subject to satisfaction of the following conditions precedent: (a) LESSOR shall tender the Aircraft including the Aircraft Documentation to LESSEE at the Delivery Location in accordance with Article 6.6; (b) LESSOR shall be prepared to advise its FAA counsel to register the Aircraft in the U.S. in the name of LESSOR and the Aircraft shall have a valid Certificate of Airworthiness and shall be in the condition required in order to meet the operating requirements of FAR Part 121; (c) All Airworthiness Directives which are issued prior to the Delivery Date and which require compliance (either by means of repetitive inspections, modifications or terminating action) prior to Delivery or within one (1) year after Delivery will be complied with on a terminating action basis at LESSOR's cost; Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible; and (d) LESSOR shall have executed and delivered to LESSEE the Airframe Warranty Assignment and the Engine Warranty Assignment, together with the consents of Seller and the Engine manufacturer, respectively, in the form set forth as Schedule 1 to each agreement, and a consent of Manufacturer to the Airframe Warranty Assignment in form and substance reasonably satisfactory to LESSEE. 7.3 Delivery Requirements. On the Delivery Date of the Aircraft, each of the following will occur: 7.3.1 If not previously done, LESSEE will pay to LESSOR the first monthly installment of Rent in accordance with Article 5.3.2; 7.3.2 LESSEE will execute and deliver to LESSOR the Estoppel and Acceptance Certificate covering the Aircraft and dated the Delivery Date. 7.3.3 If not previously done, LESSEE and LESSOR will sign an amendment or supplement to Exhibit A evidencing all agreed-to changes to the specification of the Aircraft. 7.3.4 LESSEE will deliver a certificate signed by an officer of LESSEE stating all of the following: (a) the representations and warranties contained in Article 20 are true and accurate on and as of the Delivery Date as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); and (b) no Default has occurred and is continuing or will result from LESSEE's lease of the Aircraft hereunder. 7.3.5 LESSEE's counsel will deliver an opinion confirming the matters set forth in the opinion of counsel described in Article 7.1 and advising that all filing and other requirements described in the earlier opinion of counsel have been met. 7.3.6 If any Creditor Agreement provides or contemplates that such Creditor will obtain any right, title or interest in an Engine which is installed on such Creditor's aircraft, prior to placing the Engine on such Creditor's aircraft LESSEE will deliver to LESSOR an engines cooperation agreement in form and substance acceptable to LESSOR which is executed by LESSEE and LESSEE's Creditors (as defined therein). 7.4 Post-Delivery Requirements. 7.4.1 Within seven (7) days after Delivery, if not previously provided, LESSEE will provide LESSOR with a follow-up opinion of FAA counsel advising that the Aircraft has been registered in the State of Registration and that all necessary filings have been made with the FAA. ARTICLE 8 DISCLAIMERS LESSOR HAS COMMITTED TO LESSEE THAT ON THE DELIVERY DATE THE AIRCRAFT WILL BE IN THE CONDITION REQUIRED BY ARTICLE 6. SUCH COMMITMENT OR COVENANT ON THE PART OF LESSOR EXPIRES AND THE DISCLAIMERS SET FORTH IN THIS ARTICLE 8 APPLY UPON LESSEE'S ACCEPTANCE OF THE AIRCRAFT AND EXECUTION OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE. AFTER SUCH TIME, THEN AS BETWEEN LESSOR AND LESSEE: 8.1 "As Is, Where Is". LESSEE AGREES THAT IT IS LEASING THE AIRCRAFT "AS IS, WHERE IS". LESSEE UNCONDITIONALLY ACKNOWLEDGES AND AGREES THAT NEITHER LESSOR NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR REPRESENTATIVES HAVE MADE OR WILL BE DEEMED TO HAVE MADE ANY TERM, CONDITION, REPRESENTATION, WARRANTY OR COVENANT EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE) AS TO (a) THE CAPACITY, AGE, AIRWORTHINESS, VALUE, QUALITY, DURABILITY, CONFORMITY TO THE PROVISIONS OF THIS LEASE, DESCRIPTION, CONDITION (WHETHER OF THE AIRCRAFT, ANY ENGINE, ANY PART THEREOF OR THE AIRCRAFT DOCUMENTATION), DESIGN, WORKMANSHIP, MATERIALS, MANUFACTURE, CONSTRUCTION, OPERATION, DESCRIPTION, STATE, MERCHANTABILITY, PERFORMANCE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE (INCLUDING THE ABILITY TO OPERATE OR REGISTER THE AIRCRAFT OR USE THE AIRCRAFT DOCUMENTATION IN ANY OR ALL JURISDICTIONS) OR SUITABILITY OF THE AIRCRAFT OR ANY PART THEREOF, OR THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT OR CONCEALED, EXTERIOR OR INTERIOR, (b) THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS, (c) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE OR (d) ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND EXTINGUISHED EXCEPT AS EXPRESSLY PROVIDED IN ARTICLE 21 HEREOF. 8.2 Waiver of Warranty of Description. IN CONSIDERATION OF (a) LESSEE'S RIGHTS HEREUNDER TO INSPECT THE AIRCRAFT AND (b) LESSOR'S ASSIGNMENT TO LESSEE OF ANY EXISTING AND ASSIGNABLE WARRANTIES OF MANUFACTURER AND THE ENGINE MANUFACTURER, LESSEE HEREBY AGREES THAT ITS ACCEPTANCE OF THE AIRCRAFT AT DELIVERY AND ITS EXECUTION AND DELIVERY OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE CONSTITUTE LESSEE'S WAIVER OF THE WARRANTY OF DESCRIPTION, ANY CLAIMS LESSEE MAY HAVE AGAINST LESSOR BASED UPON THE FAILURE OF THE AIRCRAFT TO CONFORM WITH SUCH DESCRIPTION AND ANY AND ALL RIGHTS IT MAY HAVE TO THE REMEDIES SET FORTH IN SECTIONS 10508 THROUGH 10522 OF THE CALIFORNIA COMMERCIAL CODE. EVEN IF AT ANY TIME THE FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION SUBSTANTIALLY IMPAIRS THE VALUE AND UTILITY OF THE AIRCRAFT AND EITHER (i) LESSEE ACCEPTED THE AIRCRAFT BASED ON A REASONABLE ASSUMPTION THAT THE NONCONFORMITY WOULD BE CURED AND IT WAS NOT SEASONABLY CURED OR (ii) LESSEE ACCEPTED THE AIRCRAFT WITHOUT DISCOVERING THE NONCONFORMITY BUT LESSEE'S ACCEPTANCE OF THE AIRCRAFT WAS REASONABLY INDUCED EITHER BY LESSOR'S ASSURANCES OR BY THE DIFFICULTY OF DISCOVERING ANY DEFECT PRIOR TO ACCEPTANCE, LESSEE AGREES NOT TO LOOK TO LESSOR FOR DAMAGES OR RELIEF ARISING OUT OF THE FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION. 8.3 LESSEE Waiver. LESSEE hereby waives as between itself and LESSOR and agrees not to seek to establish or enforce any rights and remedies, express or implied (whether statutory or otherwise) against LESSOR or the Aircraft relating to any of the matters mentioned in Articles 8.1 or 8.2 and the leasing thereof by LESSOR to LESSEE. 8.4 Conclusive Proof. DELIVERY BY LESSEE TO LESSOR OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE WILL BE CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE'S TECHNICAL EXPERTS HAVE EXAMINED AND INVESTIGATED THE AIRCRAFT, INCLUDING THE ENGINES AND THE AIRCRAFT DOCUMENTATION AND THAT EACH IS IN THE CONDITION REQUIRED HEREUNDER AND WITHOUT DEFECT, EXCEPT AS SPECIFICALLY SET FORTH IN SUCH CERTIFICATE, (WHETHER OR NOT DISCOVERABLE AT DELIVERY) AND OTHERWISE IN EVERY WAY SATISFACTORY TO LESSEE. 8.5 No LESSOR Liability for Losses. LESSEE agrees that LESSOR will not be liable to LESSEE, any sublessee or any Person, whether in contract or tort and however arising, for any cost, loss or damage (consequential or otherwise) arising out of the condition of the Aircraft, whether or not due in whole or in part to an act or omission or the active or passive negligence of LESSOR. 8.6 No Liability to Repair or Replace. LESSOR will not be liable for any expense in repairing or replacing any item of the Aircraft or be liable to supply another aircraft or any item in lieu of the Aircraft or any Part thereof if the same is lost, confiscated, damaged, destroyed or otherwise rendered unfit for use. 8.7 No Waiver. Nothing in this Article 8 or elsewhere in this Lease will be deemed to be a waiver by LESSEE of any rights it may have against Manufacturer, the Engine manufacturer or any other Person. ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES 9.1 Warranties. Effective upon Delivery LESSOR will assign to LESSEE for the duration of the Lease Term the benefit of all warranties and indemnities given to LESSOR by Manufacturer and the Engine manufacturer pursuant to the Airframe Warranty Assignment and the Engine Warranty Assignment, respectively. Effective on the Delivery Date, all other assignable vendor warranties with respect to the Aircraft are hereby assigned by LESSOR to LESSEE. 9.2 Non-Assignable Warranties. To the extent that any warranty or indemnity given to LESSOR by Manufacturer and others with respect to the Aircraft cannot be assigned, LESSEE will be entitled to take such action to enforce such warranty or indemnity in the name of LESSOR against Manufacturer and such other parties as LESSEE sees fit, but subject to LESSEE first ensuring that LESSOR is indemnified and secured to LESSOR's satisfaction against all losses, damage, costs, expenses and liabilities thereby incurred or reasonably likely to be incurred. 9.3 Reassignment. On the Termination Date, the benefit of any warranty assigned by LESSOR to LESSEE will be reassigned automatically to LESSOR or its designee. LESSEE's rights under such warranties (including LESSEE's claims and rights to payment thereunder) will revert to LESSOR during any period in which an Event of Default is continuing. LESSEE at its own cost and expense will do all such things and execute such documents as may be reasonably required for this purpose. 9.4 Warranty Claims. LESSEE will diligently and promptly pursue any valid claims it may have against Manufacturer and others under such warranties with respect to the Aircraft and will provide notice of the same to LESSOR. ARTICLE 10 OPERATION OF AIRCRAFT 10.1 Costs of Operation. LESSEE will pay all costs incurred in the operation of the Aircraft during the Lease Term, for profit or otherwise, including the costs of flight crews, cabin personnel, fuel, oil, lubricants, maintenance, insurance, storage, landing and navigation fees, airport charges, passenger service and any and all other expenses of any kind or nature, directly or indirectly, in connection with or related to the use, movement and operation of the Aircraft. The obligations, covenants and liabilities of LESSEE under this paragraph arising prior to return of the Aircraft to LESSOR will continue in full force and effect, notwithstanding the termination of this Lease or expiration of the Lease Term. 10.2 Compliance with Laws. Except as expressly provided in this Lease, LESSEE agrees throughout the Lease Term to maintain operational control of the Aircraft and use the Aircraft in accordance with applicable Laws of the State of Registration and of any country, state, territory or municipality into or over which LESSEE may operate. LESSEE will not employ, suffer or cause the Aircraft to be used in any business which is forbidden by Law or in any manner which may render it liable to condemnation, destruction, seizure, or confiscation by any authority. LESSEE will not permit the Aircraft to fly to any airport or country if so doing would cause LESSEE to be in violation of any Law applicable to LESSEE or the Aircraft. 10.3 Training. LESSEE will not use the Aircraft for testing or for training of flight crew members other than LESSEE crew members and, from and after the date on which it obtains other A318 aircraft, it will not use the Aircraft for training any more than it utilizes for training the other A318 aircraft in its fleet. 10.4 No Violation of Insurance Policies. LESSEE will not use or permit the Aircraft to be used in any manner or for any purpose which is not covered by the insurance policies LESSEE is required to carry and maintain as set forth in this Lease. LESSEE will not carry any goods of any description excepted or exempted from such policies or do any other act or permit to be done anything which could reasonably be expected to invalidate or limit any such insurance policy. 10.5 Flight Charges. LESSEE will pay promptly when due all enroute navigation charges, navigation service charges and all other charges payable by LESSEE for the use of or for services provided at any airport, whether in respect of the Aircraft or any other aircraft of LESSEE, and will indemnify and hold LESSOR harmless in respect of the same. This indemnity will continue in full force and effect notwithstanding the termination or expiration of the Lease Term for any reason or the return of the Aircraft. ARTICLE 11 SUBLEASES 11.1 No Sublease without LESSOR Consent. LESSEE WILL NOT SUBLEASE OR PART WITH POSSESSION OF THE AIRCRAFT (EXCEPT FOR MAINTENANCE AND REPAIR) AT ANY TIME WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (NOT TO BE UNREASONABLY WITHHELD OR DELAYED) EXCEPT FOR A SUBLEASE TO A PERMITTED SUBLESSEE PRE-APPROVED IN ARTICLE 11.1.1 BELOW, AND IN ACCORDANCE WITH SUCH REQUIREMENTS AS MAY FROM TIME TO TIME BE AGREED IN WRITING BETWEEN LESSOR AND LESSEE. The wet leasing of the Aircraft during the Lease Term (in which LESSEE and its crews retain operational control of the Aircraft) will not be considered a sublease of the Aircraft. 11.1.1 LESSEE may sublease the Aircraft without LESSOR's prior consent to an operator based in the U.S. which is then currently a lessee of LESSOR, provided such operator is not then in default under the aircraft lease agreement between such operator and LESSOR ("Permitted Sublessee"). Any such sublease will be subject to the provisions of this Article 11, including the provisions of Article 11.2 below. 11.2 LESSOR Costs. LESSEE will indemnify LESSOR on demand for all reasonable and actual out-of-pocket expenses (including legal fees) incurred in connection with LESSOR's assessment of the subleasing proposal (whether or not LESSOR's consent to such sublease is ultimately given), review of the sublease documentation and implementation of the sublease. 11.3 Any Approved Sublease. Any sublease to a Permitted Sublessee, and any other sublease approved by LESSOR will be for a term no greater than the remaining Lease Term and contain provisions consistent with this Lease protecting LESSOR's title to the Aircraft, providing appropriate LESSOR indemnities, regarding the maintenance and repair standards for the Aircraft, concerning the insurances which will be carried by the sublessee and the circumstances which constitute a Total Loss of the Aircraft. Any such sublease will be subject and subordinate to this Lease. In its sole discretion, LESSOR may require an opinion of counsel in connection with such sublease, including LESSOR's right to repossess the Aircraft in the event of an Event of Default hereunder or under the sublease. LESSEE will not amend the terms of any approved sublease without the prior written consent of LESSOR, which will not be unreasonably withheld. Notwithstanding the foregoing, LESSOR agrees that even if an Event of Default has occurred and is continuing hereunder, so long as the approved sublessee fully performs all of the obligations of LESSEE hereunder and agrees to do so on a going forward basis and there is no risk to LESSOR of an impairment to LESSOR's unencumbered title to the Aircraft, LESSOR will not interfere with such sublessee's quiet use and enjoyment of the Aircraft. 11.4 Assignment of Sublease. Any approved sublease will be assigned to LESSOR as security. LESSEE will deliver the original counterpart of the sublease to LESSOR and make any filings necessary to protect LESSOR's security interest. 11.5 Continued Responsibility of LESSEE. LESSEE will continue to be responsible for performance of its obligations under this Lease during any period of sublease. ARTICLE 12 MAINTENANCE OF AIRCRAFT 12.1 General Obligation. 12.1.1 During the Lease Term and until the Aircraft is returned to LESSOR in the condition required by this Lease, LESSEE alone has the obligation, at its expense, to maintain and repair the Aircraft, Engines, and all of the Parts (a) in accordance with the Maintenance Program, (b) in accordance with the rules and regulations of the Aviation Authority, (c) in accordance with Manufacturer's type design, (d) in accordance with any other regulations or requirements necessary in order to maintain a valid Certificate of Airworthiness for the Aircraft and meet the requirements at all times during the Lease Term and upon return of the Aircraft to LESSOR for issuance of a Standard Certificate of Airworthiness for transport category aircraft issued by the FAA in accordance with FAR Part 21 (except during those periods when the Aircraft is undergoing maintenance or repairs as required or permitted by this Lease and to the extent in conflict with the requirements of the Aviation Authority) and (e) in the same manner and with the same care as used by LESSEE with respect to similar aircraft and engines operated by LESSEE and without in any way discriminating against the Aircraft. 12.1.2 No Engine will remain in an unserviceable condition for more than three (3) months. 12.1.3 LESSEE will not enter into any Engine maintenance cost per flight hour, power-by-the-hour or similar agreement with Engine manufacturer or any other Engine maintenance facility or organization without LESSOR's prior written consent, which consent shall not be unreasonably withheld or delayed. 12.2 Specific Obligations. Without limiting Article 12.1, LESSEE agrees that such maintenance and repairs will include but will not be limited to each of the following specific items: (a) performance in accordance with the Maintenance Program of all routine and non-routine maintenance work; (b) incorporation in the Aircraft of all Airworthiness Directives, all alert service bulletins of Manufacturer, Engine manufacturer and other vendors or manufacturers of Parts incorporated on the Aircraft and any service bulletins which must be performed in order to maintain the warranties on the Aircraft, Engines, and Parts; (c) incorporation in the Aircraft of all other service bulletins of Manufacturer, the Engine manufacturer and other vendors which LESSEE schedules to adopt within the Lease Term for the rest of its A318 aircraft fleet. It is the intent of the parties that the Aircraft will not be discriminated against in service bulletin compliance (including method of compliance) or other maintenance matters compared with the rest of LESSEE's A318 aircraft fleet. LESSEE will not discriminate against the Engines with respect to Overhaul build standards and life-limited part replacements; (d) incorporation in the Maintenance Program for the Aircraft of a corrosion prevention and control program as recommended by Manufacturer, the Aviation Authority and the FAA and the correction of any discrepancies in accordance with the recommendations of Manufacturer and the Structural Repair Manual. In addition, all inspected areas will be properly treated with corrosion inhibitor as recommended by Manufacturer; (e) maintaining in English and keeping in an up-to-date status the records and historical documents set forth in Exhibit L; (f) maintaining historical records, in English, for on condition, condition-monitored, hard time and life-limited Parts (including tags from the manufacturer of such Part or a repair facility which evidence that such Part is new or overhauled and establish authenticity, total time in service and time since overhaul for such Part), the hours and cycles the Aircraft and Engines operate and all maintenance and repairs performed on the Aircraft; and (g) properly documenting all repairs, Modifications and alterations and the addition, removal or replacement of equipment, systems or components in accordance with the rules and regulations of the Aviation Authority and reflecting such items in the Aircraft Documentation. In addition, all repairs to the Aircraft will be accomplished in accordance with either (i) Manufacturer's Structural Repair Manual (or DGAC-approved Repair Approval Sheets) or (ii) FAA-approved data (such as FAA Form 8110 or equivalent). All Modifications and alterations will be accomplished in accordance with FAA-approved data (such as FAA Form 8110 or equivalent). 12.3 Replacement of Parts. 12.3.1 LESSEE, at its own cost and expense, will promptly replace all Parts which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or rendered unfit or beyond economical repair (BER) for use for any reason. In the ordinary course of maintenance, service, repair, overhaul or testing, LESSEE may remove any Part provided that LESSEE replaces such Part as promptly as practicable. All replacement Parts will (a) be free and clear of all Security Interests (except Permitted Liens) of any kind or description, (b) be in airworthy condition and of at least equivalent model, service bulletin and modification status and have a value and utility at least equal to the Parts replaced, assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof and (c) have a current "serviceable tag" of the manufacturer or maintenance facility providing such items to LESSEE, indicating that such Parts are new, serviceable or Overhauled. So long as a substitution meets the requirements of the Maintenance Program and the Aviation Authority, LESSEE may substitute for any Part a part that does not meet the requirements of the foregoing sentence if a complying Part cannot be procured or installed within the available groundtime of the Aircraft and as soon as practicable the noncomplying part is removed and replaced by a complying Part. With respect to replacement modules in an Engine, LESSEE will use best reasonable efforts to ensure that any replacement module will not have been previously operated at a higher thrust rating than the replaced module provided that in all circumstances life-limited Parts in such replacement module will have no less life remaining than the life-limited Parts in the replaced module. 12.3.2 All Parts removed from the Airframe or any Engine will remain the property of LESSOR and subject to this Lease no matter where located, until such time as such Parts have been replaced by Parts (which have been incorporated or installed in or attached to the Airframe or such Engine) which meet the requirements for replacement Parts specified above and title to such replacement Parts has passed to LESSOR under the Laws of the State of Registration and lex situs. To the extent permitted by the Laws of the State of Registration and the lex situs it is the intent of LESSOR and LESSEE that without further act and immediately upon any replacement Part becoming incorporated, installed or attached to the Airframe or an Engine as above provided, (a) title to the removed Part will thereupon vest in LESSEE, free and clear of all rights of LESSOR, (b) title to the replacement Part will thereupon vest in LESSOR free and clear of all rights of LESSEE (other than LESSEE's rights under this Lease) and (c) such replacement Part will become subject to this Lease and be deemed to be a Part hereunder to the same extent as the Parts originally incorporated or installed in or attached to the Airframe or such Engine. 12.4 Removal of Engines. 12.4.1 If an Engine is removed for testing, service, repair, maintenance, Overhaul work, alterations or modifications, title to such Engine will at all times remain vested in LESSOR. 12.4.2 LESSEE will be entitled to remove any of the Engines from the Aircraft and install another engine or engines on the Aircraft, provided that LESSEE complies with each of the following obligations: (a) the insurance requirements set forth in Article 18 and Exhibit C are in place; (b) LESSEE ensures that the identification plates referred to in Article 15 are not removed from any Engine upon such Engine being detached from the Aircraft; and (c) title to the Engine remains with LESSOR free from all Security Interests (except Permitted Liens) regardless of the location of the Engine or its attachment to or detachment from the Aircraft. 12.5 Pooling of Engines and Parts. LESSEE may subject the Engines and Parts to normal interchange or pooling agreements with responsible international scheduled commercial air carriers customary in the airline industry and entered into by LESSEE in the ordinary course of its business with respect to its entire A318 fleet so long as (a) in the case of pooling of an Engine, such Engine is returned to LESSEE within four (4) months, (b) no transfer of title to the Engine occurs, (c) all other terms of this Lease continue to be observed with respect to the Engines or Parts, including but not limited to Articles 8, 10, 12, 14, 15, 16, 17, 18 and 19 and (d) LESSEE continues to be fully responsible to LESSOR for the performance of all of its obligations hereunder. 12.6 Installation of Engines on other aircraft. Any Engine removed from the Aircraft may be installed on another aircraft in LESSEE's fleet which utilizes engines of the same type as the Engine only if one of the situations described in this Article 12.6 exists: 12.6.1 LESSEE or LESSOR has title to such other aircraft free and clear of all Security Interests (except Permitted Liens). 12.6.2 LESSEE, LESSOR and all of the Creditors of LESSEE of such aircraft enter into an engines cooperation agreement in form and substance reasonably acceptable to LESSOR in which each party agrees to recognize one another's rights in the engines. LESSEE will reimburse LESSOR and LESSOR's Lender for their reasonable attorneys' fees and costs in negotiating and finalizing engine cooperation agreement arrangements with LESSEE and its Creditors. 12.6.3 Such other aircraft is subject to a Creditor Agreement (but no other Security Interests except Permitted Liens) which by its terms expressly or effectively states that such Creditor and its successors and assigns will not acquire any right, title or interest in any Engine by reason of such Engine being installed on such aircraft. LESSEE hereby agrees that if LESSOR's title to an Engine is in fact impaired under any such Creditor Agreement, such impairment will be deemed to be a Total Loss of such Engine and the provisions of Article 19.5 will apply. To the extent another Creditor Agreement contains such provisions, then LESSOR hereby agrees for the benefit of the Creditor of such Creditor Agreement that neither LESSOR nor its successors or assigns will acquire or claim any right, title or interest in any engine in which LESSEE or another Creditor has an interest as a result of such engine being installed on the Airframe. 12.7 Engine Thrust Rating. If an Engine is utilized by LESSEE on the Aircraft or on any other airframe (or if the Engine is utilized by any sublessee or user under a pooling arrangement in accordance with this Lease) at a thrust rating greater than the thrust rating set forth in Exhibit A, LESSEE will promptly notify LESSOR and the Engine Performance Restoration Reserves amounts set forth in Article 5.4.1 will be increased in an amount proportional to the accelerated rate of deterioration of the Engine resulting from the increased thrust rating. 12.8 Modifications. 12.8.1 * 12.8.2 LESSOR may review LESSEE's proposed designs, plans, engineering drawings and diagrams, and flight and maintenance manual revisions for any proposed Modification. If requested by LESSOR, LESSEE will furnish LESSOR (at LESSEE's expense) with such documents in final form and any other documents required by Law, as a result of such Modification. All Modifications incorporated on the Aircraft will be properly documented in the Aircraft Documentation and be fully approved by the Aviation Authority. 12.8.3 Notwithstanding any other provision of this Lease, no Modification will be made which has the effect of decreasing the utility or value of the Aircraft or invalidating any warranty applicable to the Aircraft. 12.8.4 No Modification will be made by LESSEE if an Event of Default exists and is continuing hereunder. 12.8.5 Unless otherwise agreed by LESSOR in writing, all permanent or structural Modifications will forthwith become a part of the Aircraft and LESSEE relinquishes to LESSOR all rights and title thereto. However, all (i) temporary and non-structural Modifications and (ii) all Passenger Service Equipment so long as such equipment can be removed without causing material damage to the Aircraft, will remain the property of LESSEE and, at LESSOR's request and LESSEE's cost, will be removed from the Aircraft prior to return of the Aircraft, with LESSEE restoring the Aircraft to the condition it was in prior to the Modification or installation of Passenger Service Equipment in a manner cosmetically acceptable to LESSOR. Notwithstanding the foregoing, no such removal will be permitted without LESSOR's permission during the occurrence of an Event of Default hereunder and immediately upon the occurrence of an Event of Default hereunder, without the requirement of any further act or notice, all right, title and interest in such Modifications and Passenger Service Equipment will immediately vest in LESSOR; provided however, that in the event of such an Event of Default, with respect to any Passenger Service Equipment, LESSOR will use commercially reasonable efforts to reach agreement with any vendors or suppliers holding title to the Passenger Service Equipment in order to protect the mutual interests of LESSOR and such parties. 12.8.6 LESSOR will bear no liability for the cost of Modifications of the Aircraft whether in the event of grounding or suspensions of certification, or for any other cause. 12.9 Performance of Work by Third Parties. Whenever maintenance and repair work on the Aircraft or Engines will be regularly performed by a Person other than LESSEE, such Person will be an FAA-authorized repair station. 12.10 Reporting Requirements. 12.10.1 Commencing with a report furnished ten (10) days after the end of the calendar month in which Delivery occurs, LESSEE will furnish to LESSOR a Monthly Report in English in the form attached hereto as Exhibit K. Each Monthly Report will be furnished within ten (10) days after the end of each calendar month, except that the Monthly Report pertaining to the last month (or any portion thereof) of the Lease Term will be furnished to LESSOR on the Termination Date. 12.10.2 Commencing with the second scheduled "C" check for the Aircraft, LESSEE will provide LESSOR with a Technical Evaluation Report for the Aircraft in the form and substance of Exhibit M, as revised. Such Technical Evaluation Report will be furnished within three (3) Business Days after the completion of every second "C" check performed during the Lease Term and at other times reasonably requested by LESSOR. 12.11 Information Regarding Maintenance Program. LESSEE will provide LESSOR with a copy of or information regarding the Maintenance Program for the Aircraft, as reasonably requested by LESSOR. 12.12 LESSOR Rights to Inspect Aircraft. On reasonable notice, LESSOR and/or its authorized agents or representatives will have the right to inspect the Aircraft and Aircraft Documentation. LESSOR agrees that such requests will be coordinated with LESSEE so as to cause the minimum practical disturbance to LESSEE's operation or its personnel. LESSEE agrees to cooperate with LESSOR in making the Aircraft and Aircraft Documentation available to such authorized technical teams. LESSOR will have no duty to make any such inspection and will not incur any liability or obligation by reason of (and LESSEE's indemnity obligations pursuant to Article 17 will apply notwithstanding) not making any such inspection or by reason of any reports it receives or any reviews it may make of the Aircraft records. ARTICLE 13 USE OF RESERVES 13.1 Airframe Reserves. LESSOR will reimburse LESSEE from the Airframe Reserves for the actual cost of the structural inspection portion of the full and completed scheduled 4C/5Y and 8C/9Y (or then current equivalent check) as described in the MPD and the rectification of any structural deficiencies resulting from such inspection, with work performed for all other causes excluded, including those causes set forth in Article 13.6. Subject to Article 16.1 and excluding exchange fees and handling, packaging and shipping charges, reimbursement will be made up to the amount in the Airframe Reserves on the commencement date of the structural check. 13.2 Engine Performance Restoration Reserves. 13.2.1 LESSOR will reimburse LESSEE from the Engine Performance Restoration Reserves for the actual cost associated with performance restoration or permanent repair of on-condition Parts in the Basic Engine during completed Engine shop visits (i.e. heavy maintenance visits) requiring off-wing teardown and/or disassembly, with work performed for all other causes excluded, including those causes set forth in Article 13.6. Subject to Article 16.1 and excluding exchange fees and handling, packaging and shipping charges, reimbursement for an Engine will be made up to the amount in the Engine Performance Restoration Reserves applicable to such Engine at the time of removal of such Engine. 13.2.2 Reimbursement from the Engine Performance Restoration Reserves will be limited as to each module of such Engine in accordance with the following percentages of the remaining total amount in the Engine Performance Restoration Reserves for such Engine: X*% Fan & Accessory Gearbox X*% High Pressure Compressor Module X*% High Pressure Turbine Module X*% Low Pressure Turbine Module *Prior to Delivery, LESSOR will obtain the recommended percentage figures (totaling 100%) from the Engine manufacturer that relate to the Pratt & Whitney 6124 engine when such figures become available. Upon written notice to LESSEE, such recommended percentage figures provided by Engine manufacturer will be deemed to be the reimbursement percentages for purposes of this Lease. 13.2.3 LESSEE will not enter into any Engine maintenance cost per flight hour, power-by-the-hour or similar agreement with Engine manufacturer or any other Engine maintenance facility or organization without LESSOR's consent which consent shall not be unreasonably withheld or delayed. 13.3 Engine LLP Reserves. LESSOR will reimburse LESSEE from the Engine LLP Reserves for an Engine for the actual out-of-pocket materials cost without overhead, mark-up or profit factor associated with on or off-wing replacement of life-limited Parts in such Engine, with work performed for all other causes excluded, including those causes set forth in Article 13.6. Subject to Article 16.1 and excluding exchange fees and handling, packaging and shipping charges, reimbursement for replacement of life-limited Parts in an Engine will be made up to the amount in the Engine LLP Reserves applicable to such Engine at the time of replacement of such life-limited Part. 13.4 Landing Gear Reserves. LESSOR will reimburse LESSEE from the Landing Gear Reserves for the actual cost of an Overhaul of the Landing Gear, up to the amount remaining in the Landing Gear Reserves, with work performed for all other causes excluded, including those causes set forth in Article 13.6. 13.5 Reimbursement. LESSEE will be entitled to reimbursement from the Reserves after the work is completed and the Airframe, Engine or Landing Gear has left the repair agency, by submitting invoices and proper documentation within six (6) months after completion of the work. For the Airframe, proper documentation includes a list of all routine and non-routine work cards with corresponding references to the MPD and an itemized labor and materials report. For the Engine, proper documentation includes a description of the reason for removal (if removed), a shop teardown report, a shop findings report if an Engine is removed (or an equivalent report if an Engine is not removed), a full description of the workscope and complete disk records for the Engine both prior to and after the repair. Both the invoice supplied by the Engine repair facility and that submitted by LESSEE to LESSOR with respect to an Engine will state whether or not credits were provided due to life remaining on any removed Engine Parts and the amount of any such credits will be itemized. For the Landing Gear, proper documentation includes the total calendar time, hours and cycles on the Landing Gear both prior to and after the Overhaul, a copy of the complete Overhaul report which includes a life limited component list and a description of all work performed on the Landing Gear assembly. 13.6 Reimbursement Adjustment. By way of example, among the exclusions from reimbursement are those items resulting from repairs covered by LESSEE's or a third party's insurance, (deductibles being for the account of LESSEE) or warranties or required as a result of an Airworthiness Directive, manufacturer's service bulletin, faulty maintenance or installation, improper operations, misuse, neglect, accident, incident, ingestion, or other accidental cause. Reimbursement from the Reserves will not be available for the APU, quick engine change (QEC) Parts, thrust reversers, or any of their associated components. All invoices subject to reimbursement from LESSOR will be reduced (by adjustment between LESSEE and LESSOR retroactively if necessary) by the actual amounts received by LESSEE on account of such work from responsible third parties or other sources, such as insurance proceeds, manufacturer's warranties, guarantees, concessions and credits (including, with respect to Engines, credits due to life remaining on any removed Engine Parts). 13.7 Costs in Excess of Reserves. LESSEE will be responsible for payment of all costs in excess of the amounts reimbursed hereunder. If on any occasion the balance in the Airframe Reserves, Engine Performance Restoration Reserves, Engine LLP Reserves or Landing Gear Reserves for a particular Engine or Landing Gear (at the time of the structural check, in the case of the Airframe, or at the time of removal, in the case of an Engine or the Landing Gear) is insufficient to satisfy a claim for reimbursement in respect of the Airframe, such Engine or the Landing Gear, as applicable, the shortfall may not be carried forward or made the subject of any further claim for reimbursement. 13.8 Reimbursement after Termination Date. LESSEE may not submit any invoice for reimbursement from the Reserves after the Termination Date unless on or prior to such date LESSEE has notified LESSOR in writing that such outstanding invoice will be submitted after the Termination Date and the anticipated amount of such invoice. So long as LESSEE has provided such notice to LESSOR, LESSEE may then submit such outstanding invoice at any time within six (6) months after the Termination Date. In the event of the Total Loss of the Aircraft, fifty percent (50%) of the unreimbursed Reserves held by LESSOR will be retained by LESSOR and the remaining portion of the Reserves will be paid to LESSEE in accordance with Article 19.9. ARTICLE 14 TITLE AND REGISTRATION 14.1 Title to the Aircraft During Lease Term. Title to the Aircraft will be and remain vested in LESSOR. LESSOR and LESSEE intend this Lease to be a "true lease". LESSEE will have no right, title or interest in the Aircraft except as provided in this Lease. 14.2 Registration of Aircraft. LESSOR at its sole cost and expense will register and maintain registration of the Aircraft in the name of LESSOR at the register of aircraft in the State of Registration. LESSEE will cooperate with LESSOR and will from time to time take all other steps then required by Law (including the Geneva Convention if applicable) or as LESSOR may reasonably request to protect and perfect LESSOR's interest in the Aircraft and this Lease in the State of Registration or in any other jurisdictions in or over which LESSEE may operate the Aircraft. 14.3 Filing of this Lease. To the extent permitted by Law and in accordance with the requirements of the Law from time to time, LESSEE at its sole cost and expense will cause this Lease to be kept, filed, recorded and refiled or rerecorded in the State of Registration and in any other offices necessary to protect LESSOR's rights hereunder as reasonably requested by LESSOR. 14.4 Evidence of Registration and Filings. As LESSOR may reasonably request from time to time, LESSEE will furnish to LESSOR an opinion of counsel or other evidence reasonably satisfactory to LESSOR of the registrations and filings required hereunder. ARTICLE 15 IDENTIFICATION PLATES LESSOR will affix and LESSEE will at all times maintain on the Airframe and each Engine the identification plates containing the following legends or any other legend reasonably requested by LESSOR in writing: 15.1 Airframe Identification Plates. Location: One to be affixed to the Aircraft structure above the forward entry door adjacent to and not less prominent than that of Manufacturer's data plate and another in a prominent place on the flight deck. Size: No smaller than 4" x 6". Legend: "THIS AIRCRAFT IS OWNED BY INTERNATIONAL LEASE FINANCE CORPORATION. MANUFACTURER'S SERIAL NO: [TBD] OWNER'S ADDRESS: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States of America Fax: (310) 788-1990" 15.2 Engine Identification Plates. Location: The legend on the plate must be no less prominent than the Engine data plate and must be visible. Size: No smaller than 2" x 6". "THIS ENGINE IS OWNED BY INTERNATIONAL LEASE FINANCE CORPORATION, LOS ANGELES, CALIFORNIA, USA." ARTICLE 16 TAXES 16.1 General Obligation of LESSEE. Except as set forth in Article 16.2, LESSEE agrees to pay promptly when due, and to indemnify and hold harmless LESSOR on a full indemnity basis from, all license and registration fees and all taxes, fees, levies, imposts, duties, charges, deductions or withholdings of any nature (including without limitation any value added, franchise, transfer, sales, gross receipts, use, business, excise, turnover, personal property, stamp or other tax) together with any assessments, penalties, fines, additions to tax or interest thereon, however or wherever imposed (whether imposed upon LESSEE, LESSOR, on all or part of the Aircraft, the Engines or otherwise), by any Government Entity or taxing authority in the U.S. (including without limitation the City or County of Los Angeles), or any foreign country or by any international taxing authority, upon or with respect to, based upon or measured by any of the following (collectively, "Taxes"): (a) the Aircraft, Engines or any Parts; (b) the use, operation or maintenance of the Aircraft or carriage of passengers or freight during the Lease Term; (c) this Lease, the payments due hereunder and the terms and conditions hereof; and (d) the ownership, financing, delivery, import or export, return, sale, payment of Total Loss Proceeds or other disposition of the Aircraft. 16.2 Exceptions to Indemnity. The indemnity provided for in Article 16.1 does not extend to any of the following Taxes (hereinafter referred to as "LESSOR's Taxes"): (a) Taxes imposed by the U.S. or by any state within the U.S. on the net income, profits or gains, gross receipts, capital or net worth of LESSOR; (b) Taxes attributable to the period, or an event occurring, prior to Delivery or after return of the Aircraft to LESSOR in accordance with this Lease; (c) Taxes attributable to LESSOR's gross negligence, willful misconduct or breach of this Lease; (d) Taxes which LESSEE is contesting in good faith in accordance with Article 16.5; (e) Taxes imposed by any country other than the U.S. on the net income, gross receipts, capital or net worth of LESSOR but only to the extent that (i) such Taxes were not in any way connected with, due to or arising out of this Lease, LESSEE's business operations or office locations in any such country or LESSEE's use and operation of the Aircraft and (ii) such Taxes would be otherwise payable by LESSOR notwithstanding this Lease, LESSEE's business operations or office locations in any such country or LESSEE's use and operation of the Aircraft; (f) excess Taxes imposed as a result of LESSOR's voluntary or involuntary transfer or other disposition of the Aircraft, Engines or any Parts or this Lease (except a transfer or sale resulting directly from LESSEE's Default) provided that LESSEE remains responsible for payment of any Taxes and the specific amount of such Taxes that it would have been required to indemnify for had such voluntary or involuntary transfer not occurred; (g) Taxes consisting of any interest, penalties or additions to tax imposed on LESSOR as a result, in whole or in part, of a failure of LESSOR to file any Tax return properly and timely, unless such failure shall be caused by the failure of LESSEE to fulfill any obligations of LESSEE under Section 16.7 with respect to such Tax return; or (h) Taxes resulting from, or that would not have been imposed but for, any LESSOR's Lien arising as a result of claims against, or acts or omissions of, or otherwise attributable to, LESSOR or any related party. 16.3 After-Tax Basis. The amount which LESSEE is required to pay with respect to any Taxes indemnified against under Article 16.1 is an amount sufficient to restore LESSOR on an after-tax basis to the same position LESSOR would have been in had such Taxes not been incurred. If LESSOR determines in good faith that it has realized a Tax benefit (by way of deduction, credit or otherwise) as a result of any payment for which LESSEE is liable under Section 5.7 or 16.1 of this Lease, and such benefit was not previously taken into account in calculating the amount of such payment on an after-tax basis in accordance with the immediately preceding sentence of this Article 16.3, LESSOR will pay to LESSEE an amount that is reasonably sufficient to ensure that LESSOR is in no better an after-tax position than it would have been in if the event giving rise to LESSEE's liability for payment had not occurred. 16.4 Timing of Payment. Any amount payable to LESSOR pursuant to this Article 16 will be paid within ten (10) days after receipt of a written demand therefor from LESSOR accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable provided, however, that such amount need not be paid by LESSEE prior to the earlier of (a) the date any Tax is payable to the appropriate Government Entity or taxing authority or (b) in the case of amounts which are being contested by LESSEE in good faith or by LESSOR pursuant to Article 16.5, the date such contest is finally resolved. 16.5 Contests. If claim is made against LESSOR for Taxes with respect to which LESSEE is liable for a payment or indemnity under this Lease, LESSOR will promptly give LESSEE notice in writing of such claim provided, however, that LESSOR's failure to give notice will not relieve LESSEE of its obligations hereunder unless such failure materially impairs or precludes LESSEE's ability to contest the claim. So long as (a) a contest of such Taxes does not involve any material risk of the sale, forfeiture or loss of the Aircraft or any interest therein, (b) if LESSOR so requests, LESSEE has provided LESSOR with an opinion of independent tax counsel that a reasonable basis exists for contesting such claim and (c) adequate reserves have been made for such Taxes or, if required, an adequate bond has been posted, then LESSOR at LESSEE's written request will in good faith, with due diligence and at LESSEE's expense, contest (or permit LESSEE to contest in the name of LESSEE or LESSOR) the validity, applicability or amount of such Taxes. 16.6 Refunds. Upon receipt by LESSOR of a refund of all or any part of any Taxes (including any deductions or withholdings referred to in Article 5.7) which LESSEE has paid, LESSOR will promptly pay to LESSEE the net amount of such Taxes refunded. 16.7 Cooperation in Filing Tax Returns. LESSEE and LESSOR will cooperate with one another in providing information which may be reasonably required to fulfill each party's tax filing requirements and any audit information request arising from such filing. 16.8 Survival of Obligations. The indemnity obligations and other agreements of LESSEE as set forth in this Article 16 will survive the Termination Date. ARTICLE 17 INDEMNITIES 17.1 General Indemnity. Except as set forth in Article 17.2 and Article 28.20, LESSEE agrees to indemnify and hold harmless LESSOR and its officers, directors, employees, agents and shareholders (individually an "Indemnitee" and collectively "Indemnitees") from any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, disbursements and expenses (including legal fees, costs and related expenses) of every kind and nature, whether or not any of the transactions contemplated by this Lease are consummated (collectively "Expenses"), which are imposed on, incurred by or asserted against any Indemnitee and which are in any way relating to, based on or arising out of any of the following: (a) this Lease or any transactions contemplated hereby; (b) the operation, possession, use, non-use, control, leasing, subleasing, maintenance, storage, overhaul, testing, inspections or acceptance flights at return of the Aircraft, any Engine, or any Part during the Lease Term by LESSEE, any sublessee or any other Person, whether or not the same is in compliance with the terms of this Lease, including without limitation claims for death, personal injury, property damage, other loss or harm to any Person and claims relating to any Laws, including without limitation environmental control, noise and pollution laws, rules or regulations; (c) the manufacture, design, acceptance, rejection, delivery, return, sale after an Event of Default, import, export, condition, repair, modification, servicing, rebuilding, enforcement of warranties whether in LESSOR's or LESSEE's name, customer and product support provided by Manufacturer and other vendors, airworthiness, registration, reregistration, performance, sublease, merchantability, fitness for use, substitution or replacement of the Aircraft, Engine, or any Part under this Lease or other transfer of use or possession of the Aircraft, Engine, or any Part, including under a pooling or interchange arrangement, including without limitation latent and other defects, whether or not discoverable and patent, trademark or copyright infringement; (d) any non-compliance by LESSEE with any term of this Lease or the falsity or inaccuracy of any representation or warranty of LESSEE set forth herein; (e) the prevention or attempt to prevent the arrest, confiscation, seizure, taking in execution, impounding, forfeiture or detention of the Aircraft, or in securing the release of the Aircraft; or (f) as a consequence of any Default in payment by LESSEE of any sum to be paid by LESSEE when due under this Lease or any other Default by LESSEE in the due and punctual performance of its obligations under this Lease. The foregoing indemnity by LESSEE is intended to include and cover any Expense to which an Indemnitee may be subject (in contract, tort, strict liability or under any other theory) regardless of the negligence, active or passive or any other type, of such Indemnitee, so long as such Expense does not fall within any of the exceptions listed in Article 17.2. 17.2 Exceptions to General Indemnities. The indemnity provided for in Article 17.1 will not extend to Expenses of any Indemnitee to the extent resulting from or arising out of any of the following: (a) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to have resulted from the willful misconduct of such Indemnitee; (b) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to be attributable to incidents, accidents or occurrences prior to the Delivery Date, but only where both the act or omission which gave rise to the incident, accident or occurrence and the incident, accident or occurrence itself occurred prior to the Delivery Date; (c) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to be attributable to acts or events which occur after the Termination Date and return of the Aircraft to LESSOR in the condition required hereunder, but in any such case only to the extent not attributable to acts or omissions of LESSEE; (d) Expenses representing Taxes, it being acknowledged that the terms of Article 16 apply exclusively to LESSEE's indemnity obligations with respect to Taxes; (e) Expenses due to the breach by LESSOR of its covenant of quiet enjoyment pursuant to Article 21.2; (f) Expenses related to LESSOR Taxes or a LESSOR's Lien; or (g) Expenses that LESSOR has expressly agreed to pay under this Lease. 17.3 After-Tax Basis. The amount which LESSEE will be required to pay with respect to any Expense indemnified against under Article 17.1 will be an amount sufficient to restore the Indemnitee, on an after-tax basis, to the same position such Indemnitee would have been in had such Expense not been incurred. 17.4 Timing of Payment. It is the intent of the parties that each Indemnitee will have the right to indemnification for Expenses hereunder as soon as a claim is made and as soon as an Expense is incurred, whether or not such claim is meritorious and whether or not liability is established (but subject to Article 17.8). LESSEE will pay an Indemnitee for Expenses pursuant to this Article 17 within ten (10) days after receipt of a written demand therefor from such Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and reasonable proof of such Expenses incurred. 17.5 Subrogation. Upon the payment in full of any indemnity pursuant to this Article 17 by LESSEE, LESSEE will be subrogated to any right of the Indemnitee in respect of the matter against which such indemnity has been made. 17.6 Notice. Each Indemnitee and LESSEE will give prompt written notice one to the other of any liability of which such party has knowledge for which LESSEE is, or may be, liable under Article 17.1 provided, however, that failure to give such notice will not terminate any of the rights of Indemnitees under this Article 17 except to the extent that LESSEE has been materially prejudiced by the failure to provide such notice. 17.7 Refunds. If any Indemnitee obtains a recovery of all or any part of any amount which LESSEE has paid to such Indemnitee, such Indemnitee will promptly pay to LESSEE the net amount recovered by such Indemnitee. 17.8 Defense of Claims. Unless an Event of Default has occurred and is continuing, LESSEE and its insurers will have the right (in each such case at LESSEE's sole expense) to investigate or, provided that LESSEE or its insurers have not reserved the right to dispute liability with respect to any insurance policies pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to Article 17.1 and each Indemnitee will cooperate with LESSEE or its insurers with respect thereto. If LESSEE or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the Indemnitees. If not, the Indemnitees will have the right to retain counsel of their choice at LESSEE's expense. 17.9 Survival of Obligation. Notwithstanding anything in this Lease to the contrary, the provisions of this Article 17 will survive the Termination Date and continue in full force and effect notwithstanding any breach by LESSOR or LESSEE of the terms of this Lease, the termination of the lease of the Aircraft to LESSEE under this Lease or the repudiation by LESSOR or LESSEE of this Lease. ARTICLE 18 INSURANCE 18.1 Categories of Insurance. Throughout the Lease Term and until the Termination Date LESSEE will, at its own expense, effect and maintain in full force and effect the types of insurance and amounts of insurance (including deductibles) described in Exhibit C through such brokers and with such insurers as may be approved by LESSOR, such approval not to be unreasonably withheld, in London or New York or such other insurance markets as mutually agreed upon by the parties. 18.2 Write-back of any Date Recognition Exclusion. In the event any of LESSEE's insurances (either the primary insurance or the reinsurance) contain any date recognition exclusion clause or similar clause excluding from such insurance coverage damage to any property (including the Aircraft) or death or injury to any person on account of accidents, incidents or occurrences caused by date recognition or other Year 2000-related problems, LESSEE at its cost will obtain for the benefit of itself and LESSOR the broadest write-back available in the U.S. insurance market with respect to such exclusion. 18.3 Insurance for Indemnities. The insurance referred to in Article 18.1 will in each case include and insure (to the extent of the risks covered by the policies) the indemnity provisions of Article 17 and LESSEE will maintain such insurance of the indemnities for a minimum of two (2) years following the Termination Date. 18.4 Insurance required by Manufacturer. During the Lease Term, LESSEE will carry the insurance required by Manufacturer in connection with LESSOR's assignment of Manufacturer's warranties and product support to LESSEE. 18.5 Renewal. Not less than five (5) Business Days before the expiration or termination date of any insurance required hereunder, LESSEE will provide LESSOR with fax confirmation from LESSEE's insurance brokers that renewed certificates of insurance evidencing the renewal or replacement of such insurance and complying with Exhibit C will be issued on the termination date of the prior certificate. Within seven (7) days after such renewal, LESSEE will furnish its brokers' certificates of insurance to LESSOR. 18.6 Assignment of Rights by LESSOR. If LESSOR assigns all or any of its rights under this Lease as permitted by this Lease or otherwise disposes of any interest in the Aircraft to any other Person as permitted by this Lease, LESSEE will, upon request, procure that such Person hereunder be added as loss payee and/or additional assured in the policies effected hereunder and enjoy the same rights and insurance enjoyed by LESSOR under such policies. LESSOR will nevertheless continue to be covered by LESSEE's third party liability insurance policies. 18.7 Other Insurance. LESSOR may from time to time by notice to LESSEE require LESSEE at LESSEE's expense to effect such other insurance or such variations to the terms of the existing insurance as may then be customary in the airline industry for aircraft of the same type as the Aircraft and at the time commonly available in the insurance market. 18.8 Information. LESSEE will provide LESSOR with any information reasonably requested by LESSOR from time to time concerning the insurance maintained with respect to the Aircraft or in connection with any claim being made or proposed to be made thereunder. 18.9 Currency. All proceeds of insurance pursuant to this Lease will be payable in Dollars except as may be otherwise agreed by LESSOR. 18.10 Grounding of Aircraft. If at any time any of the insurance required pursuant to this Lease will cease to be in full force and effect, LESSEE will forthwith ground the Aircraft and keep the Aircraft grounded until such time as such insurance is in full force and effect again. 18.11 Failure to Insure. If at any time LESSEE fails to maintain insurance in compliance with this Article 18, LESSOR will be entitled but not bound to do any of the following (without prejudice to any other rights which it may have under this Lease by reason of such failure): (a) to pay any premiums due or to effect or maintain insurance consistent with the terms of this Lease or otherwise remedy such failure in such manner as LESSOR considers appropriate (and LESSEE will upon demand reimburse LESSOR in full for any amount so expended in that connection); or (b) at any time while such failure is continuing, to require the Aircraft to remain at any airport or (as the case may be), if allowed by applicable Law proceed to and remain at any airport within the continental U.S. designated by LESSOR, until such failure is remedied to LESSOR's reasonable satisfaction. 18.12 Reinsurance. Any reinsurance will be maintained with reinsurers and brokers reasonably acceptable to LESSOR. Such reinsurance will contain each of the following terms and will in all other respects (including amount) be reasonably satisfactory to LESSOR: (a) the same terms as the original insurance; (b) a cut-through and assignment clause reasonably satisfactory to LESSOR; and (c) payment will be made notwithstanding (i) any bankruptcy, insolvency, liquidation or dissolution of any of the original insurers and/or (ii) that the original insurers have made no payment under the original insurance policies. 18.13 Limit on Hull in favor of LESSEE. LESSEE may carry hull all risks or hull war and allied perils on the Aircraft in excess of the Agreed Value (such Agreed Value being payable to LESSOR) only to the extent such excess insurance which would be payable to LESSEE in the event of a Total Loss does not exceed ten percent (10%) of the Agreed Value and only to the extent that such additional insurance will not prejudice the insurances required herein or the recovery by LESSOR thereunder. LESSEE agrees that it will not create or permit to exist any liens or encumbrances over the insurances, or its interest therein, except as constituted by this Lease. ARTICLE 19 LOSS, DAMAGE AND REQUISITION Throughout the Lease Term and until the Termination Date, LESSEE will bear all risk of loss, theft, damage and destruction to the Aircraft. 19.1 Definitions. In this Article 19 and throughout this Lease: "Agreed Value" * "Net Total Loss Proceeds" means the Total Loss Proceeds actually received by LESSOR following a Total Loss, less any legal and other out-of-pocket expenses, taxes or duties incurred by LESSOR in connection with the collection of such proceeds. "Total Loss" means any of the following in relation to the Aircraft, Airframe or any Engine, and "Total Loss Date" means the date set forth in parenthesis after each Total Loss: (a) destruction, damage beyond repair or being rendered permanently unfit for normal use for any reason (the date such event occurs or, if not known, the date on which the Aircraft, Airframe or Engine was last heard of); (b) actual or constructive total loss (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss) (the earlier of the date on which the loss occurs or thirty (30) days after the date of notice to LESSEE's brokers or insurers claiming such total loss); (c) requisition of title, confiscation, forfeiture or any compulsory acquisition or other similar event (the date on which the same takes effect); (d) sequestration, detention, seizure or any similar event for more than sixty (60) consecutive days or one-hundred eighty (180) consecutive days if the Aircraft is located in the U.S. for such entire period (the earlier of the date on which insurers make payment on the basis of a total loss or the date of expiration of such period); (e) requisition for use for more than one hundred eighty (180) consecutive days, except as set forth in Article 19.8 (the earlier of the date on which the insurers make payment on the basis of a total loss or the date of expiration of such period); or (f) in the case of an Engine, the event described in Article 12.6.3 (the date on which the same takes effect). "Total Loss Proceeds" means the proceeds of any insurance or any compensation or similar payment arising in respect of a Total Loss. 19.2 Notice of Total Loss. LESSEE will notify LESSOR in writing within two (2) Business Days after a Total Loss Date of the Aircraft, Airframe or any Engine. 19.3 Total Loss of Aircraft or Airframe. If the Total Loss of the Aircraft or Airframe occurs during the Lease Term, the following will occur: 19.3.1 After the Total Loss Date and until receipt by LESSOR of the Agreed Value and all other amounts then due under this Lease, LESSEE will continue to pay Rent and the parties will perform, to the extent possible, all of their other obligations under this Lease. 19.3.2 On the date which is the earlier of the following dates: (a) the date on which the Total Loss Proceeds of the Aircraft or the Airframe are paid by LESSEE's insurance underwriters or brokers and (b) the date which falls forty-five (45) days after the Total Loss Date, LESSEE will pay to LESSOR an amount equal to the sum of: (a) the Agreed Value and (b) all other amounts then due under this Lease, less an amount equal to the Net Total Loss Proceeds received by LESSOR by such date. 19.3.3 LESSOR will apply the Net Total Loss Proceeds and any amounts received from LESSEE pursuant to Article 19.3.2 as follows: (a) first, in discharge of any unpaid Rent and any other amounts accrued and unpaid up to the date of LESSOR's receipt of the Agreed Value; (b) second, in discharge of the Agreed Value; and (c) third, payment of the balance, if any, to LESSEE. 19.3.4 Upon receipt by LESSOR of all monies payable by LESSEE in Article 19.3, this Lease will terminate except for LESSEE's obligations under Articles 10.5, 16 and 17 which survive the Termination Date. FOR AVOIDANCE OF DOUBT, THE AGREED VALUE OF THE AIRCRAFT WILL BE PAYABLE TO LESSOR PURSUANT TO THIS ARTICLE 19.3 WHEN A TOTAL LOSS OF THE AIRFRAME OCCURS EVEN IF THERE HAS NOT BEEN A TOTAL LOSS OF AN ENGINE OR ENGINES. 19.4 Surviving Engine(s). If a Total Loss of the Airframe occurs and there has not been a Total Loss of an Engine or Engines, then, provided no Default has occurred and is continuing, at the request of LESSEE (subject to agreement of relevant insurers) and on receipt of all monies due under Article 19.3 and payment by LESSEE of all airport, navigation and other charges on the Aircraft, LESSOR will transfer all its right, title and interest in the surviving Engine(s) to LESSEE, but without any responsibility, condition or warranty on the part of LESSOR other than as to freedom from any LESSOR's Lien. 19.5 Total Loss of Engine and not Airframe. 19.5.1 Upon a Total Loss of any Engine not installed on the Airframe or a Total Loss of an Engine installed on the Airframe not involving a Total Loss of the Airframe, LESSEE will replace such Engine as soon as reasonably possible by duly conveying to LESSOR title to another engine (a) free and clear of all Security Interests (except Permitted Liens) of any kind or description, (b) in airworthy condition and of the same or improved model, service bulletin and modification status and having a value and utility at least equal to the Engine which sustained the Total Loss, (c) not older (by reference to serial number or manufacture date) than the older of the two Engines (on the date of the replacement) delivered by LESSOR to LESSEE with the Aircraft on the Delivery Date, and (d) in the same or better operating condition as the Engine which sustained a Total Loss, including time in service, hours and cycles since new and hours and cycles available to the next inspection, Overhaul or scheduled or anticipated removal; provided that with respect to replacement modules in such other engine, LESSEE will use best reasonable efforts to ensure that such other engine will not have been previously operated at a higher thrust rating than the Engine which sustained the Total Loss and provided further that in all circumstances life-limited Parts in such replacement engine will have no less life remaining than the life-limited Parts in the Engine which sustained the Total Loss. Such replacement engine will be an Engine as defined herein and the Engine which sustained such Total Loss will cease to be an Engine; whereupon, subject to agreement of relevant insurers, LESSOR will transfer all of its right, title and interest in and to the Engine which sustained the Total Loss to LESSEE, but without any responsibility, condition or warranty on the part of LESSOR other than as to title and freedom from any LESSOR's Lien. 19.5.2 LESSEE agrees at its own expense to take such action as LESSOR may reasonably request in order that any such replacement Engine becomes the property of LESSOR and is leased hereunder on the same terms as the destroyed Engine. LESSEE's obligation to pay Rent will continue in full force and effect, but an amount equal to the Net Total Loss Proceeds received by LESSOR with respect to such destroyed Engine will, subject to LESSOR's right to deduct therefrom any amounts then due and payable by LESSEE under this Lease, be paid to LESSEE. 19.6 Other Loss or Damage. 19.6.1 If the Aircraft or any Part thereof suffers loss or damage not constituting a Total Loss of the Aircraft or the Airframe or any Engine, all the obligations of LESSEE under this Lease (including payment of Rent) will continue in full force. 19.6.2 * 19.6.3 To the extent insurance proceeds received by LESSEE directly from its insurers do not cover the cost of such repair work on the Aircraft or Engine and LESSOR has received additional insurance proceeds from LESSEE's insurers with respect to such repair work, LESSOR will (subject to LESSOR's right to deduct therefrom any amounts then due and payable by LESSEE under this Lease and submission by LESSEE of reasonable documentation in support of such excess repair costs) pay to LESSEE insurance proceeds received by LESSOR as and when such repair work is performed on the Aircraft. 19.7 Copy of Insurance Policy. Promptly after the occurrence of a partial loss or Total Loss of the Aircraft or an Engine, at the request of LESSOR (and then only in the event reasonably required by LESSOR in connection with insurance policies pursuant to which coverage is sought) LESSEE will provide LESSOR with a copy of the relevant portions of LESSEE's insurance policy. LESSEE's insurance policy will be confidential between LESSOR and LESSEE and will not be disclosed by LESSOR to third parties other than LESSOR's professional advisors and except as necessary in respect of proceedings relating to such insurance claim. 19.8 Government Requisition. If the Aircraft, Airframe or any Engine is requisitioned for use by any Government Entity, LESSEE will promptly notify LESSOR of such requisition. All of LESSEE's obligations hereunder will continue as if such requisition had not occurred. So long as no Event of Default has occurred and is continuing, all payments received by LESSOR or LESSEE from such Government Entity will be paid over to or retained by LESSEE. If an Event of Default has occurred and is continuing, all payments received by LESSEE or LESSOR from such Government Entity may be used by LESSOR to satisfy any obligations owing by LESSEE. 19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent . For avoidance of doubt, the parties agree that (a) notwithstanding the Total Loss of the Airframe and/or Engines LESSOR will retain an amount equal to fifty percent (50%) of all Reserves paid by LESSEE and not payable to LESSEE pursuant to Article 13.5, and (b) in the event of the Total Loss of the Airframe and/or Engines upon receipt by LESSOR of all monies payable by LESSEE in accordance with Article 19.1.3, and subject to Article 5.1.3, LESSOR will (i) return the Security Deposit and any prepaid Rent to LESSEE and (ii) pay to LESSEE an amount equal to fifty percent (50%) of the Reserves then held by LESSOR. ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE 20.1 Representations and Warranties. LESSEE represents and warrants the following to LESSOR as of the date of execution of this Lease and as of the Delivery Date: 20.1.1 Corporate Status. LESSEE is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Colorado. It has the corporate power and authority to carry on its business as presently conducted and to perform its obligations hereunder. 20.1.2 Governmental Approvals. No authorization, approval, consent, license or order of, or registration with, or the giving of notice to the Aviation Authority or any other Government Entity is required for the valid authorization, execution, delivery and performance by LESSEE of this Lease, except as will have been duly effected as of the Delivery Date. 20.1.3 Binding. LESSEE's Board of Directors has authorized LESSEE to enter into this Lease and the other Operative Documents and to perform its obligations hereunder and thereunder. This Lease and the other Operative Documents that have been executed and delivered by LESSEE as of the date of this Lease been duly executed and delivered by LESSEE and represent the valid, binding and enforceable obligations of LESSEE except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application affecting the enforcement of creditors' rights and by such principles of equity as a court having jurisdiction may impose. When executed by LESSEE at Delivery, the same will apply to the Estoppel and Acceptance Certificate and the other Operative Documents. 20.1.4 No Breach. The execution and delivery of the Operative Documents that have been executed and delivered by LESSEE as of the date of this Lease, the consummation by LESSEE of the transactions contemplated under the Operative Documents and compliance by LESSEE with the terms and provisions thereof do not and will not contravene any Law applicable to LESSEE, or result in any material breach of or constitute any material default under or result in the creation of any Security Interest upon any property of LESSEE, pursuant to any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, corporate charter, by-law or other material agreement or instrument to which LESSEE is a party or by which LESSEE or its properties or assets may be bound or affected. When executed by LESSEE at Delivery, the same will apply to the Estoppel and Acceptance Certificate and the other Operative Documents. 20.1.5 Filings. Except for any filing or recording that may be required under the U.S. Federal Aviation Administration and except for the filing of UCC-1 financing statements with the Secretary of State of the State of Colorado, no filing or recording of any instrument or document (including the filing of any financial statement) is necessary under the Laws of the State of Registration in order for this Lease to constitute a valid and perfected lease of record relating to the Aircraft. 20.1.6 Licenses. LESSEE holds all licenses, certificates and permits from applicable Government Entities in the U.S. necessary for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Lease. 20.1.7 No Suits. There are no suits, arbitrations or other proceedings pending or threatened before any court or administrative agency against or affecting LESSEE which, if adversely determined, would have a material adverse effect on the business, assets or condition (financial or otherwise) of LESSEE or its ability to perform under this Lease, except as described in the filings provided to LESSOR pursuant to Article 22. 20.1.8 Tax Returns. All necessary returns have been delivered by LESSEE to all relevant taxation authorities in the jurisdiction of its incorporation and LESSEE is not in default in the payment of any taxes due and payable. 20.1.9 No Material Adverse Effect. LESSEE is not in default under any agreement to which it is a party or by which it may be bound which default if left uncured would have a material adverse effect on its business, assets or condition. 20.1.10 No Default under this Lease. At the time of execution of this Lease, no Default has occurred and is continuing and the financial statements provided to LESSOR pursuant to Article 22 fairly present the financial condition of LESSEE. 20.2 Covenants. LESSEE covenants to LESSOR that it will comply with the following throughout the entire Lease Term: 20.2.1 Licensing. LESSEE will hold all licenses, certificates and permits from applicable Government Entities in the U.S. necessary for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Lease. LESSEE will advise LESSOR promptly in the event any such licenses, certificates or permits are cancelled, terminated, revoked or not renewed. 20.2.2 Information about Suits. LESSEE will promptly give to LESSOR a notice in writing of any suit, arbitration or proceeding before any court, administrative agency or Government Entity which, if adversely determined, would materially adversely affect LESSEE's financial condition, affairs, operations or its ability to perform under this Lease provided, however, that compliance by LESSEE with the requirements of Article 22 hereof will be deemed compliance with the provisions of this Article 20.2.2. 20.2.3 Restrictions on Mergers. LESSEE will not consolidate with or merge into any other corporation or other Person, and will not convey, transfer, lease or otherwise dispose of all or substantially all of its assets to any corporation or other Person, unless: (i) such transaction shall not have any material adverse effect on the rights of LESSOR under or in respect of the Lease or the Aircraft; (ii) the Person formed by or surviving such consolidation or merger or the Person which acquires by conveyance, transfer, lease or other disposition all or substantially all of such property and other assets: (A) shall be a corporation organized and existing under the laws of the U. S. or any State thereof or the District of Columbia; (B) immediately after giving effect to such transaction, shall have acquired or succeeded to all or substantially all of the assets of LESSEE (if such assets are being transferred) as an entirety, and shall have a tangible net worth (determined in accordance with GAAP) of not less than LESSEE's tangible net worth (determined in accordance with GAAP) immediately prior to such transaction; (C) shall be a "citizen of the United States" of America as defined in Section 40102(a)(15)(c) of Title 49 of the U.S.C. and a Certificated Air Carrier; and (D) shall executed and deliver to LESSOR (1) such recordations and filings with any Government Entity and such other documents as shall be reasonably necessary or advisable in connection with such consolidation, merger, sale, lease, transfer or other disposition (2) an agreement, in form and substance reasonably satisfactory to LESSOR, assuming all of LESSEE's obligations under the Lease and the other Operative Documents without amendment thereto and (3) an officer's certificate to the effect that the requirements of this Section have been satisfied; and (iii)no Event of Default shall have occurred and be continuing or shall occur as a result thereof. 20.2.4 Restriction on Relinquishment of Possession. LESSEE will not, without the prior consent of LESSOR, deliver, transfer or relinquish possession of the Aircraft except in accordance with Articles 11 and 12. 20.2.5 No Security Interests. LESSEE will not create or agree to or permit to arise any Security Interest (other than Permitted Liens) on or with respect to the Aircraft, title thereto or any interest therein. LESSEE will forthwith, at its own expense, take all action as may be reasonably necessary to discharge or remove any such Security Interest if it exists at any time. 20.2.6 Representations to Other Parties. LESSEE will not represent or hold out LESSOR as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation of the Aircraft. ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR 21.1 Representations and Warranties. LESSOR represents and warrants the following to LESSEE as of the date of execution of the Lease and as of the Delivery Date and ALL OTHER WARRANTIES, EXPRESS OR IMPLIED HAVE BEEN WAIVED IN ACCORDANCE WITH ARTICLE 8: 21.1.1 Corporate Status. LESSOR is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of California. It has the corporate power and authority to carry on its business as presently conducted and to perform its obligations hereunder. 21.1.2 Governmental Approvals. No authorization, approval, consent, license or order of, or registration with, or the giving of notice to any U.S. Government Entity is required for the valid authorization, execution, delivery and performance by LESSOR of this Lease. 21.1.3 Binding. This Lease and the other Operative Documents that have been have been executed and delivered by LESSEE as of the date of this Lease have been duly authorized, executed and delivered by LESSOR and represent the valid, enforceable and binding obligations of LESSOR except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application affecting the enforcement of creditors' rights and by such principles of equity as a court having jurisdiction may impose. When executed by LESSOR at Delivery, the same will apply to the other Operative Documents. 21.1.4 No Breach. The execution and delivery of the Operative Documents that have been executed and delivered by LESSOR as of the date of this Lease, the consummation by LESSOR of the transactions contemplated therein and compliance by LESSOR with the terms and provisions thereof do not and will not contravene any Law applicable to LESSOR, or result in any material breach of or constitute any material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, corporate charter, by-law or other material agreement or instrument to which LESSOR is a party or by which LESSOR or its properties or assets may be bound or affected. When executed by LESSOR at Delivery, the same will apply to the other Operative Documents. 21.1.5 Title to Aircraft. On the Delivery Date LESSOR will have good and valid title to the Aircraft. 21.1.6 Citizen of the United States. LESSOR is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.). 21.2 Covenant of Quiet Enjoyment. So long as no Event of Default has occurred and is continuing hereunder, LESSOR covenants that neither LESSOR nor any person lawfully claiming through LESSOR will interfere with LESSEE's quiet, peaceful use and enjoyment of the Aircraft during the Lease Term. ARTICLE 22 FINANCIAL AND RELATED INFORMATION LESSEE agrees to furnish each of the following to LESSOR: (a) within forty-five (45) days after the end of each fiscal quarter of LESSEE, three (3) copies of the unaudited consolidated financial statements (including a balance sheet and profit and loss statement) prepared for such quarter in accordance with generally accepted accounting principles in the U.S.; (b) within ninety (90) days after the end of each fiscal year of LESSEE, three (3) copies of the audited consolidated financial statements (including a balance sheet and profit and loss statement) prepared as of the close of such fiscal year in accordance with generally accepted accounting principles in the U.S.; (c) promptly after distribution, three (3) copies of all reports and financial statements which LESSEE sends or makes available to its stockholders or creditors generally; (d) Technical Evaluation Reports in conjunction with every second "C" check for the Aircraft and at other times reasonably requested by LESSOR in accordance with Article 12.10.2 hereof; and (e) from time to time, such other reasonable information as LESSOR or LESSOR's Lender may reasonably request concerning the location, condition, use and operation of the Aircraft or the financial condition of LESSEE. ARTICLE 23 RETURN OF AIRCRAFT 23.1 Date of Return. LESSEE is obligated to return the Aircraft, Engines, Parts and Aircraft Documentation to LESSOR on the Expiration Date, unless a Total Loss of the Aircraft occurred prior to the Expiration Date and this Lease was terminated early in accordance with Article 19.3. If LESSEE is in Default hereunder by failing to return the Aircraft on the Expiration Date or if an Event of Default occurs prior to the Expiration Date and LESSOR repossesses the Aircraft, the return requirements set forth in this Article 23 nonetheless must be met on the date the Aircraft is actually returned to LESSOR or repossessed by LESSOR. 23.2 Technical Report. Six (6) months prior to the Expiration Date (and in an updated form at return of the Aircraft), LESSEE will provide LESSOR with a Technical Evaluation Report in the form and substance of Exhibit M, as revised, and, in addition upon LESSOR's request, will make copies available of (a) drawings of the interior configuration of the Aircraft both as it then exists and as it will exist at return, (b) an Airworthiness Directive status list, (c) a service bulletin incorporation list, (d) rotable tracked, hard-time and life-limited component listings, (e) a list of LESSEE-initiated modifications and alterations, (f) interior material burn certificates, (g) the Aircraft Maintenance Program, (h) the complete workscope for the checks, inspections and other work to be performed prior to return, (i) a list of all no-charge service bulletin kits with respect to the Aircraft which were ordered by LESSEE from Manufacturer or the Engine manufacturer, (j) current Engine disk sheets and a description of the last shop visit for each Engine and (k) any other data which is reasonably requested by LESSOR. 23.3 Return Location. LESSEE at its expense will return the Aircraft, Engines, Parts and Aircraft Documentation to LESSOR at Denver, Colorado, or to such other airport on LESSEE's route system as may be mutually agreed to by LESSEE and LESSOR. 23.4 Full Aircraft Documentation Review. For the period commencing at least ten (10) Business Days prior to the proposed redelivery date and continuing until the date on which the Aircraft is returned to LESSOR in the condition required by this Lease, LESSEE will provide for the review of LESSOR and/or its representative all of the Aircraft records and historical documents described in Exhibit L in one central room at the Aircraft return location. 23.5 Aircraft Inspection. 23.5.1 During the maintenance checks performed immediately prior to the proposed redelivery and at the actual return of the Aircraft, LESSOR and/or its representatives will have an opportunity to conduct a full systems functional and operational inspection of the Aircraft (and other types of reasonable inspections based upon the Aircraft type, age, use and other known factors with respect to the Aircraft) and a full inspection of the Aircraft Documentation (including records and manuals), all to LESSOR's reasonable satisfaction. Any deficiencies from the Aircraft return condition requirements set forth in this Article 23 will be corrected by LESSEE at its cost prior to the acceptance flight described in Article 23.5.2. 23.5.2 Immediately prior to the proposed redelivery of the Aircraft, LESSEE will carry out for LESSOR and/or LESSOR's representatives an Aircraft acceptance flight in accordance with Manufacturer's standard flight operation check flight procedures or, if agreed to in writing by LESSOR, in accordance with an airline acceptance flight procedure, either of which will be for two (2) hours, or such longer duration as is necessary to perform such check flight procedures. Flight costs and fuel will be furnished by and at the expense of LESSEE. Any deficiencies from the Aircraft return condition requirements set forth in this Article 23 will be corrected by LESSEE at its cost prior to return of the Aircraft. 23.5.3 To the extent that the ground inspection and acceptance flight extend beyond the Expiration Date, the Lease Term will be deemed to have been automatically extended and the obligations of LESSEE hereunder (including Article 23.11.3) will continue on a day-to-day basis until the Aircraft is accepted by LESSOR as being in the condition required hereunder, which acceptance shall be evidenced by LESSOR executing and delivering to LESSEE the Return Acceptance Receipt in the form of Exhibit J. 23.6 Certificate of Airworthiness Matters. 23.6.1 The Aircraft will possess a current Certificate of Airworthiness issued by the Aviation Authority (although this Certificate of Airworthiness may later be substituted by the Export Certificate of Airworthiness or equivalent if requested by LESSOR pursuant to Article 23.10). In addition, even if LESSEE must perform engineering, maintenance and repair work on the Aircraft beyond the requirements of Article 12, the Aircraft at return must be in the condition required in order to meet the requirements for issuance of a U.S. Standard Certificate of Airworthiness for transport category aircraft issued by the FAA in accordance with FAR Part 21 and, in addition, to meet the operating requirements of FAR Part 121. 23.6.2 If the Aircraft is registered in a country other than the U.S. at time of return, LESSEE at its cost will demonstrate that the Aircraft meets the requirements for issuance of the U.S. Standard Certificate of Airworthiness for transport category aircraft specified in Article 23.6.1 by delivering to LESSOR at its option either an actual U.S. Standard Certificate of Airworthiness (if the Aircraft is to be registered in the U.S.) or a letter acceptable to LESSOR signed by an FAA Designated Airworthiness Representative (DAR) or another Person acceptable to LESSOR stating that the DAR or such Person has inspected the Aircraft and Aircraft Documentation (including records and manuals) and has found that the Aircraft meets the requirements for issuance of a U.S. Standard Certificate of Airworthiness for transport category aircraft in accordance with FAR Part 21 and, in addition, meets the operating requirements of FAR Part 121. 23.6.3 If the Aircraft is to be registered in a country other than in the U.S. after return from LESSEE, LESSOR may in its sole discretion waive the requirements of Article 23.6.1 and instead require that LESSEE at its expense (to the extent such expense is no greater than that which LESSEE would have incurred pursuant to Article 23.6.1, with any additional expenses being for LESSOR's account) put the Aircraft in a condition to meet the requirements for issuance of a Certificate of Airworthiness of the Aviation Authority of the next country of register, provided that if solely as a result of such work the Aircraft is returned after the scheduled redelivery date, LESSEE will not be liable for payment of Rent in respect of the period following the date the Aircraft would have been returned following completion of the requirements of this Article 23, but for the provisions of this Article 23.6.3. 23.7 General Condition of Aircraft at Return. 23.7.1 The Aircraft, Engines, and Parts will have been maintained and repaired in accordance with the Maintenance Program, the rules and regulations of the Aviation Authority and this Lease. 23.7.2 Aircraft Documentation (including records and manuals) will have been maintained in an up-to-date status, in accordance with the rules and regulations of the Aviation Authority and the FAA and this Lease and in a form necessary in order to meet the requirements of Article 23.6.1. The records and historical documents set forth in Exhibit L will be in English. 23.7.3 The Aircraft will be in the same working order and condition as at Delivery (subject to the other provisions of this Article 23, reasonable wear and tear from normal flight operations excepted), with all pilot discrepancies and deferred maintenance items cleared on a terminating action basis. 23.7.4 The Aircraft will be airworthy (conform to type design and be in a condition for safe operation), with all Aircraft equipment, components and systems operating in accordance with their intended use and within limits approved by Manufacturer, Aviation Authority and FAA. 23.7.5 The Aircraft interior (including cabin and windows) and exterior will be clean in accordance with U.S. commercial airline standards and cosmetically acceptable to LESSOR in its reasonable discretion, with all compartments free of foreign objects, dirt, grease, fluids, stains, grime, cracks, tears and rips and ready to be placed into immediate commercial airline operations. 23.7.6 No special or unique Manufacturer, Engine manufacturer or Aviation Authority inspection or check requirements which are specific to the Aircraft or Engines (as opposed to all aircraft or engines of their types) will exist with respect to the Airframe, Engines and Aircraft equipment, components and systems. 23.7.7 All repairs, modifications and alterations to the Aircraft will have been accomplished in accordance with either (i) Manufacturer's Structural Repair Manual (or DGAC-approved Repair Approval Sheets) for the Aircraft or (ii) FAA-approved data (such as FAA Form 8110 or equivalent). 23.7.8 The Aircraft will be returned with LESSOR's Engines installed and with the same equipment as at Delivery, subject only to those replacements, additions and Modifications permitted under this Lease. 23.7.9 All Airworthiness Directives which are issued during the Lease Term and require compliance (either by means of repetitive inspections, modifications or terminating action) prior to return of the Aircraft to LESSOR or within one (1) year after the Termination Date will have been complied with on the Aircraft on a terminating action basis at LESSEE's cost. Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. If, after using commercially reasonable efforts, LESSEE is unable to acquire the material, parts or components necessary to accomplish such Airworthiness Directive, LESSEE will pay to LESSOR upon return of the Aircraft the estimated cost of terminating such Airworthiness Directive. If the estimated cost cannot be mutually agreed upon by LESSEE and LESSOR, LESSEE and LESSOR will each obtain an estimate from a reputable FAA-approved maintenance facility (unaffiliated with LESSEE or LESSOR) and the estimated cost will be the average of the two estimates. 23.7.10 The Aircraft will be in compliance with Manufacturer's Corrosion Prevention and Control Program (CPCP) specified for the model type by Manufacturer. 23.7.11 If any waivers, deviations, dispensations, alternate means of compliance, extensions or carry-overs with respect to maintenance or operating requirements, repairs or Airworthiness Directives are granted by the Aviation Authority or permitted by the Maintenance Program, LESSEE at its sole cost and expense will nonetheless perform such maintenance or operating requirements, repairs or Airworthiness Directives as if such waivers, deviations, dispensations, alternate means of compliance, or extensions or carry-overs did not exist, unless such waivers, deviations, dispensations, alternate means of compliance, extensions or carry-overs are applicable to all similar A318 aircraft registered with the FAA. 23.7.12 The Aircraft will be free from any Security Interest except LESSOR's Liens and no circumstance will have so arisen whereby the Aircraft is or could become subject to any Security Interest or right of detention or sale in favor of the Aviation Authority, any airport authority, or any other authority. 23.7.13 All no-charge vendor and Manufacturer's service bulletin kits received by LESSEE for the Aircraft but not installed thereon will be on board the Aircraft as cargo. At LESSOR's request, any other service bulletin kit which LESSEE paid for will also be delivered to LESSOR on board the Aircraft, but LESSOR will reimburse LESSEE for its actual out-of-pocket costs for such kit, unless LESSEE purchased such kit as part of its implementation of a service bulletin on its fleet of aircraft of the same type as the Aircraft but had not yet installed such kit on the Aircraft, in which case such kit will be furnished free of charge to LESSOR. 23.7.14 The Aircraft will be free of any leaks and any damage resulting therefrom. All repairs will have been performed on a permanent basis in accordance with the applicable manufacturer's instructions. 23.7.15 The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and water) will be serviced to full and the waste tank serviced in accordance with Manufacturer's instructions. Fuel tanks will be at least as full as at Delivery. 23.8 Checks Prior to Return. Immediately prior to return of the Aircraft to LESSOR, LESSEE at its expense will do each of the following: 23.8.1 Have performed, by LESSEE or any other FAA-approved repair station, the next due full and complete zonal, systems and structural check ("C" or its equivalent), the corresponding lower checks ("A" and "B" or equivalent) and any other maintenance and inspections tasks, all in accordance with the then-current MPD, sufficient to clear the Aircraft for operation until the next-scheduled full and complete zonal, systems and structural check under the then-current MPD (which in any event will not be less than fifteen (15) months). LESSEE will also weigh the Aircraft. Any discrepancies revealed during such inspection will be corrected in accordance with Manufacturer's maintenance and repair manuals or FAA-approved data. LESSEE agrees to perform during such check any other work reasonably required by LESSOR (and not otherwise required under this Lease) and LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates. 23.8.2 Perform an internal and external corrosion inspection where any evidence of corrosion exists and correct any discrepancies in accordance with the recommendations of Manufacturer and the Structural Repair Manual. In addition, all inspected areas will be properly treated with corrosion inhibitor if and as recommended by Manufacturer. 23.8.3 Remove LESSEE's exterior markings, including all exterior paint, by stripping (or, at LESSOR's option, pneumatically scuff/sanding) the paint from the fuselage, empennage, wings and Engine cowlings, and clean, reseal, refinish, prepare (including application of alodine or another corrosion inhibitor) and prime the surfaces to be painted, all in accordance with Manufacturer's and paint manufacturer's recommendations. LESSEE will then repaint the fuselage, empennage, wings and Engine cowlings in the colors and logo specified by LESSOR provided, however, that if such colors and logo are substantially more complex than those of LESSEE, at LESSOR's discretion, LESSOR will either (i) pay to LESSEE an amount equal to the incremental cost of repainting the Aircraft in such complex colors and logo over and above the cost of repainting the Aircraft in LESSEE's colors and logo at such time or (ii) permit LESSEE to return the Aircraft repainted white and to pay LESSOR an amount equal to the incremental cost of painting the colors and logo required by LESSOR's next operator, up to an amount equal to the amount that would have been required to paint the Aircraft in LESSEE's livery. Such painting will be accomplished in such a manner as to result in a uniformly smooth and cosmetically acceptable aerodynamic surface. All external placards, signs and markings will be properly attached, free from damage, clean and legible. 23.8.4 Clean the exterior and interior of the Aircraft. 23.8.5 If reasonably required by LESSOR, repaint the flight deck and replace placards of the Aircraft. 23.8.6 In accordance with Article 23.7.7, permanently repair damage to the Aircraft that exceeds Manufacturer's limits and replace any non-flush structural patch repairs installed on the Aircraft with flush-type repairs unless Manufacturer does not recommend a flush-type repair. 23.8.7 With LESSOR or its representatives present, perform a full and complete hot and cold section videotape borescope on each Engine and its modules in accordance with the Engine manufacturer's maintenance manual. 23.8.8 If the Engine historical and technical records and/or condition trend monitoring data of any Engine (including the APU) indicate an acceleration in the rate of deterioration in the performance of an Engine, LESSEE will correct, to LESSOR's reasonable satisfaction, such conditions which are determined to be causing such accelerated rate of deterioration. 23.8.9 With LESSOR or its representatives present, accomplish a maximum power assurance run and condition, acceleration and bleed valve scheduling checks on the Engines. LESSEE will evaluate the Engine performance and record the Engine maximum power assurance test conditions and results on the Return Acceptance Receipt. 23.8.10 LESSEE will provide evidence to LESSOR's satisfaction that the Engine historical and technical records, borescope inspection, trend monitoring and other checks specified in Article 23.8.9 do not reveal any condition which would cause the Engines or any module to be unserviceable, beyond serviceable limits or serviceable with an increased frequency of inspection or with calendar time, flight hour or flight cycle restrictions under the Engine manufacturer's maintenance manual. LESSEE will correct any discrepancies in accordance with the guidelines set out by the Engine manufacturer which may be discovered during such inspection. 23.8.11 In the event the Engine historical and technical records, borescope inspection, trend monitoring and other checks specified in Article 23.8.9 result in a dispute regarding the conformity of an Engine with the requirements of this Article 23, LESSEE and LESSOR will consult with Engine manufacturer and follow Engine manufacturer's recommendations (including the accomplishment of an Engine test cell operational check) with regard to determining if such Engine complies with the requirements of this Article 23 and the manner in which any discrepancies from the requirements of this Article 23 will be rectified. 23.9 Part Lives. At return, the condition of the Aircraft will be as follows: 23.9.1 The Aircraft will have zero (0) hours consumed since the last full and complete zonal, systems and structural check ("C" check or equivalent) (excluding hours consumed on the acceptance flight). 23.9.2 Each Engine will meet all of the following: (a) Each Engine will have operated no more than 4,000 hours and 4,000 cycles since the last full performance restoration shop visit in which the core modules (including without limitation the high pressure compressor rotor and stator, combustor, stage 1 nozzle and high pressure turbine assembly) were fully refurbished and will have at least 6,000 hours and 6,000 cycles remaining until its next anticipated removal (based upon the Engine manufacturer's estimated mean time between removals for engines of the same type as the Engines); provided, however, that if at the time of return Engine manufacturer's mature mean time between removal rate for engines of the same type as the Engines is greater than 10,000 hours and 10,000 cycles, then the above referenced 4,000 hour and 4,000 cycle requirement will be increased by an amount equal to the difference between (i) the number of hours and cycles of such mean time removal rate and (ii) 10,000 hours and 10,000 cycles (for example, if at return the mature mean time removal rate is 14,000 hours and 14,000 cycles, each Engine will have operated no more than 8,000 hours and 8,000 cycles since its last full performance restoration shop visit and will have at least 6,000 hours and 6,000 cycles remaining until its next anticipated removal). (b) Each Engine will have a remaining EGT margin sufficient to permit the operation of such Engine for the hours and cycles set forth in the preceding subparagraph, based upon the historical experience of the Engine manufacturer's worldwide fleet; (c) No life-limited Part of an Engine will have more hours or cycles consumed than such Engine's data plate; and (d) Each Part of an Engine which has a hard time limit will have at least 50% of such Part's full allotment of hours and cycles remaining to operate until its next scheduled Overhaul. Each Part of an Engine which has a life limit will have at least 50% of such Part's full allotment of hours and cycles remaining to operate until its removal. However, if 50% of such hard time or life-limited Part's full allotment of hours and cycles remaining is less than 6,000 hours and 6,000 cycles, then such hard time or life-limited Part will be returned with at least 6,000 hours and 6,000 cycles remaining. 23.9.3 The APU will not have operated more than five hundred (500) APU hours since the last hot section refurbishment. 23.9.4 The Landing Gear will have at least fifty percent (50%) of the full allotment of hours/cycles/calendar time (whichever is the more limiting factor) pursuant to the MPD remaining until the next Overhaul or scheduled removal. 23.9.5 Each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul pursuant to the MPD will have at least 50% of such Part's full allotment of hours and cycles remaining to operate until its next scheduled Overhaul pursuant to the MPD. However, if 50% of such hard time Part's full allotment of hours and cycles remaining is less than 4,000 hours and 4,000 cycles, then such hard time Part will be returned with at least 4,000 hours and 4,000 cycles remaining to operate until its next scheduled Overhaul pursuant to the MPD. 23.9.6 Each life-limited Part of the Aircraft will have at least 50% of such Part's full allotment of hours and cycles remaining to operate until removal pursuant to the MPD. However, if 50% of such life-limited Part's full allotment of hours and cycles remaining is less than 6,000 hours and 6,000 cycles, then such life-limited Part will be returned with at least 6,000 hours and 6,000 cycles remaining to operate pursuant to the MPD. 23.9.7 Each Part which has a calendar limit will have sufficient calendar time remaining to operate until the next "C" check pursuant to the then-current MPD after return of the Aircraft to LESSOR (which in any event will be not less than fifteen (15) months). If a Part has a total approved life pursuant to the MPD less than such "C" check interval, then such Part will be returned with 100% of its total approved life remaining. 23.9.8 No Part of the Aircraft or Engine (excluding life-limited Parts on the Engine, which are covered by Article 23.9.2(c)) will have total hours and total cycles time since new greater than one hundred ten percent (110%) of that of the Airframe and, with respect to all Parts as a group, the Parts will have an average total time since new no greater than that of the Airframe. 23.9.9 The Aircraft Landing Gear tires and brakes will be new or have zero (0) hours/cycles out of Overhaul (except for the acceptance flight). 23.10 Export and Deregistration of Aircraft. At LESSOR's request by notice at least fifteen (15) days prior to the Expiration Date, LESSEE at its cost will (a) provide an Export Certificate of Airworthiness or its equivalent from the State of Registration for the country designated by LESSOR, (b) assist with deregistration of the Aircraft from the register of aircraft in the State of Registration, (c) assist with arranging for prompt confirmation of such deregistration to be sent by the registry in the State of Registration to the next country of registration and (d) perform any other acts reasonably required by LESSOR in connection with such deregistration. If any Aircraft work which LESSEE is not otherwise required to perform hereunder, including engineering, is required in order to obtain such Export Certificate of Airworthiness, LESSEE will, to the extent reasonably possible, perform such work and LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates. 23.11 LESSEE's Continuing Obligations. In the event that LESSEE does not return the Aircraft to LESSOR on the Expiration Date and in the condition required by this Article 23 for any reason (whether or not the reason is within LESSEE's control): 23.11.1 the obligations of LESSEE under this Lease will continue in full force and effect on a day-to-day basis until such return. This will not be considered a waiver of LESSEE's Event of Default or any right of LESSOR hereunder. 23.11.2 Until such return, the Agreed Value will be an amount equal to the Agreed Value on the day the Aircraft should have been returned to LESSOR pursuant to this Lease. 23.11.3 LESSEE will fully indemnify LESSOR on demand for all losses (including damages in accordance with Article 25.5(b)), liabilities, actions, proceedings, costs and expenses thereby suffered or incurred by LESSOR and, in addition, until such time as the Aircraft is redelivered to LESSOR and put into the condition required by this Article 23, instead of paying the Rent specified in Article 5.3, LESSEE will pay twice the amount of Rent for each day from the scheduled Expiration Date until the Termination Date (the monthly Rent payable under Article 5.3.1 will be prorated based on the actual number of days in the applicable month). Payment will be made upon presentation of LESSOR's invoice. Notwithstanding the foregoing, in the event that the Aircraft is removed from service by LESSEE and placed in a maintenance facility for the performance of work required to put the Aircraft into the condition required by this Article 23 and as a result of delays in the performance of such work the Aircraft is not returned on the Expiration Date, for a period of up to seven (7) days following the Expiration Date, LESSEE shall only be responsible for normal Rent. After the 7th day of such period, if LESSEE has not returned the Aircraft to LESSOR in the condition required by this Lease, LESSEE shall be responsible for twice the Rent for the period after such 7 day period in accordance with the provisions of this Article 23.11.3 until the actual Termination Date. 23.11.4 LESSOR may elect, in its sole and absolute discretion, to accept the return of the Aircraft prior to the Aircraft being put in the condition required by this Article 23 and thereafter have any such non-conformance corrected at such time as LESSOR may deem appropriate (but within ninety (90) days following the return of the Aircraft) and at commercial rates then-charged by the Person selected by LESSOR to perform such correction. Any direct expenses incurred by LESSOR for such correction will become additional Rent payable by LESSEE within fifteen (15) days following the submission of a written statement by LESSOR to LESSEE, identifying the items corrected and setting forth the expense of such corrections in reasonable detail. LESSEE's obligation to pay such supplemental Rent will survive the Termination Date. 23.12 Airport and Navigation Charges. LESSEE will ensure that at return of the Aircraft any and all airport, navigation and other charges which give rise or would if unpaid give rise to any lien, right of detention, right of sale or other Security Interest in relation to the Aircraft, Engine or any Part have been paid and discharged in full and will at LESSOR's request produce evidence thereof satisfactory to LESSOR. 23.13 Return Acceptance Certificate. Upon return of the Aircraft in accordance with the terms of this Lease, LESSEE will promptly prepare and execute two (2) Return Acceptance Certificates in the form and substance of Exhibit J and LESSOR will countersign and return one such Return Acceptance Certificate to LESSEE. In addition, LESSEE and LESSOR will execute a Lease Termination for filing with the FAA evidencing termination of this Lease. 23.14 Indemnities and Insurance. The indemnities and insurance requirements set forth in Articles 17 and 18, respectively, will apply to Indemnitees and LESSOR's representatives during return of the Aircraft, including the ground inspection and acceptance flight. With respect to the acceptance flight, LESSOR's representatives will receive the same protections as LESSOR on LESSEE's Aviation and Airline General Third Party Liability Insurance. 23.15 Civil Reserve Air Fleet. 23.15.1 LESSEE may transfer possession of the Aircraft to the United States of America or any instrumentality or agency thereof as part of the Civil Reserve Air Fleet Program authorized under 10 U.S.C.ss.9511 et seq. (or any substantially similar program) ("CRAF Program") for a period which includes (collectively, the "CRAF Program Requisition Period") (a) the entire period of requisition under the CRAF Program and (b) an additional six (6) months after the expiration of the requisition under the CRAF Program. If the CRAF Program Requisition Period extends beyond the Expiration Date provided by this Lease, then the Lease will be deemed to continue until the end of the CRAF Program Requisition Period at a monthly rental rate equal to the monthly rental rate in effect at the end of the Lease Term and the Expiration Date will be deemed to be the end of the CRAF Program Requisition Period. If the Aircraft is requisitioned under the CRAF Program for a period which extends beyond the Lease Term, then LESSEE will provide LESSOR with written notice of the proposed redelivery at least six (6) months prior to such redelivery date and LESSEE must return the Aircraft in the condition required by Article 23 on the redelivery date set forth in such written notice. 23.15.2 LESSEE will promptly notify LESSOR in writing in the event of the requisition for use of the Aircraft under CRAF activation by the U.S. Government. All of LESSEE's obligations under this Lease will continue to the same extent as if such requisition had not occurred. 23.15.3 Any provisions of this Lease to the contrary notwithstanding, if there is a requisition for use of the Aircraft pursuant to the CRAF Program and/or CRAF activation, LESSOR agrees that LESSEE's insurances described in Exhibit C may - be supplemented or replaced by insurances provided under Title XIII of the Act, and/or U.S. Government indemnification (which Title XIII insurances and indemnification will be, as to the Aircraft, in an amount not less than the Agreed Value and, as to all other insurances, in amounts not less than those established in Exhibit C); provided, however, that LESSEE will remain responsible for full compliance with all the provisions of this Lease, including Articles 17 -- and 19, to the extent Title XIII and/or the U.S. Government indemnification do not satisfy LESSEE's obligations under -- this Lease. 23.15.4 If there is a requisition for use of the Aircraft pursuant to the CRAF Program and/or CRAF activation, there will be no limitation on the geographic area in which the Aircraft may be operated so long as, taken as a whole, LESSEE's insurance, the Title XIII insurance and/or the indemnification provided by the U.S. Government fully cover (without any geographic exclusions) LESSEE's Exhibit C insurance requirements. 23.15.5 If an Event of Default occurs under this Lease and LESSOR elects to pursue its remedies under Article 25.3(e) to terminate this Lease and repossess the Aircraft, LESSOR will so notify the U.S. Government by sending a written communication with a copy to LESSEE as follows: Headquarters Air Mobility Command AMC Contracting Office -- XOKA Scott Air Force Base, Illinois 62225-5007 23.15.6 So long as no Event of Default has occurred and is continuing, all payments received by LESSOR or LESSEE from such Government Entity in connection with the requisition of the Aircraft under the CRAF Program (except payments on account of a Total Loss of the Aircraft) will be paid over to or retained by LESSEE. If an Event of Default has occurred and is continuing, all payments received by LESSEE or LESSOR from such Government Entity in connection with the requisition of the Aircraft under the CRAF Program may be used by LESSOR to satisfy any obligations owing by LESSEE. ARTICLE 24 ASSIGNMENT 24.1 No Assignment by LESSEE. EXCEPT AS EXPRESSLY PERMITTED BY ARTICLE 11 OR ARTICLE 20.2.3, NO ASSIGNMENT, NOVATION, TRANSFER, MORTGAGE OR OTHER CHARGE MAY BE MADE BY LESSEE OF ANY OF ITS RIGHTS WITH RESPECT TO THE AIRCRAFT, ENGINE OR PART OR THIS LEASE. 24.2 Sale or Assignment by LESSOR. 24.2.1 Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time and without LESSEE's consent sell, assign or transfer its rights, interest and obligations hereunder, under any other Operative Document, or with respect to the Aircraft to a Permitted Transferee; provided, however, that no such transfer shall materially increase LESSEE's liabilities or obligations hereunder or materially adversely affect LESSEE's rights under this Lease. For a period of two (2) years after such sale or assignment and at LESSEE's cost, LESSEE will continue to name LESSOR as an additional insured under the Aviation and Airline General Third Party Liability Insurance specified in Exhibit C. 24.2.2 The term "LESSOR" as used in this Lease means the lessor of the Aircraft at the time in question. In the event of the sale of the Aircraft and transfer of LESSOR's rights and obligations under this Lease to a Permitted Transferee, such Permitted Transferee will become "LESSOR" of the Aircraft under this Lease and the transferring party (the prior "LESSOR") will be relieved of all liability to LESSEE under this Lease for obligations arising on and after the date the Aircraft is sold. LESSEE will acknowledge and accept the Permitted Transferee as the new "LESSOR" under this Lease and will look solely to the Permitted Transferee for the performance of all LESSOR obligations and covenants under this Lease arising on and after the Aircraft sale date. 24.3 LESSOR's Lender. Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time and without LESSEE's consent grant security interests over the Aircraft and assign the benefit of this Lease to a lender ("LESSOR's Lender") as security for LESSOR's obligations to LESSOR's Lender. 24.4 LESSEE Cooperation. On request by LESSOR, LESSEE will execute all such documents (such as a consent to a lease assignment agreement) as LESSOR may reasonably require to confirm LESSEE's obligations under this Lease and obtain LESSEE's acknowledgment that LESSOR is not in breach of the Lease. LESSEE will provide all other reasonable assistance and cooperation to LESSOR in connection with any such sale or assignment or the perfection and maintenance of any such security interest, including, at LESSOR's cost, making all necessary filings and registrations in the State of Registration and providing all opinions of counsel with respect to matters reasonably requested by LESSOR. LESSOR will reimburse LESSEE for its reasonable out-of-pocket costs and expenses (including reasonable legal fees) in reviewing documents required by LESSOR and cooperating with a transfer pursuant to this Article 24. 24.5 Protections. 24.5.1 LESSOR will obtain for the benefit of LESSEE a written acknowledgment from any Permitted Transferee or LESSOR's Lender that, so long as no Event of Default has occurred and is continuing hereunder, neither such Person nor any Person claiming by, through or under such Person will not interfere with LESSEE's quiet, peaceful use and enjoyment of the Aircraft. 24.5.2 Wherever the term "LESSOR" is used in this Lease in relation to any of the provisions relating to disclaimer, title and registration, indemnity and insurance contained in Articles 8, 14, 17 and 18, respectively, or with respect to Article 20.2.6, the term "LESSOR" will be deemed to include any Permitted Transferee and its lenders, if applicable. For avoidance of doubt, in the event of LESSOR's sale or financing of the Aircraft, the disclaimer and indemnity provisions contained in Articles 8 and 17 will continue to be applicable after the sale or assignment to International Lease Finance Corporation, as well as being applicable to any Permitted Transferee and its lenders. ARTICLE 25 DEFAULT OF LESSEE 25.1 LESSEE Notice to LESSOR. LESSEE will promptly notify LESSOR if LESSEE becomes aware of the occurrence of any Default. 25.2 Events of Default. The occurrence of any of the following will constitute an Event of Default and material breach of this Lease by LESSEE: * 25.3 LESSOR's General Rights. Upon the occurrence and continuance of any Event of Default, LESSOR may do all or any of the following at its option (in addition to such other rights and remedies which LESSOR may have by statute or otherwise but subject to any requirements of applicable Law): (a) terminate this Lease by giving written notice to LESSEE; (b) require that LESSEE immediately move the Aircraft to an airport or other location designated by LESSOR; (c) for LESSEE's account, do anything that may reasonably be required to cure any default and recover from LESSEE all reasonable costs, including legal fees and expenses incurred in doing so and Default Interest; (d) proceed as appropriate to enforce performance of this Lease and to recover any damages for the breach hereof, including the amounts specified in Article 25.5; (e) terminate this Lease by taking possession of the Aircraft or by serving notice requiring LESSEE to return the Aircraft to LESSOR at the location specified by LESSOR. If LESSOR takes possession of the Aircraft, it may enter upon LESSEE's premises where the Aircraft is located without liability except for the willful misconduct of LESSOR. Upon repossession of the Aircraft, LESSOR will then be entitled to sell, lease or otherwise deal with the Aircraft as if this Lease had never been made. LESSOR will be entitled to the full benefit of its bargain with LESSEE; or (f) apply all or any portion of the Security Deposit and any other security deposits held by LESSOR pursuant to any other agreements between LESSOR and LESSEE to any amounts due. 25.4 Deregistration and Export of Aircraft. If an Event of Default has occurred and is continuing, LESSOR may take all steps necessary to deregister the Aircraft in and export the Aircraft from the State of Registration. 25.5 LESSEE Liability for Damages. Upon the occurrence and during the continuance of an Event of Default, in addition to all other remedies available at law or in equity, LESSOR has the right to recover from LESSEE and LESSEE will pay LESSOR within two (2) Business Days after LESSOR's written demand, all of the following: (a) all amounts which are then due and unpaid hereunder and which become due prior to the earlier of LESSOR's recovery of possession of the Aircraft or LESSEE making an effective tender thereof; (b) subject to LESSOR's obligations at Law to mitigate its damages, any losses suffered by LESSOR because of LESSOR's inability to place the Aircraft on lease with another lessee or to otherwise utilize the Aircraft on financial terms as favorable to LESSOR as the terms hereof or, if LESSOR elects to dispose of the Aircraft, the funds arising from a sale or other disposition of the Aircraft are not as profitable to LESSOR as leasing the Aircraft in accordance with the terms hereof would have been (and LESSOR will be entitled to accelerate any and all Rent which would have been due from the date of LESSOR's recovery or repossession of the Aircraft through the Expiration Date); (c) all costs associated with LESSOR's exercise of its remedies hereunder, including but not limited to repossession costs, legal fees, Aircraft storage costs and Aircraft re-lease or sale costs; (d) any amount of principal, interest, fees or other sums paid or payable on account of funds borrowed in order to carry any unpaid amount; (e) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to LESSOR's financing of the Aircraft; (f) direct expenses incurred by LESSOR to correct non-conformance of the Aircraft with return conditions in accordance with Article 23.11.3; and (g) an amount sufficient to fully compensate LESSOR for any loss of or damage to the Aircraft caused by LESSEE's default. 25.6 Waiver of Default. By written notice to LESSEE, LESSOR may at its election waive any Default or Event of Default and its consequences and rescind and annul any prior notice of termination of this Lease. The respective rights of the parties will then be as they would have been had no Default or Event of Default occurred and no such notice been given. 25.7 Present Value of Payments. In calculating LESSOR's damages hereunder, upon an Event of Default all Rent and other amounts which would have been due hereunder during the Lease Term if an Event of Default had not occurred will be calculated on a present value basis using a discounting rate of six percent (6%) per annum discounted to the earlier of the date on which LESSOR obtains possession of the Aircraft or LESSEE makes an effective tender thereof. 25.8 Use of "Termination Date". For avoidance of doubt, it is agreed that if this Lease terminates and the Aircraft is repossessed by LESSOR due to an Event of Default, then, notwithstanding the use of the term "Termination Date" in this Lease, the period of the Lease Term and the "Expiration Date" will be utilized in calculating the damages to which LESSOR is entitled pursuant to Article 25.5. For example, it is agreed and understood that LESSOR is entitled to receive from LESSEE the Rent and the benefit of LESSEE's insurance and maintenance of the Aircraft until expiration of the Lease Term. 25.9 LESSEE's Remedies. Except as otherwise set forth in the Operative Documents, upon a breach by LESSOR of any of the terms and conditions of this Lease, LESSEE shall have all rights available at law or in equity. 25.10 Waiver of Consequential Damages. LESSEE and LESSOR each agree that it shall not be entitled to recover, and hereby disclaims and waives any right that it may otherwise have to recover, any special, indirect or consequential damages as a result of any breach or alleged breach by the other party of any of the agreements, representations or warranties contained in this Lease or the other Operative Documents; provided, however, that nothing herein shall be deemed to disclaim or waive any of LESSOR's remedies expressly set forth in Article 25.5(a) through 25.5 (g). ARTICLE 26 NOTICES 26.1 Manner of Sending Notices. Any notice, request or information required or permissible under this Lease will be in writing and in English. Notices will be delivered in person or sent by fax, letter (mailed airmail, certified and return receipt requested), or by expedited delivery addressed to the parties as set forth in Article 26.2. In the case of a fax, notice will be deemed received upon actual receipt (and the date of actual receipt will be deemed to be the date set forth on the confirmation of receipt produced by the sender's fax machine immediately after the fax is sent). In the case of a mailed letter, notice will be deemed received on the tenth (10th) day after mailing. In the case of a notice sent by expedited delivery, notice will be deemed received on the date of delivery set forth in the records of the Person which accomplished the delivery. If any notice is sent by more than one of the above listed methods, notice will be deemed received on the earliest possible date in accordance with the above provisions. 26.2 Notice Information. Notices will be sent: If to LESSOR: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, U.S.A. Attention: Legal Department Fax: 310-788-1990 Telephone: 310-788-1999 If to LESSEE: FRONTIER AIRLINES, INC. 12015 East 46th Avenue Suite 200 Denver, CO 80239 Attention: General Counsel Fax: 303- 371-7007 Telephone: 303-371-7400 or to such other places and numbers as either party directs in writing to the other party. ARTICLE 27 GOVERNING LAW AND JURISDICTION 27.1 California Law. This Lease is being delivered in the State of California and will in all respects be governed by and construed in accordance with the Laws of the State of California (notwithstanding the conflict Laws of the State of California). 27.2 Non-Exclusive Jurisdiction in California. As permitted by Section 410.40 of the California Code of Civil Procedure, the parties hereby irrevocably submit to the non-exclusive jurisdiction of the Federal District Court for the Central District of California and the State of California Superior or Municipal Court in Los Angeles, California. Nothing herein will prevent either party from bringing suit in any other appropriate jurisdiction. 27.3 Service of Process. The parties hereby consent to the service of process (a) out of any of the courts referred to above, (b) in accordance with Section 415.40 of the California Code of Civil Procedure by mailing copies of the summons and complaint to the person to be served by air mail, certified or registered mail to the address set forth in Article 26.2, postage prepaid, return receipt requested or (c) in accordance with the Hague Convention, if applicable. 27.4 Prevailing Party in Dispute. If any legal action or other proceeding is brought in connection with or arises out of any provisions in this Lease, the prevailing party will be entitled to recover reasonable attorneys' fees and other actual and reasonable costs incurred in such action or proceedings. The prevailing party will also, to the extent permissible by Law, be entitled to receive pre- and post-judgment Default Interest. 27.5 Waiver. LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. LESSEE AND LESSOR HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS LEASE BROUGHT IN ANY OF THE COURTS REFERRED TO IN ARTICLE 27.2, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. ARTICLE 28 MISCELLANEOUS 28.1 Transportation of Personnel. LESSEE will provide transportation to LESSOR's personnel on a positive space basis on the Aircraft or any other aircraft operated by LESSEE for the purposes of conducting business between LESSEE and LESSOR. 28.2 Press Releases. The parties will give copies to one another, in advance if possible, of all news, articles and other releases provided to the public media regarding this Lease or the Aircraft. 28.3 Power of Attorney. LESSEE hereby irrevocably appoints LESSOR as its attorney for the purpose of putting into effect the intent of this Lease following and during the continuation of an Event of Default, including without limitation, the return, repossession, deregistration and exportation of the Aircraft. To evidence this appointment, LESSEE has executed the Power of Attorney in the form of Exhibit G. LESSEE will take all steps required under the Laws of the State of Registration to provide such power of attorney to LESSOR. 28.4 LESSOR Performance for LESSEE. The exercise by LESSOR of its remedy of performing a LESSEE obligation hereunder is not a waiver of and will not relieve LESSEE from the performance of such obligation at any subsequent time or from the performance of any of its other obligations hereunder. 28.5 LESSOR's Payment Obligations. Any obligation of LESSOR under this Lease to pay or release any amount to LESSEE is conditioned upon and will be delayed until (a) all amounts then due and payable by LESSEE to LESSOR under this Lease or under any other agreement between LESSOR and LESSEE having been paid in full and (b) no payment or other material Default having occurred and continuing hereunder at the time such payment or release of payment is payable to LESSEE. 28.6 Application of Payments. Any amounts paid or recovered in respect of LESSEE liabilities hereunder may be applied to Rent, Default Interest, fees or any other amount due hereunder in such proportions, order and manner as LESSOR determines. 28.7 Usury Laws. The parties intend to contract in strict compliance with the usury Laws of the State of California and, to the extent applicable, the U.S. Notwithstanding anything to the contrary in the Operative Documents, LESSEE will not be obligated to pay Default Interest or other interest in excess of the maximum non-usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by LESSOR in connection with the Operative Documents. During any period of time in which the then-applicable highest lawful rate is lower than the Default Interest rate, Default Interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the Default Interest rate, then LESSEE will pay Default Interest at the highest lawful rate until the Default Interest which is paid by LESSEE equals the amount of interest that would have been payable in accordance with the interest rate set forth in Article 5.6. 28.8 Delegation by LESSOR. LESSOR may delegate to any Person(s) all or any of the rights, powers or discretion vested in it by this Lease and any such delegation may be made upon such terms and conditions as LESSOR in its absolute discretion thinks fit, provided that no such delegation shall relieve LESSOR of any of its obligations hereunder. 28.9 Confidentiality. The Operative Documents and all non-public information obtained by either party about the other are confidential and are between LESSOR and LESSEE only and will not be disclosed by a party to third parties (other than (i) to such party's auditors or professional advisors, (ii) to potential equity investors or lenders or (iii) as required in connection with any filings of this Lease in accordance with Article 14 or as otherwise required by Law) without the prior written consent of the other party. If disclosure is required as a result of applicable Law, LESSEE and LESSOR will cooperate with one another to obtain confidential treatment as to the commercial terms and other material provisions of this Lease. 28.10 Rights of Parties. The rights of the parties hereunder are cumulative, not exclusive, may be exercised as often as each party considers appropriate and are in addition to its rights under general Law. The rights of one party against the other party are not capable of being waived or amended except by an express waiver or amendment in writing. Any failure to exercise or any delay in exercising any of such rights will not operate as a waiver or amendment of that or any other such right any defective or partial exercise of any such rights will not preclude any other or further exercise of that or any other such right and no act or course of conduct or negotiation on a party's part or on its behalf will in any way preclude such party from exercising any such right or constitute a suspension or any amendment of any such right. 28.11 Further Assurances. Each party agrees from time to time to do and perform such other and further acts and execute and deliver any and all such other instruments as may be required by Law or reasonably requested by the other party to establish, maintain or protect the rights and remedies of the requesting party or to carry out and effect the intent and purpose of this Lease. 28.12 Use of Word "including". The term "including" is used herein without limitation. 28.13 Headings. All article and paragraph headings and captions are purely for convenience and will not affect the interpretation of this Lease. Any reference to a specific article, paragraph or section will be interpreted as a reference to such article, paragraph or section of this Lease. 28.14 Invalidity of any Provision. If any of the provisions of this Lease become invalid, illegal or unenforceable in any respect under any Law, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired. 28.15 Time is of the Essence. Time is of the essence in the performance of all obligations of the parties under this Lease and, consequently, all time limitations set forth in the provisions of this Lease will be strictly observed. 28.16 Amendments in Writing. The provisions of this Lease may only be amended or modified by a writing executed by LESSOR and LESSEE. 28.17 Counterparts. This Lease may be executed in any number of identical counterparts, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same instrument when each party has signed and delivered one such counterpart to the other party. 28.18 Delivery of Documents by Fax. Delivery of an executed counterpart of this Lease or of any other documents in connection with this Lease by fax will be deemed as effective as delivery of an originally executed counterpart. Any party delivering an executed counterpart of this Lease or other document by fax will also deliver an originally executed counterpart, but the failure of any party to deliver an originally executed counterpart of this Lease or such other document will not affect the validity or effectiveness of this Lease or such other document. 28.19 Entire Agreement. The Operative Documents constitute the entire agreement between the parties in relation to the leasing of the Aircraft by LESSOR to LESSEE and supersede all previous proposals, agreements and other written and oral communications in relation hereto. The parties acknowledge that there have been no representations, warranties, promises, guarantees or agreements, express or implied, except as set forth herein. 28.20 Expenses. Each party shall be responsible for its own expenses in connection with the drafting, negotiation, execution and delivery of this Lease and the other Operative Documents. SIGNATURE PAGE IN WITNESS WHEREOF, LESSEE and LESSOR have caused this Lease to be executed by their respective officers as of May 25, 2000. INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: EXHIBIT A AIRCRAFT DESCRIPTION Aircraft Manufacturer and Model: Airbus A318-100 Specification (included within Rent payable under Airbus A318 Standard Specification Issue A plus the Article 5.3.1(a)): following: 1. Interior Seating Configuration: 114Y-120Y 2. Maximum Gross Takeoff Weight: 65 tons (145,505 lbs.) 3. Engine Manufacturer and Model: Pratt & Whitney PW 6124 - -Manufacturer's Serial Number: To be identified in the Estoppel and Acceptance Certificate Registration Mark: N-_____ Engine Serial Numbers: To be identified in the Estoppel and Acceptance Certificate Engine Thrust Rating: 23,800 pounds
EXHIBIT B PARTICIPATION AGREEMENT This Participation Agreement is made this ______ day of _______________, ______ (the "Participation Agreement") BETWEEN (1) INTERNATIONAL LEASE FINANCE CORPORATION, a corporation organized and existing under the laws of the State of California, United States of America, having its principal corporate offices located at 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, U.S.A. ("ILFC"); and (2) FRONTIER AIRLINES, INC., a Colorado corporation whose address and principal place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado 80239, U.S.A. ("LESSEE") RECITALS (A) Pursuant to the Airbus A318-100 Purchase Agreement between ILFC and AVSA, S.A.R.L. ("AVSA") dated as of January 11, 1999, as further amended (the "Purchase Agreement") and the General Terms Agreement between ILFC and AVSA dated as of November 10, 1988 (the "G.T.A."), ILFC has agreed to purchase from AVSA certain Airbus A318-100 model aircraft, including the aircraft bearing as of today manufacturer's serial number [TBD] and scheduled for delivery in the month of February 2003 (the "Aircraft"); (B) Pursuant to the Product Support Agreement (Exhibit E) applicable to the Purchase Agreement (the "Support Agreement"), AVSA has agreed to provide certain product support to ILFC; (C) Pursuant to the Aircraft Lease Agreement between ILFC and LESSEE dated as of May 25, 2000 (the "Lease Agreement"), ILFC has agreed to lease the Aircraft to LESSEE; (D) ILFC and LESSEE have agreed to enter into this Participation Agreement: IT IS NOW HEREBY AGREED AS FOLLOWS: 1. Authorization for LESSEE to Participate. ILFC hereby authorizes LESSEE to participate in the following activities in connection with the delivery of the Aircraft: (a) to inspect, pursuant to Clause 7.1 of the G.T.A., the manufacture of the Aircraft and the materials and parts thereto; and (b) to attend and observe the acceptance tests of the Aircraft referred to in Clause 8.1 of the G.T.A.; and (c) to receive, pursuant to Clause 15 of the Support Agreement, the technical publications set forth in Appendix 3 hereto. 2. Effectivity of Participation Agreement. This Participation Agreement shall be effective from the date hereof until the earlier of: (a) the occurrence of an Event of Default as defined in the Lease Agreement; or (b) the "Termination Date" as defined in the Lease Agreement. 3. Conditions of Participation. This Participation Agreement is made subject to the following conditions: (a) LESSEE hereby agrees to be bound by and to comply with the following provisions of the G.T.A. and Support Agreement (copies of which are attached hereto) as if LESSEE had been named "Buyer" of the Aircraft under such agreements: (i) Clauses 7.2 and 8.5 of the G.T.A. to the extent of (aa) injury to or death of any LESSEE representative, (bb) loss or damage to property of any LESSEE representatives and (cc) liabilities, damages, losses, costs and expenses of AVSA, Manufacturer and their associated subcontractors, officers, agents and employees arising out of or caused by the willful misconduct or gross negligence of LESSEE's representatives, and (ii) Clauses 16.9 and 18.5 of the Support Agreement. (b) So long as this Participation Agreement is in full force and effect, LESSEE and not ILFC will be responsible for the liabilities and obligations set forth in section 3(a) above. (c) For avoidance of doubt, even while this Participation Agreement is in full force and effect, ILFC will remain responsible for compliance with Clauses 7.2 and 8.5 of the G.T.A. to the extent of (aa) injury to or death of any ILFC representative, (bb) loss or damage to property of any ILFC representative and (cc) liabilities, damages, losses, costs and expenses of AVSA, Manufacturer and their associated subcontractors, officers, agents and employees arising out of or caused by the willful misconduct or gross negligence of ILFC's representatives. (d) Except with respect to events occurring prior to termination of the Participation Agreement, upon termination of this Participation Agreement, ILFC shall once again be bound by Clauses 7.2 and 8.5 of the G.T.A. and Clauses 16.9 and 18.5 of the Support Agreement with respect to the Aircraft. (e) Other than with respect to the obligations assumed by LESSEE under this Participation Agreement as set forth in section 3(a) above, ILFC shall remain fully bound by all provisions of the Purchase Agreement, G.T.A. and Support Agreement. (f) Nothing contained herein shall subject AVSA to any liability or additional obligations whatsoever to which it would not otherwise be subject under the Purchase Agreement, the G.T.A. and the Support Agreement or, except to the extent set forth in sections 3(a) and (b) above, modify in any respect whatsoever its contractual rights under the said agreements. (g) LESSEE shall not be appointed as ILFC's agent and shall not be permitted to act on behalf or in place of ILFC without the express written authorization of ILFC and nothing contained herein shall be construed as to give such authorization. 4. Notification (a) This Participation Agreement shall be notified to AVSA by courier service immediately after the execution hereof. AVSA shall not be deemed to have received notice of any of the provisions hereof prior to receipt of notice as provided in this section 4(a) in the form of Appendix 1 hereto. (b) On termination of this Participation Agreement as provided in section 2 hereof, ILFC shall immediately notify AVSA by courier service of such termination. AVSA shall not be deemed to have received notice of such termination prior to receipt of notice as provided in this section 4(b) in the form of Appendix 2 hereto. (c) All notices and requests required or authorized under this Participation Agreement shall be given in writing either by personal delivery to a responsible officer of the party to whom the same is given or by internationally recognized courier service or by telefax directed as set forth below: ILFC shall be addressed at: 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, U.S.A. Attn: Senior Vice President-Technical Fax: 310-788-1990 Telephone: 310-788-1999 LESSEE shall be addressed at: 12015 East 46th Avenue Suite 200 Denver, Colorado 80239, U.S.A. Attention: General Counsel Fax: 303-371-7007 Telephone: 303-371-7400 AVSA shall be addressed at: 2 Rond-Point Maurice Bellonte 31 700 Blagnac, France Attention: Director Contracts Fax: (33) 5.61.30.40.11 Telephone: (33) 5.61.30.40.12 or at such other address or to such other person as the party receiving the notice or request may designate from time to time. Such notice or request shall be deemed to be effective in the case of (aa) personal delivery, on the date upon which personally delivered, (bb) delivery by courier, on the date of receipt or (cc) telefax transmission, on the date of confirmation of successful transmission. 5. Assignment. Except as permitted under Article 24 of the Lease Agreement, the rights and obligations under this Participation Agreement are personal to the parties and shall not be assigned, transferred, sold or otherwise disposed of by either of the parties hereto. 6. Applicable Law and Jurisdiction. THIS PARTICIPATION AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, AND THE PARTIES AGREE THAT ANY COMPETENT FEDERAL COURT LOCATED IN NEW YORK, NEW YORK SHALL HAVE JURISDICTION OVER ANY DISPUTE ARISING IN CONNECTION HEREWITH. Nothing in this section will prevent either party from making a claim in a court of competent jurisdiction in California or, if AVSA is involved, France. 7. Confidentiality. Subject to any legal or governmental requirements of disclosure, ILFC and LESSEE shall keep confidential the terms and conditions of this Participation Agreement and the clauses from the G.T.A. and Support Agreement provided to LESSEE provided that such materials may be disclosed by ILFC and LESSEE to their professional advisors. IN WITNESS WHEREOF, the parties have caused this Participation Agreement to be executed on their behalf by their duly authorized officers. INTERNATIONAL LEASE FRONTIER AIRLINES, INC. FINANCE CORPORATION By: _______________________ By: _______________________ Its: Its: APPENDIX 1 [DATE] BY COURIER AVSA, S.A.R.L. 2, rond-point Maurice Bellonte 31700 BLAGNAC Attention: Director-Contracts Re: ILFC/FRONTIER AIRLINES: PARTICIPATION AGREEMENT Dear Sirs, Pursuant to Section 4(a) of the Participation Agreement between ILFC and FRONTIER AIRLINES dated _______________ ___, ______, we advise you that pursuant to the Participation Agreement (a copy of which is attached hereto), FRONTIER AIRLINES has been authorized by ILFC to participate with respect to the Aircraft. This authorization shall be effective on acknowledgement of this letter by you. We confirm for your benefit the provisions of Sections 3(c), 3(d), 3(e) and 3(f) contained therein. Yours faithfully, for and on behalf of INTERNATIONAL LEASE FINANCE CORPORATION CC: FRONTIER AIRLINES AVSA, S.A.R.L. confirms receipt of this notice and agrees to the terms of Section 3 of the Participation Agreement. By: ________________ Its: Date: APPENDIX 2 [DATE] BY COURIER AVSA, S.A.R.L. 2, rond-point Maurice Bellonte 31700 BLAGNAC Attention: Director-Contracts Re: ILFC/FRONTIER AIRLINES: PARTICIPATION AGREEMENT Dear Sirs, Pursuant to Section 4(b) of the Participation Agreement between ILFC and FRONTIER AIRLINES dated _______________ ___, ______, we advise you that the authorization provided therein for FRONTIER AIRLINES is terminated with immediate effect. Yours faithfully, for and on behalf of INTERNATIONAL LEASE FINANCE CORPORATION CC: FRONTIER AIRLINES APPENDIX 3 1. TECHNICAL PUBLICATIONS (See attached sheets) APPENDIX 4 [Copies of Clauses 7.2 and 8.5 of the General Terms Agreement and Clauses 16.9 and 18.5 of the Support Agreement] EXHIBIT C CERTIFICATE OF INSURANCE [Refer to Aircraft Lease Agreement dated as of May 25, 2000 between LESSEE and LESSOR (the "Lease"). If applicable, insurance certificates from both the insurers and reinsurers will be provided. If there is a LESSOR's Lender, include references to it where appropriate after references to LESSOR.] To: INTERNATIONAL LEASE FINANCE CORPORATION ("LESSOR") 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States Re: FRONTIER AIRLINES, INC. ("LESSEE") Airbus A318-100 Manufacturer's Serial No.: [TBD] Registration Mark: N-_____ (the "Aircraft") -------- The following security has subscribed to the insurance and/or reinsurance policies: [LIST COMPANIES & PERCENTAGES] THIS IS TO CERTIFY THAT, as Insurance Brokers, we have effected Fleet Insurance in respect of aircraft owned or operated by LESSEE (including the Aircraft) as specified below. AIRCRAFT HULL ALL RISKS COVERING: * DEDUCTIBLES: * GEOGRAPHICAL COVERAGE: Worldwide. AVIATION AND AIRLINE GENERAL THIRD PARTY LIABILITY COVERING: * GEOGRAPHICAL LIMITS: Worldwide. HULL WAR AND ALLIED PERILS COVERING: * DEDUCTIBLE: * GEOGRAPHICAL LIMITS: Worldwide. AIRCRAFT SPARES ALL RISKS INSURANCE COVERING: * and covering: With respect to an Engine, an agreed value of US$___________ or, with LESSOR's written concurrence, replacement cost; With respect to Parts, replacement cost. DEDUCTIBLE: * GEOGRAPHICAL COVERAGE: Worldwide. INSURANCE REQUIRED BY MANUFACTURER LESSEE will carry the insurance required by Manufacturer in connection with LESSOR's assignment of Manufacturer's warranties and product support to LESSEE. CONTRACTUAL INDEMNITY LESSEE has insurance coverage for the indemnities agreed to by LESSEE pursuant to Article 17 of the Lease to the extent provided in the relevant policies. PERIOD OF COVERAGE (ALL POLICIES) From Delivery Date of Aircraft to [EXPIRATION DATE] It is further certified that LESSOR has an interest in respect of the Aircraft under the Lease. Accordingly, with respect to losses occurring during the period from the Effective Date until the expiry of the Insurance or until the expiry or agreed termination of the Lease or until the obligations under the Lease are terminated by any action of the Insured or LESSOR and in consideration of the Additional Premium it is confirmed that the Insurance afforded by the Policy is in full force and effect and it is further agreed that the following provisions are specifically endorsed to the Policy. 1. UNDER THE HULL (ALL RISKS AND HULL WAR AND ALLIED RISKS) AND AIRCRAFT SPARES INSURANCES * (d) Insurers have no right to replace the Aircraft on a Total Loss (arranged, constructive or otherwise). (e) Insurers recognize that LESSEE and LESSOR have agreed that a Total Loss of the Airframe will constitute a Total Loss of the Aircraft. (f) In the event of Total Loss of the Aircraft, Insurers agree to pay LESSOR all amounts up to the Agreed Value based solely upon LESSOR's (not LESSEE's) execution of the appropriate form of release/discharge document. LESSOR may sign any required release in lieu of the Insured in the event of a Total Loss, Constructive Total Loss or Arranged Total Loss. (g) "Cut-through clause": Insurers confirm that in the event of any claim arising under the hull insurances, the Reinsurers will in lieu of payment of the Insurers, its successors in interest and assigns, pay to the person named as sole loss payee under the original insurances that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Insurers (subject to proof of loss), it being understood and agreed that any such payment by any Reinsurers will fully discharge and release such Reinsurer from any and all further liability in connection therewith and provide for payment to be made notwithstanding (i) any bankruptcy, insolvency, liquidation or dissolution of the Insurers and (ii) that the Insurers have made no payment under the original insurance policies. (h) Insurers confirm that under the insurance policies, if the Insured installs an engine owned by a third party on the Aircraft, either (i) the hull insurance will automatically increase to such higher amount as is necessary in order to satisfy both LESSOR's requirement to receive the Agreed Value in the event of a Total Loss, Constructive Total Loss or Arranged Total Loss and the amount required by the third party engine owner, or (ii) separate additional insurance on such engine will attach in order to satisfy separately the requirements of the Insured to such third party engine owner. 2. UNDER THE LEGAL LIABILITY INSURANCE (a) Subject to the provisions of this Endorsement, the Insurance will operate in all respects as if a separate Policy had been issued covering each party insured hereunder, but this provision will not operate to include any claim arising howsoever in respect of loss or damage to the Aircraft insured under the Hull or Spares Insurance of the Insured. Notwithstanding the foregoing the total liability of Insurers in respect of any and all Insureds will not exceed the limits of liability stated in the Policy. (b) The Insurance provided hereunder will be primary and without right of contribution from any other insurance which may be available to LESSOR. 3. UNDER ALL INSURANCES (a) LESSOR, its successors and assigns, and (with respect to Aviation and Airline General Third Party Liability only) its directors, officers and employees for their respective rights and interests, are included as Additional Insureds. (b) The cover afforded to LESSOR by the Policy in accordance with this Endorsement will not be invalidated by any act or omission (including misrepresentation and non-disclosure) of any other person or party which results in a breach of any term, condition or warranty of the Policy provided that LESSOR has not caused, contributed to or knowingly condoned the said act or omission. (c) LESSOR will have no responsibility for premium and insurers will waive any right of set-off or counterclaim against LESSOR except in respect of outstanding premium in respect of the Aircraft, provided that Insurer may only set-off for premiums against the proceeds of the hull insurance for outstanding premiums in connection with hull all risks and hull war and allied perils insurance. (d) Upon payment of any loss or claim to or on behalf of LESSOR, Insurers will to the extent and in respect of such payment be thereupon subrogated to all legal and equitable rights of LESSOR indemnified hereby (but not against LESSOR). Insurers will not exercise such rights without the consent of those indemnified, such consent not to be unreasonably withheld. At the expense of Insurers LESSOR will do all things reasonably necessary to assist the Insurers to exercise said rights. (e) Except in respect of any provision for Cancellation or Automatic Termination specified in the Policy or any endorsement thereof, cover provided by this Endorsement may only be cancelled or materially altered in a manner adverse to LESSOR by the giving of not less than thirty (30) days notice in writing to LESSOR. Notice will be deemed to commence from the date such notice is given by the Insurers. Such notice will NOT, however, be given at normal expiry date of the Policy or any endorsement. 4. EXCEPT AS SPECIFICALLY VARIED OR PROVIDED BY THE TERMS OF THIS CERTIFICATE (a) LESSOR IS COVERED BY THE POLICY SUBJECT TO ALL TERMS, CONDITIONS, LIMITATIONS, WARRANTIES, EXCLUSIONS AND CANCELLATION PROVISIONS THEREOF. (b) THE POLICY WILL NOT BE VARIED BY ANY PROVISIONS CONTAINED IN THE LEASE WHICH PURPORT TO SERVE AS AN ENDORSEMENT OR AMENDMENT TO THE POLICY. SUBJECT (save as specifically stated in this Certificate) to policy terms, conditions, limitations and exclusions. Yours faithfully, [BROKERS] EXHIBIT D BROKERS' LETTER OF UNDERTAKING To: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States Date: Our Ref: Re: FRONTIER AIRLINES, INC. ("LESSEE") Airbus A318-100 Manufacturer's Serial No.: [TBD] Registration Mark: N-_____ (the "Aircraft") -------- Dear Sirs: We confirm that insurance has been effected for the account of [LESSEE] (the "Operator") covering all aircraft owned or operated by them, including the above-referenced aircraft (the "Aircraft"). [Also confirm, if applicable, the amount of any hull all risks or hull war and allied perils on the Aircraft which LESSEE is carrying in excess of the Agreed Value (which excess insurance would be payable to LESSEE). Such excess insurance may not exceed ten percent (10%) of the Agreed Value.] Pursuant to instructions received from the Operator and in consideration of your approving the arrangement of the Operator's "Fleet Policy" (under which the above-referenced Aircraft is insured) through the intermediary of ourselves as Brokers in connection with the insurance (the "Insurance") mentioned in our Certificate of Insurance (Reference No. [ ] dated [ ] and attached hereto), we undertake as follows: 1. In relation to the Hull and War Risks Insurance to hold to your order the insurance Slips or Contracts and any Policies which may be issued or any policies substituted (with your consent) therefor (but only insofar as the same relate to the Aircraft only) and the benefit of the Hull and War Risks Insurance thereunder, but subject to our requirements to operate the Fleet Policy insofar as it relates to any other aircraft insured thereunder. 2. To advise you of any of the following: (a) If any insurer cancels or gives notice of cancellation of any of the Insurance at least thirty (30) days (or such lesser period as may be available in the case of War and Allied Perils) before such cancellation is to take effect in respect of the Aircraft. (b) Of any act or omission or of any event (including non-payment of premium) of which we have knowledge or are notified and which might invalidate or render unenforceable in whole or in part any of the Insurance, insofar as the same relate to the Aircraft. (c) If we do not receive instructions to renew all or any of the Insurance at least thirty (30) days prior to their expiration. (d) If any of the Insurance are not renewed on the same terms (save as to premium and period of cover and as you might otherwise have notified us to be acceptable to you) seven (7) days prior to expiry thereof. The above undertakings are given subject to our continuing appointment for the time being as Insurance Brokers to the Operator. We also undertake to advise you if we cease to be Insurance Brokers to the Operator. Yours faithfully, EXHIBIT E ESTOPPEL AND ACCEPTANCE CERTIFICATE FRONTIER AIRLINES, INC. ("LESSEE"), a corporation organized under the laws of Colorado does hereby agree as follows: 1. LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have entered into an Aircraft Lease Agreement dated as of May 25, 2000 (hereinafter referred to as the "Lease"). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Lease. 2. LESSEE has this ____ day of __________, ____ (Time: __________ ) at ____________________ received from LESSOR possession of: (a) One (1) Airbus A318-100 aircraft bearing Manufacturer's serial number [TBD] and United States registration mark N-_____, together with two (2) PW 6124 engines bearing manufacturer's serial numbers ______ and ______ (each of which has 750 or more rated take-off horsepower), all in airworthy condition. (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Aircraft, Engines, and Parts. 3. All of the foregoing has been delivered on the date set forth above pursuant to the terms and provisions of the Lease. 4. The amount of fuel on board at Delivery is ________ (circle one) pounds/kilos (________ gallons). 5. The Aircraft, Engines, Parts and Aircraft Documentation as described in the Lease have been fully examined by LESSEE and, except as set forth in the attached Discrepancies List, have been received and accepted by LESSEE in a condition fully satisfactory to LESSEE and in full conformity with the Lease in every respect. 6. The Lease is in full force and effect, LESSOR has fully, duly and timely performed all of its obligations of every kind or nature thereunder and LESSEE has no claims, offsets, deductions, set-off or defenses of any kind or nature in connection with the Lease. 7. LESSEE has obtained all required permits, authorizations, licenses and fees of the State of Registration or any Government Entity thereof necessary in order for LESSEE to operate the Aircraft as permitted by the terms of the Lease. Dated on the date set forth above FRONTIER AIRLINES, INC. By: Title: EXHIBIT F OPINION OF COUNSEL [SEE ATTACHED] EXHIBIT G FORM OF POWER OF ATTORNEY FRONTIER AIRLINES, INC. ("Frontier") hereby irrevocably appoints INTERNATIONAL LEASE FINANCE CORPORATION ("ILFC") of 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, U.S.A. as Frontier's true and lawful attorney so that ILFC may take any of the following actions in the name of and for Frontier with respect to the Airbus A318-100 aircraft bearing manufacturer's serial number [TBD] (the "Aircraft") leased by ILFC to Frontier pursuant to an Aircraft Lease Agreement dated as of May 25, 2000 (the "Lease"): 1. Pursuant to the Lease, Frontier has procured and is maintaining insurances for the Aircraft. ILFC has been named sole loss payee on the all risk hull and war risk insurances for the Aircraft. In the event of a total loss or constructive total loss of the Aircraft, ILFC is entitled to receive insurance proceeds in an amount equal to: 28,000,000. ILFC may take all action and sign all documents otherwise required to be performed by Frontier, including execution on behalf of Frontier of an appropriate form of discharge/release document, in order for ILFC to collect such insurance proceeds. 2. In the exercise of the rights of ILFC under the Lease to recover the Aircraft from Frontier and United States after termination of the Lease due to an Event of Default under the Lease or for termination of the Lease due to any other reason, ILFC may take all action otherwise required to be performed by Frontier before the authorities and courts in United States in order to cause the Aircraft to be repossessed by ILFC, deregistered from the U.S. Federal Aviation Administration and exported from the United States. 3. In the exercise of the rights mentioned in paragraphs 1 and 2, ILFC may make any declarations or statements and sign any public or private documents which may be considered necessary or appropriate. 4. ILFC may delegate the powers conferred hereby, in whole or in part, to any individual(s), including but not limited to employees of ILFC or legal counsel in United States. ILFC is empowered to determine in its sole discretion when to exercise the powers conferred upon ILFC pursuant to this Power of Attorney. Any person, agency or company relying upon this Power of Attorney need not and will not make any determination or require any court judgment as to whether an Event of Default has occurred under the Lease or whether the Lease has been terminated. Frontier hereby waives any claims against (a) any person acting on the instructions given by ILFC or its designee pursuant to this Power of Attorney and (b) any person designated by ILFC or an officer of ILFC to give instructions pursuant to this Power of Attorney. Frontier also agrees to indemnify and hold harmless any person, agency or company which may act in reliance upon this Power of Attorney and pursuant to instructions given by ILFC or its designee. This Power of Attorney is irrevocable until the Aircraft has been returned to the possession of ILFC, deregistered and exported from United States. FRONTIER AIRLINES has made and delivered this Power of Attorney on _________ in ____________. FRONTIER AIRLINES By: Title: EXHIBIT H ASSIGNMENT OF RIGHTS (AIRFRAME) This Assignment of Warranty and Support Rights is made this ______ day of _______________, ______ (the "Assignment Agreement") BETWEEN (1) INTERNATIONAL LEASE FINANCE CORPORATION, a corporation organized and existing under the laws of the State of California, United States of America, having its principal corporate offices located at 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, U.S.A. ("ILFC"); and (2) FRONTIER AIRLINES, INC. a Colorado corporation whose address and principal place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado 80239, U.S.A. ("LESSEE") 1. Preamble. In connection with the lease by ILFC to LESSEE of one Airbus A318-100 aircraft bearing manufacturer's serial number [TBD] (the "Aircraft"), reference is made to the following documents: (a) the Airbus A318-100 Purchase Agreement between ILFC and AVSA, S.A.R.L. ("AVSA") dated as of January 11, 1999, as further amended (the "Purchase Agreement"), under which ILFC agreed to purchase the Aircraft; (b) the General Terms Agreement between ILFC and AVSA dated as of November 10, 1988 (the "G.T.A."); (c) the Product Support Agreement ("Exhibit E") applicable to the Purchase Agreement (the "Support Agreement"); (d) the Aircraft Lease Agreement between ILFC and LESSEE dated as of May __, 2000 (the "Lease Agreement"); (e) the Participation Agreement between ILFC and LESSEE dated as of ____________ ___, ______ (the "Participation Agreement"). 2. Assignment. Pursuant to the Lease Agreement, ILFC will lease the Aircraft to LESSEE, including in such Lease Agreement a commitment to assign to LESSEE certain warranty and other rights related to the Aircraft under the Purchase Agreement, the G.T.A. and the Support Agreement. With effect from the actual delivery date of the Aircraft by AVSA to ILFC in respect of (a), (b) and (d) below, and with effect from the date hereof in respect of (c) below, ILFC therefore hereby assigns to LESSEE and LESSEE accepts the assignment on the terms and conditions specified herein of the following rights (the "Rights") under the provisions indicated (the "Assigned Provisions") with respect to the Aircraft: (a) the benefit of the rights with respect to the Aircraft under Clause 12 (Warranties and Service Life Policy) of the G.T.A.; (b) the rights with respect to the Aircraft under Clause 13 (Patent Indemnity) of the G.T.A.; (c) the rights with respect to the Aircraft under the Support Agreement; (d) the benefit of the remaining part of support allowances set forth in paragraph 1(d) of the Participation Agreement. 3. Conditions of Assignment. This Assignment Agreement is made subject to the following conditions: (a) LESSEE hereby agrees to be bound by and to comply with all applicable terms, conditions and limitations of Clause 12.5 of the G.T.A. and Clauses 16.9 and 18.5 of the Support Agreement (copies of which are attached hereto) with respect to the exercise of any of the Rights and to be bound by the covenants of the Buyer in the Assigned Provisions to the same extent as if LESSEE had been named "Buyer" of the Aircraft under the Purchase Agreement. (b) Nothing contained herein shall subject AVSA to any liability or additional obligations whatsoever to which it would not otherwise be subject under the Purchase Agreement, the G.T.A. and the Support Agreement or, except to the extent set forth in section 3(c) below, modify in any respect whatsoever its contractual rights under the said agreements. (c) So long as this Assignment Agreement is in full force and effect, LESSEE and not ILFC will be responsible for compliance with Clause 12.5 of the G.T.A. and Clauses 16.9 and 18.5 of the Support Agreement, in each case with respect to the Aircraft. Upon termination of this Assignment Agreement, ILFC shall once again be bound by such clauses with respect to the rights and benefits described in section 2 above received by ILFC in connection with the Aircraft. (d) Other than with respect to the obligations assumed by LESSEE under this Assignment Agreement as set forth in section 3(a) above, ILFC shall remain fully bound by all provisions of the Purchase Agreement, G.T.A. and Support Agreement. 4. Reassignment. Upon termination of the Lease Agreement between ILFC and LESSEE, and provided that LESSEE and ILFC shall have furnished AVSA with written notice thereof, upon receipt of such notice by AVSA, the rights contained herein shall automatically be reassigned to ILFC. 5. Assignment by LESSEE. Except as permitted under Article 24 of the Lease Agreement, the rights of ILFC and LESSEE under this Assignment Agreement in respect of the Purchase Agreement, the G.T.A. and the Support Agreement shall not be further assigned by the parties hereto. 6. Notification (a) It shall be a condition precedent to this Assignment Agreement that this Assignment Agreement shall, at the expense of LESSEE, be notified to AVSA within 2 weeks of the date hereof pursuant to Article 1690 of the French Civil Code. (b) All notices and requests required or authorized under this Assignment Agreement shall be given in writing either by personal delivery to a responsible officer of the party to whom the same is given or by internationally recognized courier service or by telefax directed as set forth below: ILFC shall be addressed at: 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, U.S.A. Attention: Senior Vice President-Technical Fax: 310-788-1990 Telephone: 310-788-1999 LESSEE shall be addressed at: 12015 East 46th Avenue Suite 200 Denver, Colorado 80239, U.S.A. Attention: General Counsel Fax: 303-371-7007 Telephone: 303-371-7400 AVSA shall be addressed at: 2 Rond-Point Maurice Bellonte 31 700 Blagnac, France Attention: Director Contracts Fax: (33) 5.61.30.40.11 Telephone: (33) 5.61.30.40.12 or at such other address or to such other person as the party receiving the notice or request may designate from time to time. Such notice or request shall be deemed to be effective in the case of (aa) personal delivery, on the date upon which personally delivered, (bb) delivery by courier, on the date of receipt or (cc) telefax transmission, on the date of confirmation of successful transmission. 7. Consent of AVSA. It shall be a condition precedent to this Assignment Agreement that AVSA execute the Consent contained in Schedule 1 hereto. 8. Applicable Law and Jurisdiction. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, AND THE PARTIES AGREE THAT ANY COMPETENT FEDERAL COURT LOCATED IN NEW YORK, NEW YORK SHALL HAVE JURISDICTION OVER ANY DISPUTE ARISING IN CONNECTION HEREWITH. Nothing in this section will prevent either party from making a claim in a court of competent jurisdiction in California or, if AVSA is involved, France. 9. Confidentiality. Subject to any legal or governmental requirements of disclosure, ILFC and LESSEE shall keep confidential the terms and conditions of this Assignment Agreement and the clauses from the G.T.A. and Support Agreement provided to LESSEE provided that ILFC and LESSEE may disclose such materials to their professional advisors. IN WITNESS WHEREOF, the parties have caused this Assignment Agreement to be executed on their behalf by their duly authorized officers. INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: SCHEDULE 1 [DATE] Re: ILFC/FRONTIER AIRLINES ("LESSEE"): ASSIGNMENT OF WARRANTY AND SUPPORT RIGHTS Dear Sirs, 1. Reference is made to the Assignment of Warranty and Support Rights dated ____________ ___, ______ between ILFC and LESSEE (the "Assignment Agreement") concerning the assignment of certain warranty rights under the Purchase Agreement and the G.T.A. and certain customer support rights under the Support Agreement with respect to the Aircraft. 2. All terms defined herein bear the meaning ascribed hereto in the Assignment Agreement. 3. AVSA hereby consents to the assignment and reassignment contained in Clauses 2 and 4 respectively of the Assignment Agreement on the terms and conditions therein, subject to the following conditions: (a) AVSA shall have received formal notification of the Assignment Agreement; (b) AVSA shall not be subject by reason of the Assignment Agreement to any liability or additional obligations whatsoever to which it would not otherwise be subject under the Purchase Agreement, the G.T.A. and the Support Agreement or modify in any respect whatsoever its contractual rights under the said agreements; (c) So long as the Assignment Agreement is in full force and effect, LESSEE and not ILFC will be responsible for compliance with Clause 12.5 of the G.T.A. and Clauses 16.9 and 18.5 of the Support Agreement, in each case with respect to the Aircraft. Upon termination of the Assignment Agreement, ILFC shall once again be bound by such clauses with respect to the rights and benefits described in section 2 of the Assignment Agreement received by ILFC in connection with the Aircraft. (d) LESSEE hereby agrees to be bound by and to comply with all applicable terms, conditions and limitations of Clause 12.5 of the G.T.A. and Clauses 16.9 and 18.5 of the Support Agreement with respect to the exercise of any of the Rights and to be bound by the covenants of the Buyer in the Assigned Provisions to the same extent as if LESSEE had been named "Buyer" of the Aircraft under the Purchase Agreement. (e) Other than with respect to the obligations assumed by LESSEE under the Assignment Agreement as set forth in section 3(a) above, ILFC shall remain fully bound by all provisions of the Purchase Agreement, G.T.A. and Support Agreement. 4. This Consent shall be governed by and construed in accordance with the laws of the State of New York and any dispute arising hereunder shall be referred to the federal court located in New York, New York. Nothing in this clause will prevent any party from making a claim in a court of competent jurisdiction in California or France. For and on behalf of AVSA, S.A.R.L. By: Title: Date: Signed in acknowledgement for Signed in acknowledgement for and on behalf of and on behalf of INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: EXHIBIT I ASSIGNMENT OF RIGHTS (ENGINES) ASSIGNMENT OF WARRANTIES [DATE] In consideration of FRONTIER AIRLINES, INC. ("LESSEE") leasing from INTERNATIONAL LEASE FINANCE CORPORATION ("ILFC") one (1) A318-100 aircraft with two Pratt & Whitney 6124 engines installed thereon, it is hereby agreed as follows: 1. ILFC hereby assigns and transfers to LESSEE all of ILFC's respective rights and interest in and to and in and under the Engine Sales Warranty and Service Policy benefits (the "Engine Warranties") of the Consolidated JT8D-200 Series/PW2000 Series/PW4000 Series Propulsion System/Engine Support Proposal for International Lease Finance Corporation Dated May 11, 1988 (the "Support Agreement") between United Technologies Corporation, Pratt & Whitney Group ("P&W") and International Lease Finance Corporation ("ILFC") during the term of the lease to LESSEE so long as LESSEE is not in default thereunder. 2. P&W hereby consents to the assignment and transfer to LESSEE of all of the rights and interest of ILFC in, to and under the Engine Warranties and P&W agrees that until it shall have received written notice that LESSEE is in default under such lease from ILFC, it will allow LESSEE on an exclusive basis, to exercise in its own name all rights and interest that ILFC would have been entitled to pursuant to the Engine Warranties, it being further agreed that LESSEE accepts all of the limitations and liabilities pertaining to said Warranties as stated in the Support Agreement. 3. Each party agrees that at any time from time-to-time, on written request of any other party hereto and at the expense of the party so requesting, that it will promptly and duly execute and deliver any and all reasonable documentation required to accomplish the assignment and transfer of the rights and interest referred to above. 4. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns to the extent permitted by the Support Agreement and hereunder. 5. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 6. This Agreement may be executed in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute on and the same instrument and any party may execute this Agreement by signing any counterpart. IN WITNESS WHEREOF, the authorized representative of the parties hereto have executed this Agreement as of the day and year first above written. For and on behalf of INTERNATIONAL LEASE FINANCE CORPORATION For and on behalf of FRONTIER AIRLINES, INC. Its: For and on behalf of UNITED TECHNOLOGIES CORPORATION, PRATT & WHITNEY GROUP L.E. Pawlich Manager, Business Support EXHIBIT J RETURN ACCEPTANCE RECEIPT Date: _________________ ___, ____ 1. FRONTIER AIRLINES, INC. as LESSEE, and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have entered into an Aircraft Lease Agreement dated as of May 25, 2000 (the "Lease"). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Lease. 2. LESSOR has this ____ day of __________, ____ (Time: __________) at ____________________ received from LESSEE possession of: (a) One (1) Airbus A318-100 Aircraft bearing Manufacturer's serial number [TBD], together with two (2) PW 6124 Engines bearing manufacturer's serial numbers ______ and ______, and all Parts attached thereto and thereon in an airworthy condition and (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Aircraft, Engines, and Parts, as listed in the Document Receipt attached hereto. 3. The Airframe, Engines, and Parts had the following hours/cycles at return: (a) Airframe: Total hours: ________ Total Landings: ___________ Date last "C" check performed: _________________ ______ hours/ ______ cycles since last "C" check Date last "D" check performed: _________________ ______ hours/ ______ cycles since last "D" check (b) Engines: Position Serial No. Total Hours Total Cycles Hrs/Cycles since last shop visit Time Remaining to Next Life Limited Part Removal Part Name Hours Cycle MSN MSN (c) APU: MSN __________ Total hours: __________ ______ hours/ ______ cycles since last Overhaul ______ hours/ ______ cycles remaining on APU life-limited Parts (d) Landing Gears: Position Serial No. Total Hrs/Cycles Hrs/Cycles since Date of last last Overhaul Overhaul Nose Right Main Left Main
(e) Fuel on board at return: ______ (circle one) pounds/kilos (______ gallons) 4. Other technical information regarding the Aircraft and its components are correctly set forth on the Technical Evaluation Report (in the form of Exhibit M) attached hereto. - 5. With reference to Article 13.8 of the Lease regarding reimbursement from the Reserves after return of the Aircraft: _____ There are no claims for reimbursement from the Reserves which will be submitted after the date hereof. or _____ Claims for reimbursement from the Reserves will be submitted after the date hereof for the following: Type of Work Estimated Invoice Amount 6. The above specified aircraft, engines and documentation are hereby accepted by LESSOR subject to correction by LESSEE (or procurement by LESSEE at LESSEE's cost) as soon as reasonably possible of the discrepancies specified in Attachment 2 hereto. 7. Subject to the following paragraph, the leasing of the Aircraft by LESSOR to LESSEE pursuant to the Lease is hereby terminated without prejudice to LESSEE's continuing obligations under the Lease including, without limitation, paragraph 6 above, paragraph 8 below, and Articles 10.5, 16 and 17. 8. LESSEE represents and warrants that during the term of the Lease all maintenance and repairs to the Airframe and Engines were performed in accordance with the requirements contained in the Lease. LESSEE further confirms that all of its obligations under the Lease whether accruing prior to the date hereof. EX-10.55 12 0012.txt LEASE AGREEMENT LEASE FOR FRONTIER CENTER ONE, LLC, a Colorado limited liability company (as Landlord) and FRONTIER AIRLINES, INC., a Colorado corporation (as Tenant) LEASE This Lease is made as of the day of , 2000, by and between Frontier Center One, LLC, a Colorado limited liability company ("Landlord") and Frontier Airlines, Inc., a Colorado corporation, ("Tenant"). W I T N E S S E T H 1. Basic Provisions. In addition to other terms which are defined elsewhere in this Lease or any Exhibits, the terms defined in the following subsections of this Section 1 shall have the meaning set forth in such subsection whenever used in this Lease. 1.1......Building: Approximately * rentable square foot, one story building to be constructed by Landlord commonly known as Frontier Center One, with a street address of 7001 Tower Road, Denver, CO 80249. 1.2......Premises: Approximately * rentable square feet of space located in the Building, including all improvements therein or to be provided by Landlord under the terms of this Lease, commonly known as Suite 101, as outlined on Exhibit A attached hereto, and approximately * square feet of space in the Building services court depicted on Exhibit A-1 attached hereto and made a part hereof, (the "Ground Satellite Area" described in Section 49 hereof) and a day care play area (the "DC Play Area"), if requested by Tenant and approved by Landlord in accordance with Exhibit C hereof. In addition to Tenant's rights to use and occupy the Premises as hereinafter specified, Tenant shall have non-exclusive rights to the Common Areas (as defined in Section 2.4 below) as hereinafter specified, but shall not have any rights to the roof (except as expressly granted in Section 49 hereof), exterior walls or utility raceways of the Building or to any other buildings in the Building Complex. 1.3......Building Complex: The Premises, the Building, the Common Areas (as defined below), the land upon which they are located, which land is legally described on Exhibit B attached hereto and made a part hereof (the "Real Property"). 1.4......Parking: * unreserved vehicle parking spaces for each * rentable square feet of the Premises, excluding the Ground Satellite Area and DC Play Area from such calculation. 1.5......Term: * years and * months ("Primary Lease Term") commencing October 1, 2000 ("Commencement Date"). 1.6......Estimated Delivery Date: October 1, 2000. [This is a non binding estimate of the date on which the Premises will be Ready for Delivery as defined below.] 1.7......Base Rent: .........(a) For the Primary Lease Term and commencing on the Rent Commencement Date, as defined in Section 4.1 below, Base Rent for the first * rentable square feet of the Premises excluding the Ground Satellite Area and DC Play Area shall be: Lease Year Per Square Foot 1 $ * 2 $ * 3 $ * 4 $ * 5 $ * 6 $ * 7 $ * 8 $ * 9 $ * 10 $ * 11 $ * 12 $ * (b) In addition, with respect to the rentable square feet of the Building leased by Tenant exceeding * rentable square feet, excluding the Ground Satellite Area and DC Play Area, which are part of the Premises as of the Commencement Date, * rentable square feet, the Base Rent for the Primary Lease Term shall be as follows: Lease Year Per Square Foot 1 $ * 2 $ * 3 $ * 4 $ * 5 $ * 6 $ * 7 $ * 8 $ * 9 $ * 10 $ * 11 $ * 12 $ * (c) In addition, Tenant shall pay Base Rent in the amount of $* per month, for the Primary Lease Term for the Ground Satellite Area described in Section 49 hereof. 1.8 Rentable Area: Approximately * rentable square feet which is all rentable space available for lease in the Building ("Rentable Area of the Building") and approximately * rentable square feet which is the rentable space located within the Building comprising the Premises, excluding the Ground Satellite Area and DC Play Area, ("Rentable Area of the Premises"). Unless otherwise provided herein, any square footage set forth in this Lease or that may have been used in calculating the Rent and/or Common Area Operating Expenses is an approximation which Landlord and Tenant agree is reasonable and the Base Rent and Tenant's Share based thereon are not subject to revision whether or not the actual square footage is more or less. Notwithstanding the foregoing, if there is: (i) alteration to the Premises or the Building after the Commencement Date; or (ii) any change in the designated Rentable Area of the Premises and/or the Building after the Commencement Date, then Landlord shall have the exclusive discretion to recalculate Tenant's Share by substituting the revised approximate Rentable Area of the Premises and/or the Building in the calculation described above. Any change in the approximate Rentable Area of the Premises and/or the Building recalculated by Landlord shall be effective, for purposes of calculating Tenant's Share as of the first day of the next calendar month after Landlord provides to Tenant written notice of such change. Landlord and Tenant agree that the Rentable Area of the Premises shall be determined in accordance with Paragraph 3 of the Work Agreement, Exhibit C hereto, and the Base Rent and Tenant's Share of Operating Expenses shall be calculated at that time. Rentable Area shall be calculated in accordance with the Standard Method for Measuring Floor Area in Office Buildings published by The Building Owners and Managers Association International and approved by the American National Standards Institute, Inc., on June 7, 1996. 1.9 Tenant's Share of Operating Expenses: A percentage determined by dividing the Rentable Area of the Premises by the Rentable Area of the Building. Tenant shall commence paying Tenant's share of Operating Expenses on January 1, 2001. Landlord and Tenant acknowledge that Tenant has been granted the right to more parking spaces than other tenants will be granted. Therefore, in calculating Tenant's Share of Operating Expenses, Tenant shall pay * percent of all costs associated with the maintenance, repair or replacement of parking areas for each percent of Tenant's Share of other Operating Expenses. (For example, if Tenant's Share is *%, Tenant's share for parking areas is * x * = *.) 1.10 Security Deposit: Initially $* and thereafter decreasing in accordance with Section 5.3 herein. 1.11 Permitted Use: (i) General office; (ii) telephone reservation center; (iii) classroom training; (iv) flight simulator training; (v) dispatch center; (vi) cafeteria only for employees; (vii) exercise area only for employees; and (viii) day care center and for no other purpose; provided, however, at no time during the Primary Lease Term as it may be extended, may more than * of the Rentable Area of the Premises at any time, be used for uses (vi) through (viii) above. 1.12 Applicable Laws: Applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record (collectively, "Applicable Laws"). 1.13 Business Day: Monday through Friday, legal holidays (days on which the U.S. Post Office is closed) excepted. 2. Premises, Parking and Common Areas. 2.1 Grant. In consideration of the Rent and the other covenants described in the Lease, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, for the Term, at the Rent and upon all of the terms, covenants and conditions set forth in this Lease. Tenant accepts this Lease and the Premises upon the covenants and conditions set forth in this Lease and subject to: (a) any encumbrances, covenants, conditions, restrictions and other matters of record as of the Commencement Date of the Lease; and (b) the Applicable Laws. Landlord hereby represents, covenants and warrants to Tenant that, as of the Commencement Date it will have fee simple title to the Real Property of which the Premises is a part and as of the Commencement Date, the Premises will not be subject to leases and tenancies other than this Lease. Furthermore, between the date of this Lease and the Commencement Date, Landlord agrees not to record (or voluntarily permit recording) against the Real Property any document which would prohibit Tenant's Permitted Use. 2.2 Landlord Delivery. Landlord shall deliver the Premises to Tenant "Ready for Delivery" as hereafter defined within the time frames described in Section 3.2 herein. Ready for Delivery as used herein shall mean the date that Tenant may enter the Premises to perform Tenant's Work (as defined in Exhibit C hereto) including, sufficient access to the Premises for construction vehicles. The certificate of the architect (or other representative of the Landlord) in charge of supervising the completion of the Premises shall control conclusively the date upon which the Premises are Ready for Delivery. On and after the Delivery Date, Tenant and its authorized agents, contractors, subcontractors and employees shall be entitled to enter the Premises at Tenant's sole risk and expense to complete Tenant's Work. From the Delivery Date, estimated to be October 1, 2000, the provisions of this Lease other than with respect to the payment of Base Rent and Tenant's Share of Operating Expenses shall apply and Tenant shall pay for all utilities used by Tenant, its agents, contractors, subcontractors or employees. Prior to entry, Tenant shall provide to Landlord evidence of insurance to be provided by Tenant pursuant to the provisions of Section 9 of this Lease. Tenant acknowledges that on the Delivery Date, Landlord will be completing Landlord's Work (as defined in Exhibit C hereto) and Tenant, its agents, employees and contractors shall not interfere, delay or hinder Landlord, its agents, contractors or subcontractors in construction of Landlord's Work in accordance with the provisions of this Lease and any such delay shall be Tenant Delay as described in the Work Agreement. Tenant shall not use the Premises for storage of inventory or otherwise commence operation of business until such time as Tenant has received and delivered to Landlord a Certificate of Occupancy (temporary or final) or an equivalent sign-off issued by the appropriate governmental authority permitting use of the Premises for the Permitted Use under the Lease. 2.3 Acceptance of Premises. Landlord has advised Tenant to satisfy itself with respect to the condition of the Premises including, but not limited to, the electrical and fire sprinkler systems, security, environmental aspects, and compliance with the Americans with Disabilities Act ("ADA") and the Applicable Laws and the present and future suitability of the Premises for Tenant's intended use. Notwithstanding the foregoing, and subject to reimbursement as set forth in Section 4.2 below, Landlord will be responsible for compliance of the Common Areas of the Building with Applicable Laws; provided, however, Landlord shall have no obligation for non-compliance if such non-compliance is a result of Tenant's Permitted Use or occupancy of the Premises. The Landlord's Work (as the term is used in Exhibit C hereto), without any interior finish work will comply with the requirements of the ADA required for a commercial facility with no day care facility and excluding noncompliance due to inconsistencies with building codes or interpretations thereof. Compliance with the ADA as to the Tenant's Work shall be the sole responsibility of Tenant and Tenant's Work will comply with the requirements of the ADA required for Tenant's Permitted Use, including the day care center if Tenant elects to operate one. Landlord's Work and Tenant's Work shall be completed in accordance with Exhibit C attached hereto and made a part hereof (the "Work Agreement"). Except as set forth expressly herein and in the Work Agreement, Landlord shall have no obligation for completion of any improvements to the Premises and Tenant shall accept the Premises in its "AS IS" condition on the Lease Commencement Date. Subject to Total Delay (as defined in Section 3.2 hereof), Landlord's Work will be substantially completed (excluding landscaping and parking lot striping that may not be able to be performed due to time of year or weather constraints) by the Rent Commencement Date. 2.4 Common Areas. The term "Common Areas" is defined as all areas and facilities outside the Premises and excluding Rentable Area of the Building leased to other tenants and within the exterior boundary line of the Building Complex and interior utility raceways within the Premises that are provided and designated by the Landlord from time to time for the general non-exclusive use of Landlord, Tenant and other tenants of the Building Complex and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. Landlord hereby grants to Tenant, for the benefit of Tenant and its employees, suppliers, shippers, contractors, customers and invitees, during the Term of this Lease the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Landlord under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Building Complex. Under no circumstances shall the right therein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Landlord or Landlord's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord. Landlord or such other person(s) as Landlord may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations with respect thereto subject to any limitations thereon specifically set forth herein. Landlord shall have the right, in Landlord's sole discretion, from time to time: (i) to make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways so long as access to the Premises remains available and such modifications do not contravene any specific requirement contained in this Lease; (ii) to close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (iii) to designate other land outside the boundaries of the Building Complex to be a part of the Common Areas; (iv) to add additional buildings and improvements to the Common Areas; (v) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building Complex, or any portion thereof as long as access to the Premises remains available; (vi) to do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Building Complex as Landlord may, in the exercise of sound business judgment deem to be appropriate so long as such acts or modifications do not contravene any specific requirement contained in the Lease and access to the Premises remains available; and (vii) use the Common Areas for marketing purposes. 2.5 Parking. Tenant shall be entitled to use the number of unreserved parking spaces specified in Section 1.4 (which number of spaces may be reduced if Tenant elects to place a day care center in the Premises and must install the DC Play Area to comply with Applicable Laws related to such day care center) on a first come, first served basis on those portions of the Common Areas designated from time to time by Landlord for parking. Tenant shall not use more parking spaces than said number. Said parking spaces shall be used in compliance with the Parking License attached as Exhibit G hereto and made a part hereof for parking by vehicles no larger than full-size passengerautomobiles, sport utility vehicles, passenger vans, or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and loaded or unloaded as directed by Landlord in the Rules and Regulations issued by Landlord. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows use of the prohibited areas, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, or if applicable, the owner of the vehicle where Tenant has not permitted or allowed the use of the prohibited area, which cost shall be immediately payable upon demand by Landlord, if Tenant shall be responsible for such costs pursuant to the terms hereof. 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Primary Lease Term of this Lease are as specified in Section 1.5. 3.2 Delay in Possession. (a) If for any reason Landlord cannot deliver possession of the Premises to Tenant in accordance with the terms of Section 2.2 hereof by the Estimated Delivery Date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Tenant hereunder, or extend the Term hereof; but in such case, Tenant shall not, except as otherwise provided herein, be obligated to pay Base Rent, utility costs or Tenant's Share of Operating Expenses, or perform any other obligation of Tenant under the terms of this Lease until Landlord delivers the Premises to Tenant in the condition described in Section 2.2. If the Premises are not Ready for Delivery by the Commencement Date set forth in Section 1.5 hereof, and such delay is due to other than Tenant Delay (as defined in Exhibit C hereto) and except for force majeure events, Tenant shall be entitled to * day of occupancy of the Premises without the payment of the Base Rent for each day after * days (the "*-Day Period") from the Commencement Date as set forth in Section 1.5 that the Premises are not Ready for Delivery. Tenant Delay and delay due to force majeure events may be called "Total Delay" herein. Such *-Day Period shall be extended one day for each day of Total Delay until the Premises are Ready for Delivery. The term "force majeure" as used herein shall mean delay due to causes outside of Landlord's control that could not be avoided by the exercise of due care, including, without limitation, labor disputes, fire, flood, earthquake or civil disturbance, unusual delay in transportation, adverse weather conditions, or casualties. If the Premises are not Ready for Delivery * days after the Commencement Date as set forth in Section 1.5 hereof, and such delay is due to other than Total Delay Tenant shall be entitled to * days of occupancy of the Premises without payment of the Base Rent for each day after * days from the Commencement Date set forth in Section 1.5 that the Premises are not Ready for Delivery. Such * day period shall be extended one day for each day of Total Delay until the Premises are Ready for Delivery. If the Premises are not Ready for Delivery * days after the Commencement Date as set forth in Section 1.5 hereof, and such delay is due to other than Total Delay, Tenant shall have the right to terminate this Lease upon written notice to Landlord given within * calendar days after such * day period. If Tenant exercises its right to terminate hereunder, effective on the date such notice is received by Landlord, this Lease shall be null and void and of no further force and effect. If Tenant fails to timely exercise its right to terminate, this Lease shall continue in full force and effect and the Lease Commencement Date shall be the date that the Premises are Ready for Delivery. The delay of the Commencement Date, the Rent credit and the right to terminate the Lease as set forth herein shall be in full satisfaction of any claims Tenant might otherwise have as a result of such delay; provided, however, except for Total Delay, if and only if after the *-Day Period, Landlord is fully capable of performing Landlord's Work and fails to proceed with Landlord's Work with reasonable diligence, in addition to the Rent credit described above, Landlord will be liable to Tenant in the total amount of Tenant's actual damages, excluding any consequential damages, resulting from the delay in delivery of the Premises in Ready for Delivery condition arising from delays which are not Tenant Delay but are delays over which Landlord does have control and for which Landlord fails to proceed with reasonable diligence. Likewise, in the event of Tenant Delay exceeding * days, Tenant shall be liable to Landlord in the total amount of Landlord's actual damages, excluding any consequential damages, arising out of Tenant Delay in excess of * days. (b) If in accordance with the foregoing provision, the Commencement Date would occur on other than the first day of a calendar month, the Commencement Date shall be delayed until the first day of the next calendar month and the Primary Lease Term shall be measured from such date; provided, however, during any period of delayed commencement, all terms and provisions set forth in this Lease including, but not limited to Tenant's obligation to pay Base Rent and all other charges under the Lease shall commence measured from such earlier date. In order to place in writing the exact Commencement Date, Rent Commencement Date and expiration date of the Lease, the Rentable Area of the Premises and Building, the parties agree to execute a supplemental agreement to become a part hereof in the form attached hereto as Exhibit E. 3.3 Lease Year. "Lease Year" as used in this Lease shall be defined as each twelve month period beginning with the Rent Commencement Date or any anniversary thereof and ending on the immediately preceding day one year later. 4. Rent. 4.1 Base Rent. Tenant shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Landlord in lawful money of the United States, without offset or deduction on or before the day on which it is due under the terms of this Lease. Subject to the terms of Section 3.2, the first payment of Base Rent shall be due no later than * calendar months after the Commencement Date (the "Rent Commencement Date"). Base Rent and all other Rent and charges for the period during the Term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to Landlord at its address stated herein or to such other persons or at such other addresses as Landlord may from time to time designate in writing to Tenant. 4.2 Operating Expenses. Subject to the terms of Section 3.2, commencing no later than * calendar months after the Commencement Date, Tenant shall pay to Landlord during the Term hereof, in addition to the Base Rent, Tenant's Share (as specified in Section 1.8) of all Operating Expenses, as hereinafter defined, during each calendar year of the Term of this Lease, in accordance with the following provisions: (a) "Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Landlord relating to the ownership and operation of the Building Complex including, but not limited to, the following: (i) The operation, repair and maintenance, in neat, clean, good order and condition of the Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and exterior walls, including paint; exterior signs, awnings, any tenant directories, and fire detection and sprinkler systems. (ii) The cost of water, sewer, gas, electricity and telephone to service the Common Areas, or Premises to the extent not separately metered. (iii) Snow, ice and trash removal service, property management and security services and the costs of any environmental inspections and the heating, air conditioning and ventilating maintenance contract. (iv) The costs of capital improvements, structural repairs and replacements in or to the Building in order to conform to changes subsequent to the Commencement Date in any Applicable Laws, ordinances, rules, regulations or orders of any governmental or quasi-governmental authority having jurisdiction over the building (the "Required Capital Improvements"); the costs of any capital improvements, structural repairs and replacements designed primarily to reduce any Operating Expenses (the "Cost Savings Improvements"). The expenditures for Required Capital Improvements and Cost Savings Improvements shall be amortized at a market rate of return over the useful life of such item as determined by Landlord's accountants. Capital Improvements shall not include the initial costs of Building expansions for purposes of determining Operating Expenses. (v) Real Property Taxes to be paid by Landlord for the Building and the Common Areas under Section 11 hereof. (vi) The cost of the premiums for the insurance policies maintained by Landlord under Section 9 hereof. (vii) Any deductible portion of an insured loss concerning the Building or the Common Areas. (viii) Any other services to be provided by Landlord that are stated elsewhere in this Lease to be an Operating Expense. (ix) The cost of maintenance, repair or replacement of the fire protection system. (b) Operating Expenses shall not include: (i) any repairs to, or replacements of the Building roof or structural elements (including foundations, structural columns and beams and load bearing walls) to the extent covered by warranty; (ii) any latent defect of Landlord's Work (Tenant must notify Landlord of such defects within 90 days of the Commencement Date); (iii) any items (including but not limited to costs incurred by Landlord for repair of damage to the Building) to the extent Landlord receives reimbursement from insurance proceeds or from a third party however any deductible portion of any insured loss may be included in operating expenses; (iv) interest or principal payments or any other financing costs of any mortgage or any indebtedness of Landlord, except as expressly included in Section 4.2(a) above. (v) Depreciation, amortization, or interest payments except as specifically included in Operating Expenses; (vi) Landlord's general corporate overhead and general administrative expenses including but not limited to, salaries of officers and executives of Landlord except to the extent they provide direct service to the Building Complex; (vii) advertising and promotional expenditures and costs of signs in or on the Building identifying the owner of the Building or its manager; (viii) costs arising from Landlord's charitable or political contributions; (ix) costs, fees, penalties and other expenses arising from the presence, remediation or removal of any Hazardous Substances on or from the Building or Real Property, not caused by the actions of Tenant; (x) any item to the extent that Tenant's payment thereof would result in Landlord receiving more than 100% of Landlord's actual expenditure; (xi) legal and accounting fees for preparation of Landlord's business documents including the preparation of any and all tax returns; and (xii) repairs or restoration necessitated by condemnation to the extent reimbursed by the award granted by the condemning authority. (c) The inclusion of the improvements, facilities and services set forth in Section 4.2(a) shall not be deemed to impose an obligation upon Landlord to either have said improvements or facilities or to provide those services unless Landlord has agreed elsewhere in this Lease to provide the same or some of them. (d) Tenant's Share of Operating Expenses shall be payable by Tenant within * days after a reasonably detailed statement of actual expenses is presented to Tenant by Landlord. At Landlord's option, however, an amount may be reasonably estimated by Landlord, from time to time, of Tenant's Share of annual Operating Expenses and the same shall be payable monthly, as Landlord shall designate, during each calendar year on the same day as the Base Rent is due hereunder. If during any particular calendar year, there is a change in the information on which Landlord based the estimate upon which Tenant is then making its estimated Operating Expense payments so that such estimate furnished to Tenant is no longer accurate, Landlord shall be permitted to revise such estimate, from time to time, by notifying Tenant and there shall be such adjustments made in the monthly amount of Tenant's Share on the first day of the month following the serving of such statement to Tenant. Landlord shall deliver to Tenant after the expiration of each calendar year a reasonably detailed statement showing Tenant's Share of the actual Operating Expenses incurred during the preceding year. If Tenant's payments under this Section 4.2(c) during said preceding calendar year exceed Tenant's Share as indicated on said statement, Tenant shall be credited the amount of such overpayment against Tenant's Share of Operating Expenses next becoming due. If Tenant's payments under this Section 4.2(c) during said preceding year were less than Tenant's Share as indicated on said statement, Tenant shall pay to Landlord the amount of the deficiency within * days after delivery by Landlord to Tenant of said statement. Landlord's failure to deliver to Tenant a statement of Tenant's Share within * days after the end of the applicable calendar year shall not relieve Tenant of the obligation to pay sums otherwise due, but Landlord shall make reasonable efforts to cause such statement to be delivered to Tenant within such period and shall deliver such statement to Tenant no later than * days after the end of the applicable calendar year. Tenant's obligation to pay Tenant's Share of Operating Expenses which accrue during the Term hereof shall survive the expiration or termination of the Lease. (e) If Tenant shall dispute the amount of an adjustment submitted by Landlord's accountants or the proposed estimate on the basis of which Tenant's Rent is to be adjusted as provided in subsection (d) above, Tenant shall give Landlord written notice of such objection within * days after Landlord's accountants or Landlord advise Tenant of such adjustment or proposed increase or decrease. If Tenant does not give Landlord such written notice within such time, Tenant shall have waived its right to dispute the amounts so determined. If Tenant timely objects, Tenant shall have the right to engage its own certified public accountants ("Tenant's Accountants") for the purpose of verifying the accuracy of the statement complained of or the reasonableness of the estimated increase or decrease. If Tenant's Accountants determine that an error has been made, Landlord's accountants and Tenant's Accountants shall endeavor to agree upon the matter, failing which the parties shall settle the dispute by judicial action or in such other manner as they agree. All costs incurred by Tenant in obtaining its own accountants shall be paid for by Tenant unless Tenant's Accountants disclose an error, acknowledged by Landlord's accountants (or found to have occurred in a judicial action), of more than * in the computation of the total amount of Operating Expenses as set forth in the statement submitted by Landlord's accountants which is challenged, in which event Landlord shall pay the reasonable costs incurred by Tenant in obtaining such audit (but excluding any such costs billed on a contingency fee basis). Notwithstanding the pendency of any dispute over any particular statement, Tenant shall continue to pay Landlord the amount of the adjusted monthly installments of Rent determined by Landlord's accountants until the adjustment has been determined to be incorrect as aforesaid. If it shall be determined that any portion of the Operating Expenses were not properly chargeable to Tenant, then Landlord shall promptly credit or in or after the final Lease Year, refund the appropriate sum to Tenant. Delay by Landlord or Landlord's accountants in submitting any statement contemplated herein for any calendar year shall not affect the provisions of this Section 4 or constitute a waiver of Landlord's rights as set forth herein for said calendar year or any subsequent calendar years during the Primary Lease Term and any extensions thereof. 4.3 Rent. The Base Rent, Tenant's Share of Operating Expense and all other amounts due to be paid to Landlord under this Lease may be referred to herein collectively as "Rent". 4.4 Additional Consideration. As Additional Consideration for the Tenant's entering the Lease for the Premises, Landlord will pay to Tenant the amount of $* each calendar quarter commencing * and continuing each * thereafter up to a total of $*; provided that on the date of each payment: (i) the Lease is in full force and effect at the time of each payment; (ii) Tenant has taken possession of the Premises and has commenced payment of Rent; (iii) Tenant is not in monetary default or material non-monetary default under the Lease; and (iv) Tenant has not assigned the Lease or sublet any interest in the Lease or the Premises other than to Affiliates of Tenant (as defined below). The Additional Consideration is personal to Tenant and may not be assigned to any third party, nor shall it be for the benefit of any party other than Tenant. An "Affiliate" as used herein shall mean a company that controls the Tenant corporation, or is controlled by the Tenant corporation or is under common control with the Tenant corporation. 5. Security Deposit. 5.1 The later of the date the Premises are Ready for Delivery or October 1, 2000, Tenant shall deposit with Landlord the Security Deposit set forth in Section 1.9 as security for Tenant's faithful performance of Tenant's obligations under this Lease. The Security Deposit must be delivered on such date in good funds or by Letter of Credit as described in Section 5.2 below. If Tenant provides good funds, Tenant shall have the right at a later date to deliver a Letter of Credit complying with the requirements of Section 5.2 below and after acceptance of such Letter of Credit, Landlord will return the good funds Security Deposit. If Tenant fails to pay Base Rent or other rent or charges due hereunder, or otherwise is in default under this Lease, Landlord may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Landlord or to reimburse or compensate Landlord for any liability, cost, expense, loss or damage (including attorneys' fees) which Landlord may suffer or incur by reason thereof. If Landlord uses or applies all or any portion of said Security Deposit, Tenant shall within * days after written request therefore deposit monies with Landlord sufficient to restore said Security Deposit to the full amount required by this Lease. If paid in cash, Landlord shall keep the Security Deposit separate from its general accounts in an interest bearing account of Landlord's choice with the interest thereon payable to the Tenant at the expiration of the Lease; provided however Landlord shall be entitled to the interest on the Security Deposit if Landlord is entitled to the Security Deposit pursuant to the terms of this Lease. Landlord shall, within * days after the expiration of the Term hereof and after Tenant has vacated the Premises, return to Tenant (or, at Landlord's option, to the last assignee, if any, of Tenant's interest herein), that portion of the Security Deposit, and interest thereon, not used or applied by Landlord. At Landlord's election, Landlord may elect to have the Security Deposit held by Landlord's manager in a separate security deposit, trust, trustee or escrow account established and maintained by such manager with respect to certain security deposits of tenants within the Building Complex. Unless Tenant is so notified, (i) Landlord will hold the Security Deposit and be responsible for its return; and (ii) Tenant may request return of the Security Deposit by giving Landlord written notice in accordance with the provisions of the Lease. If Landlord's manager holds the Security Deposit, Landlord's manager will be required to agree that in the event of a dispute over the ownership of the Security Deposit, the manager will not wrongfully withhold Landlord's true name and current mailing address from Tenant. Landlord may deliver the funds deposited herein by Tenant to the purchaser of Landlord's interest in the Premises in the event such interest be sold, and thereupon, Landlord shall be discharged from further liability with respect to such deposit. If the claims of Landlord exceed said deposit, Tenant shall remain liable for the balance of such claims. 5.2 Notwithstanding anything to the contrary set forth in Section 5.1 above, Tenant has requested permission to provide Landlord with a clean, unconditional, irrevocable letter of credit on a form and from a lending institution acceptable to Landlord in its reasonable discretion (the "Letter of Credit") instead of a good funds Security Deposit. If Tenant elects to deliver the Letter of Credit instead of the good funds Security Deposit, the initial Letter of Credit shall be in an amount as then required by the terms of Section 5.3. It is further understood and agreed, that no later than * days prior to the expiration date of the initial Letter of Credit or renewal Letter of Credit, as the case may be, Tenant shall present Landlord with good funds or an extension or renewal of the initial Letter of Credit or a substitute Letter of Credit, in the same form from a lending institution subject to Landlord's reasonable approval, in the amount described herein, that shall be effective no later than upon the expiration of the initial Letter of Credit and continue in effect for at least a one-year period. Any failure of Tenant to provide Landlord with good funds or the extensions or renewals or substitute Letter of Credit, as required hereunder, shall be deemed a default by Tenant under the Lease and Landlord shall have the right prior to expiration thereof, to present any Letter of Credit then in its possession for payment, with the amounts received thereunder to be held as the Security Deposit hereunder. 5.3 Notwithstanding the foregoing, provided Tenant is not in default under the Lease, the Security Deposit shall be reduced by $* for the second Lease Year and by $* for each succeeding Lease Year until the Security Deposit has been reduced to $*. No earlier than * days nor later than * days prior to the end of the fifth Lease Year, Tenant shall provide Landlord with a certified statement of Tenant's net worth. If such statement certifies Tenant's net worth to be $* or greater, Tenant shall not be required to maintain a Security Deposit for the remainder of the Term. If such statement certifies Tenant's net worth to be less than $*, Tenant shall maintain a Security Deposit of $* for the remainder of the Term of the Lease, as it may be extended. 6. Use. 6.1 Permitted Use. (a) Tenant shall use and occupy the Premises only for the Permitted Use set forth in Section 1.11 and for no other purpose. Tenant shall not use or permit the use of the Premises in a manner that is unlawful, creates waste, odor, or a nuisance, or that disturbs owners and/or occupants of, or causes damage to the Premises, Building or neighboring premises or properties. (b) Landlord hereby agrees to not unreasonably withhold or delay its consent to any written request by Tenant, Tenant's assignees or subtenants, and by prospective assignees and subtenants of Tenant, its assignees and subtenants, for a modification of said Permitted Use so long as the same will not impair the structural integrity of the improvements on the Premises or in the Building or the mechanical or electrical systems therein, does not conflict with uses by other tenants, is not significantly more burdensome to the Premises or the Building and the improvements thereon, and is otherwise permissible pursuant to Applicable Laws and pursuant to this Section 6. If Landlord elects to withhold such consent, Landlord shall within * business days after such request give a written notification of same, which notice shall include an explanation of Landlord's reasonable objections to the change in use. 7. Hazardous Substances. 7.1 Consent. Tenant shall not cause or permit any Hazardous Substances to be used, stored, generated or disposed of on, in or about the Premises, the Building, or the Building Complex by Tenant, or any of its agents, employees, representatives, contractors, suppliers, customers, subtenants, concessionaires, licensees unless Tenant shall have received Landlord's prior written consent, which Landlord may withhold or at any time revoke in its sole discretion. Landlord warrants that to the best of Landlord's actual current knowledge as of the date hereof, there are no Hazardous Substances located in the Premises that violate Hazardous Substance laws by their presence. Further, between the date of this Lease and the Lease Commencement Date, Landlord agrees that it will not knowingly authorize its contractor to install into the Premises Hazardous Substances that violate Hazardous Substance laws by their presence. 7.2 Use. Notwithstanding the foregoing, Tenant may store, use and dispose of de minimis amounts of office and cleaning products which may contain small and/or unregulated amounts of such Hazardous Substances in the normal course of Tenant's Permitted Use of the Premises, and Tenant covenants to comply with all applicable laws, rules, regulations and ordinances governing same. 7.3 Indemnification. Tenant shall indemnify and defend Landlord, and hold Landlord harmless, from and against any and all claims, damages, fines, judgments, penalties, costs, expenses, liabilities, or losses relating to any violation by Tenant of any Environmental Law (as hereinafter defined) or of this Section 7 (including, without limitation, a decrease in value of the Premises, damages caused by loss or restriction of rentable or usable space, and any and all sums paid for settlement of claims, attorneys' fees, consultant fees, and expert fees) incurred by or asserted against Landlord arising during or after the Term of this Lease as a result thereof. This indemnification includes, without limitation, any and all costs incurred because of any investigation of the site or any cleanup, removal, testing or restoration mandated or conducted by or on behalf of any federal, state, or local agency or political subdivision. Without limitation of the foregoing, if Tenant causes or permits the presence of any Hazardous Substance in the Premises, the Building, or the Building Complex that results in any contamination, Tenant shall promptly, at is sole expense, take any and all necessary or appropriate actions to return the Premises, the Building and the Building Complex to the condition existing prior to the presence of any such Hazardous Substance. Tenant shall first obtain Landlord's written approval for the remedial action which is being proposed by Tenant, which approval shall not be unreasonably withheld. 7.4 Hazardous Substance. Hazardous Substance means any substance that is regulated by any local government, the State of Colorado, the United States government, or any agency, authority and/or instrumentality thereof and includes any and all materials or substances that are defined as "hazardous waste", "extremely hazardous waste", or a "hazardous substance" pursuant to any Environmental Law. Hazardous Substance includes but is not restricted to petroleum and petroleum byproducts, asbestos, explosives, polychlorinated biphenyls ("PCBs") and infectious waste. 7.5 Environmental Laws. Environmental Laws means all federal, state and local laws, including statutes, regulations, and requirements, relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or Hazardous Substances, including, but not limited to, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental Responsibility Cleanup and Liability Act of 1980, regulations of the Environmental Protection Agency, regulations of the Nuclear Regulatory Agency, and regulations of any state department of natural resources or state environmental protection agency, as amended or supplemented from time to time, now or at any time hereafter in effect. 8. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations. 8.1 By Tenant. (a) Subject to the provisions of Sections 8.2, 10, and 15, Tenant shall, at Tenant's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Tenant, and whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities specifically serving the Premises and located within the Premises, such as plumbing (excluding main utility lines serving more space than the Premises), electrical lighting facilities, boilers, fired or unfired pressure vessels, fire hose connections if within the Premises, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights, and subject to Section 8.1 (b) below heating, air conditioning and ventilating systems, but excluding any items which are the responsibility of Landlord pursuant to Section 8.2 below. Tenant, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices including, without limitation, providing janitorial services to the Premises substantially equivalent to those attached hereto as Exhibit I. Tenant's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (b) Subject to reimbursement under the provisions of Section 4, Landlord shall procure a contract for maintenance of the heating, air conditioning and ventilating systems for the Building Complex. (c) If Tenant fails to perform Tenant's obligations under this Section 8.1, Landlord may enter upon the Premises after * days' prior written notice to Tenant (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Tenant's behalf, and put the Premises in good order, condition and repair in which event Landlord shall be entitled to charge Tenant with Landlord's cost plus * due from Tenant upon presentation of a bill therefor. (d) Notwithstanding the foregoing, Tenant may contract directly with Landlord to perform Tenant's obligations set forth under this Section 8.1 which contract shall set forth the terms and conditions under which the Landlord or its manager will perform Tenant's obligations. The terms of such performance shall be fully included in and governed by the contract between the parties and shall not effect Landlord or Tenant's rights or obligations under this Lease. 8.2 By Landlord. Subject to the provisions of Sections 2.2, 4.2, 6, 8.1, 9, 10, 11 and 15, and except for damage caused by any negligent or intentional act or omission of Tenant, its agents, employees, suppliers or invitees, in which event Tenant shall repair the damage, Landlord, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if located in the Common Areas) or other automatic fire extinguishing systems including fire alarm and/or smoke detention systems and equipment, fire hydrants, the sewer line, utility main lines in the Common Areas and any main utility lines which are located in the Premises but serve more space than the Premises, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts of the Common Areas as well as providing the services for which there is a Common Area Operating Expense pursuant to Section 4.2. Landlord shall not be obligated to paint the interior surfaces of exterior walls nor shall Landlord be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Tenant shall have no right to make repairs to the Building or Building Complex at Landlord's expense. 8.3 Utility Installations, Trade Fixtures, Alterations. (a) Definitions, Consent Required. The term "Utility Installations" is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protection systems, communications systems, lighting fixtures, heating, ventilating and air conditioning equipment, plumbing, and fencing in, on, or about the Premises. The term "Trade Fixtures" shall mean Tenant's machinery and equipment which can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises which are provided by Landlord under the terms of this Lease, other than Utility Installations or Trade Fixtures. "Tenant-Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Tenant that are not yet owned by Landlord pursuant to Section 8.4(a). Tenant shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Landlord's prior written consent. Tenant may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without Landlord's consent but upon notice to Landlord, so long as they are not visible from the outside of the Premises, are not a water fixture, do not involve puncturing, relocating or removing the roof or any existing walls or changing or interfering with the fire sprinkler or fire detection systems or the heating, air conditioning and ventilating systems, and the cost thereof during the Term of this Lease as extended does not exceed * per occurrence or a cumulative total of *; after which Tenant must seek Landlord's consent for such Alterations and/or Utility Installations. Under no circumstances is Tenant allowed to add water fixtures to the Premises. (b) Consent. Any Alterations or Utility Installations that Tenant shall desire to make and which require the consent of the Landlord shall be presented to Landlord in written form with detailed plans. All consents given by Landlord, whether by virtue of Section 8.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Tenant acquiring all applicable permits required by governmental authorities; (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Landlord prior to commencement of the work thereon; and (iii) the compliance by Tenant with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Tenant during the Term of this Lease shall be completed in a good and workmanlike manner, with good and sufficient materials of at least the quality of the original installations in the Premises, and be in compliance with all Applicable Requirements, and be performed by qualified and licensed workers who have provided Landlord with evidence of insurance required by Landlord. Tenant shall promptly upon completion thereof furnish Landlord with as-built plans and specifications therefor. Landlord may, (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs * or more upon Tenant providing Landlord with a lien and completion bond in an amount equal to * times the estimated cost of such Alteration or Utility Installation. (c) Lien Protection. Excluding lien claims arising out of Landlord's Work, Tenant shall pay when due all claims for labor or materials furnished to or for Tenant at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Tenant shall give Landlord not less than * days' notice prior to the commencement of any work in, on, or about the Premises, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Tenant shall, in good faith, contest the validity of any such lien, claim or demand, then Tenant shall, at its sole expense, defend and protect itself, Landlord and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Landlord or the Premises. If Landlord shall require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to * the amount of such contested lien, claim or demand, indemnifying Landlord against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim or, in the alternative, if approved by Landlord's lender, if necessary, a surety bond which complies with the then applicable requirements of the Colorado statutes governing mechanic's liens. In addition, Landlord may require Tenant to pay Landlord's attorneys' fees and costs in participating in such action if Landlord shall decide it is to its best interest to do so, if Tenant has not caused the Premises to be released from the lien in the manner required by then applicable Colorado statutes governing mechanic's liens. 8.4 Ownership, Removal, Surrender, and Restoration. (a) Ownership. Subject to Landlord's right to require their removal and to cause Tenant to become the owner thereof as hereinafter provided in this Section 8.4, all Tenant-Owned Alterations and Utility Installations made to the Premises by Tenant shall be the property of and owned by Tenant, but considered a part of the Premises. Landlord may, at any time and at its option, elect in a writing delivered to Tenant to be the owner of all or any specified part of the Tenant-Owned Alterations and Utility Installations. Unless otherwise instructed per Section 8.4(b) hereof, all Tenant-Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Landlord and remain upon the Premises and be surrendered with the Premises by Tenant. (b) Removal. Unless otherwise agreed in writing, Landlord may require that any or all Tenant-Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding that their installation may have been consented to by Landlord. Landlord may require the removal at any time of all or any part of any Tenant-Owned Alterations or Utility Installations made without the required consent of Landlord. Tenant shall be obligated to repair all damage caused by such removal. If Tenant desires Landlord to decide at the time Tenant requests Landlord's consent to a Tenant-Owned Alteration or Utility whether or not Tenant shall be obligated to remove same upon expiration or termination of the Lease, Tenant shall specifically request in writing that Landlord make such decision and Landlord will promptly respond to Tenant with its decision. (c) Surrender/Restoration. Tenant shall surrender the Premises by the end of the last day of the Lease Term or any earlier termination date, clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Tenant performing all of its obligations under this Lease. Except as otherwise agreed or specified herein, the Premises, as surrendered, shall include the Alterations and Utility Installations. The obligation of Tenant shall include the repair of any damage occasioned by the installation, maintenance or removal of Tenant's Trade Fixtures, furnishings, equipment, and Tenant-Owned Alterations and Utility Installations, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Tenant, all as may then be required by Applicable Requirements. Tenant's Trade Fixtures shall remain the property of Tenant and shall be removed by Tenant subject to its obligation to repair and restore the Premises per this Lease. Any Trade Fixtures, Tenant-Owned Alterations and/or Utility Installations not removed upon the expiration of this Lease shall be deemed abandoned and may be disposed of by Landlord, as Landlord may determine appropriate, without further notice to Tenant. Tenant shall pay Landlord all expenses incurred in connection with such items including, but not limited to, the costs of repairing any damage to the Premises caused by removal of such items. Tenant's obligation hereunder shall survive the expiration or other termination of the Lease. 9. Insurance; Indemnity. 9.1 Payment of Premiums. The cost of the premiums for the insurance policies maintained by Landlord under this Section 9 shall be an Operating Expense pursuant to Section 4.2 hereof. Premiums for policy periods commencing prior to, or extending beyond, the Term of this Lease shall be prorated to coincide with the corresponding Commencement Date or Expiration Date. 9.2 Liability Insurance. (a) Carried by Tenant. Tenant shall obtain and keep in force during the Term of this Lease a Commercial General Liability policy of insurance protecting Tenant, Landlord and any Lender(s) whose names have been provided to Tenant in writing (as additional insureds) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than * per occurrence with an "Additional Insured-Managers or Landlords of Premises" endorsement. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Tenant's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Tenant shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder. All insurance to be carried by Tenant shall be primary to and not contributory with any similar insurance carried by Landlord, whose insurance shall be considered excess insurance only. In addition, Tenant shall maintain workers' compensation insurance as is required by state law. (b) Carried By Landlord. Subject to reimbursement of premiums as described in Section 9.1, Landlord shall also maintain liability insurance described in Section 9.2(a) above in such amounts, from such companies and on such terms and conditions as Landlord deems appropriate from time to time, in addition to and not in lieu of, the insurance required to be maintained by Tenant. Tenant shall not be named as an additional insured therein. 9.3 Property Insurance. Subject to reimbursement of premiums as described in Section 9.1, Landlord shall maintain property damage insurance on such portions of the Building and the Common Areas from time to time which Landlord has the obligation to maintain and repair under this Lease, above foundation walls, insuring against loss or damage by fire or other casualty covered by a so-called "special form" policy, in such amounts, and from companies and on such terms and conditions as Landlord deems appropriate from time to time. Tenant-Owned Alterations and Utility Installations, Trade Fixtures and Tenant's personal property shall be insured by Tenant pursuant to Section 9.4. Landlord may also obtain and keep in force during the Term of this Lease a policy or policies in the name of Landlord, with loss payable to Landlord and any Lender(s), insuring the loss of the full rental and other charges payable by all tenants of the Building to Landlord for one year (including all Real Property Taxes, insurance costs, all Operating Expenses and any scheduled rental increases). Tenant shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas if said increase is caused by Tenant's acts, omissions, use or occupancy of the Premises. 9.4 Tenant's Property Insurance. Subject to the requirements of Section 9.5, Tenant at its cost shall either by separate policy or, by endorsement to a policy already carried, maintain insurance coverage on all of Tenant's personal property, Trade Fixtures and Tenant-Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by Landlord as the Insuring Party under Section 9.3. Such insurance shall be full replacement cost coverage. The proceeds from any such insurance shall be used by Tenant for the replacement of personal property and the restoration of Trade Fixtures and Tenant-Owned Alterations and Utility Installations. Upon request from Landlord, Tenant shall provide Landlord with written evidence that such insurance is in force. Insurance required of Tenant hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender, as set forth in the most current issue of "Best's Insurance Guide." Tenant shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Section 9. Tenant shall cause to be delivered to Landlord, within seven (7) days after the Delivery Date evidence of the existence and amounts of, the insurance required under Section 9.2(a) and 9.4. No such policy shall be cancelable or subject to modification except after thirty (30) days' prior written notice to Landlord. Tenant shall at least ten (10) Business Days prior to the expiration of such policies, furnish Landlord with evidence of renewals or "insurance binders" evidencing renewal thereof, or Landlord may order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant to Landlord upon demand. 9.5 Waiver. Tenant and Landlord each hereby release and relieve the other (but not their contractors), and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss or damage to their property or for any business interruption arising out of or incident to the perils to the extent such loss or damage or business interruption is coverable by a standard or special form policy regardless of whether such insurance is carried or not, or if so carried, payable to or protects Landlord or Tenant or both. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance is not invalidated thereby. 9.6 Indemnity. (a) Subject to Section 9.5 above and except for Landlord's willful misconduct, or that of Landlord's agents or employees, Tenant shall indemnify, protect, defend and hold harmless the Premises, Landlord and its agents, employees, Landlord's master or ground lessor members, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the occupancy of the Premises by Tenant, the conduct of Tenant's business, any act, omission or neglect of Tenant, its agents, contractors, employees or invitees, and out of any Default or breach by Tenant in the performance in a timely manner of any obligation on Tenant's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Landlord) litigated and/or reduced to judgment. In case any action or proceeding be brought against Landlord by reason of any of the foregoing matters, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel selected by Tenant and/or Tenant's insurer, which counsel is reasonably satisfactory to Landlord and Landlord shall cooperate with Tenant in such defense. Landlord need not have first paid any such claim in order to be so indemnified. The provisions of this Section shall survive the expiration or termination of this Lease. (b) Subject to Section 9.5 above and Section 9.7 below, and except for Tenant's, its agents or employees negligence, Landlord shall indemnify and save Tenant, its agents and employees harmless of and from all liabilities, losses, damages, costs or expenses, including attorneys fees, fines, penalties, judgments or obligations that the Tenant may sustain on account of bodily injuries to third parties lawfully on the Common Areas where the injuries are caused by the wilful misconduct of Landlord, its agents or employees. The provisions of this Section shall survive the expiration or termination of this Lease. 9.7 Exemption of Landlord from Liability. Landlord shall not be liable for injury or damage to the goods, wares, merchandise or other property of Tenant, Tenant's employees, contractors, invitees, customers, or any other person in or about the Premises, excluding bodily injury claims, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, excluding bodily injury claims, whether said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant of Landlord nor from the failure by Landlord to enforce the provisions of any other lease in the Building. Notwithstanding Landlord's negligence or breach of this Lease, Landlord shall under no circumstances be liable for injury to Tenant's business or for any loss of income or profit therefrom, or for any consequential damages of Tenant. Notwithstanding anything to the contrary contained herein, Landlord's liability under this Lease shall be limited to its interest in the Building. 10. Casualty and Restoration of Premises. 10.1 Damage Before the Commencement Date. If the Premises or the Building shall be damaged by fire or other casualty after the Delivery Date but before the Landlord has substantially completed Landlord's Work, the Lease shall not be terminated and Landlord shall cause the same to be repaired to the extent of Landlord's Work set forth in Exhibit C hereof and Tenant shall, at its expense, replace or fully repair Tenant's Work. 10.2 Total Damage. If, after the date of substantial completion of Landlord's Work, the Premises or the Building shall be so damaged by fire or other casualty so as to render the Premises wholly unuseable by Tenant (in Landlord's reasonable discretion) and if such damage shall be so great that a competent architect, in good standing, selected by Landlord shall certify in writing to Landlord and Tenant within * days of said casualty that the Premises, with the exercise of reasonable diligence, cannot be repaired to the extent the Premises are useable by Tenant for general office use and the repairs to the Building, to the extent of Landlord's Work, have been substantially completed within * days from the date of the casualty (subject to delays beyond Landlord's reasonable control), then this Lease shall cease and terminate from the date of occurrence of such damage and Tenant shall, within * days after notice thereof, surrender to Landlord the Premises and all interest therein under this Lease or otherwise and Landlord may reenter and take possession of the Premises and remove Tenant therefrom. Tenant shall pay Rent, duly apportioned, up to the time of such termination of this Lease so long as Tenant surrendered the Premises to Landlord within said * days; failing which Tenant shall pay Rent from the expiration of said * day period until the date of Tenant's vacation and surrender of the Premises. If, however, the damage shall be such that said architect shall certify within said * day period that the Premises can be made tenantable within said * day period (subject to delays beyond Landlord's reasonable control), then, except as hereinafter provided, Landlord shall repair the damage so done with all reasonable speed (to the extent of the Landlord's Work set forth in Exhibit C hereof). 10.3 Partial Damage. If, after the date of substantial completion of Landlord's Work, the Premises shall be slightly damaged by fire or other casualty, but not so as to render the same wholly unuseable by Tenant (in Landlord's reasonable discretion)or to require a repair period in excess of * days (subject to delays beyond Landlord's reasonable control), then, Landlord, after receiving notice in writing of the occurrence of the casualty, except as hereafter provided, shall cause the same to be repaired to the extent of the damage so done (to the extent of the Landlord's Work set forth in Exhibit C hereof) with reasonable promptness. If the estimated repair period exceeds * days (subject to delays beyond Landlord's reasonable control), then the provisions of Section 10.2 shall control notwithstanding the fact that the Premises are not wholly unuseable. 10.4 Building Damage. In case the Building throughout shall be so injured or damaged after the date of substantial completion of Landlord's Work, whether by fire or otherwise (though said Premises may not be affected, or if affected), that can be repaired within said * days (subject to delays beyond Landlord's reasonable control), that, within * days after the happening of such injury, Landlord shall decide not to reconstruct or rebuild said Building, then, notwithstanding anything contained herein to the contrary, upon notice in writing to that effect given by Landlord to Tenant within said * days, Tenant shall within * days after notice thereof, surrender the Premises to Landlord, pay the Rent, properly apportioned up to the time of such termination of this Lease so long as Tenant surrenders the Premises to Landlord within said * days; failing which Tenant shall pay Rent from the expiration of said * day period until the date of Tenant's vacation and surrender of the Premises. This Lease shall terminate from the date of delivery of said written notice, and both parties hereto shall be freed and discharged of all further obligations hereunder. 10.5 Rent Abatement. Provided that the casualty is not the fault of Tenant, Tenant's agents, servants, or employees, Tenant's Rent (Base Rent plus Tenants Share of Operating Expenses) shall abate during any such period of Landlord's repair or restoration, in the same proportion that the part of the Premises rendered unuseable to the Tenant (in Landlord's reasonable discretion) bears to the whole. 10.6 Tenant's Obligation. In the event the Lease is not terminated, Tenant shall, at its expense, replace or fully repair Tenant's personal property and Tenant's Work, Alterations and Utilities installed by Tenant in the Premises existing on the date of the occurrence of the casualty. Tenant shall fully cooperate with Landlord in removing Tenant's personal property and any debris from the Premises to facilitate making of repairs. 10.7 Late Term Damage. Notwithstanding anything set forth herein to the contrary, if at any time the Premises are damaged by fire or other casualty in excess of * of the floor area and there is less than one (1) year remaining on the then current Term of the Lease (including any Options to Extend that had been exercised in accordance with Section 50 below), then either Landlord or Tenant shall have the right to terminate this Lease. If either Landlord or Tenant elect to terminate the Lease pursuant to this Section 10.7, it shall advise the other party in writing within * days of said casualty of its election to terminate and within fourteen (14) days after notice thereof, Tenant shall surrender the Premises to Landlord, pay the Rent properly apportioned to the date of the casualty so long as Tenant surrenders the Premises to Landlord within said fourteen (14) days period; failing which Tenant shall pay rent from the expiration of said * day period until the date of Tenant's vacation and surrender of the Premises. If Landlord terminates the Lease in accordance with this Section, but Tenant has an Option to Extend the Term of the Lease at the end of the then-current Term in accordance with Section 50 below (which Option has not yet been exercised nor waived in accordance with Section 50), Tenant shall have the right to give notice to Landlord that Tenant is willing to (and by such notice does) exercise its Option, in which event the Lease shall not be terminated under this Section and this Lease shall continue in full force and effect (unless otherwise terminated in accordance with other Sections of this Article 10) and Landlord and Tenant shall repair the Premises as may be required by this Article 10. 11. Real Property Taxes. 11.1 Payment of Taxes. Landlord shall pay the Real Property Taxes, as defined in Section 11.2, applicable to the Building Complex, and except as otherwise provided in Section 11.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Section 4.2. 11.2 Real Property Tax Definition. As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Building Complex by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage, or other improvement district thereof, levied against any legal or equitable interest of Landlord in the Building Complex or any portion thereof, Landlord's right to rent or other income therefrom, and/or Landlord's business of leasing the Premises (other than Landlord's income taxes, excess profit taxes, estate tax, inheritance tax or similar taxes on Landlord's business). The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in Applicable Law taking effect, during the Term of this Lease, including but not limited to a change in the ownership of the Building Complex or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Landlord or Tenant. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common. 11.3 Additional Improvements. Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Building Complex by other tenants or by Landlord for the exclusive enjoyment of such other tenants. Notwithstanding Section 11.1 hereof, Tenant shall, however, pay to Landlord at the time Operating Expenses are payable under Section 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Tenant or at Tenant's request. 11.4 Tenant's Taxes. Tenant shall pay prior to delinquency all taxes assessed against and levied upon Tenant-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Tenant contained in the Premises or stored within the Building. When possible, Tenant shall cause its Tenant-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Landlord. If any of Tenant's said property shall be assessed with Landlord's real property, Tenant shall pay Landlord the taxes attributable to Tenant's property within * days after receipt of a written statement setting forth the taxes applicable to Tenant's property. In addition, Tenant shall pay all taxes, including, without limitation, workers' compensation, general license or franchise taxes and rent taxes, if any, which may be required for the conduct of Tenant's business. 12. Utilities.Tenant shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, security, gas and cleaning of the Premises as described in Section 8.1 herein, together with any taxes thereon. If any such utilities or services are not separately metered to the Premises or separately billed to the Premises, Tenant shall pay to Landlord a reasonable proportion to be determined by Landlord of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Section 4.2(c). In addition, Tenant shall reimburse Landlord for the reasonable costs incurred by Landlord in providing services which are shared by more than one tenant after ordinary business hours, including, without limitation, the costs for materials, additional wear and tear on equipment, utility charges and labor (including fringe benefits and overhead costs). Computation for Landlord's costs for providing such services will be made by Landlord's engineer or Landlord's representative, based on such engineer's survey of Tenant's excess usage. 13. Assignment and Subletting. 13.1 Landlord's Consent. Tenant shall neither sublet any part of the Premises nor assign this Lease or any interest herein without the written consent of Landlord first being obtained, which consent, as to any subletting of less than * of the Premises, will not be unreasonably withheld provided that: (i) Tenant has complied with the applicable provisions of Section 13.3 below and Landlord has declined to exercise its rights thereunder; (ii) the proposed subtenant or assignee is engaged in a business and the Premises will be used in a manner which is in keeping with the then standards of the Building and does not conflict with any exclusive use rights granted to any other tenant; (iii) the proposed subtenant or assignee has reasonable financial worth in light of the responsibilities involved and Tenant shall have provided Landlord with reasonable evidence thereof; (iv) Tenant is not in monetary default or material non-monetary default hereunder at the time it makes its request for such consent; (v) the proposed subtenant or assignee is not a governmental or quasi-governmental agency; (vi) the proposed subtenant or assignee is not a tenant under, or is not currently negotiating, a lease with Landlord in any Building owned by Landlord in the Denver metropolitan area (including the Building); or (vii) the rent under such sublease or assignment is not less than the rent to be paid by Tenant for such space under the Lease and is not less than *% of the rental rate then being offered by Landlord for similar space in the Building. Notwithstanding anything contained herein to the contrary, Tenant acknowledges that if the use of the Premises by any proposed subtenant or assignee would require compliance by Landlord and the Building with any current or future laws to a greater extent than that required prior to the proposed occupancy by such subtenant or assignee, Landlord, at its sole option, may refuse to grant such consent, unless, as an express condition thereof, Tenant and/or such assignee or subtenant bears the entire cost of such greater compliance. Subject to Section 13.7 below, a sale by Tenant of all or substantially all of its assets or all or substantially all of its stock, if Tenant is a publicly traded corporation; a merger of Tenant with another corporation; the transfer of * or more of the stock in a corporate tenant whose stock is not publicly traded; or transfer of * or more of the beneficial ownership interests in a tenant shall constitute an assignment hereunder requiring Landlord's prior written consent. 13.2 Terms and Conditions. If this Lease is assigned, Landlord may collect the rent from the assignee and apply the net amount collected to the Rent herein reserved. If the Premises or any part hereof is sublet or occupied by anybody other than Tenant (other than an assignee), Landlord may, after a default by Tenant, collect the rent from the subtenant or occupant and apply the net amount collected to the Rent herein reserved. No such assignment, subletting, occupancy, or collection shall be deemed an acceptance of the assignee, subtenant, or occupant as the tenant hereof or a release of Tenant from further performance by Tenant of covenants on the part of Tenant herein contained. Consent by Landlord to any one assignment or sublease shall not in anyway be construed as relieving Tenant from obtaining Landlord's express written consent to any further assignment or sublease. Notwithstanding the consent of Landlord to any sublease or assignment, Tenant shall not be relieved from its primary obligations hereunder to Landlord, including, but not limited to the payment of all Base Rent and Tenant's Share of Operating Expenses. Landlord's consent to any requested sublease or assignment shall not waive Landlord's right to refuse to consent to any other such request or to terminate this Lease if such request is made, all as provided herein. If Landlord or Tenant collects any rental or other amounts from an assignee or subtenant in excess of the Base Rent and the Tenant's Share of Operating Expenses for any monthly period, Landlord shall be entitled to * of such excess after deducting actual payments by Tenant for brokerage commissions and tenant improvement costs, and Tenant shall pay to Landlord on a monthly basis, as and when Tenant receives the same, all such excess amounts received by Tenant. 13.3 Landlord's Rights. Notwithstanding anything contained in this Article 13 to the contrary, in the event Tenant requests Landlord's consent to sublet all or a portion of the Premises or to assign its interest in this Lease, Landlord shall have the right to: (i) consent to such sublease or assignment in its sole discretion (except if covered by Section 13.1 above); (ii) refuse to grant such consent such in Landlord's sole discretion (except if covered by Section 13.1 above); or (iii) refuse to grant such consent and terminate this Lease as to the portion of the Premises with respect to which such consent was requested; provided, however, if Landlord refuses to grant such consent and elects to terminate this Lease as to such portion of the Premises, Tenant shall have the right within * days after notice of Landlord's exercise of its right to terminate to withdraw Tenant's request for such consent and remain in possession of the Premises under the terms and conditions hereof. In the event the Lease is terminated as set forth herein, such termination shall be effective as of the date set forth in a written notice from Landlord to Tenant, which date shall in no event be more than * days following such notice. 13.4 Tenant Notice. Tenant agrees that in the event it desires to sublease all or any portion of the Premises or assign this Lease to any party, in whole or in part, Tenant shall notify Landlord in writing not less than * days prior to the date Tenant desires to sublease such portion of the Premises or assign this Lease ("Tenant's Notice"). Tenant's Notice shall set forth the description of the portion of the Premises to be so sublet or assigned and the terms and conditions on which Tenant desires to sublet the Premises or assign this Lease. Landlord shall have * days following receipt of Tenant's Notice within which to exercise Landlord's rights pursuant to Sections 13.1 and/or 13.3 above. If Landlord consents to such sublease or assignment and if for any reason Tenant is unable to sublet said portion of the Premises or assign the applicable portion of its interest in this Lease on the terms and conditions contained in Tenant's Notice within * days following its original notice to Landlord, Tenant agrees to re-offer the Premises to Landlord in accordance with the provisions hereof prior to leasing or assigning the same to any third party. 13.5 Documents. All documents utilized by Tenant to evidence any subletting or assignment to which Landlord has consented shall be subject to prior approval by Landlord or its counsel. Tenant shall pay on demand all of Landlord's costs and expenses, including reasonable attorneys' fees, incurred in determining whether or not to consent to any requested sublease or assignment and in reviewing and approving such documentation. 13.6 Bankruptcy. Landlord and Tenant understand that notwithstanding certain provisions to the contrary contained herein, a trustee or debtor in possession under the Bankruptcy Code of the United States may have certain rights to assume or assign this Lease. If a trustee in bankruptcy is entitled to assume control over Tenant's rights under this Lease and assigns such rights to any third party, the Base Rent to be paid hereunder by such party shall be increased to the then current Base Rent (if greater than then being paid for the Premises) which Landlord would charge for comparable space in the Building as of the date of such third party's occupancy of the Premises. Landlord and Tenant further understand that in any event Landlord is entitled under the Bankruptcy Code to Adequate Assurance of future performance of the terms and provisions of this Lease. For purposes of any such assumption or assignment, the parties hereto agree that the term "Adequate Assurance" shall include at lease the following: (a) In order to assure Landlord that the proposed assignee will have the resources with which to pay the Rent called for herein, any proposed assignee must have demonstrated to Landlord's satisfaction a net worth (as defined in accordance with generally accepted accounting principles consistently applied) at least as great as the net worth of Tenant on the date this Lease became effective increased by *, compounded annually, for each year from the Lease Commencement Date through the date of the proposed assignment. The financial condition and resources of Tenant were a material inducement to Landlord in entering into this Lease. (b) Any proposed assignee of this Lease must assume and agree to be personally bound by the terms, provisions, and covenants of this Lease. 13.7 Permitted Transfers. Notwithstanding anything set forth in this Article 13 to the contrary, Tenant shall have the right to make the following types of assignments or subleases on the following conditions without Landlord's prior written consent: (i) to any corporation into which Tenant may be merged or consolidated or which purchases all or substantially all of the stock or assets of Tenant; provided that the entity resulting from such merger, consolidation or purchase has a net worth at least equivalent to that of Tenant immediately preceding such merger, consolidation or purchase and Tenant has provided Landlord with evidence thereof; (ii) to a subsidiary of Tenant, provided Tenant owns a controlling interest in such subsidiary; or (iii) to any parent corporation of Tenant or a sister corporation of Tenant wholly owned by the same parent corporation as Tenant; provided that in the event (i), (ii), or (iii) above that (a) the assignee or subtenant shall assume and be bound by all obligations of Tenant for the payment of all amounts of Rent and other charges under the Lease and the performance of all covenants required by Tenant pursuant to the Lease; and such assignee or subtenant has executed a document to that effect which has been transmitted to the Landlord; (b) Tenant continues to remain liable on its obligations set forth in the Lease; (c) at the time of such assignment or sublease there shall not be an existing Event of Default under the Lease; (d) the Premises shall continue to be used for the Permitted Use; and (e) within * days after the effective date of such assignment or subletting, Tenant provides Landlord with a copy of the assignment or sublease document and substantiation that such assignment or sublease meets the criteria set forth in this subparagraph. Landlord has the right in its discretion to require a Security Deposit from such assignee or subtenant of the greater of (x) the Security Deposit amount then required of Tenant or (y) * if a transfer meeting the requirements of (i) above does not result in an entity with a net worth of at least *. 14. Default; Remedies. 14.1 Default. A "Default" or "Event of Default" by Tenant is defined as a failure by Tenant to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Tenant under this Lease, which failure shall remain uncured for any applicable cure periods allowed herein. Each one of the following shall be an Event of Default: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises; provided, however, Tenant may vacate the Premises in whole or in part provided the Tenant: (i) gives Landlord * days prior written notice of its intent to vacate; and (ii) complies with all other terms of the Lease, including payment of all Rent and any other monetary sums required to be paid hereunder. (b) Except as expressly otherwise provided in this Lease, the failure by Tenant to make any payment of Base Rent, Tenant's Share of Operating Expenses, or any other monetary payment required to be made by Tenant hereunder as and when due; provided, however, the Tenant may cure an Event of Default under this provision within * calendar days after Landlord gives written notice thereof to Tenant. Tenant shall not be entitled to more than two such written notices within any * consecutive months. The failure by Tenant to provide Landlord with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Tenant to fulfill any obligation under this Lease which endangers or threatens life or property. (c) Except as expressly otherwise provided in this Lease, the failure by Tenant to provide Landlord with reasonable written evidence (in duly executed original form, if applicable) of (i) the rescission of an unauthorized assignment or subletting per Section 13; (ii) a Tenancy Statement per Section 17; (iii) the subordination or non-subordination of this Lease per Section 31; (iv) the execution of any document requested under Section 41 (easements); or (v) any other documentation or information which Landlord may reasonably require of Tenant under the terms of this Lease, where any such failure continues for a period of * days following written notice thereof by or on behalf of Landlord to Tenant. (d) A Default by Tenant as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Section 39 hereof that are to be observed, complied with or performed by Tenant, other than those described in Subparagraphs 14.1(a), (b) or (c) above, where such Default continues for a period of * days after written notice thereof by or on behalf of Landlord to Tenant; provided, however, that if the nature of Tenant's Default is such that more than * days are reasonably required for its cure, then it shall not be deemed to be a breach of this Lease by Tenant if Tenant commences such cure within said * day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making by Tenant of any general arrangement or assignment for the benefit of creditors; (ii) Tenant's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within * days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within * days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within * days; provided, however, in the event that any provision of this subparagraph 14.1(e) is contrary to any applicable law, such provision shall be of no force or effect, and shall not affect the validity of the remaining provisions. (f) The discovery by Landlord that any financial statement of Tenant, given to Landlord by Tenant, was materially false. 14.2 Remedies. (a) If any one or more Events of Default shall occur and shall remain uncured by Tenant during the applicable cure periods set forth in Section 14.1 above or as otherwise specified in this Lease, then Landlord shall have the right at Landlord's election, then or at any time thereafter either: (1)(a) Without demand or notice, to reenter and take possession of the Premises or any part thereof and repossess the same as of Landlord's former estate and expel Tenant and those claiming possession through or under Tenant and remove the effects of both or either, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or preceding breach of covenants or conditions. Should Landlord elect to reenter, as provided in this subparagraph (1), or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, Landlord may, from time to time, without terminating this Lease, relet the Premises or any part thereof, either alone or in conjunction with other portions of the Building of which the Premises are a part, in Landlord's or Tenant's name but for the account of Tenant, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term of this Lease) and on such conditions and upon such other terms (which may include concessions of free Rent and alteration and repair of the Premises) as Landlord, in its absolute discretion, may determine and Landlord may collect and receive the Rents therefor. Landlord shall in no way be responsible or liable for any failure to relet the Premises, or any part thereof, or for any failure to collect any Rent due upon such reletting; provided, however, Landlord shall use reasonable efforts to relet the Premises. No such reentry or taking possession of the Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention be given to Tenant. No notice from Landlord hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Landlord reserves the right following any such reentry and/or reletting to exercise its right to terminate this Lease by giving Tenant such written notice, in which event the Lease will terminate as specified in said notice. (1)(b) If Landlord elects to take possession of the Premises as provided in this subparagraph (1) without terminating the Lease, Tenant shall pay to Landlord (i) the Base Rent and Tenant's Share of Operating Expenses, and other sums as herein provided, which would be payable hereunder if such repossession had not occurred, less (ii) the net proceeds, if any, of any reletting of the Premises after deducting all of Landlord's expenses incurred in connection with such reletting, including, but without limitation, all repossession costs, brokerage commissions, legal expenses, reasonable attorney's fees , expenses of employees, alteration, remodeling, and repair costs and expenses of preparation for such reletting. If, in connection with any reletting, the new lease term extends beyond the existing Term, or the premises covered thereby include other premises not part of the Premises, a fair apportionment of the Rent received from such reletting and the expenses incurred in connection therewith, as provided aforesaid, will be made in determining the net proceeds received from such reletting. In addition, in determining the net proceeds from such reletting, any Rent concessions will be apportioned over the term of the new lease. Tenant shall pay such amounts to Landlord monthly on the days on which the Rent and all other amounts owing hereunder would have been payable if possession had not been retaken and Landlord shall be entitled to receive the same from Tenant on each such day; or (2)(a) To give Tenant written notice of intention to terminate this Lease on the date of such given notice or on any later date specified therein and, on the date specified in such notice, Tenant's right to possession of the Premises shall cease and the Lease shall thereupon be terminated, except as to Tenant's liability hereunder as hereinafter provided, as if the expiration of the term fixed in such notice were the end of the Term herein originally demised. In the event this Lease is terminated pursuant to the provisions of this subparagraph (2), Tenant shall remain liable to Landlord for damages in an amount equal to the Base Rent and Tenant's Share of Operating Expenses and other sums which would have been owing by Tenant hereunder for the balance of the Term had this Lease not been terminated less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to such termination, after deducting all Landlord's expenses in connection with such reletting, including, but without limitation, the expenses enumerated above. Landlord shall be entitled to collect such damages from Tenant monthly on the days on which the Base Rent and Tenant's Share of Operating Expenses and other amounts would have been payable hereunder if this Lease had not been terminated and Landlord shall be entitled to receive the same from Tenant on each such day. Alternatively, at the option of Landlord, in the event this Lease is terminated, Landlord shall be entitled to recover forthwith against Tenant as damages for loss of the bargain and not as a penalty an amount equal to the present value (calculated using the Treasury Rate for the period remaining) of the worth at the time of termination of the excess, if any, of the amount of Rent reserved in this Lease for the balance of the Term hereof over the then Reasonable Rental Value of the Premises for the same period plus all amounts incurred by Landlord in order to obtain possession of the Premises and relet the same, including reasonable attorneys' fees, reletting expenses, alterations and repair costs, brokerage commissions and all other like amounts. It is agreed that the " Reasonable Rental Value" shall be the amount of rental which Landlord can obtain as Rent for the remaining balance of the Term. (b) Suit or suits for the recovery of the Rents and other amounts and damages set forth hereinabove may be brought by Landlord, from time to time, at Landlord's election, and nothing herein shall be deemed to require Landlord to await the date whereon this Lease or the Term hereof would have expired had there been no such default by Tenant or no such termination, as the case may be. Each right and remedy provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, including, but not limited to, suits for injunctive relief and specific performance. The exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. All such rights and remedies shall be considered cumulative and non-exclusive. All costs incurred by Landlord in connection with collecting any Rent or other amount and damages owing by Tenant pursuant to the provisions of this Lease, or to enforce any provision of this Lease, shall also be recoverable by Landlord from Tenant. Further, if an action is brought pursuant to the terms and provisions of the Lease, the prevailing party in such action shall be entitled to recover from the other party any and all reasonable attorneys' fees incurred by such prevailing party in connection with such action. (c) No failure by Landlord to insist upon the strict performance of any agreement, term, covenant or condition hereof or to exercise any right or remedy consequent upon a Default thereof and no acceptance of full or partial Rent during the continuance of any such Default shall constitute a waiver of any such Default or of such agreement, term, covenant, or condition. No agreement, term, covenant, or condition hereof to be performed or complied with by Tenant and no Default thereof shall be waived, altered, or modified, except by written instrument executed by Landlord. No waiver of any Default shall affect or alter this Lease but each and every agreement, term, covenant, and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent Default thereof. Notwithstanding any termination of this Lease, the same shall continue in force and effect as to any provisions which specifically by their terms provide that such provisions survive the termination of this Lease and require observance or performance by Landlord or Tenant subsequent to such termination. (d) Nothing contained in this Section 14 shall limit or prejudice the right of Landlord to prove and obtain as liquidated damages in any bankruptcy, insolvency, receivership, reorganization, or dissolution proceeding an amount equal to the maximum allowed by any statute or rule of law governing such a proceeding and in effect at the time when such damages are to be proved, whether or not such amount be greater, equal to, or less than the amounts recoverable, either as damages or Rent, referred to in any of the preceding provisions of this Section. Notwithstanding anything contained in this Section to the contrary, any such proceeding or action involving bankruptcy, insolvency, reorganization, arrangement, assignment for the benefit of creditors, or appointment of a receiver or trustee, as set forth above, shall be considered to be an Event of Default only when such proceeding, action, or remedy shall be taken or brought by or against the then holder of the leasehold estate under this Lease. (e) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state wherein the Premises are located. (f) The expiration or termination of this Lease and/or the termination of Tenant's right to possession shall not relieve Tenant from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the Term hereof or by reason of Tenant's occupancy of the Premises. 14.3 Inducement Recapture in Event of Default. Any agreement by Landlord for free or abated Rent or other charges applicable to the Premises, or for the giving or paying by Landlord to or for Tenant of any cash or other bonus, inducement or consideration for Tenant's entering into this Lease, but excluding Tenant's right to occupy the Premises without payment of Rent as described in Section 3.2 herein, and excluding any equity Tenant may have in the Landlord entity, if any, all of which concessions are hereinafter referred to as "Inducement Provisions" shall be deemed conditioned upon Tenant's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Tenant during the Term hereof as the same may be extended. Upon the occurrence of a Default (as defined in Section 14.1) of this Lease by Tenant, not cured within an applicable cure period, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any Rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Landlord under such an Inducement Provision shall be immediately due and payable by Tenant to Landlord, and recoverable by Landlord, as Additional Rent due under this Lease, notwithstanding any subsequent cure of said Default by Tenant. The acceptance by Landlord of Rent or the cure of the Default which initiated the operation of this Section 14.3 shall not be deemed a waiver by Landlord of the provisions of this Section 14.3 unless specifically so stated in writing by Landlord at the time of such acceptance. Notwithstanding the foregoing, for the first full * Lease Years of the Lease Term, Tenant shall be obligated to repay any such charge, bonus, inducement or consideration theretofore abated given or paid by Landlord. During the * Lease Year, Tenant must repay one-half of such charge, bonus inducement or consideration. During Lease Years * through *, Tenant's obligation to repay such charge, bonus, inducement or consideration shall be further reduced by * of the full amount of any such charge, bonus inducement or consideration each Lease Year until such time as Tenant's obligations are reduced to zero. 14.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Landlord by the terms of any ground lease, mortgage or deed of trust covering the Premises. Accordingly, if any installment of Base Rent and Tenant's Share of Operating Expenses or other sum due from Tenant shall not be received by Landlord or Landlord's designee within * days after such amount shall be due, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to * of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's Default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected for * consecutive installments of Base Rent and Tenant's Share of Operating Expenses, then notwithstanding Section 4.1 or any other provision of this Lease to the contrary, Base Rent and Tenant's Share of Operating Expenses shall, at Landlord's option, become due and payable quarterly in advance. 14.5 Default by Landlord. Landlord shall not be deemed in default of this Lease unless Landlord fails within a reasonable time and with due diligence to proceed promptly to perform an obligation required to be performed by Landlord. For purposes of this Section 14.5, a reasonable time shall in no event be less than * days after receipt by Landlord, and by any Lender(s) whose name and address shall have been furnished to Tenant in writing for such purpose, of written notice specifying wherein such obligation of Landlord has not been performed; provided, however, that if the nature of Landlord's obligation is such that more than * days after such notice are reasonably required for its performance, then Landlord shall not be in breach of this Lease if performance is commenced within such * day period and thereafter diligently pursued to completion. In the event of Landlord's default, and after expiration of Landlord's right to cure such default, Tenant will be entitled to exercise any right or remedy available to Tenant at law or in equity by reason of such default, except to the extent expressly waived or limited by the terms of this Lease and provided that Tenant gave Landlord written notice of the obligation required to be performed by Landlord under the Lease. 15. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession whichever first occurs. If more than * of the floor area of the Premises or more than * of the portion of the Common Areas designated for parking is taken by condemnation, Tenant may, at Tenant's option, to be exercised in writing within * days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within * days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Tenant does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent and Tenant's Share of Operating Expenses shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total Rentable Area of the Premises. No reduction of Base Rent shall occur if the condemnation does not apply to any portion of the Premises. In the event a portion of the Common Area designated for parking is taken by condemnation, Landlord will retain the ratio of Tenant's parking based on the square feet remaining of the Premises to the ratio of parking spaces made available for other tenants in the Building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Landlord, whether such award shall be made as compensation for diminution of value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Tenant shall be entitled to any compensation, separately awarded to Tenant for Tenant's relocation expenses, taking of Tenant's chattels and/or loss of Tenant's Trade Fixtures in the condemnation. 16. Brokers. Tenant and Landlord each represent and warrant to the other that (i) it has had no dealings with any person, firm, broker or finder other than Coldwell Banker Commercial, Moore and Company who acted as Tenant's agent in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby; and (ii) no broker or other person, firm or entity other than said named Broker(s) is entitled to any commission or finder's fee in connection with said transaction. Landlord shall pay a real estate commission to such Broker pursuant to a separate written agreement between them. Tenant and Landlord do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorneys' fees reasonably incurred with respect thereto. 17. Statements. 17.1 Estoppel. Each party shall within * days after written notice from the other party execute, acknowledge, and deliver to the requesting party a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), that there have been no defaults thereunder by Landlord or Tenant (or, if there have been defaults, setting forth the nature thereof), the date to which the Rent and other charges have been paid in advance, if any, and such other information as the requesting party may request. It is intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser of all or any portion of Landlord's interest herein or any holder of any mortgage or deed of trust encumbering the Building Complex. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that: (i) the Lease has not been canceled or terminated and is in full force and effect, without modification except as may be represented by Landlord; (ii) there are no uncured defaults in Landlord's performance (iii) not more than one month's Base Rent and Tenant's Share of Operating Expenses has been paid in advance; and (iv) that the current amounts of the Base Rent are as represented by Landlord; and (v) there have been no subleases or assignments of the Leases. Further, with * days after Landlord's request, Tenant will supply Landlord a corporate or partnership resolution, as the case may be, or a certificate executed by the Corporate secretary of Tenant certifying that the party signing said statement of Tenant is properly authorized to do so. 17.2 Financial Statement. If Landlord desires to finance, refinance, or sell the Premises or the Building Complex, or any part thereof, Tenant shall deliver to any potential lender or purchaser designated by Landlord such financial statements of Tenant and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Tenant's financial statements for the past three (3) years. All such financial statements shall be received by Landlord and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 18. Landlord's Liability. The term Landlord" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises. In the event of a transfer of Landlord's title or interest in the Premises or in this Lease during the Term hereof, Landlord shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Landlord at the time of such transfer or assignment. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, and notification of Tenant thereof, the prior Landlord shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Landlord. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Landlord shall be binding only upon the Landlord as hereinabove defined. Notwithstanding the foregoing, Landlord (or Landlord's transferee or assignee) shall be liable for the actual costs incurred by Tenant in obtaining a transfer of the letter of credit referenced in Section 5.1 hereof, if any, upon the transfer of Landlord's title or interest in the Premises up to a maximum amount of * of the then letter of credit amount, if any held by Landlord as a Security Deposit. 19. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 20. Interest on Past-Due Obligations.Any monetary payment due Landlord hereunder, other than late charges, not received by Landlord within * days for the first two lat payments (and * days after the first two of such late payments) following the date on which it was due, shall bear interest from the date due at an annual of interest equal to the lesser of (i) the Prime Rate plus * (* after the first two of such late payments); or (ii) the highest rate permitted by applicable usury law, until paid. For purposes hereof, the term "Prime Rate" shall mean the rate published by The Western Edition of The Wall Street Journal under "Money Rates". If, for any reason, the Prime Rate is no longer published in The Wall Street Journal then the Landlord shall select another financial publication and reasonably announced rate as the Prime Rate. 21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the parties under this Lease. 22. Rent. All monetary obligations of Tenant to Landlord under the terms of this Lease are deemed to be Rent. 23. No Prior or Other Agreements. This Lease contains all agreements between the parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. 24. Notices. 24.1 Notice Requirements. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, and shall be deemed sufficiently given if served in a manner specified in this Section 24. The addresses noted below shall be that party's address for delivery or mailing of notice purposes. Either party may by written notice to the other specify a different address for notice purposes, except that upon Tenant's taking possession of the Premises, the Premises shall constitute Tenant's address for the purpose of mailing or delivering notices to Tenant. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate by written notice to Tenant. If to Landlord: Shea Homes Lim. Partnership 300 W. Plaza Drive Highlands Ranch, CO 80126 Attn: Mr. David Goldberg with a copy to: L.C. Fulenwider, Inc. 1125 17th Street, Ste. 2500 Denver, CO 80202 Attn.: Mr. William K. Prather with a copy to: The Krovitz Law Firm, P.C. 5290 DTC Parkway, Suite 150 Englewood, CO 80111-2764 Attn: R. G. (Shelley) Krovitz, Esq. If to Tenant (prior to Frontier Airlines, Inc. the Delivery Date): 12015 E. 46th Ave., #200 Denver, CO 80239-3116 Attn.: General Counsel If to Tenant (after the The Premises Delivery Date): With a copy to: Randall G. Alt, Esq. Otten, Johnson, Robinson, Neff & Ragonetti, P.C. 950 17th Street, Suite 1600 Denver, CO 80202 and Douglas R. Wright, Esq. Faegre & Benson LLP 370 17th Street, Suite 2500 Denver, CO 80202 24.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given and received * hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given and received * hours after delivery of the same to the United States Postal Service or courier. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day. 25. Waivers. No waiver by Landlord of the Default of any term,covenan or condition hereof by Tenant shall be deemed a waiver of any other form covenant or condition hereof or of any subsequent Default by Tenant of the same or any other term, covenant or condition hereof. Landlord's consent to or approval of any such act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent or similar act by Tenant or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Landlord's knowledge of a Default at the time of accepting Rent, the acceptance of Rent by Landlord shall not be a waiver of any Default by Landlord of any provision hereof. Any payment given Landlord by Tenant may be accepted by Landlord on account of moneys or damages due Landlord, notwithstanding any qualifying statements or conditions made by Tenant in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Landlord at or before the time of deposit of such payment. 26. Recording. Tenant shall not record this Lease or a memorandum hereof. In the event that Tenant violates this provision, this Lease shall be null, void and of no further force and effect, at Landlord's option, except that Tenant shall be liable to Landlord as liquidated damages, in the amount of the remaining Rent to be paid hereunder. 27. Holdover. Tenant has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. In the event that Tenant holds over in violation of this Section 27 with the consent of Landlord, then the Base Rent payable from and after the time of the expiration or earlier termination of this Lease shall be increased to * of the Base Rent applicable during the month immediately preceding such expiration or earlier termination. Nothing contained herein shall be construed as a consent by Landlord to any holding over by Tenant. 28. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 29. Covenants and Conditions. All provisions of this Lease to be observed or performed by either Landlord or Tenant are both covenants and conditions. 30. Binding Effect: Choice of Law. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State of Colorado. Any litigation between the parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 31. Subordination; Attornment; Non-Disturbance. 31.1 Subordination. This Lease, at Landlord's option, shall be subordinate to: (i) any mortgage, deed of trust or ground lease (now or hereafter placed upon the Building, or any portion thereof), including any amendment, modification, or restatement of any of such documents; (ii) any and all advances made under any mortgage or deed of trust; and (iii) all renewals, modifications, consolidations, replacements, and extensions of any such mortgage, deed of trust or ground lease. Tenant agrees that with respect to any of the foregoing documents, no documentation, other than this Lease, shall be required to evidence such subordination. 31.2 Superior. If any Mortgagee shall elect to have this Lease superior to the lien of the applicable mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. 31.3 Documentation. In confirmation of such subordination or superior position, as the case may be, Tenant agrees to execute such documents as may be required by Landlord or any Mortgagee to evidence the subordination of its interest herein to any of the documents described above, or to evidence that this Lease is prior to the lien of any mortgage or deed of trust or any ground lease, as the case may be, and failing to do so within fifteen (15) Business Days after written demand, Tenant shall be in default under the Lease without the necessity of further notice. Tenant's subordination and attornment to a future mortgage, deed of trust or other encumbrance on the Building and/or the Real Property, shall be contingent upon Tenant's receipt from such lender of a non-disturbance agreement prepared on the lender's standard form; provided, however, receipt of such non-disturbance agreement shall be conditioned upon Tenant not being in default under this Lease. Such non-disturbance agreement will provide in substance that so long as Tenant fully complies with the terms, covenants and conditions of this Lease, the party succeeding to Landlord's interest will recognize this Lease. 31.4 Attornment. Tenant hereby agrees to attorn to all successor owners of the Building, whether or not such ownership is acquired as a result of a sale, through foreclosure of a deed of trust or mortgage, or otherwise. 32. Attorneys' Fees. If any party brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appear thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued or decision or judgment. The term "Prevailing Party" shall include, without limitation, a party who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment or the abandonment by the other party of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. 33. Right of Entry. Landlord and Landlord's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times during normal business hours for (i) the purpose of showing the same to prospective purchasers, lenders, or tenants, and (ii) making such alterations, repairs, improvements or additions to the Premises or to the Building, as Landlord may reasonably deem necessary; provided that in doing so, Landlord shall not unreasonably disturb or interfere with Tenant's use of the Premises beyond what may be reasonably necessary under the circumstances. Landlord may at any time place on or about the Premises or Building any ordinary "For Sale" signs and Landlord may at any time during the last * days of the Term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Landlord shall be without abatement of Rent or liability to Tenant; provided, however, subject to Section 9.5 herein and excluding Tenant's personal property, Trade Fixtures, and Tenant-Owed Alterations and Utility Installations in, on or about the Premises, Landlord shall repair damage to the Premises caused by Landlord exercising its rights under (ii) above. 34. Auctions. Tenant shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Landlord's prior written consent. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 35. Signage. Tenant shall not place any sign upon the exterior of the Premises or the Building, except in conformance with the Landlord's sign criteria attached hereto as Exhibit D, and made a part hereof. The installation of any sign on the Premises by or for Tenant shall be subject to the provisions of Section 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Landlord reserves all rights to the use of the roof of the Building, and the right to install advertising signs on the Building, excluding the roof, which do not unreasonably interfere with the conduct of Tenant's business and further provided such signage does not advertise a scheduled passenger airline (provided, however, such exclusion shall not apply if any such competitor is a tenant in the Building Complex). Landlord shall be entitled to all revenues from such advertising signs, if any. Notwithstanding the foregoing, Tenant shall be entitled to exterior signage on the Building provided that the size, location and design shall be subject to Landlord's prior written approval which approval will not be unreasonably withheld. Tenant's right to the exterior signage is personal to the Tenant corporation, is not assignable and may not be used for any other name than Tenant's corporate name unless the Tenant changes its name by corporate action, but such action shall not include a name change by assignment or sublease as described in Section 13 above. All such exterior signage rights shall be of no further force and effect if the named Tenant corporation is not occupying at least * square feet of space in the Building at any time during the Lease Term as it may be extended. Tenant shall obtain all approvals necessary for all signage including, approval pursuant to the Denver International Business Center protective covenants and all governmental entities, at its cost and expense and such signage shall comply with all codes. 36. Termination; Merger. Unless specifically stated otherwise in writing by Landlord, the voluntary or other surrender of this Lease by Tenant, the mutual termination or cancellation hereof, or a termination hereof by Landlord for Default by Tenant, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Landlord shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Landlord's failure within * days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Landlord's election to have such event constitute the termination of such interest. 37. Guarantor. [Intentionally Deleted] 38. Quiet Possession. Upon payment by Tenant of the Rent for the Premises and the performance of all of the covenants, conditions and provisions on Tenant's part to be observed and performed under this Lease and subject to the provisions of this Lease, Tenant shall not be disturbed in its possession of the Premises for the entire Term hereof by Landlord or any other person lawfully claiming through or under Landlord. 39. Rules and Regulations. Tenant agrees that it will abide by, and keep and observe all rules and regulations ("Rules and Regulations) which Landlord may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and their invitees. The current Rules and Regulations are attached hereto as Exhibit F and made a part hereof. Any modification to the current Rules and Regulations shall be effective only upon delivery of a copy thereof to Tenant at the Premises. Landlord shall use reasonable efforts to secure compliance by all tenants with the Rules and Regulations from time to time in effect, but shall not be responsible to Tenant or any other person for failure of any person to comply with such Rules and Regulations. Notwithstanding the foregoing, the terms and conditions set forth in the body of this Lease shall control over any inconsistent Rules and Regulations. 40. Security. Tenant hereby acknowledges that the Rent payable to Landlord hereunder does not include the cost of guard service or other security measures, and that Landlord shall have no obligation whatsoever to provide same. Tenant assumes all responsibility for the protection of the Premises, Tenant, its agents and invitees and their property from the acts of third parties. Notwithstanding the foregoing, Landlord may elect to provide a concierge or security guard for more efficient operation of the Building Complex, and the cost thereof shall be included as a Common Area Operating Expense. Landlord is not obligated to provide such security services at any time or for any length of time. Tenant expressly acknowledges that Landlord has not represented to Tenant that the Building Complex is secure and Landlord shall not be responsible for the quality of any security services which may be provided hereunder or for damage or injury to Tenant, its agents, employees, invitees or others or its betterments contained in the Building Complex or the Premises due to the failure, action or inaction of such persons providing the security services. 41. Reservations. Landlord reserves the right, from time to time, to grant, without the consent or joinder of Tenant, such easements, rights of way, utility raceways, and dedications that Landlord deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way, utility raceways, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Tenant. Tenant agrees to sign any documents reasonably requested by Landlord to effectuate any such easement rights, dedication, maps or restrictions. 42. Authority. If either party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Tenant is a corporation, trust or partnership, Tenant shall within * days after written request by Landlord, deliver to Landlord evidence satisfactory to Landlord of such authority. 43. Conflict. Any conflict between the printed provisions of this Lease and any typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 44. Offer. Preparation of this Lease by either Landlord or Tenant or Landlord's agent or Tenant's agent and submission of same to Tenant or Landlord shall not be deemed an offer to lease. This Lease is not intended to be binding until executed and delivered by all parties hereto. 45. Amendments. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially or unreasonably change Tenant's obligations hereunder, Tenant agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional insurance company or pension plan lender in connection with the obtaining of normal financing or refinancing of the Real Property of which the Premises are a part. 46. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Landlord or Tenant, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Landlord or Tenant. 47. Building Name. As of the date hereof, the name of the Building is and shall continue to be "Frontier Center One". Notwithstanding the foregoing, if at any time during the Lease Term, as it may be extended, the named Tenant Corporation is occupying less than * rentable square feet of space in the Building under the name "Frontier Airlines," this Paragraph 47 shall be of no further force and effect and Landlord shall be free to rename the Building in its sole discretion. 48. Confidentiality. All information contained in this Lease Agreement is hereby deemed confidential and shall not be divulged to anyone without the express written consent of Landlord except as otherwise specified in Section 17 of this Lease Agreement to their professional consultants and advisors, the Broker identified in Section 16 or as otherwise required by judicial action or governmental law, rules and regulations. 49. Satellite. Landlord hereby grants Tenant a nonexclusive right to install one ground satellite dish in the Ground Satellite Area (the "Ground Satellite") and (ii) other reasonable telecommunications equipment of which Landlord has received prior written notice and has exercised Landlord's right to approve the height, weight, load factor, design, placement and screening thereof, and has given Landlord's prior written consent thereto, on the roof of the Building (the "Roof Satellite") during the Term of this Lease in accordance with the following provisions: 49.1 The Ground Satellite dish and all equipment associated therewith shall be installed in the Ground Satellite Area which shall be located as set forth on Exhibit A-1 and shall be secured by Tenant. The requirements for the Ground Satellite Area enclosure shall be subject to Landlord's approval at the time Landlord approves the plans and specifications for the Premises as described in Exhibit C hereto. Landlord shall not unreasonably withhold consent of the design of Tenant's Ground Satellite Area enclosure. The Tenant must keep the Ground Satellite Area in a clean and orderly condition at its sole cost and expense. The Roof Satellite and other equipment required for same shall be mounted on a self-mounting/supporting pedestal that does not require penetration of the roof membrane and one antenna of two (2) inch diameter that may not extend higher than sixteen (16) feet from the primary roof surface in one location over the dispatch center to be located near the center of the Premises and the remainder not to exceed eight (8) feet from the primary roof surface. All satellite dishes shall be connected to the Premises through lines in appropriate utility raceways in the Building (the dishes, pedestals and connecting equipment are hereinafter referred to as the "Equipment"). Equipment in the Building (but not the Ground Satellite Area and not in a part of the Premises) shall be in locations designated by Landlord; it being understood and agreed that the exact location may be designated by Landlord and is subject to change from time to time by Landlord, at Landlord's cost and expense; provided, however, that such changed location shall permit satellite reception. 49.2 Tenant shall be responsible at its sole cost for construction, installation, relocation and maintenance of the Equipment; provided, however, that Landlord shall install any necessary conduit from the Ground Satellite Area through the appropriate utility raceways in the Building to the Premises at Tenant's sole cost and expense and the connecting Equipment shall be installed in the conduit by Tenant at Tenant's sole cost and expense. The Allowance described on Exhibit C hereto may be used to pay for the Equipment installation costs. All installations shall be subject to the requirements set forth under Section 9 of the Lease. Tenant agrees not to install the Equipment without first submitting plans and specifications and obtaining the written approval thereof by Landlord, such approval or consent not being unreasonably withheld. Tenant agrees not to make any subsequent alterations in or additions to the Equipment without in each instance obtaining the prior written consent of Landlord, such approval or consent not being unreasonably withheld. Tenant at its expense shall obtain all necessary governmental permits and certificates required for such construction, installation, authorization and use, as well as approvals necessary under any declaration of covenants or any maintenance and/or easement agreements affecting the Real Property or the Building Complex, including, without limitation, required consent of the architectural control committee of the Denver International Business Center. All construction, installation, alterations, repair and maintenance work shall be performed in a manner which will not unreasonably interfere with, delay, or impose any additional expenses upon Landlord in the maintenance or operation of the Building Complex or upon other tenants' use of their premises. 49.3 Tenant shall maintain the Equipment and keep it in good repair and keep the Ground Satellite Area and the roof free from all trash, debris and waste resulting from the use thereof by Tenant. Tenant shall pay or cause to be paid all costs for work done by Tenant or caused to be done by Tenant related to the Equipment of a character which will or may result in liens on Landlord's interest therein, in accordance with the provisions of the Lease. The Equipment shall be operated in strict compliance with all governmental and quasi-governmental laws, codes, rules or regulations. Tenant shall have access to the rooftop Equipment; provided, however, that Tenant shall give Landlord reasonable prior notice of the need for access and such access shall be subject to such reasonable rules as Landlord may adopt, including, but not limited to, the requirement that an agent of Landlord accompany persons during such roof access. 49.4 Tenant hereby agrees to indemnify, defend and save Landlord harmless of and from all liability, loss, damage, costs or expenses, including reasonable attorneys' fees, on account of any claims of any nature whatsoever, including work performed, materials or supplies furnished, damage to the property or injury to persons caused by negligence or misconduct of Tenant, Tenant's agents, servants, or employees or any other persons entering upon the roof under express or implied invitation of Tenant or where such injury is the result of the violation of the provisions of this Lease by any such person or caused by the construction, installation, alteration, repair or use of the Equipment. 49.5 Tenant shall have the right to install the Equipment in the Ground Satellite Area and/or roof throughout the Term; provided, however, the terms of the Option granted in Section 50 hereof may include a requirement for Tenant to pay for such rights if applicable pursuant to the terms of such Section 50. Upon the expiration or other termination of the Term of this Lease, Tenant shall remove its Equipment and all other improvements or alterations related thereto and restore the Building, the roof and Ground Satellite Area to its original condition, to the extent of any damages or changes caused by the installation or use of the Equipment. In the event Tenant fails to vacate the roof space on a timely basis as required, Tenant shall be responsible to Landlord for all costs and expenses incurred by Landlord as a result of such failure, including, but not limited to, any amounts required to be paid to third parties, which obligation shall survive the termination of the Lease. 49.6 Tenant acknowledges that the Equipment shall be of such type and frequencies, and operated in a manner that will not cause interference with other tenants' business in the Building Complex, including operation of transmitting and receiving devices. Landlord will advise other tenants or users desiring receiving and transmitting equipment who must obtain Landlord's prior approval that their use is subject to that of Tenant's Equipment then installed; provided, however, Tenant will make reasonable efforts to accommodate other users receiving and transmitting satellite needs about which it has been notified in writing. Landlord and Tenant agree that Landlord shall arbitrate any disputes between Tenant and other tenants concerning alleged interference by operation of the Equipment, whether claimed to be caused by Tenant or such other tenants, and Tenant shall be bound by Landlord's determination in such disputes. If Tenant's installation or operation of the Equipment results in an increase in Landlord's insurance on the Building Complex at any time during the Term of this Lease, Tenant shall be responsible for the payment of such increased premiums attributable to Tenant's installation or operation, as reasonably determined by Landlord. Tenant shall pay such amount upon receipt of billing therefor by Landlord together with the insurance documentation relied upon by Landlord in making such determination. Tenant shall not install or operate the Equipment in a manner that results in cancellation or termination of Landlord's insurance. 49.7 Tenant shall neither hold nor attempt to hold Landlord liable for an injury or damage either proximate or remote, occurring through or caused by fire, water, steam or other repairs, alterations, injury, accident or any other cause to the Equipment, or to other personal property of Tenant kept with the Equipment or in other parts of the Real Property, whether by reason of the negligence or default of Landlord or any occupants of the Building or any other person or otherwise and the keeping or storing of all property of Tenant shall be the sole risk of Tenant. 50. Option to Extend. As additional consideration for the covenants of Tenant hereunder, Landlord hereby grants unto Tenant an option (the "Option") to extend the term of this Lease for * years each (the "First" or "Second Option Term"). The Option shall apply to all space then under the Lease at the time the respective Option Term would commence and shall be on the following terms and conditions: 50.1 Written notice of Tenant's interest in exercising each Option shall be given to Landlord not earlier than * months and not later than * months prior to the expiration of the Primary Lease Term or First Option Term as the case may be ("Tenant's Notice"). Not later than * days after receiving Tenant's Notice, Landlord shall give to Tenant notice of the terms, conditions and rental rate applicable during the respective Option Term, in accordance with subparagraph E below ("Landlord's Notice") 50.2 Tenant shall have * days following Tenant's receipt of Landlord's Notice within which to exercise the Option by delivering written notice of such exercise to Landlord under the terms, conditions and rental rate set forth in Landlord's Notice. If Tenant gives such Notice and provided the other conditions to the extension have been satisfied, the Term of the Lease shall be automatically extended for the respective Option Term without requiring further action by the parties; provided, however, the parties shall execute an amendment to the Lease to confirm the terms of the extension. 50.3 Unless Landlord is timely notified by Tenant in accordance with subparagraphs A and B above, the respective Option shall terminate and the Lease shall expire in accordance with its terms, at the end of the Primary Lease Term or First Option Term, as the case may be. 50.4 Tenant's Option to extend shall continue only if as of the date of Tenant's Notice or as of the date of commencement of the respective Option Term, Tenant: (i) shall not be in default under the Lease at the time of exercise of the option or at the time of the commencement of the respective Option Terms; or (ii) Tenant shall not have sublet more than * of the Premises nor assigned its interest in the Lease other than an assignment to an Affiliate of Tenant consented to under the terms of Section 13 hereof (which shall not be a violation hereof) nor vacated the Premises. 50.5 The Option granted hereunder shall be upon the same terms and conditions of this Lease, except for the rental to be paid by Tenant, and except, after the Second Option Term, there shall be no further option to extend the Lease. The Base Rent applicable during each Option Term shall be comparable to that for comparable space in a comparable building complex as of the date of Landlord's Notice but in no event shall the rate be less than the Base Rent which Tenant is paying immediately prior to commencement of the respective Option Term. 50.6 After exercise of the Option as to the Second Option Term, there shall be no further rights on the part of Tenant to extend the Term of the Lease. 50.7 In order to have the right to the Second Option Term, Tenant shall be required to have exercised the Option as to the First Option Term. The parties hereto have executed this Lease to be effective on the date and year first above written. LANDLORD: TENANT: FRONTIER CENTER ONE LLC, FRONTIER AIRLINES, INC., a Colorado limited liability company a Colorado corporation By: SHEA FRONTIER CENTER, LLC, a California limited liability company, By: _____________________________ its Manager Its: _____________________________ By: J.F. Shea Co., Inc., a Nevada corporation, its Manager ATTEST: By: ________________________________ By: ____________________________ Assistant Secretary Title: _____________________________ By: ________________________________ Assistant Secretary EXHIBITS Exhibit A - Depiction of Premises Exhibit A-1 - Ground Satellite Area Exhibit B - The Building Complex Exhibit C - Work Agreement Exhibit D - Sign Criteria Exhibit E - Commencement Certificate Exhibit F - Rules and Regulations Exhibit G - Parking License Exhibit G-1 - Parking Map Exhibit H - [Intentionally Deleted] Exhibit I - Janitorial Requirements EXHIBIT A DEPICTION OF PREMISES EXHIBIT A-1 GROUND SATELLITE AREA EXHIBIT B THE BUILDING COMPLEX A PARCEL OF LAND LOCATED IN THE NORTHEAST QUARTER OF SECTION 4, TOWNSHIP 3 SOUTH, RANGE 66 WEST OF THE 6TH PRINCIPAL MERIDIAN, CITY AND COUNTY OF DENVER, STATE OF COLORADO, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST CORNER OF SAID SECTION 4, WHENCE THE EAST QUARTER CORNER THEREOF BEARS SOUTH 00 DEGREES 48 MINUTES 54 SECONDS WEST, A DISTANCE OF 2629.96 FEET; THENCE SOUTH 00 DEGREES 48 MINUTES 54 SECONDS WEST, ALONG THE EAST LINE OF THE NORTHEAST QUARTER OF SAID SECTION 4, A DISTANCE OF 932.42 FEET; THENCE NORTH 89 DEGREES 11 MINUTES 06 SECONDS WEST, A DISTANCE OF 70.00 FEET TO A POINT ON THE WEST RIGHT-OF-WAY LINE OF TOWER ROAD, BEING THE POINT OF BEGINNING; THENCE SOUTH 00 DEGREES 48 MINUTES 54 SECONDS WEST, ALONG SAID WEST RIGHT-OF-WAY LINE, A DISTANCE OF 382.56 FEET; THENCE NORTH 89 DEGREES 48 MINUTES 51 SECONDS WEST, A DISTANCE OF 315.05 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST, A DISTANCE OF 142.76 FEET; THENCE NORTH 90 DEGREES 00 MINUTES 00 SECONDS WEST, A DISTANCE OF 188.36 FEET; THENCE NORTH 00 DEGREES 49 MINUTES 56 SECONDS EAST, A DISTANCE OF 30.50 FEET; THENCE NORTH 90 DEGREES 00 MINUTES 00 SECONDS WEST, A DISTANCE OF 51.79 FEET; THENCE NORTH 00 DEGREES 49 MINUTES 56 SECONDS EAST, A DISTANCE OF 237.73 FEET TO A POINT OF CURVE; THENCE ALONG A CURVE TO THE LEFT HAVING A DELTA OF 25 DEGREES 16 MINUTES 23 SECONDS, A RADIUS OF 538.00 FEET AND AN ARC LENGTH OF 237.31 FEET; THENCE NORTH 65 DEGREES 33 MINUTES 34 SECONDS EAST, A DISTANCE OF 63.38 FEET; THENCE SOUTH 89 DEGREES 56 MINUTES 19 SECONDS EAST, A DISTANCE OF 547.19 FEET TO THE POINT OF BEGINNING. To be known as: Lot 3, Block 1 Denver International Business Center Filing No. 8 City and County of Denver State of Colorado EXHIBIT C WORK AGREEMENT Re: Tenant: Frontier Airlines, Inc., a Colorado corporation Premises: Approximately * rentable square feet of floor space known as Suite 101 (the "Premises") Concurrently herewith, you as Tenant and the undersigned as Landlord have executed a Lease (the "Lease") covering the Premises (the provisions of the Lease are hereby incorporated by reference as if fully set forth herein). Landlord has agreed to complete the base building items described on Schedule 1 to this Exhibit C. All such base building items to be completed by Landlord are referred to herein as "Landlord's Work." All work that is necessary to permit Tenant to commence its business in the Premises , including, without limitation, the Tenant Improvements set forth on Schedule 1 to this Exhibit C, except Landlord's Work including installation of trade fixtures and furnishings shall be completed by Tenant ("Tenant Work") at Tenant's cost and expense (other than the Tenant Finish Allowance described below). In consideration of the execution of the Lease, Landlord and Tenant mutually agree as set forth below: A. Landlord's Work. 1. Landlord shall complete Landlord's Work in accordance with the working drawings prepared by The Neenan Company dated April 11, 2000 (the "Approved Plan"). 2. 3. 2. Landlord's contractor shall perform Landlord's Work substantially in accordance with the Approved Plan at Landlord's cost and expense. Other than Landlord's Work, Landlord shall have no obligation for completion or remodeling of the Premises. 4. B. Tenant's Work. 1. Tenant may contract with any architect/designer of its choice. Services requested by Tenant in connection with design and drawing preparation shall be at Tenant's sole cost and expense. Landlord makes no representation or guarantee with respect to fees, services, schedules or other items to be provided by the architect/designer and shall in no way be responsible for such architect/designer's work product. Tenant's architect/designer shall prepare plans and specifications for Tenant's Work to be completed in the Premises (the "Plans and Specifications"). All Plans and Specifications shall be subject to review and approval by Landlord, Landlord's architect and Landlord's engineer prior to commencement of Tenant's Work. All costs of preparation, review and approval, including review and approval by Landlord, Landlord's architect, and/or Landlord's engineer, shall be borne by Landlord. Landlord shall, within * Business Days after receipt of the Plans and Specifications by Landlord for its review and approval, submit to Tenant the Plans and Specifications with the required approvals noted thereon, or submit comments to Tenant setting forth changes to be made in the Plans and Specifications. If changes are required by Landlord, Tenant shall have the Plans and Specifications modified and resubmitted to Landlord for approval and such process shall be repeated until Landlord, Landlord's architect, and/or Landlord's engineer have approved the Plans and Specifications for the Premises (hereinafter referred to as "Approved Plans and Specifications"). Changes to the Approved Plans and Specifications shall be made only upon prior written approval of Landlord and shall be at Tenant's sole cost and expense. 2. Tenant shall contract directly for the Tenant's Work to be completed in accordance with the Approved Plans and Specifications. Tenant's contractor shall bill Tenant and Tenant shall be solely responsible for paying all costs for Tenant's Work as set forth on the Approved Plans and Specifications. Tenant and Tenant's contractor will be required to adhere to the requirements set forth in Schedule 2 attached hereto in connection with performance of Tenant's Work and the contract between Tenant and Tenant's contractor shall incorporate all of the provisions of Schedule 2. All Tenant's Work shall (i) be performed pursuant to written contracts with workmen and mechanics, which shall be acceptable to Landlord; (ii) comply with all reasonable restrictions and requirements as Landlord may impose with respect to Tenant's Work; (iii) conform to the standards of the Building Complex; (iv) be done in a safe and lawful manner in compliance with applicable laws, governmental regulations, and requirements; and (v) be done so as not to interfere with Landlord's completion of Landlord's Work in the Building Complex and the Premises. Tenant shall cause such contractor to take all steps necessary to cooperate in the coordination of the performance of Tenant's Work with the work of Landlord or Landlord's contractors in the Premises or in the Building Complex, including, without limitation, exchanging information about and coordinating their respective schedules, attending coordination meetings, and cooperating in allowing and obtaining access to and availability of portions of the site for performance of Tenant's Work and the work of such other contractors. Tenant may contract with Landlord's contractor to perform Tenant's Work which contract must also meet the terms and conditions of this paragraph. Notwithstanding the foregoing, Landlord's contractor will be required to cooperate and coordinate to the extent possible with Tenant's contractor, so as not to cause any unreasonable delays in Tenant's Work, provided, however, the parties agree that because of the penalties to Landlord set forth in Section 3.2 of the Lease, if a conflict arises, Landlord's contractor's schedule shall have priority. 3. Landlord has agreed to pay that portion of the costs of Tenant's Work up to a maximum of $* per rentable square foot of the Premises (the "Tenant Work Allowance"). The cost of Tenant's Work payable from the Tenant Work Allowance shall include all costs attributable to design and construction of the Tenant's Work including but not limited to, services, fees and expenses of the Tenant's architect and Tenant's engineers; costs of permits and licenses required for completion of the Tenant's Work; labor, materials, fees and expenses of Tenant's contractor in completing the Tenant's Work. Landlord agrees to provide up to an additional $* per rentable square foot of the Premises, in addition to the Tenant Work Allowance, such amount to be applied toward costs of Tenant's Work (the "Additional Allowance"). Such Additional Allowance shall be payable to Landlord by Tenant as Additional Rent in addition to the Base Rent in an amount calculated by amortizing the Additional Allowance over the Primary Lease Term at * per annum. If for any reason at any time during the Lease Term, Tenant is in default, which default is not cured with an applicable cure period, or in the event the Lease Term is terminated for any reason prior to the expiration of the Lease Term, the Additional Allowance shall be immediately due and payable upon the occurrence of such default. Tenant's obligation to repay Landlord the Additional Allowance shall survive the expiration or termination of the Lease. All costs incurred in the completion of Tenant's Work in excess of the Tenant Work Allowance and the Additional Allowance shall be at Tenant's sole cost and expense and shall be promptly paid in full by Tenant to Landlord upon receipt of billing therefor. Any amount of the Tenant Work Allowance (but not Additional Allowance) not utilized for Tenant's Work may be applied to next due Base Rent under the Lease. 4. Tenant's Work Allowance (and after it has been depleted, the Additional Allowance if Tenant provides Landlord written notice that Tenant elects to use the Additional Allowance and wishes Landlord to disburse it for payments hereunder and Landlord and Tenant have executed an amendment to this Lease restating the Base Rent to include the Additional Allowance) shall be paid to Tenant periodically as portions of Tenant's Work have been completed in accordance with the Approved Plans and Specifications and the provisions hereof: a. Before the first application of payment, Tenant shall submit a schedule of values to Landlord allocating the Tenant's Work Allowance to various portions of Tenant's Work. b. On or before the 5th day of each month following the commencement of the work, Tenant shall submit to the Landlord an application for payment on account of Tenant's Work performed during the payment period covered by the application for payment. For purposes of this Lease, the payment period shall be the first day of each month and run through the last day of each month. On the last day of each payment period, Tenant shall determine as of the date the percentage of completion of the work covered by each line item of the approved schedule of values. Each monthly application for payment shall be based upon the percentage of completion of each such line item of Tenant's Work and shall be in the sum of the amounts determined by multiplying the value of Tenant's Work of each line item as set forth in the approved schedule of values by the percentage of completion determined as to each line item on the last day of each payment period less the amounts previously paid with respect to such line items. c. Each application for payment shall be accompanied by lien waivers and affidavits from Tenant's contractor and its subcontractors in a form reasonably satisfactory to Landlord attributable to the immediately preceding month's application for payment. Additionally, Tenant's contractor shall deliver an affidavit to accompany each application for payment setting forth the names and addresses of the subcontractors' materialmen and suppliers and the dollar amount of liability which has been contracted for with each such subcontractor materialman or supplier and the amounts requested by each in that month's application for payment. d. The Landlord will review Tenant's application for payment within * Business Days after receipt and will pay Tenant approved amounts within * days after submittal of a complete application. Notwithstanding anything contained in this Lease to the contrary, Landlord may decline to make a payment to Tenant of all or a portion of any application for payment to the extent as may be necessary to protect Landlord from loss because of defective work; third party claims filed or reasonable evidence indicating probable filing of such claims; failure of the Tenant to make payment to contractors or subcontractors or for labor, materials or equipment; reasonable evidence that the Tenant's Work cannot be completed for the unpaid balance of the Tenant Work Allowance. In the event Landlord withholds payment on account of any of the foregoing reasons, Landlord shall provide written notice of such reasons to Tenant. When the grounds for withholding of payment are removed, payment shall be made promptly for amounts withheld because of such grounds. The application for payment shall reflect retainage of * which Landlord shall hold until Landlord's final payment, described in subparagraph e below. Landlord in its reasonable discretion may agree to not withhold any further retainage when Tenant's Work is * complete provided that Landlord is satisfied with the progress and quality of the Tenant's Work. e. Landlord's final payment to Tenant of the Tenant's Work Allowance (and Additional Allowance, if applicable) and the retainage shall not become due until Tenant submits to Landlord (i) an affidavit signed by Tenant that upon payment of the remaining portion of the Tenant's Work Allowance, all payrolls, bills for materials and any equipment and other indebtedness connected with the subject portion of Tenant's Work for which Landlord or its property might in any way be responsible, have been paid or otherwise satisfied; (ii) the certificate by Tenant's architect that the subject portion of Tenant's Work is complete in accordance with the Approved Plans and Specification; (iii) a Certificate of Occupancy (temporary or final) or equivalent sign off has been issued by the appropriate governmental authority permitting use of the Premises for the Permitted Use under the Lease and a copy of such certificate of occupancy has been delivered to Landlord; (iv) other data establishing the final cost of Tenant's Work, reasonable evidence that Tenant has satisfied all of its construction obligations such as receipts, releases and waivers of liens arising out of Tenant's Work to the extent and in such form as may be reasonably designated by Landlord. 5. Tenant and Tenant's contractor shall indemnify Landlord from any mechanic's or materialman's lien against Landlord's interest in the Building Complex or Premises. If a lien is filed, Tenant or Tenant's contractor shall, at Tenant's option, remove the lien by paying in it full, furnish Landlord a bond sufficient to discharge the lien or deposit in an escrow approved by Landlord *% of the amount of such lien and release the lien from the real property records of the City and County of Denver. In the event Tenant or Tenant's contractor shall fail to remove the lien, provide a bond or cash escrow, Tenant shall immediately be in default under the Lease without the necessity of further notice from Landlord and Landlord shall be entitled to take such action at law, in equity or under the Lease as Landlord deems appropriate and Tenant shall be responsible for all monies Landlord may pay in discharging any lien including all costs and reasonable attorneys' fees incurred by Landlord in settling, defending against, appealing or in any manner dealing with lien. C. Notwithstanding the provisions of the Lease, the Rent Commencement Date will not be delayed or extended by any Tenant delay, which includes, without limitation, delay: (i) in the preparation, finalization or approval of the working drawings for Landlord's Work caused by Tenant, its agents or employees; (ii) caused by modifications, revisions and changes to the final working drawings due to changes requested by Tenant, its agents or employees or objections from Tenant; (iii) in the delivery or installation of any special or non-standard building items specified by Tenant; or (iv) of any kind or nature in the completion of Landlord's Work caused by Tenant, its agents or employees ("Tenant Delay"). Tenant shall pay all costs arising from Tenant Delay. D. Tenant has designated Ms. Joan Osterman and/or Mr. Cornelius Baas as its sole representative with respect to the matters set forth in this Work Agreement, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Agreement. Tenant shall have the right, by written notice to Landlord, to change its designated representatives. E. Landlord has designated Mr. David Goldberg and/or Mr. Mark Throckmorton as its representatives with respect to Landlord's responsibilities under this Work Agreement, who shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Agreement. Landlord shall have the right, by written notice to Tenant, to change its designated representatives. F. Any and all notices required to be given hereunder shall be in writing in accordance with the terms and provisions of the Lease. However, in all cases notices shall also be given to those individuals to be specified pursuant to Paragraphs D and E above. FRONTIER CENTER ONE LLC, a Colorado limited liability company By: SHEA FRONTIER CENTER, LLC, a California limited liability company, its Manager By: J.F. Shea Co., Inc., a Nevada corporation, its Manager By: ________________________________ Assistant Secretary By: ________________________________ Assistant Secretary "Landlord" AGREED AND ACCEPTED this day of , 2000. ----- ----------------- FRONTIER AIRLINES, INC., a Colorado corporation By: Title: ATTEST: By: Title: SCHEDULE 1 TO EXHIBIT C WORK AGREEMENT ITEM BASE BUILDING TENANT IMPROVEMENTS Site a. Site to be paved, striped, and landscaped. a. No requirement. Structure a. Site cast concrete and structural steel frame. a. No requirement. b. Site cast concrete slab on grade. c. Roof deck and roofing. Core Service Areas a. Utility service entry provided. a. Distribution by Tenant. Lobby Improvements a. No requirement. a. Dedicated Tenant's lobbies per Tenant plans. Toilet Room a. No requirement. a. Dedicated toilet rooms to accommodate Tenant's projected occupancy. Perimeter Walls a. Fur and insulate perimeter walls as a. Gypsum board, paint, wall coverings, follows: Walls R13 base, and window sill finishes per minimum building standard. Roof R19 minimum b. Complete exterior finishes including exterior b. Install building standard window window systems and door systems. All coverings; optional exercise room perimeter window and door glass shall have a exterior door. minimum shading coefficient of 0.56. Interior Columns a. Structural requirements only. a. Finishes per code and Tenant plan. Interior Partitions a. No requirement. a. Construct interior gypsum board partitions as required by Tenant's space plan. Construct demising wall con-sisting of wall framing and gypsum board finishes on Tenant side only. b. No requirement. b. Finishes per Tenant plan. Ceilings a. No requirement. b. Furnish and install building standard 2' x 4' acoustical ceiling grid and tile throughout leasable area. Floor Covering a. No requirement. a. Furnish and install all Tenant areas with building standard or better floor coverings. Building standard shall be a minimum of $*/Square Yard installed. Doors, Frames & a. Furnish and install exterior doors, frames a. Furnish, install and finish building Hardware and hardware with mutually acceptable locks interior standard doors, frames and and closers. hardware as required by Tenant's space plan. HVAC a. Furnish and install roof top HVAC units with a. Furnish and install distribution duct a maximum 157.5 tons of cooling. Landlord's runs from roof top HVAC units as mechanical engineer shall design the units in required. The supplemental computer roof conjunction with Tenant's mechanical engineer. top units shall be provided by Tenant. b. Landlord will provide gas service hookup and b. Furnish and install separate HVAC units all roof penetrations. for non-standard loads (if any). Tenant will provide all electrical service hookups for HVAC units electrical wiring and conduit). c. Tenant pays cost of all HVAC electrical and control related roof penetrations. Plumbing a. Furnish and install waste line down center of a. Provide distribution waste and vent lines building per applicable code. as required to facilitate tenant plan. Tenant shall be responsible for maintaining flow only in that portion of the drain line(s) that serves plumbing fixtures within the boundaries of its premises. All other drain lines will be served by Landlord. b. Furnish and install water service to Tenant b. Extension of water service within Tenant space, minimum size 1-1/2" to common single space as required. meter for entire building. Landlord will provide a 2" capped and valved stub to Tenant's space from riser room. c. Furnish and install all plumbing fixtures and required connections per code and tenant finish plan. Fire Protection and a. Furnish and install complete fire protection a. Relocate and add standard building Sprinkler System system per code for unimproved base building; sprinkler drops and heads for proper risers, mains and branch lines with brass coverage as dictated by the Tenant's upright sprinkler heads for a wet pipe system space plan and code. at 1 head per 125 square feet of spacing. Electrical a. Furnish and install electrical service a. Power and lighting distribution per code including transformers, to dedicated and Tenant specifications. electrical room to meet a minimum load requirement of 480 volt, 3-phase, 1125 amp demand load maximum for Tenant. Fire Extinguishers a. No requirement. a. Furnish and install fire extinguishers and cabinets as required by space layout and code. Satellite Dish a. Landlord shall provide a walled enclosure a. Provide and install including electrical sufficient in size to accommodate the distribution and any building building transformers, building gas metering modi-fications. system, electrical metering system, and the Tenant satellite dish and back up generators. Uninterrupted Power a. No requirement. a. All service provisions by Tenant. Source and Back Up Generation
SCHEDULE 2 TO EXHIBIT C WORK AGREEMENT PROCEDURE AND SCHEDULES FOR COMPLETION OF TENANT WORK BY TENANT Tenant and Tenant's Contractor and the contracts between Tenant and Tenant's Contractors, to be entered into in connection with the performance of Tenant's Work, shall conform to the following rules, regulations, and requirements, which shall be incorporated into such contracts. Tenant shall ensure that all of Tenant's Contractors act in conformity with the provisions set forth herein. In the event of any conflict between any other terms or provisions of Tenant's contracts and the terms and provisions set forth below, the terms and provisions set forth below shall control. 1. Tenant shall start construction of Tenant's Work in the Premises not later than * days from issuance of a building permit, and shall carry such construction to completion with all due diligence. 2. Tenant shall submit to Landlord, in writing, at least *days prior to the commencement of construction, the following information: A. The names and addresses of the general, mechanical and electrical contractors, if any, Tenant intends to engage in the construction of Tenant's Work and copies of proposed contracts executed by Tenant. (The term "Contractor" as used hereinafter shall mean Tenant's general Contractor or, if Tenant does not use a general Contractor, then all Contractors with whom Tenant contracts directly for Tenant's Work. The term "Subcontractors" shall mean and refer to all entities contracting with the Contractor to complete Tenant's Work.) B. A proposed schedule setting forth the commencement date of construction of Tenant's Work and the date of completion of construction of Tenant's Work, fixturing work, dates for proposed interruption of services (if any required) and the date of projected opening. C. Copies of performance and/or labor and material bonds, as required by Landlord, from the Contractor and Subcontractors. D. Final itemized statement of estimated construction costs, including architectural, engineering and contracting fees. E. Evidence of insurance as called for herein. Tenant shall secure, pay for and maintain, or cause its Contractor(s) to secure, pay for and maintain, during the continuance of and for * year after completion of construction and fixturing work within Tenant's Premises, all of the insurance policies required and in the amounts as set forth herein. Tenant shall not permit, and Tenant's contract shall prohibit its Contractor to commence any work until all required insurance has been obtained and certified copies of policies have been delivered to Landlord. 3. Insurance: The following insurance requirements shall be complied with: A. Minimum Coverage - Prior to any Tenant's Work being commenced by Tenant's Contractor or Subcontractors, Tenant or Tenant's Contractor (as set forth below), shall obtain and maintain insurance with minimum coverage and limits to protect Landlord and Landlord's managing agent from the claims hereinafter set forth which may arise or result from performance of any Tenant's Work, whether such work be done by Tenant's Contractor or by any of Subcontractors or by anyone directly or indirectly employed by Tenant's Contractor or Subcontractors or by anyone for whose acts Tenant's Contractor or Subcontractors may be liable as set forth as follows (such limits may be provided by an appropriate "umbrella" policy): 1. Workmen's Compensation insurance at the statutory limits provided for by the State of Colorado; 2. Employer's liability insurance at a limit of not less than $* for all damages arising from each accident; 3. Comprehensive general liability insurance covering: (i) Operations Premises liability; (ii) Completed operations; (iii) Product liability; (iv) Contractual liability; (v) Broad form property damage endorsement and property damage caused by conditions otherwise subject to exclusion for explosion, collapse or underground damage; (vi) Fire legal liability, with the following insurance limits: Bodily Injury: $* each occurrence; $* general aggregate and $* products/completed operation aggregate; 4. Comprehensive automobile liability insurance covering all owned, hired or non-owned vehicles including the loading and unloading thereof with limits of no less than: $* combined single limit each occurrence; Automobile Property Damage: $* each person; 5. Physical damage insurance covering the completed value of the Tenant's Work which shall afford coverage against "all risks" for physical loss or damage. B. Cancellation - All such insurance shall be carried with a company or companies reasonably satisfactory to Landlord and Landlord's managing agent and the insurance described in (3), (4) and (5) above, and shall name Landlord and Landlord's managing agent and their employees and agents as additional insured parties. In addition, each policy shall provide that it will not be canceled or altered except after * days advance written notice to Landlord, and the certificate of insurance shall so state. C. Policy Termination -Tenant's Contractor shall maintain all insurance required hereunder during the completion of Tenant's Work and for a period ending * year after the date of completion of all Tenant's Work. D. Policies -Either Tenant or Tenant's Contractor may provide the insurance required hereunder except that Tenant's Contractor shall at a minimum provide the insurance described in (1), (2) and (3) of subparagraph 3(a) above. Prior to commencement of work by Tenant's Contractor, it shall deliver two (2) copies of the aforementioned policies or evidence of policies such insurance to Landlord. All policies shall be deemed primary over any other valid or collectible insurance carried by Landlord or Landlord's managing agent. Such policies must be approved by Landlord prior to commencement of said work. Without the express written consent of the Landlord, Tenant agrees that it shall not allow any Contractor or subcontractor to commence work within the Building until such entity has obtained the insurance required above. Landlord shall have ten (10) Business Days to disapprove such policies or they will be deemed approved. E. Waiver of Subrogation - Tenant and Tenant's Contractor and Subcontractors shall waive all rights against each other and the subcontractors, sub-subcontractors, agents and employees, each of the other for damages caused by fire or other perils available under the normal "All Risk" I.S.0. insurance policy on the work itself and the Building. 4. As provided above, Tenant shall notify Landlord of the names of the proposed Tenant's Work general, mechanical and electrical contractors. All Contractors and Subcontractors engaged by Tenant shall be bondable, licensed contractors, capable of performing quality workmanship and working in harmony with Landlord's general contractor and other contractors on the job. All work shall be coordinated with the general project work. Landlord shall have the right to require Tenant's Contractors to provide payment and performance bonds for any or all Tenant's Work, such bonds to be paid for out of Tenant's Work Allowance if such funds are available. Any bond shall be requested and provided prior to the commencement of Tenant's Work. 5. Tenant's Contractor and construction shall comply in all respects with applicable federal, state, county and/or local statutes, ordinances, regulations, laws and codes. All required building and other permits in connection with the construction and completion of Tenant's Work shall be obtained and paid for by Tenant out of Tenant's Work Allowance if such funds are available. If either party observes that any Tenant's Work is at variance in any respect with any applicable codes, ordinances, laws, rules and regulations, it shall promptly notify the other party and Landlord in writing, and any necessary changes shall be made by Tenant. If Tenant's Contractor performs any Tenant's Work that it knows is contrary to such codes, laws, ordinances, rules and regulations, and fails to deliver such notice to the Tenant and Landlord, Tenant's Contractor shall assume full responsibility therefor and shall bear all costs attributable to repair, replacement or correction. Tenant and Tenant's Contractor and its subcontractors shall comply with Federal, State and local tax laws, social security acts, unemployment compensation acts and such other acts and laws as are applicable to the performance of Tenant's Work. 6. All contracts shall be in writing, and no work shall be done except pursuant to such contracts. Tenant'scontract with Tenant's Contractor shall be subject to Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. Any approved contracts shall not be amended or modified without approval by Landlord, which consents shall not be unreasonably withheld or delayed. The Tenant's contract shall conform with the provisions of the Lease, including all provisions herein, and shall obligate the Tenant's Contractor to complete Tenant's Work in accordance with the schedule referred to in Paragraph 2(b) above. 7. Work which Landlord shall have the right to have performed on behalf of and for the benefit of Tenant shall be limited to work which Landlord deems necessary to be done on an emergency basis and which pertains to structural components, the general utility systems for the project, and the erection of temporary barricades and temporary signs, per standard project details and criteria, during construction or Tenant's Work which in Landlord's reasonable opinion is not being performed in compliance with this Schedule 2. 8. Tenant's Work shall be subject to the inspection and reasonable approval of Landlord, Landlord's architect and general Contractor. Such inspection shall be for Landlord's sole benefit and shall in no event be construed as any benefit to, nor may Tenant rely thereon. All of Tenant's Work shall be first quality, new materials and equipment and meet or exceed those standards or qualities (as judged by Landlord's architect) contemplated at the Building Complex. 9. Tenant shall apply and pay for all utility meters except where metered service is provided by Landlord or public service agency. 10. The Tenant's contract shall include a statement requiring the Contractor and all Subcontractors, laborers, and materialmen to execute a lien waiver for any interim and final payments. A copy of the executed waiver or notice of refusal is to be immediately forwarded to the Landlord. 11. Tenant and Tenant's Contractor shall indemnify and hold harmless Landlord, Tenant and their respective representatives, agents and employees from and against all claims, damages, losses, and expenses, including, but not limited to, reasonable attorney's fees arising out of or resulting from the performance of Tenant's Work or Tenant's Contractor's performance of the Tenant's contract which are: (a) caused in whole or in part by any negligence or omission of Tenant's Contractor, any subcontractor or anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable; and (b) attributable to bodily injury, sickness, disease or death, or the destruction of tangible personal property, including loss of use resulting from any of the foregoing acts and all Tenant's Work contracts shall reflect this indemnity. In any and all claims against the Landlord, Tenant or their respective representatives or any of their agents or employees or by an employee of Tenant's Contractor, any subcontractor, anyone directly or indirectly employed by any of them, or anyone for whose acts any of them may be liable. The indemnification obligation under this Paragraph 11 shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for the Tenant's Contractor or any Subcontractor under the Workers Compensation Act, disability benefit acts, or other employee benefit acts. 12. In the event a Subcontractor or materialman files a mechanics' lien as a result of performing work pursuant to Tenant's contract then Tenant's Contractor shall indemnify the Tenant and Landlord from said lien and shall, when requested by the Tenant and/or Landlord, pay the amount requested to release the lien or furnish Tenant and Landlord (as Landlord or Tenant may specify) either a bond sufficient to discharge the lien or deposit in an escrow approved by Landlord and Tenant a sum equal to 150% of the amount of such lien. Subject to any restrictions thereon posed by any mortgagee of Landlord, Tenant's Contractor shall have the right and opportunity, in cooperation with Landlord and Tenant, to contest the validity of any such mechanics' lien by such legal means as are available, including the right to prosecute any appeals which may be permitted by law so long as during the pendency of any contest or appeal, the Tenant's Contractor shall effectively stay or prevent any official or judicial sale of any of the real property or improvements comprising the building, upon execution or otherwise, and so long as the Tenant's Contractor pays any final judgment entered with respect to any such mechanics' lien and thereafter procures and records, within a reasonable time, record satisfaction thereof. In the event the Tenant and Landlord shall be a party to any such contest or appeal, or any other action resulting from or arising out of the performance of the work by Tenant's Contractor (or any of its subcontractors, agents, or employees), Tenant's Contractor shall be responsible for all legal fees and other costs and expenses incurred by Landlord and Tenant in any such action. Landlord and Tenant shall have the right to obtain separate counsel of their choice at Tenant's Contractor's expense. In the event that Tenant's Contractor fails to pay the lien or provide a bond or cash escrow, or otherwise fails to fully satisfy and obtain the release of any lien or claim in accordance with the provisions hereof, Tenant's Contractor shall be obligated to pay to Tenant or Landlord, as the case may be, all monies that the latter may pay in discharging any such lien including all costs and reasonable attorneys' fees incurred by Landlord or Tenant in settling, defending against, appealing or in any other manner dealing with any such lien. 13. All risk of loss to all property of the Tenant's Contractor and its subcontractors, including, but not limited to, tools and materials located on the Premises, shall be the sole and exclusive responsibility of the Tenant's Contractor and its subcontractors, and the Landlord shall have no responsibility therefor. 14. If Tenant or Tenant's Contractor is adjudicated a bankrupt, or if Tenant or Tenant's Contractor makes a general assignment for the benefit of its creditors, or if a receiver is appointed on account of Tenant's Contractor's insolvency, or if Tenant's Contractor persistently or repeatedly refuses or fails, except in cases where delay is justified, to supply enough properly skilled workmen or proper materials or if Tenant's Contractor persistently disregards laws, ordinances, rules, regulations or orders of any public authority having jurisdiction, or otherwise is guilty of a substantial violation of a provision of Tenant's contract, then the Tenant (or Landlord in the event of Tenant's bankruptcy, default, or assignment to creditors) may, without prejudice to any right or remedy and after giving the Tenant's Contractor and its surety, if any, * business days' written notice, terminate Tenant's contract with the Contractor and in the event of Contractor's default take possession of all materials, equipment, tools, construction equipment and machinery thereon owned by Tenant's Contractor and shall thereafter finish all Tenant's Work being constructed and previously contracted for by Tenant's Contractor by whatever method it may deem expedient. In such case, Tenant's Contractor shall not be entitled to receive any further payments from Tenant until completion of all Tenant's Work; provided, however, that the Tenant's actions shall not release Tenant's Contractor from any obligations to Tenant arising from its performance or nonperformance under any contracts prior to the date of such termination. Following the completion of such uncompleted Tenant's Work, Tenant shall pay the Tenant's Contractor an amount equal to the aggregate of the amounts actually due under Tenant's contract at the time of the termination of the contract, less the cost to Tenant of completing all the Tenant's Work. Upon termination of Tenant's contract, Tenant's Contractor shall execute and deliver all documents and take all steps, including the legal assignment of Tenant's Contractor contractual rights as the Tenant may require for the purpose of fully vesting in Tenant the rights and benefits of the Tenant's Contractor under Tenant's contract, and arising out of it. Tenant shall also pay to the Tenant's Contractor fair rental for any equipment retained. 15. Tenant's Contractor shall warrant and agree, at its expense, and at no expense whatsoever to Landlord or Tenant to correct or cause to be corrected any defects in the Tenant's Work (including, but not limited to, latent defects or defects due to defective workmanship or materials whether supplied, installed or performed by Tenant's Contractor or any Subcontractor or supplier) which occur within * year after Tenant's Contractor has substantially completed the Tenant's Work, including completion of all punchlist items, (as evidenced by the Tenant's acceptance of such Work) or for such longer period as may be set forth in the Tenant's contract. Tenant's Contractor shall require a similar warranty in all Subcontracts, and shall deliver to Landlord and Tenant, together with appropriate assignments, if required, all warranties of subcontractors and suppliers of materials, components and equipment furnished and installed in connection with such Tenant's Work. Tenant's Contractor further agrees that all guaranties and warranties relating to any Tenant's Work or any materials incorporated into the Tenant's Work shall be extended to and given to both the Landlord and the Tenant, as their respective interests in such Tenant's Work exist, as more particularly set forth in the Lease between the Landlord and Tenant. 16. Landlord shall have no obligation with respect to Tenant's Contractor. 17. Landlord and Landlord's contractor shall have the right, from time to time as may be required, to inspect or perform work within the Premises. Such inspections or work shall not conflict with Tenant's Contractor's work in the Premises unless it is necessary in an emergency situation. Further, Landlord shall have the right to suspend Tenant's Contractor's work in the Premises if such work, in the reasonable opinion of Landlord or of Landlord's contractor, is presenting or may present a danger to life, safety, or property, or in an emergency situation. 18. Tenant shall give Landlord reasonable prior notice to all inspections, punchouts and other reviews during the course of construction so that Landlord may observe such events. Further, Landlord shall be likewise informed of all Building Department inspections and requirements for issuance of the Certificate of Occupancy for the Premises. Landlord's observation of any such events shall, in no event be construed or interpreted as a review or approval by Landlord of any such work nor shall it prevent Landlord, if it thereafter discovers any deficiency in such Work, from requiring correction thereof as otherwise provided herein. Tenant's Contractor shall be solely responsible for obtaining such Certificate of Occupancy and shall submit to Landlord the original thereof prior to Tenant's occupancy of the Premises for the purpose of conducting business. 19. Provided the same is performed in a reasonable manner, Landlord's architect or other agent shall have the option of reviewing all equipment and materials to be used in the construction of the Tenant's Work and all such work prior to Tenant move-in. Such review shall in no event constitute approval by Landlord and shall not unreasonably delay Tenant's Contractor's progress. 20. Tenant's Contractor will not store materials or supplies in, about, or outside the Building Complex (other than within the Premises) without the prior approval of the Landlord and Landlord's contractor. 21. Tenant's Contractor will provide, at all times, direct supervision of any and all work being performed for the Tenant including the delivery and hoisting of materials, if necessary. 22. Tenant's Contractor will cooperate with Landlord to dispose of refuse resulting from Tenant's Work. This may include the use of Landlord's dumpster and a proration of charges associated with such use or at Landlord's option and Tenant's sole cost and expense the placement of Tenant Contractor's dumpster at a location specified by Landlord. 23. If any legal action or arbitration proceeding is commenced in order to enforce the provisions of Tenant's contract or to recover damages as a result of the alleged breach of the provisions thereof, the prevailing party in any such action or proceeding shall be entitled to recover all reasonable costs incurred in connection therewith, including reasonable attorneys' fees. EXHIBIT D SIGN CRITERIA These criteria have been established for the purpose of assuring a quality business park and for the mutual benefit of all Tenants. Conformance will be strictly enforced, and any installed nonconforming or unapproved signs must be brought in conformance at the expense of the Tenant. After written notice to Tenant of a violation and * days to cure such violation, ANY SIGN THAT DOES NOT CONFORM TO THESE REGULATIONS WILL BE REMOVED AND REPLACED WITH A CONFORMING SIGN AT TENANT'S EXPENSE. It will be the sole responsibility of the Tenant to conform to the terms of this Sign Criteria as follows: 1. No later than * days prior to the Delivery Date, Tenant will provide, at its sole cost and expense, the Tenant's portion of the sign in conformance with the criteria below. 2. The sign base complete with the unit number has been provided on the Building. The sign base is the property of the Landlord. 3. Tenant identification shall be restricted to the Tenant portion of the sign. 4. The lettering/logo and installation of the Tenant portion of the sign on the sign base shall be paid for by Tenant and remain the property of Landlord. All letters and other scripting shall be consistent in color and style with the lettering on the base and in good taste, in the opinion of Landlord. 5. Tenant shall submit to Landlord for its approval all copy and/or logo prior to installation of the Tenant portion of the sign. 6. Upon Lease termination, Tenant shall remove its sign and return the Premises to their original condition. 7. No audible signs will be allowed; provided, however, the parties acknowledge that the permitted signs may emit an audible mechanical hum during operation. Landlord will allow internally illuminated lighting with no moving fixtures. 8. Except as provided herein, no banners, pennants, placards, freestanding signs, or signs affixed to automobiles or trailers are allowed on the Building, in the landscaped areas, or on streets or parking area. The restriction pertaining to automobiles or trailers does not apply to magnetic or painted identification signs placed on company or private vehicles for use in the normal course of business. 9. All signs will be reviewed for conformance with this criteria and overall aesthetics and design quality. Approval or disapproval of sign submittals based on aesthetics shall remain the sole right of the Landlord. 10. Each Tenant shall submit or cause to be submitted to Landlord for approval before fabrication at least * copies of detailed drawings indicating location, size, layout, design and color of the proposed signs, including all lettering and/or graphics. 11. All permits for signs and their installation shall be obtained by the Tenant or their representative at Tenant's cost and expense and will comply with all appropriate government requirements. Nothing in this criteria shall imply a waiver of requirements by the local authorities. 12. Tenant shall be responsible for the fulfillment of all requirements and specifications. 13. All signs shall be constructed and installed at Tenant's expense. EXHIBIT E Commencement Date Certificate COMMENCEMENT DATE CERTIFICATE ("Certificate") is executed this ___ day of __________________, 2000, by Frontier Center One, LLC, a Colorado limited liability company, ("Landlord") and Frontier Airlines, Inc., a Colorado corporation, ("Tenant") with respect to and forming a part of that certain Office Suite lease ("Lease") dated __________________, 20__, for the premises commonly known as Suite _________________________________ ("Premises"). WITNESSETH: WHEREAS, the parties desire to reaffirm and/or amend and certify to certain provisions of the Lease; and WHEREAS, the parties desire that the matters set forth herein be conclusive and binding on the parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. The Lease Commencement Date is deemed and agreed to be _____________________, 20___, and the Lease termination date is _____________________, 20___, unless sooner terminated or extended, as provided therein. 2. 3. Base Rent as set forth in Section 1.7 of the Lease is hereby confirmed to be as follows: 4. 5. Period Monthly Rent ------ ------------ 6. $ ------------------ 7. $ ------------------ 8. $ ------------------ 9. $ ------------------ 10. $ ------------------ 11. 12. Tenant's first installment of Base Rent in the amount of ______________ Dollars ($__________) for the period of ___________________ (is due on) (was paid on) _______________, 20__. 13. 14. Tenant's Share of Operating Expenses as set forth in Section 1.9 of the Lease is hereby confirmed to be _________%. Tenant's first installment of Tenant's Share of Operating Expenses in an amount to be determined is due on _________________, 20____. 15. 16. The Rentable Area of the Building (as defined in Section 1.8 of the Lease) is agreed to be _________ rentable square feet. 17. 18. The Rentable Area of the Premises (as defined in Section 1.8 of the Lease) is agreed to be __________ rentable square feet. 19. 20. By execution hereof, Tenant acknowledges and agrees that all improvements or other work required of Landlord has been satisfactorily performed except for latent defects, and Tenant hereby accepts the Premises in full compliance with the terms and conditions of the Lease. 21. 22. Except as may be amended herein, all terms and conditions of the Lease shall continue in full force and effect and are hereby republished and reaffirmed in their entirety. 23. 24. This Certificate shall be binding upon and may be relied upon by the parties hereto and their respective legal representatives, successors and assigns. 25. IN WITNESS WHEREOF, the parties have executed this Certificate as of the day and year first above written. FRONTIER CENTER ONE LLC, a Colorado limited liability company By: SHEA FRONTIER CENTER, LLC, a California limited liability company, its Manager By: J.F. Shea Co., Inc., a Nevada corporation, its Manager By: ___________________________________ Assistant Secretary By: ___________________________________ Assistant Secretary "Landlord" FRONTIER AIRLINES, INC., a Colorado corporation By: Title: ATTEST: By: Title: "Tenant" EXHIBIT F RULES AND REGULATIONS The Rules and Regulations in this Exhibit F have been adopted by Landlord for the safety, benefit and convenience of all tenants and other persons in the Building Complex. Landlord may, from time to time in its sole discretion, amend, delete from, or add to the Rules and Regulations and any such modification shall be effective upon delivery of a copy thereof to Tenant at the Premises. Landlord shall use reasonable efforts to secure compliance by all tenants with the Rules and Regulations then in effect, but shall not be responsible to Tenant for the failure of any person to comply with such Rules and Regulations nor shall any such failure relieve Tenant of its obligation to comply with the Rules and Regulations. In these Rules and Regulations, the Term "Tenant" includes the employees, agents, invitees and licensees of Tenant and others permitted by Tenant to use or occupy the Premises. 1. Tenant shall not do or permit anything to be done on the Premises, or bring or keep anything therein which shall in any way obstruct or interfere with the rights of other tenants, or in any way injure or annoy them, or with any insurance policy covering the Building and/or Common Areas thereof. Any picketing of the Premises shall take place only on publicly dedicated sidewalks and not on the Common Area or in the Premises. 2. 2. 3. Tenant shall not sweep or throw, or permit to be swept or thrown from the Premises, any dirt or other substance into any of the Common Areas of the Building Complex. Tenant shall not use, keep or permit to be used any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the property by reason of noise, odors and/or vibrations. Tenant shall place all refuse in proper receptacles provided by Landlord (and charged as a Common Area Operating Expense), in the locations designated by Landlord for the Building, and shall keep the loading dock area outside the Premises free of all refuse. Tenant shall not loiter on the Common Areas to smoke except in the Building designated smoking area. Tenant shall, at its sole cost and expense, comply with recycling programs for the Building Complex established by Landlord. 4. 5. Tenant shall not store, nor cause to be stored, any material, substance, equipment, supplies or vehicles outside or adjacent to the Premises described in this Lease. 6. 7. Tenant and its employees or vendors shall not go upon the roof of the Building without prior written consent of Landlord. 8. 9. No animals, birds, reptiles or other pets may be brought in or kept in or about the Premises without Landlord's written consent except for animals assisting persons with disabilities. 10. 11. Unless escorted by an adult, children are not allowed on the Premises or in the Building Complex. 12. 13. Canvassing, soliciting and peddling in the Building Complex or on the Premises are prohibited, and Tenant shall cooperate to prevent the same. Only persons approved in writing, from time to time by Landlord, may solicit orders for, sell, serve or distribute foods or beverages in the Building or Common Areas. Except with Landlord's prior written consent and in accordance with arrangements approved by Landlord. Tenant shall not permit cooking within the Premises, except for microwave ovens, coffee makers, etc., for the use of their employees, agents or invitees. Tenant shall be entitled to install vending machines operated by third party licensees and contract with a caterer who may serve breakfast and/or lunch to Tenant, its employees, agents or invitees; provided such caterer does not have its personal property or fixtures on the Premises for more than the period reasonably necessary to serve such meal(s) and such catering is operated in compliance with the requirements of this Lease including, without limitation, approval of Final Working Drawings showing the location of the eating area in which the caterer will serve meals and Paragraph 18 below. If such caterer will occupy a portion of the Premises as evidenced by its personal property or fixtures remaining in the Premises beyond the meal it is serving, then Tenant must comply with the requirements of Section 13 of the Lease for subletting a portion of the Premises. 14. Tenant shall not use or keep on the Premises, any kerosene, gasoline or any inflammable, combustible or explosive fluid, chemical or substance, or use any method of heating or air conditioning other than that authorized in writing by Landlord; provided, however, Tenant can store small quantities of paint thinner and other similar cleaning products in compliance with the requirements of all governmental and quasi-governmental rules, regulations and laws applicable thereto and with the provisions of Section 7. 15. 16. Tenant shall give prompt notice to Landlord of any accidents to or defects in plumbing, electrical fixtures, heating or cooling apparatus or other utilities. 17. 18. The toilet rooms, toilets, urinals, wash bowls and other apparatus serving the Premises shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. All damage and expense resulting from any misuse of the fixtures shall be borne by Tenant to the extent its servants, employees, agents, visitors and licensees shall have caused it. 19. 20. Tenant shall give Landlord reasonable advance notice of and refer all contractors, contractors' representatives and installation technicians rendering any service to the Premises for Tenant to Landlord for Landlord's approval and supervision before performance of any contractual service relating to the Premises itself. This provision shall apply to all work performed which may effect the Building or in the Building Complex, including installation of telephones, telegraph equipment, electrical devices and attachments and installations of any nature. Excluded from the requirement of advance notice to Landlord shall be repairs and maintenance of any of Tenant's own equipment or Tenant's Trade Fixtures to include, but not be limited to phone equipment, security system, copiers and computers. Tenant shall carry out those activities which are restricted herein in connection with Tenant's repair, maintenance, approved alterations and improvements in the Premises only during the times agreed to in advance by Landlord and in a manner which will not interfere with the rights of other tenants in the Building Complex. 21. 22. The sidewalks, exits, entrances, driveways and Common Areas in and around the Premises shall not be obstructed by Tenant or used by Tenant for any purpose other than for ingress to and egress from the Premises. The exits, entrances, driveways, Common Areas, and roof are not for the use of the general public, and Landlord shall, in all cases, retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, shall adversely affect the safety, character, reputation and interest of the Building and its tenants, provided, that nothing herein contained shall be construed to prevent such access to persons with whom Tenant normally deals in the ordinary course of its business unless such persons are engaged in illegal activities. Landlord may remove, at Tenant's expense, any such obstruction or thing (unauthorized by Landlord) without notice or obligation to Tenant. 23. 24. Landlord agrees to furnish Tenant fifteen (15) keys without charge for each of the keyed exterior entry doors. Additional keys will be furnished at a nominal charge. Tenant shall not alter any lock, nor install any new or additional locks or any bolts on any door of the Premises without written consent of the Landlord. If Landlord shall give its consent, Tenant shall in each case, furnish the Landlord with a key for any such lock. Tenant acknowledges that Landlord retains a master key to all entry doors in the Building Complex. 25. 26. Tenant must, upon the termination of this Lease, return to Landlord all keys either furnished to, or otherwise procured by Tenant; and in the event of the loss of any keys so furnished, Tenant shall pay to Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such change. Landlord will not permit entrance to the Premises by use of pass key controlled by Landlord, to any person at any time without the permission of Tenant, except employees, contractors, or service personnel authorized by Landlord in accordance with the provisions of Section 33 herein. 27. 28. Tenant shall ensure that the windows and doors of the Premises are closed and securely locked before leaving the Premises. Tenant must observe strict care and caution that all water faucets or other apparatus are entirely shut off before Tenant or Tenant's employees leave the Premises so as to prevent damage, and Tenant shall be responsible for the costs for all injuries or damages sustained by other tenants or by Landlord as a result thereof. 29. 30. Special requests by Tenant shall be attended to only upon written approval by Landlord or its agent. Employees or agents of Landlord shall not perform any work for or do anything outside of their regular duties for Tenant unless under written approval from the Landlord. 31. 32. Landlord will not be responsible for damaged, lost or stolen personal property, equipment, money or jewelry from Tenant's Premises or the Common Areas regardless of whether such loss occurs when area is locked against entry or not. 33. 34. Tenant, its employees, agents or invitees shall comply with all directions of Landlord as posted in and for the use of the Building Complex parking areas. 35. 36. With regard to the employee cafeteria or food service preparation area, Tenant shall be obligated to comply with, at its sole cost and expense, any code, ordinance, statute, law, rule, regulation, or requirement of any governmental agency having jurisdiction over the Premises or declaration of covenants affecting the Real Property related to Tenant's preparation and service of food from a portion of the Premises and Tenant shall obtain all licenses related to such operation. Tenant shall maintain any required grease traps and all plumbing and electrical facilities related to the operation of the Cafeteria in good order, condition and repair. Tenant will at all times maintain and conduct its business so that no odors, fumes, vapors, steam, moisture or condensation shall affect any walls, floors, or ceilings in the Building or emanate from the Premises. All refuse cans must be kept inside the Premises and shall be kept as required by the health codes. Tenant shall at all times transport the refuse and garbage from the Premises to the refuse area in such manner as may be designated by Landlord from time to time. Tenant shall enter into and keep in full force and effect throughout the term of this Lease a full service preventative extermination contract with a licensed pest control operator approved in advance by Landlord. Further, Tenant agrees to keep the premises at all time free from pests attracted by the cafeteria and shall cause the same to be exterminated from time to time to the satisfaction of the Landlord. Tenant shall have no right to apply for and obtain a license to serve liquor or wine from the Premises. 37. 38. The Premises shall not be used or permitted to be used for residential, lodging or sleeping purposes, or for the storage of personal effects or property not required for business purposes. 39. 40. No blinds, drapes or other window coverings shall be detached from or installed in the Premises without the express prior written consent of Landlord. In the event of violation of any of the foregoing by Tenant, Landlord may remove the articles constituting the violation without any liability and Tenant shall reimburse Landlord for the expense incurred in such removal and replacement upon demand as additional Rent under the Lease. 41. 42. Tenant, its employees, agents and invitees shall not bring any weapons and/or explosives into the Premises, Building or Common Areas for any reason; provided, however, if Tenant provides a security guard for the Premises, such guard may carry a firearm so long as such guard has a valid license therefor. 43. 44. No person shall enter or remain within the Building Complex while intoxicated or under the influence of liquor or drugs. Landlord shall have the right to exclude or expel from the Building Complex any person who, in the sole discretion of Landlord, is under the influence of liquor or drugs. 45. 46. Tenant shall maintain the air temperature in its Premises warm enough to prevent the freezing of the plumbing and sprinkler system. 47. 48. The failure of the Landlord to seek redress for violation of, or insist upon the strict performance of any covenants or conditions of this Lease or any of the Rules and Regulations set forth above or hereafter adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation from having all the force and effect of any original violation. The receipt of Landlord of any rental payment with knowledge of the breach of any covenant of this Lease or breach of these Rules and Regulations shall not be deemed a waiver of such breach. 49. 50. No act or thing done or omitted to be done by Landlord or Landlord's agent during the term of the Lease which is necessary to enforce these Rules and Regulations shall constitute an eviction by Landlord nor shall it be deemed a surrender or acceptance of said Premises, and no agreement to accept such surrender shall be valid unless in writing signed by Landlord. No employee of Landlord or Landlord's agent shall have any power to accept the keys of said Premises prior to the termination of the Lease. The delivery of keys to any employee of Landlord or Landlord's agent shall not be construed as a termination of the Lease or a surrender of the Premises. PARKING LICENSE Landlord hereby grants a license to Tenant for the use by Tenant at the option of Tenant on an unreserved, unassigned basis of * standard size passenger vehicle parking stalls (the "Spaces") on the surface lot adjacent to the Building upon terms of the Lease and this License. Tenant's Spaces shall be located in the area of the surface lot marked on the diagram attached hereto as Exhibit G-1. Tenant shall have the right to designate visitor parking near its entrances at its discretion. The right to use such spaces is non-exclusive and is in common with others on a first-come, first-served basis (the "Parking Privileges"). In the event Tenant elects to construct a day care center in the Premises and in the event an outdoor play area may be required or desired in connection with the operation of such day care center, Tenant's Spaces will be reduced to provide such DC Play Area on the surface parking lot. Tenant shall be required to obtain Landlord's prior written consent to the location of such DC Play Area. 1. Tenant's right to the Parking Privileges shall commence on the date of execution of the Lease and shall continue for the Term of the Lease unless sooner terminated or extended, or unless Tenant is in default not cured within an applicable cure period under the Lease. The Parking Privileges shall automatically terminate upon the expiration or earlier termination of the Lease, the Primary Lease Term and any extensions thereof. 2. 3. Landlord shall have the right at any time to change the arrangement or location of or to regulate the use of Spaces without incurring any liability to Tenant or its Designated Users as long as the number of Spaces referenced above area are available. Landlord will not require parking off the Building Complex except for reasons beyond Landlord's control. Among other things, Landlord shall be entitled to assign designated areas of the surface lot for use by particular persons or groups of persons and Tenant shall refrain from parking in such Spaces as long as the number of Spaces referenced above are available. Tenant acknowledges that the Spaces will not be individually designated or reserved for use by Tenant and that Tenant will use the Spaces in the surface lot in common with all persons to whom or which Landlord grants the right to use the surface lot except as expressly set forth herein as long as the number of Spaces referenced above are available. 4. 5. In addition to the Rules and Regulations set forth in the Lease, the use of the Spaces is subject to the following rules related to Landlord's measures to restrict use of the Building parking facilities by unauthorized persons: 6. 7. a. Landlord will provide Tenant with written notice that Landlord intends to establish a system of restricted parking and will consult with Tenant prior to finalizing any such system. 8. 9. b. At Landlord's written request, Landlord may provide Tenant with tags or stickers for Tenant to distribute to specific individual employees of Tenant (the "Designated Users"). Alternatively, Landlord may designate use of specific spaces to Designated Users; but Tenant shall remain responsible for all obligations hereunder. Within * business days after Landlord's written request, Tenant agrees to provide Landlord with a listing of all vehicles or Designated Users, including names of vehicle owners, vehicle models, colors, license plate numbers, and Tenant shall provide Landlord with a revised listing promptly after any change to the listing. Tenant shall deliver to Tenant's Designated Users parking decals or other identification provided by Landlord which shall be at all times displayed prominently on the vehicles of Designated Users. Landlord shall have the right to directly ban any Designated User from further use of any of the Spaces for violation of the rules for the use of the Spaces. Anyone parked in the Spaces without a parking decal may be towed by Landlord without notice and at the vehicle owner's expense. 10. 11. c. Tenant and Designated Users shall park only in parking spaces and not on ramps, corridors, approaches, or other areas designated as "no parking" areas. 12. 13. d. Tenant and Designated Users shall observe the special hours of opening, closing and non-use of the surface lot when closings are necessary for repairs, cleaning and rehabilitation. 14. e. Tenant and Designated Users shall use the Spaces only for automobile parking to include Permitted Size Vehicles as defined in the Lease. 15. 16. f. Tenant and Designated Users shall observe all posted vehicle height limitations. 17. 18. g. Tenant and Designated Users shall not allow unauthorized vehicles to use the Spaces and, except for emergencies, shall not repair nor authorize service to vehicles parked in the parking structure or in surface parking area. 19. 20. If any portion of the surface lot shall be damaged by fire or other casualty or shall be taken by right of eminent domain or by condemnation or shall be conveyed in lieu of any such taking, the Parking Privileges shall automatically cease and terminate, Tenant thereupon shall surrender to Landlord the Spaces and all interest therein, and Landlord may re-enter and take possession of the Spaces. 21. 22. Tenant shall not be permitted to assign the Spaces or any interest herein or permit the Space or any part thereof to be used by other than Designated Users without the prior written consent of Landlord, which consent may be granted or withheld in Landlord's sole discretion, except as to Landlord's approved subleases in which event consent shall be granted. Tenant shall remain primarily liable for the performance of the obligations of the Tenant hereunder notwithstanding any assignment or occupancy arrangement permitted or consented to by Landlord. 23. 24. Neither Landlord or its agents shall be liable for any damage, fire, theft or loss to vehicles or other properties or persons while in the parking facilities of the Building, whether caused by theft, collision, moving vehicles, explosion, fire, or any other activity or occurrence in such Building. Tenant and/or its Designated Users assume the risk of such loss or damage and shall indemnify, defend and hold Landlord and its agents harmless from any and all claims against and damages incurred by Landlord arising from Tenant's or the Designated Users' use of the parking facilities, including all costs, attorneys' fees, expenses and liabilities incurred on or about any such claim or action. 25. 26. EXHIBIT G-1 PARKING MAP EXHIBIT H [INTENTIONALLY DELETED] EXHIBIT I JANITORIAL REQUIREMENTS I. GENERAL SERVICES A. DAILY SERVICES 1. Clean entry door glass. 2. Sweep with chemically treated dust mop or vacuum all floors. 3. Spot clean composition floors and carpets. 4. Dust desk, chairs and all other office furniture. 5. Clean all ash trays and sand urns. 6. Properly position furniture in offices. 7. Empty all waste baskets and carry trash to pick up area. 8. Spot clean door, door frames and counters. 9. Spot clean partition and door glass. 10. Spot clean around wall switches. 11. Clean and polish drinking fountains. 12. Clean elevator and elevator tracks. 13. Leave on designated lights. 14. Police stairway entries. II. OTHER REQUIREMENTS A. WEEKLY SERVICES 1. Dust ledges and window sills. 2. Perform low dusting. 3. Dust the baseboards. 4. Sweep/Vacuum stairways and dust the rails. 5. Remove fingerprints from woodwork, walls and partitions. B. MONTHLY SERVICES 1. Perform high dusting (i.e., Door sashes and tops of partitions). 2. Dust picture frames. C. FLOOR FINISHING SERVICES 1. Clean and refinish all composition floors - Monthly. III. RESTROOM SERVICES A. DAILY SERVICES 1. Empty and wipe out all waste paper receptacles. 2. Empty sanitary napkin containers and replace insert. 3. Polish all metal and mirrors. 4. Clean and polish all dispensers. 5. Clean and disinfect wash basins, toilet bowls and urinals. 6. Disinfect underside and tops of toilet seats. 7. Spot clean tile walls and toilet partitions. 8. Spot clean walls around wash basins. 9. Clean floors with a germicidal solutions. 10. Refill soap, towel, tissue and seat cover dispensers. B. SEMI-WEEKLY SERVICES 1. Pour clean water down floor drains to prevent sewer gases from escaping. C. WEEKLY SERVICES 1. Wash down ceramic tile walls and toilet compartment partitions. 2. Perform high dusting. D. MONTHLY SERVICES 1. Brush down vents. 2. Machine scrub floors. TABLE OF CONTENTS 1. Basic Provisions 1 2. Premises, Parking and Common Areas 3 3. Term 5 4. Rent 6 5. Security Deposit 9 6. Use 11 7. Hazardous Substances 11 8. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations 12 9. Insurance; Indemnity 15 10. Casualty and Restoration of Premises 17 11. Real Property Taxes 18 12. Utilities 19 13. Assignment and Subletting 19 14. Default; Remedies 22 15. Condemnation 26 16. Brokers 26 17. Statements 26 18. Landlord's Liability 27 19. Severability 27 20. Interest on Past-Due Obligations 27 21. Time of Essence 27 22. Rent 27 23. No Prior or Other Agreements 28 24. Notices 28 25. Waivers 29 26. Recording 29 27. Holdover 29 28. Cumulative Remedies 29 29. Covenants and Conditions 29 30. Binding Effect: Choice of Law 29 31. Subordination; Attornment; Non-Disturbance 29 32. Attorneys' Fees 30 33. Right of Entry 30 34. Auctions 30 35. Signage 30 36. Termination; Merger 31 37. Guarantor 31 38. Quiet Possession 31 39. Rules and Regulations 31 40. Security 31 41. Reservations 32 42. Authority 32 43. Conflict 32 44. Offer 32 45. Amendments 32 46. Multiple Parties 32 47. Building Name 32 48. Confidentiality 32 49. Satellite 32 50. Option to Extend 34 EX-10.56 13 0013.txt OPERATING AGREEMENT OPERATING AGREEMENT OF FRONTIER CENTER ONE LLC By and Between SHEA FRONTIER CENTER LLC and 7001 TOWER, LLC and FRONTIER AIRLINES, INC. May 10, 2000 Table of Contents Page ARTICLE I DEFINITIONS; INTERPRETATION..................................1 1.1 Certain Definitions...............................................1 1.2 Interpretation...................................................10 (a) Captions and Meanings.......................................10 (b) Extension to Business Day...................................11 (c) Monetary Amounts............................................11 ARTICLE II FORMATION AND EXISTENCE.....................................11 2.1 Formation; Preservation..........................................11 2.2 Name; Transacting Business.......................................11 2.3 Place of Business................................................11 2.4 Registered Office and Registered Agent...........................11 2.5 Term.............................................................11 ARTICLE III PURPOSES AND POWERS.........................................12 3.1 Purposes.........................................................12 3.2 Powers...........................................................12 ARTICLE IV CAPITAL CONTRIBUTIONS; LOANS; GUARANTEES....................12 4.1 Capital Contributions............................................12 (a) General.....................................................12 (b) Initial Capital Contribution................................12 (c) Additional Capital Contributions............................12 (d) Additional Contribution for Frontier Incentive Payment......13 (e) Interest on and Return of Capital...........................13 4.2 Project Financing................................................13 (a) Frontier Center One Financing...............................13 (b) Third-Party Financing.......................................13 4.3 Other Loans......................................................14 4.4 Guarantees, Indemnities, Etc.....................................14 ARTICLE V CAPITAL ACCOUNTS; ALLOCATIONS; DISTRIBUTIONS................14 5.1 Capital Accounts Generally.......................................14 5.2 Allocations for Book Purposes....................................15 (a) Operating Income and Loss...................................15 (b) Allocations of Gains........................................15 (c) Allocations of Losses.......................................15 (d) Special Allocations.........................................16 (1) Minimum Gain Chargeback.....................................16 (2) Member Minimum Gain Chargeback..............................16 (3) Qualified Income Offset.....................................16 (4) Member Nonrecourse Deductions...............................16 (5) Code Section 754 Adjustments................................16 (6) Curative Allocations........................................17 (7) Excess Nonrecourse Liabilities..............................17 (8) Allocations Relating to the Frontier Incentive Payment......17 (9) Allocations Relating to Frontier Operating Distributions....17 5.3 Allocations for Tax Purposes.....................................17 5.4 Distributions....................................................18 5.5 Negative Capital Accounts........................................19 ARTICLE VI MANAGEMENT..................................................19 6.1 Manager..........................................................19 (a) Generally; Certain Powers...................................19 (b) Manager's Specific Duties...................................20 (1) Management Services.........................................20 (2) Development Services........................................20 (3) Construction of the Improvements............................20 (4) Property Management Services................................21 (5) Project Leasing Services....................................21 (6) Insurance...................................................21 (7) Employees; Legal Compliance.................................21 (c) Right to Rely on Manager; Attorney-in-Fact..................21 (d) Appointment, Resignation or Removal.........................21 (e) Manager Compensation........................................22 (f) Property Management Fee.....................................22 (g) Licensing...................................................22 6.2 Major Decisions and Major Operating Decisions....................22 (a) Major Decisions.....................................22 (b) Major Operating Decisions...........................23 6.3 Member Meetings and Voting.......................................24 6.4 Member Compensation; Development Fee.............................24 6.5 Management Relationships.........................................25 6.6 Designated Representatives.......................................25 6.7 Indemnification..................................................25 6.8 Other Activities and Competition.................................26 (a) Other Activities............................................26 (b) Competition.................................................26 6.9 Rights of the Frontier...........................................26 (a) Limitation of Rights........................................26 (b) Limitation of Duties........................................26 (c) Information.................................................27 (d) Event of Default............................................27 ARTICLE VII BANK ACCOUNTS; BOOKS AND RECORDS; REPORTS; TAX MATTERS; CONFIDENTIALITY.............................................27 7.1 LLC Accounts.....................................................27 7.2 Books and Records; Financial Statements..........................27 7.3 Tax Matters......................................................28 (a) Partnership Treatment.......................................28 (b) Tax Returns and Elections...................................28 (c) Tax Matters Member..........................................28 7.4 Regulatory Requirements..........................................29 ARTICLE VIII ADMISSION AND WITHDRAWAL OF MEMBERS; TRANSFERS..............29 8.1 Admission and Withdrawal of Members..............................29 (a) Admission...................................................29 (b) Withdrawal..................................................30 8.2 Transfers of LLC Interests and Member Interests..................30 (a) Permitted Transfers.........................................30 (b) Void Transfers..............................................31 ARTICLE IX PUT AND CALL; RIGHT OF FIRST OFFER..........................31 9.1 Put/Call Offering Notice.........................................31 9.2 Exercise of Put/Call.............................................31 (a) Exercise....................................................31 (b) Put/Call Offering Price.....................................32 (c) Exercise....................................................32 (d) Designee of Purchasing Member...............................32 9.3 Put/Call Closing.................................................32 9.4 Audit After Put/Call Closing; Final Settlement...................33 9.5 Tax Returns......................................................33 9.6 Right of FirstOffer..............................................33 ARTICLE X DISSOLUTION; LIQUIDATION....................................35 10.1 Dissolution; Liquidation.........................................35 (a) Members' Covenant...........................................35 (b) Dissolution.................................................35 (c) Liquidation; Liquidator.....................................35 10.2 Final Payments and Distributions.................................36 (a) Application Priorities......................................36 (b) Distributions in Kind.......................................36 10.3 Fillings.........................................................36 ARTICLE XI DEFAULT; REMEDIES...........................................36 11.1 Events of Default................................................37 11.2 Remedies.........................................................37 (a) Remedies Generally..........................................37 (b) Indemnification.............................................37 (c) Arbitration.................................................37 (1) Location....................................................37 (2) Rules and Selection of Arbitrator...........................37 (3) Powers of Arbitrator........................................38 (4) Discovery and Rules of Evidence.............................38 (5) Timing......................................................38 (6) Transcript..................................................38 (7) Costs.......................................................38 (8) Reconsideration.............................................39 (9) Specific Enforcement........................................39 (10) Interest on Award...........................................39 (11) Extraordinary Remedies......................................39 (d) Limitation on Damages.......................................39 ARTICLE XII MISCELLANEOUS...............................................39 12.1 Press Releases and Confidentiality...............................39 12.2 Notices..........................................................40 12.3 Waivers..........................................................41 12.4 Successors and Assigns; No Third-Party Beneficiaries.............41 12.5 Waiver of Action for Partition...................................41 12.6 Integration; Incorporation; Severability; Modifications..........41 12.7 Negotiated Provisions............................................41 12.8 Governing Law....................................................41 12.9 Jurisdiction.....................................................41 12.10 Waiver of Jury Trial.............................................41 12.11 Costs of Legal Proceedings.......................................42 12.12 Further Assurances...............................................42 12.13 Counterparts.....................................................42 EXHIBITS Exhibit A Developer's Pre-Development Work Product...................A-1 Exhibit B Legal Description of the Land..............................B-1 Exhibit C Owner's Pre-Development Work Product.......................C-1 Exhibit D Initial Project Development Plan...........................D-1 OPERATING AGREEMENT OF FRONTIER CENTER ONE LLC This Operating Agreement (this "Agreement") is entered into as of May 10, 2000, by and between SHEA FRONTIER CENTER, LLC, a California limited liability company (the "Developer Member"), and 7001 TOWER, LLC, a Colorado limited liability company (the "Owner Member"), and FRONTIER AIRLINES, INC., a Colorado corporation ("Frontier"). ARTICLE I DEFINITIONS; INTERPRETATION 1.1 Certain Definitions. Unless the context otherwise requires, capitalized terms used herein without definition shall have the following respective meanings. "AAA" means the American Arbitration Association. "AAA Rules" means the Commercial Arbitration rules of the AAA. "Act" means the Colorado Limited Liability Company Act and any successor statute, as amended from time to time. "Additional Capital Contribution" shall mean any contribution to the capital of the LLC pursuant to Sections 4.1(c) and (d), but not including the Initial Capital Contribution. "Adjusted Basis" means the basis, as defined in Section 1011 of the Code, for determining gain or loss for federal income tax purposes from the sale or other disposition of property. "Adjusted Capital Account" means each Member's Capital Account determined as of the end of each Fiscal Year (a) increased by (i) the amount of any unpaid Capital Contributions (if any) unconditionally agreed to be contributed by such Member hereunder, (ii) an amount equal to the sum of such Member's allocable share of Minimum Gain attributable to LLC Nonrecourse Liabilities and such Member's allocable share of Minimum Gain attributable to Member Nonrecourse Debt, in each case as computed as of the end of such Fiscal Year in accordance with applicable Treasury Regulations, and (iii) the amount of LLC liabilities allocable to such Member under Section 752 of the Code with respect to which such Member bears the Economic Risk of Loss, to the extent such liabilities do not constitute "Member Nonrecourse Debt," and (b) reduced by all reasonably expected adjustments, allocations and distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6). For purposes of this definition of "Adjusted Capital Account," any recourse debt for which no Member bears the Economic Risk of Loss shall be treated as an LLC Nonrecourse Liability. The foregoing is meant to comply with Treasury Regulations 1.704-1(b)(2)(ii)(d) and to be interpreted consistently therewith. "Affiliate" means any other person or entity directly or indirectly controlling, controlled by, or under common control with the person or entity to which such term applies. As to any natural person, such person's spouse, child, grandchild, grandparent, sibling, as well as the spouse of any of the foregoing, shall be Affiliates of such person. In addition, as to any corporation, limited liability company, partnership, trust or other entity, any person with any of the foregoing relationships to any person in control of such entity as a general partner, member, manager, shareholder, trustee or otherwise shall be deemed to be an Affiliate of such entity. An Affiliate of a Member shall include any entity in which such Member or any Affiliate of such Member has control. For purposes of this definition, Section 8.2(a) and Section 9.2(d) "control" as applied to any person or entity means the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies and decision-making of such person or entity, whether through the ownership of voting interests or by contract or otherwise. For purpose of this definition and Section 8.2(a), "control" shall also include the possession of direct or indirect equity or beneficial interests in at least fifty percent (50%) of the profits or voting control of any entity. "Agreed Value" means, with respect to money, the amount thereof, and with respect to any other property of the LLC, the fair market value of such property, as determined by the Members as of the date of determination, provided, however, the Agreed Value of the Land, the Developer's Pre-Development Work Product and the Owner's Pre-Development Work Product shall be as determined pursuant to the Contribution Agreement. "Agreement" means this Operating Agreement, as amended from time to time. "Alternate Designee" shall have the meaning given in Section 6.6. "Arbitrable Dispute" shall have the meaning given in Section 11.2(c). "Arbitration Act" shall have the meaning given in Section 11.2(c)(3). "Arbitration Party" shall mean a named party to an Arbitration Proceeding. "Arbitration Proceeding" shall have the meaning given in Section 11.2(c). "Articles of Organization" means the Articles of Organization of the LLC as filed with the Secretary of State of Colorado on May 5, 2000, as the same may be amended from time to time. "Bankruptcy" means, with respect to any person, (i) the initiation by such person of any action or proceeding seeking under any law any reorganization, arrangement, adjustment, composition, liquidation, dissolution, winding-up or similar relief or the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for such person or any material part of its assets, (ii) the making by such person of any assignment for the benefit of its creditors or any admission in writing by such person of its inability to pay its debts as such debts come due, or (iii) the initiation of any action or proceeding against such person seeking under any law any reorganization, arrangement, adjustment, composition, liquidation, dissolution, winding-up or similar relief or the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for such person or any material part of its assets and such person acquiesces in such action or proceeding or such action or proceeding is not discharged or dismissed within sixty (60) days after the initiation thereof. "Business Day" means any day other than a day on which banks in Denver are permitted or required by applicable law to be closed. "Capital Account" means, with respect to any Member, the capital account of such Member maintained pursuant to Article V or the balance thereof, as the context may require. "Capital Contribution" means any cash or other property contributed at any time to the LLC pursuant to Article IV by or on behalf of any person in such person's capacity as a Member, including the Initial Capital Contribution and any Additional Capital Contribution. "Carrying Value" means, with respect to any LLC Asset, the Adjusted Basis thereof, except as follows: (a) The initial Carrying Value of any LLC Asset contributed (or deemed contributed) to the LLC shall be the Agreed Value thereof at the time of such contribution; (b) Any adjustment to the Adjusted Basis of any LLC Asset pursuant to Section 734 or 743 of the Code shall be taken into account in determining, in a manner consistent with Treasury Regulations Section 1.704-(1)(b)(2)(iv)(m), the Carrying Value thereof; and (c) If the Carrying Value of any LLC Asset has been determined pursuant to paragraph (a) or (b) above, such Carrying Value shall thereafter be adjusted in the same manner as would the Adjusted Basis of such LLC Asset. "Code" means the Internal Revenue Code of 1986, as now in effect and hereafter amended, and, unless the context otherwise requires, applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Consent" means, with respect to the taking of any action for which the consent of a Member is required, the written consent of such Member for the taking of such action. "Contributed Property" means each LLC Asset, excluding cash and any property or other assets treated as sold to the LLC pursuant to Section 707(a) of the Code, contributed to the LLC (or deemed contributed to the LLC on termination and reconstitution thereof pursuant to Section 708 of the Code). "Contribution Agreement" means the Formation and Contribution Agreement of even date herewith by and between the Developer and Owner, as the same hereafter may be amended from time to time. "Date of Value" shall have the meaning given in Section 9.1. "Deciding Members" means the Developer Member and the Owner Member. "Denver" means the City and County of Denver, Colorado. "Designated Representative" shall have the meaning given in Section 6.6(a). "Developer" means Shea Homes Limited Partnership, d/b/a Shea Homes, a California limited partnership. "Developer Member Preferred Return" means an amount accrued on the Unreturned Developer Member Preferred Equity at a rate of ten percent (10%) per annum, compounded as of the first day of each Fiscal Quarter, from the date of this Agreement. "Developer's Pre-Development Work Product" means those certain items set forth in Exhibit A attached hereto, all of which have heretofore been assigned and transferred to the LLC. "Development Fee" shall have the meaning given in Section 6.4. "DIBC Covenants" means the covenants, conditions and restrictions affecting the Land, including the provisions thereof requiring approval from the Review Committee (as defined therein) for any improvements to the Land, as provided therein, as the same have been and hereafter may be amended from time to time. "Dispose, Disposing or Disposition" means to consummate, or the consummation (voluntarily or by operation of law) of, a conveyance, sale, assignment, transfer, exchange, lease, mortgage, pledge, grant of a security interest or lien or other disposition or encumbrance. "Distribution" means any cash or other property whatsoever distributed at any time by the LLC to any person in such person's capacity as a Member; provided, however, the Development Fee, the Frontier Incentive Payment, any fees payable to the Manager hereunder or any reimbursable expenses payable to the Manager or any Member pursuant hereto shall not constitute a Distribution. "Economic Risk of Loss" shall have the meaning given in Treasury Regulations Section 1.752-2(a). "Event of Default" shall have the meaning given in Section 11.1. "Filing Office" means the Office of the Secretary of State of the State of Colorado. "Fiscal Quarter" means any of the following periods within each Fiscal Year: the period commencing on January 1 and ending on March 31; the period commencing on April 1 and ending on June 30; the period commencing on July 1 and ending on September 30; and the period commencing on October 1 and ending on December 31. "Fiscal Year" means a fiscal year with respect to the LLC, as required by Section 706 of the Code. "Frontier Center One" means the portion of the Improvements, constructed or to be constructed upon the Land, consisting of a one-story, approximately 70,000 rentable square foot office building, commonly known as Frontier Center One and having a street address of 7001 Tower Road, Denver, Colorado 80249. "Frontier Center One Financing" shall have the meaning given in Section 4.2(a). "Frontier Center One Project Cost" means the documented total cost to the LLC of developing and constructing Frontier Center One in accordance with the Project Development Plan, the Site Plan, the Project Design, the Working Drawings, the Project Leases, the DIBC Covenants and all applicable governmental requirements, including the Net Agreed Value of the Land, the Developer's Pre-Development Work Product, the Owner's Pre-Development Work Product, the costs of the Frontier Center One Financing and the Third-Party Financing and the amounts of the Development Fee. "Frontier Equity Payment" means any and all of the amounts payable to Frontier pursuant to this Agreement, including any and all Distributions payable to Frontier, but in any event not including the Frontier Incentive Payment. "Frontier Incentive Payment" shall mean the payment, in the aggregate amount of $200,000, to be paid to Frontier pursuant to and in accordance with the Frontier Lease. "Frontier Lease" shall mean that certain Lease dated on or about the date of this Agreement, by and between the LLC, as Landlord, and Frontier, as Tenant, for the leasing by Frontier of approximately 51,000 rentable square feet of Frontier Center One, as the same may be amended from time to time in accordance with the provisions of this Agreement. "Frontier Lease Default" means a default by Frontier under the Frontier Lease in the payment of money (after notice and the expiration of the period of grace as provided in Section 14.1(b) of the Frontier Lease) or any other default pursuant to which the Frontier Lease is terminated. "Frontier Rent Commencement Date" means the first day upon which "Base Rent" (as defined in the Frontier Lease) becomes payable pursuant to the Frontier Lease. "Fulenwider" means L. C. Fulenwider, Inc., a Colorado corporation, or any successor thereto. "GAAP" means, as of any day of determination, generally accepted accounting principles as then in effect; provided, however, that if the use of more that one principle is then permitted with respect to an accounting matter, "GAAP" shall refer to the principle then being used by the LLC. "General Contractor" means The Neenan Company or any substitute therefor as determined by the Deciding Members from time to time. "Improvements" means, collectively, the improvements constructed or to be constructed by the LLC upon or in connection with the Land in accordance with the Project Development Plan, the Site Plan, the Project Design, the Working Drawings, the Project Leases, the DIBC Covenants and all applicable governmental requirements, including: (a) Frontier Center One; (b) related utilities, landscaping, access driveways and lanes, parking and other related improvements; (c) any other improvements, including any required off-site improvements, required under the Site Plan; and (d) any other improvements required to be constructed under the Project Development Plan. "Indemnitee" shall have the meaning given in Section 6.7. "Initial Capital Contribution" shall have the meaning given in Section 4.1(b). "Initiating Member" shall have the meaning give in Section 9.1. "Land" means the real property legally described in Exhibit B attached hereto, with all its appurtenances. "Leasing Agent" means Cushman & Wakefield or any substitute therefor as determined by the Deciding Members from time to time. "LIBOR" means the London Interbank Offered Rate as quoted in The Wall Street Journal from time to time. "LLC" means the limited liability company in existence and operating pursuant hereto. "LLC Assets" means, as of any date of determination, all cash and other property whatsoever owned by or held for the benefit of the LLC, including the Project. "LLC Assets Gains" or "LLC Assets Losses" mean, respectively, gains or losses, computed for federal income tax purposes, of the LLC from the disposition of LLC Assets, except that such gains or losses shall be computed based upon the Carrying Value of such LLC Assets rather than upon the Adjusted Basis thereof. "LLC Book-Tax Disparities" means, with respect to any Contributed Property as of any date of determination, the difference between the Carrying Value thereof and the Adjusted Basis thereof. A Member's share of LLC Book-Tax Disparities shall equal the difference between such Member's Capital Account balance as maintained pursuant to Article V and the hypothetical balance of such Member's Capital Account computed as if such Capital Account had been maintained in accordance with federal income tax accounting principles. "LLC Interest" means, with respect to any Member, all of the rights and interests whatsoever of such Member in connection with the LLC (including, to the extent provided for herein, such Member's right to a distributive share of income, gains, losses, expenses or deductions of the LLC and/or any LLC Assets), subject to the limitations contained in this Agreement, and all of the obligations and liabilities of such Member in connection with the LLC. "LLC Nonrecourse Deductions" means, with respect to LLC Nonrecourse Liabilities, the amount of deductions, losses and expenses equal to the net increase during any Fiscal Year in Minimum Gain attributable to LLC Nonrecourse Liabilities, reduced (but not below zero) by proceeds of LLC Nonrecourse Liabilities allocated to any increase in Minimum Gain attributable to LLC Nonrecourse Liabilities distributed during such Fiscal Year, as determined in accordance with applicable Treasury Regulations. "LLC Nonrecourse Liabilities" means nonrecourse liabilities of the LLC for which no Member bears the Economic Risk of Loss. "Major Decision" shall have the meaning given in Section 6.2(a). "Major Operating Decision" shall have the meaning given in Section 6.2(b). "Manager" shall have the meaning given in Section 6.1(a). "Member" means the Owner Member, the Developer Member, Frontier and any other person admitted to the LLC as a Member pursuant to Section 8.1(a). "Member Nonrecourse Debt" means any nonrecourse debt of the LLC for which any Member bears the Economic Risk of Loss. "Member Nonrecourse Deductions" means, with respect to any Member Nonrecourse Debt, the amount of deductions, losses and expenses equal to the net increase during any Fiscal Year in Minimum Gain attributable to Member Nonrecourse Debt, reduced (but not below zero) by proceeds of such Member Nonrecourse Debt allocated to any increase in Minimum Gain attributable to Member Nonrecourse Debt distributed during such Fiscal Year to the Members bearing the Economic Risk of Loss for such debt, as determined in accordance with applicable Treasury Regulations. "Minimum Gain" means (i) with respect to LLC Nonrecourse Liabilities, the amount of gain that would be realized by the LLC if in a taxable transaction the LLC disposed of any LLC Assets that are subject to LLC Nonrecourse Liabilities in full satisfaction of such liabilities, computed in accordance with applicable Treasury Regulations, and (ii) with respect to Member Nonrecourse Debt, the amount of gain that would be realized by the LLC if in a taxable transaction the LLC disposed of any LLC Assets that are subject to Member Nonrecourse Debt in full satisfaction of such debt, computed in accordance with applicable Treasury Regulations. "Net Agreed Value" means (i) with respect to any Contributed Property, the Agreed Value thereof reduced by any indebtedness or liabilities either assumed by the LLC upon the contribution thereof to the LLC or to which such property is subject upon such contribution, and (ii) with respect to any property distributed to a Member or in liquidation of the LLC, the Agreed Value of such property upon the distribution thereof reduced by any indebtedness either assumed by such Member upon such distribution or to which such property is subject upon such distribution. "Net Available Cash" means, as of any date of determination, the amount of cash and cash equivalents readily available to the LLC in the accounts of the LLC and not needed to be reserved with respect to the then current or anticipated operating or capital requirements or obligations or liabilities (whether matured or contingent) of the LLC, including reserves to permit the payment of the Frontier Incentive Payment as and when due and to protect the LLC from a cash shortage in the event of a default under any of the Project Leases. "Notice of Intent to Sell" shall have the meaning given in Section 9.6(a). "Operating Income" and "Operating Loss" mean, respectively, for any Taxable Period, the income or loss of the LLC for federal income tax purposes, computed with the following adjustments: (a) LLC Assets Gains and Losses shall not be taken into account in computing Operating Income or Loss; (b) Tax-exempt income of the LLC shall be treated, for purposes of this definition only, as gross income; (c) Expenditures of the LLC described in Section 705(a)(2)(B) of the Code or deemed to be described in Section 705(a)(2)(B) of the Code pursuant to Treasury Regulations under Section 704(b) of the Code shall be treated, for purposes of this definition only, as deductible expenses; (d) Notwithstanding any other provision of this definition, any items allocated pursuant to Section 5.2(d) shall not be taken into account in computing Operating Income or Loss; and (e) Separately stated items under Section 702(a) of the Code shall be taken into account. "Owner" means DIBC Hotel Conference, LLC, a Colorado limited liability partnership, or any successor thereto. "Owner Member Preferred Return" means an amount accrued on the Unreturned Owner Member Preferred Equity at a rate of * per annum, compounded as of the first day of each Fiscal Quarter, from the date of this Agreement. "Owner's Pre-Development Work Product" means those certain items set forth in Exhibit C attached hereto. "Permitted Transfer" shall have the meaning given in Section 8.2(a). "Permitted Transferee" shall have the meaning given in Section 8.2(a)(1). "Primary Designee" shall have the meaning given in Section 6.6. "Proceeding" means any judicial, administrative or arbitrational trial, hearing or other proceeding or any civil or criminal investigation as result of which a court, arbitrator or governmental authority may enter a judgment, order, decree, award or other determination that if not appealed or reversed would be binding upon any person. "Project" means, collectively, the Land, the Improvements (including Frontier Center One) and the LLC's interest in the Project Leases. "Project Design" means the design of Frontier Center One, including the schematic design and design development documents, as prepared by the architect or architects for the Project or portions thereof and approved and amended by the Deciding Members from time to time. "Project Development Plan" means a plan, as prepared by the Developer and amended by the Manager and submitted to and approved by the Deciding Members from time to time, for the development and construction of Frontier Center One, that states the following: (i) the timetable for each phase of the development and construction; (ii) a budget of all projected income and expenses; (iii) a description of the methods of financing, both for construction and permanent financing, including, when known, the lender, the term and the financial terms of any such financing; (iv) the names of any architects and general contractors to be used for construction of Frontier Center One; and (v) a plan for the leasing of Frontier Center One, including the name of the leasing agent, a schedule and pro forma rental rates and financial terms for the Project Leases; all in such detail as the Deciding Members may reasonably require. The initial Project Development Plan, as prepared by the Developer and approved by the Deciding Members, is attached to this Agreement as Exhibit D. "Project Leases" means, collectively, the Frontier Lease and the space leases for the other portions of the Project, as the same may be amended from time to time in accordance with the provisions of this Agreement. "Project Leasing Agreement" shall have the meaning given in Section 6.1(b)(5). "Property Management Agreement" means the Property Management Agreement of even date herewith between the Developer Member and the LLC, as the same may be amended from time to time in accordance with the provisions of this Agreement. "Property Management Fee" shall have the meaning given in Section 6.1(f). "Purchasing Member" shall have the meaning given in Section 9.2(c). "Put/Call Closing" shall have the meaning given in Section 9.3(a). "Put/Call Default Notice" shall have the meaning given in Section 9.3(b). "Put/Call Offering Notice" shall have the meaning give in Section 9.1. "Put/Call Offering Price" shall have the meaning give in Section 9.2(b). "Put/Call Purchase Price" shall have the meaning give in Section 9.2(c). "Rentable Area" means, with respect to Frontier Center One, the rentable area as calculated in accordance with the Standard Method for Measuring Floor Area in Office Buildings published by The Building Owners and Managers Association International and approved by the American National Standards Institute, Inc., on June 7, 1996. "Residual Gain" or "Residual Loss" means any item of gain or loss (as the case may be) of the LLC recognized for federal income tax purposes and resulting from any Disposition of Contributed Property, to the extent such item is not allocated pursuant to Section 5.3(b)(1)(i). "Responding Member" shall have the meaning given in Section 9.1. "Right of First Offer" shall have the meaning given in Section 9.6. "Securities Act" means the Securities Act of 1933, as amended, and, unless the context otherwise acquires, applicable regulations thereunder. "Selling Member" shall have the meaning given in Section 9.2(c). "Sharing Ratio" means (i) with respect to Frontier, twenty five percent (25%); (ii) with respect to the Owner Member, as of the date of determination, seventy five percent (75%) multiplied by a fraction, the numerator of which is the total amount of the Capital Contributions made by the Owner Member (including the Agreed Value of the Land and the Owner's Pre-Development Work Product and regardless of whether any amounts on account of the Owner Member's Capital Contributions has been returned to the Owner Member) and the denominator of which is the total amount of all Capital Contributions made by the Owner Member and the Developer Member (including the Agreed Value of the Land, the Owner's Pre-Development Work Product and the Developer's Pre-Development Work Product and regardless of whether any amounts on account of the Owner Member's or the Developer Member's Capital Contributions has been returned to the Owner Member or the Developer Member), and (iii) with respect to the Developer Member, as of the date of determination, seventy five percent (75%) multiplied by a fraction, the numerator of which is the total amount of the Capital Contributions made by the Developer Member (including the Agreed Value of the Developer's Pre-Development Work Product and regardless of whether any amounts on account of the Developer Member's Capital Contributions has been returned to the Developer Member) and the denominator of which is the total amount of all Capital Contributions made by the Owner Member and the Developer Member (including the Agreed Value of the Land, the Owner's Pre-Development Work Product and the Developer's Pre-Development Work Product and regardless of whether any amounts on account of the Owner Member's or the Developer Member's Capital Contributions has been returned to the Owner Member or the Developer Member). "Site Plan" shall mean the site plan for the Land, as the same has been approved and may hereafter be amended from time to time by unanimous Consent of the Deciding Members. "Special Allocation" shall have the meaning given in Section 5.2(d). "Taxable Period" means any period of time commencing on the first day of any Fiscal Quarter and ending on the last day of any Fiscal Quarter, subject to the Termination Date. "Tax Matters Member" shall have the meaning given in Section 7.3(c). "Termination Date" means the date upon which the LLC is dissolved and liquidated pursuant to Article X. "Third-Party Financing" shall have the meaning given in Section 4.2(b). "Transfer" shall have the meaning given in Section 8.2(a). "Treasury Regulations" mean the regulations issued by the United States Department of the Treasury under the Code, as now in effect and as hereafter amended, and any successor regulations. "Unpaid Developer Member Preferred Return" means, as the date of measurement, the amount of the Developer Member Preferred Return less the aggregate amount of distributions made to the Developer Member pursuant to Section 5.4(c)(1). "Unpaid Owner Member Preferred Return" means, as of the date of measurement, the amount of the Owner Member Preferred Return less the aggregate amount of distributions made to the Owner Member pursuant to Section 5.4(c)(1). "Unreturned Developer Member Preferred Equity" means, as of the date of measurement, the amount of the Net Agreed Value of the Developer Member's Initial Capital Contribution, plus the amount of any Additional Capital Contributions made by the Developer Member pursuant to Section 4.1 and less the aggregate amount of Distributions made to the Developer Member pursuant to Section 5.4(c)(2). "Unreturned Owner Member Preferred Equity" means, as of the date of measurement, the amount of the Net Agreed Value of the Owner Member's Initial Capital Contribution, plus the amount of any Additional Capital Contributions made by the Owner Member pursuant to Section 4.1 and less the aggregate amount of Distributions made to the Owner Member pursuant to Section 5.4(c)(2). "Unsolicited Offer" shall have the meaning given in Section 9.6(a). "Working Drawings" means final architectural construction working drawings for the construction of Frontier Center One, as the same may hereafter be approved and amended from time to time by the Deciding Members. 1.2 Interpretation. (a) Captions and Meanings. Captions are included for convenience only and shall not be used to interpret this Agreement. Words and pronouns shall be deemed to include any gender and number as the context may require. References herein to Articles, Sections, Schedules and Exhibits, except as otherwise specifically indicated, are to the corresponding provisions hereof. References to "hereof," "herein" and "hereunder" and other compounds of "here" refer to this Agreement in its entirety. References to "person" include any natural person, corporation, trust, estate, joint venture, partnership, limited liability company, association, custodian, nominee, or other entity recognized as having existence under any applicable law and such person's successors and permitted assigns. Reference to property, unless otherwise limited, shall include all property, whether tangible or intangible, real, personal or mixed, including the Land and the Improvements. References to "include" and "including" shall be construed without limitation. References to "default" with respect to any party shall be deemed to include any breach of any representation, warranty or obligation of such party, whether or not such breach is intended by or occurs with the knowledge of such party. "Will" means "shall," and vice-versa, as the context may require. (b)Extension to Business Day. If any action (including the making of any payment) in connection herewith must be taken on a particular day or if the failure to take any action on a particular day would operate hereunder as an election among alternatives or result in the lapse or waiver of any right and if such day is not a Business Day, the time within which such action may be taken shall be extended to the next Business Day. (c) Monetary Amounts. All monetary amounts to be determined hereunder or in connection herewith shall be determined in dollars, and all amounts to be paid hereunder or in connection herewith shall be paid in dollars. For the purposes of this Agreement, "dollars" means legal tender of the United States of America. ARTICLE II FORMATION AND EXISTENCE 2.1 Formation; Preservation. The Members hereby confirm and ratify the formation of the LLC as a limited liability company pursuant to the Act. This Agreement (i) establishes rights, obligations, liabilities and relationships of the Manager and the Members with respect to the LLC and with respect to each other in connection with the LLC and (ii) shall govern matters with respect thereto except to the extent the Act specifically contains provisions that may not be altered by an operating agreement. The Manager has effected the formation of the LLC by preparing, executing and filing the Articles of Organization with the Filing Office. The Manager shall prepare, execute and file all such amendments and other documents in connection with any of the foregoing as may be necessary to reflect any change in the information contained therein or herein or to continue and preserve the existence of the LLC as a limited liability company under the Act, in each such case in accordance with applicable law. 2.2 Name; Transacting Business. The name of the LLC, and under which the LLC shall conduct its business, is "Frontier Center One LLC." The business of the LLC may be conducted under any other name as may be designated by the Manager upon the unanimous Consent of the Deciding Members and as permitted by the Act. If the law or any jurisdiction in which the LLC transacts business so requires, the Manager shall prepare, execute and file any certificate or other document required to qualify the LLC as a foreign limited liability company authorized to transact business therein and any assumed or fictitious name certificate required to transact business therein. 2.3 Place of Business. The principal office of the LLC shall be 300 West Plaza Drive, Highlands Ranch, Colorado 80126, or such other place in the State of Colorado as the Manager may designate from time to time upon thirty (30) days prior notice to each Member. The LLC shall have such other offices as the Manager may establish from time to time. 2.4 Registered Office and Registered Agent. The LLC's initial registered office in the State of Colorado shall be at the office of its registered agent at 300 West Plaza Drive, Highlands Ranch, Colorado 80126, and the name of its initial registered agent at such address shall be Jeffrey H. Donelson. The registered office or registered agent, or both, in the State of Colorado may be changed from time to time by filing the address of the new registered office or the name of the new registered agent, as the case may be, with the Filing Office pursuant to the Act. The LLC shall appoint registered agents and maintain registered offices in other jurisdictions as may be required by law. 2.5 Term. The existence of the LLC commenced on the date upon which the Articles of Organization were filed with the Filing Office, and the LLC shall continuously exist until its dissolution and liquidation pursuant to Article X. ARTICLE III PURPOSES AND POWERS 3.1 Purposes. The purposes of the LLC are to acquire, own, develop, improve, market, operate, lease, convey and sell the Land and the Project, or interests therein, and perform all activities incidental thereto, and to enter into any lawful transactions and engage in any lawful activities (including borrowing or investing money, issuing guaranties and indemnities and granting liens, mortgages, deeds of trust and other security interests) as may be necessary, incidental or convenient in connection therewith. 3.2 Powers. The LLC shall have the power to do any and all acts and things whatsoever for the furtherance and accomplishment of the purposes of the LLC, except to the extent prohibited under the Act or any other applicable law. ARTICLE IV CAPITAL CONTRIBUTIONS; LOANS; GUARANTEES 4.1 Capital Contributions. (a) General. No Member shall be entitled or obligated to make any Capital Contribution except as specifically provided herein. Frontier shall never be required to make any Capital Contribution. (b) Initial Capital Contributions. Set forth below are the Capital Contributions (the "Initial Capital Contributions") each Member has made as of the date hereof: Initial Capital Net Agreed Member Contribution Value - ------ ------------ ----------- Owner The Land and $ * Member the Owner's Pre-Development Work Product Developer The Developer's Pre- Development $ * Member Work Product and Cash Frontier * $ * Member Total $ * (c) Additional Capital Contributions. If from time to time the cash contributed by the Developer Member as part of its Initial Capital Contribution and the proceeds of the Frontier Center One Financing and the Third-Party Financing are not available or sufficient to fund the cash needs of the LLC, the Developer Member shall provide such capital as Additional Capital Contributions; provided, however the maximum amount required to be contributed by the Developer Member shall in no event exceed $*, plus any contribution required to be made by the Developer Member on account of the Frontier Incentive Payment pursuant to Section 4.1(d). (d) Additional Contributions for Frontier Incentive Payment. To the extent at any time the LLC has insufficient funds, taking into account expected receipts and other obligations of the LLC, as determined by the Deciding Members in good faith, to pay any installment of the Frontier Incentive Payment when due, the Manager shall request Additional Capital Contributions from the Owner Member and the Developer Member, and the Owner Member and the Developer Member shall make Additional Capital Contributions, within * days after each request therefor from the Manager, as follows: the Owner Member shall contribute * and the Developer Member shall contribute * of the amounts of the additional amount necessary to pay such installment of the Frontier Incentive Payment when due. (e) Interest on and Return of Capital. Except as specifically provided herein, no Member shall be permitted to receive any interest with respect to any Capital Contribution or any Capital Account or any return of any Capital Contribution. 4.2 Project Financing. (a) Frontier Center One Financing. The Developer Member shall cause an Affiliate of the Developer Member to provide financing for the development and construction of Frontier Center One (the "Frontier Center One Financing"), in the amount of * of the Frontier Center One Project Cost, as determined by the Manager, but in no event, without the Consent of the Developer Member, more than $*. Interest on the principal balance of the Frontier Center One Financing from time to time shall accrue at a floating rate equal to LIBOR plus 250 basis points, and shall be paid monthly. All accrued and unpaid interest and principal shall be payable * months after the initial funding of the Frontier Center One Financing and may be renewed for an additional * months upon notice to the lender given prior to the initial due date of the Frontier Center One Financing. Upon the initial funding of the Frontier Center One Financing, the LLC shall pay the lender an origination fee, in the amount of $*, and a loan fee, in the amount of * of the maximum principal amount of the Frontier Center One Financing. The LLC shall pay the lender an extension fee of * of the maximum principal amount of the Frontier Center One Financing if the loan is renewed for a second * month period, payable upon renewal. The Frontier Center One Financing shall be recourse to the LLC and the LLC Assets and shall be secured by a first deed of trust on the Project. The Owner Member and Fulenwider shall guaranty * of any loss incurred by the lender in the event of a default, provided the lender disposes of the collateral for the Frontier Center One Financing in a commercially reasonable manner and any loss based upon any late payment charges, pre-payment penalties or interest at a rate greater than the rate stated above in this Section 4.2(a) shall not be guaranteed by Fulenwider. In all other respects, including the disbursement of the proceeds, the Frontier Center One Financing shall have terms and conditions similar to those in connection with construction financing from national banks with offices in Denver. In no event shall Frontier be liable for the Frontier Center One Financing. The Developer Member, at its option, may obtain the Frontier Center One Financing from a third-party lender, not an Affiliate of the Developer Member, so long as the terms of such third-party financing do not make it more costly to the LLC than as provided in this Section 4.2(a). (b) Third-Party Financing. The Manager shall use reasonable efforts to obtain permanent financing for Frontier Center One, on the best available market terms and conditions, from one or more third-party lenders, not an Affiliate of any Member (the "Third-Party Financing"). The Manager shall use reasonable efforts to obtain all such Third-Party Financing on a non-recourse basis, with a Permitted Transfer being permitted by the lender without a change in the terms and conditions of the Third-Party Financing. If, however, any lender, as a condition to making the Third-Party Financing, shall require that the same be recourse, or that a guaranty of the same be made (i) the Developer Member and the Owner Member each shall accept such recourse liability and agree to make such guaranty, and (ii) to the extent required by such lender (A) the Developer Member shall cause Developer to accept such recourse liability and agree to make such guaranty; provided, however (x) Fulenwider has accepted such recourse liability or agreed to make such guaranty to the extent required by this Section 4.2(b), (y) the liability of the Developer shall at no time exceed the lesser of * of the total outstanding amount of the Third-Party Financing and * of Fulenwider's maximum liability under the Third-Party Financing, and (z) the other terms and conditions of any recourse liability or guaranty of the Developer shall be substantially the same as that of Fulenwider; and (B) the Owner Member shall cause Fulenwider to accept such recourse liability and agree to make such guaranty; provided, however (x) Developer has accepted such recourse liability or agreed to make such guaranty to the extent required in this Section 4.2(b), (y) the liability of Fulenwider shall at no time exceed the lesser of * of the total outstanding amount of the Third-Party Financing and * of the Developer's maximum liability under the Third-Party Financing, and (z) the other terms and conditions of any recourse liability or guaranty of Fulenwider shall be substantially the same as that of the Developer. In no event shall Frontier be liable for the Third-Party Financing. 4.3 Other Loans. Except as otherwise expressly provided herein, none of the Manager, any Member or any Affiliate of any thereof shall be permitted or obligated to advance any funds or otherwise make any loan to the LLC except upon such terms and conditions as to which the Deciding Members shall unanimously Consent. Any advance or loan made by the Manager, a Member or Affiliate of the Manager or a Member shall be on terms and conditions no less favorable than could reasonably be obtained from a person that is not the Manager or a Member or an Affiliate of any thereof based solely upon the credit of the LLC under the then existing circumstances. In no event shall Frontier be liable for any such advance or loan, or be obligated to advance any funds to the LLC or otherwise make any loans to the LLC. If, without the prior unanimous Consent of the Deciding Members, a loan or advance not otherwise provided for herein is made to the LLC by the Manager or a Member, no such loan or advance shall entitle the lending or advancing person to any increase in its compensation, Capital Account balance or interest in the LLC's profits, losses or distributions or to the payment of any fee, interest or other consideration for the use of such funds. Except as otherwise specifically provided in this Agreement, only by the unanimous Consent of the Deciding Members at the time that a loan or advance is made to the LLC shall any such loan or advance be made a debt due from the LLC to such lending or advancing person repayable as to principal or interest out of the LLC Assets and then only upon such terms and conditions as to which the Deciding Members shall unanimously Consent. In no event shall any Member be personally liable for such loan and the sole recourse of the person making such loan shall be to the LLC and the LLC Assets. 4.4 Guarantees, Indemnities, Etc. Except as specifically provided herein, none of the Manager, the Members or any Affiliate of any thereof shall be obligated to guarantee or otherwise give any assurance for the performance of any obligation or the satisfaction of any liability of the LLC, to indemnify any person with respect thereto or to provide any collateral securing any of the foregoing. ARTICLE V CAPITAL ACCOUNTS; ALLOCATIONS; DISTRIBUTIONS 5.1 Capital Accounts Generally. (a)Each Member shall have a single, separate Capital Account, and the Manager shall maintain each Capital Account in accordance with Treasury Regulations Sections 1.704-1(b)(2)(iv) and 1.704-2. Consistent therewith, each Member's Capital Account shall be: (1) credited with (i) the amount of cash and the Net Agreed Value of any property contributed to the LLC by such Member and (ii) all Operating Income and LLC Assets Gains in accordance with this Agreement; and (2) debited with (i) all Operating Losses and LLC Assets Losses in accordance with this Agreement and (ii) the amount of cash and the Net Agreed Value of any property distributed by the LLC to such Member pursuant to Section 5.4 or Section 10.2. (b) No Capital Account shall be decreased to reflect any Distribution (including a deemed liquidating distribution under Section 708 of the Code) of any property other than cash without first adjusting all Capital Accounts to reflect the manner in which the unrealized income, gain, loss and deduction inherent in such property (if unreflected in Capital Accounts theretofore) would be allocated among all Capital Accounts as if there were then a taxable Disposition of such property for the greater of (i) the fair market value thereof and (ii) the amount of any nonrecourse indebtedness secured thereby. (c) Except as specifically provided to the contrary herein, whenever any determination of any Capital Account is made, such determination shall first give effect to all allocations pursuant to Section 5.2 and all actual or deemed Capital Contributions and Distributions made theretofore. 5.2 Allocations for Book Purposes. The Manager shall allocate all items of income, gain, loss and deduction among Capital Accounts for each Taxable Period as follows: (a) Operating Income and Loss. Subject to Section 5.2(d), Operating Income or Operating Loss shall be allocated to the Deciding Members in proportion to each Deciding Member's Sharing Ratio as of the last day of such Taxable Period. (b) Allocations of Gains. Subject to Section 5.2(d), LLC Assets Gains shall be allocated: (1) first, to the extent any Member has a negative balance in its Capital Account, to the extent of such negative balances, pari passu; (2) second, to the Owner Member until the Owner Member's Capital Account equals the Unpaid Owner Member Preferred Return and to the Developer Member until the Developer Member's Capital Account equals the Unpaid Developer Member Preferred Return, pari passu; (3) third, to the Owner Member until the Owner Member's Capital Account equals the sum of the Unreturned Owner Member Preferred Equity and the Unpaid Owner Member Preferred Return and to the Developer Member until the Developer Member's Capital Account equals the sum of Unreturned Developer Member Preferred Equity and the Unpaid Developer Member Preferred Return, pari passu; and (4) thereafter, in proportion to each Member's Sharing Ratio as of the date of allocation. (c) Allocations of Losses. Subject to Section 5.2(d), LLC Assets Losses shall be allocated: (1) to the Owner Member until the Owner Member's Capital Account equals the sum of the Unreturned Owner Member Preferred Equity and the Unpaid Owner Member Preferred Return, to the Developer Member until the Developer Member's Capital Account equals the sum of the Unreturned Developer Member Preferred Equity and the Unpaid Developer Member Preferred Return, and to Frontier until the Frontier Capital Account equals zero, pari passu; (2) to the Owner Member until its Capital Account equals the Unpaid Owner Member Preferred Return and to the Developer Member until its Capital Account equals the Unpaid Developer Member Preferred Return, pari passu; (3) to the Owner Member and the Developer Member until their Capital Accounts equal zero, pari passu; and (4) thereafter, in proportion to each Member's Sharing Ratio as of the date of allocation. (d) Special Allocations. Notwithstanding any other provision of this Section 5.2, the Manager shall make the following allocations ("Special Allocations"): (1) Minimum Gain Chargeback. If at any time during any Taxable Period there is a net decrease in Minimum Gain attributable to LLC Nonrecourse Liabilities, items of LLC income and gain for such period (and, if necessary, subsequent periods) shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2) and allocated as quickly as possible to the Capital Account of each Member having a share of the Minimum Gain attributable to LLC Nonrecourse Liabilities, in proportion to and to the extent of such Member's share of such net decrease. This paragraph is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. (2) Member Minimum Gain Chargeback. If at any time during any Taxable Period there is a net decrease in the Minimum Gain attributable to Member Nonrecourse Debt, items of LLC income and gain for such period (and, if necessary, subsequent periods) shall be determined in accordance with Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2) and allocated as quickly as possible to the Capital Account of each Member having a share of the Minimum Gain attributable to Member Nonrecourse Debt, in proportion to and to the extent of such Member's share of such net decrease. This paragraph is intended to comply with the partner minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(i) and shall be interpreted consistently therewith. (3) Qualified Income Offset. If at any time during any Taxable Period any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) and if any such adjustment, allocation or distribution would result in or increase a negative balance in such Member's Adjusted Capital Account as of the end of any Fiscal Year, items of LLC income and gain shall be allocated to such Member in an amount and manner sufficient to eliminate (to the extent required by the foregoing Treasury Regulations) such negative balance as quickly as possible; provided that an allocation pursuant to this paragraph shall be made only if and to the extent that such Adjusted Capital Account would have a negative balance after all other allocations provided for in this Article V have been made. (4) Member Nonrecourse Deductions. Member Nonrecourse Deductions for any Taxable Period shall be allocated in accordance with Treasury Regulations Section 1.704-(2)(i)(1) among Capital Accounts of Members bearing the Economic Risk of Loss with respect to Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable. (5) Code Section 754 Adjustments. To the extent that an adjustment to the Adjusted Basis of any LLC Asset under Section 734(b) or 743(b) of the Code is required to be taken into account in determining any Capital Account pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), (i) the amount of such adjustment shall be treated as (x) an item of gain if such adjustment increases such Adjusted Basis or (y) an item of loss if such adjustment decreases such Adjusted Basis, and (ii) such gain or loss shall be allocated to Capital Accounts in a manner consistent with the requirements of such Treasury Regulations for the adjustment thereof. (6) Curative Allocations. Notwithstanding Section 5.2(d)(1) through (5), each such Special Allocation under such provisions shall be taken into account in allocating among Capital Accounts Net Income, Net Loss and items of LLC income, gain, loss and deduction for the Fiscal Year in which such Special Allocation occurs and each subsequent Fiscal Year so that, to the extent possible, the net amount of income gain, loss, deduction and other items allocated to each Capital Account shall be equal to the net amount that would have been allocated to such Capital Account if such Special Allocation had not been made. Notwithstanding the preceding sentence, (i) allocations of Member Nonrecourse Deductions shall not be taken into account under this paragraph except to the extent of any net decrease in Minimum Gain attributable to Member Nonrecourse Debt, and (ii) allocations of LLC Nonrecourse Deductions shall not be taken into account under this paragraph except to the extent of any net decrease in Minimum Gain attributable to LLC Nonrecourse Liabilities. (7) Excess Nonrecourse Liabilities. Solely for purposes of determining each Member's proportionate share of the "excess nonrecourse liabilities" of the LLC within the meaning of Treasury Regulations Section 1.752-3(a)(3), each Member's interest in the Net Income of the LLC shall be its balance in its Capital Account, as adjusted from time to time. (8) Allocations Relating to the Frontier Incentive Payment. Allocations of Operating Income and Operating Loss shall be allocated so that all payments made by the LLC on account of the Frontier Incentive Payment, to the extent of the amount of the Additional Capital Contributions made pursuant to Section 4.1(d) shall be allocated * to the Owner Member and * to the Developer Member. (9) Allocations Relating to Frontier Operating Distributions. Frontier shall be allocated an amount of gross rental income from the Project equal to the amount of the Distributions made to Frontier pursuant to Section 5.4. 5.3 Allocations for Tax Purposes. (a) Except as otherwise provided herein, the Manager shall for federal income tax purposes allocate among Capital Accounts (i) each item of income, gain, loss or deduction in the same manner as the corresponding item of "book" income, gain, loss or deduction is allocated pursuant to Section 5.2 and (ii) each tax credit in the same manner as the receipt or expenditure giving rise thereto is allocated pursuant to Section 5.2. (b) In an attempt to eliminate LLC Book-Tax Disparities, the Manager shall for federal income tax purposes allocate items of income, gain, loss, depreciation, amortization and cost recovery deductions as follows: (1) (i) In the case of Contributed Property, such items attributable thereto shall be allocated among Capital Accounts in the manner provided under Section 704(c) of the Code that takes into account the variation between the Agreed Value thereof and the Adjusted Basis thereof at the time of contribution, and (ii) any item of Residual Gain or Residual Loss attributable to Contributed Property shall be allocated among Capital Accounts in the same manner as the corresponding item of "book" gain or loss is allocated pursuant to Section 5.2. (2) To correct distortions created by the "ceiling rule" of Treasury Regulations Section 1.704-3(b)(1), to the extent permitted or required by Treasury Regulations, the Manager may make remedial allocations of LLC tax items as provided in Treasury Regulations Section 1.704-3(d) to effect the purposes of Sections 704(b) and 704(c) of the Code by allocating to the Capital Account of any Member that contributed property other than cash to the LLC the tax consequences of any gain or loss attributable to such property for any period prior to the contribution thereof. 5.4 Distributions. Distributions, other than distributions made following the sale or refinancing of Frontier Center One or otherwise upon the dissolution and liquidation of the LLC, which shall be made in accordance with Section 10.2, shall be made as determined by the Deciding Members from time to time and in any event as follows: (a) No Distribution shall be made other than in cash. (b) Except to the extent prohibited by applicable law, any other agreement to which the LLC is a party or any provision hereof, the Deciding Members shall, on or before * of each calendar year, determine the Net Available Cash, and cause the Manager to notify each Member thereof and declare and cause the LLC to make Distributions of the Net Available Cash, as determined by unanimous Consent of the Deciding Members, in amounts sufficient (or such lesser amounts as the Deciding Members in good faith determine, if the Deciding Members in good faith determine there is insufficient Net Available Cash to distribute amounts so sufficient) for each Deciding Member (or their beneficial owners) to pay its tax liabilities which arise in respect of its LLC Interest, determined as set forth below by such Deciding Members in good faith, prior to the making of any other Distributions pursuant to this Section 5.4. Any funds actually distributed to a Deciding Member pursuant to this Section 5.4(b) shall reduce the amount such Deciding Member would otherwise receive pursuant to Sections 5.4 and Section 10.2. For purposes of this Section 5.4(b), each Deciding Member's tax liability for any taxable year shall be deemed equal to (i) its cumulative share of net taxable income and gain (that is, taxable income net of taxable losses), of the LLC for such year multiplied by (ii) the sum of the highest rate of Federal and the State of California and/or the State of Colorado (as applicable) tax imposed on the Deciding Member for such year with respect to items of the same character as such net taxable income and gain, taking into account the deductibility of state and local income taxes for Federal income tax purposes and based on such assumptions as the Deciding Members determine in good faith to be appropriate. In no event shall any Member be required or expected to make a Capital Contribution then or at any other time to fund Distributions pursuant to this Section 5.4(b). If, at the time of the dissolution and liquidation of the LLC, it is determined that a Deciding Member has received Distributions as a result of this Section 5.4(b) in excess of the amount that such Deciding Member would have otherwise received under Section 5.4 and is entitled to receive under Section 10.2, then such Member shall promptly contribute such excess amount in cash to the LLC to be distributed in accordance with Section 10.2. (c) Distributions shall only be made in the following order and priority: (1) first, to the Owner Member an amount equal to the Unpaid Owner Member Preferred Return and to the Developer Member an amount equal to the Unpaid Developer Member Preferred Return, pari passu; (2) the balance, to the Owner Member, the Developer Member and Frontier in accordance with their respective Sharing Ratios as of the date of the distribution. (d) Upon the unanimous Consent of the Members, the Manager shall take such actions (including any declaration, revocation, withholding or making of any Distribution) with respect to Distributions as the Members may direct. 5.5 Negative Capital Accounts. Notwithstanding any provision hereof to the contrary, no Member shall be obligated to contribute any amount to the LLC in restoration of a negative balance (if any) existing in such Member's Capital Account upon the dissolution and liquidation of the LLC. ARTICLE VI MANAGEMENT 6.1 Manager (a) Generally; Certain Powers. Management of the LLC shall be vested in a manager pursuant to the Act (the "Manager"), licensed to transact business in the State of Colorado and such other jurisdictions where such licensing is required under applicable law. The Manager shall have on behalf and in the name of the LLC full and exclusive power and authority, and the duty, to manage and control the LLC's business and affairs and the LLC Assets, to make all decisions regarding the same and to perform any and all lawful acts incidental to the accomplishment of the purposes of the LLC; provided, however, that the Manager (i) shall not, without the unanimous Consent of the Members, take or cause the LLC to take any Major Decision, (ii) shall not, without the unanimous Consent of the Deciding Members, take or cause the LLC to take any Major Operating Decision, and (iii) upon the unanimous Consent and at the direction of the Deciding Members, subject to clause (i) above, shall take on behalf and in the name of the LLC any action specified by the Deciding Members. Without limiting the generality of the foregoing, the Manager shall have the power and authority on behalf and in the name of the LLC to do any of the following, in each case in the ordinary course of the LLC's business, subject to the provisions above relating to Major Decisions and Major Operating Decisions and otherwise to the terms and conditions of this Agreement: (1) manage the operations and affairs of the LLC, and receive and expend LLC funds; (2) purchase, lease, license or otherwise acquire property and any rights therein or thereto (including any rights of first refusal, option rights or similar rights) and hold, own, develop, manage, operate, improve, use or otherwise deal with any property and any rights therein or thereto; (3) Dispose of or grant any interest in (whether by lease, easement, covenant, condition or restriction or any declaration or other document in respect thereof) any property and any rights therein or thereto (including any rights of first refusal, option rights or similar rights); (4) enter into agreements (including purchase and sale contracts, option agreements, leases, loan agreements, consulting agreements, construction contracts, land use or zoning agreements, water management agreements, easements, declarations of covenants, conditions or restrictions and subdivision plats); (5) borrow money from banks and other financial institutions and in connection therewith hypothecate, mortgage, pledge, grant any security interest in or otherwise encumber any LLC Assets, issue guarantees or other assurances of payment thereof and performance of obligations relating thereto and agree to such other terms and conditions (including any recourse liability or confession of judgment) as any lender may require; (6) invest and reinvest temporarily (whether directly or through a financial institution) any LLC funds in such investments as time deposits, short-term governmental obligations, commercial paper, repurchase agreements and money-market mutual funds; (7) post security deposits, bonds or similar assurances of payment or performance with, or advance or otherwise lend any LLC funds to, any person (including contractors, suppliers, trades persons or service providers); (8) provide bonds, letters of credit, guarantees, warranties, indemnities and other assurances of any person's performance; (9) open, make deposits to, drafts upon and withdrawals from, and maintain accounts with, any bank, investment banking firm or other financial institution and designate one or more persons as signatories for such accounts; (10) enforce or forbear in the enforcement of, or compromise, discharge or settle, any obligation of any person; (11) engage accountants, attorneys, consultants and other professionals to perform services, establish the duties and compensation thereof and terminate any of the foregoing; (12) engage brokers, finders, leasing agents, marketing representatives and similar persons, establish the duties and compensation thereof and terminate any of the foregoing; (13) purchase liability, property, errors and omissions, directors and officers, and other insurance coverages; (14) institute, prosecute, defend or settle any Proceeding; and (15) execute and/or deliver on behalf and in the name of the LLC any documents (including checks, drafts, notes and other instruments; loan agreements, deeds of trust, security agreements and financing statements; and purchase and sale agreements, option agreements, assignments and other documents providing for the acquisition or Disposition of LLC Assets) relating to the business of the LLC. (b) Manager's Specific Duties. The Manager shall perform the following duties: (1) Management Services. The Manager shall manage the business and affairs of the LLC pursuant to this Agreement and the Act. (2) Development Services. The Manager shall update the Project Development Plan from time to time as appropriate, and cause to be prepared and amended from time to time, when and as appropriate under the Project Development Plan (i) the Site Plan, (ii) the Project Design and (iii) the Working Drawings for the Deciding Members' approval. The Manager shall develop the Project in accordance with the Project Development Plan, the Site Plan, the Project Design, the Working Drawings, the Project Leases, the DIBC Covenants and all applicable governmental requirements, devoting such time, effort and resources necessary to perform such obligations in an efficient, thorough and businesslike manner. (3) Construction of the Improvements. The Manager shall cause the LLC to (a) construct Frontier Center One pursuant to a construction contract with the General Contractor on such terms and conditions as the Manager shall determine, and (b) construct all other improvements pursuant to contracts with contractors as required by, and in accordance with, the Project Development Plan. (4) Property Management Services. From and after the time Frontier Center One is substantially complete (or, if earlier, the date upon which any tenant takes occupancy of any portion of the Project), the Manager shall manage, or cause an Affiliate of the Manager to manage, the Project as property manager pursuant to the Property Management Agreement. (5) Project Leasing Services. The Manager shall enter into an exclusive leasing agreement with the Leasing Agent and renewals and replacements thereof (the "Project Leasing Agreement"), on such terms and conditions as the Manager may determine from time to time, and shall supervise the Leasing Agent in the performance of its duties under such agreement. (6) Insurance. The Manager shall obtain and maintain in full force and effect, at the expense of the LLC, such insurance as the Manager may deem necessary or appropriate from time to time and such additional coverages as any Deciding Member may reasonably request from time to time. Whenever insurance is purchased for the LLC, the Manager shall arrange for each Member to receive a certificate of insurance evidencing the insurance. Each such certificate shall identify the insurance policy by policy number, inception and expiration dates, named insureds, coverages, and limits of liability. The certificate shall also provide for * days' advance written notice to each Member prior to cancellation, termination or change in coverage. Upon the request of any Member, the Manager shall furnish to such Member a certified copy of any insurance policy obtained for the benefit of the LLC. The Manager may obtain all or any portion of such insurance as part of a blanket policy obtained by any Affiliate of the Developer Member from time to time, in which case the LLC shall pay to such Affiliate an equitable portion of the premium therefor as reasonably determined by such Affiliate. (7) Employees; Legal Compliance. The Manager shall perform all the duties under this Section 6.1(b) using its own personnel and resources. The Manager shall pay all compensation, benefits and taxes required to be paid to its employees and to comply with all laws in connection with such employment and the performance of its duties hereunder. (c) Right to Rely on Manager; Attorney-in-Fact. The execution or delivery by the Manager on behalf and in the name of the LLC of any document shall constitute conclusive evidence of (i) the Manager's power and authority on behalf and in the name of the LLC to execute and deliver (as the case may be) such document; (ii) the power and authority of the LLC to execute and deliver (as the case may be) such document and to perform all obligations (if any) of the LLC provided therein; and (iii) the truth of any statement contained therein as to any action taken or to be taken by the Manager, the Members and/or the LLC (including such matters as formation, existence, power and authority, authorization, execution or delivery, the identities and genuine signatures of the Manager, Members or agents of the LLC and the existence or nonexistence of any fact constituting a condition precedent to the taking of any action by any of the foregoing). Without limiting the generality of the foregoing, the LLC hereby appoints the Manager as its attorney-in-fact, with full power of substitution, to take any action whatsoever (including the execution or delivery of any document) on behalf and in the name of the LLC that the Manager is permitted or required to take pursuant hereto. (d) Appointment, Resignation or Removal. The Developer Member is hereby appointed the Manager. The Developer Member may resign as the Manager only upon the unanimous Consent of the Deciding Members or if the Developer Member ceases to be a Member. Except as otherwise specifically provided in this Agreement, no person may be removed or appointed as the Manager except upon the unanimous Consent of the Members. Upon such Consent, notice thereof to the Manager and each Member and the execution and delivery by the person being appointed as the Manager of a counterpart hereof evidencing such person's agreement to be bound hereby as the Manager, such removal and appointment shall be effective. The Manager may be removed upon such Consent at any time, with or without cause. The removal of any person as the Manager shall have no effect on such person's status (if any) as a Member. (e) Manager Compensation. Except as specifically provided in this Agreement, the Manager shall not be entitled to compensation or reimbursement for expenses for its services as such. In its capacity as the Manager, the Manager shall not make any contributions to the capital of the LLC, nor share in the profits and losses of the LLC. In no event shall the Manager be entitled to any brokerage, finder's or other similar fee upon the closing of the acquisition of the Project by the LLC or the sale or other Disposition of the Project. (f) Property Management Fee. As compensation for management services pursuant to the Property Management Agreement, the LLC shall pay the Manager a fee (the "Property Management Fee") equal to * of the gross receipts from the Project in accordance with the terms and conditions of the Property Management Agreement. (g) Licensing. The Manager represents and warrants to the LLC that it has duly obtained, and agrees that it shall duly maintain in full force and effect, all licenses and permits, including real estate broker licenses, required under applicable law to perform its duties under this Agreement. 6.2 Major Decisions and Major Operating Decisions. (a) Major Decisions. Notwithstanding anything contained in Sections 6.1 to the contrary, the Members by unanimous Consent shall have the full power and authority to cause the LLC to do anything that the Members determine is in the best interests of the LLC and not prohibited by applicable law, and neither the Manager nor any Member may cause the LLC to take, or agree to take, any of the following actions (each a "Major Decision") without the unanimous Consent of the Members (which Consent no Member shall unreasonably withhold or delay, provided, however, that it shall be deemed reasonable for Frontier to withhold its Consent to any action which would result in any airline or an Affiliate of any airline, other than Frontier, becoming an Affiliate of the LLC or a Member of the LLC or the Manager): (1) amend the Articles of Organization or this Agreement; (2) except as specifically provided herein, admit any person as a Member or permit the withdrawal of any person as a Member; (3) except as specifically provided herein, remove the Manager or appoint any person as a Manager; (4) permit the redemption or repurchase of any LLC interest or the return of any Capital Contribution, except as specifically provided herein; (5) merge, consolidate or amalgamate with any person, convert into any other entity or, except as otherwise specifically provided herein, dissolve, liquidate or terminate; (6) transact any business other than as set forth in Section 3.1; (7) acquire any property or interest therein other than as may be reasonably necessary to perform the business purposes of the LLC as set forth in Section 3.1; (8) compromise, discharge or settle any Proceeding as a consequence of which the LLC may be subject to any criminal liability or judgment or any civil liability or judgment in which the LLC admits to fraud, misrepresentation, or any other action or inaction involving moral turpitude or which could reasonably be expected to reflect unfavorably upon the corporate image of the Manager or any Member; (9) increase the Property Management Fee to an amount greater than * of the gross receipts from the Project or increase the amount of the Development Fee; (10) enter into any agreement with an Affiliate of the Manager or any Member except this Agreement or pursuant to (i) the Frontier Center One Financing, (ii) the Property Management Agreement and (iii) the Project Leasing Agreement, or amend in any material respect (other than to extend the term thereof), or waive any material right of the LLC or material obligation due the LLC under (i) the Frontier Center One Financing, (ii) the Property Management Agreement and (iii) the Project Leasing Agreement; (11) except as contemplated by the express terms of this Agreement, increase any amounts due the Manager, any Member or any Affiliate of the Manager or of any Member hereunder, to the extent such increase reduces the amounts payable to Frontier hereunder absent such increase (including, without limitation, any such increase that reduces the amount of the cash available as Net Available Cash distributable to Frontier under Section 5.4 or the amount of cash distributable to Frontier under Section 10.2); or (12) Sell Frontier Center One other than for cash. (b) Major Operating Decisions. Notwithstanding anything contained in Sections 6.1 to the contrary, neither the Manager nor any Member may cause the LLC to take, or agree to take, any of the following actions (each a "Major Operating Decision") without the unanimous Consent of the Deciding Members: (1) Dispose of all or substantially all of the LLC Assets, with or without the LLC's goodwill, or any property of the LLC other than (i) any property required to be encumbered pursuant to the Frontier Center One Financing or any Third-Party Financing, to the extent so required; or (ii) a leasehold interest in Frontier Center One pursuant to the Frontier Lease or any other Project Lease; (2) enter into a contract for the construction of Frontier Center One with a general contractor other than the General Contractor; (3) apply for or consent to any change in the zoning of the Land or any further subdivision of the Land; (4) contract for, or delegate, the management or leasing of the Project other than pursuant to the Property Management Agreement and the Project Leasing Agreement; (5) enter into any real estate brokerage contract for the sale or leasing of all or any of the Project or any interest therein other than the Project Leasing Agreement with the Leasing Agent; (6) make any changes to the Project Development Plan; (7) amend, extend, renew, cancel, terminate, or waive any material right of the LLC under, the Frontier Lease, permit any assignment thereof or subletting thereunder or amend, cancel or terminate any guaranty thereof; (8) compromise, discharge or settle any Proceeding as a consequence of which the LLC may be subject to specific performance or any civil liability or judgment; (9) borrow money (other than trade debt in the ordinary course of business) or issue guarantees; or (10) receive any Capital Contributions except as expressly provided in Section 4.1(c). Any matter which is submitted by the Manager to a Member for approval shall be deemed approved by such Member as presented by the Manager unless it is disapproved by notice to the Manager given within * Business Days after the matter is submitted by the Manager to the Member, provided, however, a Member may withhold approval pending further consideration without disapproving a matter by giving notice to the Manager to such effect within such * Business Day period. 6.3 Member Meetings and Voting. The Members may, but shall not be required to, hold any annual, periodic or other formal meetings. Nevertheless, the Members or the Manager, upon telephonic or other notice, may convene a special meeting of the Members or of the Deciding Members at any time the Designated Representatives are available therefor. In addition, upon not less than * Business Days' prior notice to the Manager and the other Members, any Member may require that a special meeting of the Members be held at the time specified in such notice. No notice of meeting need state the purpose of the meeting or the business to be transacted thereat. The Manager shall conduct any meetings of the Members or of the Deciding Members. The presence of the Designated Representative for each Member shall be required to constitute a quorum for the taking at any meeting of the Members of any action for which their unanimous Consent is required and the presence of the Designated Representatives for each Deciding Member shall be required to constitute a quorum for the taking at any meeting of the Deciding Members of any action for which their unanimous Consent is required. Unless otherwise agreed by the Members required to participate in the meeting, all meetings shall be held in the Denver, Colorado, metropolitan area; provided, however, any meeting of the Members or the Deciding Members may be held through a conference telephone or similar communications device by means of which the Designated Representatives of the Manager and all Members participating in the meeting can hear and speak to each other, and participation in such meeting shall constitute presence at such meeting. Any notice of any meeting of the Members or of the Deciding Members may be waived in writing, and the presence of the Designated Representative of a Member or of a Deciding Member, as the case may be, at such meeting shall constitute a waiver of notice thereof by such Member, except where such Designated Representative is present for the express purpose of objecting at the beginning of such meeting to the transaction of any business on the ground that such meeting has not been properly convened. The Manager shall cause minutes of all meetings of the Members and of the Deciding Members to be kept and retained in the LLC records. Notwithstanding the foregoing, any action permitted or required hereunder or by applicable law to be taken at a meeting of the Members or of the Deciding Members may be taken without a meeting upon a written Consent, setting forth the action to be taken, executed by each Member or Deciding Member, as the case may be (whether in one instrument or in counterparts). Such Consent shall have the same force and effect as a vote at a meeting and may be stated as such in any document filed with the Filing Office. 6.4 Member Compensation; Development Fee. Except as specifically provided in this Agreement, no Member shall be entitled to compensation or reimbursement of expenses for any services as a Member except that the Developer Member and the Owner Member shall be paid a development fee (the "Development Fee") as follows: The Development Fee shall be an amount equal to * of Frontier Center One. The Development Fee shall be paid only from and to the extent of Net Available Cash and prior to the making of any Distributions. The Development Fee shall become payable upon the Frontier Rent Commencement Date. The Development Fee shall be allocated between the Owner Member and the Developer Member based upon the respective balances in their Capital Accounts as of the Frontier Rent Commencement Date. 6.5 Management Relationships. The Manager shall keep each Member well informed regarding all material matters affecting the LLC. The Manager shall, in accordance with any Member's request, without cost to the Member, promptly deliver thereto any information or copies of documents in the Manager's possession or control relating to the LLC and disclose to, and cause its Designated Representative to discuss with, the Designated Representative of any Member any matter relating to the LLC or its business known to the Manager. 6.6 Designated Representatives. (a) The Manager and each Member shall at all times have a natural person (the "Primary Designee") as its representative (the "Designated Representative") who shall be authorized to act under this Agreement for and on behalf of the Manager or such Member respectively. Any Consent, action or vote in writing of a Designated Representative shall be deemed conclusively to be the Consent, action or vote of the Manager or the Member which designated such Designated Representative, and none of the LLC, the Manager or any Member shall be required to inquire into the authority of such Designated Representative as to such Consent, action or vote. The Manager and each Member shall at all times have another natural person (the "Alternate Designee") to serve as the Designated Representative if the Primary Designee is unavailable at the time any Consent, action or vote is required. Any Primary Designee or Alternate Designee may be replaced by the Manager or Member which designated such person by giving notice to the Manager and the other Members and stating the name of the replacement. (b) Until replaced as provided above, the Primary Designee and Alternate Designee of the Manager and each Member shall be: For the Developer Member and the Manager: Primary Designee: Chester T. Latcham Alternate Designee: David Goldberg For the Owner Member: Primary Designee: L.C. Fulenwider, III Alternate Designee: Marcia A. Lujan For Frontier: Primary Designee: Joan Osterman Alternate Designee: Arthur T. Voss (c) A Designated Representative shall not be personally liable to the LLC, the Manager or any Member for monetary damages for breach of any duty as Designated Representative. 6.7 Indemnification. The LLC shall, to the fullest extent permitted by law, indemnify, defend and hold harmless the Manager, each Member and each person that has served or is serving as a Designated Representative (in each case, an "Indemnitee"), from and against any and all claims (whether involving civil, criminal or administrative allegations, investigations or proceedings), losses, damages, liabilities and expenses (including attorneys' fees and expenses) arising out of or in connection with any matter incidental to the business or activities of or relating to the LLC and involving the Indemnitee, except to the extent arising out of such Indemnitee's breach of this Agreement (or any other agreement between the Indemnitee and all or any of the LLC, the Manager or any Member relating, directly or indirectly, to the LLC or the Project) or gross negligence or willful misconduct. Upon delivery to the LLC of a satisfactory undertaking by or on behalf of any Indemnitee to repay, upon any determination pursuant to a final decision in any Proceeding that such Indemnitee is not entitled to the benefits of this Section 6.7, all advances by the LLC for such Indemnitee's defense costs in connection with any matter covered by the preceding sentence, the LLC shall from time to time, upon such Indemnitee's request, advance such defense costs prior to the final determination of such matter. Notwithstanding anything herein to the contrary, the rights and obligations contained in this Section 6.7 shall survive the termination of any Indemnitee's designation other engagement by or involvement with the LLC. 6.8 Other Activities and Competition. (a) Other Activities. Nothing in this Agreement shall be construed to require the Manager or any Member or any Affiliate thereof to devote its full time, attention or resources to the business of the LLC. The Manager, any Member and any Affiliate of any thereof may, without notice to the LLC, the Manager or any Member and without any obligation to share therewith any of the benefits thereof, engage in activities (including business opportunities) other than in connection with the performance of any duties hereunder or the accomplishment of the purposes of the LLC. (b) Competition. Subject to the provisions of Section 8 of the Contribution Agreement, nothing in this Agreement or in the formation or operation of the LLC pursuant hereto shall be construed to prohibit the Developer Member, the Owner Member or the Manager or any of their respective Affiliates from purchasing, selling, developing or otherwise engaging in a business relating to land or other real property, including office buildings, whether or not such activities are or could be in direct competition with the business of the LLC. The Manager and each Member hereby expressly acknowledges that Affiliates of each of the Developer Member, the Owner Member and the Manager are developing a mixed-use land development, which competes or may in the future compete directly with the Project, and the Manager and each Member has satisfied itself of the economic viability of the Project notwithstanding the other activities, including the competitive activities, of the Affiliates of each of the Developer Member, the Owner Member and the Manager. None of the competitive or other activities of the Developer Member, the Owner Member, the Manager or any of their respective Affiliates shall be deemed to be a breach of any obligation, express or implied, including any fiduciary obligation, of the Developer Member, the Owner Member, the Manager or such Affiliate to the LLC, the Manager or any Member. 6.9 Rights of Frontier. (a) Limitation of Rights. In no event shall Frontier have the right to, nor shall it, participate in the management of the LLC or in the making of any decisions other than any Major Decisions and any other decisions expressly reserved to the Members under this Agreement or expressly required to be reserved to the Members under the Act. (b) Limitation of Duties. In no event shall the Manager have any greater duties than are required by the Act. In no event shall any Member have any duties to any other Member other than the duties of good faith and fair dealing as those duties are implied under the laws of the State of Colorado in commercial contracts generally. The Manager and the Members hereby expressly disclaim any other duties, express or implied, including any fiduciary duties, and each Member hereby covenants and agrees that it will not assert any right or make any claims against the Manager or any other Member under or arising out this Agreement on the basis of any duties, express or implied, other than the duties of good faith and fair dealing as those duties are implied under the laws of the State of Colorado in commercial contracts generally, and, as to the Manager, such duties, including fiduciary duties, if any, as are required of a manager of a Colorado limited liability company under the Act. (c) Information. Notwithstanding any provisions of Article VI or Article VII to the contrary, the Manager shall not be required to furnish to Frontier all of the information it furnishes to the Deciding Members, provided, however, and without limitation to its statutory rights to information as a Member of the LLC, Frontier shall be entitled to access to the books and records of, and other information concerning, the LLC to the extent reasonably required to determine its right to, and the amount of, any monies payable to Frontier under this Agreement or relevant to the Right of First Offer or the purchase of Frontier Center One pursuant to the Right of First Offer or the exercise of its other rights and obligations hereunder, including compliance by the Manager and the Members of their obligations to Frontier hereunder and the determination of Frontier's position on Major Decisions. Frontier shall not be entitled to any information concerning Frontier Center One or the business of the LLC that would, in the reasonable opinion of the Manager, prejudice the interests of the LLC as the landlord under the Frontier Lease except to the extent such information is required to be disclosed under the Frontier Lease. (d) Event of Default. Notwithstanding any provisions of this Agreement or the Frontier Lease to the contrary, Frontier's rights under this Agreement, including the right to receive all or any portion of the Frontier Equity Payment, the Right of First Offer and its status as a Member, shall cease and terminate, as if such rights had never been granted, upon the occurrence at any time within * years after the Frontier Rent Commencement Date, of a Frontier Lease Default. ARTICLE VII BANK ACCOUNTS; BOOKS AND RECORDS; REPORTS; TAX MATTERS; CONFIDENTIALITY 7.1 LLC Accounts. The Manager shall establish and maintain on behalf and in the name of the LLC, and designate signatories on, one or more bank or investment accounts with such financial institutions and firms as the Manager may select by notice to the Members, other than any accounts or with any financial institutions to which any Member shall reasonably object by giving notice to the Manager within * Business Days following the giving of the notice by the Manager to the Members. 7.2 Books and Records; Financial Statements. (a) The Manager shall prepare and maintain at the LLC's principal office accurate and complete books and records of the organization and governing documents of, actions taken by, and business of, the LLC, including the records required to be kept at the principal office under the Act. (b) The Manager shall cause to be prepared and maintained at the LLC's principal office accurate and complete books and records showing the assets, liabilities, revenues, expenses, transactions and financial condition of the LLC (specifically including all loans and loan payments and all capital expenditures). The accounts of the LLC, together with any financial statements relating thereto, shall be prepared on a consolidating, accrual basis in accordance with GAAP consistently applied, except to the extent GAAP is inconsistent with any specific provision contained herein or applicable law. Each financial statement of the LLC shall fairly present the financial condition of the LLC as of the date thereof. (c) The Manager shall cause to be prepared and delivered to each Member the following written reports and financial statements: (1) Within fifteen (15) days after the end of each calendar month and each Fiscal Quarter (i) unaudited balance sheets and related statements of income, Members' equity and changes in cash flow, and (ii) a rent roll showing all pertinent information with respect to the Project Leases, in each case certified by the Manager to be, to the best of the Manager's knowledge and belief, accurate and complete and, in the case of financial statements, prepared in accordance with GAAP consistently applied, except to the extent specified therein; (2) All plans and reports required under the Property Management Agreement; and (3) Within ninety (90) days after the end of each Fiscal Year, balance sheets and related statements of income, Members' equity and changes in cash flow, in each case audited by an independent accounting firm selected by the Manager by notice to the Members, other than any firm to which any Member shall reasonably object by notice given to the Manager within five (5) Business Days following the giving of the notice by the Manager to the Members. (d) Subject to Section 6.9(c), the Manager shall promptly make copies of the books and records of the LLC available upon any Member's request, and the Manager shall retain and make available to the Members such books and records for a period of at least seven (7) years after the Termination Date. (e) Upon any resignation or other termination of the Manager, the Manager shall promptly deliver all of the accounts, books and records of the LLC to the person designated by the Members. 7.3 Tax Matters. (a) Partnership Treatment. The Members intend that the LLC be treated as a partnership for federal income tax purposes and, to the extent permitted by applicable law, for state, local and foreign franchise and income tax purposes. None of the LLC, the Manager or any Member may make an election for the LLC to be (i) excluded from the application of the provisions of subchapter K of Chapter 1 of Subtitle A of the Code or any similar provisions of applicable state or local law or (ii) classified as an association pursuant to Treasury Regulation Section 301-7701-3, and no provision hereof shall be construed to permit or require such an election. (b) Tax Returns and Elections. The Manager shall cause to be prepared and filed all necessary federal, state and local income tax returns for the LLC and in connection therewith make the following elections on the appropriate tax returns: (i) the adoption of the Fiscal Year required by Section 706 of the Code; (ii) the adoption of the accrual method of accounting and the keeping of the LLC's books and records in accordance therewith; (iii) if a distribution of LLC Assets as described in Section 734 of the Code occurs or if a transfer of an LLC Interest as described in Section 743 of the Code occurs, upon the unanimous Consent of the Members, the election pursuant to Section 754 of the Code to adjust the basis of LLC Assets; and (iv) the amortization of the organizational expenses of the LLC under Section 709(b) of the Code and the startup expenditures of the LLC under Section 195 of the Code, in each case ratably over the shortest period of time permitted by applicable law. (c) Tax Matters Member. The LLC shall have a "tax matters partner" (the "Tax Matters Member") pursuant to Section 6231(a)(7) of the Code. Except as specifically required to the contrary herein or by applicable law, the Tax Matters Member may take or not take any action in connection with any tax matter relating to the LLC. Without limiting the generality of the foregoing, the Tax Matters Member shall take such action as may be necessary to: (1) cause the other Members to become "notice partners" within the meaning of Section 6231(a)(8) of the Code, promptly inform them of all material matters that may come to its attention in its capacity as Tax Matters Member and deliver to them copies of all material written communications (including any written adjustment by any taxing authority which would affect any Member's liability for taxes) it may receive or submit in such capacity; and (2) participate in any meeting with any taxing authority and/or prosecute any Proceeding involving tax matters relating to the LLC and determine, to the extent permitted by applicable law, whether or not to permit any other Member to participate therein (including any defense). The Developer Member is hereby appointed the Tax Matters Member. Any person serving as the Tax Matters Member may resign at any time upon not less than sixty (60) days prior notice to each Member, and such resignation shall take effect upon the expiration of such 60-day period or at such later time as specified in such notice. The Developer Member shall not be removed, and no person other than the Developer Member may be appointed, as the Tax Matters Member except upon the unanimous Consent of the Members. The resignation or replacement of any Member as the Tax Matters Member shall have no effect on such person's status as a Manager or a Member. The Tax Matters Member shall be entitled to reimbursement by the LLC of all reasonable, out-of-pocket expenses incurred by the Tax Matters Member in performing its duties hereunder. 7.4 Regulatory Requirements. Each Member shall, from time to time upon request, provide such information in its possession or control as the Manager or the Tax Matters Member (as the case may be) deems necessary to permit the LLC to comply with any applicable governmental requirements. ARTICLE VIII ADMISSION AND WITHDRAWAL OF MEMBERS; TRANSFERS 8.1 Admission and Withdrawal of Members. (a) Admission. Each person signing this Agreement as a Member is hereby admitted to the LLC as such. No other person shall be admitted as a Member except upon the satisfaction of the following conditions precedent: (1) if such person is not a Permitted Transferee, upon the unanimous Consent of the Deciding Members; (2) if such person is a Permitted Transferee of less than all of any Member's LLC Interest, the vesting therein, pursuant to a Permitted Transfer, of ownership of an equal percentage (as compared to percentage of such LLC Interest not being transferred) of all items (including the Capital Account) constituting such LLC Interest; (3) if such person is a Permitted Transferee, together with any other Permitted Transferee, of the entirety of the Member's LLC Interest pursuant to one or more Permitted Transfers, the delivery to the Manager of a notice of withdrawal from the LLC by the Member; (4) the reimbursement by or on behalf of such person of all expenses (including attorneys' fees and expenses) incurred by the LLC in connection with such admission; and (5) the execution and delivery by such person of a counterpart hereof and such other documents as the Manager or the Tax Matters Member may reasonably request to effect the admission of such person as a Member and to assure compliance with applicable law in connection therewith. (b) Withdrawal. No person admitted to the LLC as a Member may withdraw as a Member except upon the unanimous Consent of the Members, upon a Permitted Transfer of the entirety of its LLC Interest or as otherwise specifically provided herein. 8.2 Transfers of LLC Interests and Member Interests. (a) Permitted Transfers. No Member shall, directly or indirectly, sell, assign, transfer, exchange, mortgage, pledge, dispose of, hypothecate, grant a security interest in, encumber (except by a negative pledge) or permit to be sold, assigned, transferred, exchanged, mortgaged, pledged, disposed of, hypothecated, become subject to a security interest or encumbered (except by negative pledge) (in any such case, a "Transfer") all or any portion of its LLC Interest or all or any portion of any interest in any Member, except upon the satisfaction of the following conditions precedent, whereupon such Transfer shall be deemed to be effective (as effective, a "Permitted Transfer"): (1) upon (i) the unanimous Consent of the Members to the proposed Transfer (provided, however, the Consent of Frontier shall not be unreasonably withheld or delayed to any Transfer other than a Transfer to an airline or any Affiliate of an airline), or (ii) a Transfer by a Deciding Member to another Deciding Member or to an Affiliate of such Deciding Member or of another Deciding Member, or (iii) a Transfer of an interest in the Developer Member to any person other than an airline or an Affiliate of an airline, so long as the Developer remains in control of the Developer Member; or (iv) a Transfer of an interest in the Owner Member to any person other than an airline an Affiliate of any airline, so long as the Owner remains in control of the Owner Member, or (v) a Transfer of the entire LLC Interest of Frontier to an Affiliate of Frontier or to a person which acquires all or substantially all of the assets of Frontier and which Affiliate or acquiror is permitted to become, and becomes, the tenant under the Frontier Lease and assumes all of the obligations of Frontier under the Frontier Lease, whereupon, following a Transfer of the type described in clauses (i) through (v) above, the proposed transferee shall be deemed to be a "Permitted Transferee;" provided, however, nothing in this Section 8.2(a)(1) shall be construed to limit any Transfer to the extent J.F. Shea Co., Inc., a Nevada corporation, or any Affiliate thereof (other than Developer or the Developer Member) now have or at any time hereafter have control of an airline; (2) the delivery to the Manager of an effective instrument of Transfer describing in reasonable detail the portion of the LLC Interest or interest in the Member being transferred; provided, however, that notwithstanding any provision in such instrument to the contrary, no transferee of all or a portion of an LLC Interest shall be entitled to assert any right or interest, other than the right to receive Distributions, in respect of the portion of such LLC Interest being transferred, except upon the admission of such transferee as a Member pursuant to Section 8.1(a); (3) the delivery to the Manager of an opinion of counsel, satisfactory in form and substance to the Manager, that such Transfer is exempt from registration under the Securities Act and that such Transfer does not violate, and will not result in the LLC being in violation of, or require any filing by the LLC or any Member pursuant to, or cause any dissolution of the LLC or any Member in connection with, any applicable law; (4) the reimbursement by or on behalf of the transferor Member of all expenses (including attorneys' fees and expenses) incurred by the LLC in connection with such Transfer; and (5) the execution and delivery by all parties to such Transfer of such documents as the Manager or the Tax Matters Member may reasonably request to effect such Transfer and to assure compliance with applicable law in connection therewith. (b) Void Transfers. Any purported Transfer other than a Permitted Transfer shall be void, and neither the Manager or any Member nor the LLC shall be required to recognize any claims by any purported transferee to any LLC interest (including any Distribution in respect thereof) or any interest in any Member other than a Permitted Transferee. If at any time the Manager or any Member has any good faith reason to believe any LLC Interest is subject to any purported Transfer other than a Permitted Transfer, the Manager may, and, upon the request of any Member having such a reason, the Manager shall, withhold any Distribution in respect thereof until delivery to the Manager or such Member, as the case may be, of satisfactory assurances that such LLC Interest is not subject to any such purported Transfer. ARTICLE IX PUT AND CALL; RIGHT OF FIRST OFFER 9.1 Put/Call Offering Notice. At any time after * or more of the Rentable Area of Frontier Center One is leased and occupied and the Third-Party Financing has been obtained (and whether or not a dissolution of the LLC has occurred and, if a dissolution of the LLC has occurred, references to the Manager in this Section 9.1 shall be deemed to refer to the liquidator appointed pursuant to Section 10.1(c)), either the Owner Member or the Developer Member (the "Initiating Member") may give notice (the "Put/Call Offering Notice") to the other Member (the "Responding Member") and the Manager of the Initiating Member's intent to exercise its rights under this Section 9.1 and to purchase all, but not less than all, of the Responding Member's LLC Interest. In such event, the provisions set forth in this Article IX shall apply. The Initiating Member shall specify in its Put/Call Offering Notice the all cash purchase price (which price shall be the fair market value of the Project as determined in good faith by the Initiating Member) at which the Initiating Member would be willing to purchase the Project, free and clear of monetary liens (other than the lien for real property taxes for the calendar year in which the Put/Call Offering Notice is given) as of the date the Put/Call Offering Notice is given ("Date of Value"). Once given, a Put/Call Offering Notice cannot be revoked. 9.2 Exercise of Put/Call. (a) Election. Upon receipt of the Put/Call Offering Notice, the Responding Member shall then be obligated either: (1) To sell to the Initiating Member its LLC Interest at a price equal to the amount the Responding Member would have been entitled to receive hereunder if the LLC had sold the LLC Assets to a third party for the Put/Call Offering Price (as defined below) on the Date of Value and dissolved and liquidated the LLC in accordance with Article X; or (2) To purchase the LLC Interest of the Initiating Member at a price equal to the amount the Initiating Member would have been entitled to receive hereunder if the LLC had sold the LLC Assets for the Put/Call Offering Price to a third party on the Date of Value and liquidated the LLC in accordance with Article X. (b) Put/Call Offering Price. "Put/Call Offering Price" shall mean the cash purchase price for the Project specified in the Put/Call Offering Notice plus the book value of all the other LLC Assets as shown on the books and records of the LLC, updated to the Date of Value, and minus all liabilities of the LLC (in any event not including the Developer Member Unreturned Preferred Equity, the Developer Member Preferred Return, the Owner Member Unreturned Preferred Equity, the Owner Member Preferred Return or the Frontier Equity Payment), all as determined by the LLC's accountant. (c) Exercise. The Responding Member shall notify the Initiating Member of its election within forty-five (45) days after the Date of Value. Failure to give notice within such time period shall be deemed an election to sell under Section 9.2(a) made on the date which is forty-five (45) days after the Date of Value. For purposes of the balance of this Article IX the price calculated pursuant to Section 9.2(a)(1) or (2) above shall be referred to as the "Put/Call Purchase Price" and the term "Purchasing Member" shall mean the Member who is obligated to purchase the other Member's LLC Interest pursuant to either Section 9.2(a)(1) or Section 9.2(a)(2) (whether such Member is the Initiating Member or the Responding Member) and the term "Selling Member" shall mean the Member who is obligated to sell its LLC Interest to the Purchasing Member pursuant to such Sections. (d) Designee of Purchasing Member. Notwithstanding the provisions of Article VIII, if any Member purchases the other Member's LLC interest pursuant to this Article IX, such Purchasing Member shall be entitled to designate any third party to be the transferee of such interest and to become a Member, provided that (i) the foregoing shall not delay any transaction described in this Article IX and (ii) the designated transferee is not an airline or an Affiliate of an airline; provided, however, nothing in this Section 9.2(d) shall be construed to limit the designation of a transferee to the extent J.F. Shea Co., Inc., a Nevada corporation, or any Affiliate thereof (other than the Developer or the Developer Member) now have or at any time hereafter have control of an airline. 9.3 Put/Call Closing. (a) The Deciding Members shall meet and exchange documents and pay any amounts due, and otherwise do all things necessary to conclude the transaction set forth in Section 9.2 at the closing of such purchase (the "Put/Call Closing"). The Put/Call Closing shall occur at the office of the Manager at 1:00 p.m. on the thirtieth (30th) day after the date the Responding Member notifies or is deemed to notify the Initiating Member of its election; provided, however, if the closing of the purchase would result in a change in the terms or conditions of the Third-Party Financing, the Purchasing Member, by notice given to the Selling Member no later than twenty (20) days prior to the scheduled date for the Put/Call Closing as stated herein, may postpone the Put/Call Closing to a date not later than the sixtieth (60th) day after the date the Responding Member notifies or is deemed to notify the Initiating Member of its election. At the Put/Call Closing, the Selling Member shall deliver to the Purchasing Member a duly executed assignment of its LLC Interest, free and clear of all liens and encumbrances. Upon the reasonable request of the Purchasing Member, at the Put/Call Closing or at any time and from time to time thereafter, the Selling Member shall execute and deliver such other documents and perform such other acts as may be necessary or desirable to consummate the Put/Call Closing and to transfer ownership, title and control of the LLC Interest to the Purchasing Member in accordance with this Article IX. At the Put/Call Closing, the Purchasing Member shall deliver to the Selling Member the Put/Call Purchase Price, in cash, and shall deliver any other documents the Selling Member reasonably requests and are necessary or desirable to consummate the Put/Call Closing. Upon the consummation of the Put/Call Closing, the Selling Member and its Affiliates shall be released from any liability under the Third-Party Financing and any guarantees made in connection therewith. If the lender under the Third-Party Financing refuses to so release the Selling Member and its Affiliates, the Purchasing Member, and if the Purchasing Member is the Developer Member or an Affiliate of the Developer Member, the Developer, shall indemnify the Selling Member and its Affiliates from liability under the Third-Party Financing and any such guarantees. (b) If the Purchasing Member fails to consummate the Put/Call Closing in accordance with this Article IX, such failure shall be deemed an Event of Default under this Agreement by the Purchasing Member. In addition to any other remedies available under this Agreement upon the occurrence of an Event of Default, the Selling Member shall have the right, exercisable by written notice (the "Put/Call Default Notice") to the Purchasing Member that failed to consummate the Put/Call Closing given within thirty (30) days after the date set for the Put/Call Closing, to purchase such Member's LLC Interest in accordance with the provisions of this Article IX, except that the Member that failed to consummate the Put/Call Closing shall be obligated to sell its LLC Interest to the other Member, the Put/Call Purchase Price shall be determined based upon * of the Put/Call Offering Price established by the Put/Call Offering Notice given by the Member that failed to consummate the Put/Call Closing, and the Put/Call Closing shall occur on the * day after the giving of the Put/Call Default Notice. 9.4 Audit After Put/Call Closing; Final Settlement. Upon the request of either Deciding Member made within * days after the Put/Call Closing, the Manager shall cause the LLC's accountant to complete an audit of the books of account of the LLC as of the Date of Value and prepare and deliver to the Deciding Members an audited financial statement as of such date. The accountant shall also examine the books of account for the period of time after the Date of Value to and including the date of the Put/Call Closing. The Put/Call Purchase Price shall be adjusted to reflect all relevant activities from the Date of Value through the date of the Put/Call Closing. The adjustment shall include any capital contribution or paybacks of capital, and each Member's share of any tax benefits or detriments earned or incurred by the LLC during such period, and the expenses of the accountant's services to the LLC in making the settlement. The accountant shall deliver to the Deciding Members a detailed statement and explanation of any adjustments to the Put/Call Purchase Price as a result of any transaction occurring after the Date of Value but prior to the date of the Put/Call Closing. The net amount of such adjustments due to one Deciding Member or the other shall be due on * or the highest rate then permitted by applicable law (whichever is less), and, at the option of the Deciding Member to whom such amount is due, may be offset against any debt due to the owing Deciding Member. 9.5 Tax Returns. The LLC's accountant shall also deliver to the Deciding Members (concurrently with the Purchase Price adjustment statement), prepared as of the date of Put/Call Closing, all necessary state and federal tax returns. The Purchasing Member shall execute (on behalf of the LLC) and file all such state and federal tax returns. 9.6 Right of First Offer. Frontier shall have the prior right (the "Right of First Offer") to purchase Frontier Center One in accordance with the provisions of this Section 9.6 (but not otherwise), and the LLC shall not sell or offer for sale Frontier Center One without first complying with the provisions of this Section 9.6. (a) If, at any time, including following dissolution of the LLC and in connection with liquidation of the LLC (in which case all references to the Manager in this Section 9.6 shall mean the liquidator appointed pursuant to Section 10.1(c)), the Deciding Members either decide to offer Frontier Center One for sale or the LLC receives, and the Deciding Members decide to entertain acceptance of, an unsolicited written offer from a third party to purchase Frontier Center One (an Unsolicited Offer"), the Manager shall give Frontier written notice stating the price and the terms and conditions upon which the LLC in good faith desires to offer Frontier Center One for sale to any able buyer (a "Notice of Intent to Sell") or, in the case of an Unsolicited Offer, a copy of the Unsolicited Offer. Thereupon, Frontier shall have the right, for a period of * days after the Manager gives Frontier the Notice of Intent to Sell, or * Business Days after the Manager gives Frontier a copy of the Unsolicited Offer (provided, however, Frontier shall use reasonable good faith efforts to respond to a Notice of Intent to sell or an Unsolicited Offer in the shortest time possible), to elect by giving notice to the Manager whether or not to purchase Frontier Center One for the price and upon the terms conditions set forth in such Notice of Intent to Sell or Unsolicited Offer, as the case may be. Frontier's failure to respond within the time periods stated above shall be deemed Frontier's irrevocable election not to purchase Frontier Center One pursuant to the Right of First Offer, and, within * days after any request therefor, Frontier shall deliver to the Manager a statement, in form and substance reasonably acceptable to the Manager, that Frontier has irrevocably elected not to purchase Frontier Center One pursuant to the Right of First Offer. (b) If Frontier elects, in strict accordance with the provisions of Section 9.6(a), to purchase Frontier Center One pursuant to the Right of First Offer, the LLC shall sell and Frontier shall purchase Frontier Center One upon (i) substantially the terms and conditions and for the price set forth in the Notice of Intent to Sell; provided, however, Frontier shall have (A) a maximum of * days after Frontier gives notice of its election to purchase Frontier Center One to conduct such due diligence as Frontier may deem appropriate (and at any time within such * day period Frontier may give notice to the Manager rescinding its election to purchase Frontier Center One), and (B) a maximum of * days after Frontier gives notice of its election to purchase Frontier Center One to close the purchase; or (ii) substantially the terms and conditions, on the closing date and for the price set forth in the Unsolicited Offer or (iii) such other terms and conditions as the Members by unanimous Consent may then otherwise agree. If Frontier fails to close the purchase in accordance with the preceding sentence, then all rights of Frontier under this Right of First Offer shall terminate, and Frontier shall be liable to the LLC for liquidated damages (and not as a penalty), in the amount of $* if Frontier's purchase obligation was pursuant to a Notice of Intent to Sell and $* if Frontier's purchase obligation was pursuant to an Unsolicited Offer. The parties hereto acknowledge that the amount of the actual damages the LLC will suffer as the result of the failure of Frontier to close the purchase in accordance with such agreement may be difficult to determine, and the amounts set forth above are a reasonable approximation of the damages which the LLC shall suffer on account of such failure. (c) If Frontier elects not to so purchase Frontier Center One (or if Frontier fails to make an election within the time limit stated, time being of the essence), the LLC may offer Frontier Center One for sale to third parties, free of the right of Frontier to acquire Frontier Center One pursuant to this Right of First Offer for the price (or any higher price) and otherwise upon terms and conditions not less favorable than are contained in the Notice of Intent to Sell or in the Unsolicited Offer, as the case may be, for a period of * days after the date Frontier elects not to purchase Frontier Center One (or fails to make such election) pursuant to the Right of First Offer, and the LLC may accept any bona fide offer to purchase Frontier Center One from any third party, or accept the Unsolicited Offer to purchase Frontier Center One from the third party that made the Unsolicited Offer, at a price equal to or greater than a price which is $* less than the price set forth in the Notice of Intent to Sell or at a price equal to or greater than a price which is $* less than the price set forth in the Unsolicited Offer, as the case may be, provided any offer requires a closing within * days after its acceptance by the LLC and otherwise contains terms and conditions not materially more favorable to such third party than the terms and conditions contained in the Notice to Sell or, in the case of an Unsolicited Offer, the final terms and conditions of the sale are not materially more favorable than as set forth in the Unsolicited Offer. For purposes of this Section 9.6, a "third party" shall not include the Manager, any Member or any of their respective Affiliates, and acceptance of an offer or an Unsolicited Offer shall be conclusively evidenced by a contract of purchase and sale with respect to Frontier Center One signed by the LLC and the third party (or any Affiliate of the third party). A sale of Frontier Center One pursuant to this Section 9.6(c) may be consummated free of the right of Frontier to acquire Frontier Center One pursuant to this Right of First Offer so long as Closing occurs within * days after acceptance of the offer or Unsolicited Offer, as the case may be. (d) If the LLC has complied, and the offer, or the Unsolicited Offer, as the case may be, accepted by the LLC complies, with the provisions of this Section 9.6, within * days after the Manager's request therefor, Frontier shall execute and deliver a statement, in form and substance reasonably acceptable to the Manager, to the LLC and to the third party acknowledging such compliance. Upon the closing of the sale of Frontier Center One to such third party pursuant to such offer or Unsolicited Offer, as the case may be, Frontier shall execute and deliver to the LLC a statement acknowledging the termination of this Right of First Offer. If the sale pursuant to such offer, or the Unsolicited Offer, as the case may be, does not close within * days after acceptance by the LLC, the LLC shall not sell Frontier Center One to such third party, without once again offering Frontier the opportunity to purchase Frontier Center One pursuant to the provisions of this Section 9.6. If the LLC does not accept any offer within * days after the giving of the Notice of Intent to Sell, the LLC shall not sell Frontier Center One without giving Frontier a new Notice of Intent to Sell (which the LLC may give prior to the expiration of such * - day period) and otherwise complying with the provisions of this Section 9.6. (e) Frontier shall not Transfer the Right of First Offer to any person, other than to a Permitted Transferee. ARTICLE X DISSOLUTION; LIQUIDATION 10.1 Dissolution; Liquidation. (a) Members' Covenant. Each Member hereby agrees that it shall not take any action or omit to take any action with respect to its existence, business or affairs or its membership in the LLC that would result in the dissolution of the LLC under the Act. (b) Dissolution. The LLC shall be dissolved and its affairs wound up upon the occurrence of any of the following events: (1) the unanimous Consent of the Deciding Members; (2) the death, dissolution, withdrawal or expulsion from the LLC or Bankruptcy of any Deciding Member or the occurrence of any other event terminating the continued membership in the LLC of any Member; provided, however, that there shall be no dissolution pursuant to this Section 10.1(b)(2) if within * days after the occurrence of such event (i) there are at least two remaining Members and the remaining Members give their unanimous Consent to continue the LLC, or (ii) there is at least one remaining Member and another person is admitted as a Member, and the remaining Member and that person give their unanimous Consent to continue the LLC; or (3) the sale of Frontier Center One or all or substantially all of the LLC Assets, with or without its goodwill. (c) Liquidation; Liquidator. Upon any dissolution of the LLC, the Manager shall act as liquidator thereof until another person (if any) is appointed as liquidator thereof on the unanimous Consent of the Members. The liquidator shall operate the LLC and deal with LLC Assets with all of the power and authority of the Manager and the Members, wind up the affairs of the LLC and, as promptly as practicable after dissolution and again after final liquidation of the LLC, cause a proper accounting to be made of LLC Assets, liabilities and operations as of the end of the month in which such dissolution or final liquidation (as the case may be) occurs. The liquidator may defer the sale of any LLC Assets for a reasonable time to achieve an orderly liquidation that minimizes losses to the Members, except to the extent necessary to satisfy LLC liabilities to creditors other than Members. Not later than the end of the Fiscal Year in which liquidation (as defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(g)) of the LLC occurs, the Manager shall, subject to applicable law, make final Distributions pursuant to Section 10.2. All reasonable expenses incurred by the liquidator in performing its duties hereunder or under applicable law shall be expenses of the LLC. 10.2 Final Payments and Distributions. (a) Application Priorities. Upon final liquidation of the LLC, the liquidator of the LLC shall apply the liquidation proceeds in the following order and priority: (1) first, to the payment of liquidation expenses; (2) second, to creditors of the LLC, excluding Members (but not excluding the Manager in its capacity as such, even if a Member), but in each case only to the extent of any recourse liabilities of the LLC then due and payable; (3) third, to the establishment of such reserves as the liquidator may deem necessary for contingent liabilities of the LLC; (4) fourth, to the Manager, any unpaid amount of the Property Management Fee; (5) fifth, to creditors of the LLC that are Members or Affiliates of Members (including unpaid amounts of the Development Fee); (6) sixth, to the Owner Member the amount of the Unpaid Owner Member Preferred Return and to the Developer Member the amount of the Unpaid Developer Member Preferred Return pari passu; (7) seventh, to the Owner Member an amount equal to the Unreturned Owner Member Preferred Equity and to the Developer Member an amount equal to the Unreturned Developer Member Preferred Equity, pari passu; and (8) last, to the Members in accordance with their respective Sharing Ratios as of the date of the distribution. (b) Distributions in Kind. Unless agreed by unanimous Consent of the Members, the liquidator of the LLC shall not distribute any LLC Assets in kind to the Members. 10.3 Filings. Upon each of the dissolution and liquidation of the LLC, the Manager shall file in the Filing Office such statements as are required to be filed under the Act upon the dissolution and liquidation of the LLC, respectively, and shall promptly notify the Members of such dissolution and liquidation, respectively, and the filing of such statements. ARTICLE XI DEFAULT; REMEDIES 11.1 Events of Default. The occurrence of the following with respect to the Manager or a Member (sometime, the "Defaulting Party" or, if a Member, the "Defaulting Member") shall constitute an event of default hereunder ("Event of Default"): (a) The failure of the Manager or any Member to perform any obligation required of it hereunder or any other breach of this Agreement which failure or breach continues for more than * days following notice from the Manager, if it is not the Defaulting Party, or from a Member that is not a Defaulting Party (a "Non-Defaulting Member") of such failure or breach; or (b) As to the Manager or any Member: (i) Bankruptcy; (ii) the insolvency of such person or the execution by such person of a general assignment for the benefit of creditors; (iii) the convening by such person of a meeting of its creditors, or any class thereof, for purposes of effecting a moratorium upon or extension or composition of its debts; or the failure generally of such person to pay its debts as they become due; (iv) the levy, attachment, execution or other seizure of all or substantially all of the assets of such person or such person's LLC Interest where such seizure is not discharged within * days thereafter; or (v) the admission by such person in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due; or (c) As to any Member, the occurrence of a Transfer with respect to such Member or any member of such Member other than a Permitted Transfer. 11.2 Remedies. Upon the occurrence of an Event of Default, the LLC, the Manager and the Member shall have the following remedies: (a) Remedies Generally. Upon the occurrence of any Event of Default, the Manager (unless the Manager is the Defaulting Party) and any Non-Defaulting Member may pursue any remedy permitted by this Agreement or allowed under law or in equity, including specific performance and prohibitory and mandatory equitable relief. (b) Indemnification. Any Defaulting Party shall indemnify and hold the Manager (unless the Manager is the Defaulting Party) and any Non-Defaulting Member harmless from any actions, causes of action, loss, cost, claim or expense, including attorney's fees, arising out of the Event of Default. (c) Arbitration. Every controversy, claim or dispute under this Agreement or between or among any of the Manager and the Members relating to the LLC ("Arbitrable Dispute") shall be resolved by or referred to arbitration (an "Arbitration Proceeding"), before a single neutral arbitrator in accordance with the AAA Rules and the terms and conditions of this Section 11.2(c). Whenever the terms of this Section 11.2(c) and the AAA Rules conflict, the terms and conditions of this Section 11.2(c) shall control. (1) Location. All Arbitration Proceedings shall be held and conducted in Denver. The location for an Arbitration Proceeding within Denver shall be as mutually agreed by the Arbitration Parties, but failing such agreement within * days after a written request by any Arbitration Party, the Arbitration Proceeding shall be conducted in the regional office of the AAA in Denver. (2) Rules and Selection of Arbitrator. Each Arbitration Proceeding shall be limited to the specific Arbitrable Dispute(s) in question. The arbitrator appointed must be (i) a former or retired judge of a Colorado District Court or any higher court in the State of Colorado, or (ii) an attorney with at least fifteen (15) years experience with commercial real estate development and/or construction joint ventures who has not acted in any capacity for the Owner Member or the Developer Member or any of their respective Affiliates during the five (5) year period prior to appointment. If agreement is not reached by the Arbitration Parties on the selection of the arbitrator within thirty (30) days after commencement of an Arbitration Proceeding as evidenced by (i) submission by the initiating Arbitration Party of a matter to the AAA in accordance with the AAA Rules and (ii) notice to the other Arbitration Parties of the initiating Arbitration Party's intention to arbitrate, then such arbitrator shall be appointed by the chief judge of the Denver District Court. In no event shall a demand for arbitration be made with respect to an Arbitrable Dispute after the date when institution of legal or equitable proceedings based on such Arbitrable Dispute would be barred by any applicable statute of limitations. (3) Powers of Arbitrator. Subject to Section 11.2(d), the arbitrator shall have the power to grant all legal and equitable relief (both by way of interim relief and as a part of its final award) as may be granted by any court of the State of Colorado to carry out the terms and conditions of this Agreement specifically including prohibitory and mandatory declaratory relief and damages. All awards and orders of the arbitrator (including, interim relief) shall be final and binding, subject to confirmation, correction or vacation pursuant to the Uniform Arbitration Act of 1975 as then in effect in the State of Colorado (the "Arbitration Act"). (4) Discovery and Rules of Evidence. All Arbitration Proceedings shall be conducted as expeditiously as reasonably possible in keeping with fairness and with a minimum of legal formalities. The rules of evidence shall not apply to any Arbitration Proceeding, except the rules relating to attorney/client privilege and work product protection, which shall be applicable in all Arbitration Proceedings, and only limited discovery shall be allowed in an Arbitration Proceeding. Unless otherwise ordered by the arbitrator on a showing of substantial need, each Arbitration Party shall be limited to one (1) document production request and three (3) depositions. In addition, the Arbitration Parties shall exchange the names, qualifications and a narrative report stating the opinion and basis therefor of any expert who may be called, * days prior to the start of the Arbitration Proceeding. (5) Timing. Unless modified by the arbitrator upon a showing of good cause, all Arbitration Proceedings shall proceed upon the following schedule: (i) within * days after the service of the notice of the request to arbitrate upon Arbitration Parties, the Arbitration Parties shall select the arbitrator; (ii) within * days after selection of the arbitrator, the Arbitration Parties shall conduct a pre-arbitration conference at which a schedule of pre-arbitration discovery shall be set, all pre-arbitration motions scheduled and any other necessary pre-arbitration matters decided; (iii) all discovery allowed by the arbitrator shall be completed within * days following the pre-arbitration conference; (iv) all pre-arbitration motions shall be filed and briefed so that they may be heard no later than * days following the discovery cut-off date; (v) the arbitration hearing shall be scheduled to commence no later than * days after the decision on all pre-arbitration motions, but in any event no later than * days following the service of the notice of arbitration upon the Arbitration Parties; and (vi) the arbitrator shall render his or her written decision (including any and all findings of fact and conclusions of law) within * days following the submission of the matter to the arbitrator for decision. The foregoing schedule reflects the maximum time allowed, and nothing herein shall prevent the arbitrator from ordering any action to be taken sooner if he or she concludes that the same is warranted by the circumstances. (6) Transcript. All proceedings involving the Arbitration Parties in an Arbitration Proceeding shall be reported by a certified shorthand court reporter and written transcripts of such proceedings shall be prepared and made available to all of the Arbitration Parties. (7) Costs. The prevailing Arbitration Party shall be awarded reasonable attorneys' fees, expert and non-expert witness costs and expenses, and other costs and expenses incurred in connection with the arbitration, unless the arbitrator, for good cause, determines otherwise. A post-arbitration proceeding to determine costs, if needed, shall be held within * days after notice of the award. Costs and fees of the arbitrator (including the cost of the record of transcripts of the arbitration) shall be borne by the non-prevailing Arbitration Party, unless the arbitrator for good cause determines otherwise. Costs and fees payable in advance shall be advanced equally by the Arbitration Parties, subject to ultimate payment by the non-prevailing Arbitration Party in accordance with the preceding sentence. (8) Reconsideration. Within * days after receipt of the written decision of the arbitrator, any Arbitration Party shall have the right to file with the arbitrator a motion to reconsider, and the arbitrator shall then reconsider the issues raised by the motion, may allow the other Arbitration Parties an opportunity to respond thereto, and shall either confirm or change its decision within * days after such filing. Such revised or confirmed decision shall then be final and conclusive upon the Arbitration Parties. The costs (other than the attorneys' fees of the respective parties) of a motion for reconsideration and related proceedings shall be borne by the moving Arbitration Party. (9) Specific Enforcement. The terms and conditions of this Section 11.2(c) shall be specifically enforceable under applicable law in any court of competent jurisdiction. The award rendered by the arbitrator shall be final, subject to confirmation, correction or vacation pursuant to the Arbitration Act, and judgment may be entered in accordance with applicable law in any court having jurisdiction thereof. (10) Interest on Award. Any monetary award of the arbitrator may include interest at the rate of * per annum, which interest shall accrue from the date of the written decision of the arbitrator to the date the award is paid. (11) Extraordinary Remedies. No provision of this Section 11.2(c) shall limit the right of the Manager or any Member to exercise self-help remedies or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any Arbitration Proceeding. The exercise of any such remedy shall not waive the right of the Manager or such Member to resort to arbitration in accordance with this Section 11.2(c). (d) Limitation on Damages. Notwithstanding anything in this Agreement to the contrary, none of the Owner Member, the Developer Member or Frontier shall be entitled to seek, claim or collect damages in excess of the actual and direct damages actually incurred or sustained as a result of a breach of a representation or warranty contained herein or as a result of any Event of Default or otherwise under this Agreement or in connection with the LLC, whether in an Arbitration Proceeding or otherwise. Accordingly, the Owner Member, the Developer Member and Frontier each hereby expressly waives any right to seek, claim or collect any punitive, indirect, special, speculative or consequential damages in connection with, or related to, a breach of a representation or warranty under this Agreement or any Event of Default or otherwise arising under this Agreement or in connection with the LLC. Nothing in this Section 11.2(d) shall be construed to affect the rights and obligations of any person under the Frontier Lease. ARTICLE XII MISCELLANEOUS 12.1 Press Releases and Confidentiality. None of the Manager or any Member shall, or permit any of their respective Affiliates to, make any statement or release to the media any information regarding this Agreement or the terms and conditions hereof unless the content and timing of said statement or release shall have been approved by unanimous Consent of the Deciding Members. The Manager and each Member shall, and shall cause each of their respective Affiliates to, at all times, keep the terms and conditions of this Agreement confidential, except as provided in the first sentence of this Section 12.l and except to the extent reasonably necessary (i) to comply with applicable law and regulations; (ii) to enforce and carry out its obligations set forth in this Agreement; (iii) in any Proceeding pertaining to the Project, the LLC or any rights of the parties under this Agreement; or (iv) to obtain legal and financial advice from its attorneys, accountants and financial advisors. Any disclosure which is permitted by this Section 12.l shall indicate that the information is confidential and should be so treated by the third party. 12.2 Notices. All notices, Consents or other instruments or communications provided for under this Agreement shall be in writing, signed by the party giving the same, and shall be deemed to be properly given and received on the earlier of (i) when actually delivered and received, personally, by mail, by messenger service, by fax or telecopy delivery or otherwise; and (ii) on the next Business Day after deposit for delivery by an overnight courier service such as Federal Express. All such notices or other instruments or communications shall be furnished with delivery or postage charges prepaid and addressed to the party as follows or to such other address as such party may designate by notice to the other party given in accordance with this Section: If to the Developer Member or the Manager: Shea Frontier Center LLC c/o Shea Properties 300 West Plaza Drive, Suite 300 Highlands Ranch, Colorado 80126 Attention: Chester T. Latcham with a copy to: Legal Department Shea Homes 300 West Plaza Drive, Suite 100 Highlands Ranch, Colorado 80126 If to the Owner Member: c/o L. C. Fulenwider, Inc. 1125 17th Street, Suite 2500 Denver, Colorado 80202 Attention: L. C. Fulenwider, III with a copy to: Slivka Robinson Waters & O'Dorisio, P.C. 1099 18th Street, Suite 2600 Denver, Colorado 80202-1926 Attention: John W. O'Dorisio, Jr. If to Frontier: Frontier Airlines, Inc. 12015 E. 46th Ave., #200 Denver, CO 80239-3116 Attention: General Counsel 12.3 Waivers. Any party may waive any of the terms and conditions hereof made for its benefit, and such waiver shall be effective when in writing and executed and delivered thereby to the other parties. No waiver of any right or obligation in any one instance shall preclude the exercise of such right or the enforcement of such obligation in all other instances, nor shall the single or partial exercise of any right or enforcement of any obligation preclude any other or further exercise of such right or the enforcement of such obligation. 12.4 Successors and Assigns; No Third-Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns. No person other than a party hereto and its permitted successors and assigns may assert any right in connection with this Agreement. 12.5 Waiver of Action for Partition. Each Member hereby irrevocably waives any right that it may have to maintain any action for partition with respect to the Land, the Project or any other LLC Asset. 12.6 Integration; Incorporation; Severability; Modifications. This Agreement contains the entire agreement between the parties as of the date hereof and supersedes all prior representations, warranties, agreements and understandings except to the extent expressly preserved or incorporated herein. All of the exhibits, schedules and appendices attached hereto are incorporated herein. If any provision hereof or the application thereof is held to be unenforceable in any jurisdiction, the other provisions hereof shall be enforceable to the full extent of the law of such jurisdiction. Any unenforceability of any provision hereof in any jurisdiction shall not affect the enforceability thereof in any other jurisdiction. No provision hereof may be amended, modified, supplemented or waived except in accordance with a written instrument explicitly stating that purpose and executed by the party against which such amendment, modification, supplement or waiver is being asserted. 12.7 Negotiated Provisions. This Agreement shall not be construed more strictly against any party hereto merely by virtue of the fact that it may have been prepared by counsel for one of the parties, it being recognized that the Manager and the Members all have contributed substantially and materially to the preparation of this Agreement. 12.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. 12.9 Jurisdiction. Each party (i) agrees that any Proceeding with respect to this Agreement or any transaction contemplated by this Agreement may be brought only in the Denver, Colorado District Court or of the United States of America for the District of Colorado, sitting in Denver, (ii) accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of those courts and (iii) irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any legal action in those courts; provided, however, that any party may assert in an Proceeding in any other jurisdiction or venue each mandatory defense, third-party claim or similar claim that, if not so asserted in such Action, may thereafter not be asserted by such party in an original Proceeding in the courts referred to in clause (i) above. 12.10 Waiver of Jury Trial. Each party waives any right to a trial by jury in any Proceeding to enforce or defend any right under this Agreement or any amendment, instrument, document or agreement delivered, or which in the future may be delivered, in connection with this Agreement and agrees that any Proceeding (not including Arbitration Proceedings with respect to which Section 11.2(c) shall apply) shall be tried before a court and not before a jury. 12.11 Costs of Legal Proceedings. In the event that any party hereunder institutes legal proceedings (not including Arbitration Proceedings with respect to which Section 11.2(c) shall apply) with respect to this Agreement or the LLC, the prevailing party shall be entitled to recover, in addition to any other relief to which it is entitled, its costs and expenses incurred in connection with such legal proceedings, including reasonable attorney's fees. 12.12 Further Assurances. The Manager and each Member covenants and agrees that it will at any time and from time to time do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, all such further acts, documents and instruments as may reasonably be required by any other party hereto in order to carry out and effectuate fully the transactions herein contemplated in accordance with this Agreement. 12.13 Counterparts. This Agreement may be executed in several counterparts, each of which shall be effective as an original, but all of which together shall constitute one and the same instrument. (Signature page follows.) IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized representative to execute and deliver this Agreement as of the date first written above. DEVELOPER MEMBER: SHEA FRONTIER CENTER, LLC, a California limited liability company By: J.F. Shea Co., Inc., a Nevada corporation, its manager By: Name: Title: By: Name: Title: OWNER MEMBER: 7001 TOWER, LLC, a Colorado limited liability company By: L.C. Fulenwider, Inc., a Colorado corporation, its manager By: Name: Title: FRONTIER: Frontier Airlines, INC., a Colorado corporation By: Name: Title: The LLC hereby consents to and agrees to be bound by the foregoing Operating Agreement of Frontier Center One LLC. FRONTIER CENTER ONE LLC, a Colorado limited liability company By: Shea Frontier Center, LLC, a California limited liability company, its manager By: J.F. Shea Co., Inc., a Nevada corporation, its manager By: Name: Title: By: Name: Title: The Manager hereby consents to, agrees to be bound by, covenants to perform the duties of and makes the representations and warranties of, the Manager under the foregoing Operating Agreement of Frontier Center LLC. Shea Frontier Center, LLC, a California limited liability company By: J.F. Shea Co., Inc., a Nevada corporation, its manager By: Name: Title: By: Name: Title: EXHIBIT A to OPERATING AGREEMENT Developer's Pre-Development Work Product - See attached page(s). EXHIBIT B to OPERATING AGREEMENT Legal Description of Land Lot 3, Block 1, DENVER INTERNATIONAL BUSINESS CENTER FILING NO. 8, according to the recorded plat thereof, City and County of Denver, State of Colorado. EXHIBIT C to OPERATING AGREEMENT Owner's Pre-Development Work Product - See attached page(s). EXHIBIT D to OPERATING AGREEMENT Initial Project Development Plan - See attached page(s). EX-10.57 14 0014.txt STANDARD INDUSTRIAL LEASE STANDARD INDUSTRIAL LEASE THIS LEASE, made this day of April 2000, by and between Mesilla Valley Business Park, LLC (hereinafter "Landlord") and Frontier Airlines, Inc. (hereinafter "Tenant"). W I T N E S S E T H: In consideration of the rents, covenants and agreements herein set forth, Landlord and Tenant enter into the following agreement: 1. Definitions and Key Provisions. The following terms shall be defined in this Lease as follows: Premises: The space in the Building outlined on Exhibit "A" consisting of approximately * square feet of interior building space plus the approximately * of an acre (for * additional automobile parking spaces) designated as parking for Tenant's use as identified on the Site Plan attached hereto as Exhibit "B" (said acreage and any changes thereto as provided herein being called the "Additional Parking Area"). Premises Area: * square feet. Project: The real estate and improvements including the approximately * square foot building (the "Building") as shown on Exhibit "A" and municipally numbered as 1630 Hickory Loop, Las Cruces, NM. The "Project" includes the Additional Parking Area. Tenant's Share: * (*) of the Operating Expenses attributable to the Project exclusive of the Additional Parking Area and * (*%) of the Operating Expenses attributable to the Additional Parking Area. Use: Airline Call and Reservation Center and/or any other lawful office use. Term:* (*) months unless terminated earlier as provided herein commencing on the Rent Commencement Date. Rent Commencement Date: The earlier of the date Tenant opens for business in the Premises or Substantial Completion of Landlord's Work as provided in Section 31. Base Rent: Months * and * $ * per month Months * through * $ * per month Months * through * $ * per month Months * through * $ * per month Security Deposit: $* Broker: CB Richard Ellis - Chris Hook 2. Granting Clause. In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants and conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord, the Premises for the Term hereof. 3. Quiet Enjoyment. Notwithstanding the fact that the Rent Commencement Date is subsequent to the effective date of this Lease, it is the intention of Landlord and Tenant that each have vested rights hereunder and that this Lease constitutes a binding and valid obligation of each as of the date this Lease is fully executed. Tenant shall peaceably and quietly have, hold and enjoy the Premises for the term, for the Use specified in Section 1 hereof subject, however, to all of the terms hereof and to all reservations in favor of Landlord, all zoning ordinances and other laws and regulations governing or regulating the use of the Premises, and all easements, rights-of-way, and recorded instruments which affect the Premises. Landlord represents and warrants that it has full right and authority to enter into this Lease. 4. Security Deposit. Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the Security Deposit referenced in Section 1 which shall be held by Landlord, without obligation for interest or segregation, as security for performance of Tenant's covenants and obligations under this Lease, it being expressly understood and agreed that the Security Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any default by Tenant, Landlord may, without prejudice to any other available remedy, use such fund to make good any rent arrearage or any other damage, injury, expense or liability caused by such event of default, and Tenant shall pay the Landlord within * (*) business days of written demand therefore, the amount so applied in order to restore the Security Deposit to its original amount. If Tenant is not then in default hereunder, any remaining balance of such deposit shall be returned by Landlord to Tenant * (*) days after the termination of this Lease. 5. Rent. 5.1 Base Rent. Tenant shall pay Base Rent to Landlord for the Premises in the amounts set forth in Section 1. Said Base Rent shall be paid in advance on the first day of each month of the Term, with proration to occur for any partial month if the Rent Commencement Date is other than on the first day of a calendar month. Payments received by Landlord within the first * (*) days of any month shall not constitute an event of default hereunder. Simultaneous with Tenant's execution of this Lease, it shall prepay the Base Rent for Month * (*) (*). All rentals to be paid by Tenant to Landlord shall be in lawful money of the United States of America and shall be paid without deduction or offset, prior notice or demand, on or before the first day of each and every month during the Term, and at such place or places as may be designated from time to time by Landlord. Tenant's obligation to pay rent under this Lease is an independent covenant and no act or circumstance, regardless of whether such act or circumstance constitutes a breach of this Lease by Landlord, shall release Tenant of its obligation to pay rent as required by this Lease. Notwithstanding the fact that the Rent Commencement Date may be subsequent to the effective date of the Lease, it is the intention of Landlord and Tenant that each have vested rights hereunder and that this Lease constitutes a binding and valid obligation of each as of the date this Lease is fully executed. Payments received by Landlord within the first * (*) days of any month shall not constitute an event of default hereunder. 5.2 Operating Expense Payments. It is the intention of Landlord and Tenant that Landlord receive the Base Rent "net" of all other charges except as expressly provided herein; accordingly, beginning on the Rent Commencement Date, Tenant shall pay as additional rent Tenant's Share of the "Operating Expenses" for the Project. The term "Operating Expenses" shall mean all reasonable costs and expenses incurred by Landlord with respect to the ownership, maintenance and operation of the Project, including but not limited to: Taxes (as provided in Section 11); Insurance (as provided in Section 14); utilities; maintenance, repair and replacement of all portions of the Project, including without limitation, signs, fire suppression systems (if any), repair or replacement of exterior surfaces, including but not limited to painting, cleaning and graffiti removal, paving of parking areas and roads, roof (routine maintenance and repair only), alleys, landscaping, line painting, utility lines, lighting, electrical systems; amounts paid to contractors and subcontractors for work or services performed in connection with the foregoing; reasonable property management fees (not to exceed *% of gross rent payments) (which, at Landlord's option, may be payable to itself, an affiliate or third party manager); deductibles on insurance loss; security services, if any; trash collection and sweeping and compliance with laws, rules, regulations and orders of governmental authorities. Operating Expenses do not include debt service under mortgages; depreciation on the building; costs of restoration to the extent of net insurance proceeds received by Landlord with respect thereto; leasing commissions; or the cost of renovating space for other tenants of the Project or capital expenditures unless incurred by Landlord with a principal purpose to: (i) effect a reduction in the Operating Expenses; and (ii) keep the Project in compliance with applicable laws, rules, regulations and orders of governmental authorities; or any other expenses which, in accordance with generally accepted accounting principles, consistently applied, would not be treated as operating costs by comparable landlords of comparable buildings or projects. The costs of additions or alterations which are required to be capitalized for federal income tax purposes shall be amortized on a straight line basis over a period equal to the lesser of the useful life thereof for federal income tax purposes or * (*) years. The portion of Operating Expenses attributable to the Additional Parking Area shall be determined by Landlord in its reasonable discretion. For purposes of allocating taxes on the land, the Additional Parking Area will be treated as consisting of * (*) of an acre. Landlord may at its option increase Tenant's Share of the Operating Expenses (or any portion thereof) if in Landlord's reasonable opinion a disproportionate allocation is necessary because of Tenant's use or operation. Landlord shall furnish Tenant, at the inception of the Lease and on an annual basis or upon any significant change in operating expenses, a written statement estimating Tenant's Share of the Operating Expenses for the current calendar year (herein the "Estimate"). Beginning on the Rent Commencement Date and on the first day of each month during the Term, Tenant shall pay Landlord as additional rent * (*) of the Estimate. After Tenant's receipt of notice of any change in the estimate, Tenant shall have * (*) days to pay Landlord any amounts due to Landlord for the cumulative difference between the amount paid by Tenant based upon the previous estimate and the amount due Landlord based upon the new estimate which has accrued since the date of Tenant's receipt of the prior notice. As soon as practical after the end of each calendar year, Landlord shall furnish Tenant a written statement showing Tenant's Share of the total Operating Expenses actually due for the calendar year ended (the "Actual Expenses"). If the Actual Expenses exceed the Estimate, then Tenant agrees to pay within * (*) business days of receipt of said statement, the difference between Tenant's Share of the Actual Expenses and the Estimate. If the Estimate exceeds the Actual Expenses, then Landlord agrees to refund the difference at the time that such statement is furnished, provided Tenant is not then in default in the performance of any of its obligations under this Lease. The provisions of this Section shall apply for any partial calendar year during which this Lease is effective, subject to a pro rata adjustment based upon the number of calendar months or portions thereof that this Lease is in effect. Tenant's obligation to pay and Landlord's obligation to reimburse such difference shall survive the termination or expiration of this Lease. For purposes of this Section, a year shall mean a calendar year except for the first year of this Lease, which shall begin on the Rent Commencement Date and the last year which shall end at the expiration of the Lease. Tenant shall have the right to audit Landlord's books and records detailing Operating Expenses for the Project for the prior year. Any such audit will be scheduled on reasonable prior notice to Landlord and shall occur at Landlord's address as provided on the signature page of this Lease. Tenant will conduct any such audit within * (*) days of Landlord's delivery of the statement of Actual Expenses. Tenant shall provide Landlord with a copy of such audit. If the audit discloses an underpayment by Tenant, it shall promptly pay said amount to Landlord. If the audit correctly reflects an overpayment by Tenant, Landlord shall promptly refund such overpayment to Tenant. If the overpayment is more than * (*), Landlord shall pay to Tenant the reasonable costs of such audit. 5.3. Late Charges. Tenant agrees to pay a late charge of * (*) as additional rent for each payment due hereunder that remains unpaid for more than * (*) days after the due date to cover Landlord's administrative costs of processing such late payment. In addition to said late charge, any rental or other amount due from Tenant under this Lease which is more than * (*) days delinquent shall bear interest from the date such rental or other amount was due at the lesser of the rate of * (*) per year or the then maximum nonusurious rate under applicable law, (the lesser of said amounts being herein referred to as the "Maximum Rate.") In the event the late charge is ever deemed to be "interest" the amount of interest on past due amounts shall be automatically reduced so that the combination of said late charge and the interest on past due amounts, if any, does not exceed the Maximum Rate. Any amount collected which exceeds the Maximum Rate will be deemed credited to other amounts owed by Tenant to Landlord under this Lease, and any remaining excess after such credit shall be refunded to Tenant. It is the intent of both Landlord and Tenant to at all times comply with the applicable law regarding the maximum nonusurious amount or rate of interest which may be contracted for, charged, taken, reserved or received by Landlord. Any rental and/or other payments due hereunder returned to Landlord marked "Insufficient Funds" will entitle Landlord to collect an additional $* from Tenant for each such payment. 6. Conduct of Business of Tenant. 6.1. Use of Premises. The Premises shall be occupied and used by Tenant solely for the purpose of conducting therein the Use authorized in Section 1 and for no other purpose without Landlord's prior written consent, which will not be unreasonably withheld. Tenant's acceptance of occupancy from Landlord shall constitute acknowledgment by Tenant that Tenant has inspected the Premises and the Project of which the Premises are a part and that same are suitable for Tenant's intended use thereof as stated in this Paragraph. Tenant recognizes and agrees that Landlord is making no warranties, expressed or implied, as to the suitability of the Premises or the Project for any particular use. Unless otherwise expressly set forth in this Lease, Tenant accepts the space "AS IS" with all faults. 6.2. Operation by Tenant. Tenant covenants and agrees to the following: (a) Tenant, at Tenant's expense, shall comply with all present and future laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities regardless of when they become effective, pertaining to Tenant's use or occupancy of the Premises and with any recorded covenants, conditions and restrictions (copies of said covenants conditions & restrictions will be provided to Tenant by Landlord prior to the execution hereof), all applicable federal, state and local laws, regulations or ordinances pertaining to air, soil and water quality, Hazardous Materials (as defined in Section 29.3 hereof), waste disposal, air emissions and other environmental, health and safety, zoning and land use matters, the Americans with Disabilities Act or similar laws and with any directive or order of any public officer or officers, pursuant to law, which impose any duty upon Landlord or Tenant with respect to the use or occupancy of the Premises; (b) Tenant shall comply with all requirements of any authority or agency having jurisdiction over the insurance rates with respect to the use or occupancy of the Premises; (c) Landlord shall have the exclusive right to use the roof, side and rear walls of the Premises for any purpose, including but not limited to erecting signs or other structures on or over all or any part of the same, erecting scaffolds and other aids to the construction and installation of the same, and installing, maintaining, using, repairing, and replacing pipes, ducts, conduits and wires leading through, to or from the Premises and serving other parts of the Project in locations which do not materially interfere with Tenant's use of the Premises. Tenant shall have no right whatsoever to the exterior or exterior walls, or the roof of the Premises or any portion of the Project outside the Premises, except as otherwise provided in this Lease. Notwithstanding the foregoing, Tenant shall have the right to install satellite antennas and other related communications equipment on the roof, immediately above Tenant's premises, at Tenant's sole cost and expense, provided that (1) such antennas and equipment comply with all applicable laws, ordinances and rules and regulations; (2) Landlord shall have the right to approve the plans therefore, which Landlord will not unreasonably withhold provided any roof penetrations will not void Landlord's warranties on the roofing system; and (3) such antennas and equipment do not overload the load bearing capacity of the walls or roofing system. (d) Tenant agrees that it shall not use or permit the Premises to be used for an adult book store, adult motion picture theater, nude or semi-nude entertainment club, or similar adult entertainment establishment. 7. Rules and Regulations. Tenant and Tenant's agents, employees, and invitees shall faithfully observe and comply with all reasonable, uniform rules and regulations promulgated by Landlord from time to time for the safety, care or cleanliness of the Project for the preservation of good order therein. Provided, however, Landlord has no obligation to promulgate such rules or regulations. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Project of any of the rules and regulations. Landlord will use commercially reasonable efforts to enforce the rules and regulations. 7.1 A. Any rules and regulations imposed by Landlord after the date of this Lease shall be: (i) reasonable and consistent with rules and regulations imposed on similar properties; (ii) no more burdensome than the rules and regulations attached hereto; (iii) subject to the other provisions of this Lease; (iv) related only to common areas, not the Premises; (v) uniformly enforced; and (vi) effective only after Tenant has had at least thirty (30) days prior written notice of their enactment. 8. Parking and Use of Common Area and Facilities. 8.1. Common Area. All parking areas, access roads and facilities furnished, made available or maintained by Landlord on the Project for the general use in common of tenants of the Project and their invitees in the Project or the Premises, including the Additional Parking Area, truck ways, driveways, loading docks and areas, delivery areas, pickup stations, pedestrian sidewalks, courts and ramps, landscaped areas, retaining walls, stairways, hallways, common restrooms, lighting facilities, and other similar areas and improvements provided by Landlord for the general use in common of tenants of the Project and their customers (herein collectively called the "Common Area") shall at all times be subject to the control and management of Landlord. Tenant acknowledges that it does not have an exclusive interest in the Common Area. Subject to the terms and conditions of this Lease concerning the Additional Parking Area, Landlord reserves the right to grant such easements and other rights in the Common Area as Landlord may from time to time deem necessary, including without limitation, easements for mutual ingress and egress, truck turning, utilities, and similar matters for the benefit of adjacent properties. Landlord may, at its sole option, modify the Common Areas or make such changes thereto as Landlord deems reasonably necessary, as long as such modifications do not prevent Tenant's reasonable access to or use of the Premises as permitted herein. 8.2. Use of Common Area. Subject to the Terms and conditions of this Lease concerning the Additional Parking Area, Tenant and Tenant's business invitees, employees and customers shall have the nonexclusive right, in common with Landlord and all others to whom Landlord has granted or may hereafter grant rights, to use the Common Area, subject to such reasonable, uniform rules and regulations as Landlord may from time to time impose and the rights of Landlord set forth above. Landlord may at any time close temporarily all or any part of the Common Area to make repairs or changes, to prevent the acquisition of public rights therein or for any other reasonable purpose as long as such modifications do not prevent Tenant's reasonable access to or use of the Premises as permitted herein.. Tenant shall not interfere with the other tenants' right to use any part of the Common Area. Landlord shall not be responsible for enforcing Tenant's parking rights against any third parties. Nothing herein shall obligate Landlord to maintain or provide any security services or systems for the Project. Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or other criminal or willful acts of third parties. 8.3. Parking. The "Premises" includes the area identified on Exhibit "B" as the "Additional Parking Area." Provided Tenant is operating in the Premises for the Use specified in Section 1, Landlord agrees to make available to Tenant a total of * (*) exclusive parking spaces (including handicap spaces) as initially designated on the attached Site Plan as Exhibit "B". Parking spaces will be marked "Frontier Parking only." Tenant agrees to only use those exclusive parking spaces marked Frontier Parking, and no other spaces within the Project or parking areas shown on Exhibit "B". Landlord reserves the right to reconfigure or relocate the Additional Parking Area and other parking areas within the Project from time to time provided that parking available to Tenant within the Project is not diminished to less than * parking spaces in reasonably close proximity to the Premises, without Tenant's consent. In the event the square footage of the Additional Parking Area is reduced as the result of such a reconfiguration, the Additional Parking Area will nevertheless be treated as consisting of * (*) of an acre for allocation of real property taxes. 9. Maintenance of Premises. 9.1. Maintenance by Landlord. Landlord shall keep or cause to be kept the foundations, roof (except for the HVAC System portions thereof as provided in Section 9.2) and structural portions of the walls of the Premises in good order, repair and condition except for damage thereto due to the acts or omissions of Tenant, its agents, employees, contractors or invitees. Landlord shall commence required repairs as soon as reasonably practicable after receiving written notice from Tenant thereof. Except as provided in this Paragraph, Landlord shall not be obligated to make repairs, replacements or improvements of any kind upon the Premises, or to any equipment, merchandise, stock in trade, facilities or fixtures therein, all of which shall be Tenant's responsibility. Without limitation on the foregoing, Tenant agrees that Landlord shall have no obligation to provide any janitorial service to the Building. 9.2. Maintenance by Tenant. Tenant shall at all times keep all parts of the Premises not required herein to be maintained by Landlord in good order, condition and repair and in a clean, orderly, sanitary and safe condition, damage by unavoidable casualty excepted. Without limitation on the foregoing, Tenant's repair and maintenance obligations shall include all glass, signage, windows, doors, fixtures, equipment and appurtenances thereof; lighting, electrical and plumbing appurtenances; and all interior and exterior heating, ventilation and air-conditioning equipment "HVAC System." Tenant's obligations shall include but not be limited to doing such things as necessary to cause the Premises to comply with applicable laws, rules, regulations and orders of governmental and public bodies and agencies. If replacement of equipment, fixtures and appurtenances thereto are necessary, Tenant shall replace the same with equipment, fixtures and appurtenances of the same quality, and shall repair all damages caused by such replacement. At the termination of this Lease, Tenant shall surrender the Premises in the same condition as they were on the Commencement Date, reasonable wear and tear excepted, and deliver all keys for and all combinations on locks, safes and vaults in the Premises to Landlord. Notwithstanding the above, Landlord reserves the right upon notice to Tenant to enter into a maintenance contract with a third party for the maintenance and repair of all or any portion of the HVAC System. If Landlord enters into such a contract, Tenant agrees to reimburse Landlord for all costs associated with such contract within * (*) business days of a billing therefore. 9.3. Fire Equipment. Tenant agrees to supply and maintain at its own expense any fire extinguishers required by local ordinance or other fire protection equipment required as a result of Tenant's use. Landlord to supply and install any other fire protection equipment required by law or local ordinance or as desired by Landlord, if such equipment is required for the building independent of Tenant's use. 9.4. No Consent. Tenant's maintenance and other obligations under this Lease shall not be construed as granting authority or consent to the Tenant to create any mechanic's or materialman's lien upon the Property or to subordinate Landlord's or Landlord's lenders rights. 10. Alterations, Liens and Signs. 10.1.Alterations. Tenant will not paint, decorate or change the architectural treatment of any part of the exterior of the Premises or construct any changes to the interior of the Premises, without Landlord's prior written approval thereto, which approval will not be unreasonably withheld conditioned or delayed, and will promptly remove any paint, decoration, alteration, addition or changes applied or installed without Landlord's approval or take such other action with respect thereto as Landlord reasonably directs. Tenant shall not make any structural alterations, additions or changes to the Premises. Tenant may, at its own cost and expense erect shelves, bins, racks and removable (i.e., not permanently attached to the realty) trade fixtures (collectively "Trade Fixtures") in the ordinary course of its business provided such items do not alter the basic character of the Premises, do not damage the Premises, may be removed without injury to the Premises and the construction, erection and installation thereof complies with all legal requirements and other provisions of this Lease. If Landlord grants consent to any requested alterations, the alterations shall be performed in a good, workmanlike and lien free manner in accordance with all applicable legal requirements and any restrictions which may be imposed by Landlord as a condition to its consent. All alterations, changes, additions and all leasehold improvements made by Tenant or made by Landlord on Tenant's behalf and all fixtures installed by Tenant which are not Trade Fixtures are herein collectively referred to as "Tenant Additions", and shall be the property of Landlord. Such Tenant Additions shall not be removed by Tenant on, before or following expiration or termination of the Lease without Landlord's consent except as may be required pursuant to Section 27.1. 10.2.Liens. Tenant shall promptly pay all contractors and materialmen, and not permit or suffer any lien to attach to the Premises or Project or any part thereof, and indemnify and save harmless Landlord against the same. Landlord shall have the right to require Tenant to furnish a bond or other indemnity satisfactory to Landlord prior to the commencement of any work by Tenant on the Premises costing in excess of $*. If any lien attaches or is claimed, Tenant, within * (*) days following the imposing of any such lien, shall cause the same to be released of record by payment or by petition to cancel the lien and posting such security as is required. Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon, or in any manner to bind the interest of Landlord in the Premises or Project or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including, without limitation, those who may furnish materials or perform labor for any construction or repairs. 10.3.Signs. Tenant will not place or permit on any exterior door or window or any exterior wall of the Premises any sign, awning, canopy, advertising matter, decoration, lettering or other thing of any kind which does not comply with the existing Sign Criteria for the Project as set forth in Exhibit "C" attached hereto. Landlord has installed, at its expense, four (4) permanent sign(s) in compliance with said Sign Criteria. Tenant agrees within thirty (30) days of the Rent Commencement Date to have Tenants logo or lettering placed on existing said box sign(s) on the facade of the Premises. Tenant shall, at its expenses, maintain such signage. Such maintenance shall include without limitation, the replacing of light bulbs and other lighting materials and any broken panels or the like. Tenant shall keep said sign lit during the operating hours of the Project as such hours are determined by Landlord regardless of whether Tenant's business is open during this time. Tenant shall remove such sign upon termination of this Lease. Such installation and removal shall be done in such a manner as to avoid injury, defacement or overloading of the Premises. Tenant shall not be permitted to individually install a street-side sign on its behalf. 11. Real Estate Taxes. Landlord has the sole right to render the Project, land and any improvements thereon to any appropriate taxing authorities. Tenant, as additional rent, agrees to pay Tenant's Share of all taxes (both general and special), assessments, or governmental charges (hereinafter "Taxes") lawfully levied or assessed against the Premises, Project or any portion thereof, including without limitation any gross receipts or similar tax and all taxes on the Additional Parking Area, but specifically excluding Landlord's income taxes, excess profit taxes, franchise taxes, or similar taxes on Landlord's business. Tenant's Share of the taxes shall be payable as additional rent in accordance with Section 5.2. Additionally, Tenant shall pay to Landlord upon demand, Tenant's Share of all reasonable costs (including tax consultant and/or attorney's fees) incurred by Landlord in connection with any protest or contest of the valuation of taxes imposed on the Project or land. Provided, however, Landlord shall have no obligation to take any such action. Tenant shall have the right to inspect, at Landlord's business office during regular business hours and upon reasonable notice to Landlord, the tax bills which Landlord receives from the applicable taxing authorities. 12. Personal Property Taxes. During the Term of this Lease, Tenant shall pay prior to delinquency all taxes assessed against and levied upon fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises. When possible, Tenant shall cause its personal property to be assessed and billed separately from the real property of Landlord. If any of Tenant's personal property shall be assessed with Landlord's real property, Tenant shall pay Landlord the taxes attributable to Tenant within * (*) business days after receipt of a written statement therefor or, at Landlord's option as provided in Section 11. 13. Utilities. Tenant agrees to pay before delinquency all charges for all utilities (including but not limited to gas, water, heat, sewer, electricity, telephone, garbage removal, water meter charges and all hookup or connection fees or charges) which may accrue with respect to the Premises during the Term of this Lease. Additionally, Tenant shall pay to Landlord, as additional rent, upon demand, Tenant's Share of any utilities which are not separately metered based upon usage as reasonably determined by Landlord. Landlord shall in no event be liable to Tenant for any interruption in the service of any such utilities to the Premises, howsoever such interruption may be caused and this Lease shall continue in full force and effect despite any such interruptions. Tenant agrees to limit use of water and sewer to normal restroom use. Tenant acknowledges that it has inspected the utilities available to the Premises and that it has determined that such utilities are sufficient for all anticipated uses of the Premises. Tenant shall not install any equipment or make any use of the Premises which overloads the utilities available to the Premises and if Landlord deems Tenant's use of equipment to be in violation of this provision, Landlord may, in addition to such other remedies which Landlord has hereunder, require Tenant, at Tenant's expense, to upgrade such utility lines and related equipment including without limitation transformers. 14. Insurance; Waiver; Indemnification. 14.1.Landlord's Obligation. During the Term of this Lease and any extension or renewal hereof, Landlord shall procure and maintain such "all risk property and general liability" insurance coverage on the Project as Landlord deems appropriate, but not less than full replacement cost coverage, as reasonably determined by Landlord, including, if Landlord so elects, loss of rental insurance in an amount of one or more year's annual rental. 14.2. Tenant's Obligations. 14.2.1. All Risk Property and General Liability. Tenant, as additional rent, shall pay to Landlord an amount equal to Tenant's Share of all premiums paid by Landlord for the insurance coverage described in Section 14.1. Tenant's Share of such premiums is payable as additional rent in accordance with Section 5.2. 14.2.2. Liability. Tenant shall procure and maintain a policy or policies of insurance insuring both Landlord and Tenant against all claims, damages or actions arising out of or in connection with Tenant's use or occupancy of the Premises or by the condition of the Premises, the limits of such policy or policies to be in an amount not less than $* per occurrence, and in an amount not less than $* in the general aggregate for bodily injury and property damage. Said policy or policies shall additionally include "Fire Legal Liability" insurance coverage in the maximum allowable amount. Tenant shall also maintain workman's compensation insurance on its employees in the required statutory amounts. 14.2.3. Personalty Coverage. Tenant also agrees to carry insurance against fire and such other risks as are from time to time included in standard extended coverage insurance, for the full insurable value, covering all of Tenant's merchandise, trade fixtures, furnishings, wall covering, floor covering, carpeting, drapes, equipment and all items of personal property of Tenant located on or within the Premises. All property in the Premises will be kept at Tenant's risk. 14.2.4. Construction Liability. Tenant, at its own cost and expense, shall obtain and maintain at all times when demolition, excavation, or construction work is in progress being done by Tenant (specifically excluding any of the "Landlord Work" as designated herein) on the Premises, construction liability insurance with limits of not less than $* and $* combined single limit in the general aggregate for bodily injury and property damage, protecting Landlord and Tenant as well as such other person or persons as Tenant may designate against any and all liability for injury or damage to any person or property in any way arising out of such demolition, excavation, or construction work. 14.2.5. Form of Insurance. All policies required of Tenant hereunder shall: (i) be issued by a reputable insurance company qualified to do business in the State of New Mexico and with an A.M. Best rating company of not less than "A-" according to the most recent rating thereof acceptable to Landlord; (ii) name Landlord as an additional insured and Tenant as a named insured; (iii) provide that they cannot be canceled for any reason unless Landlord is given * (*) days prior written notice by the insurer; (iv) state that such insurance is primary over any insurance carried by Landlord; (v) contain an endorsement in favor of Landlord, waiving such insurance company's right of subrogation against Landlord; and (vi) contain a statement that the current installment of the premium for such policy has been paid in advance. A duly executed certificate of insurance shall be delivered to Landlord prior to Tenant's occupancy and will be attached hereto as Exhibit "D." All renewals shall be delivered to Landlord at least * (*) days prior to the expiration of the respective policy terms. Landlord shall have the right to review said insurance amounts at least yearly during the Term of this Lease and require Tenant to increase said insurance policies to provide coverage in such amounts as Landlord, in its sole, but reasonable discretion, deems necessary. Moreover, should Tenant's use of the Premises (or any vacancy by Tenant) result in an increased insurance rate, Landlord may, in its discretion allocate such amount of the insurance premium to Tenant as Landlord deems reasonable to pass the cost of such increased premium through to Tenant rather than other tenants of the Project. Tenant agrees to procure and maintain said increased insurance coverage. The insurance required of Landlord hereunder may be maintained under a blanket or master policy which includes properties other than the Project. 14.3.Mutual Waiver of Subrogation Rights. Landlord and Tenant and all parties claiming under them mutually release and discharge each other and their respective officers, directors, partners, employees and agents from all claims and liabilities arising from or caused by any casualty or hazard to the extent covered by valid and collectible insurance on the Project; and waive any right of subrogation which might otherwise exist in or accrue to any person on account thereof; provided that such release shall not operate in any case where the effect is to invalidate such insurance coverage. This release shall apply even if the loss or damage shall be caused by the fault or negligence of a party hereto or for any person for which such party is responsible. 14.4.Waiver. Landlord, its agents and employees, shall not be liable for, and Tenant waives all claims for damage (except claims caused by or resulting from the negligence or willful misconduct of Landlord, its agents or employees), including but not limited to consequential damages, to person, property or otherwise, sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon any part of the Premises or the Project, including but not limited to, claims for damage resulting from: (a) any equipment or appurtenances becoming out of repair; (b) injury done or caused by wind, water, or other natural elements; (c) any defect in or failure of plumbing, heating or air-conditioning equipment, electric wiring or installation thereof, gas, water, and steam pipes, stairs, porches, railings or walks; (d) broken glass; (e) the backing up of any sewer pipe or downspout; (f) the bursting, leaking or running of any tank, tub, washstand, water, snow or ice upon the Premises or the Project; (g) the falling of any fixture, plaster or stucco; (h) damage to or loss by theft or otherwise of property of Tenant or others; (i) acts or omissions of other persons in the Premises, other tenants in the Project, occupants of nearby properties, or any other persons; and (j) any act or omission of owners of adjacent or contiguous property. All property of Tenant kept in the Premises shall be so kept at Tenant's risk only and Tenant shall indemnify, defend and save Landlord harmless from claims arising out of damage to the same, including subrogation claims by Tenant's insurance carrier. 14.5. Indemnification. Intentionally omitted. 15. Right of Entry. Landlord, its agents and employees, shall have the right to enter the Premises from time to time at reasonable times to examine, to show them to prospective purchasers and other persons, and to make such repairs, alterations, improvements or additions as Landlord deems desirable as long as Tenant's use of the Premises is not materially disrupted thereby. Rent shall not abate during any such entry by Landlord, including without limitation, during the period of any such repairs, alterations, improvements, or addition unless Tenant's use of the Premises is materially disrupted thereby and then only to the extent of such disruption. During the last * (*) months of the Term of this Lease, Landlord may exhibit the Premises to prospective tenants and maintain upon the Premises notices deemed advisable by Landlord. In addition, during any apparent emergency, Landlord, its agents and employees, may enter the Premises forcibly without liability therefor and without in any manner affecting Tenant's obligations under this Lease. Nothing herein contained, however, shall be deemed to impose upon Landlord any obligation, responsibility or liability whatsoever, for any care, maintenance or repair except as otherwise herein expressly provided. 16. Subordination and Attornment. Tenant accepts this Lease subject and subordinate to any mortgage, deed of trust, or other lien presently existing on the Project or the Land or subsequently created on the Project, and to any renewals and extensions thereof, but Tenant agrees that any such mortgagee shall have the right at any time to subordinate such mortgage, deed of trust, or other lien to this Lease. Landlord is hereby irrevocably vested with full power and authority to subordinate this Lease to any mortgage, deed of trust, or other lien hereafter placed on the Project or the Land, and Tenant agrees on demand to execute such further instruments subordinating this Lease as Landlord may request, provided such subordination shall be on the express condition that this Lease shall be recognized by the mortgagee, and that the rights of Tenant shall remain in full force and effect during the Term of this Lease so long as Tenant shall continue to perform all of the covenants and conditions of this Lease. No such mortgagee shall be required to assume any liabilities for defaults occurring prior to its ownership of the Project. Tenant covenants and agrees that upon foreclosure of any deed of trust, mortgage or other instrument of security and the sale of the Project or the Land pursuant to any such document, to attorn to any purchaser at such a sale and to recognize such purchaser as the Landlord under this Lease. The agreement of Tenant to attorn to any purchaser pursuant to such a foreclosure sale or trustee's sale in the immediately preceding sentence shall survive any such sale. 17. Estoppel Certificate. Tenant shall at any time, upon the request of Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if modified stating the nature of such modification and certifying that the Lease as modified is in full force and effect), the dates to which the rent and other charges are paid in advance, if any, and acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed. The parties hereto agree that any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Project or the Land. Tenant's failure to deliver such statement within * (*) business days after Landlord's request for the same, shall be conclusive upon Tenant that: (i) this Lease is in full force and effect; (ii) this lease has not been modified or amended other than expressly stated; (iii) there are no uncured defaults in Landlord's performance; and (iv) not more than one month's rent or other charge has been paid in advance. 18. Damage and Destruction. If the Premises are hereafter damaged or destroyed or rendered partially unuseable by Tenant for their accustomed use by fire or other casualty and such fire or other casualty is not caused directly or indirectly by the fault or negligence of Tenant, its agents, employees, contractors or invitees, Landlord shall, unless the Lease is terminated as below, promptly repair the same to substantially the condition which they were in immediately prior to the happenings of such casualty (excluding stock in trade, fixtures, furniture, furnishings, carpeting, floor covering, wall covering, drapes and equipment), and from the date of such casualty until the Premises are so repaired and restored, the monthly Base Rent payments hereunder shall abate in such proportion as the part of said Premises thus destroyed or rendered unuseable by Tenant bears to the total Premises. Provided, however, Landlord shall not be obligated to expend for such repair or restoration an amount in excess of the insurance proceeds received by Landlord as a result of such damage. Landlord's obligation to rebuild is contingent upon its receipt of insurance proceeds sufficient to make such repairs. In the event any mortgagee or lender requires such sums to be applied to any debt, Landlord will not be deemed to have received the proceeds. Notwithstanding the above, if the Premises or any portion in excess of *% of the Building is wholly or partially damaged, destroyed or rendered unuseable by Tenant for their accustomed use by fire or other casualty then Landlord or Tenant shall have the right to terminate this Lease effective as of the date of such casualty by giving to the other party, within * (*) days after the happening of such casualty, written notice of such termination. If such notice is given, this Lease shall terminate and provided Tenant is not in default hereunder, Landlord shall promptly repay to Tenant any rent theretofore paid in advance which was not earned at the date of such casualty. If said notice is not given and Landlord is required or elects to repair or restore the Premises as herein provided, then Tenant shall promptly repair or replace its stock in trade fixtures, furnishings, furniture, carpeting, wall covering, floor covering, drapes and equipment to the same condition as they were in immediately prior to the casualty. If the Premises or any portion of the Project are damaged by fire or other casualty caused directly or indirectly by the fault or negligence of Tenant or its agents, employees, contractors, or invitees, the rent under this Lease will not abate and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Premises or the Project caused thereby to the extent that such cost and expense is equal to or less than the deductible amount covered by the insurance proceeds described in Section 14.1. 19. Eminent Domain. 19.1.Eminent Domain. If any material portion of the Premises shall be acquired, condemned or damaged as a result of the exercise of any power of eminent domain, condemnation or sale under threat thereof or in lieu thereof to the extent that the remainder becomes unuseable for its intended purpose, then Landlord or Tenant at its election may terminate this Lease by giving notice to the other party of its election, within 180 days of the date the condemning authority shall have the right to possession of the Premises or portion of the Project condemned. Moreover, if any material portion of the Project is taken and in Landlord's judgment such taking would materially interfere with or impair its ownership or operation of the Project, Landlord may terminate this Lease. If the Lease shall not be terminated as aforesaid, then it shall continue in full force and effect, and Landlord shall within a reasonable time after possession is physically taken by the condemning authority (subject to delays due to shortage of labor, materials or equipment, labor difficulties, breakdown of equipment, governmental restrictions, fires, other casualties or other causes beyond the reasonable control of Landlord) restore the remaining portion of the Premises to the extent reasonably possible, to render it reasonably suitable for the Use permitted by Section 1. Provided, however, Landlord shall not be obligated to expend an amount greater than the proceeds received from the condemning authority less all expenses incurred in connection therewith (including attorney's fees) for the restoration. Base Rent as provided in Section 5.1, shall be reduced in the proportion that the area of the Premises so taken bears to the total Premises. No taking of the Common Area shall entitle Tenant to an abatement of rent, but operating expenses shall be adjusted accordingly. 19.2.Damages. Landlord reserves and Tenant assigns to Landlord, all rights to damages on account of any taking or condemnation or sale under threat or in lieu thereof or any act of any public or quasi-public authority for which damages are payable. Tenant shall execute such instruments of assignment as Landlord requires, join with Landlord in any action for the recovery of damages if requested by Landlord, and turn over to Landlord any damages recovered in any proceeding. If Tenant fails to execute instruments required by Landlord, or undertakes such other steps as requested, Landlord shall be deemed the duly authorized irrevocable agent and attorney-in-fact of Tenant to execute such instruments and undertake such steps on behalf of Tenant. However, Landlord does not reserve any damages payable for trade fixtures installed by Tenant at its own cost which are not part of the realty, moving expenses and business interruption expense incurred by Tenant, provided that such items are separately awarded to Tenant. 20. Assignment and Subletting. Tenant shall not assign this Lease or any interest therein, whether voluntarily, by operation of law, or otherwise, and shall not sublet the Premises or any part thereof except by written permission and consent of Landlord being first had and obtained. Consent of Landlord to any such assignment or subletting shall not be unreasonably withheld if: (i) at the time of such assignment or subletting Tenant is not in default in the performance and observance of any of the covenants and conditions of this Lease; (ii) the assignee or subtenant of Tenant shall expressly assume in writing all of Tenant's obligations hereunder; (iii) Tenant shall provide proof to Landlord that the assignee or subtenant has a financial condition which is satisfactory to Landlord and Landlord's lender; (iv) the Premises continue to be used solely for the Use set forth in Section 1, and (v) Landlord is furnished with and approves the form of the proposed sublease. In connection with any such assignment or sublease, Tenant or the assignee or subtenant of Tenant shall pay to Landlord any legal and administrative costs incurred by Landlord in approving such assignment or subletting, not to exceed $*. Any such assignment or sublease, even with the approval of Landlord, shall not relieve Tenant from liability for payment of all forms of rental and other charges herein provided or from the obligations to keep and be bound by the terms, conditions and covenants of this Lease. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease, or a consent to the assignment or subletting of the Premises. Consent to any assignment or subletting shall not be deemed a consent to any future assignment or subletting. Any merger, consolidation or transfer of corporate shares of Tenant, if Tenant is a corporation, so as to result in a change in the present voting control of the Tenant by the person or persons owning a majority of said corporate shares on the date of this Lease, shall constitute an assignment and be subject to the conditions of this Paragraph. If Tenant is a general partnership having one or more corporations as partners or if Tenant is a limited partnership having one or more corporations as general partners, the provisions of the preceding sentence shall apply to each of such corporations as if such corporation alone had been the Tenant hereunder. If Tenant is a partnership, the withdrawal of a general partner shall be an assignment subject to the provisions hereof. Moreover, in the event that the rental due and payable by a sublessee or assignee, or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto exceeds the rental payable under this Lease, or if with respect to an assignment, sublease, license or other transfer by Tenant permitted by Landlord, the consideration payable to Tenant by the assignee, subtenant, licensee or other transferee exceeds the rental payable under this Lease, then Tenant shall be bound and obligated to pay Landlord, in addition to all rental required hereunder, * (*) of such excess rental and other excess consideration within * (*) days following receipt thereof by Tenant from such sublessee, assignee, licensee or other transferee, as the case may be. Finally, in the event of any assignment or subletting it is understood and agreed that all rentals paid to Tenant by an assignee or sublessee shall be received by Tenant in trust for Landlord, to be forwarded immediately to Landlord without reduction of any kind, and upon election by Landlord such rentals shall be paid directly to Landlord. Without limitation of Landlord's approval rights as provided above, Tenant shall provide a copy of any executed sublease to Landlord within * (*) days of the execution thereof. 20.1 Notwithstanding anything contained in this Lease to the contrary, Tenant may without the prior consent of Landlord, but with notice to Landlord within * (*) days of any assignment or sublease, assign or sublease all or part of the premises, to an affiliate of Tenant, or to any company into which Tenant may be merged or consolidated, or that acquires substantially all of the assets of Tenant. Any such assignee shall have a similar right to assign this Lease to an affiliate of Tenant or to any company into which Tenant may be merged or consolidated, without the prior consent of Landlord, but with notice to Landlord within * (*) days of any assignment or sublease. An "Affiliate" of Tenant shall mean any corporation which directly or indirectly, controls or is controlled by or is under common control with Tenant, or a successor corporation to Tenant by merger, consolidation, or non-bankruptcy reorganization. For purpose of the definition of "affiliate," the word "control" (including "controlled by" and under common control with"), with respect to any corporation, partnership or association, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policy of a particular corporation, partnership or association, whether through the ownership of voting securities or by contract or otherwise. Notwithstanding the foregoing, if any such affiliate has a net woth less than that of Tenant at the time of such proposed assignment, Landlord may require as a condition to such assignment a guarantee from Frontier Airlines Inc., or its successor, in a form acceptable to Landlord. 21. Default by Tenant. 21.1.Events of Default. The following shall be considered for all purposes to be events of default under and a breach of this Lease: (a) any failure of Tenant to pay any rent or other amount when due hereunder after expiration of any applicable grace periods therefore as provided in the Lease; (b) any failure by Tenant to perform or observe any of the other terms, provisions, conditions and covenants of this Lease for more than * (*) days after written notice of such failure or if such performance is of a type which will require more than * (*) days to correct using reasonable diligence, Tenant fails to commence such cure within * (*) days after notice and diligently proceed to cure same; (c) Tenant shall become bankrupt or insolvent, or file or have filed against it a petition in bankruptcy or for reorganization or arrangement or for the appointment of a receiver or trustee of all or a portion of Tenant's property, or Tenant makes an assignment for the benefit of creditors; (d) if Tenant abandons the Premises; (e) this Lease, Tenant's interest herein or in the Premises, any improvements thereon, or any property of Tenant is executed upon or attached; or (f) the Premises come into the hands of any person other than expressly permitted under this Lease. 21.2.Landlord's Remedies. Upon the occurrence of any event of default specified in this Lease, Landlord, without grace period, demand or notice (the same being hereby waived by Tenant), and in addition to all other rights or remedies Landlord may have for such default, shall have the right to pursue any one or more of the following remedies: (a) Terminate this Lease in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying said Premises or any part thereof, by force if necessary, without notice or the need to resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby; and Landlord may recover from Tenant the amount of all loss and damage which Landlord may suffer by reason of such termination, including, without limitation, all costs of retaking the Premises and the total present value (using a discount factor of * (*) percent) of the total rent and charges reserved in this Lease for the remainder of the Term of this Lease (i.e., the duration of this Lease had it not been terminated) all of which shall be immediately due and payable by Tenant to Landlord; and/or (b) Without terminating this Lease, enter upon and take possession of the Premises, and expel or remove Tenant and any other person who may be occupying said Premises, or any part thereof, by force if necessary, without notice or the need to resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby. Landlord may make such alterations and repairs as it deems advisable to relet the Premises, and relet the Premises or any part thereof for such term or terms (which may extend beyond the Term of this Lease) and at such rentals and upon such other terms and conditions as Landlord in its sole discretion deems advisable. Upon each such reletting all rentals received by Landlord therefrom shall be applied: first, to any indebtedness other than rent due hereunder from Tenant to Landlord; second, to pay any costs and expenses of reletting, including brokers' and attorneys' fees and costs of alterations and repairs; third, to rent due hereunder; and fourth, the residue, if any, shall be held by Landlord and applied in payment of future rent as it becomes due hereunder. No such reletting shall relieve Tenant or any guarantors from their obligations hereunder. If rentals received from such reletting during any month are less than that to be paid during that month by Tenant hereunder, Tenant shall immediately pay any such deficiency to Landlord. In no event shall Tenant be entitled to any excess rent obtained by reletting the Premises over and above the rent reserved herein. No re-entry or taking possession of the Premises by Landlord shall be construed as an election to terminate this Lease unless a written notice of such termination is given by Landlord to Tenant. Notwithstanding any such reletting or re-entry or taking possession, without termination, Landlord may at any time thereafter terminate this Lease for any prior breach or default. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by at law or in equity, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord. Notwithstanding anything herein to the contrary, Landlord shall have no obligation to relet or attempt to relet the Premises or any portion thereof following termination of this Lease, re-entry or repossession of the Premises. Provided, however, in the event Landlord is ever held to have such a duty, Tenant agrees that Landlord shall, in connection with such efforts, not be required to do anything more than list the Premises for lease with a licensed real estate broker of Landlord's choosing (which may be an affiliate of Landlord) for a period of * (*) months. If no party acceptable to Landlord executes a lease with Landlord on terms reasonably acceptable to Landlord within this * (*) month period, Tenant agrees that Landlord shall conclusively have satisfied any such duty to release or mitigate. In no event will Landlord have any duty to lease the Premises before Landlord leases other vacant space which it has in the Project or other buildings owned by Landlord nor shall Landlord have any duty to lease to and Landlord will not be considered to be acting unreasonably in refusing to lease to any party if: (i) the prospective lessee has a financial condition which is unacceptable to Landlord or Landlord's lenders; (ii) the prospective lessee requires any alterations which are unacceptable to the Landlord or Landlord's lenders; (iii) the prospective lessee requires tenant improvements to be paid by Landlord; or (iv) the prospective lessee requires terms different from this Lease or which are otherwise unacceptable to Landlord or Landlord's lender. 21.3.Lockout Provisions. Upon the occurrence of an uncured event of default under the Lease, Landlord shall be entitled to change the locks at the Premises after three (3) days prior written notice to Tenant. Tenant agrees that entry may be gained for that purpose through use of a duplicate or master key or any other means, that same may be conducted out of the presence of Tenant if Landlord so elects, that no notice shall be required to be posted at the time of such entry by the Landlord on any door to the Premises (or elsewhere) disclosing the reason for such action or any other information, and that Landlord shall not be obligated to provide a key to the changed lock to Tenant unless Tenant shall have first: (a) brought current all payments due to Landlord under this Lease; provided, however, that if Landlord has theretofore formally and permanently repossessed the Premises, or has terminated this Lease, then Landlord shall be under no obligation to provide a key to the new lock(s) to Tenant regardless of Tenant's payment of past-due rent or other past-due amounts, damages, or any other payment or amounts of any nature or kind whatsoever; (b) fully cured and remedied to Landlord's satisfaction all other defaults of Tenant under this Lease (but if such defaults are not subject to cure, such as early abandonment of the Premises, then Landlord shall not be obligated to provide the new key to Tenant under any circumstances); and (c) given Landlord security and assurances satisfactory to Landlord that Tenant intends to and is able to meet and comply with its future obligations under this Lease, both monetary and nonmonetary. 21.4.Landlord's Performance for Account of Tenant. If the Tenant shall continue in default in the performance of any of the covenants or agreements herein contained after the time limit for the curing thereof then Landlord may perform the same for the account of Tenant. Any amount paid or expense or liability (together with interest thereon at the Maximum Rate from the date upon which any such expense shall have been incurred) incurred by Landlord in the performance of any such matter for the account of Tenant shall be deemed to be additional rent and the same (together with interest thereon at the Maximum Rate from the date upon which any such expense shall have been incurred) may, at the option of Landlord, be added to any rent then due or thereafter falling due hereunder or shall be payable by Tenant to Landlord on demand. 21.5.Application of Payments Received From Tenant. Landlord shall have the right to apply any payments made by Tenant to the satisfaction of any debt or obligation of Tenant to Landlord according to Landlord's sole discretion and regardless of the instructions of Tenant as to application of any such sum, whether such instructions be endorsed upon Tenant's check or otherwise, unless otherwise agreed upon by both parties in writing. The acceptance by Landlord of a check or checks drawn by a party other than Tenant shall not affect Tenant's liability hereunder nor shall it be deemed an approval of any assignment or sublease of this Lease by Tenant. 21.6.Waiver of Rights of Redemption. To the extent permitted by law, Tenant waives any and all rights of redemption granted by or under any present or future laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises due to Tenant's default hereunder or otherwise. 21.7.No Waiver. No delay or omission in the exercise of any right or remedy of Landlord on any default by Tenant shall impair such a right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent shall not constitute a waiver of any other default; it shall constitute only a waiver of timely payment for the particular rent payment involved. No act or conduct of Landlord, including, without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord or any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. 22. Landlord's Lien. Intentionally omitted. 23. Default by Landlord. Except in the event of emergency repairs required to be made by the Landlord to the Premises, which will be commenced at the earliest reasonable opportunity by Landlord after receipt of notice of the need therefore, Landlord shall in no event be charged with default in any of its obligations hereunder unless and until Landlord shall have failed to perform such obligations within * (*) days (or such additional time as is reasonably required to correct any such default) after written notice to Landlord by Tenant, specifically describing such failure. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord's obligations hereunder. All obligations of Landlord under this Lease will be deemed binding upon Landlord only during the period of its ownership of the Project and not thereafter. The term "Landlord" in this Lease shall mean only the owner, for the time being of the Project, and in the event of the transfer by such owner of its interest in the Project, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Lease Term upon each new owner for the duration of such owner's ownership. Any liability of Landlord under this Lease shall be limited solely to its interest in the Project, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord. 24. Application of Payments Received From Tenant. Landlord shall have the right to apply any payments made by Tenant to the satisfaction of any debt or obligation of Tenant to Landlord according to Landlord's sole discretion and regardless of the instructions of Tenant as to application of any such sum, whether such instructions be endorsed upon Tenant's check or otherwise, unless otherwise agreed upon by both parties in writing. The acceptance by Landlord of a check or checks drawn by a party other than Tenant shall not affect Tenant's liability hereunder nor shall it be deemed an approval of any assignment or sublease of this Lease by Tenant. 25. Notices. All notices required to be given hereunder shall be in writing, and shall be served in person upon the party to be notified or upon its agent, or shall be mailed by certified or registered mail or deposited with a nationally recognized overnight carrier, postage prepaid, to the appropriate address shown on the signature page of this Lease. Either party shall have the right to change its address for notice by notifying the other party of such change in accordance with this paragraph. Notice shall be deemed given * (*) days after deposit in the U.S. Mail or sent as otherwise provided in the manner provided herein. Either party shall have the right to change its address for notice by notifying the other party of such change in accordance with this Paragraph. 26. Sale of Project or Land by Landlord. In the event of any sale of the Project or Land by Landlord, or any part thereof, Landlord shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale; and the purchaser, at such sale or any subsequent sale of the Project or Land shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of the Landlord under this Lease. Furthermore, in the event of a sale or conveyance by Landlord of the Project or Land, this Lease shall not be affected by any such sale, and Tenant agrees to attorn to the purchaser thereof. 27. Surrender, Holding Over and Successors. 27.1.Surrender. Upon the expiration or earlier termination of this Lease, whether by forfeiture, lapse of time, or otherwise, or upon the termination of Tenant's right to possession of the Premises, Tenant will at once surrender and deliver up the Premises, to Landlord in good and broom-clean condition and repair, reasonable wear and tear and loss by fire or other casualty excepted. All Tenant Additions will, following the expiration or termination of this Lease, remain in the Premises as Landlord's property unless Landlord directs Tenant to remove all or any portion of same in writing at the time Landlord approves the plans and specifications relating to such Tenant Additions, provided however, that Tenant must request Landlord's determination, whether said improvements will remain in the Premises or be required to be removed, at the time Tenant is requesting approval of the plans and specifications, whereupon Tenant agrees that it shall, at its expense, remove such Tenant Additions (or portion thereof directed by Landlord). Provided Tenant is not in default, it will remove its Trade Fixtures, inventory, and other personal property upon the expiration of the Term. . Tenant shall repair any damage to the Premises caused by the removal of such Tenant Additions, Trade Fixtures, or other items. In no event will any fire sprinklers, fire suppression equipment, HVAC System components, floor tiles, carpeting, ceiling tiles, plumbing fixtures, or similar building system items or any equipment or fixtures attached to the realty be considered "Trade Fixtures" or be removed unless directed by Landlord to do so. Tenant agrees that following an Event of Default, Landlord may, at its option, allow any party claiming to be a lessor of Tenant or a holder of a security interest in such trade fixtures or equipment to remove equipment, Trade Fixtures, and similar items leased from such lessor. Landlord shall have no liability to Tenant therefor. Landlord may condition its consent upon such lessor or a holder of a security interest in such trade fixtures or equipment agreeing to repair any damage to the Premises caused by such removal and providing adequate financial assurances of its ability to pay for any such damages. Provided, however, no such agreement by any such lessor, or Landlord's failure to obtain such an agreement, shall relieve Tenant of its obligations hereunder including without limitation, Tenant's obligation to repair said damage even if the damage is caused by said lessor or its contractors or agents. Tenant shall remove all Hazardous Materials. Any Trade Fixtures or Tenant Additions not removed by Tenant as required herein shall be deemed abandoned and may be stored, removed and disposed of by Landlord at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention or disposal of same. Moreover, any period following the termination or expiration of this Lease during which there is Hazardous Material, Tenant Alterations or Trade Fixtures which are not removed as herein required shall be considered a holdover by Tenant and, in addition to all other remedies available to Landlord hereunder, shall obligate Tenant to the increased rental payments pursuant to Section 27.2. Tenant shall be entitled to no payment or offset for the value of any such property (even if sold by Landlord) and shall pay on demand all costs incurred by Landlord in connection with such removal or disposal. No retention, disposal or sale of such items shall limit remedies otherwise available to Landlord hereunder for a breach by Tenant. All obligations of Tenant hereunder not full performed as of the termination or expiration of the Lease shall survive such termination or expiration. 27.2.Holding Over. If Tenant holds over or occupies the Premises beyond the Term of this Lease (it being agreed there shall be no such holding over or occupancy without Landlord's written consent), Tenant shall pay Landlord for each day of such holding over a sum equal to * the daily rent applicable hereunder at the expiration of the Term (including Operating Expenses), prorated for the number of days of such holding over. In such event, Tenant shall occupy the Premises as a Tenant at sufferance, and all of the terms and provisions of this Lease shall be applicable, with the exception of the rent applicable during such holding over period, which shall be increased as aforesaid. Tenant agrees that Landlord may institute a forcible detainer or similar action against Tenant or any other party in possession of the Premises without serving any demand for possession, demand to vacate, notice of termination or similar demand or notice upon Tenant or such party in possession. 27.3.Successors. All rights and liabilities herein given or imposed upon the respective parties hereto shall bind and inure to the several respective heirs, successors, administrators, executors and assigns of the parties and if Tenant is more than one person, they shall be bound jointly and severally by this Lease. No rights, however, shall inure to the benefit of any assignee of Tenant unless the assignment is approved by Landlord as required herein. 28. Brokers or Finders. Tenant represents and warrants to Landlord, that it has engaged no broker or finder other than the Broker listed in Section 1 of this Lease and that no claims for brokerage commissions or finders' fees will arise in connection with the execution of this Lease and agrees to indemnify, defend and hold Landlord harmless from any liability or expense (including attorney's fees) arising from any such claim. Landlord agrees to pay Broker a commission upon Tenant accepting occupancy and commencing payment of Base Rent hereunder as provided in a separate agreement between Landlord and said Broker. 29. Environmental Issues. 29.1.Tenants Compliance with Environmental Laws. Tenant shall not cause or permit any Hazardous Material to be brought upon, kept or used in or about the Premises by Tenant, its agents, employees, contractors or invitees without the prior written consent of Landlord, which Landlord shall not unreasonably withhold provided Tenant demonstrates to Landlord's satisfaction that such Hazardous Material is necessary or useful to Tenant's business. All Hazardous Materials will be used, kept and stored in a manner that complies with all laws regulating any such Hazardous Material so brought upon or used or kept in or about the Premises. 29.2.Indemnification. In addition to, and without limitation on the general indemnity obligations of Tenant under this Lease, Tenant specifically agrees that it shall indemnify, defend and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the Premises or the Project, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Lease Term as a result of any breach by Tenant of its obligations under this Paragraph or any contamination of the Premises resulting from the presence of Hazardous Materials on or about the Premises caused or permitted by Tenant. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present in the soil or ground water on or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Material on the Premises caused or permitted by Tenant results in any contamination of the Premises, Tenant shall promptly take all actions at its sole expense as are necessary to return the Premises to the condition existing prior to the introduction of any such Hazardous Material to the Premises, provided that Landlord's approval of such actions shall first be obtained. Tenant further agrees to defend Landlord, its agents, employees, and assigns in any administrative or judicial proceeding commenced by private individuals or governmental entities seeking recovery of damages for personal injury or property damage, or recovery of civil penalties or fines arising out of, connected with, or relating to any breach by Tenant of its obligations under this Paragraph or any contamination of the Premises resulting from the presence of Hazardous Materials on or about the Premises caused or permitted by Tenant. The foregoing indemnity shall survive the expiration or earlier termination of this Lease. 29.3.Hazardous Material. As used herein, the term "Hazardous Material" means any pollutant, toxic substance, hazardous waste, hazardous material, hazardous substance, oil hydrocarbon, asbestos or similar item as defined in or pursuant to the Resource Conservation and Recovery Act, as amended, the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, the Federal Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Federal Water Pollution Control Act, as amended, or any other federal, state or local environmental or heath and safety related law, regulation, ordinance, rule, or bylaw, whether existing as of the date hereof, previously enforced or subsequently enacted (collectively the "Environmental Laws"). 29.4.Notice of Certain Events. Tenant shall immediately advise Landlord in writing of (a) any governmental or regulatory actions instituted or threatened under any Environmental Law affecting the Tenant or the Premises, (b) all claims made or threatened by any third party against Tenant or the Premises relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials, (c) the discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Premises that could cause the Premises or the Project or Land to be classified in a manner which may support a claim under any Environmental Law, and (d) the discovery of any occurrence or condition on the Premises, the Project or Land or any real property adjoining or in the vicinity of the Premises, the Project or Land which could subject Tenant, the Premises, the Project or Land to any restrictions in ownership, occupancy, transferability or use of the Premises, the Project or the Land under any Environmental Law. Landlord may elect to join and participate in any settlements, remedial actions, legal proceedings or other actions initiated in connection with any claims under any Environmental Law caused or alleged to have been caused by Tenant, it agents, employees, contractors or invitees and to have its reasonable attorney's fees paid by Tenant. At its sole cost and expense, Tenant agrees when applicable or upon request of Landlord to promptly and completely cure and remedy every violation of an Environmental Law caused by Tenant, its agents, employees, contractors or invitees. 29.5.Environmental Review. In the event reasonable evidence exists of the occurrence or existence of the violation of any Environmental Law or the presence of any Hazardous Material on the Premises, the Project or the Land, caused by Tenant, its agents, employees, contractors, or invitees, Landlord (by its officers, employees and agents) at any time and from time to time may contract for the services of persons (the "Site Reviewers") to perform environmental site assessments ("Site Assessments") on the Premises, the Project, Land or neighboring properties for the purpose of determining whether there exists on the Premises, the Project, Land or neighboring properties any environmental condition which could reasonably be expected to result in any liability, cost or expense to Landlord. The Site Reviewers are hereby authorized to enter upon the Premises for purposes of conducting Site Assessments. The Site Reviewers are further authorized to perform both above and below the ground testing for environmental damage or the presence of Hazardous Materials and such other tests on the Premises, the Project, Land or neighboring properties as may be necessary to conduct the Site Assessments in the reasonable opinion of the Site Reviewers. Tenant agrees to supply to the Site Reviewers such historical and operational information regarding the Premises as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments and will make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The results of Site Assessments shall be furnished to Tenant upon request. The cost of performing such Site Assessments shall be paid by Tenant. 30. Miscellaneous. 30.1.Partial Invalidity. If any term, covenant, condition or provision of this Lease is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions hereof shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. 30.2.Captions. The various headings and numbers herein and the grouping of the provisions of this Lease into Paragraphs are for the purpose of convenience only and shall not be considered a part hereof unless expressly stated to the contrary. 30.3.Gender; Number. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context otherwise requires. 30.4.Applicable Law. This Lease shall be governed by the laws of the State of New Mexico. 30.5.Corporation as Tenant. If a corporation executes this Lease as Tenant, it shall promptly furnish Landlord with certified corporate resolutions, a secretary's certificate or other evidence reasonably acceptable to Landlord attesting to the authority of the officers executing this Lease on behalf of such corporation. 30.6.Time. Time is of the essence of this Lease. 30.7.Joint and Several Liability. If Tenant is a partnership or other business organization, the members of which are subject to personal liability, the liability of each such member shall be deemed to be joint and several. 30.8.Accord and Satisfaction. Landlord is entitled to accept, receive and cash or deposit any payment made by Tenant for any reason or purpose or in any amount whatsoever, and apply the same at Landlord's option to any obligation of Tenant and the same shall not constitute payment of any amount owed except that to which Landlord has applied the same. No endorsement or statement on any check or letter of Tenant shall be deemed an accord and satisfaction or otherwise recognized for any purpose whatsoever. The acceptance of any such check or payment shall be without prejudice to Landlord's right to recover any and all amounts owed by Tenant hereunder and the Landlord's right to pursue any other available remedy. 30.9.Entire Agreement. There are no representations, covenants, warranties, promises, agreements, conditions or undertaking, oral or written, between Landlord and Tenant other than herein set forth. Except as otherwise provided herein, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless in writing and signed by them. The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Lease or any exhibits or addendums hereto. 30.10No Partnership. Landlord does not, in any way or for any purpose, become a partner, employer, principal, master, agent or joint venturer of or with Tenant. 30.11. Force Majeure. If either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of acts of God, unavoidable casualties, the elements, inclement weather preventing work, strikes, lockouts, labor troubles, inability to procure material, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature, not the fault of the party delayed in performing work or doing acts required under this Lease, the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. Tenant shall not be excused from any obligations for payment of rent, percentage rent, additional rent or any other payments required by the terms of this Lease when same are due, and all such amounts shall be paid when due, unless otherwise expressly set forth herein. 30.12. Attorney's Fees and Waiver of Jury Trial. In the event of any litigation regarding this Lease, the losing party shall pay to the prevailing party reasonable attorney's fees. Without limitation on the foregoing, Tenant agrees that should Landlord ever file a forcible detainer action or a forcible entry and detainer action, Landlord shall be entitled to its reasonable attorney's fees and costs in such action, and Landlord shall not be required to give Tenant written notice to vacate or any other notice in order to recover such attorney's fees and costs. Landlord and Tenant acknowledge the delay, expense and uncertainty associated with a jury trial involving a complex commercial lease of this nature, and in recognition of these inherent problems hereby waive their rights to a jury trial and agree that any litigation regarding this Lease will be tried without a jury. 30.13. Limitation of Liability. To the extent Section 56-7-1 N.M.S.A. 1978 may be applicable to this Lease, any indemnity agreement contained herein shall not extend to liability, claims, damages, losses or expenses, including attorney's fees, arising out of: (a) the preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs or specifications by the indemnitee; or (b) the giving or the failure to give directions or instructions by the indemnitee, or the agents or employees of the indemnitee, where such giving or failure to give directions or instructions is the primary cause of bodily injury to persons or damage to property. 30.14. Exhibits. The following Exhibits are attached to this Lease and are incorporated herein by reference: Exhibit A = Premises/Site Plan Exhibit B = Additional Parking Area Exhibit C = Sign Criteria Exhibit D = Certification of Tenant's Insurance Exhibit E1 = Overall Floor Plan of the Building Exhibit E2 = Clarifications to the Approved Building Plan Set Exhibit E3 = List of the Approved Building Plan Set 31. Construction of Improvements. Landlord agrees to construct certain improvements to the Premises as herein provided. Attached to this Lease is the Overall Floor Plan of the Building (Exhibit "E1"), the Clarifications to the Approved Building Plan Set (Exhibit "E2") and List of the Approved Building Plan Set (Exhibit "E3") which consists of Sheet A1.1 prepared by Alvidrez and Associates dated April 13, 2000 and sheets MP-1 and E-1 through E-3 dated April 10, 2000 and demolition plans MP-1 and E-1 dated April 1988 (reflecting demolition only) prepared by Mustang Mechanical & Electrical and have been approved by Tenant, all of which are herein collectively referred to as the "Approved Landlord's Work Plans." As soon as practical after execution of this Lease, the Landlord, at its cost and expense, agrees to undertake construction of improvements in and to the Premises in accordance with the Approved Landlord's Work Plans attached hereto (the "Landlord's Work") and to complete the same in a good and workmanlike manner in compliance with all applicable laws in place at the time of issuance of the building permit and in substantial accordance with such Approved Landlord's Work Plans, free of any mechanic's and materialman's liens relating to Landlord's Work which could impair Tenant's right to possession. In no event will Landlord's Work include, and Tenant will be responsible for: (i) any items designed on the Approved Landlord Work Plans as "Tenant's Work" or "to be provided by Tenant" or words to that effect or (ii) without limitation, any of the following: security system, fire extinguishers, generators, computers, fixtures, furnishings, furniture, vending machines, telephone systems and related wiring, computer cabling and wiring. 31.1.Tenant's Work. Following Landlord's Substantial Completion of the Landlord's Work, Tenant, at its cost and expense, agrees to undertake construction of improvements in and to the Leased Premises as set forth in the Approved Tenant Plans (as defined below) (herein the "Tenant's Work") to complete the same in a good and workmanlike manner in compliance with Approved Tenant Plans and all applicable regulations of Federal, State and local governmental bodies. Prior to commencement of the Tenant's Work, the Tenant will deliver to the Landlord plans and specifications for the Tenant's Work. The Landlord will have the right to promptly approve or disapprove the same by written notice to the Tenant, specifying the corrective action required in the case of any disapproval. Landlord will not unreasonably withhold, condition or delay its consent to such plans provided they do not create a Design Problem. If Landlord disapproves of any such items, Tenant will revise the plans and specifications and resubmit to Landlord and this process will be repeated until the plans and specifications for the Tenant's Work are approved by Landlord and Tenant at which point such plans will be referred to as the "Approved Tenant Plans." As used herein a "Design Problem" shall mean: (i) an adverse effect on the structural integrity of the Building; (ii) possible damage to the building systems; and (iii) noncompliance with applicable codes, rules, laws and regulations. No approval by Landlord of the Plans and specifications for Tenant's Work shall relieve Tenant of its obligations hereunder or be deemed a warranty by Landlord with respect thereto. 31.2.Completion of Landlord's Work. Landlord agrees that the Landlord's Work will, subject to Tenant Delays as described below and Force Majeure Events as described in Section 30.11, be substantially completed in accordance with Approved Landlord's Work Plans on or before June 23, 2000 ("Target Completion Date"). As used herein, "Substantially Complete" and "Substantial Completion" shall mean completion of Landlord's Work to the point where in the reasonable opinion of Landlord's architect, the work is complete in accordance with the Approved Landlord's Work Plans to the point where Tenant may commence Tenant's Work except for punchlist items which do not materially interfere with or prevent Tenant's Work, which punchlist items shall be promptly and diligently completed by Landlord. Tenant's contractor (and its various subcontractors) may enter upon the Premises prior to the June 23, 2000 provided that they work in harmony with the Landlord's contractor and do not cause the Landlord's contractor any delays or interfere with necessary inspections. During any such entry prior to June 23, 2000, Tenant shall maintain insurance in amounts not less than and of the type required of Tenant as specified in section 14 of this Lease, such insurance shall name Landlord as an additional insured. . Tenant's acceptance of occupancy from Landlord shall constitute acknowledgment by Tenant that the Premises are then in the condition called for in the Lease and that Landlord has satisfactorily completed Landlord's work hereunder. As used herein, "Tenant Delay" shall mean any delay in Landlord's Work caused by Tenant or its contractors, agents or employees, including without limitation: (i) any failure to respond to items submitted for Tenant's approval within the time limit specified by Landlord or, if no time limits are specified, within * (*) business days; (ii) any changes to Landlord's Work caused by Tenant's design of the Tenant's Work; or (iii) any failure of Tenant to pay any amounts due hereunder when due or to otherwise perform as herein required. The Target Completion Date and Outside Completion Date will be extended one (1) day for each day or partial day of Tenant Delay or Force Majeure Event. 31.3.Failure to Complete. Landlord shall not be liable in damages and Tenant may not terminate this Lease or pursue any remedies against Landlord if Landlord fails to achieve Substantial Completion on or before the Target Completion Date. If, however, Landlord fails to achieve Substantial Completion of Landlord's Work for any reason other than Tenant Delay or delay caused by Force Majeure Event on or before * (*) days following the issuance of a building permit for the Premises (herein the "Outside Completion Date"), then Tenant may, as its sole and exclusive remedy for such delay, delay the Rent Commencement Date for * (*) day for each day after the Outside Completion Date that Substantial Completion is not achieved. If the failure to complete is caused by Tenant Delay, Base Rent and other sums shall commence not later than June 15, 2000, regardless of whether the Landlord's Work is Substantially Complete. 31.4.Substitutions and Change Orders. Tenant agrees that when the Approved Landlord's Work Plans designate a particular brand of materials or equipment, Landlord may substitute a different brand of substantially equal quality (as determined by Landlord's architect) as availability may dictate. Tenant will have no right to require changes to the Approved Landlord's Work Plans without Landlord's consent, which consent Landlord may withhold pending (i) Tenant's payment for any costs associated therewith and (ii) Tenant's agreement for an extension of time to complete Landlord's Work. In no event will Landlord be obligated to reduce the Base Rent because of any savings achieved by a change. 32. Renewal Option. (a) Provided that as of the time of the giving of the Extension Notice and on the Commencement Date of the Renewal Term, no event of default exists then Tenant shall have the right to extend the Lease Term for * (*) additional term of * (*) years (hereinafter"Renewal Term"), commencing on the day following the expiration of the Initial Term as applicable (hereinafter referred to as the "Commencement Date of the Renewal Term"). Tenant shall give Landlord notice (hereinafter called the "Extension Notice") of its election to extend the Term at least * (*) months prior to the scheduled expiration date of the applicable Term. (b) Base Rent during the Renewal Term will be the greater of (i) * (*) of the then Market Rental Rate for comparable space, improvements and parking as determined pursuant to Section 32(d) or (ii) $* per square foot. (c) Except for the Base Rent as determined above, Tenant's occupancy of the Premises during the Renewal Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the expiring Term, provided, however, Tenant shall have no further right to any allowances, credits or abatements relating to inducements regarding the Initial Term and the Right of First Refusal shall not apply. If Tenant does not give the Extension Notice within the period set forth in Section (a) above, Tenant's right to extend the Lease Term shall automatically terminate. Time is of the essence as to the giving of the Extension Notice. Landlord shall have no obligation to refurbish or otherwise improve the Premises for the Renewal Term. The Premises shall be tendered on the Commencement Date of the Renewal Term in "AS IS" condition. If the Lease is extended for the Renewal Term, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term and the other provisions applicable thereto (the "Amendments"). If Tenant exercises its right to extend the term of the Lease for the Renewal Term pursuant to this Addendum, the term "Lease Term" as used in the Lease shall be construed to include, the Renewal Term. Tenant's Extension Notice is irrevocable once given. (d) Calculation of Market Rental Rate by Agreement. The "Market Rental Rate" as herein so called shall be determined (i) by mutual written agreement reached between Landlord and Tenant on or before * (*) days after Tenant shall have provided the Extension Notice, or (ii) if Landlord or Tenant cannot so mutually agree on or before the expiration of such *-day period, by means of the appraisal procedure set forth below. (i) Appraiser. If Landlord and Tenant cannot agree on the Market Rental Rate within such *-day period, Landlord and Tenant shall, within * (*) days after the expiration of the above-referenced *-day period, attempt to agree in writing on an appraiser (who shall in all events be a member of the American Institute of Real Estate Appraisers with at least * (*) years experience appraising properties of the same type as the Premises in the area where the Premises is located (the "Appraiser Qualifications"), such appraiser, an "MAI Lease Appraiser"). If Landlord and Tenant agree on an appraiser within the required period, the Market Rental Rate shall be determined by such single appraiser (which appraiser shall render its appraisal within * (*) days after its appointment). (ii) Appointment of Appraisers. In the event that Landlord and Tenant cannot so mutually agree on an appraiser within the required time period, the Market Value shall be determined by two appraisers, one appointed by Tenant and one appointed by Landlord, each of which shall satisfy the Appraiser Qualifications and each of which shall be appointed within * (*) days after the expiration of the time period set forth in Section 34.2 above. In the event that Landlord or Tenant fails to so appoint an appraiser within such time period, the other party hereto shall, upon prior written notice to the other party, appoint the second appraiser on behalf of such party. (iii)Delivery of Appraisals. The appraisals of these two appraisers must be completed and submitted to Landlord and Tenant within * (*) days after their appointment. (iv) Averaging of Appraisals - Selection of Third Appraiser. The appraisals of these two appraisers shall be averaged to determine the Market Value, unless the higher of the two appraisals exceeds the lesser by * (*) or more, in which case the first two appraisers shall appoint a third appraiser within * (*) days after the submission of the first two appraisals. If the first two appraisers are unable to agree within such period upon the third appraiser, they shall give immediate written notice to Landlord and Tenant of such failure to agree, and, if Landlord and Tenant fail to agree upon the selection of such third appraiser within * (*) days after the two appraisers give notice as aforesaid, then, within * (*) days thereafter, either Landlord or Tenant, upon notice to the other, may request such appointment by the American Arbitration Association (or any successor organization thereto), or, in the event of the absence, refusal, failure or inability to act of such organization, may apply for a court appointment of such appraiser (which third appraiser shall in all events satisfy the Appraiser Qualifications). (v) Delivery of Third Appraisal. The third appraiser shall have the right to participate in all meetings of the first two appraisers following its appointment and shall receive copies of all reports, memoranda and other materials exchanged between the first two appraisers. The third appraiser shall conduct such hearings and investigations as it may deem appropriate and shall render its appraisal within * (*) days after its appointment. Upon submission of the appraisal report of the third appraiser (which appraisal report shall be submitted to Landlord and Tenant), the two appraisals closest to each other shall be averaged and such average shall be the Market Value. (vi) Cost and Scope of Appraisals. Tenant and Landlord in equal shares shall bear all costs incurred by any appraiser whether appointed by Landlord or Tenant. All appraisal reports shall be in writing. In rendering their respective appraisals, the appraisers shall not add to, subtract from or otherwise modify the provisions of this Section. (vii)Appraisals Conclusive. The determination of the appraisers, as aforesaid, shall be conclusive and binding upon both Landlord and Tenant. 33. Right of First Refusal. Provided no Event of Default then exists, Tenant shall have a right of first refusal to lease the space within the Building adjacent to the Premises at the same lease price offered by any bona fide third party offer received by Landlord during the Initial Term of the Lease, which offer Landlord desires to accept. If Tenant desires to exercise such right, it must do so by written notice to Landlord ("Election Notice") within * (*) business days after Landlord's notice to Tenant setting forth the exact terms of the third party offer ("Offer Notice"). Tenant will within * (*) days of delivery from Landlord execute an amendment to this Lease to include the additional space which was the subject of such third party offer in the "Premises", to adjust Tenant's Share and to make such other modifications to this Lease as Landlord deems reasonably necessary to be effective upon the later of (i) the date of the amendment or (ii) substantial completion of any finish work as required by such third party offer if relevant to Tenant's business. This Right of First Refusal shall not apply to space in the Building which does not immediately abut the Premises. Moreover, this Right of First Refusal does not apply to space in any new building constructed adjacent to the Premises or in the existing building adjacent to the Premises. If Tenant does not so exercise its option to lease the adjacent space, this Right of First Refusal shall not survive a lease to said third party offeree. No broker's commission shall be owed in connection with the lease by Tenant of any space in the Building pursuant to the Right of First Refusal. This right is personal to Tenant and may not be assigned separate from this Lease. If Tenant provides the Election Notice as herein provided and fails to execute the Amendment, then: (i) Tenant will be in breach hereunder; (ii) this Right of First Refusal shall expire, and not apply to any future leases; and (iii) the ability to terminate the Lease as provided in Section 34 shall, if not already terminated, expire. If Tenant elects not to exercise this Right of First Refusal, Tenant shall provide such reasonable assurances of same as Landlord or said third party offeree may require. 34. Early Termination. Provided Tenant is not in default hereunder, it shall have the option of terminating this Lease ("The Option") during the primary term. The Option shall be effective after the end of the * (*) month following the Rent Commencement Date. To exercise The Option, Tenant must provide written notice to Landlord, the ("Termination Notice") anytime after the * (*) month following the Rent Commencement Date. The Termination Notice shall specify a date which shall be no less than * (*) months following the date of the Termination Notice the ("Termination Date"). As consideration for The Option, Tenant shall pay a termination fee to Landlord the ("Termination Fee"), which fee must accompany the Termination Notice, in the applicable amount set forth on Exhibit "E" attached hereto. The Termination Fee shall be determined by calculating the number of complete months elapsed in the Lease Term between the Rent Commencement Date and the Termination Date and using the applicable Termination Fee shown on Exhibit "E". All payments due under this Lease for the remaining * (*) months after the Termination Notice will be paid when due and all provisions regarding the surrender of the Premises shall apply. Once exercised, The Option is irrevocable. 35. Exclusivity. Provided (i) Tenant is operating in the Premises for the Use provided in Section 1, (ii) is not in default hereunder and (iii) Landlord is the owner of the buildings currently municipally numbered as 1630 and 1680 Hickory Loop (if any), Landlord agrees not to lease space in such buildings for use as a customer service/call center, without the prior written consent of Tenant. 36. Landlord's Warranties. 36.1 Compliance with Laws. Landlord warrants to Tenant that the Premises (excluding, any improvements or alterations performed by Tenant) in the state existing on the date that this Lease commences, but without regard to the use for which Tenant will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on the date upon which Lease commences. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Landlord, after written notice from Tenant, to promptly, at Landlord's sole cost and expense, rectify any such violation. In the event Tenant does not give to Landlord written notice of the violation of this warranty within one year from the date upon which this Lease commences, the correction of same shall no longer be the obligation of Landlord. Landlord shall comply with and shall cause the Building throughout the Term of this Lease, to be in compliance with all applicable Laws (as herinafter defined). Landlord shall be solely responsible for all changes to the Project (excluding the interior of the Premises) required to comply with all Laws, except for changes required to comply with Laws which are due solely to Tenant's occupancy, use or manner of use of the Project. As used herein, "Laws" shall mean all federal, state, county and local laws, statutes, codes, ordinances, rules, regulations, decrees, orders and other such requirements now or hereafter imposed, including, but not limited to, the Americans with Disabilities Act and any and all Environmental Laws. 36.2 No Latent Defects Landlord warrants to Tenant that there are no latent defects in the Premises. If such latent defects are discovered by Tenant, Tenant shall provide immediate written notice to Landlord of same and shall allow Landlord a period of * (*) days to correct such latent defects or initiate actions to correct such latent defects if the same cannot be reasonably completed within * (*) days. In the event Tenant does not give Landlord written notice of latents defects within * (*) days from the date upon which this Lease commences, Landlord shall no longer have the obligation to correct the same. 36.3 Hazardous Materials. Landlord to the best of Landlord's knowledge and after reasonable inquiry, hereby represents to Tenant that, as of the date of this Lease, no Hazardous Materials are located in, on, under or about the Premises and that the Premises is not currently and has not been the subject of any investigation or remedial action imposed by federal state or local regulatory authorities with jurisdiction concerning Hazardous Materials. IN WITNESS WHEREOF, Landlord and Tenant have signed this Lease as of the day and year first above written. LANDLORD: Mesilla Valley Business Park, LLC BY: Mesita Investors, L.L.C. ITS: General Partner BY: Meyer Marcus ITS: Manager ADDRESS: 6500 Montana Avenue El Paso, Texas 79925 TENANT: Frontier Airlines, Inc., A Colorado Corporation BY: _________________________ ITS: _________________________ ADDRESS: 12015 East 46th Avenue Denver, Colorado 80239 Phone Number: ___________________ Fax Number: ___________________ RULES AND REGULATIONS FOR MESILLA VALLEY BUSINESS PARK (a) Tenant shall not place or maintain any merchandise, vending machines or other articles in any vestibule or entry of the Premises or outside the Premises; (b) Tenant shall store garbage, trash, rubbish and other refuse in rat-proof and insect-proof containers inside the Premises or at such other location as directed by Landlord. Tenant shall remove the same frequently and regularly, subject to the direction of Landlord by such means and methods and at such times and intervals as are designated by Landlord, all at Tenant's cost; (c) Tenant shall not permit any audible sound system or objectionable visible advertising medium outside the Premises; (d) Tenant shall keep all mechanical equipment free of vibration and noise, and in good working order and condition; (e) Tenant shall not commit or permit waste or a nuisance on the Premises, including, without limitation, any noxious, toxic or corrosive emissions from the Premises or the placing of any upon the Premises, and shall not permit or cause odors to emanate or be dispelled from the Premises; (f) Tenant shall not solicit business in the Common Area nor distribute advertising matter in or upon the Common Area; (g) Tenant shall not permit the loading or unloading or the parking or standing of delivery vehicles outside any area designated therefor, nor permit any use of vehicles which will interfere with the use of the Common Area in the Project nor permit its employees to park anywhere in the Project other than those areas designated from time to time by Landlord as "Additional Parking Area"; (h) Tenant shall not place a load on any floor in the Project which exceeds the floor load per square foot which such floor was designed to carry; (i) Subject to the rights granted to Tenant in the Lease, Landlord shall have the exclusive right to use all or part of the roof, side and rear walls of the Premises for any purpose, including but not limited to erecting signs or other structures on or over all or any part of the same, erecting scaffolds and other aids to the construction and installation of the same, and installing, maintaining, using, repairing, and replacing pipes, ducts, conduits and wires leading through, to or from the Premises and serving other parts of the Project in locations which do not materially interfere with Tenant's use of the Premises; (j) Subject to the rights to Tenant in the Lease, Tenant shall have no right whatsoever to the exterior walls or the roof of the Premises or any portion of the Project outside the Premises, except as otherwise provided in this Lease; and (k) Tenant shall make no use of the Premises or the Project which would cause the premiums on the insurance carried by Landlord, if any, to be increased or which would cause such insurance to be canceled. EX-10.58 15 0015.txt SPACE AND USE AGREEMENT SPACE AND USE AGREEMENT Continental Airlines, Inc. ("CONTINENTAL"), by its execution of this Space and Use Agreement (the Agreement"), grants to Frontier Airlines, Inc., hereinafter referred to as "COMPANY", under the terms and conditions stated herein, certain rights and privileges, including the right to occupy and use the space referred to herein as the "PREMISES." COMPANY, by its execution hereof, hereby accepts and receives the PREMISES and the obligations, liabilities and responsibilities provided for herein. COMPANY covenants and agrees to abide by and carry out all the terms, conditions and provisions hereof. "COMPANY," as used herein, shall include, unless stated otherwise, the directors, officers, employees, agents, customers and invitees of COMPANY and all parties representing COMPANY, those for whom COMPANY is liable and responsible, and all parties represented by COMPANY. 1. EFFECTIVE DATE The effective date of this Agreement shall be April 7, 2000 2. COMPANY The name, address and telephone number of the COMPANY are as follows: NAME: Frontier Airlines, Inc. ADDRESS: 12015 East 46th Avenue Denver, CO 80239-3116 TELEPHONE: (303) 371-7400 ext. 1306 ATTENTION: Joan Osterman, Director of Properties & Facilities 3. DESCRIPTION OF PREMISES Certain maintenance hangar space (approximately * sq. ft.) within Continental's Hangar Facility located at the Denver International Airport, being more fully described on Exhibit A (the "PREMISES") attached hereto and made a part hereof along with any improvements thereon, as well as reasonable rights of ingress and egress thereto. 4. USE OF PREMISES COMPANY is hereby granted the right to use the PREMISES, in accordance with the terms and conditions stated herein, for the following purposes: Exclusive Use of the PREMISES (Exhibit A) for the purpose of office work and aircraft maintenance work only. On a space available basis, COMPANY will permit CONTINENTAL the use of room 116 for general office and training purposes. 5. PROPERTY OWNER City and County of Denver, hereinafter referred to as "OWNER," has granted to CONTINENTAL, the right to use the PREMISES and certain other rights and privileges under the following Support Facilities Lease Agreement, hereinafter referred to as the "BASE LEASE": Lessor: City and County of Denver Lessee: Continental Airlines, Inc. Dated: January 8, 1993 CONTINENTAL warrants and represents that, as of the date hereof, the BASE LEASE is in full force and effect. 6. CONSIDERATION/RENTAL In consideration for the rights granted by CONTINENTAL hereby, COMPANY, agrees to * annually to Continental Airlines, Inc. in equal monthly installments of *, paid in advance, on the first day of each calendar month plus any periodic adjustments or additional rent, charges or fees provided for herein. COMPANY further agrees to pay as additional rental any increases in rental charges to CONTINENTAL under the BASE LEASE or any amendments thereto. Payment shall be delivered to CONTINENTAL at: CONTINENTAL AIRLINES, INC CREDIT MANAGEMENT P.O. BOX 100023 HOUSTON, TX 77212 ATTENTION: OUTSIDE SALES & SERVICE - DEN Hangar Sublease 7. TERM The term of this Agreement shall commence and become effective on April 7, 2000 and shall continue for a period of one year. Either party hereto shall have the right to terminate this Agreement without cause at any time by giving the other party * days prior written notice. If, at the expiration of the term, COMPANY fails to vacate the PREMISES, then COMPANY shall be deemed a holdover tenant on all of the terms and conditions of this Agreement (except that, without limiting the rights provided to CONTINENTAL under this Agreement for a breach by COMPANY, the monthly rental payable by COMPANY shall be * of the monthly rent provided for herein) and CONTINENTAL reserves the right to evict COMPANY without further process of law. 8. NOTICE Unless expressly required or permitted herein to be oral, all notices, requests, consents and approvals required to be given to or by either party shall be in writing, and shall be transmitted either by a commonly recognized national delivery service or deposited as prepaid, certified, registered or express United States mail addressed as follows, or to the last address provided in accordance herewith: TO CONTINENTAL: TO COMPANY: Vice President Joan Osterman Corporate Real Estate Director, Properties and Facilities Continental Airlines, Inc. Frontier Airlines, Inc. 1600 Smith, 33rd Floor 12015 East 46th Avenue Houston, TX 77002 Denver, CO 80239-3116 9. LEASEHOLD SECURITY Within 10 (ten) business days of the execution of this Agreement, COMPANY shall deliver to CONTINENTAL, as a Security Deposit *, which amount may be commingled with other funds belonging to CONTINENTAL and shall bear no interest. The amount of the Security Deposit may be adjusted by CONTINENTAL as provided herein. After a default by COMPANY, CONTINENTAL may apply any or all of the Security Deposit to cure such default as provided herein. A. If at any time during the term of this Agreement, any of the rent herein reserved, or any other amounts due from COMPANY shall be overdue or unpaid, or in the event of failure by COMPANY to keep and perform any of the terms, covenants and conditions of this Agreement to be kept and performed by COMPANY, then CONTINENTAL, at its option, may appropriate and apply the entire Security Deposit, or any portion, thereof (i) to the payment of such overdue amounts, and (ii) as compensation to CONTINENTAL for any loss or damage sustained or suffered by CONTINENTAL due to such breach on the part of COMPANY. Should CONTINENTAL withdraw any amount from the Security Deposit as provided herein, COMPANY shall remit to CONTINENTAL, upon written demand therefor, an amount sufficient to fully replenish the Security Deposit. B. If at any time during the term hereof, the rental or other amounts due from COMPANY hereunder should increase, COMPANY shall remit to CONTINENTAL, upon written demand therefor, an amount sufficient to increase the Security Deposit to a level reflecting such increase. C. COMPANY's failure to remit any increase in, or any replenishment of the Secrity Deposit, as required herein, within * days of receipt of written notice of funds due, shall constitute a default hereunder, entitling CONTINENTAL to immediately invoke the remedies available to it by law and this Agreement, including immediate termination of this Agreement. D. Within * days after expiration or other termination of this Agreement, and upon vacation of the PREMISES and satisfaction of any and all events of default by COMPANY, including payment of all amounts due and past due, the Security Deposit shall be returned in full to COMPANY. E. In the event any bankruptcy, insolvency, reorganization or other creditor-debtor proceeding shall be instituted by or against COMPANY, the Security Deposit shall be deemed to be applied first to any rents and/or other charges due CONTINENTAL for all periods prior to the institution of such proceedings. 10. INSURANCE COVERAGE REQUIREMENTS Without limiting COMPANY's obligation to indemnify CONTINENTAL as provided for in this Agreement, COMPANY shall procure and maintain, at its own cost, at all times during the term of this Agreement, insurance of the following types and in amounts not less than those indicated, with responsible insurers satisfactory to CONTINENTAL providing the following coverage: DESCRIPTION A. Aircraft Hull and Liability Insurance Per Occurrence: to Include but not be limited to $** combined single limits premises liability, comprehensive covering bodily injury, property general liability, and auto damage and personal injury liability for vehicles licensed for operation on Airport Premises *or COMPANY limits if higher B. Workers' Compensation Statutory C. Employer's Liability $* D. All Risk Property Insurance COMPANY limits, replacement cost covering all real or owned property value of the COMPANY while on the PREMISES 11. SPECIAL PROVISIONS A. JANITORIAL AND MAINTENANCE CONTINENTAL will use reasonable efforts to provide janitorial services for the PREMISES, but should not be help liable if such services are interrupted from time to time. COMPANY agrees to pay its pro-rata share of such services. B. TENANT IMPROVEMENTS COMPANY will be solely responsible for all tenant improvements. All tenant improvements are subject to the prior written consent of the Vice President, Corporate Real Estate. 12. BAILMENT During the term of this Agreement, an employee or agent of COMPANY shall at all times be in charge of and in custody and control of all aircraft and other property belonging to or in the control of COMPANY on or in the vicinity of the PREMISES, and THE PARTIES HEREBY STIPULATE AND AGREE THAT THIS AGREEMENT DOES NOT CONFER UPON CONTINENTAL ANY CONTROL OVER OR OBLIGATION OF BAILMENT WITH RESPECT TO ANY AIRCRAFT OR OTHER EQUIPMENT OWNED OR OPERATED BY Company, AND DOES NOT SUBJECT CONTINENTAL TO ANY OF THE LIABILITIES OF AN OWNER, USER, LESSOR, OR OPERATOR OF ANY AIRCRAFT OR OTHER EQUIPMENT OWNED OR OPERATED BY COMPANY. 13. SUBJECT TO BASE LEASE COMPANY covenants and agrees, for the benefit of CONTINENTAL and OWNER, that it shall not, by its use and occupancy of the PREMISES, violate any of the provisions of the BASE LEASE as such BASE LEASE has been and/or may from time to time be amended, or cause CONTINENTAL to be in default thereof, and that it shall faithfully perform and discharge all of the obligations of CONTINENTAL (except for payment of rental) thereunder, to the extent that such BASE LEASE terms are applicable to the PREMISES or this Agreement. COMPANY further covenants that this Agreement shall be, in all respects, subject and subordinate to the BASE LEASE, and any mortgages or other lien instruments that may affect the PREMISES or CONTINENTAL'S interest therein, and nothing contained in this Agreement shall be deemed to confer upon COMPANY any rights which are not granted by or are in conflict with the BASE LEASE. Notwithstanding anything contained herein, (a) this Agreement shall not be deemed to grant to COMPANY any rights or privileges which CONTINENTAL does not have under the BASE LEASE, and (b) any act or omission of CONTINENTAL required or permitted by the BASE LEASE shall in no event be deemed a violation of this Agreement. 14. ACCEPTANCE OF PREMISES COMPANY HAS INSPECTED THE PREMISES AND ACKNOWLEDGES THAT CONTINENTAL HAS MADE NO REPRESENTATIONS AS TO THE CONDITION THEREOF. COMPANY ACCEPTS THE PREMISES IN ITS PRESENT CONDITION, AS-IS, WITH ALL FAULTS, LATENT OR KNOWN. CONTINENTAL MAKES NO WARRANTIES, GUARANTEES OR REPRESENTATIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, PERTAINING TO THIS AGREEMENT OR THE PROPERTY DESCRIBED HEREIN. COMPANY HEREBY WAIVES AND CONTINENTAL EXPRESSLY DISCLAIMS ALL WARRANTIES, GUARANTEES AND REPRESENTATIONS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING BUT NOT LIMITING THE GENERALITY OF THE FOREGOING, ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR REGARDING THE CONDITION OF THE PROPERTY. IN NO EVENT SHALL CONTINENTAL'S LIABILITY OF ANY KIND UNDER THIS AGREEMENT INCLUDE ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES EVEN IF CONTINENTAL SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF POTENTIAL LOSS OR DAMAGE. 15. PAYMENTS If the term of this Agreement shall commence or end on any day other than the first and last day, respectively, of a calendar month, the consideration due for a portion of a month shall be prorated on a per-diem basis, and the first payment shall be due on or before the effective date hereof. Any unpaid or past due amounts shall bear interest from the date due until paid, at 1-1/2% per month, or, at CONTINENTAL's option, the maximum rate allowable by law, which interest shall be considered as part of the rental payable hereunder. Acceptance by CONTINENTAL of any partial payment, including endorsement of a check, shall not be deemed to be an accord and satisfaction. CONTINENTAL may accept such check or payment without prejudice to it's right to recover the balance due or to pursue any other remedy available to it. 16. UTILITIES CONTINENTAL shall furnish the PREMISES with utilities and services to the extent that they are furnished to CONTINENTAL under the BASE LEASE. CONTINENTAL shall not be liable for, and COMPANY hereby releases and waives any claims against CONTINENTAL resulting from any failure or interruption of such services even if caused by the negligence of CONTINENTAL; provided that COMPANY shall be entitled to an abatement of rent payable hereunder during such period of failure or interruption to the extent that CONTINENTAL receives such abatement in respect of the PREMISES under the BASE LEASE. COMPANY shall pay CONTINENTAL, as additional rent, for any extraordinary electrical, gas or water consumption, and any utility costs attributable to equipment installed by COMPANY. 17. CONDUCT AND WASTE COMPANY, in its use of the PREMISES, covenants and agrees that it shall: A. Conduct its operations in an orderly and proper manner. COMPANY shall not create, generate or permit the creation or generation of vibrations that might tend to damage the PREMISES; loud noises; the emission of steam, gases or unpleasant or noxious odors; nor in any manner annoy, disturb or be offensive to other tenants of the PREMISES and common areas. B. Be responsible for the conduct, appearance and behavior of its officers, employees, agents, contractors, customers and invitees on and in the vicinity of the PREMISES, and upon objection from CONTINENTAL or OWNER, shall immediately make every reasonable effort to eliminate any unsatisfactory conduct, appearance or behavior. C. Not allow garbage, debris or other waste materials (whether solid, liquid or gaseous) to collect or accumulate on or in the PREMISES or in access or service areas. COMPANY shall remove debris and other waste materials from the PREMISES in accordance with all applicable regulations governing such activity. COMPANY shall keep all lobbies, vestibules and steps within the PREMISES free from dirt and rubbish. D. It is intended that the standards and obligations imposed by this section shall be maintained and complied with by COMPANY in addition to its compliance with any present and future governmental laws, rules and regulations. 18. SECURITY COMPANY shall adopt and enforce appropriate procedures to prevent unauthorized access to CONTINENTAL's operations areas and aircraft, on the part of its passengers, employees, vendors, licenses, and invitees. Such procedures shall include, without limitation, a requirement that all COMPANY's employees visibly display a photographic identification badge on their person at all times while within an area covered by this Agreement which is not open to the general public, and a requirement that all passengers and other persons who are present in such an area be in the COMPANY of, and escorted by, a properly identified employee of COMPANY. COMPANY further agrees to indemnify, defend and hold CONTINENTAL harmless with respect to any fine, levy or penalty which may be imposed upon CONTINENTAL by the Federal Aviation Administration or any other government authority for violation of any law or regulation pertaining to aircraft or airport security as a result of any act or omission on the part of COMPANY, such indemnity to include all attorney's fees and other costs of defense incurred in connection therewith. 19. GOVERNMENTAL REQUIREMENTS COMPANY covenants and agrees, at its sole expense, including payment of fees and deposits, to procure from all governing authorities asserting jurisdiction over the operations of COMPANY, all licenses, certificates, permits or other authorization which may be necessary for the conduct of its operations. COMPANY shall at all times promptly observe, comply with and execute the provisions of any and all present and future federal, state and local laws, rules, regulations, requirements, orders and directions which may pertain or apply to the operations of COMPANY and its occupancy of the PREMISES. 20. RULES, REGULATIONS AND ADMINISTRATION COMPANY shall be responsible for initiating, maintaining and supervising safety precautions and programs necessary to prevent injury to persons and damage to property in, on or about the PREMISES, and shall observe and obey all present and future rules and regulations issued by CONTINENTAL and OWNER for the conduct of tenants and subtenants at the PREMISES, including but not limited to those regulating preservation and security of the PREMISES. 21. MAINTENANCE AND REPAIRS A. Any construction, addition to, or alteration of the PREMISES required by COMPANY shall be made by COMPANY at its sole cost and expense, only upon prior written approval by CONTINENTAL, and if required under the BASE LEASE, OWNER, and shall, upon expiration or termination of this Agreement, at CONTINENTAL's option, be promptly removed, with any damage caused thereby repaired, at COMPANY's sole cost and expense. B COMPANY covenants and agrees to maintain the PREMISES, and shall at its sole cost and expense, make any installations, non-structural repairs, replacements, redecorating and other maintenance necessary to keep the PREMISES, and all equipment, fixtures, furnishings and signs therein, in a clean, neat and orderly condition, save and except (i) normal wear and tear that could not have been prevented by, reasonable repair and maintenance; and (ii) damage by fire or other casualty not due to the fault of COMPANY. All maintenance and repair work undertaken by COMPANY or its agents or employees shall be performed in a good and workmanlike manner, in accordance with the standards of the facility and of a quality and class not inferior to the original material and workmanship, leaving the PREMISES free of liens for labor and materials. C. In the event that, within * days of receipt of written notice from CONTINENTAL or OWNER that a repair is necessary, COMPANY fails to commence and diligently continue to complete such repair, CONTINENTAL, without obligation to do so, may make such repair, and COMPANY shall promptly reimburse CONTINENTAL for all costs and expenses incurred thereby. D. COMPANY covenants and agrees to maintain the PREMISES and conduct its operations in such a manner that at no time shall it do or permit to be done any act or thing in, on or in the vicinity of the PREMISES which will invalidate or conflict with any fire and casualty insurance policies covering the PREMISES, or any part thereof, or which may create a hazardous condition or otherwise increase the risk normally attendant upon the operations contemplated hereunder. COMPANY shall promptly observe and comply with all present and future rules, regulations and orders of the Fire Underwriters Association or of any other board or organization which may exercise similar functions. E. Any increase in fire or casualty insurance premiums attributable to COMPANY's acts or omissions under this Agreement, shall be promptly reimbursed by COMPANY, upon receipt of CONTINENTAL's and/or OWNER's invoice therefor. 22. SURRENDER Upon expiration or other termination of this Agreement in accordance with the provisions herein, COMPANY shall remove all signs, trade fixtures and any other personal property, repair all damage caused by removal, and surrender the PREMISES in as good condition as at the commencement hereof and otherwise in a clean, neat and orderly condition, except for normal wear and tear that could not have been prevented by reasonable repair and maintenance. In the event COMPANY fails to surrender possession as required herein, CONTINENTAL may reenter and repossess the PREMISES without further notice, any personal property therein being deemed abandoned by COMPANY. COMPANY hereby waives service of any notice of intention to reenter and right to redeem that may be granted by applicable laws. 23. RIGHT OF ENTRY CONTINENTAL reserves the right for itself and OWNER to enter upon the PREMISES at any time during an emergency to take such action as may be required for the protection of persons and property, and for any other reasonable purpose, including without limitation, as access to and egress from areas other than the PREMISES, and to perform such functions as may be necessary for the maintenance and operation of the PREMISES, for inspection, repairs, alterations and improvements, and showing to prospective tenants. Such activity shall not be cause for abatement of any amount payable to CONTINENTAL by COMPANY, and the term of this Agreement shall not thereby be extended. CONTINENTAL shall make a reasonable effort to minimize interference with COMPANY's operations during such activity. 24. TAXES AND FEES COMPANY agrees to pay, before they become delinquent, all taxes (both general and special), and all assessments, fees and charges of any kind whatsoever, levied or assessed against any property of COMPANY located thereon, and any business conducted by COMPANY thereon. COMPANY agrees to use its best efforts to cause the PREMISES, and its personal property and business operations to be assessed and taxed separately from the BASE LEASE and the PREMISES. On demand by CONTINENTAL, COMPANY shall furnish CONTINENTAL with satisfactory evidence that such payments required from COMPANY have been made. In the event that Continental shall be assessed any taxes or fees relative to the rental payable by COMPANY to CONTINENTAL hereunder (other than income taxes), or for any of COMPANY's equipment, furniture, fixtures, personal property or business operations, COMPANY shall reimburse such amount to CONTINENTAL within * days after receipt of a written statement thereof. 25. FORCE MAJEURE Notwithstanding anything to the contrary herein contained, neither party shall be deemed in violation of this Agreement if it is prevented from performing any of its obligations hereunder, except making rental and any other payments due, by any labor or industrial dispute; civil disturbance; vandalism or act of a public enemy; shortage of labor, energy or material; court order, regulation, action or non-action of any governmental authority; weather condition; natural disaster; act of God; or other circumstance not reasonably within its control, and which, with the exercise of due diligence, it is unable to overcome; provided, however, that nothing in this Section 26 shall extend the time for performance by COMPANY unless the time for performance by CONTINENTAL is extended for such reason under the BASE LEASE. Each party shall give the other immediate notice of such interruption, shall make all reasonable efforts to eliminate it as soon as possible, and at its conclusion, shall resume performance in accordance with its obligations hereunder. Neither party shall be required by the foregoing to settle or compromise any strike or other labor dispute. Either party may terminate this Agreement should such interruption exceed * days. 26. RELATIONSHIP The relationship between CONTINENTAL and COMPANY shall be that of sublandlord and subtenant for all purposes and nothing herein shall be construed to create or imply an employer/employee, agency, partnership, joint venture or other relationship. It is agreed and acknowledged that each of the parties is engaged in its own separate and distinct business, and is not under the control of the other party in the performance of the agreements herein contained. No person employed by either shall be held or construed to be an employee or agent of the other under any circumstances. Each party assumes full responsibility for any and all liability to its own employees on account of injury, or death resulting therefrom, sustained in the course of their employment. Each party, with respect to its own employees, accepts full and exclusive liability for payment of Workers' Compensation and employer's liability insurance premiums with respect to such employees, and for payment of all taxes, contributions or other payments for unemployment compensation or old age benefits, pensions, or annuities now or hereafter imposed upon employers by any government or agency thereof asserting jurisdiction in respect of such employees measured by the wages, salaries, compensation or other remuneration paid to such employees, and agrees to make such payments and to make and file all reports and returns and to do everything necessary to comply with the laws imposing such taxes, contributions or payments. 27. INDEMNIFICATION A. RELEASE COMPANY hereby covenants and agrees that, anything in this Agreement to the contrary notwithstanding, CONTINENTAL shall not be liable for (a) any acts or omissions of, or for any condition resulting from, the operations or activities of any person, firm or corporation, or its officers, directors, agents, employees, customers, invitees, vendors, or contractors relating to or arising out of this Agreement, or (b) any loss or damage to any property or the death or injury of any persons (including property of COMPANY, or its officers, directors, employees, agents, customers, vendors, contractors or invitees), occasioned by theft, fire, acts of God, or any governmental body or authority, injunction, riot, war, other tenants of the PREMISES, or any other matter beyond the control of CONTINENTAL, or any damage or inconvenience which may arise through repair or alteration of the PREMISES, or the failure to make repairs. B. INDEMNITY Anything in this Agreement to the contrary notwithstanding, and without limiting COMPANY's obligation to provide insurance pursuant to insurance provisions herein, COMPANY covenants and agrees that it shall protect, indemnify, defend and hold harmless, CONTINENTAL, its parent and subsidiaries, OWNER and their respective predecessors and former, present and future directors, officers, employees, agents, successors and assigns (the "Indemnitees"), from and against all liabilities, losses, damages, penalties, claims, costs, charges and expenses, causes of action and judgments of any nature whatsoever, including, without limitation, fees and disbursements of counsel incurred by any Indemnitee in any action or proceeding between COMPANY and any Indemnitee, or between any Indemnitee and any third party, or otherwise, which may be imposed upon or incurred by the Indemnitees by reason or arising out of any of the following (even if caused by the ordinary negligence of any Indemnitee, except to the extent caused by the gross negligence or willful misconduct of any Indemnitee): 1) Any occupancy, management or use of the PREMISES, or common areas or the service areas, parking areas, or pedestrian areas in the vicinity of the PREMISES, by COMPANY or any of its directors, officers, agents, contractors, servants, employees, licensees, invitees, successors and assigns; 2) Any act or omission of COMPANY or any of its directors, officers, agents, contractors, servants, employees, licensees, invitees, successors and assigns; 3) Any accident, injury to or death of any person, or damage to or destruction of any property occurring on or in the vicinity of the PREMISES, including but not limited to aircraft, interference with CONTINENTAL's operations, and loss of use; 4) Any failure on the part of COMPANY to comply with any of the covenants, agreements, terms or conditions contained in this Agreement, the BASE LEASE or rule regulation, requirement, order or directive for which it is responsible; CONTINENTAL shall promptly notify COMPANY of any such claim asserted against it, and forward copies of all papers or legal process served upon it in connection with any action or proceeding brought against any Indemnitee by reason of any such claim. 28. ENVIRONMENTAL OPERATIONS COMPANY covenants and agrees: A. That it shall not cause or permit any Hazardous Material to be stored upon the PREMISES without the written consent of CONTINENTAL, and shall advise CONTINENTAL of any known or suspected environmental contamination; B. That its operations shall at all times remain in compliance with: 1) CONTINENTAL's written restrictions and requirements governing the identification and use of chemical and petroleum products; and 2) all orders and regulations promulgated by the Occupational, Safety and Health Administration and by the Environmental Protection Agency, and all other federal, state and local laws, rules, regulations, requirements, orders and directive governing safety, the environment and hazardous and toxic substances; C. That it shall: 1) secure at its own expense, all required permits, licenses and authorizations necessary for such compliance; 2) advise CONTINENTAL of any notice of potential or actual non-compliance; 3) immediately upon receipt, provide CONTINENTAL with copies of any notice or notices relating to non-compliance; and 4) allow CONTINENTAL's designated representatives the unrestricted right to inspect and review its on-premises operations and equipment. Unless necessary in an emergency situation, CONTINENTAL's representatives shall not purposefully interfere with or inhibit COMPANY's operation. D. That all notices, copies and correspondence relating to this Section shall be delivered as described in the NOTICE provision of this Agreement to the following address, or to any address subsequently provided by proper notice. Copies of such material shall be hand-delivered to CONTINENTAL's on-site representative upon request: Continental Airlines, Inc. Environmental Affairs Department 1600 Smith DEPT HQSPF Houston, TX 77002 E. As used herein, the term "Hazardous Materias" includes any hazardous, explosive, radioactive, or toxic substance, material, or waste which is or becomes regulated by any local governmental authority, the state in which the Sublease PREMISES is located or the United States, including, without imitation, any material or substance which is (a) defined or listed as a hazardous waste, extremely hazardous waste, restricted hazardous waste, hazardous substance, hazardous material, pollutant, or contaminant, under any applicable law, (b) a petroleum or a petroleum derivative, (c) a flammable explosive, (d) a radioactive material, (e) a polychlorinated biphenyl, (f) asbestos or an asbestos derivative, (g) urea formaldehyde foam insulation, or (h) radon gas. 29. ENVIRONMENTAL INDEMNITY COMPANY covenants and agrees to release, indemnify, hold harmless and defend CONTINENTAL, its parent and subsidiaries and their respective directors, officers, employees, agents, successors and assigns from and against any and all claims, liabilities, losses, expenses, damages, causes of action and judgments of any nature whatsoever, including but not limited to reasonable attorney, consultant and expert fees, costs and related expenses; and including, but not limited to investigation, monitoring, storage, clean-up or other curative measures ordered by the Occupational, Safety and Health Administration or the Environmental Protection Agency or any other federal, state or local agency or entity asserting jurisdiction; arising out of the discharge, disbursal, release or escape of any Hazardous Material; arising out of or in any manner connected with any act or omission of COMPANY or its directors, officers, agents, contractors, servants, employees, licensees, invitees, successors and assigns. 30. INSURANCE ENDORSEMENTS COMPANY shall cause the required insurance coverage to be duly and properly endorsed by its insurance underwriters to provide that: A. CONTINENTAL, OWNER, and their respective officers, directors, agents and employees are named as additional insureds thereunder in respect of this Agreement. B. The policies shall include a standard cross liability clause. C. COMPANY's insurance shall be primary insurance and that any other insurance policy or policies of CONTINENTAL are noncontributory, secondary or excess insurance. D. COMPANY's policy expressly insures COMPANY's contractual liability assumed by COMPANY under this Agreement. E. COMPANY's insurers waive all rights of subrogation against CONTINENTAL and OWNER, and their respective directors, officers, agents and employees. F. CONTINENTAL shall be given thirty (30) days prior written notice of any cancellation, or other material or adverse change. G. COMPANY's insurers agree that COMPANY's breach of any warranty set forth in its policy of insurance will not invalidate the insurance as to CONTINENTAL. Upon execution of this Agreement, and upon any reasonable request by CONTINENTAL, COMPANY shall forthwith supply CONTINENTAL with certificates of insurance as evidence of the insurance coverage and endorsements required herein. COMPANY agrees that the terms of these insurance requirements may be revised, and the minimum coverages may be increased upon the written demand of CONTINENTAL, which demand shall be based on reasonable and justifiable grounds. 31. SURVIVAL OF TERMS Termination of this Agreement or any part thereof by notice, expiration of term or otherwise, shall not relieve COMPANY of any liabilities or obligations accrued on or prior to the date of termination, and the indemnities and insurance provisions contained or referred to herein shall remain in effect and shall survive the expiration or other termination of this Agreement. 32. TERMINATION Without limiting any rights of CONTINENTAL to terminate this Agreement as may be afforded by operation of law, this Agreement shall also be terminated at the option of CONTINENTAL, as follows: A. Immediately upon the termination or expiration of the BASE LEASE or any portion thereof relating to the PREMISES, or upon expiration or termination of CONTINENTAL's right to grant to COMPANY the right to occupy and use the PREMISES as contemplated herein, in which event COMPANY shall have no claim for the unexpired term hereof. B. Immediately and without notice to COMPANY in the event that COMPANY files a voluntary petition in bankruptcy or that proceedings in bankruptcy shall be instituted against COMPANY and not dismissed within * days, or that a court shall take jurisdiction of COMPANY or its assets pursuant to proceedings brought under the provisions of any federal reorganization act, or that a receiver of COMPANY's assets shall be appointed and such taking or appointment shall not be stayed or vacated within a period of * days. C. Immediately upon written notice to COMPANY, if COMPANY fails to pay any installment of rent or additional rent within * days after such amount is due. D. Immediately upon written notice to COMPANY, if COMPANY fails to perform, keep, and observe any of the covenants, terms and conditions which COMPANY is obligated herein to perform, keep and observe, except that termination shall be stayed as long as COMPANY cannot reasonably cure such default immediately, and as long as COMPANY is diligently proceeding to cure such default (but in no event shall termination be stayed for more than * days). E. Immediately by either party upon the acquisition or condemnation of the PREMISES by eminent domain, in which event COMPANY shall have no claim (i) for the unexpired term hereof, or (ii) any part of the award made for the PREMISES, but may claim any award for its personal property. In the event this Agreement is terminated in accordance with the foregoing prior to the expiration of the term hereof, or during any extension thereof, CONTINENTAL may relet the PREMISES for any term and under any conditions it may deem satisfactory, which shall not affect or impair CONTINENTAL's right to recover any damages occasioned by any default by COMPANY. CONTINENTAL shall be afforded all rights under applicable law to recover damages suffered by CONTINENTAL after a default hereunder by COMPANY, it being agreed that the right to terminate this Agreement shall be cumulative of all other remedies available to CONTINENTAL at law or in equity. 33. NON-DISCRIMINATION AND EQUAL OPPORTUNITY COMPANY, for itself, its successors in interest and assigns, as a part of the consideration hereof, as a covenant running with the land, covenants and agrees that it shall not discriminate by segregation or otherwise against any person because of race, color or national origin, in providing or refusing to provide to any person the use of the PREMISES, or any services, privileges, accommodations, or activities provided by COMPANY, and to be bound by and to perform in accordance with all applicable provisions and requirements of all federal, state and local laws, executive orders and regulations issued pursuant thereto, including without limitation, and to the extent applicable to this Agreement, the provisions contained within: A. The Fair Labor Standards Act; B. The Equal Opportunity clause set forth in 41 CFR Parts 60-1 et seq., pursuant to the requirements of Section 202 of Executive Order 11246, as amended, and the implementing regulations of the Office of Federal Contract Compliance Programs; C. Contractual requirements of the Rehabilitation Act of 1973 as set forth in 41 CFR Sec 60-741.4; and of the Vietnam Era Veterans Readjustment Act of 1974 as set forth in 41 CFR Sec. 60-250.4; D. The requirements of the Occupational Safety and Health Act and regulations issued thereunder; and E. Titles I, II, III, IV, and V of the Americans with Disabilities Act of 1990; as the foregoing may be amended or replaced, which provisions are incorporated herein by reference as if set forth in full. By execution of this Agreement each party represents and warrants compliance with the aforementioned regulations and will furnish proof thereof demand. F. COMPANY further covenants and agrees to: 1) Indemnify and defend Continental from and against any and all claims, liabilities, losses and judgments arising out of COMPANY's failure to comply with these provisions; and 2) Include and require inclusion of these provisions in all agreements regarding the PREMISES, including, without limitation, those of its contractors, subcontractors, successors and assigns. 34. NON-DISCRIMINATION BREACH In the event of any breach of any of the above non-discrimination covenants, CONTINENTAL shall have the right, without limiting any other right available to CONTINENTAL hereunder or under applicable law, to terminate this Agreement and to reenter and repossess the PREMISES, and hold the same as if this Agreement had never been made or issued. This provision shall not be effective until the procedures of Title 49, CFR Part 21 are followed and completed, including exercise or expiration of appeal rights. 35. SEVERABILITY If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be declared invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect or impair the remainder of this Agreement or its application to any other person or circumstance, and this Agreement shall not be affected or impaired under any circumstance or in any jurisdiction where such provision remains valid. 36. COLORADO LAW THIS AGREEMENT SHALL BE CONSTRUED AND PERFORMANCE THEREOF SHALL BE DETERMINED ACCORDING TO THE LAWS OF THE STATE OF COLORADO. 37. TIME IS OF THE ESSENCE The parties expressly agree that time is the essence of this Agreement and of every provision hereof. Failure by a party to complete performance within the time specified, or within a reasonable time if no time is specified herein, shall, without prejudice of any other rights or remedies, relieve the other party of any obligation to accept such performance. 38. QUIET ENJOYMENT CONTINENTAL agrees that upon payment of the rents and other payments due, and performance of the covenants and agreements on the part of COMPANY to be performed hereunder, COMPANY shall peaceably have and enjoy the PREMISES, subject to an event of Force Majeure and to the terms and conditions herein. 39. LIENS COMPANY shall not allow any condition to exist or situation to develop whereby any party would be entitled, as a matter of law, to a lien against the PREMISES, and agrees to indemnify, release, defend and hold CONTINENTAL and OWNER harmless from and against any and all costs, expenses and claims arising therefrom. 40. WAIVER No waiver by either party at any time of any of the terms, conditions, covenants or agreements herein or of any forfeiture, including any delay, failure or omission of CONTINENTAL to reenter the PREMISES, shall be deemed or taken as a waiver at any time thereafter of the same or any other term, condition, covenant, or agreement herein contained, nor of the strict and prompt performance thereof. No notice shall be required to restore or revive any right, power, privilege, option or remedy after waiver, and no right, power, privilege, option or remedy shall be construed as being exhausted or discharged by the exercise thereof in one or more instances. Each and all of the rights, powers, privileges, options and remedies given to either party by this Agreement shall be cumulative, and no one of them shall be exclusive of the other or exclusive of any remedies provided by law. 41. ASSIGNMENT This Agreement and the rights and obligations created hereunder may not be assigned or delegated by COMPANY without the prior written consent of CONTINENTAL and OWNER (if OWNER'S consent is required under the BASE LEASE); but, subject to the foregoing, this Agreement and the rights and obligations of the parties hereby created, shall be binding upon and inure to the benefit of the parties hereto, their respective successors, assigns and legal representatives. CONTINENTAL reserves the right to assign or transfer its interest hereunder without notice. 42. CAPTIONS The captions of the articles and sections of this Agreement are inserted for convenience only, and are not intended and shall not be construed to affect in any manner the terms and conditions hereof, or the interpretation or construction thereof. 43. APPROVAL BY OWNER The parties hereto agree that this Agreement is subject to the consent and approval of OWNER. If written consent thereto is denied, either party may, at its option, but without limiting any rights that may exist for any breach of this Agreement prior to such option (which rights shall continue), rescind its signature and this Agreement shall thereafter become null and void, and the parties shall become discharged from all liabilities hereunder attributable to the period of time after such rescission. 44. ENTIRE AGREEMENT This Agreement, including any exhibits and inclusions by reference, contains the entire understanding between the parties hereto pertaining to the Premises, and supersedes and revokes all previous leases, agreements, negotiations, arrangements, letters of intent, offers, proposals, representations, and information conveyed, whether oral or in writing, between the parties hereto to the extent pertaining to the Premises or their respective representatives or any person purporting to represent either. COMPANY acknowledges that it has not been induced to enter into this Agreement by any representation or construction of this Agreement, and agrees that CONTINENTAL shall have no liability for any consequences arising as a result of such representation. No amendment, change or addition to this Agreement shall be binding upon either party hereto unless in writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the effective date hereof. CONTINENTAL AIRLINES, INC. Frontier airlines, INC BY: ______________________ BY: ______________________ TITLE: ___________________ TITLE: ___________________ DATE: ___________________ DATE: ___________________ CITY AND COUNTY OF DENVER BY: ______________________ TITLE: ___________________ DATE: ___________________ EXHIBIT A PREMISES (Area Map to be included with AGREEMENT) Area Sq. Ft. Room No. 132 * Room No. 130 * Room No. 129 * Room No. 120 * Caged Storage Area * Room 116 * Hangar Bay * Stores Hall * ------ * EX-10. 16 0016.txt AIRCRAFT LEASE AGREEMENT AIRCRAFT LEASE AGREEMENT Dated as of May 25, 2000 BETWEEN FRONTIER AIRLINES, INC. as LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION as LESSOR Aircraft Make and Model: Used Boeing B737-300 Aircraft Manufacturer's Serial Number: 26293 Aircraft Registration Mark: Per Exhibit E Make and Model of Engines: CFM56-3C1 Serial Numbers of Engines: 724885 and 724886 USED AIRCRAFT NO. 1 TABLE OF CONTENTS ARTICLE 1 SUMMARY OF TRANSACTION............................................2 1.1 Description of Aircraft...........................................2 1.2 Scheduled Delivery Date and Location..............................2 1.3 Initial Lease Term................................................2 1.4 Lease Extension Option............................................2 1.5 Security Deposit..................................................2 1.6 Transaction Fee...................................................2 1.7 Rent During Initial Lease Term....................................2 1.8 Rent During Lease Extension Term..................................3 1.9 Reserves..........................................................3 1.10 Country of Aircraft Registration..................................3 1.11 Maintenance Program...............................................3 1.12 Agreed Value of Aircraft..........................................3 1.13 LESSOR's Bank Account.............................................3 ARTICLE 2 DEFINITIONS.......................................................4 2.1 General Definitions...............................................4 2.2 Specific Definitions..............................................9 ARTICLE 3 PLACE AND DATE OF DELIVERY.......................................11 3.1 Place of Delivery................................................11 3.2 Scheduled Delivery Date..........................................11 3.3 No LESSOR Liability..............................................11 3.4 Total Loss of Aircraft prior to Delivery.........................11 3.5 Cancellation for Delay...........................................11 ARTICLE 4 LEASE TERM AND EXTENSION OPTION..................................12 4.1 Initial Lease Term...............................................12 4.2 Lease Extension Option...........................................12 4.3 "Lease Term" and "Expiration Date"...............................12 4.4 "Termination Date"...............................................12 ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER PAYMENTS...................................................14 5.1 Security Deposit.................................................14 5.2 Transaction Fee..................................................14 5.3 Rent.............................................................14 5.4 Reserves.........................................................15 5.5 LESSOR's Bank Account............................................16 5.6 Default Interest.................................................16 5.7 No Deductions or Withholdings....................................17 5.8 Value Added Taxes................................................17 5.9 Wire Transfer Disbursement Report................................17 5.10 Net Lease........................................................17 5.11 LESSOR Performance of LESSEE Obligation..........................18 5.12 Consideration for Rent and other Amounts.........................19 ARTICLE 6 DELIVERY CONDITION AND INSPECTION OF AIRCRAFT....................20 6.1 LESSEE Selection of Aircraft.....................................20 6.2 Condition at Delivery............................................20 6.3 LESSEE Inspection of Aircraft at Delivery........................20 6.4 Delivery of Aircraft to LESSEE...................................20 6.5 LESSEE Acceptance of Aircraft....................................20 ARTICLE 7 PRE-DELIVERY, DELIVERY AND POST-DELIVERY DOCUMENTARY AND OTHER REQUIREMENTS...........................................21 7.1 Pre-Delivery Requirements........................................21 7.2 LESSOR's Pre-Delivery Requirements...............................21 7.3 Delivery Requirements............................................22 7.4 Post-Delivery Requirements.......................................23 ARTICLE 8 DISCLAIMERS......................................................24 8.1 "As Is, Where Is"................................................24 8.2 Waiver of Warranty of Description................................24 8.3 LESSEE Waiver....................................................25 8.4 Conclusive Proof.................................................25 8.5 No LESSOR Liability for Losses...................................25 8.6 No Liability to Repair or Replace................................26 8.7 No Waiver........................................................26 ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES...........................27 9.1 Warranties.......................................................27 9.2 Non-Assignable Warranties........................................27 9.3 Reassignment.....................................................27 9.4 Warranty Claims..................................................27 ARTICLE 10 OPERATION OF AIRCRAFT............................................28 10.1 Costs of Operation...............................................28 10.2 Compliance with Laws.............................................28 10.3 Training.........................................................28 10.4 No Violation of Insurance Policies...............................28 10.5 Flight Charges...................................................28 ARTICLE 11 SUBLEASES........................................................29 11.1 No Sublease without LESSOR Consent...............................29 11.2 LESSOR Costs.....................................................29 11.3 Any Approved Sublease............................................29 11.4 Assignment of Sublease...........................................30 11.5 Continued Responsibility of LESSEE...............................30 ARTICLE 12 MAINTENANCE OF AIRCRAFT..........................................31 12.1 General Obligation...............................................31 12.2 Specific Obligations.............................................31 12.3 Replacement of Parts.............................................33 12.4 Removal of Engines...............................................34 12.5 Pooling of Engines and Parts.....................................34 12.6 Installation of Engines on other aircraft........................34 12.7 Engine Thrust Rating.............................................35 12.8 Modifications....................................................35 12.9 Performance of Work by Third Parties.............................37 12.10 Reporting Requirements...........................................37 12.11 Information Regarding Maintenance Program........................37 12.12 LESSOR Rights to Inspect Aircraft................................37 ARTICLE 13 USE OF RESERVES..................................................38 13.1 Airframe Reserves................................................38 13.2 Engine Reserves..................................................38 13.3 Landing Gear Reserves............................................39 13.4 Reimbursement....................................................39 13.5 Reimbursement Adjustment.........................................39 13.6 Costs in Excess of Reserves......................................40 13.7 Reimbursement after Termination Date.............................40 ARTICLE 14 TITLE AND REGISTRATION...........................................41 14.1 Title to the Aircraft During Lease Term..........................41 14.2 Registration of Aircraft.........................................41 14.3 Filing of this Lease.............................................41 14.4 Evidence of Registration and Filings.............................41 ARTICLE 15 IDENTIFICATION PLATES............................................42 15.1 Airframe Identification Plates...................................42 15.2 Engine Identification Plates.....................................42 ARTICLE 16 TAXES............................................................43 16.1 General Obligation of LESSEE.....................................43 16.2 Exceptions to Indemnity..........................................43 16.3 After-Tax Basis..................................................44 16.4 Timing of Payment................................................45 16.5 Contests.........................................................45 16.6 Refunds..........................................................45 16.7 Cooperation in Filing Tax Returns................................45 16.8 Survival of Obligations..........................................45 ARTICLE 17 INDEMNITIES......................................................46 17.1 General Indemnity................................................46 17.2 Exceptions to General Indemnities................................47 17.3 After-Tax Basis..................................................48 17.4 Timing of Payment................................................48 17.5 Subrogation......................................................48 17.6 Notice...........................................................48 17.7 Refunds..........................................................48 17.8 Defense of Claims................................................48 17.9 Survival of Obligation...........................................49 ARTICLE 18 INSURANCE........................................................50 18.1 Categories of Insurance..........................................50 18.2 Write-back of any Date Recognition Exclusion.....................50 18.3 Insurance for Indemnities........................................50 18.4 Insurance required by Manufacturer...............................50 18.5 Renewal..........................................................50 18.6 Assignment of Rights by LESSOR...................................50 18.7 Other Insurance..................................................51 18.8 Information......................................................51 18.9 Currency.........................................................51 18.10 Grounding of Aircraft............................................51 18.11 Failure to Insure................................................51 18.12 Reinsurance......................................................51 18.13 Limit on Hull in favor of LESSEE.................................52 ARTICLE 19 LOSS, DAMAGE AND REQUISITION.....................................53 19.1 Definitions......................................................53 19.2 Notice of Total Loss.............................................54 19.3 Total Loss of Aircraft or Airframe...............................54 19.4 Surviving Engine(s)..............................................55 19.5 Total Loss of Engine and not Airframe............................55 19.6 Other Loss or Damage.............................................56 19.7 Copy of Insurance Policy.........................................57 19.8 Government Requisition...........................................57 19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent.................................................57 ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE..............59 20.1 Representations and Warranties...................................59 20.2 Covenants........................................................60 ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR..............63 21.1 Representations and Warranties...................................63 21.2 Covenant of Quiet Enjoyment......................................64 ARTICLE 22 FINANCIAL AND RELATED INFORMATION................................65 ARTICLE 23 RETURN OF AIRCRAFT...............................................66 23.1 Date of Return...................................................66 23.2 Technical Report.................................................66 23.3 Return Location..................................................66 23.4 Full Aircraft Documentation Review...............................66 23.5 Aircraft Inspection..............................................66 23.6 Certificate of Airworthiness Matters.............................67 23.7 General Condition of Aircraft at Return..........................68 23.8 Checks Prior to Return...........................................70 23.9 Engine Return Requirements.......................................71 23.10 Hour/Cycle/Calendar Time Requirements............................73 23.11 Like for Like....................................................74 23.12 Export and Deregistration of Aircraft............................74 23.13 LESSEE's Continuing Obligations..................................74 23.14 Airport and Navigation Charges...................................75 23.15 Return Acceptance Certificate....................................75 23.16 Indemnities and Insurance........................................76 23.17 Civil Reserve Air Fleet..........................................76 ARTICLE 24 ASSIGNMENT.......................................................78 24.1 No Assignment by LESSEE..........................................78 24.2 Sale or Assignment by LESSOR.....................................78 24.3 LESSOR's Lender..................................................78 24.4 LESSEE Cooperation...............................................78 24.5 Protections......................................................79 ARTICLE 25 DEFAULT OF LESSEE................................................80 25.1 LESSEE Notice to LESSOR..........................................80 25.2 Events of Default................................................80 25.3 LESSOR's General Rights..........................................82 25.4 Deregistration and Export of Aircraft............................82 25.5 LESSEE Liability for Damages.....................................82 25.6 Waiver of Default................................................83 25.7 Present Value of Payments........................................83 25.8 Use of "Termination Date"........................................84 25.9 LESSEE's Remedies................................................84 25.10 Waiver of Consequential Damages..................................84 ARTICLE 26 NOTICES..........................................................85 26.1 Manner of Sending Notices........................................85 26.2 Notice Information...............................................85 ARTICLE 27 GOVERNING LAW AND JURISDICTION...................................86 27.1 California Law...................................................86 27.2 Non-Exclusive Jurisdiction in California.........................86 27.3 Service of Process...............................................86 27.4 Prevailing Party in Dispute......................................86 27.5 Waiver...........................................................86 ARTICLE 28 MISCELLANEOUS....................................................87 28.1 Transportation of Personnel......................................87 28.2 Press Releases...................................................87 28.3 Power of Attorney................................................87 28.4 LESSOR Performance for LESSEE....................................87 28.5 LESSOR's Payment Obligations.....................................87 28.6 Application of Payments..........................................87 28.7 Usury Laws.......................................................87 28.8 Delegation by LESSOR.............................................88 28.9 Confidentiality..................................................88 28.10 Rights of Parties................................................88 28.11 Further Assurances...............................................88 28.12 Use of Word "including"..........................................89 28.13 Headings.........................................................89 28.14 Invalidity of any Provision......................................89 28.15 Time is of the Essence...........................................89 28.16 Amendments in Writing............................................89 28.17 Counterparts.....................................................89 28.18 Delivery of Documents by Fax.....................................89 28.19 Entire Agreement.................................................89 28.20 Expenses.........................................................90 EXHIBIT A AIRCRAFT DESCRIPTION.............................................92 EXHIBIT B CONDITION AT DELIVERY............................................93 EXHIBIT C CERTIFICATE OF INSURANCE.........................................99 EXHIBIT D BROKERS' LETTER OF UNDERTAKING..................................106 EXHIBIT E ESTOPPEL AND ACCEPTANCE CERTIFICATE.............................108 EXHIBIT F OPINION OF COUNSEL..............................................110 EXHIBIT G FORM OF POWER OF ATTORNEY.......................................111 EXHIBIT H ASSIGNMENT OF RIGHTS (AIRFRAME).................................113 EXHIBIT I ASSIGNMENT OF RIGHTS (ENGINES)..................................118 EXHIBIT J RETURN ACCEPTANCE RECEIPT.......................................122 EXHIBIT K MONTHLY REPORT..................................................132 EXHIBIT L AIRCRAFT DOCUMENTATION..........................................135 EXHIBIT M TECHNICAL EVALUATION REPORT.....................................137 AIRCRAFT LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT is made and entered into as of May 25, 2000. BETWEEN: FRONTIER AIRLINES, INC., a Colorado corporation whose address and principal place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado 80239 ("LESSEE") and INTERNATIONAL LEASE FINANCE CORPORATION, a California corporation whose address and principal place of business is at 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, United States of America ("LESSOR"). The subject matter of this Lease is one (1) used B737-300 aircraft as more particularly described on Exhibit A attached hereto. In consideration of and subject to the mutual covenants, terms and conditions contained in this Lease, LESSOR hereby agrees to lease to LESSEE and LESSEE hereby agrees to lease from LESSOR the aircraft and the parties further agree as follows: ARTICLE 1 SUMMARY OF TRANSACTION The following is a summary of the lease transaction between LESSEE and LESSOR. It is set forth for the convenience of the parties only and will not be deemed in any way to amend, detract from or simplify the other provisions of this Lease. 1.1 Description of Aircraft One used Boeing B737-300 aircraft with two (2) installed CFM56-3C1 engines, all as more particularly described on Exhibit A hereto 1.2 Scheduled Delivery Date and Location 1.2 Scheduled Delivery Date and Location On or about May 31, 2000 at the TIMCO maintenance facility at Greensboro, North Carolina. 1.3 Initial Lease Term 32 months 1.4 Lease Extension Option One (1) Lease extension option of seven (7) months 1.5 Security Deposit * 1.6 Transaction Fee * 1.7 Rent During Initial Lease Term * 1.8 Rent During Lease Extension Term * 1.9 Reserves * 1.10 Country of Aircraft Registration United States 1.11 Maintenance Program LESSEE's Maintenance Program 1.12 Agreed Value of Aircraft * 1.13 LESSOR's Bank Account * ARTICLE 2 DEFINITIONS Except where the context otherwise requires, the following words have the following meanings for all purposes of this Lease. The definitions are equally applicable to the singular and plural forms of the words. Any agreement defined below includes each amendment, modification, supplement and waiver thereto in effect from time to time. 2.1 General Definitions. "Aircraft" means the Aircraft described on Exhibit A hereto, including the Airframe, two (2) Engines, Parts and Aircraft Documentation, collectively. As the context requires, "Aircraft" may also mean the Airframe, any Engine, any Part, the Aircraft Documentation or any part thereof individually. For example, in the context of return to LESSOR the term "Aircraft" means the Airframe, Engines, Parts and Aircraft Documentation collectively, yet in the context of LESSEE not creating any Security Interests other than Permitted Liens on the Aircraft, the term "Aircraft" means any of the Airframe, any Engine, any Part or the Aircraft Documentation individually. "Aircraft Documentation" means all (a) log books, Aircraft records, manuals and other documents provided to LESSEE in connection with the Aircraft, (b) documents listed in Exhibits E and L and (c) any other documents required to be maintained during the Lease Term by the Aviation Authority, LESSEE's Maintenance Program and this Lease. "Airframe" means the airframe listed in the Estoppel and Acceptance Certificate executed at Delivery together with all Parts relating thereto (except Engines or engines). "Airframe Warranty Assignment" means the Assignment of Rights (Airframe) to be entered into between LESSOR and LESSEE in the form of Exhibit H. "Airworthiness Directives" or "ADs" means all airworthiness directives (or equivalent) of the FAA and the Aviation Authority applicable to the Aircraft. "APU" means the auxiliary power unit of the Aircraft. "Aviation Authority" means the FAA or any Government Entity which under the Laws of U.S. from time to time has control over civil aviation or the registration, airworthiness or operation of aircraft in U.S. If the Aircraft is registered in a country other than the U.S., "Aviation Authority" means the agency which regulates civil aviation in such other country. "Aviation Documents" means any or all of the following which at any time may be obtainable from the Aviation Authority: (a) if required, a temporary certificate of airworthiness from the Aviation Authority allowing the Aircraft to be flown after Delivery to the State of Registration, (b) an application for registration of the Aircraft with the appropriate authority in the State of Registration, (c) the certificate of registration for the Aircraft issued by the State of Registration, (d) a full certificate of airworthiness for the Aircraft specifying transport category (passenger), (e) an air transport license, (f) an air operator's certificate, (g) such recordation of LESSOR's title to the Aircraft and interest in this Lease as may be available in the State of Registration and (h) all such other authorizations, approvals, consents and certificates in the State of Registration as may be required to enable LESSEE lawfully to operate the Aircraft. "Basic Engine" means those units and components of the Engine which are used to induce and convert fuel/air mixture into thrust/power; to transmit power to the fan and accessory drives; to supplement the function of other defined systems external to the Engine; and to control and direct the flow of internal lubrication, plus all essential accessories as supplied by Engine manufacturer. The nacelle, installed components related to the Aircraft systems, thrust reversers, QEC and the primary flight nozzle are excluded. "Business Day" means a day other than a Saturday or Sunday on which the banks in New York City are open for the transaction of business of the type required by this Lease. "Certificated Air Carrier" means any Person (except the U.S. Government) that is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of U.S.C. by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be applicable, any Person (except the U.S. Government) that is a citizen of the U.S. (as defined in Section 40102 of Title 49 of the U.S.C.) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the U.S., and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated. "Creditor" means any lessor, owner, bank, lender, mortgagee or other Person which is the owner of or has any interest in an aircraft engine or aircraft operated by LESSEE. "Creditor Agreement" means the applicable agreement between a Creditor and LESSEE or between Creditors pursuant to which such Creditor owns, leases or has an interest in either an aircraft operated by LESSEE on which an Engine may be installed or in an aircraft engine which may be installed on the Airframe. "Default" means any event which, upon the giving of notice or the lapse of time would constitute an Event of Default. "Delivery" means the delivery of the Aircraft from LESSOR to LESSEE pursuant to Article 6.4. "Delivery Date" means the date on which Delivery takes place. "Dollars" and "$" means the lawful currency of the U.S. "Engine" means (a) each of the engines listed on the Estoppel and Acceptance Certificate; (b) any replacement engine acquired by LESSOR and leased to LESSEE pursuant to Article 19.5 following a Total Loss of an Engine; and (c) all Parts installed in or on any of such engines at Delivery (or substituted, renewed or replacement Parts in accordance with this Lease) so long as title thereto is or remains vested in LESSOR in accordance with the terms of Article 12.3. "Engine Warranty Assignment" means the Assignment of Rights (Engines) to be entered into between LESSOR and LESSEE in the form of Exhibit I. "Estoppel and Acceptance Certificate" means that certain estoppel and acceptance certificate in the form of Exhibit E pursuant to which LESSEE accepts Delivery of the Aircraft. "Event of Default" means any of the events referred to in Article 25.2. "FAA" means the Federal Aviation Administration of the Department of Transportation or any successor thereto under the Laws of the U.S. "FARs" means the U.S. Federal Aviation Regulations embodied in Title 14 of the U.S. Code of Federal Regulations, as amended from time to time, or any successor regulations thereto. "Geneva Convention" means the Convention on the International Recognition of Rights in Aircraft signed in Geneva, Switzerland on June 19, 1948. "Government Entity" means any (a) national, state or local government, (b) board, commission, department, division, instrumentality, court, agency or political subdivision thereof and (c) association, organization or institution of which any of the entities listed in (a) or (b) is a member or to whose jurisdiction any such entity is subject. "Landing Gear" means the installed main and nose landing gear, components and their associated actuators, side braces and parts. "Law" means any (a) statute, decree, constitution, regulation, order or any directive of any Government Entity, (b) treaty, pact, compact or other agreement to which any Government Entity is a signatory or party and (c) judicial or administrative interpretation or application of any of the foregoing. "Lease" means this Aircraft Lease Agreement, together with all Exhibits hereto. "LESSOR's Lien" means any Security Interest created by LESSOR or otherwise arising solely as a result of any act or omission of LESSOR or any Person claiming by or through LESSOR. "LESSOR's Taxes" means any Taxes referred to in Article 16.2. "Maintenance Program" means LESSEE's maintenance program as approved by the Aviation Authority or such other maintenance program as LESSOR may, in its reasonable discretion, accept in writing. "Manufacturer" means The Boeing Company. "MPD" means the Maintenance Planning Document published by Manufacturer and applicable to the Aircraft. With respect to the hour/cycle/calendar time limitation of Parts and inspections, references to the MPD mean the most restrictive limitation set forth therein. "Operative Documents" means this Lease, the Airframe Warranty Assignment, the Engine Warranty Assignment, the Estoppel and Acceptance Certificate and any Side Letter or other document or agreement entered into on or after the date hereof between LESSEE and LESSOR relating to the leasing of the Aircraft hereunder or the transactions contemplated hereby. "Overhaul" means the full reconditioning of the Aircraft, an Engine, APU, Landing Gear, module or Part, as the case may be, in which such equipment has been fully disassembled; cleaned; thoroughly inspected; and returned to the highest standard specified by the applicable manufacturer's manual. "Part" means any part, component, appliance, system module, engine module, accessory, material, instrument, communications equipment, furnishing, LESSEE-furnished or LESSOR-purchased equipment, the APU, or other item of equipment (other than complete Engines or engines) for the time being installed in or attached to the Airframe or any Engine, or which, having been removed from the Airframe or any Engine, remains the property of LESSOR. "Permitted Lien" means (a) LESSOR's Liens; (b) Security Interests arising in the ordinary course of LESSEE's business for Taxes either not yet assessed or, if assessed, not yet due or being contested in good faith in accordance with Article 16.5 or (c) materialmen's, mechanics', workmen's, repairmen's, employees' liens or similar Security Interests arising by operation of Law after the Delivery Date in the ordinary course of LESSEE's business for amounts which are either not yet due or are being contested in good faith by appropriate proceedings (and for which adequate reserves have been made or, when required in order to pursue such proceedings, an adequate bond has been provided) so long as such proceedings do not involve any danger of sale, forfeiture or loss of the Aircraft. "Permitted Sublessee" has the meaning ascribed thereto in Article 11.1.1. "Permitted Transferee" means any Person who: (a) is a "citizen of the United States" as defined in Section 40102 of Title 49 of the U.S.C. with the requisite power and authority to enter into and carry out the transactions contemplated by this Lease; (b) is not, and is not affiliated with, a Certificated Air Carrier; (c) enters into a binding agreement with LESSEE pursuant to which it agrees to be bound by the terms of this Lease and agrees to perform all of the obligations of LESSOR hereunder; and (d) is either (i) a U.S. bank, insurance company or other financial institution with a consolidated net worth of at least $*, (ii) a corporation which has (or a general partnership whose general partners have) a consolidated net worth of at least $* and which is a sophisticated entity, experienced in participating as an equity investor in commercial aircraft leases, (iii) the trustee or agent of an aircraft income or similar fund; provided that such trustee or agent has a consolidated net worth of at least $* or (iv) such other Person as LESSEE shall approve in writing, such approval not to be unreasonably withheld or delayed. "Person" means any individual, firm, partnership, joint venture, trust, corporation, Government Entity, committee, department, authority or any body, incorporated or unincorporated, whether having distinct legal personality or not. "Prime Rate" means the rate of interest from time to time announced by Chase Manhattan Bank in New York as its prime commercial lending rate. "Prior Lessee" means Pro Air, Inc. "Security Interest" means any encumbrance or security interest, however and wherever created or arising including (without prejudice to the generality of the foregoing) any right of ownership, security, mortgage, pledge, charge, encumbrance, lease, lien, statutory or other right in rem, hypothecation, title retention, attachment, levy, claim or right of possession or detention. "State of Registration" means U.S. or such other country or state of registration of the Aircraft as LESSOR may, in its absolute discretion, approve in writing. "U.S." means the United States of America. 2.2 Specific Definitions. The following terms are defined in the Articles referenced below: Terms Article Agreed Value 19.1 Airframe Reserves 5.4.1 CRAF 23.17.1 CRAF Program Requisition Period 23.17.1 Default Interest 5.6 Delivery Location 3.1 Engine Reserves 5.4.1 Expenses 17.1 Expiration Date 4.3 Extension Lease Term 4.2.1 ndemnitees 17.1 Initial Lease Term 4.3 Landing Gear Reserves 5.4.1 Lease Term 4.3 LESSOR's Assignee 24.2.1 LESSOR's Bank 5.5 LESSOR's Lender 24.3 Modification 12.8.1 Net Total Loss Proceeds 19.1 Outside Delivery Date 3.5 Passenger Service Equipment 12.8.1 Rent 5.3.1 Reserves 5.4.1 Scheduled Delivery Date 3.2 Security Deposit 5.1.1 Taxes 16.1 Termination Date 4.4 Total Loss 19.1 Total Loss Date 19.1 Total Loss Proceeds 19.1 Transaction Fee 5.2 ARTICLE 3 PLACE AND DATE OF DELIVERY 3.1 Place of Delivery.1 Place of Delivery.1 Place of Delivery.1 Place of Delivery. LESSOR will deliver the Aircraft to LESSEE at the TIMCO maintenance facility at Greensboro, North Carolina or such other place as may be agreed in writing between the parties (the "Delivery Location"). 3.2 Scheduled Delivery Date.2 Scheduled Delivery Date.2 Scheduled Delivery Date.2 Scheduled Delivery Date. As of the date of this Lease, Delivery of the Aircraft from LESSOR to LESSEE is scheduled to occur on or about May 31, 2000. LESSOR will notify LESSEE from time to time and in a timely manner of the exact date on which LESSOR expects Delivery to take place (the "Scheduled Delivery Date"). 3.3 No LESSOR Liability.3 No LESSOR Liability.3 No LESSOR Liability.3 No LESSOR Liability. LESSOR will not be liable for any loss or expense, or any loss of profit, arising from any delay or failure in Delivery to LESSEE unless such delay or failure arises as a direct consequence of the willful misconduct of LESSOR. 3.4 Total Loss of Aircraft prior to Delivery.4 Total Loss of Aircraft prior to Delivery.4 Total Loss of Aircraft prior to Delivery.4 Total Loss of Aircraft prior to Delivery. If a Total Loss of the Aircraft occurs prior to Delivery, neither party will have any further liability to the other except that LESSOR will return to LESSEE the Security Deposit in accordance with Article 5.1.3 and any prepaid Rent, whereupon this Lease shall terminate. 3.5 Cancellation for Delay.5 Cancellation for Delay.5 Cancellation for Delay.5 Cancellation for Delay. Promptly after LESSOR becomes aware that a delay will cause Delivery to be delayed beyond June 15, 2000 (the "Outside Delivery Date"), LESSOR will notify LESSEE. By written notice given within *(*) days after the first to occur of (i) LESSEE's receipt of such LESSOR notice or (ii) the Outside Delivery Date, either party may by written notice to the other party terminate this Lease and this Lease will terminate on the date of receipt of such notice. In the event of such termination, neither party will have any further liability to the other party except that LESSOR will return to LESSEE the Security Deposit in accordance with Article 5.1.3 and any prepaid Rent. If neither party gives notice of termination within such * (*) day period, then the period for termination shall be deemed to be extended for an additional * (*) days after the expiration of such * (*) day period. In the event that neither party gives a notice of termination within such * (*) day period, the Lease will automatically terminate upon the expiration of such period, and LESSOR will return to LESSEE the Security Deposit and any prepaid Rent as provided above. ARTICLE 4 LEASE TERM AND EXTENSION OPTION 4.1 Initial Lease Term The term of leasing of the Aircraft will commence on the Delivery Date and continue for an initial Lease term of * (*) months (the "Initial Lease Term"). 4.2 Lease Extension Option 4.2.1 So long as no payment Default or Event of Default has occurred and is continuing hereunder on the date of exercise of the option or on the commencement date of the extension lease term with respect to such option, LESSEE will have one (1) option to extend the term of the Lease for a period of * (*) months (the "Extension Lease Term"). 4.2.2 In order to exercise its option, LESSEE must give written notice to LESSOR not less than * (*) months prior to the then-existing Expiration Date of this Lease. Any notice given by LESSEE in accordance herewith will be irrevocable. 4.3 "Lease Term" and "Expiration Date".3 LeaseTerm and ExpirationDate24.3 LeaseTerm and ExpirationDate.3 LeaseTerm and ExpirationDate. "Lease Term" means the term of leasing commencing on the Delivery Date and terminating on the Expiration Date. "Expiration Date" means the date on which LESSEE is required to redeliver the Aircraft to LESSOR in the condition required by this Lease on the last day of the Initial Lease Term or Extension Lease Term, if and as applicable. 4.4 "Termination Date" This Lease may in fact terminate on any of the dates set forth below: (a) the Expiration Date, provided LESSEE returns the Aircraft to LESSOR on the Expiration Date in the condition required by Article 23; or (b) a date earlier than the Expiration Date, if: (i) there is a Total Loss of the Aircraft prior to Delivery pursuant to Article 3.4; (ii) cancellation of this Lease occurs pursuant to Article 3.5; (iii)there is a Total Loss of the Aircraft and payment is made to LESSOR in accordance with Article 19.3; or (iv) an Event of Default occurs and LESSOR repossesses the Aircraft or otherwise terminates this Lease pursuant to Article 25.3. (c) a date later than the Expiration Date, if: (i) LESSEE fails to return the Aircraft in the condition required by this Lease on the Expiration Date in accordance with Article 23; or (ii) an Event of Default occurs and LESSOR repossesses the Aircraft or otherwise terminates this Lease pursuant to Article 25.3. The "Termination Date" is the date on which this Lease terminates because one of the above has occurred. ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER PAYMENTS 5.1 Security Deposit. 5.1.1 * 5.1.2 The Security Deposit may be commingled with LESSOR's general funds and any interest earned on such Security Deposit will be for LESSOR's account. If the Security Deposit is reduced below the required amount by application to meet LESSEE's unperformed obligations under this Lease, LESSEE will replenish the Security Deposit within ten (10) days after LESSOR's demand therefor. The Security Deposit will serve as security for the performance by LESSEE of its obligations under this Lease and any other agreements between LESSEE and LESSOR relating to aircraft, engines, aircraft equipment or the extension of credit and may be applied by LESSOR upon the occurrence of an Event of Default hereunder or of an event of default by LESSEE under any such other agreements. 5.1.3 Upon termination of this Lease in accordance with Article 4.4 other than if an Event of Default has occurred and is continuing, LESSOR will return to LESSEE the amount of the Security Deposit then held by LESSOR (so long as no default by LESSEE exists under any other agreement between LESSEE and LESSOR relating to aircraft, engines or aircraft equipment or the extension of credit by LESSOR to LESSEE in which case LESSOR will be entitled to set off amounts owing to it), without interest, less an amount determined to be a reasonable estimate of the costs, if any, which LESSOR will incur to remedy any unperformed obligations of LESSEE under this Lease, including the correction of any discrepancies from the required condition of the Aircraft on return of the Aircraft. 5.2 Transaction Fee. * 5.3 Rent 5.3.1 * 5.3.2 * 5.4 Reserves 5.4.1 * 5.4.2 The amount of the Engine Reserves set forth in Article 5.4.1 may be increased by LESSOR in the event of an increase in the thrust rating of an Engine in accordance with Article 12.7. 5.4.3 Such Reserves will be paid on or before the 10th day of the calendar month next following the month in which the Delivery Date occurs and on or before the 10th day of each succeeding calendar month for flying performed during the calendar month prior to payment. All Reserves for flying performed during the month in which the Termination Date occurs will be paid on the Termination Date, unless otherwise agreed by the parties. 5.4.4 No interest will accrue or be paid at any time to LESSEE on such Reserves and, subject to LESSOR's obligations under Article 13, LESSOR may commingle the Reserves with LESSOR's general funds. 5.5 LESSOR's Bank Account * or to such other bank account as LESSOR may from time to time designate by written notice ("LESSOR's Bank"). When it is stated in this Lease that an installment of the Security Deposit, the monthly Rent, Reserves or any other payment is due or must be paid or made by LESSEE by a specific date, then such payment actually must be received by LESSOR's Bank on or before such specific date, even if, in order for such payment to be received by LESSOR's Bank by such specific date, LESSEE must initiate the wire transfer prior to such specific date. 5.6 Default Interest * 5.7 No Deductions or Withholdings.7 No Deductions or Withholdings.7 No Deductions or Withholdings.7 No Deductions or Withholdings. All payments by LESSEE under this Lease, including the Security Deposit, Transaction Fee, Rent, Reserves, Default Interest, fees, indemnities or any other item, will be made in full without any deduction or withholding whether in respect of set-off, counterclaim, duties, or Taxes (as defined in Article 16) imposed in the State of Registration or any jurisdiction from which such payments are made except to the extent otherwise required by Law, in which event LESSEE will pay any additional amount such that the net payment received by LESSOR after any required deduction or withholding equals the amount that LESSOR would have received if such withholding had not been required; provided, however, that if LESSEE pays any such additional amount to compensate for the withholding of any LESSOR Taxes, LESSOR shall pay to LESSEE promptly after receipt of LESSEE's written request therefor (which request shall include a description in reasonable detail of the LESSOR Taxes involved and the calculation of the amounts to be paid) such amounts as are necessary so that the net additional amounts received by LESSOR under this Article 5.7 do not exceed the amounts that LESSOR would have received if no amounts in respect of LESSOR Taxes had been required to be withheld or deducted by LESSEE. 5.8 Value Added Taxes. The Rent and other amounts payable by LESSEE under this Lease are exclusive of any value added tax, turnover tax or similar tax or duty. 5.9 Wire Transfer Disbursement Report.9 Wire Transfer Disbursement Report.9 Wire Transfer Disbursement Report.9 Wire Transfer Disbursement Report. At the time of each Rent or other payment, LESSEE will advise LESSOR in writing of the amount of the payment being made by LESSEE and the allocation of such payment to the Security Deposit, Rent, Reserves, Default Interest and other charges. Notwithstanding the allocation set forth in LESSEE's report, in the event an Event of Default has occurred and is continuing under this Lease, LESSOR will have complete discretion to allocate LESSEE's payments as LESSOR determines. 5.10 Net Lease 5.10.1 This Lease is a net lease and LESSEE's obligation to pay Rent and make other payments in accordance with this Lease will be absolute and unconditional under any and all circumstances and regardless of other events, including the following: (a) any right of set-off, counterclaim, recoupment, defense or other right (including any right of reimbursement) which LESSEE may have against LESSOR, Prior Lessee, Manufacturer, the Engine manufacturer or any other person for any reason, including any claim LESSEE may have for the foregoing; (b) unavailability or interruption in use of the Aircraft for any reason, including a requisition thereof or any prohibition or interference with or other restriction against LESSEE's use, operation or possession of the Aircraft (whether by Law or otherwise), any defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, specification or operation of any kind or nature of the Aircraft, the ineligibility of the Aircraft for any particular use or trade or for registration under the Laws of any jurisdiction or Total Loss of the Aircraft; (c) insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation, receivership, administration or similar proceedings by or against LESSOR, LESSEE, Prior Lessee, Manufacturer, the Engine manufacturer or any other Person; (d) invalidity or unenforceability or lack of due authorization of or other defect in this Lease; (e) failure or delay on the part of any party to perform its obligations under this Lease; or (f) any other circumstance which but for this provision would or might have the effect of terminating or in any other way affecting any obligation of LESSEE hereunder. 5.10.2 Nothing in Article 5.10 will be construed to limit LESSEE's rights and remedies in the event of LESSOR's breach of its warranty of quiet enjoyment set forth in Article 21.2 or to limit LESSEE's rights and remedies to pursue in a court of law any claim it may have against LESSOR or any other Person; provided, however, that LESSEE will have no obligation to pay Rent as aforesaid, except in respect of Rent accrued at the time, for the number of days that LESSEE is deprived of the possession and use of the Aircraft as the result of the breach by LESSOR of its warranty of quiet enjoyment obligations set forth Article 21.2. 5.11 LESSOR Performance of LESSEE Obligation.11 LESSOR Performance of LESSEE Obligation.11 LESSOR Performance of LESSEE Obligation.11 LESSOR Performance of LESSEE Obligation. If LESSEE fails to make any payment due under this Lease to a third party in connection with the Aircraft or fails to perform any other obligation required under this Lease, LESSOR may (but is not required to) at its election and without waiver of its rights perform such obligation and/or pay such amount. Within five (5) Business Days after written notice to LESSEE of the amount paid by LESSOR on behalf of LESSEE, LESSEE will repay such amount to LESSOR together with Default Interest. Such payment to LESSOR will constitute additional Rent payable by LESSEE to LESSOR hereunder. Any payment, performance or compliance by LESSOR of a LESSEE obligation hereunder will not affect the occurrence or continuance of a Default or Event of Default, as the case may be. 5.12 Consideration for Rent and other Amounts.12 Consideration for Rent and other Amounts.12 Consideration for Rent and other Amounts.12 Consideration for Rent and other Amounts. The amount of the Rent and other payments contained herein are in consideration of LESSEE's waiver of warranties and indemnities set forth in Articles 8 and 17, respectively, and the other provisions of this Lease. ARTICLE 6 DELIVERY CONDITION AND INSPECTION OF AIRCRAFT 6.1 LESSEE Selection of Aircraft.1 LESSEE Selection of Aircraft.1 LESSEE Selection of Aircraft.1 LESSEE Selection of Aircraft. LESSEE COVENANTS TO LESSOR THAT LESSEE HAS USED ITS OWN JUDGMENT IN SELECTING THE AIRCRAFT AND HAS DONE SO BASED ON ITS SIZE, DESIGN AND TYPE. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT A MANUFACTURER, REPAIRER OR SERVICING AGENT OF THE AIRCRAFT. 6.2 Condition at Delivery.2 Condition at Delivery.2 Condition at Delivery.2 Condition at Delivery. LESSOR has advised LESSEE that at Delivery the Aircraft will be as set forth in Exhibit A and in the condition set forth in Exhibit B. To the extent that at Delivery there are non-substantial or minor deviations from the condition set forth in Exhibit B which do not affect the airworthiness of the Aircraft, LESSEE will nonetheless accept the Aircraft subject to such deviations and LESSEE and LESSOR will mutually agree to either (i) adjust the return conditions of the Aircraft set forth in Article 23 accordingly or (ii) arrange for LESSOR to reimburse LESSEE for the reasonable cost of rectification of such deviations. 6.3 LESSEE Inspection of Aircraft at Delivery.3 LESSEE Inspection of Aircraft at Delivery.3 LESSEE Inspection of Aircraft at Delivery.3 LESSEE Inspection of Aircraft at Delivery. LESSEE will have the ground inspection and acceptance flight rights set forth in Exhibit B. LESSEE acknowledges that, as between LESSEE and LESSOR, in accepting the Aircraft LESSEE is relying on its own inspection and knowledge of the Aircraft in determining whether the Aircraft meets the requirements of this Lease. 6.4 Delivery of Aircraft to LESSEE.4 Delivery of Aircraft to LESSEE.4 Delivery of Aircraft to LESSEE.4 Delivery of Aircraft to LESSEE. Subject to LESSEE having performed all of the conditions precedent to Delivery set forth herein, LESSOR will deliver the Aircraft to LESSEE at the Delivery Location. Provided that the Aircraft is in the condition required by Article 6.2, upon the tender of the Aircraft by LESSOR to LESSEE, LESSEE will accept the Aircraft by executing and delivering to LESSOR the Estoppel and Acceptance Certificate, whereupon Delivery will be deemed to have occurred for all purposes under this Lease, including, but not limited to, the commencement of LESSEE's obligation to pay Rent hereunder. 6.5 LESSEE Acceptance of Aircraft.5 LESSEE Acceptance of Aircraft.5 LESSEE Acceptance of Aircraft.5 LESSEE Acceptance of Aircraft. If LESSEE fails to (a) comply with the conditions contained in Articles 7.1 and 7.3 so as to allow Delivery to take place on the Scheduled Delivery Date or (b) take delivery of the Aircraft when properly tendered for delivery by LESSOR in the condition required hereunder, LESSEE will indemnify LESSOR for all costs and expenses incurred by LESSOR as a result thereof. ARTICLE 7 PRE-DELIVERY, DELIVERY AND POST-DELIVERY DOCUMENTARY AND OTHER REQUIREMENTS 7.1 Pre-Delivery Requirements. LESSEE will deliver to LESSOR each of the following prior to the Scheduled Delivery Date of the Aircraft: (a) copies of resolutions of the Board of Directors of LESSEE or other written evidence of appropriate corporate action, duly certifying and authorizing the lease of the Aircraft hereunder and the execution, delivery and performance of this Lease, together with an incumbency certificate as to the person or persons authorized to execute and deliver documents on behalf of LESSEE hereunder; and (b) an opinion of counsel in the form and substance of Exhibit F. (c) a Certificate of Insurance and Brokers' Letter of Undertaking in the form and substance of Exhibits C and D, respectively, from LESSEE's insurance brokers evidencing insurance of the Aircraft in accordance with this Lease from the Delivery Date; (d) a copy of LESSEE's Air Operator's Certificate; (e) a power of attorney empowering LESSEE's representative, who may be an officer or employee of LESSEE, to accept the Aircraft on behalf of LESSEE; (f) a power of attorney in the form of Exhibit G; and - (g) such other documents as LESSOR may reasonably request. 7.2 LESSOR's Pre-Delivery Requirements.2 LESSOR's Pre-Delivery Requirements.2 LESSOR's Pre-Delivery Requirements.2 LESSOR's Pre-Delivery Requirements. LESSEE's obligation to accept delivery of and lease the Aircraft hereunder is subject to satisfaction of the following conditions precedent: (a) LESSOR shall tender the Aircraft including the Aircraft Documentation to LESSEE at the Delivery Location in accordance with Article 6.2; (b) The Aircraft shall be registered in the U.S. in the name of LESSOR and the Aircraft shall have a valid Certificate of Airworthiness and shall be in the condition required in order to meet the operating requirements of FAR Part 121; and (c) All Airworthiness Directives which are issued prior to the Delivery Date and which require compliance (either by means of repetitive inspections, modifications or terminating action) prior to Delivery or within one (1) year after Delivery will be complied with on a terminating action basis at LESSOR's cost; Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. 7.3 Delivery Requirements. On the Delivery Date of the Aircraft, each of the following will occur: 7.3.1 If not previously done, LESSEE will pay to LESSOR the first monthly installment of Rent in accordance with Article 5.3.2; 7.3.2 LESSEE will execute and deliver to LESSOR the Estoppel and Acceptance Certificate covering the Aircraft and dated the Delivery Date. 7.3.3 LESSEE will deliver a certificate signed by an officer of LESSEE stating all of the following: (a) the representations and warranties contained in Article 20 are true and accurate on and as of the Delivery Date as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); and (b) no Default has occurred and is continuing or will result from LESSEE's lease of the Aircraft hereunder. 7.3.4 LESSEE's counsel will deliver an opinion confirming the matters set forth in the opinion of counsel described in Article 7.1 and advising that all filing and other requirements described in the earlier opinion of counsel have been met. 7.3.5 If any Creditor Agreement provides or contemplates that such Creditor will obtain any right, title or interest in an Engine which is installed on such Creditor's aircraft, prior to placing the Engine on such Creditor's aircraft LESSEE will deliver to LESSOR an engines cooperation agreement in form and substance acceptable to LESSOR which is executed by LESSEE and LESSEE's Creditors (as defined therein). 7.4 Post-Delivery Requirements.4 Post-Delivery Requirements.4 Post-Delivery Requirements.4 Post-Delivery Requirements. Within fourteen (14) days after Delivery, if not previously provided, LESSOR will deliver to LESSEE (a) the Airframe Warranty Assignment duly executed by LESSOR and acknowledged by Manufacturer and (b) the Engine Warranty Assignment duly executed by LESSOR. ARTICLE 8 DISCLAIMERS LESSOR HAS COMMITTED TO LESSEE THAT ON THE DELIVERY DATE THE AIRCRAFT WILL BE IN THE CONDITION REQUIRED BY EXHIBIT B. SUCH COMMITMENT OR COVENANT ON THE PART OF LESSOR EXPIRES AND THE DISCLAIMERS SET FORTH IN THIS ARTICLE 8 APPLY UPON LESSEE'S ACCEPTANCE OF THE AIRCRAFT AND EXECUTION OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE. AFTER SUCH TIME, THEN AS BETWEEN LESSOR AND LESSEE: 8.1 "As Is, Where Is".1 AsIs,WhereIs.1 AsIs,WhereIs.1 AsIs,WhereIs. LESSEE AGREES THAT IT IS LEASING THE AIRCRAFT "AS IS, WHERE IS". LESSEE UNCONDITIONALLY ACKNOWLEDGES AND AGREES THAT NEITHER LESSOR NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR REPRESENTATIVES HAVE MADE OR WILL BE DEEMED TO HAVE MADE ANY TERM, CONDITION, REPRESENTATION, WARRANTY OR COVENANT EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE) AS TO (a) THE CAPACITY, AGE, AIRWORTHINESS, VALUE, QUALITY, DURABILITY, CONFORMITY TO THE PROVISIONS OF THIS LEASE, DESCRIPTION, CONDITION (WHETHER OF THE AIRCRAFT, ANY ENGINE, ANY PART THEREOF OR THE AIRCRAFT DOCUMENTATION), DESIGN, WORKMANSHIP, MATERIALS, MANUFACTURE, CONSTRUCTION, OPERATION, DESCRIPTION, STATE, MERCHANTABILITY, PERFORMANCE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE (INCLUDING THE ABILITY TO OPERATE OR REGISTER THE AIRCRAFT OR USE THE AIRCRAFT DOCUMENTATION IN ANY OR ALL JURISDICTIONS) OR SUITABILITY OF THE AIRCRAFT OR ANY PART THEREOF, OR THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT OR CONCEALED, EXTERIOR OR INTERIOR, (b) THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS, (c) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE OR (d) ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND EXTINGUISHED EXCEPT AS EXPRESSLY PROVIDED IN ARTICLE 21 HEREOF. 8.2 Waiver of Warranty of Description.2 Waiver of Warranty of Description.2 Waiver of Warranty of Description.2 Waiver of Warranty of Description. IN CONSIDERATION OF (a) LESSEE'S RIGHTS HEREUNDER TO INSPECT THE AIRCRAFT AND (b) LESSOR'S ASSIGNMENT TO LESSEE OF ANY EXISTING AND ASSIGNABLE WARRANTIES OF MANUFACTURER AND THE ENGINE MANUFACTURER, LESSEE HEREBY AGREES THAT ITS ACCEPTANCE OF THE AIRCRAFT AT DELIVERY AND ITS EXECUTION AND DELIVERY OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE CONSTITUTE LESSEE'S WAIVER OF THE WARRANTY OF DESCRIPTION, ANY CLAIMS LESSEE MAY HAVE AGAINST LESSOR BASED UPON THE FAILURE OF THE AIRCRAFT TO CONFORM WITH SUCH DESCRIPTION AND ANY AND ALL RIGHTS IT MAY HAVE TO THE REMEDIES SET FORTH IN SECTIONS 10508 THROUGH 10522 OF THE CALIFORNIA COMMERCIAL CODE. EVEN IF AT ANY TIME THE FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION SUBSTANTIALLY IMPAIRS THE VALUE AND UTILITY OF THE AIRCRAFT AND EITHER (i) LESSEE ACCEPTED THE AIRCRAFT BASED ON A REASONABLE ASSUMPTION THAT THE NONCONFORMITY WOULD BE CURED AND IT WAS NOT SEASONABLY CURED OR (ii) LESSEE ACCEPTED THE AIRCRAFT WITHOUT DISCOVERING THE NONCONFORMITY BUT LESSEE'S ACCEPTANCE OF THE AIRCRAFT WAS REASONABLY INDUCED EITHER BY LESSOR'S ASSURANCES OR BY THE DIFFICULTY OF DISCOVERING ANY DEFECT PRIOR TO ACCEPTANCE, LESSEE AGREES NOT TO LOOK TO LESSOR FOR DAMAGES OR RELIEF ARISING OUT OF THE FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION. 8.3 LESSEE Waiver.3 LESSEE Waiver.3 LESSEE Waiver.3 LESSEE Waiver. LESSEE hereby waives as between itself and LESSOR and agrees not to seek to establish or enforce any rights and remedies, express or implied (whether statutory or otherwise) against LESSOR or the Aircraft relating to any of the matters mentioned in Articles 8.1 or 8.2 and the leasing thereof by LESSOR to LESSEE. 8.4 Conclusive Proof.4 Conclusive Proof.4 Conclusive Proof.4 Conclusive Proof. DELIVERY BY LESSEE TO LESSOR OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE WILL BE CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE'S TECHNICAL EXPERTS HAVE EXAMINED AND INVESTIGATED THE AIRCRAFT, INCLUDING THE ENGINES AND THE AIRCRAFT DOCUMENTATION AND THAT EACH IS IN THE CONDITION REQUIRED HEREUNDER AND WITHOUT DEFECT, EXCEPT AS SPECIFICALLY SET FORTH IN SUCH CERTIFICATE, (WHETHER OR NOT DISCOVERABLE AT DELIVERY) AND OTHERWISE IN EVERY WAY SATISFACTORY TO LESSEE. 8.5 No LESSOR Liability for Losses.5 No LESSOR Liability for Losses.5 No LESSOR Liability for Losses.5 No LESSOR Liability for Losses. LESSEE agrees that LESSOR will not be liable to LESSEE, any sublessee or any Person, whether in contract or tort and however arising, for any cost, loss or damage (consequential or otherwise) arising out of the condition of the Aircraft, whether or not due in whole or in part to an act or omission or the active or passive negligence of LESSOR. 8.6 No Liability to Repair or Replace.6 No Liability to Repair or Replace.6 No Liability to Repair or Replace.6 No Liability to Repair or Replace. LESSOR will not be liable for any expense in repairing or replacing any item of the Aircraft or be liable to supply another aircraft or any item in lieu of the Aircraft or any Part thereof if the same is lost, confiscated, damaged, destroyed or otherwise rendered unfit for use. 8.7 No Waiver Nothing in this Article 8 or elsewhere in this Lease will be deemed to be a waiver by LESSEE of any rights it may have against Manufacturer, the Engine manufacturer or any other Person. ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES 9.1 Warranties.1 Warranties.1 Warranties.1 Warranties. Effective upon Delivery LESSOR will assign to LESSEE for the duration of the Lease Term the benefit of all warranties and indemnities given to LESSOR by Manufacturer and the Engine manufacturer pursuant to the Airframe Warranty Assignment and the Engine Warranty Assignment, respectively. Effective on the Delivery Date, all other assignable vendor warranties with respect to the Aircraft are hereby assigned by LESSOR to LESSEE. 9.2 Non-Assignable Warranties.2 Non-Assignable Warranties.2 Non-Assignable Warranties.2 Non-Assignable Warranties. To the extent that any warranty or indemnity given to LESSOR by Manufacturer and others with respect to the Aircraft cannot be assigned, LESSEE will be entitled to take such action to enforce such warranty or indemnity in the name of LESSOR against Manufacturer and such other parties as LESSEE sees fit, but subject to LESSEE first ensuring that LESSOR is indemnified and secured to LESSOR's satisfaction against all losses, damage, costs, expenses and liabilities thereby incurred or reasonably likely to be incurred. 9.3 Reassignment.3 Reassignment.3 Reassignment.3 Reassignment. On the Termination Date, the benefit of any warranty assigned by LESSOR to LESSEE will be reassigned automatically to LESSOR or its designee. LESSEE's rights under such warranties (including LESSEE's claims and rights to payment thereunder) will revert to LESSOR during any period in which an Event of Default is continuing. LESSEE at its own cost and expense will do all such things and execute such documents as may be reasonably required for this purpose. 9.4 Warranty Claims. LESSEE will diligently and promptly pursue any valid claims it may have against Manufacturer and others under such warranties with respect to the Aircraft and will provide notice of the same to LESSOR. ARTICLE 10 OPERATION OF AIRCRAFT 10.1 Costs of Operation.1 Costs of Operation.1 Costs of Operation.1 Costs of Operation. LESSEE will pay all costs incurred in the operation of the Aircraft during the Lease Term, for profit or otherwise, including the costs of flight crews, cabin personnel, fuel, oil, lubricants, maintenance, insurance, storage, landing and navigation fees, airport charges, passenger service and any and all other expenses of any kind or nature, directly or indirectly, in connection with or related to the use, movement and operation of the Aircraft. The obligations, covenants and liabilities of LESSEE under this paragraph arising prior to return of the Aircraft to LESSOR will continue in full force and effect, notwithstanding the termination of this Lease or expiration of the Lease Term. 10.2 Compliance with Laws.2 Compliance with Laws.2 Compliance with Laws.2 Compliance with Laws. Except as expressly provided in this Lease, LESSEE agrees throughout the Lease Term to maintain operational control of the Aircraft and use the Aircraft in accordance with applicable Laws of the State of Registration and of any country, state, territory or municipality into or over which LESSEE may operate. LESSEE will not employ, suffer or cause the Aircraft to be used in any business which is forbidden by Law or in any manner which may render it liable to condemnation, destruction, seizure, or confiscation by any authority. LESSEE will not permit the Aircraft to fly to any airport or country if so doing would cause LESSEE to be in violation of any Law applicable to LESSEE or the Aircraft. 10.3 Training. LESSEE will not use the Aircraft for testing or for training of flight crew members other than LESSEE crew members and it will not use the Aircraft for training any more than it utilizes for training the other B737-300 aircraft in its fleet. 10.4 No Violation of Insurance Policies.4 No Violation of Insurance Policies.4 No Violation of Insurance Policies.4 No Violation of Insurance Policies. LESSEE will not use or permit the Aircraft to be used in any manner or for any purpose which is not covered by the insurance policies LESSEE is required to carry and maintain as set forth in this Lease. LESSEE will not carry any goods of any description excepted or exempted from such policies or do any other act or permit to be done anything which could reasonably be expected to invalidate or limit any such insurance policy. 10.5 Flight Charges.5 Flight Charges.5 Flight Charges.5 Flight Charges. LESSEE will pay promptly when due all enroute navigation charges, navigation service charges and all other charges payable by LESSEE for the use of or for services provided at any airport, whether in respect of the Aircraft or any other aircraft of LESSEE, and will indemnify and hold LESSOR harmless in respect of the same. This indemnity will continue in full force and effect notwithstanding the termination or expiration of the Lease Term for any reason or the return of the Aircraft. ARTICLE 11 SUBLEASES 11.1 No Sublease without LESSOR Consent.1 No Sublease without LESSOR Consent.1 No Sublease without LESSOR Consent.1 No Sublease without LESSOR Consent. LESSEE WILL NOT SUBLEASE OR PART WITH POSSESSION OF THE AIRCRAFT (EXCEPT FOR MAINTENANCE AND REPAIR) AT ANY TIME WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (NOT TO BE UNREASONABLY WITHHELD OR DELAYED) EXCEPT FOR A SUBLEASE TO A PERMITTED SUBLESSEE PRE-APPROVED IN ARTICLE 11.1.1 BELOW, AND IN ACCORDANCE WITH SUCH REQUIREMENTS AS MAY FROM TIME TO TIME BE AGREED IN WRITING BETWEEN LESSOR AND LESSEE. The wet leasing of the Aircraft during the Lease Term (in which LESSEE and its crews retain operational control of the Aircraft) will not be considered a sublease of the Aircraft. 11.1.1 LESSEE may sublease the Aircraft without LESSOR's prior consent to an operator based in the U.S. which is then currently a lessee of LESSOR, provided such operator is not then in default under the aircraft lease agreement between such operator and LESSOR ("Permitted Sublessee"). Any such sublease will be subject to the provisions of this Article 11, including the provisions of Article 11.2 below. 11.2 LESSOR Costs.2 LESSOR Costs.2 LESSOR Costs.2 LESSOR Costs. LESSEE will indemnify LESSOR on demand for all reasonable and actual out-of-pocket expenses (including legal fees) incurred in connection with LESSOR's assessment of the subleasing proposal (whether or not LESSOR's consent to such sublease is ultimately given), review of the sublease documentation and implementation of the sublease. 11.3 Any Approved Sublease.3 Any Approved Sublease.3 Any Approved Sublease.3 Any Approved Sublease. Any sublease to a Permitted Sublessee, and any other sublease approved by LESSOR will be for a term no greater than the remaining Lease Term and contain provisions consistent with this Lease protecting LESSOR's title to the Aircraft, providing appropriate LESSOR indemnities, regarding the maintenance and repair standards for the Aircraft, concerning the insurances which will be carried by the sublessee and the circumstances which constitute a Total Loss of the Aircraft. Any such sublease will be subject and subordinate to this Lease. In its sole discretion, LESSOR may require an opinion of counsel in connection with such sublease, including LESSOR's right to repossess the Aircraft in the event of an Event of Default hereunder or under the sublease. LESSEE will not amend the terms of any approved sublease without the prior written consent of LESSOR, which will not be unreasonably withheld. Notwithstanding the foregoing, LESSOR agrees that even if an Event of Default has occurred and is continuing hereunder, so long as the approved sublessee fully performs all of the obligations of LESSEE hereunder and agrees to do so on a going forward basis and there is no risk to LESSOR of an impairment to LESSOR's unencumbered title to the Aircraft, LESSOR will not interfere with such sublessee's quiet use and enjoyment of the Aircraft. 11.4 Assignment of Sublease. Any approved sublease will be assigned to LESSOR as security. LESSEE will deliver the original counterpart of the sublease to LESSOR and make any filings necessary to protect LESSOR's security interest. 11.5 Continued Responsibility of LESSEE.5 Continued Responsibility of LESSEE.5 Continued Responsibility of LESSEE.5 Continued Responsibility of LESSEE. LESSEE will continue to be responsible for performance of its obligations under this Lease during any period of sublease. ARTICLE 12 MAINTENANCE OF AIRCRAFT 12.1 General Obligation 12.1.1 During the Lease Term and until the Aircraft is returned to LESSOR in the condition required by this Lease, LESSEE alone has the obligation, at its expense, to maintain and repair the Aircraft, Engines, and all of the Parts (a) in accordance with the Maintenance Program, (b) in accordance with the rules and regulations of the Aviation Authority, (c) in accordance with Manufacturer's type design, (d) in accordance with any other regulations or requirements necessary in order to maintain a valid Certificate of Airworthiness for the Aircraft and meet the requirements at all times during the Lease Term and upon return of the Aircraft to LESSOR for issuance of a Standard Certificate of Airworthiness for transport category aircraft issued by the FAA in accordance with FAR Part 21 (except during those periods when the Aircraft is undergoing maintenance or repairs as required or permitted by this Lease and to the extent in conflict with the requirements of the Aviation Authority) and (e) in the same manner and with the same care as used by LESSEE with respect to similar aircraft and engines operated by LESSEE and without in any way discriminating against the Aircraft. 12.1.2 No Engine will remain in an unserviceable condition for more than three (3) months. 12.1.3 LESSEE will not enter into any Engine maintenance cost per flight hour, power-by-the-hour or similar agreement with Engine manufacturer or any other Engine maintenance facility or organization without LESSOR's prior written consent, which consent shall not be unreasonably withheld or delayed. 12.2 Specific Obligations. Without limiting Article 12.1, LESSEE agrees that such maintenance and repairs will include but will not be limited to each of the following specific items: (a) performance in accordance with the Maintenance Program of all routine and non-routine maintenance work; (b) incorporation in the Aircraft of all Airworthiness Directives, all alert service bulletins of Manufacturer, Engine manufacturer and other vendors or manufacturers of Parts incorporated on the Aircraft and any service bulletins which must be performed in order to maintain the warranties on the Aircraft, Engines, and Parts; (c) incorporation in the Aircraft of all other service bulletins of Manufacturer, the Engine manufacturer and other vendors which LESSEE schedules to adopt within the Lease Term for the rest of its B737 aircraft fleet. It is the intent of the parties that the Aircraft will not be discriminated against in service bulletin compliance (including method of compliance) or other maintenance matters compared with the rest of LESSEE's B737 aircraft fleet. LESSEE will not discriminate against the Engines with respect to Overhaul build standards and life-limited part replacements; (d) incorporation in the Maintenance Program for the Aircraft of a corrosion prevention and control program as recommended by Manufacturer, the Aviation Authority and the FAA and the correction of any discrepancies in accordance with the recommendations of Manufacturer and the Structural Repair Manual. In addition, all inspected areas will be properly treated with corrosion inhibitor as recommended by Manufacturer; (e) maintaining in English and keeping in an up-to-date status the records and historical documents set forth in Exhibit L; (f) maintaining historical records, in English, for on condition, condition-monitored, hard time and life-limited Parts (including tags from the manufacturer of such Part or a repair facility which evidence that such Part is new or overhauled and establish authenticity, total time in service and time since overhaul for such Part), the hours and cycles the Aircraft and Engines operate and all maintenance and repairs performed on the Aircraft; and (g) properly documenting all repairs, Modifications and alterations and the addition, removal or replacement of equipment, systems or components in accordance with the rules and regulations of the Aviation Authority and reflecting such items in the Aircraft Documentation. In addition, all repairs to the Aircraft will be accomplished in accordance with either (i) Manufacturer's Structural Repair Manual (or FAA-approved Repair Approval Sheets) or (ii) FAA-approved data (such as FAA Form 8110 or equivalent). All Modifications and alterations will be accomplished in accordance with FAA-approved data (such as FAA Form 8110 or equivalent). 12.3 Replacement of Parts 12.3.1 LESSEE, at its own cost and expense, will promptly replace all Parts which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or rendered unfit or beyond economical repair (BER) for use for any reason. In the ordinary course of maintenance, service, repair, overhaul or testing, LESSEE may remove any Part provided that LESSEE replaces such Part as promptly as practicable. All replacement Parts will (a) be free and clear of all Security Interests (except Permitted Liens) of any kind or description, (b) be in airworthy condition and of at least equivalent model, service bulletin and modification status and have a value and utility at least equal to the Parts replaced, assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof and (c) have a current "serviceable tag" of the manufacturer or maintenance facility providing such items to LESSEE, indicating that such Parts are new, serviceable or Overhauled. So long as a substitution meets the requirements of the Maintenance Program and the Aviation Authority, LESSEE may substitute for any Part a part that does not meet the requirements of the foregoing sentence if a complying Part cannot be procured or installed within the available groundtime of the Aircraft and as soon as practicable the noncomplying part is removed and replaced by a complying Part. With respect to replacement modules in an Engine, LESSEE will use best reasonable efforts to ensure that any replacement module will not have been previously operated at a higher thrust rating than the replaced module provided that in all circumstances life-limited Parts in such replacement module will have no less life remaining than the life-limited Parts in the replaced module. 12.3.2 All Parts removed from the Airframe or any Engine will remain the property of LESSOR and subject to this Lease no matter where located, until such time as such Parts have been replaced by Parts (which have been incorporated or installed in or attached to the Airframe or such Engine) which meet the requirements for replacement Parts specified above and title to such replacement Parts has passed to LESSOR under the Laws of the State of Registration and lex situs. To the extent permitted by the Laws of the State of Registration and the lex situs it is the intent of LESSOR and LESSEE that without further act and immediately upon any replacement Part becoming incorporated, installed or attached to the Airframe or an Engine as above provided, (a) title to the removed Part will thereupon vest in LESSEE, free and clear of all rights of LESSOR, (b) title to the replacement Part will thereupon vest in LESSOR free and clear of all rights of LESSEE (other than LESSEE's rights under this Lease) and (c) such replacement Part will become subject to this Lease and be deemed to be a Part hereunder to the same extent as the Parts originally incorporated or installed in or attached to the Airframe or such Engine. 12.4 Removal of Engines 12.4.1 If an Engine is removed for testing, service, repair, maintenance, Overhaul work, alterations or modifications, title to such Engine will at all times remain vested in LESSOR. 12.4.2 LESSEE will be entitled to remove any of the Engines from the Aircraft and install another engine or engines on the Aircraft, provided that LESSEE complies with each of the following obligations: (a) the insurance requirements set forth in Article 18 and Exhibit C are in place; (b) LESSEE ensures that the identification plates referred to in Article 15 are not removed from any Engine upon such Engine being detached from the Aircraft; and (c) title to the Engine remains with LESSOR free from all Security Interests (except Permitted Liens) regardless of the location of the Engine or its attachment to or detachment from the Aircraft. 12.5 Pooling of Engines and Parts.5 Pooling of Engines and Parts.5 Pooling of Engines and Parts.5 Pooling of Engines and Parts. LESSEE may subject the Engines and Parts to normal interchange or pooling agreements with responsible international scheduled commercial air carriers customary in the airline industry and entered into by LESSEE in the ordinary course of its business with respect to its entire B737 fleet so long as (a) in the case of pooling of an Engine, such Engine is returned to LESSEE within four (4) months, (b) no transfer of title to the Engine occurs, (c) all other terms of this Lease continue to be observed with respect to the Engines or Parts, including but not limited to Articles 8, 10, 12, 14, 15, 16, 17, 18 and 19 and (d) LESSEE continues to be fully responsible to LESSOR for the performance of all of its obligations hereunder. 12.6 Installation of Engines on other aircraft.6 Installation of Engines on other aircraft.6 Installation of Engines on other aircraft.6 Installation of Engines on other aircraft. Any Engine removed from the Aircraft may be installed on another aircraft in LESSEE's fleet which utilizes engines of the same type as the Engine only if one of the situations described in this Article 12.6 exists: 12.6.1 LESSEE or LESSOR has title to such other aircraft free and clear of all Security Interests (except Permitted Liens). 12.6.2 LESSEE, LESSOR and all of the Creditors of LESSEE of such aircraft enter into an engines cooperation agreement in form and substance reasonably acceptable to LESSOR in which each party agrees to recognize one another's rights in the engines. LESSEE will reimburse LESSOR and LESSOR's Lender for their reasonable attorneys' fees and costs in negotiating and finalizing engine cooperation agreement arrangements with LESSEE and its Creditors. 12.6.3 Such other aircraft is subject to a Creditor Agreement (but no other Security Interests except Permitted Liens) which by its terms expressly or effectively states that such Creditor and its successors and assigns will not acquire any right, title or interest in any Engine by reason of such Engine being installed on such aircraft. LESSEE hereby agrees that if LESSOR's title to an Engine is in fact impaired under any such Creditor Agreement, such impairment will be deemed to be a Total Loss of such Engine and the provisions of Article 19.5 will apply. To the extent another Creditor Agreement contains such provisions, then LESSOR hereby agrees for the benefit of the Creditor of such Creditor Agreement that neither LESSOR nor its successors or assigns will acquire or claim any right, title or interest in any engine in which LESSEE or another Creditor has an interest as a result of such engine being installed on the Airframe. 12.7 Engine Thrust Rating.7 Engine Thrust Rating.7 Engine Thrust Rating.7 Engine Thrust Rating. If an Engine is utilized by LESSEE on the Aircraft or on any other airframe (or if the Engine is utilized by any sublessee or user under a pooling arrangement in accordance with this Lease) at a thrust rating greater than the thrust rating set forth in Exhibit A, LESSEE will promptly notify LESSOR and the Engine Reserves amounts set forth in Article 5.4.1 will be increased in an amount proportional to the accelerated rate of deterioration of the Engine resulting from the increased thrust rating. 12.8 Modifications 12.8.1 * 12.8.2 LESSOR may review LESSEE's proposed designs, plans, engineering drawings and diagrams, and flight and maintenance manual revisions for any proposed Modification. If requested by LESSOR, LESSEE will furnish LESSOR (at LESSEE's expense) with such documents in final form and any other documents required by Law, as a result of such Modification. All Modifications incorporated on the Aircraft will be properly documented in the Aircraft Documentation and be fully approved by the Aviation Authority. 12.8.3 Notwithstanding any other provision of this Lease, no Modification will be made which has the effect of decreasing the utility or value of the Aircraft or invalidating any warranty applicable to the Aircraft. 12.8.4 No Modification will be made by LESSEE if an Event of Default exists and is continuing hereunder. 12.8.5 Unless otherwise agreed by LESSOR in writing, all permanent or structural Modifications will forthwith become a part of the Aircraft and LESSEE relinquishes to LESSOR all rights and title thereto. However, all (i) temporary and non-structural Modifications and (ii) all Passenger Service Equipment so long as such equipment can be removed without causing material damage to the Aircraft, will remain the property of LESSEE and, at LESSOR's request and LESSEE's cost, will be removed from the Aircraft prior to return of the Aircraft, with LESSEE restoring the Aircraft to the condition it was in prior to the Modification or installation of Passenger Service Equipment in a manner cosmetically acceptable to LESSOR. Notwithstanding the foregoing, no such removal will be permitted without LESSOR's permission during the occurrence of an Event of Default hereunder and immediately upon the occurrence of an Event of Default hereunder, without the requirement of any further act or notice, all right, title and interest in such Modifications and Passenger Service Equipment will immediately vest in LESSOR; provided however, that in the event of such an Event of Default, with respect to any Passenger Service Equipment, LESSOR will use commercially reasonable efforts to reach agreement with any vendors or suppliers holding title to the Passenger Service Equipment in order to protect the mutual interests of LESSOR and such parties. 12.8.6 LESSOR will bear no liability for the cost of Modifications of the Aircraft whether in the event of grounding or suspensions of certification, or for any other cause. 12.9 Performance of Work by Third Parties.9 Performance of Work by Third Parties.9 Performance of Work by Third Parties.9 Performance of Work by Third Parties. Whenever maintenance and repair work on the Aircraft or Engines will be regularly performed by a Person other than LESSEE, such Person will be an FAA-authorized repair station. 12.10 Reporting Requirements. 12.10.1 Commencing with a report furnished ten (10) days after the end of the calendar month in which Delivery occurs, LESSEE will furnish to LESSOR a Monthly Report in English in the form attached hereto as Exhibit K. Each Monthly Report will be furnished within ten (10) days after the end of each calendar month, except that the Monthly Report pertaining to the last month (or any portion thereof) of the Lease Term will be furnished to LESSOR on the Termination Date. 12.10.2 Commencing with the second scheduled "C" check for the Aircraft, LESSEE will provide LESSOR with a Technical Evaluation Report for the Aircraft in the form and substance of Exhibit M, as revised. Such Technical Evaluation Report will be furnished within three (3) Business Days after the completion of every second "C" check performed during the Lease Term and at other times reasonably requested by LESSOR. 12.11 Information Regarding Maintenance Program. LESSEE will provide LESSOR with a copy of or information regarding the Maintenance Program for the Aircraft, as reasonably requested by LESSOR. 12.12 LESSOR Rights to Inspect Aircraft.12 LESSOR Rights to Inspect Aircraft.12 LESSOR Rights to Inspect Aircraft.12 LESSOR Rights to Inspect Aircraft. On reasonable notice, LESSOR and/or its authorized agents or representatives will have the right to inspect the Aircraft and Aircraft Documentation. LESSOR agrees that such requests will be coordinated with LESSEE so as to cause the minimum practical disturbance to LESSEE's operation or its personnel. LESSEE agrees to cooperate with LESSOR in making the Aircraft and Aircraft Documentation available to such authorized technical teams. LESSOR will have no duty to make any such inspection and will not incur any liability or obligation by reason of (and LESSEE's indemnity obligations pursuant to Article 17 will apply notwithstanding) not making any such inspection or by reason of any reports it receives or any reviews it may make of the Aircraft records. ARTICLE 13 USE OF RESERVES 13.1 Airframe Reserves.1 Airframe Reserves.1 Airframe Reserves.1 Airframe Reserves. The Airframe Reserves payable by LESSEE hereunder will be retained by LESSOR as LESSEE's contribution toward payment of the cost of performance of the "C7"inspection and the 22,400 flight hour structural inspection of the Aircraft pursuant to the MPD. LESSEE and LESSOR acknowledge and agree that such "C7" and 22,400 flight hour structural inspection tasks will not be due to be performed until after return of the Aircraft by LESSEE. As a result, the parties agree that the Airframe Reserves are not reimburseable to LESSEE hereunder and that LESSOR will retain all Airframe Reserves paid by LESSEE; provided, however, in the event of the Total Loss of the Aircraft, fifty percent (50%) of the Airframe Reserves held by LESSOR will be retained by LESSOR and the remaining portion of such Reserves will be paid to LESSEE in accordance with Article 19.9. 13.2 Engine Reserves 13.2.1 Subject to the limitations set forth in Article 13.2.2, LESSOR will reimburse LESSEE from the Engine Reserves for the actual cost associated with performance restoration, the replacement of life limited Parts or permanent repair of on-condition Parts in the Basic Engine during completed Engine shop visits (i.e. heavy maintenance visits) requiring off-wing teardown and/or disassembly, with work performed for all other causes excluded, including those causes set forth in Article 13.5. Subject to Article 16.1 and excluding exchange fees and handling, packaging and shipping charges, reimbursement for an Engine will be made up to the amount in the Engine Reserves applicable to such Engine at the time of removal of such Engine. 13.2.2 Twenty-three percent (23%) of the per hour Engine Reserve payable by LESSEE for an Engine will be designated and will be reimbursable solely for the replacement of life limited parts in such Engine. With respect only to Engine Reserves applicable to performance restoration of an Engine, reimbursement will be further limited as to each module of such Engine in accordance with the following percentages of the remaining total amount in the Engine Reserves for such Engine: 18% Fan & Accessory Gearbox 22% High Pressure Compressor Module 44% High Pressure Turbine Module 16% Low Pressure Turbine Module 13.2.3 LESSEE will not enter into any Engine maintenance cost per flight hour, power-by-the-hour or similar agreement with Engine manufacturer or any other Engine maintenance facility or organization without LESSOR's consent which consent shall not be unreasonably withheld or delayed. 13.3 Landing Gear Reserves.3 Landing Gear Reserves.3 Landing Gear Reserves.3 Landing Gear Reserves. LESSOR will reimburse LESSEE from the Landing Gear Reserves for the actual cost of an Overhaul of the Landing Gear, up to the amount remaining in the Landing Gear Reserves, with work performed for all other causes excluded, including those causes set forth in Article 13.5. 13.4 Reimbursement. LESSEE will be entitled to reimbursement from the Engine Reserves and the Landing Gear Reserves after the work is completed and the Engine or Landing Gear has left the repair agency, by submitting invoices and proper documentation within six (6) months after completion of the work. For the Engine, proper documentation includes a description of the reason for removal (if removed), a shop teardown report, a shop findings report if an Engine is removed (or an equivalent report if an Engine is not removed), a full description of the workscope and complete disk records for the Engine both prior to and after the repair. Both the invoice supplied by the Engine repair facility and that submitted by LESSEE to LESSOR with respect to an Engine will state whether or not credits were provided due to life remaining on any removed Engine Parts and the amount of any such credits will be itemized. For the Landing Gear, proper documentation includes the total calendar time, hours and cycles on the Landing Gear both prior to and after the Overhaul, a copy of the complete Overhaul report which includes a life limited component list and a description of all work performed on the Landing Gear assembly. 13.5 Reimbursement Adjustment.5 Reimbursement Adjustment.5 Reimbursement Adjustment.5 Reimbursement Adjustment. By way of example, among the exclusions from reimbursement are those items resulting from repairs covered by LESSEE's or a third party's insurance, (deductibles being for the account of LESSEE) or warranties or required as a result of an Airworthiness Directive, manufacturer's service bulletin, faulty maintenance or installation, improper operations, misuse, neglect, accident, incident, ingestion, or other accidental cause. Reimbursement from the Reserves will not be available for the APU, quick engine change (QEC) Parts, thrust reversers, or any of their associated components. All invoices subject to reimbursement from LESSOR will be reduced (by adjustment between LESSEE and LESSOR retroactively if necessary) by the actual amounts received by LESSEE on account of such work from responsible third parties or other sources, such as insurance proceeds, manufacturer's warranties, guarantees, concessions and credits (including, with respect to Engines, credits due to life remaining on any removed Engine Parts). 13.6 Costs in Excess of Reserves.6 Costs in Excess of Reserves.6 Costs in Excess of Reserves.6 Costs in Excess of Reserves. LESSEE will be responsible for payment of all costs in excess of the amounts reimbursed hereunder. If on any occasion the balance in the Engine Reserves or Landing Gear Reserves for a particular Engine or Landing Gear (at the time of removal, in the case of an Engine or the Landing Gear) is insufficient to satisfy a claim for reimbursement in respect of such Engine or the Landing Gear, as applicable, the shortfall may not be carried forward or made the subject of any further claim for reimbursement. 13.7 Reimbursement after Termination Date.7 Reimbursement after Termination Date.7 Reimbursement after Termination Date.7 Reimbursement after Termination Date. LESSEE may not submit any invoice for reimbursement from the Engine Reserves or Landing Gear Reserves after the Termination Date unless on or prior to such date LESSEE has notified LESSOR in writing that such outstanding invoice will be submitted after the Termination Date and the anticipated amount of such invoice. So long as LESSEE has provided such notice to LESSOR, LESSEE may then submit such outstanding invoice at any time within six (6) months after the Termination Date. In the event of the Total Loss of the Aircraft, fifty percent (50%) of the unreimbursed Reserves held by LESSOR will be retained by LESSOR and the remaining portion of the Reserves will be paid to LESSEE in accordance with Article 19.9. ARTICLE 14 TITLE AND REGISTRATION 14.1 Title to the Aircraft During Lease Term.1 Title to the Aircraft During Lease Term.1 Title to the Aircraft During Lease Term.1 Title to the Aircraft During Lease Term. Title to the Aircraft will be and remain vested in LESSOR. LESSOR and LESSEE intend this Lease to be a "true lease". LESSEE will have no right, title or interest in the Aircraft except as provided in this Lease. 14.2 Registration of Aircraft.2 Registration of Aircraft.2 Registration of Aircraft.2 Registration of Aircraft. LESSOR at its sole cost and expense will register and maintain registration of the Aircraft in the name of LESSOR at the register of aircraft in the State of Registration. LESSEE will cooperate with LESSOR and will from time to time take all other steps then required by Law (including the Geneva Convention if applicable) or as LESSOR may reasonably request to protect and perfect LESSOR's interest in the Aircraft and this Lease in the State of Registration or in any other jurisdictions in or over which LESSEE may operate the Aircraft. 14.3 Filing of this Lease.3 Filing of this Lease.3 Filing of this Lease.3 Filing of this Lease. To the extent permitted by Law and in accordance with the requirements of the Law from time to time, LESSEE at its sole cost and expense will cause this Lease to be kept, filed, recorded and refiled or rerecorded in the State of Registration and in any other offices necessary to protect LESSOR's rights hereunder as reasonably requested by LESSOR. 14.4 Evidence of Registration and Filings.4 Evidence of Registration and Filings.4 Evidence of Registration and Filings.4 Evidence of Registration and Filings. As LESSOR may reasonably request from time to time, LESSEE will furnish to LESSOR an opinion of counsel or other evidence reasonably satisfactory to LESSOR of the registrations and filings required hereunder. ARTICLE 15 IDENTIFICATION PLATES LESSOR will affix and LESSEE will at all times maintain on the Airframe and each Engine the identification plates containing the following legends or any other legend reasonably requested by LESSOR in writing: 15.1 Airframe Identification Plates. Location: One to be affixed to the Aircraft structure above the forward entry door adjacent to and not less prominent than that of Manufacturer's data plate and another in a prominent place on the flight deck. Size: No smaller than 4" x 6". Legend: "THIS AIRCRAFT IS OWNED BY INTERNATIONAL LEASE FINANCE CORPORATION. MANUFACTURER'S SERIAL NO: 26293 OWNER'S ADDRESS: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States of America Fax: (310) 788-1990" 15.2 Engine Identification Plates. Location: The legend on the plate must be no less prominent than the Engine data plate and must be visible. Size: No smaller than 2" x 6". "THIS ENGINE IS OWNED BY INTERNATIONAL LEASE FINANCE CORPORATION, LOS ANGELES, CALIFORNIA, USA." ARTICLE 16 TAXES 16.1 General Obligation of LESSEE.1 General Obligation of LESSEE.1 General Obligation of LESSEE.1 General Obligation of LESSEE. Except as set forth in Article 16.2, LESSEE agrees to pay promptly when due, and to indemnify and hold harmless LESSOR on a full indemnity basis from, all license and registration fees and all taxes, fees, levies, imposts, duties, charges, deductions or withholdings of any nature (including without limitation any value added, franchise, transfer, sales, gross receipts, use, business, excise, turnover, personal property, stamp or other tax) together with any assessments, penalties, fines, additions to tax or interest thereon, however or wherever imposed (whether imposed upon LESSEE, LESSOR, on all or part of the Aircraft, the Engines or otherwise), by any Government Entity or taxing authority in the U.S. (including without limitation the City or County of Los Angeles), or any foreign country or by any international taxing authority, upon or with respect to, based upon or measured by any of the following (collectively, "Taxes"): (a) the Aircraft, Engines or any Parts; (b) the use, operation or maintenance of the Aircraft or carriage of passengers or freight during the Lease Term; (c) this Lease, the payments due hereunder and the terms and conditions hereof; and (d) the ownership, financing, delivery, import or export, return, sale, payment of Total Loss Proceeds or other disposition of the Aircraft. 16.2 Exceptions to Indemnity. The indemnity provided for in Article 16.1 does not extend to any of the following Taxes (hereinafter referred to as "LESSOR's Taxes"): (a) Taxes imposed by the U.S. or by any state within the U.S. on the net income, profits or gains, gross receipts, capital or net worth of LESSOR; (b) Taxes attributable to the period, or an event occurring, prior to Delivery or after return of the Aircraft to LESSOR in accordance with this Lease; (c) Taxes attributable to LESSOR's gross negligence, willful misconduct or breach of this Lease; (d) Taxes which LESSEE is contesting in good faith in accordance with Article 16.5; (e) Taxes imposed by any country other than the U.S. on the net income, gross receipts, capital or net worth of LESSOR but only to the extent that (i) such Taxes were not in any way connected with, due to or arising out of this Lease, LESSEE's business operations or office locations in any such country or LESSEE's use and operation of the Aircraft and (ii) such Taxes would be otherwise payable by LESSOR notwithstanding this Lease, LESSEE's business operations or office locations in any such country or LESSEE's use and operation of the Aircraft; (f) excess Taxes imposed as a result of LESSOR's voluntary or involuntary transfer or other disposition of the Aircraft, Engines or any Parts or this Lease (except a transfer or sale resulting directly from LESSEE's Default) provided that LESSEE remains responsible for payment of any Taxes and the specific amount of such Taxes that it would have been required to indemnify for had such voluntary or involuntary transfer not occurred; (g) Taxes consisting of any interest, penalties or additions to tax imposed on LESSOR as a result, in whole or in part, of a failure of LESSOR to file any Tax return properly and timely, unless such failure shall be caused by the failure of LESSEE to fulfill any obligations of LESSEE under Section 16.7 with respect to such Tax return; or (h) Taxes resulting from, or that would not have been imposed but for, any LESSOR's Lien arising as a result of claims against, or acts or omissions of, or otherwise attributable to, LESSOR or any related party. 16.3 After-Tax Basis. The amount which LESSEE is required to pay with respect to any Taxes indemnified against under Article 16.1 is an amount sufficient to restore LESSOR on an after-tax basis to the same position LESSOR would have been in had such Taxes not been incurred. If LESSOR determines in good faith that it has realized a Tax benefit (by way of deduction, credit or otherwise) as a result of any payment for which LESSEE is liable under Section 5.7 or 16.1 of this Lease, and such benefit was not previously taken into account in calculating the amount of such payment on an after-tax basis in accordance with the immediately preceding sentence of this Article 16.3, LESSOR will pay to LESSEE an amount that is reasonably sufficient to ensure that LESSOR is in no better an after-tax position than it would have been in if the event giving rise to LESSEE's liability for payment had not occurred. 16.4 Timing of Payment.4 Timing of Payment.4 Timing of Payment.4 Timing of Payment. Any amount payable to LESSOR pursuant to this Article 16 will be paid within ten (10) days after receipt of a written demand therefor from LESSOR accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable provided, however, that such amount need not be paid by LESSEE prior to the earlier of (a) the date any Tax is payable to the appropriate Government Entity or taxing authority or (b) in the case of amounts which are being contested by LESSEE in good faith or by LESSOR pursuant to Article 16.5, the date such contest is finally resolved. 16.5 Contests.5 Contests.5 Contests.5 Contests. If claim is made against LESSOR for Taxes with respect to which LESSEE is liable for a payment or indemnity under this Lease, LESSOR will promptly give LESSEE notice in writing of such claim provided, however, that LESSOR's failure to give notice will not relieve LESSEE of its obligations hereunder unless such failure materially impairs or precludes LESSEE's ability to contest the claim. So long as (a) a contest of such Taxes does not involve any material risk of the sale, forfeiture or loss of the Aircraft or any interest therein, (b) if LESSOR so requests, LESSEE has provided LESSOR with an opinion of independent tax counsel that a reasonable basis exists for contesting such claim and (c) adequate reserves have been made for such Taxes or, if required, an adequate bond has been posted, then LESSOR at LESSEE's written request will in good faith, with due diligence and at LESSEE's expense, contest (or permit LESSEE to contest in the name of LESSEE or LESSOR) the validity, applicability or amount of such Taxes. 16.6 Refunds. Upon receipt by LESSOR of a refund of all or any part of any Taxes (including any deductions or withholdings referred to in Article 5.7) which LESSEE has paid, LESSOR will promptly pay to LESSEE the net amount of such Taxes refunded. 16.7 Cooperation in Filing Tax Returns.7 Cooperation in Filing Tax Returns.7 Cooperation in Filing Tax Returns.7 Cooperation in Filing Tax Returns. LESSEE and LESSOR will cooperate with one another in providing information which may be reasonably required to fulfill each party's tax filing requirements and any audit information request arising from such filing. 16.8 Survival of Obligations. The indemnity obligations and other agreements of LESSEE as set forth in this Article 16 will survive the Termination Date. ARTICLE 17 INDEMNITIES 17.1 General Indemnity.1 General Indemnity.1 General Indemnity.1 General Indemnity. Except as set forth in Article 17.2 and Article 28.20, LESSEE agrees to indemnify and hold harmless LESSOR and its officers, directors, employees, agents and shareholders (individually an "Indemnitee" and collectively "Indemnitees") from any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, disbursements and expenses (including legal fees, costs and related expenses) of every kind and nature, whether or not any of the transactions contemplated by this Lease are consummated (collectively "Expenses"), which are imposed on, incurred by or asserted against any Indemnitee and which are in any way relating to, based on or arising out of any of the following: (a) this Lease or any transactions contemplated hereby; (b) the operation, possession, use, non-use, control, leasing, subleasing, maintenance, storage, overhaul, testing, inspections or acceptance flights at return of the Aircraft, any Engine, or any Part during the Lease Term by LESSEE, any sublessee or any other Person, whether or not the same is in compliance with the terms of this Lease, including without limitation claims for death, personal injury, property damage, other loss or harm to any Person and claims relating to any Laws, including without limitation environmental control, noise and pollution laws, rules or regulations; (c) the manufacture, design, acceptance, rejection, delivery, return, sale after an Event of Default, import, export, condition, repair, modification, servicing, rebuilding, enforcement of warranties whether in LESSOR's or LESSEE's name, customer and product support provided by Manufacturer and other vendors, airworthiness, registration, reregistration, performance, sublease, merchantability, fitness for use, substitution or replacement of the Aircraft, Engine, or any Part under this Lease or other transfer of use or possession of the Aircraft, Engine, or any Part, including under a pooling or interchange arrangement, including without limitation latent and other defects, whether or not discoverable and patent, trademark or copyright infringement; (d) any non-compliance by LESSEE with any term of this Lease or the falsity or inaccuracy of any representation or warranty of LESSEE set forth herein; (e) the prevention or attempt to prevent the arrest, confiscation, seizure, taking in execution, impounding, forfeiture or detention of the Aircraft, or in securing the release of the Aircraft; or (f) as a consequence of any Default in payment by LESSEE of any sum to be paid by LESSEE when due under this Lease or any other Default by LESSEE in the due and punctual performance of its obligations under this Lease. The foregoing indemnity by LESSEE is intended to include and cover any Expense to which an Indemnitee may be subject (in contract, tort, strict liability or under any other theory) regardless of the negligence, active or passive or any other type, of such Indemnitee, so long as such Expense does not fall within any of the exceptions listed in Article 17.2. 17.2 Exceptions to General Indemnities. The indemnity provided for in Article 17.1 will not extend to Expenses of any Indemnitee to the extent resulting from or arising out of any of the following: (a) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to have resulted from the willful misconduct of such Indemnitee; (b) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to be attributable to incidents, accidents or occurrences prior to the Delivery Date, but only where both the act or omission which gave rise to the incident, accident or occurrence and the incident, accident or occurrence itself occurred prior to the Delivery Date; (c) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to be attributable to acts or events which occur after the Termination Date and return of the Aircraft to LESSOR in the condition required hereunder, but in any such case only to the extent not attributable to acts or omissions of LESSEE; (d) Expenses representing Taxes, it being acknowledged that the terms of Article 16 apply exclusively to LESSEE's indemnity obligations with respect to Taxes; (e) Expenses due to the breach by LESSOR of its covenant of quiet enjoyment pursuant to Article 21.2; (f) Expenses related to LESSOR Taxes or a LESSOR's Lien; or (g) Expenses that LESSOR has expressly agreed to pay under this Lease. 17.3 After-Tax Basis.3 After-Tax Basis.3 After-Tax Basis.3 After-Tax Basis. The amount which LESSEE will be required to pay with respect to any Expense indemnified against under Article 17.1 will be an amount sufficient to restore the Indemnitee, on an after-tax basis, to the same position such Indemnitee would have been in had such Expense not been incurred. 17.4 Timing of Payment.4 Timing of Payment.4 Timing of Payment.4 Timing of Payment. It is the intent of the parties that each Indemnitee will have the right to indemnification for Expenses hereunder as soon as a claim is made and as soon as an Expense is incurred, whether or not such claim is meritorious and whether or not liability is established (but subject to Article 17.8). LESSEE will pay an Indemnitee for Expenses pursuant to this Article 17 within ten (10) days after receipt of a written demand therefor from such Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and reasonable proof of such Expenses incurred. 17.5 Subrogation. Upon the payment in full of any indemnity pursuant to this Article 17 by LESSEE, LESSEE will be subrogated to any right of the Indemnitee in respect of the matter against which such indemnity has been made. 17.6 Notice.6 Notice.6 Notice.6 Notice. Each Indemnitee and LESSEE will give prompt written notice one to the other of any liability of which such party has knowledge for which LESSEE is, or may be, liable under Article 17.1 provided, however, that failure to give such notice will not terminate any of the rights of Indemnitees under this Article 17 except to the extent that LESSEE has been materially prejudiced by the failure to provide such notice. 17.7 Refunds. If any Indemnitee obtains a recovery of all or any part of any amount which LESSEE has paid to such Indemnitee, such Indemnitee will promptly pay to LESSEE the net amount recovered by such Indemnitee. 17.8 Defense of Claims.8 Defense of Claims.8 Defense of Claims.8 Defense of Claims. Unless an Event of Default has occurred and is continuing, LESSEE and its insurers will have the right (in each such case at LESSEE's sole expense) to investigate or, provided that LESSEE or its insurers have not reserved the right to dispute liability with respect to any insurance policies pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to Article 17.1 and each Indemnitee will cooperate with LESSEE or its insurers with respect thereto. If LESSEE or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the Indemnitees. If not, the Indemnitees will have the right to retain counsel of their choice at LESSEE's expense. 17.9 Survival of Obligation.9 Survival of Obligation.9 Survival of Obligation.9 Survival of Obligation. Notwithstanding anything in this Lease to the contrary, the provisions of this Article 17 will survive the Termination Date and continue in full force and effect notwithstanding any breach by LESSOR or LESSEE of the terms of this Lease, the termination of the lease of the Aircraft to LESSEE under this Lease or the repudiation by LESSOR or LESSEE of this Lease. ARTICLE 18 INSURANCE 18.1 Categories of Insurance.1 Categories of Insurance.1 Categories of Insurance.1 Categories of Insurance. Throughout the Lease Term and until the Termination Date LESSEE will, at its own expense, effect and maintain in full force and effect the types of insurance and amounts of insurance (including deductibles) described in Exhibit C through such brokers and with such insurers as may be approved by LESSOR, such approval not to be unreasonably withheld, in London or New York or such other insurance markets as mutually agreed upon by the parties. 18.2 Write-back of any Date Recognition Exclusion.2 Write-back of any Date Recognition Exclusion.2 Write-back of any Date Recognition Exclusion.2 Write-back of any Date Recognition Exclusion. In the event any of LESSEE's insurances (either the primary insurance or the reinsurance) contain any date recognition exclusion clause or similar clause excluding from such insurance coverage damage to any property (including the Aircraft) or death or injury to any person on account of accidents, incidents or occurrences caused by date recognition or other Year 2000-related problems, LESSEE at its cost will obtain for the benefit of itself and LESSOR the broadest write-back available in the U.S. insurance market with respect to such exclusion. 18.3 Insurance for Indemnities.3 Insurance for Indemnities.3 Insurance for Indemnities.3 Insurance for Indemnities. The insurance referred to in Article 18.1 will in each case include and insure (to the extent of the risks covered by the policies) the indemnity provisions of Article 17 and LESSEE will maintain such insurance of the indemnities for a minimum of two (2) years following the Termination Date. 18.4 Insurance required by Manufacturer.4 Insurance required by Manufacturer.4 Insurance required by Manufacturer.4 Insurance required by Manufacturer. During the Lease Term, LESSEE will carry the insurance required by Manufacturer in connection with LESSOR's assignment of Manufacturer's warranties and product support to LESSEE. 18.5 Renewal.5 Renewal.5 Renewal.5 Renewal. Not less than five (5) Business Days before the expiration or termination date of any insurance required hereunder, LESSEE will provide LESSOR with fax confirmation from LESSEE's insurance brokers that renewed certificates of insurance evidencing the renewal or replacement of such insurance and complying with Exhibit C will be issued on the termination date of the prior certificate. Within seven (7) days after such renewal, LESSEE will furnish its brokers' certificates of insurance to LESSOR. 18.6 Assignment of Rights by LESSOR.6 Assignment of Rights by LESSOR.6 Assignment of Rights by LESSOR.6 Assignment of Rights by LESSOR. If LESSOR assigns all or any of its rights under this Lease as permitted by this Lease or otherwise disposes of any interest in the Aircraft to any other Person as permitted by this Lease, LESSEE will, upon request, procure that such Person hereunder be added as loss payee and/or additional assured in the policies effected hereunder and enjoy the same rights and insurance enjoyed by LESSOR under such policies. LESSOR will nevertheless continue to be covered by LESSEE's third party liability insurance policies. 18.7 Other Insurance.7 Other Insurance.7 Other Insurance.7 Other Insurance. LESSOR may from time to time by notice to LESSEE require LESSEE at LESSEE's expense to effect such other insurance or such variations to the terms of the existing insurance as may then be customary in the airline industry for aircraft of the same type as the Aircraft and at the time commonly available in the insurance market. 18.8 Information. LESSEE will provide LESSOR with any information reasonably requested by LESSOR from time to time concerning the insurance maintained with respect to the Aircraft or in connection with any claim being made or proposed to be made thereunder. 18.9 Currency. All proceeds of insurance pursuant to this Lease will be payable in Dollars except as may be otherwise agreed by LESSOR. 18.10 Grounding of Aircraft.10 Grounding of Aircraft.10 Grounding of Aircraft.10 Grounding of Aircraft. If at any time any of the insurance required pursuant to this Lease will cease to be in full force and effect, LESSEE will forthwith ground the Aircraft and keep the Aircraft grounded until such time as such insurance is in full force and effect again. 18.11 Failure to Insure.11 Failure to Insure.11 Failure to Insure.11 Failure to Insure. If at any time LESSEE fails to maintain insurance in compliance with this Article 18, LESSOR will be entitled but not bound to do any of the following (without prejudice to any other rights which it may have under this Lease by reason of such failure): (a) to pay any premiums due or to effect or maintain insurance consistent with the terms of this Lease or otherwise remedy such failure in such manner as LESSOR considers appropriate (and LESSEE will upon demand reimburse LESSOR in full for any amount so expended in that connection); or (b) at any time while such failure is continuing, to require the Aircraft to remain at any airport or (as the case may be), if allowed by applicable Law proceed to and remain at any airport within the continental U.S. designated by LESSOR, until such failure is remedied to LESSOR's reasonable satisfaction. 18.12 Reinsurance. Any reinsurance will be maintained with reinsurers and brokers reasonably acceptable to LESSOR. Such reinsurance will contain each of the following terms and will in all other respects (including amount) be reasonably satisfactory to LESSOR: (a) the same terms as the original insurance; (b) a cut-through and assignment clause reasonably satisfactory to LESSOR; and (c) payment will be made notwithstanding (i) any bankruptcy, insolvency, liquidation or dissolution of any of the original insurers and/or (ii) that the original insurers have made no payment under the original insurance policies. 18.13 Limit on Hull in favor of LESSEE.13 Limit on Hull in favor of LESSEE.13 Limit on Hull in favor of LESSEE.13 Limit on Hull in favor of LESSEE. LESSEE may carry hull all risks or hull war and allied perils on the Aircraft in excess of the Agreed Value (such Agreed Value being payable to LESSOR) only to the extent such excess insurance which would be payable to LESSEE in the event of a Total Loss does not exceed ten percent (10%) of the Agreed Value and only to the extent that such additional insurance will not prejudice the insurances required herein or the recovery by LESSOR thereunder. LESSEE agrees that it will not create or permit to exist any liens or encumbrances over the insurances, or its interest therein, except as constituted by this Lease. ARTICLE 19 LOSS, DAMAGE AND REQUISITION Throughout the Lease Term and until the Termination Date, LESSEE will bear all risk of loss, theft, damage and destruction to the Aircraft. 19.1 Definitions. In this Article 19 and throughout this Lease: "Agreed Value" * ------------ "Net Total Loss Proceeds" means the Total Loss Proceeds actually received by LESSOR following a Total Loss, less any legal and other out-of-pocket expenses, taxes or duties incurred by LESSOR in connection with the collection of such proceeds. "Total Loss" means any of the following in relation to the Aircraft, Airframe or any Engine, and "Total Loss Date" means the date set forth in parenthesis after each Total Loss: (a) destruction, damage beyond repair or being rendered permanently unfit for normal use for any reason (the date such event occurs or, if not known, the date on which the Aircraft, Airframe or Engine was last heard of); (b) actual or constructive total loss (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss) (the earlier of the date on which the loss occurs or thirty (30) days after the date of notice to LESSEE's brokers or insurers claiming such total loss); (c) requisition of title, confiscation, forfeiture or any compulsory acquisition or other similar event (the date on which the same takes effect); (d) sequestration, detention, seizure or any similar event for more than sixty (60) consecutive days or one-hundred eighty (180) consecutive days if the Aircraft is located in the U.S. for such entire period (the earlier of the date on which insurers make payment on the basis of a total loss or the date of expiration of such period); (e) requisition for use for more than one hundred eighty (180) consecutive days, except as set forth in Article 19.8 (the earlier of the date on which the insurers make payment on the basis of a total loss or the date of expiration of such period); or (f) in the case of an Engine, the event described in Article 12.6.3 (the date on which the same takes effect). "Total Loss Proceeds" means the proceeds of any insurance or any compensation or similar payment arising in respect of a Total Loss. 19.2 Notice of Total Loss.LESSEE will notify LESSOR in writing within two (2) Business Days after a Total Loss Date of the Aircraft, Airframe or any Engine. 19.3 Total Loss of Aircraft or Airframe. If the Total Loss of the Aircraft or Airframe occurs during the Lease Term, the following will occur: 19.3.1 After the Total Loss Date and until receipt by LESSOR of the Agreed Value and all other amounts then due under this Lease, LESSEE will continue to pay Rent and the parties will perform, to the extent possible, all of their other obligations under this Lease. 19.3.2 On the date which is the earlier of the following dates: (a) the date on which the Total Loss Proceeds of the Aircraft or the Airframe are paid by LESSEE's insurance underwriters or brokers and (b) the date which falls forty-five (45) days after the Total Loss Date, LESSEE will pay to LESSOR an amount equal to the sum of: (a) the Agreed Value and (b) all other amounts then due under this Lease, less an amount equal to the Net Total Loss Proceeds received by LESSOR by such date. 19.3.3 LESSOR will apply the Net Total Loss Proceeds and any amounts received from LESSEE pursuant to Article 19.3.2 as follows: (a) first, in discharge of any unpaid Rent and any other amounts accrued and unpaid up to the date of LESSOR's receipt of the Agreed Value; (b) second, in discharge of the Agreed Value; and (c) third, payment of the balance, if any, to LESSEE. 19.3.4 Upon receipt by LESSOR of all monies payable by LESSEE in Article 19.3, this Lease will terminate except for LESSEE's obligations under Articles 10.5, 16 and 17 which survive the Termination Date. FOR AVOIDANCE OF DOUBT, THE AGREED VALUE OF THE AIRCRAFT WILL BE PAYABLE TO LESSOR PURSUANT TO THIS ARTICLE 19.3 WHEN A TOTAL LOSS OF THE AIRFRAME OCCURS EVEN IF THERE HAS NOT BEEN A TOTAL LOSS OF AN ENGINE OR ENGINES. 19.4 Surviving Engine(s).4 Surviving Engine(s).4 Surviving Engine(s).4 Surviving Engine(s). If a Total Loss of the Airframe occurs and there has not been a Total Loss of an Engine or Engines, then, provided no Default has occurred and is continuing, at the request of LESSEE (subject to agreement of relevant insurers) and on receipt of all monies due under Article 19.3 and payment by LESSEE of all airport, navigation and other charges on the Aircraft, LESSOR will transfer all its right, title and interest in the surviving Engine(s) to LESSEE, but without any responsibility, condition or warranty on the part of LESSOR other than as to freedom from any LESSOR's Lien. 19.5 Total Loss of Engine and not Airframe. 19.5.1 Upon a Total Loss of any Engine not installed on the Airframe or a Total Loss of an Engine installed on the Airframe not involving a Total Loss of the Airframe, LESSEE will replace such Engine as soon as reasonably possible by duly conveying to LESSOR title to another engine (a) free and clear of all Security Interests (except Permitted Liens) of any kind or description, (b) in airworthy condition and of the same or improved model, service bulletin and modification status and having a value and utility at least equal to the Engine which sustained the Total Loss, (c) not older (by reference to serial number or manufacture date) than the older of the two Engines (on the date of the replacement) delivered by LESSOR to LESSEE with the Aircraft on the Delivery Date, and (d) in the same or better operating condition as the Engine which sustained a Total Loss, including time in service, hours and cycles since new and hours and cycles available to the next inspection, Overhaul or scheduled or anticipated removal; provided that with respect to replacement modules in such other engine, LESSEE will use best reasonable efforts to ensure that such other engine will not have been previously operated at a higher thrust rating than the Engine which sustained the Total Loss and provided further that in all circumstances life-limited Parts in such replacement engine will have no less life remaining than the life-limited Parts in the Engine which sustained the Total Loss. Such replacement engine will be an Engine as defined herein and the Engine which sustained such Total Loss will cease to be an Engine; whereupon, subject to agreement of relevant insurers, LESSOR will transfer all of its right, title and interest in and to the Engine which sustained the Total Loss to LESSEE, but without any responsibility, condition or warranty on the part of LESSOR other than as to title and freedom from any LESSOR's Lien. 19.5.2 LESSEE agrees at its own expense to take such action as LESSOR may reasonably request in order that any such replacement Engine becomes the property of LESSOR and is leased hereunder on the same terms as the destroyed Engine. LESSEE's obligation to pay Rent will continue in full force and effect, but an amount equal to the Net Total Loss Proceeds received by LESSOR with respect to such destroyed Engine will, subject to LESSOR's right to deduct therefrom any amounts then due and payable by LESSEE under this Lease, be paid to LESSEE. 19.6 Other Loss or Damage. 19.6.1 If the Aircraft or any Part thereof suffers loss or damage not constituting a Total Loss of the Aircraft or the Airframe or any Engine, all the obligations of LESSEE under this Lease (including payment of Rent) will continue in full force. 19.6.2 * 19.6.3 To the extent insurance proceeds received by LESSEE directly from its insurers do not cover the cost of such repair work on the Aircraft or Engine and LESSOR has received additional insurance proceeds from LESSEE's insurers with respect to such repair work, LESSOR will (subject to LESSOR's right to deduct therefrom any amounts then due and payable by LESSEE under this Lease and submission by LESSEE of reasonable documentation in support of such excess repair costs) pay to LESSEE insurance proceeds received by LESSOR as and when such repair work is performed on the Aircraft. 19.7 Copy of Insurance Policy.7 Copy of Insurance Policy.7 Copy of Insurance Policy.7 Copy of Insurance Policy. Promptly after the occurrence of a partial loss or Total Loss of the Aircraft or an Engine, at the request of LESSOR (and then only in the event reasonably required by LESSOR in connection with insurance policies pursuant to which coverage is sought) LESSEE will provide LESSOR with a copy of the relevant portions of LESSEE's insurance policy. LESSEE's insurance policy will be confidential between LESSOR and LESSEE and will not be disclosed by LESSOR to third parties other than LESSOR's professional advisors and except as necessary in respect of proceedings relating to such insurance claim. 19.8 Government Requisition.8 Government Requisition.8 Government Requisition.8 Government Requisition. If the Aircraft, Airframe or any Engine is requisitioned for use by any Government Entity, LESSEE will promptly notify LESSOR of such requisition. All of LESSEE's obligations hereunder will continue as if such requisition had not occurred. So long as no Event of Default has occurred and is continuing, all payments received by LESSOR or LESSEE from such Government Entity will be paid over to or retained by LESSEE. If an Event of Default has occurred and is continuing, all payments received by LESSEE or LESSOR from such Government Entity may be used by LESSOR to satisfy any obligations owing by LESSEE. 19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent .9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent .9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent .9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent . For avoidance of doubt, the parties agree that (a) notwithstanding the Total Loss of the Airframe and/or Engines LESSOR will retain an amount equal to fifty percent (50%) of all Reserves paid by LESSEE and not payable to LESSEE pursuant to Article 13.4, and (b) in the event of the Total Loss of the Airframe and/or Engines upon receipt by LESSOR of all monies payable by LESSEE in accordance with Article 19.1.3, and subject to Article 5.1.3, LESSOR will (i) return the Security Deposit and any prepaid Rent to LESSEE and (ii) pay to LESSEE an amount equal to fifty percent (50%) of the Reserves then held by LESSOR. ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE 20.1 Representations and Warranties. LESSEE represents and warrants the following to LESSOR as of the date of execution of this Lease and as of the Delivery Date: 20.1.1 Corporate Status. LESSEE is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Colorado. It has the corporate power and authority to carry on its business as presently conducted and to perform its obligations hereunder. 20.1.2 Governmental Approvals. No authorization, approval, consent, license or order of, or registration with, or the giving of notice to the Aviation Authority or any other Government Entity is required for the valid authorization, execution, delivery and performance by LESSEE of this Lease, except as will have been duly effected as of the Delivery Date. 20.1.3 Binding. LESSEE's Board of Directors has authorized LESSEE to enter into this Lease and the other Operative Documents and to perform its obligations hereunder and thereunder. This Lease and the other Operative Documents that have been executed and delivered by LESSEE as of the date of this Lease been duly executed and delivered by LESSEE and represent the valid, binding and enforceable obligations of LESSEE except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application affecting the enforcement of creditors' rights and by such principles of equity as a court having jurisdiction may impose. When executed by LESSEE at Delivery, the same will apply to the Estoppel and Acceptance Certificate and the other Operative Documents. 20.1.4 No Breach. The execution and delivery of the Operative Documents that have been executed and delivered by LESSEE as of the date of this Lease, the consummation by LESSEE of the transactions contemplated under the Operative Documents and compliance by LESSEE with the terms and provisions thereof do not and will not contravene any Law applicable to LESSEE, or result in any material breach of or constitute any material default under or result in the creation of any Security Interest upon any property of LESSEE, pursuant to any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, corporate charter, by-law or other material agreement or instrument to which LESSEE is a party or by which LESSEE or its properties or assets may be bound or affected. When executed by LESSEE at Delivery, the same will apply to the Estoppel and Acceptance Certificate and the other Operative Documents. 20.1.5 Filings. Except for any filing or recording that may be required under the U.S. Federal Aviation Administration and except for the filing of UCC-1 financing statements with the Secretary of State of the State of Colorado, no filing or recording of any instrument or document (including the filing of any financial statement) is necessary under the Laws of the State of Registration in order for this Lease to constitute a valid and perfected lease of record relating to the Aircraft. 20.1.6 Licenses. LESSEE holds all licenses, certificates and permits from applicable Government Entities in the U.S. necessary for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Lease. 20.1.7 No Suits. There are no suits, arbitrations or other proceedings pending or threatened before any court or administrative agency against or affecting LESSEE which, if adversely determined, would have a material adverse effect on the business, assets or condition (financial or otherwise) of LESSEE or its ability to perform under this Lease, except as described in the filings provided to LESSOR pursuant to Article 22. 20.1.8 Tax Returns. All necessary returns have been delivered by LESSEE to all relevant taxation authorities in the jurisdiction of its incorporation and LESSEE is not in default in the payment of any taxes due and payable. 20.1.9 No Material Adverse Effect. LESSEE is not in default under any agreement to which it is a party or by which it may be bound which default if left uncured would have a material adverse effect on its business, assets or condition. 20.1.10 No Default under this Lease. At the time of execution of this Lease, no Default has occurred and is continuing and the financial statements provided to LESSOR pursuant to Article 22 fairly present the financial condition of LESSEE. 20.2 Covenants.LESSEE covenants to LESSOR that it will comply with the following throughout the entire Lease Term: 20.2.1 Licensing. LESSEE will hold all licenses, certificates and permits from applicable Government Entities in the U.S. necessary for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Lease. LESSEE will advise LESSOR promptly in the event any such licenses, certificates or permits are cancelled, terminated, revoked or not renewed. 20.2.2 Information about Suits. LESSEE will promptly give to LESSOR a notice in writing of any suit, arbitration or proceeding before any court, administrative agency or Government Entity which, if adversely determined, would materially adversely affect LESSEE's financial condition, affairs, operations or its ability to perform under this Lease provided, however, that compliance by LESSEE with the requirements of Article 22 hereof will be deemed compliance with the provisions of this Article 20.2.2. 20.2.3 Restrictions on Mergers. LESSEE will not consolidate with or merge into any other corporation or other Person, and will not convey, transfer, lease or otherwise dispose of all or substantially all of its assets to any corporation or other Person, unless: (i) such transaction shall not have any material adverse effect on the rights of LESSOR under or in respect of the Lease or the Aircraft; (ii) the Person formed by or surviving such consolidation or merger or the Person which acquires by conveyance, transfer, lease or other disposition all or substantially all of such property and other assets: (A) shall be a corporation organized and existing under the laws of the U. S. or any State thereof or the District of Columbia; (B) immediately after giving effect to such transaction, shall have acquired or succeeded to all or substantially all of the assets of LESSEE (if such assets are being transferred) as an entirety, and shall have a tangible net worth (determined in accordance with GAAP) of not less than LESSEE's tangible net worth (determined in accordance with GAAP) immediately prior to such transaction; (C) shall be a "citizen of the United States" of America as defined in Section 40102(a)(15)(c) of Title 49 of the U.S.C. and a Certificated Air Carrier; and (D) shall executed and deliver to LESSOR (1) such recordations and filings with any Government Entity and such other documents as shall be reasonably necessary or advisable in connection with such consolidation, merger, sale, lease, transfer or other disposition (2) an agreement, in form and substance reasonably satisfactory to LESSOR, assuming all of LESSEE's obligations under the Lease and the other Operative Documents without amendment thereto and (3) an officer's certificate to the effect that the requirements of this Section have been satisfied; and (iii)no Event of Default shall have occurred and be continuing or shall occur as a result thereof. 20.2.4 Restriction on Relinquishment of Possession. LESSEE will not, without the prior consent of LESSOR, deliver, transfer or relinquish possession of the Aircraft except in accordance with Articles 11 and 12. 20.2.5 No Security Interests. LESSEE will not create or agree to or permit to arise any Security Interest (other than Permitted Liens) on or with respect to the Aircraft, title thereto or any interest therein. LESSEE will forthwith, at its own expense, take all action as may be reasonably necessary to discharge or remove any such Security Interest if it exists at any time. 20.2.6 Representations to Other Parties. LESSEE will not represent or hold out LESSOR as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation of the Aircraft. ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR 21.1 Representations and Warranties.1 Representations and Warranties.1 Representations and Warranties.1 Representations and Warranties. LESSOR represents and warrants the following to LESSEE as of the date of execution of the Lease and as of the Delivery Date and ALL OTHER WARRANTIES, EXPRESS OR IMPLIED HAVE BEEN WAIVED IN ACCORDANCE WITH ARTICLE 8: 21.1.1 Corporate Status. LESSOR is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of California. It has the corporate power and authority to carry on its business as presently conducted and to perform its obligations hereunder. 21.1.2 Governmental Approvals. No authorization, approval, consent, license or order of, or registration with, or the giving of notice to any U.S. Government Entity is required for the valid authorization, execution, delivery and performance by LESSOR of this Lease. 21.1.3 Binding. This Lease and the other Operative Documents that have been have been executed and delivered by LESSEE as of the date of this Lease have been duly authorized, executed and delivered by LESSOR and represent the valid, enforceable and binding obligations of LESSOR except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application affecting the enforcement of creditors' rights and by such principles of equity as a court having jurisdiction may impose. When executed by LESSOR at Delivery, the same will apply to the other Operative Documents. 21.1.4 No Breach. The execution and delivery of the Operative Documents that have been executed and delivered by LESSOR as of the date of this Lease, the consummation by LESSOR of the transactions contemplated therein and compliance by LESSOR with the terms and provisions thereof do not and will not contravene any Law applicable to LESSOR, or result in any material breach of or constitute any material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, corporate charter, by-law or other material agreement or instrument to which LESSOR is a party or by which LESSOR or its properties or assets may be bound or affected. When executed by LESSOR at Delivery, the same will apply to the other Operative Documents. 21.1.5 Title to Aircraft. On the Delivery Date LESSOR will have good and valid title to the Aircraft. 21.1.6 Citizen of the United States. LESSOR is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.). 21.1.7 Airframe and Engine Warranty Assignments. The Airframe Warranty Assignment and the Engine Warranty Assignment when executed and delivered by LESSOR in accordance with Article 7.4 represent the valid and enforceable assignment to LESSEE of the warranties set forth therein. 21.2 Covenant of Quiet Enjoyment.2 Covenant of Quiet Enjoyment.2 Covenant of Quiet Enjoyment.2 Covenant of Quiet Enjoyment. So long as no Event of Default has occurred and is continuing hereunder, LESSOR covenants that neither LESSOR nor any person lawfully claiming through LESSOR will interfere with LESSEE's quiet, peaceful use and enjoyment of the Aircraft during the Lease Term. ARTICLE 22 FINANCIAL AND RELATED INFORMATION LESSEE agrees to furnish each of the following to LESSOR: (a) within forty-five (45) days after the end of each fiscal quarter of LESSEE, three (3) copies of the unaudited consolidated financial statements (including a balance sheet and profit and loss statement) prepared for such quarter in accordance with generally accepted accounting principles in the U.S.; (b) within ninety (90) days after the end of each fiscal year of LESSEE, three (3) copies of the audited consolidated financial statements (including a balance sheet and profit and loss statement) prepared as of the close of such fiscal year in accordance with generally accepted accounting principles in the U.S.; (c) promptly after distribution, three (3) copies of all reports and financial statements which LESSEE sends or makes available to its stockholders or creditors generally; (d) Technical Evaluation Reports in conjunction with every second "C" check for the Aircraft and at other times reasonably requested by LESSOR in accordance with Article 12.10.2 hereof; and (e) from time to time, such other reasonable information as LESSOR or LESSOR's Lender may reasonably request concerning the location, condition, use and operation of the Aircraft or the financial condition of LESSEE. ARTICLE 23 RETURN OF AIRCRAFT 23.1 Date of Return.1 Date of Return.1 Date of Return.1 Date of Return. LESSEE is obligated to return the Aircraft, Engines, Parts and Aircraft Documentation to LESSOR on the Expiration Date, unless a Total Loss of the Aircraft occurred prior to the Expiration Date and this Lease was terminated early in accordance with Article 19.3. If LESSEE is in Default hereunder by failing to return the Aircraft on the Expiration Date or if an Event of Default occurs prior to the Expiration Date and LESSOR repossesses the Aircraft, the return requirements set forth in this Article 23 nonetheless must be met on the date the Aircraft is actually returned to LESSOR or repossessed by LESSOR. 23.2 Technical Report.2 Technical Report.2 Technical Report.2 Technical Report. Six (6) months prior to the Expiration Date (and in an updated form at return of the Aircraft), LESSEE will provide LESSOR with a Technical Evaluation Report in the form and substance of Exhibit M, as revised, and, in addition upon LESSOR's request, will make copies available of (a) drawings of the interior configuration of the Aircraft both as it then exists and as it will exist at return, (b) an Airworthiness Directive status list, (c) a service bulletin incorporation list, (d) rotable tracked, hard-time and life limited component listings, (e) a list of LESSEE-initiated modifications and alterations, (f) interior material burn certificates, (g) the Aircraft Maintenance Program, (h) the complete workscope for the checks, inspections and other work to be performed prior to return, (i) a list of all no-charge service bulletin kits with respect to the Aircraft which were ordered by LESSEE from Manufacturer or Engine manufacturer, (j) current Engine disk sheets and a description of the last shop visit for each Engine and (k) any other data which is reasonably requested by LESSOR. 23.3 Return Location.LESSEE at its expense will return the Aircraft, Engines, Parts and Aircraft Documentation to LESSOR at Denver, Colorado or to such other airport on LESSEE's route system as may be mutually agreed to by LESSEE and LESSOR. 23.4 Full Aircraft Documentation Review.4 Full Aircraft Documentation Review.4 Full Aircraft Documentation Review.4 Full Aircraft Documentation Review. For the period commencing at least ten (10) Business Days prior to the proposed redelivery date and continuing until the date on which the Aircraft is returned to LESSOR in the condition required by this Lease, LESSEE will provide for the review of LESSOR and/or its representative all of the Aircraft records and historical documents described in Exhibit L in one central room at the Aircraft return location. 23.5 Aircraft Inspection. 23.5.1 During the maintenance checks performed immediately prior to the proposed redelivery and at the actual return of the Aircraft, LESSOR and/or its representatives will have an opportunity to conduct a full systems functional and operational inspection of the Aircraft (and other types of reasonable inspections based upon the Aircraft type, age, use and other known factors with respect to the Aircraft) and a full inspection of the Aircraft Documentation (including records and manuals), all to LESSOR's reasonable satisfaction. Any deficiencies from the Aircraft return condition requirements set forth in this Article 23 will be corrected by LESSEE at its cost prior to the acceptance flight described in Article 23.5.2. 23.5.2 Immediately prior to the proposed redelivery of the Aircraft, LESSEE will carry out for LESSOR and/or LESSOR's representatives an Aircraft acceptance flight in accordance with Manufacturer's standard flight operation check flight procedures or, if agreed to in writing by LESSOR, in accordance with an airline acceptance flight procedure, either of which will be for two (2) hours, or such longer duration as is necessary to perform such check flight procedures. Flight costs and fuel will be furnished by and at the expense of LESSEE. Any deficiencies from the Aircraft return condition requirements set forth in this Article 23 will be corrected by LESSEE at its cost prior to return of the Aircraft. 23.5.3 To the extent that the ground inspection and acceptance flight extend beyond the Expiration Date, the Lease Term will be deemed to have been automatically extended and the obligations of LESSEE hereunder (including Article 23.13.3) will continue on a day-to-day basis until the Aircraft is accepted by LESSOR as being in the condition required hereunder, which acceptance shall be evidenced by LESSOR executing and delivering to LESSEE the Return Acceptance Receipt in the form of Exhibit J. 23.6 Certificate of Airworthiness Matters. 23.6.1 The Aircraft will possess a current Certificate of Airworthiness issued by the Aviation Authority for transport category aircraft in accordance with FAR Part 21 and FAR Part 121 (although this Certificate of Airworthiness may later be substituted by the Export Certificate of Airworthiness or equivalent if requested by LESSOR pursuant to Article 23.12). 23.6.2 If the Aircraft is registered in a country other than the U.S. at time of return, LESSEE at its cost will demonstrate that the Aircraft meets the requirements for issuance of the U.S. Standard Certificate of Airworthiness for transport category aircraft specified in Article 23.6.1 by delivering to LESSOR at its option either an actual U.S. Standard Certificate of Airworthiness (if the Aircraft is to be registered in the U.S.) or a letter acceptable to LESSOR signed by an FAA Designated Airworthiness Representative (DAR) or another Person acceptable to LESSOR stating that the DAR or such Person has inspected the Aircraft and Aircraft Documentation (including records and manuals) and has found that the Aircraft meets the requirements for issuance of a U.S. Standard Certificate of Airworthiness for transport category aircraft in accordance with FAR Part 21 and, in addition, meets the operating requirements of FAR Part 121. 23.6.3 If the Aircraft is to be registered in a country other than in the U.S. after return from LESSEE, LESSOR may in its sole discretion waive the requirements of Article 23.6.1 and instead require that LESSEE at its expense (to the extent such expense is no greater than that which LESSEE would have incurred pursuant to Article 23.6.1, with any additional expenses being for LESSOR's account) put the Aircraft in a condition to meet the requirements for issuance of a Certificate of Airworthiness of the Aviation Authority of the next country of register, provided that if solely as a result of such work the Aircraft is returned after the scheduled redelivery date, LESSEE will not be liable for payment of Rent in respect of the period following the date the Aircraft would have been returned following completion of the requirements of this Article 23, but for the provisions of this Article 23.6.3. 23.7 General Condition of Aircraft at Return. 23.7.1 The Aircraft, Engines and Parts will have been maintained and repaired in accordance with the Maintenance Program, the rules and regulations of the Aviation Authority and this Lease. 23.7.2 Aircraft Documentation (including records and manuals) will have been maintained in an up-to-date status, in accordance with the rules and regulations of the Aviation Authority and the FAA and this Lease and in a form necessary in order to meet the requirements of Article 23.6.2. The records and historical documents set forth in Attachment 1 of Exhibit J will be in English. 23.7.3 The Aircraft will be in the same working order and condition as at Delivery (subject to the other provisions of this Article 23, reasonable wear and tear from normal flight operations excepted), with all pilot discrepancies and deferred maintenance items cleared on a terminating action basis. 23.7.4 The Aircraft will be airworthy (conform to type design and be in a condition for safe operation), with all Aircraft equipment, components and systems operating in accordance with their intended use and within limits approved by Manufacturer, Aviation Authority and the FAA. 23.7.5 The interior of the Aircraft (including cabin and windows) will be in a reasonable condition and cosmetically acceptable, with no cracks, tears or rips. 23.7.6 No special or unique Manufacturer, Engine manufacturer or Aviation Authority inspection or check requirements which are specific to the Aircraft or Engines (as opposed to all aircraft or engines of their types) will exist with respect to the Airframe, Engines and Aircraft equipment, components and systems. 23.7.7 All repairs, modifications and alterations to the Aircraft will have been accomplished in accordance with the FARs or Manufacturer's Structural Repair Manual (or FAA-approved data supported by FAA Form 8110-3) for the Aircraft, as applicable. 23.7.8 The Aircraft will be returned with LESSOR's Engines installed and with the same equipment as at Delivery, subject only to those replacements, additions and Modifications permitted under this Lease. 23.7.9 All Airworthiness Directives which are issued during the Lease Term and require compliance (either by means of repetitive inspections, modifications or terminating action) prior to return of the Aircraft to LESSOR or within one (1) year after the Termination Date will have been complied with on the Aircraft on a terminating action basis at LESSEE's cost. Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. If, after using commercially reasonable efforts, LESSEE is unable to acquire the material, parts or components necessary to accomplish such Airworthiness Directive, LESSEE will pay to LESSOR upon return of the Aircraft the estimated cost of terminating such Airworthiness Directive. If the estimated cost cannot be mutually agreed upon by LESSEE and LESSOR, LESSEE and LESSOR will each obtain an estimate from a reputable FAA approved maintenance facility (unaffiliated with LESSEE or LESSOR) and the estimated cost will be the average of the two estimates. 23.7.10 The Aircraft will be in compliance with Manufacturer's Corrosion Prevention and Control Program (CPCP) specified for the model type by Manufacturer. 23.7.11 If any waivers, deviations, dispensations, alternate means of compliance, extensions or carry-overs with respect to maintenance or operating requirements, repairs or Airworthiness Directives are granted by the Aviation Authority or permitted by the Maintenance Program, LESSEE at its sole cost and expense will nonetheless perform such maintenance or operating requirements, repairs or Airworthiness Directives as if such waivers, deviations, dispensations, alternate means of compliance, or extensions or carry-overs did not exist; provided, however, that if any Airworthiness Directive has been deemed terminated by means of an alternate means of compliance that is widely accepted by the international airline industry, such alternative means of compliance will be deemed to satisfy the terms of this Article 23.7.11. 23.7.12 The Aircraft will be free from any Security Interest except LESSOR's Liens and no circumstance will have so arisen whereby the Aircraft is or could become subject to any Security Interest or right of detention or sale in favor of the Aviation Authority, any airport authority, or any other authority. 23.7.13 All no-charge vendor and Manufacturer's service bulletin kits received by LESSEE for the Aircraft but not installed thereon will be on board the Aircraft as cargo. At LESSOR's request, any other service bulletin kit which LESSEE paid for will also be delivered to LESSOR on board the Aircraft, but LESSOR will reimburse LESSEE for its actual out-of-pocket costs for such kit, unless LESSEE purchased such kit as part of its implementation of a service bulletin on its fleet of aircraft of the same type as the Aircraft but had not yet installed such kit on the Aircraft, in which case such kit will be furnished free of charge to LESSOR. 23.7.14 The Aircraft will be free of any leaks and any damage resulting therefrom. All repairs will have been performed on a permanent basis in accordance with the applicable manufacturer's instructions. 23.7.15 The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and water) will be serviced to full and the waste tank serviced in accordance with Manufacturer's instructions. Fuel tanks will be at least as full as at Delivery. 23.7.16 The Aircraft will be painted in LESSEE's livery. 23.8 Checks Prior to Return. Prior to return of the Aircraft to LESSOR, LESSEE at its expense will do each of the following: 23.8.1 Have performed, by LESSEE or any other FAA-approved repair station, the next due "C" check as described in the MPD. LESSEE will also weigh the Aircraft. Any discrepancies revealed during such inspection will be corrected in accordance with Manufacturer's maintenance and repair manuals or FAA-approved data. LESSEE agrees to perform during such check any other work reasonably required by LESSOR (and not otherwise required under this Lease) and LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates. 23.8.2 Perform an internal and external corrosion inspection where any evidence of corrosion exists and correct any discrepancies in accordance with the recommendations of Manufacturer and the Structural Repair Manual. In addition, all inspected areas will be properly treated with corrosion inhibitor if and as recommended by Manufacturer. 23.8.3 All required external placards, signs and markings will be properly attached, free from damage, clean and legible. 23.8.4 Clean the exterior and interior of the Aircraft. 23.8.5 If reasonably required by LESSOR, repaint the flight deck and replace placards of the Aircraft. 23.8.6 In accordance with Article 23.7.7, permanently repair damage to the Aircraft that exceeds Manufacturer's limits and replace any non-flush structural patch repairs installed on the Aircraft with flush-type repairs, unless Manufacturer does not recommend a flush-type repair. 23.9 Engine Return Requirements. 23.9.1 Immediately prior to the return of the Aircraft to LESSOR, LESSEE at LESSEE's expense will perform each of the following on the Engines: (a) With LESSOR or its representatives present, LESSEE will perform a full and complete hot and cold section videotape borescope on each Engine and its modules in accordance with the Engine manufacturer's maintenance manual. (b) If the Engine historical and technical records and/or condition trend monitoring data of any Engine (including the APU) indicate an acceleration in the rate of deterioration in the performance of an Engine, LESSEE will correct, to LESSOR's reasonable satisfaction, such conditions which are determined to be causing such accelerated rate of deterioration. (c) With LESSOR or its representatives present, LESSEE will accomplish a maximum power assurance run and an acceleration check on the Engines. LESSEE will evaluate the Engine performance and record the Engine maximum power assurance test conditions and results on the Return Acceptance Receipt. 23.9.2 At return, each Engine will meet all of the following: (a) Each Engine will have at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal regardless of the operating environment of such Engine. In determining whether an Engine has at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal, the following will be considered: (i) the Engine manufacturer's estimated mean time between removals for engines of the same type as the Engines; (ii) the remaining EGT margin on such Engine; and (iii)the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check; (b) The Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check do not reveal any condition which would cause the Engines or any module to be serviceable with an increased frequency of inspection or with calendar time, flight hour or flight cycle restrictions under the Engine manufacturer's maintenance manual; (c) No life limited Part of an Engine will have more hours or cycles consumed than such Engine's data plate; and (d) Each Part of an Engine which has a hard time limit will have at least 3,000 cycles remaining to operate until its next scheduled Overhaul. Each Part of an Engine which has a life limit will have at least 3,000 cycles remaining to operate until its removal. LESSEE will correct any discrepancies in the required condition of the Engines set forth in this Article 23.9.2 in accordance with the guidelines set out by the Engine manufacturer. If there is a dispute as to whether an Engine meets the requirements of this Article 23.9.2, LESSEE and LESSOR will consult with Engine manufacturer and follow Engine manufacturer's recommendations (including the accomplishment of an Engine test cell operational check) and the manner in which any discrepancies from the requirements of this Article 23.9.2 will be rectified. 23.10 Hour/Cycle/Calendar Time Requirements. At return, the condition of the Aircraft will be as follows: 23.10.1 The Aircraft will have not more than one-hundred (100) hours consumed since completion of the last "C" check in accordance with the MPD (excluding hours consumed on the acceptance flight). 23.10.2 The APU will be in serviceable condition. 23.10.3 The Landing Gear will be cleared for at least eight (8) months (or one (1) month if LESSEE exercises its extension option) of operation until the next Overhaul or scheduled removal; provided, however, that at LESSOR's request by notice at least six (6) months prior to the Expiration Date, LESSEE will cause to be performed an Overhaul the Landing Gear prior to return of the Aircraft and the costs of such Overhaul will be paid as follows: (i) first, by application of the Landing Gear Reserves paid by LESSEE and (ii) second, the balance will be paid by LESSOR. 23.10.4 Each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of less than four thousand (4,000) hours or three thousand (3,000) cycles will be freshly overhauled or replaced and each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of more than four thousand (4,000) hours or three thousand (3,000) cycles will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled Overhaul or removal. 23.10.5 Each life-limited Part of the Aircraft will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled removal. 23.10.6 Each Part (excluding Landing Gear) which has a calendar limit (including emergency equipment) will have remaining to operate the lesser of the following calendar times: (i) one (1) year from the return of the Aircraft to LESSOR or (ii) one hundred percent (100%) of such Part's total approved life. 23.10.7 With respect to all installed Parts as a group, such Parts will have an average total time since new no greater than that of the Airframe. 23.10.8 The Aircraft Landing Gear tires and brakes will have at least fifty percent (50%) life remaining until their next Overhaul (except for the acceptance flight). 23.11 Like for Like.11 Like for Like.11 Like for Like.11 Like for Like. Notwithstanding anything in this Article 23 to the contrary, in the event that at Delivery the Aircraft did not meet a particular standard with respect to a specific item set forth in Exhibit B, and such deficiency was noted on the Estoppel and Acceptance Certificate, then LESSEE's return obligations with respect to such specific item will be modified accordingly so that LESSEE is not required to return such specific item with greater time remaining than existed at Delivery. 23.12 Export and Deregistration of Aircraft.12 Export and Deregistration of Aircraft.12 Export and Deregistration of Aircraft.12 Export and Deregistration of Aircraft. At LESSOR's request by notice at least fifteen (15) days prior to the Expiration Date, LESSEE at its cost (except as set forth in the second sentence of this Article 23.12) will (a) provide an Export Certificate of Airworthiness or its equivalent from the State of Registration for the country designated by LESSOR, (b) assist with deregistration of the Aircraft from the register of aircraft in the State of Registration, (c) assist with arranging for prompt confirmation of such deregistration to be sent by the registry in the State of Registration to the next country of registration and (d) perform any other acts reasonably required by LESSOR in connection with such deregistration. If any Aircraft work which LESSEE is not otherwise required to perform hereunder, including engineering, is required in order to obtain such Export Certificate of Airworthiness, LESSEE will, to the extent reasonably possible, perform such work and LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates. 23.13 LESSEE's Continuing Obligations.13 LESSEE's Continuing Obligations223.13 LESSEE's Continuing Obligations.13 LESSEE's Continuing Obligations. In the event that LESSEE does not return the Aircraft to LESSOR on the Expiration Date and in the condition required by this Article 23 for any reason (whether or not the reason is within LESSEE's control): 23.13.1 the obligations of LESSEE under this Lease will continue in full force and effect on a day-to-day basis until such return. This will not be considered a waiver of LESSEE's Event of Default or any right of LESSOR hereunder. 23.13.2 Until such return, the Agreed Value will be an amount equal to the Agreed Value on the day the Aircraft should have been returned to LESSOR pursuant to this Lease. 23.13.3 LESSEE will fully indemnify LESSOR on demand for all losses (including damages in accordance with Article 25.5(b)), liabilities, actions, proceedings, costs and expenses thereby suffered or incurred by LESSOR and, in addition, until such time as the Aircraft is redelivered to LESSOR and put into the condition required by this Article 23, instead of paying the Rent specified in Article 5.3, LESSEE will pay twice the amount of Rent for each day from the scheduled Expiration Date until the Termination Date (the monthly Rent payable under Article 5.3.1 will be prorated based on the actual number of days in the applicable month). Payment will be made upon presentation of LESSOR's invoice. Notwithstanding the foregoing, in the event that the Aircraft is removed from service by LESSEE and placed in a maintenance facility for the performance of work required to put the Aircraft into the condition required by this Article 23 and as a result of delays in the performance of such work the Aircraft is not returned on the Expiration Date, for a period of up to seven (7) days following the Expiration Date, LESSEE shall only be responsible for normal Rent. After the 7th day of such period, if LESSEE has not returned the Aircraft to LESSOR in the condition required by this Lease, LESSEE shall be responsible for twice the Rent for the period after such 7 day period in accordance with the provisions of this Article 23.13.3 until the actual Termination Date. 23.13.4 LESSOR may elect, in its sole and absolute discretion, to accept the return of the Aircraft prior to the Aircraft being put in the condition required by this Article 23 and thereafter have any such non-conformance corrected at such time as LESSOR may deem appropriate (but within ninety (90) days following the return of the Aircraft) and at commercial rates then-charged by the Person selected by LESSOR to perform such correction. Any direct expenses incurred by LESSOR for such correction will become additional Rent payable by LESSEE within fifteen (15) days following the submission of a written statement by LESSOR to LESSEE, identifying the items corrected and setting forth the expense of such corrections in reasonable detail. LESSEE's obligation to pay such supplemental Rent will survive the Termination Date. 23.14 Airport and Navigation Charges.14 Airport and Navigation Charges223.14 Airport and Navigation Charges.14 Airport and Navigation Charges. LESSEE will ensure that at return of the Aircraft any and all airport, navigation and other charges which give rise or would if unpaid give rise to any lien, right of detention, right of sale or other Security Interest in relation to the Aircraft, Engine or any Part have been paid and discharged in full and will at LESSOR's request produce evidence thereof satisfactory to LESSOR. 23.15 Return Acceptance Certificate.15 Return Acceptance Certificate.15 Return Acceptance Certificate.15 Return Acceptance Certificate. Upon return of the Aircraft in accordance with the terms of this Lease, LESSEE will promptly prepare and execute two (2) Return Acceptance Certificates in the form and substance of Exhibit J and LESSOR will countersign and return one such Return Acceptance Certificate to LESSEE. In addition, LESSEE and LESSOR will execute a Lease Termination for filing with the FAA evidencing termination of this Lease. 23.16 Indemnities and Insurance.16 Indemnities and Insurance.16 Indemnities and Insurance.16 Indemnities and Insurance. The indemnities and insurance requirements set forth in Articles 17 and 18, respectively, will apply to Indemnitees and LESSOR's representatives during return of the Aircraft, including the ground inspection and acceptance flight. With respect to the acceptance flight, LESSOR's representatives will receive the same protections as LESSOR on LESSEE's Aviation and Airline General Third Party Liability Insurance. 23.17 Civil Reserve Air Fleet. 23.17.1 LESSEE may transfer possession of the Aircraft to the United States of America or any instrumentality or agency thereof as part of the Civil Reserve Air Fleet Program authorized under 10 U.S.C.ss.9511 et seq. (or any substantially similar program) ("CRAF Program") for a period which includes (collectively, the "CRAF Program Requisition Period") (a) the entire period of requisition under the CRAF Program and (b) an additional six (6) months after the expiration of the requisition under the CRAF Program. If the CRAF Program Requisition Period extends beyond the Expiration Date provided by this Lease, then the Lease will be deemed to continue until the end of the CRAF Program Requisition Period at a monthly rental rate equal to the monthly rental rate in effect at the end of the Lease Term and the Expiration Date will be deemed to be the end of the CRAF Program Requisition Period. If the Aircraft is requisitioned under the CRAF Program for a period which extends beyond the Lease Term, then LESSEE will provide LESSOR with written notice of the proposed redelivery at least six (6) months prior to such redelivery date and LESSEE must return the Aircraft in the condition required by Article 23 on the redelivery date set forth in such written notice. 23.17.2 LESSEE will promptly notify LESSOR in writing in the event of the requisition for use of the Aircraft under CRAF activation by the U.S. Government. All of LESSEE's obligations under this Lease will continue to the same extent as if such requisition had not occurred. 23.17.3 Any provisions of this Lease to the contrary notwithstanding, if there is a requisition for use of the Aircraft pursuant to the CRAF Program and/or CRAF activation, LESSOR agrees that LESSEE's insurances described in Exhibit C may be supplemented or replaced by insurances provided under Title XIII of the Act, and/or U.S. Government indemnification (which Title XIII insurances and indemnification will be, as to the Aircraft, in an amount not less than the Agreed Value and, as to all other insurances, in amounts not less than those established in Exhibit C); provided, however, that LESSEE will remain responsible for full compliance with all the provisions of this Lease, including Articles 17 and 19, to the extent Title XIII and/or the U.S. Government indemnification do not satisfy LESSEE's obligations under this Lease. 23.17.4 If there is a requisition for use of the Aircraft pursuant to the CRAF Program and/or CRAF activation, there will be no limitation on the geographic area in which the Aircraft may be operated so long as, taken as a whole, LESSEE's insurance, the Title XIII insurance and/or the indemnification provided by the U.S. Government fully cover (without any geographic exclusions) LESSEE's Exhibit C insurance requirements. 23.17.5 If an Event of Default occurs under this Lease and LESSOR elects to pursue its remedies under Article 25.3(e) to terminate this Lease and repossess the Aircraft, LESSOR will so notify the U.S. Government by sending a written communication with a copy to LESSEE as follows: Headquarters Air Mobility Command AMC Contracting Office -- XOKA Scott Air Force Base, Illinois 62225-5007 23.17.6 So long as no Event of Default has occurred and is continuing, all payments received by LESSOR or LESSEE from such Government Entity in connection with the requisition of the Aircraft under the CRAF Program (except payments on account of a Total Loss of the Aircraft) will be paid over to or retained by LESSEE. If an Event of Default has occurred and is continuing, all payments received by LESSEE or LESSOR from such Government Entity in connection with the requisition of the Aircraft under the CRAF Program may be used by LESSOR to satisfy any obligations owing by LESSEE. ARTICLE 24 ASSIGNMENT 24.1 No Assignment by LESSEE.1 No Assignment by LESSEE.1 No Assignment by LESSEE.1 No Assignment by LESSEE. EXCEPT AS EXPRESSLY PERMITTED BY ARTICLE 11 OR ARTICLE 20.2.3, NO ASSIGNMENT, NOVATION, TRANSFER, MORTGAGE OR OTHER CHARGE MAY BE MADE BY LESSEE OF ANY OF ITS RIGHTS WITH RESPECT TO THE AIRCRAFT, ENGINE OR PART OR THIS LEASE. 24.2 Sale or Assignment by LESSOR. 24.2.1 Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time and without LESSEE's consent sell, assign or transfer its rights, interest and obligations hereunder, under any other Operative Document, or with respect to the Aircraft to a Permitted Transferee; provided, however, that no such transfer shall materially increase LESSEE's liabilities or obligations hereunder or materially adversely affect LESSEE's rights under this Lease. For a period of two (2) years after such sale or assignment and at LESSEE's cost, LESSEE will continue to name LESSOR as an additional insured under the Aviation and Airline General Third Party Liability Insurance specified in Exhibit C. 24.2.2 The term "LESSOR" as used in this Lease means the lessor of the Aircraft at the time in question. In the event of the sale of the Aircraft and transfer of LESSOR's rights and obligations under this Lease to a Permitted Transferee, such Permitted Transferee will become "LESSOR" of the Aircraft under this Lease and the transferring party (the prior "LESSOR") will be relieved of all liability to LESSEE under this Lease for obligations arising on and after the date the Aircraft is sold. LESSEE will acknowledge and accept the Permitted Transferee as the new "LESSOR" under this Lease and will look solely to the Permitted Transferee for the performance of all LESSOR obligations and covenants under this Lease arising on and after the Aircraft sale date. 24.3 LESSOR's Lender.3 LESSOR's Lender.3 LESSOR's Lender.3 LESSOR's Lender. Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time and without LESSEE's consent grant security interests over the Aircraft and assign the benefit of this Lease to a lender ("LESSOR's Lender") as security for LESSOR's obligations to LESSOR's Lender. 24.4 LESSEE Cooperation.4 LESSEE Cooperation.4 LESSEE Cooperation.4 LESSEE Cooperation. On request by LESSOR, LESSEE will execute all such documents (such as a consent to a lease assignment agreement) as LESSOR may reasonably require to confirm LESSEE's obligations under this Lease and obtain LESSEE's acknowledgment that LESSOR is not in breach of the Lease. LESSEE will provide all other reasonable assistance and cooperation to LESSOR in connection with any such sale or assignment or the perfection and maintenance of any such security interest, including, at LESSOR's cost, making all necessary filings and registrations in the State of Registration and providing all opinions of counsel with respect to matters reasonably requested by LESSOR. LESSOR will reimburse LESSEE for its reasonable out-of-pocket costs and expenses (including reasonable legal fees) in reviewing documents required by LESSOR and cooperating with a transfer pursuant to this Article 24. 24.5 Protections. 24.5.1 LESSOR will obtain for the benefit of LESSEE a written acknowledgment from any Permitted Transferee or LESSOR's Lender that, so long as no Event of Default has occurred and is continuing hereunder, neither such Person nor any Person claiming by, through or under such Person will not interfere with LESSEE's quiet, peaceful use and enjoyment of the Aircraft. 24.5.2 Wherever the term "LESSOR" is used in this Lease in relation to any of the provisions relating to disclaimer, title and registration, indemnity and insurance contained in Articles 8, 14, 17 and 18, respectively, or with respect to Article 20.2.6, the term "LESSOR" will be deemed to include any Permitted Transferee and its lenders, if applicable. For avoidance of doubt, in the event of LESSOR's sale or financing of the Aircraft, the disclaimer and indemnity provisions contained in Articles 8 and 17 will continue to be applicable after the sale or assignment to International Lease Finance Corporation, as well as being applicable to any Permitted Transferee and its lenders. ARTICLE 25 DEFAULT OF LESSEE 25.1 LESSEE Notice to LESSOR.1 LESSEE Notice to LESSOR.1 LESSEE Notice to LESSOR.1 LESSEE Notice to LESSOR. LESSEE will promptly notify LESSOR if LESSEE becomes aware of the occurrence of any Default. 25.2 Events of Default. * 25.3 LESSOR's General Rights.3 LESSOR's General Rights.3 LESSOR's General Rights.3 LESSOR's General Rights. Upon the occurrence and continuance of any Event of Default, LESSOR may do all or any of the following at its option (in addition to such other rights and remedies which LESSOR may have by statute or otherwise but subject to any requirements of applicable Law): (a) terminate this Lease by giving written notice to LESSEE; (b) require that LESSEE immediately move the Aircraft to an airport or other location designated by LESSOR; (c) for LESSEE's account, do anything that may reasonably be required to cure any default and recover from LESSEE all reasonable costs, including legal fees and expenses incurred in doing so and Default Interest; (d) proceed as appropriate to enforce performance of this Lease and to recover any damages for the breach hereof, including the amounts specified in Article 25.5; (e) terminate this Lease by taking possession of the Aircraft or by serving notice requiring LESSEE to return the Aircraft to LESSOR at the location specified by LESSOR. If LESSOR takes possession of the Aircraft, it may enter upon LESSEE's premises where the Aircraft is located without liability except for the willful misconduct of LESSOR. Upon repossession of the Aircraft, LESSOR will then be entitled to sell, lease or otherwise deal with the Aircraft as if this Lease had never been made. LESSOR will be entitled to the full benefit of its bargain with LESSEE; or (f) apply all or any portion of the Security Deposit and any other security deposits held by LESSOR pursuant to any other agreements between LESSOR and LESSEE to any amounts due. 25.4 Deregistration and Export of Aircraft.4 Deregistration and Export of Aircraft.4 Deregistration and Export of Aircraft.4 Deregistration and Export of Aircraft. If an Event of Default has occurred and is continuing, LESSOR may take all steps necessary to deregister the Aircraft in and export the Aircraft from the State of Registration. 25.5 LESSEE Liability for Damages.5 LESSEE Liability for Damages.5 LESSEE Liability for Damages.5 LESSEE Liability for Damages. Upon the occurrence and during the continuance of an Event of Default, in addition to all other remedies available at law or in equity, LESSOR has the right to recover from LESSEE and LESSEE will pay LESSOR within two (2) Business Days after LESSOR's written demand, all of the following: (a) all amounts which are then due and unpaid hereunder and which become due prior to the earlier of LESSOR's recovery of possession of the Aircraft or LESSEE making an effective tender thereof; (b) subject to LESSOR's obligations at Law to mitigate its damages, any losses suffered by LESSOR because of LESSOR's inability to place the Aircraft on lease with another lessee or to otherwise utilize the Aircraft on financial terms as favorable to LESSOR as the terms hereof or, if LESSOR elects to dispose of the Aircraft, the funds arising from a sale or other disposition of the Aircraft are not as profitable to LESSOR as leasing the Aircraft in accordance with the terms hereof would have been (and LESSOR will be entitled to accelerate any and all Rent which would have been due from the date of LESSOR's recovery or repossession of the Aircraft through the Expiration Date); (c) all costs associated with LESSOR's exercise of its remedies hereunder, including but not limited to repossession costs, legal fees, Aircraft storage costs and Aircraft re-lease or sale costs; (d) any amount of principal, interest, fees or other sums paid or payable on account of funds borrowed in order to carry any unpaid amount; (e) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to LESSOR's financing of the Aircraft; (f) direct expenses incurred by LESSOR to correct non-conformance of the Aircraft with return conditions in accordance with Article 23.13.3; and (g) an amount sufficient to fully compensate LESSOR for any loss of or damage to the Aircraft caused by LESSEE's default. 25.6 Waiver of Default.6 Waiver of Default.6 Waiver of Default.6 Waiver of Default. By written notice to LESSEE, LESSOR may at its election waive any Default or Event of Default and its consequences and rescind and annul any prior notice of termination of this Lease. The respective rights of the parties will then be as they would have been had no Default or Event of Default occurred and no such notice been given. 25.7 Present Value of Payments.7 Present Value of Payments.7 Present Value of Payments.7 Present Value of Payments. In calculating LESSOR's damages hereunder, upon an Event of Default all Rent and other amounts which would have been due hereunder during the Lease Term if an Event of Default had not occurred will be calculated on a present value basis using a discounting rate of six percent (6%) per annum discounted to the earlier of the date on which LESSOR obtains possession of the Aircraft or LESSEE makes an effective tender thereof. 25.8 Use of "Termination Date".8 Use of TerminationDate.8 Use of TerminationDate.8 Use of TerminationDate. For avoidance of doubt, it is agreed that if this Lease terminates and the Aircraft is repossessed by LESSOR due to an Event of Default, then, notwithstanding the use of the term "Termination Date" in this Lease, the period of the Lease Term and the "Expiration Date" will be utilized in calculating the damages to which LESSOR is entitled pursuant to Article 25.5. For example, it is agreed and understood that LESSOR is entitled to receive from LESSEE the Rent and the benefit of LESSEE's insurance and maintenance of the Aircraft until expiration of the Lease Term. 25.9 LESSEE's Remedies.9 LESSEE's Remedies.9 LESSEE's Remedies.9 LESSEE's Remedies. Except as otherwise set forth in the Operative Documents, upon a breach by LESSOR of any of the terms and conditions of this Lease, LESSEE shall have all rights available at law or in equity. 25.10 Waiver of Consequential Damages.10 Waiver of Consequential Damages225.10 Waiver of Consequential Damages.10 Waiver of Consequential Damages. LESSEE and LESSOR each agree that it shall not be entitled to recover, and hereby disclaims and waives any right that it may otherwise have to recover, any special, indirect or consequential damages as a result of any breach or alleged breach by the other party of any of the agreements, representations or warranties contained in this Lease or the other Operative Documents; provided, however, that nothing herein shall be deemed to disclaim or waive any of LESSOR's remedies expressly set forth in Article 25.5(a) through 25.5 (g). ARTICLE 26 NOTICES 26.1 Manner of Sending Notices.1 Manner of Sending Notices.1 Manner of Sending Notices.1 Manner of Sending Notices. Any notice, request or information required or permissible under this Lease will be in writing and in English. Notices will be delivered in person or sent by fax, letter (mailed airmail, certified and return receipt requested), or by expedited delivery addressed to the parties as set forth in Article 26.2. In the case of a fax, notice will be deemed received upon actual receipt (and the date of actual receipt will be deemed to be the date set forth on the confirmation of receipt produced by the sender's fax machine immediately after the fax is sent). In the case of a mailed letter, notice will be deemed received on the tenth (10th) day after mailing. In the case of a notice sent by expedited delivery, notice will be deemed received on the date of delivery set forth in the records of the Person which accomplished the delivery. If any notice is sent by more than one of the above listed methods, notice will be deemed received on the earliest possible date in accordance with the above provisions. 26.2 Notice Information. Notices will be sent: If to LESSOR: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, U.S.A. Attention: Legal Department Fax: 310-788-1990 Telephone: 310-788-1999 If to LESSEE: FRONTIER AIRLINES, INC. 12015 East 46th Avenue Suite 200 Denver, CO 80239 Attention: General Counsel Fax: 303-371-7007 Telephone: 303-371-7400 or to such other places and numbers as either party directs in writing to the other party. ARTICLE 27 GOVERNING LAW AND JURISDICTION 27.1 California Law. This Lease is being delivered in the State of California and will in all respects be governed by and construed in accordance with the Laws of the State of California (notwithstanding the conflict Laws of the State of California). 27.2 Non-Exclusive Jurisdiction in California.2 Non-Exclusive Jurisdiction in California.2 Non-Exclusive Jurisdiction in California.2 Non-Exclusive Jurisdiction in California. As permitted by Section 410.40 of the California Code of Civil Procedure, the parties hereby irrevocably submit to the non-exclusive jurisdiction of the Federal District Court for the Central District of California and the State of California Superior or Municipal Court in Los Angeles, California. Nothing herein will prevent either party from bringing suit in any other appropriate jurisdiction. 27.3 Service of Process.3 Service of Process.3 Service of Process.3 Service of Process. The parties hereby consent to the service of process (a) out of any of the courts referred to above, (b) in accordance with Section 415.40 of the California Code of Civil Procedure by mailing copies of the summons and complaint to the person to be served by air mail, certified or registered mail to the address set forth in Article 26.2, postage prepaid, return receipt requested or (c) in accordance with the Hague Convention, if applicable. 27.4 Prevailing Party in Dispute.4 Prevailing Party in Dispute.4 Prevailing Party in Dispute.4 Prevailing Party in Dispute. If any legal action or other proceeding is brought in connection with or arises out of any provisions in this Lease, the prevailing party will be entitled to recover reasonable attorneys' fees and other actual and reasonable costs incurred in such action or proceedings. The prevailing party will also, to the extent permissible by Law, be entitled to receive pre- and post-judgment Default Interest. 27.5 Waiver. LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. LESSEE AND LESSOR HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS LEASE BROUGHT IN ANY OF THE COURTS REFERRED TO IN ARTICLE 27.2, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. ARTICLE 28 MISCELLANEOUS 28.1 Transportation of Personnel.1 Transportation of Personnel.1 Transportation of Personnel.1 Transportation of Personnel. LESSEE will provide transportation to LESSOR's personnel on a positive space basis on the Aircraft or any other aircraft operated by LESSEE for the purposes of conducting business between LESSEE and LESSOR. 28.2 Press Releases. The parties will give copies to one another, in advance if possible, of all news, articles and other releases provided to the public media regarding this Lease or the Aircraft. 28.3 Power of Attorney.3 Power of Attorney.3 Power of Attorney.3 Power of Attorney. LESSEE hereby irrevocably appoints LESSOR as its attorney for the purpose of putting into effect the intent of this Lease following and during the continuation of an Event of Default, including without limitation, the return, repossession, deregistration and exportation of the Aircraft. To evidence this appointment, LESSEE has executed the Power of Attorney in the form of Exhibit G. LESSEE will take all steps required under the Laws of the State of Registration to provide such power of attorney to LESSOR. 28.4 LESSOR Performance for LESSEE.4 LESSOR Performance for LESSEE.4 LESSOR Performance for LESSEE.4 LESSOR Performance for LESSEE. The exercise by LESSOR of its remedy of performing a LESSEE obligation hereunder is not a waiver of and will not relieve LESSEE from the performance of such obligation at any subsequent time or from the performance of any of its other obligations hereunder. 28.5 LESSOR's Payment Obligations.5 LESSOR's Payment Obligations.5 LESSOR's Payment Obligations.5 LESSOR's Payment Obligations. Any obligation of LESSOR under this Lease to pay or release any amount to LESSEE is conditioned upon and will be delayed until (a) all amounts then due and payable by LESSEE to LESSOR under this Lease or under any other agreement between LESSOR and LESSEE having been paid in full and (b) no payment or other material Default having occurred and continuing hereunder at the time such payment or release of payment is payable to LESSEE. 28.6 Application of Payments.6 Application of Payments.6 Application of Payments.6 Application of Payments. Any amounts paid or recovered in respect of LESSEE liabilities hereunder may be applied to Rent, Default Interest, fees or any other amount due hereunder in such proportions, order and manner as LESSOR determines. 28.7 Usury Laws.7 Usury Laws.7 Usury Laws.7 Usury Laws. The parties intend to contract in strict compliance with the usury Laws of the State of California and, to the extent applicable, the U.S. Notwithstanding anything to the contrary in the Operative Documents, LESSEE will not be obligated to pay Default Interest or other interest in excess of the maximum non-usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by LESSOR in connection with the Operative Documents. During any period of time in which the then-applicable highest lawful rate is lower than the Default Interest rate, Default Interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the Default Interest rate, then LESSEE will pay Default Interest at the highest lawful rate until the Default Interest which is paid by LESSEE equals the amount of interest that would have been payable in accordance with the interest rate set forth in Article 5.6. 28.8 Delegation by LESSOR.8 Delegation by LESSOR.8 Delegation by LESSOR.8 Delegation by LESSOR. LESSOR may delegate to any Person(s) all or any of the rights, powers or discretion vested in it by this Lease and any such delegation may be made upon such terms and conditions as LESSOR in its absolute discretion thinks fit, provided that no such delegation shall relieve LESSOR of any of its obligations hereunder. 28.9 Confidentiality.9 Confidentiality.9 Confidentiality.9 Confidentiality. The Operative Documents and all non-public information obtained by either party about the other are confidential and are between LESSOR and LESSEE only and will not be disclosed by a party to third parties (other than (i) to such party's auditors or professional advisors, (ii) to potential equity investors or lenders or (iii) as required in connection with any filings of this Lease in accordance with Article 14 or as otherwise required by Law) without the prior written consent of the other party. If disclosure is required as a result of applicable Law, LESSEE and LESSOR will cooperate with one another to obtain confidential treatment as to the commercial terms and other material provisions of this Lease. 28.10 Rights of Parties.10 Rights of Parties.10 Rights of Parties.10 Rights of Parties. The rights of the parties hereunder are cumulative, not exclusive, may be exercised as often as each party considers appropriate and are in addition to its rights under general Law. The rights of one party against the other party are not capable of being waived or amended except by an express waiver or amendment in writing. Any failure to exercise or any delay in exercising any of such rights will not operate as a waiver or amendment of that or any other such right any defective or partial exercise of any such rights will not preclude any other or further exercise of that or any other such right and no act or course of conduct or negotiation on a party's part or on its behalf will in any way preclude such party from exercising any such right or constitute a suspension or any amendment of any such right. 28.11 Further Assurances.11 Further Assurances.11 Further Assurances.11 Further Assurances. Each party agrees from time to time to do and perform such other and further acts and execute and deliver any and all such other instruments as may be required by Law or reasonably requested by the other party to establish, maintain or protect the rights and remedies of the requesting party or to carry out and effect the intent and purpose of this Lease. 28.12 Use of Word including. The term "including" is used herein without limitation. 28.13 Headings. All article and paragraph headings and captions are purely for convenience and will not affect the interpretation of this Lease. Any reference to a specific article, paragraph or section will be interpreted as a reference to such article, paragraph or section of this Lease. 28.14 Invalidity of any Provision.14 Invalidity of any Provision.14 Invalidity of any Provision.14 Invalidity of any Provision. If any of the provisions of this Lease become invalid, illegal or unenforceable in any respect under any Law, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired. 28.15 Time is of the Essence.15 Time is of the Essence.15 Time is of the Essence.15 Time is of the Essence. Time is of the essence in the performance of all obligations of the parties under this Lease and, consequently, all time limitations set forth in the provisions of this Lease will be strictly observed. 28.16 Amendments in Writing. The provisions of this Lease may only be amended or modified by a writing executed by LESSOR and LESSEE. 28.17 Counterparts. This Lease may be executed in any number of identical counterparts, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same instrument when each party has signed and delivered one such counterpart to the other party. 28.18 Delivery of Documents by Fax.18 Delivery of Documents by Fax.18 Delivery of Documents by Fax.18 Delivery of Documents by Fax. Delivery of an executed counterpart of this Lease or of any other documents in connection with this Lease by fax will be deemed as effective as delivery of an originally executed counterpart. Any party delivering an executed counterpart of this Lease or other document by fax will also deliver an originally executed counterpart, but the failure of any party to deliver an originally executed counterpart of this Lease or such other document will not affect the validity or effectiveness of this Lease or such other document. 28.19 Entire Agreement.19 Entire Agreement.19 Entire Agreement.19 Entire Agreement. The Operative Documents constitute the entire agreement between the parties in relation to the leasing of the Aircraft by LESSOR to LESSEE and supersede all previous proposals, agreements and other written and oral communications in relation hereto. The parties acknowledge that there have been no representations, warranties, promises, guarantees or agreements, express or implied, except as set forth herein. 28.20 Expenses. Each party shall be responsible for its own expenses in connection with the drafting, negotiation, execution and delivery of this Lease and the other Operative Documents. SIGNATURE PAGE IN WITNESS WHEREOF, LESSEE and LESSOR have caused this Lease to be executed by their respective officers as of May 25, 2000. INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: EXHIBIT B AIRCRAFT DESCRIPTION Aircraft Manufacturer and Model: B737-300 Seating Configuration: None* Manufacturer's Serial Number: 26293 Registration Mark: N-_____ Engine Manufacturer and Model: CFM56-3C1 Engine Serial Numbers: 724885 and 724886 Engine Thrust Rating: 22,000 pounds Maximum Gross Takeoff Weight: 139,500 pounds *The Aircraft is being delivered to LESSEE without seats and will be returned to LESSOR without seats. EXHIBIT C CONDITION AT DELIVERY 1. Technical Report Prior to the Delivery Date, LESSOR will provide LESSEE with a Technical Evaluation Report in the form and substance of Exhibit M, as revised, and, in addition upon LESSEE's request, will make copies available of (a) drawings of the interior configuration of the Aircraft as it will exist at Delivery, (b) an Airworthiness Directive status list, (c) a service bulletin incorporation list, (d) rotable tracked, hard-time and life limited component listings, (e) a list of Prior Lessee-initiated modifications and alterations, (f) information regarding Prior Lessee's maintenance program for the Aircraft, (g) the complete workscope for the checks, inspections and other work to be performed prior to Delivery, (h) a list of all no-charge service bulletin kits with respect to the Aircraft which were ordered by LESSOR from Manufacturer or Engine manufacturer, (i) current Engine disk sheets and a description of the last shop visit for each Engine and (j) any other data which is reasonably requested by LESSEE. 2. Full Aircraft Documentation Review Prior to the Scheduled Delivery Date and continuing until the date on which the Aircraft is delivered to LESSEE in the condition required by this Exhibit B, LESSOR will provide for the review of LESSEE and/or its representative all of the Aircraft records and historical documents described in Exhibit L in one central room at the Aircraft delivery location. 3. Aircraft Inspection (a) During the maintenance checks performed prior to Delivery, LESSEE and/or its representatives will have an opportunity to conduct a full systems functional and operational inspection of the Aircraft (and other types of reasonable inspections based upon the Aircraft type, age, use and other known factors with respect to the Aircraft) and a full inspection of the Aircraft Documentation (including records and manuals), all to LESSEE's satisfaction. Any deficiencies from the delivery condition requirements set forth in this Exhibit B will be corrected by LESSOR at its cost prior to Delivery. (b) Immediately prior to the Delivery of the Aircraft, LESSOR will carry out for LESSEE and/or LESSEE's representatives one takeoff and one landing phase. If LESSEE identifies any discrepancies immediately following such takeoff and landing phase and requests LESSOR to correct such discrepancies at LESSOR's cost, such discrepancies will be corrected. 4. Certificate of Airworthiness Matters The Aircraft will possess a current Certificate of Airworthiness issued by the FAA. 5. General Condition of the Aircraft at Delivery (a) The Aircraft, Engines and Parts will have been maintained and repaired in accordance with Prior Lessee's maintenance program and the rules and regulations of the FAA. (b) Aircraft Documentation (including records and manuals) will have been maintained in accordance with the rules and regulations of the FAA. (c) All pilot discrepancies and deferred maintenance items will be cleared on a terminating action basis. (d) The Aircraft will be airworthy (conform to type design and be in a condition for safe operation under FAR Part 121), with all Aircraft equipment, components and systems operating in accordance with their intended use and within limits approved by Manufacturer and the FAA. (e) The interior of the Aircraft (including cabin and windows) will be in a reasonable condition and cosmetically acceptable, with no cracks, tears or rips. (f) No special or unique Manufacturer, Engine manufacturer or FAA inspection or check requirements which are specific to the Aircraft or Engines (as opposed to all aircraft or engines of their types) will exist with respect to the Airframe, Engines and Aircraft equipment, components and systems. (g) All repairs, modifications and alterations to the Aircraft will have been accomplished in accordance with the FARs or Manufacturer's Structural Repair Manual (or FAA-approved data supported by FAA Form 8110-3) for the Aircraft, as applicable. (h) All Airworthiness Directives which are issued prior to the Delivery Date and require compliance (either by means of repetitive inspections, modifications or terminating action) prior to Delivery of the Aircraft to LESSEE or within one (1) year after the Delivery Date will have been complied with on the Aircraft on a terminating action basis at LESSOR's cost. Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. (i) The Aircraft will be in compliance with Manufacturer's Corrosion Prevention and Control Program (CPCP) specified for the model type by Manufacturer. (j) If any waivers, deviations, dispensations, alternate means of compliance, extensions or carry-overs with respect to maintenance or operating requirements, repairs or Airworthiness Directives were granted by the FAA or permitted by Prior Lessee's maintenance program, such maintenance or operating requirements, repairs or Airworthiness Directives will have been performed as if such waivers, deviations, dispensations, alternate means of compliance, or extensions or carry-overs did not exist. (k) The Aircraft will be free of fuel, oil and hydraulic leaks. Any temporary fuel leak repairs will have been replaced by permanent repairs. (l) The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and water) will be serviced to full and the waste tank serviced in accordance with Manufacturer's instructions. (m) The Aircraft will be fully fueled. (n) The Aircraft will be painted in the livery of Prior Lessee. 6. Checks Prior to Delivery Prior to Delivery of the Aircraft to LESSEE, the following will have been performed: (a) A full and complete zonal, systems and structural check ("C" or its equivalent) and the corresponding lower checks ("A" and "B" or equivalent) at an FAA-approved repair station in accordance with the MPD sufficient to clear the Aircraft until the next full and complete zonal, systems and structural check. Any discrepancies revealed during such inspection will be corrected in accordance with Manufacturer's maintenance and repair manuals or FAA-approved data. (b) All required external placards, signs and markings will be properly attached, free from damage, clean and legible. (c) Cleaning the exterior and interior of the Aircraft. (d) If reasonably required by LESSEE, repainting the interior of the Aircraft, including flight deck, and replace placards. (e) In accordance with Manufacturer's Structural Repair Manual, permanently repairing damage to the Aircraft that exceeds Manufacturer's limits. Any non-flush structural patch repairs installed on the Airframe will be replaced with flush-type repairs if such flush-type repairs are available unless it is unreasonable to install a flush-type repair. 7. Condition of the Engines At Delivery (a) Prior to Delivery of the Aircraft to LESSEE, the following checks of the Engines will have been performed: (i) With LESSEE or its representatives present, performance of a full and complete hot and cold section videotape borescope on each Engine and its modules in accordance with the Engine manufacturer's maintenance manual. (ii) If the Engine historical and technical records and/or condition trend monitoring data of any Engine (including the APU) indicate an acceleration in the rate of deterioration in the performance of an Engine, LESSOR will correct, to LESSEE's satisfaction, such conditions which are determined to be causing such accelerated rate of deterioration. (iii) With LESSEE or its representatives present, LESSOR will accomplish a maximum power assurance run and an acceleration check on the Engines. LESSEE will evaluate the Engine performance and record the Engine maximum power assurance test conditions and results on the Estoppel and Acceptance Receipt. (b) Each Engine will meet all of the following: (i) Each Engine will have at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal regardless of the operating environment of such Engine. In determining whether an Engine has at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal, the following will be considered: (1) the Engine manufacturer's estimated mean time between removals for engines of the same type as the Engines; (2) the remaining EGT margin on such Engine; and (3) the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check; (ii) the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check do not reveal any condition which would cause the Engines or any module to be serviceable with an increased frequency of inspection or with calendar time, flight hour or flight cycle restrictions under the Engine manufacturer's maintenance manual; (iii) No life limited Part of an Engine will have more hours or cycles consumed than such Engine's data plate; and (iv) Each Part of an Engine which has a hard time limit will have at least 3,000 cycles remaining to operate until its next scheduled Overhaul. Each Part of an Engine which has a life limit will have at least 3,000 cycles remaining to operate until its removal. LESSOR will correct any discrepancies in the required condition of the Engines set forth in this Exhibit B in accordance with the guidelines set out by the Engine manufacturer. If there is a dispute as to whether an Engine meets the requirements of this Exhibit B, LESSEE and LESSOR will consult with Engine manufacturer and follow Engine manufacturer's recommendations (including the accomplishment of an Engine test cell operational check) and the manner in which any discrepancies from the requirements of this Exhibit B will be rectified. 8. Hour/Cycle/Calendar Times At Delivery The condition of the Aircraft and installed systems upon Delivery to LESSEE will be as follows: (a) The Aircraft will have no more that fifteen (15) months consumed since the last 24,000 Hour Structural Check. (b) The Aircraft will have not more than one-hundred (100) hours consumed since the last "C" check or its equivalent in accordance with the MPD. (c) The APU will be in serviceable condition. (d) The Landing Gear will be cleared for four thousand five hundred (4,500) cycles/hours (depending on Prior Lessee's maintenance program) of operation until the next Overhaul or scheduled removal. (e) Each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of less than four thousand (4,000) hours or three thousand (3,000) cycles will be freshly overhauled or replaced and each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of more than four thousand (4,000) hours or three thousand (3,000) cycles will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled Overhaul or removal. (f) Each life-limited Part of the Aircraft will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled removal. (g) Each Part which has a calendar limit (including emergency equipment and excluding Landing Gear which is addressed in paragraph 8(d) above) will have remaining to operate the lesser of the following calendar times: (i) one (1) year from the Delivery Date of the Aircraft to LESSEE or (ii) one hundred percent (100%) of such Part's total approved life. (h) With respect to all installed Parts as a group, such Parts will have an average total time since new no greater than that of the Airframe. (i) The Aircraft Landing Gear tires and brakes will have at least fifty percent (50%) life remaining until their next Overhaul (except for the acceptance flight). EXHIBIT D CERTIFICATE OF INSURANCE [Refer to Aircraft Lease Agreement dated as of May 25, 2000 between LESSEE and LESSOR (the "Lease"). If applicable, insurance certificates from both the insurers and reinsurers will be provided. If there is a LESSOR's Lender, include references to it where appropriate after references to LESSOR.] To: INTERNATIONAL LEASE FINANCE CORPORATION ("LESSOR") 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States Re: FRONTIER AIRLINES, INC. ("LESSEE") Boeing B737-300 Manufacturer's Serial No.: 26293 Registration Mark: N-_____ (the "Aircraft") The following security has subscribed to the insurance and/or reinsurance policies: [LIST COMPANIES & PERCENTAGES] THIS IS TO CERTIFY THAT, as Insurance Brokers, we have effected Fleet Insurance in respect of aircraft owned or operated by LESSEE (including the Aircraft) as specified below. AIRCRAFT HULL ALL RISKS COVERING: * DEDUCTIBLES: * GEOGRAPHICAL COVERAGE: Worldwide. AVIATION AND AIRLINE GENERAL THIRD PARTY LIABILITY COVERING: * GEOGRAPHICAL LIMITS: Worldwide. HULL WAR AND ALLIED PERILS COVERING:* DEDUCTIBLE: * GEOGRAPHICAL LIMITS: Worldwide. AIRCRAFT SPARES ALL RISKS INSURANCE COVERING: * DEDUCTIBLE: *. GEOGRAPHICAL COVERAGE: Worldwide. INSURANCE REQUIRED BY MANUFACTURER LESSEE will carry the insurance required by Manufacturer in connection with LESSOR's assignment of Manufacturer's warranties and product support to LESSEE. CONTRACTUAL INDEMNITY LESSEE has insurance coverage for the indemnities agreed to by LESSEE pursuant to Article 17 of the Lease to the extent provided in the relevant policies. PERIOD OF COVERAGE (ALL POLICIES) From Delivery Date of Aircraft to [EXPIRATION DATE] It is further certified that LESSOR has an interest in respect of the Aircraft under the Lease. Accordingly, with respect to losses occurring during the period from the Effective Date until the expiry of the Insurance or until the expiry or agreed termination of the Lease or until the obligations under the Lease are terminated by any action of the Insured or LESSOR and in consideration of the Additional Premium it is confirmed that the Insurance afforded by the Policy is in full force and effect and it is further agreed that the following provisions are specifically endorsed to the Policy. 1. UNDER THE HULL (ALL RISKS AND HULL WAR AND ALLIED RISKS) AND AIRCRAFT SPARES INSURANCES (a) * (b) * (c) Insurers have no right to replace the Aircraft on a Total Loss (arranged, constructive or otherwise). (d) Insurers recognize that LESSEE and LESSOR have agreed that a Total Loss of the Airframe will constitute a Total Loss of the Aircraft. (e) In the event of Total Loss of the Aircraft, Insurers agree to pay LESSOR all amounts up to the Agreed Value based solely upon LESSOR's (not LESSEE's) execution of the appropriate form of release/discharge document. LESSOR may sign any required release in lieu of the Insured in the event of a Total Loss, Constructive Total Loss or Arranged Total Loss. (f) "Cut-through clause": Insurers confirm that in the event of any claim arising under the hull insurances, the Reinsurers will in lieu of payment of the Insurers, its successors in interest and assigns, pay to the person named as sole loss payee under the original insurances that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Insurers (subject to proof of loss), it being understood and agreed that any such payment by any Reinsurers will fully discharge and release such Reinsurer from any and all further liability in connection therewith and provide for payment to be made notwithstanding (i) any bankruptcy, insolvency, liquidation or dissolution of the Insurers and (ii) that the Insurers have made no payment under the original insurance policies. (g) Insurers confirm that under the insurance policies, if the Insured installs an engine owned by a third party on the Aircraft, either (i) the hull insurance will automatically increase to such higher amount as is necessary in order to satisfy both LESSOR's requirement to receive the Agreed Value in the event of a Total Loss, Constructive Total Loss or Arranged Total Loss and the amount required by the third party engine owner, or (ii) separate additional insurance on such engine will attach in order to satisfy separately the requirements of the Insured to such third party engine owner. 2. UNDER THE LEGAL LIABILITY INSURANCE (a) Subject to the provisions of this Endorsement, the Insurance will operate in all respects as if a separate Policy had been issued covering each party insured hereunder, but this provision will not operate to include any claim arising howsoever in respect of loss or damage to the Aircraft insured under the Hull or Spares Insurance of the Insured. Notwithstanding the foregoing the total liability of Insurers in respect of any and all Insureds will not exceed the limits of liability stated in the Policy. (b) The Insurance provided hereunder will be primary and without right of contribution from any other insurance which may be available to LESSOR. 3. UNDER ALL INSURANCES (a) LESSOR, its successors and assigns, and (with respect to Aviation and Airline General Third Party Liability only) its directors, officers and employees for their respective rights and interests, are included as Additional Insureds. (b) The cover afforded to LESSOR by the Policy in accordance with this Endorsement will not be invalidated by any act or omission (including misrepresentation and non-disclosure) of any other person or party which results in a breach of any term, condition or warranty of the Policy provided that LESSOR has not caused, contributed to or knowingly condoned the said act or omission. (c) LESSOR will have no responsibility for premium and insurers will waive any right of set-off or counterclaim against LESSOR except in respect of outstanding premium in respect of the Aircraft, provided that Insurer may only set-off for premiums against the proceeds of the hull insurance for outstanding premiums in connection with hull all risks and hull war and allied perils insurance. (d) Upon payment of any loss or claim to or on behalf of LESSOR, Insurers will to the extent and in respect of such payment be thereupon subrogated to all legal and equitable rights of LESSOR indemnified hereby (but not against LESSOR). Insurers will not exercise such rights without the consent of those indemnified, such consent not to be unreasonably withheld. At the expense of Insurers LESSOR will do all things reasonably necessary to assist the Insurers to exercise said rights. (e) Except in respect of any provision for Cancellation or Automatic Termination specified in the Policy or any endorsement thereof, cover provided by this Endorsement may only be cancelled or materially altered in a manner adverse to LESSOR by the giving of not less than thirty (30) days notice in writing to LESSOR. Notice will be deemed to commence from the date such notice is given by the Insurers. Such notice will NOT, however, be given at normal expiry date of the Policy or any endorsement. 4. EXCEPT AS SPECIFICALLY VARIED OR PROVIDED BY THE TERMS OF THIS CERTIFICATE (a) LESSOR IS COVERED BY THE POLICY SUBJECT TO ALL TERMS, CONDITIONS, LIMITATIONS, WARRANTIES, EXCLUSIONS AND CANCELLATION PROVISIONS THEREOF. (b) THE POLICY WILL NOT BE VARIED BY ANY PROVISIONS CONTAINED IN THE LEASE WHICH PURPORT TO SERVE AS AN ENDORSEMENT OR AMENDMENT TO THE POLICY. SUBJECT (save as specifically stated in this Certificate) to policy terms, conditions, limitations and exclusions. Yours faithfully, [BROKERS] EXHIBIT E BROKERS' LETTER OF UNDERTAKING To: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States Date: Our Ref: Re: FRONTIER AIRLINES, INC. ("LESSEE") B737-300 Manufacturer's Serial No.: 26293 Registration Mark: N-_____ (the "Aircraft") Dear Sirs: We confirm that insurance has been effected for the account of [LESSEE] (the "Operator") covering all aircraft owned or operated by them, including the above-referenced aircraft (the "Aircraft"). [Also confirm, if applicable, the amount of any hull all risks or hull war and allied perils on the Aircraft which LESSEE is carrying in excess of the Agreed Value (which excess insurance would be payable to LESSEE). Such excess insurance may not exceed ten percent (10%) of the Agreed Value.] Pursuant to instructions received from the Operator and in consideration of your approving the arrangement of the Operator's "Fleet Policy" (under which the above-referenced Aircraft is insured) through the intermediary of ourselves as Brokers in connection with the insurance (the "Insurance") mentioned in our Certificate of Insurance (Reference No. [ ] dated [ ] and attached hereto), we undertake as follows: 1. In relation to the Hull and War Risks Insurance to hold to your order the insurance Slips or Contracts and any Policies which may be issued or any policies substituted (with your consent) therefor (but only insofar as the same relate to the Aircraft only) and the benefit of the Hull and War Risks Insurance thereunder, but subject to our requirements to operate the Fleet Policy insofar as it relates to any other aircraft insured thereunder. 2. To advise you of any of the following: (a) If any insurer cancels or gives notice of cancellation of any of the Insurance at least thirty (30) days (or such lesser period as may be available in the case of War and Allied Perils) before such cancellation is to take effect in respect of the Aircraft. (b) Of any act or omission or of any event (including non-payment of premium) of which we have knowledge or are notified and which might invalidate or render unenforceable in whole or in part any of the Insurance, insofar as the same relate to the Aircraft. (c) If we do not receive instructions to renew all or any of the Insurance at least thirty (30) days prior to their expiration. (d) If any of the Insurance are not renewed on the same terms (save as to premium and period of cover and as you might otherwise have notified us to be acceptable to you) seven (7) days prior to expiry thereof. The above undertakings are given subject to our continuing appointment for the time being as Insurance Brokers to the Operator. We also undertake to advise you if we cease to be Insurance Brokers to the Operator. Yours faithfully, EXHIBIT F ESTOPPEL AND ACCEPTANCE CERTIFICATE FRONTIER AIRLINES, INC. ("LESSEE"), a corporation organized under the lereby agree as follows: 1. LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have entered into an Aircraft Lease Agreement dated as of May 25, 2000 (hereinafter referred to as the "Lease"). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Lease. 2. LESSEE has this ____ day of __________, ____ (Time: __________) at ____________________ received from LESSOR possession of: (a) One (1) Boeing B737-300 aircraft bearing Manufacturer's serial number 26293 and United States registration mark N-_____, together with two (2) CFM56-3C1 engines bearing manufacturer's serial numbers 725885 and 724886 (each of which has 750 or more rated take-off horsepower), all in airworthy condition. (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Aircraft, Engines, and Parts. 3. All of the foregoing has been delivered on the date set forth above pursuant to the terms and provisions of the Lease. 4. The amount of fuel on board at Delivery is __________ (circle one) pounds/kilos (________ gallons). 5. The Aircraft, Engines, Parts and Aircraft Documentation as described in the Lease have been fully examined by LESSEE and, except as set forth in the attached Discrepancies List, have been received and accepted by LESSEE in a condition fully satisfactory to LESSEE and in full conformity with the Lease in every respect. 6. The Lease is in full force and effect, LESSOR has fully, duly and timely performed all of its obligations of every kind or nature thereunder and LESSEE has no claims, offsets, deductions, set-off or defenses of any kind or nature in connection with the Lease. 7. LESSEE has obtained all required permits, authorizations, licenses and fees of the State of Registration or any Government Entity thereof necessary in order for LESSEE to operate the Aircraft as permitted by the terms of the Lease. Dated on the date set forth above FRONTIER AIRLINES, INC. By: Title: EXHIBIT G OPINION OF COUNSEL [SEE ATTACHED] EXHIBIT H FORM OF POWER OF ATTORNEY FRONTIER AIRLINES, INC. ("Frontier") hereby irrevocably appoints INTERNATIONAL LEASE FINANCE CORPORATION ("ILFC") of 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, U.S.A. as Frontier's true and lawful attorney so that ILFC may take any of the following actions in the name of and for Frontier with respect to the Boeing B737-300 aircraft bearing manufacturer's serial number 26293 (the "Aircraft") leased by ILFC to Frontier pursuant to an Aircraft Lease Agreement dated as of May 25, 2000 (the "Lease"): 1. Pursuant to the Lease, Frontier has procured and is maintaining insurances for the Aircraft. ILFC has been named sole loss payee on the all risk hull and war risk insurances for the Aircraft. In the event of a total loss or constructive total loss of the Aircraft, ILFC is entitled to receive insurance proceeds in an amount equal to: US$*. ILFC may take all action and sign all documents otherwise required to be performed by Frontier, including execution on behalf of Frontier of an appropriate form of discharge/release document, in order for ILFC to collect such insurance proceeds. 2. In the exercise of the rights of ILFC under the Lease to recover the Aircraft from Frontier and United States after termination of the Lease due to an Event of Default under the Lease or for termination of the Lease due to any other reason, ILFC may take all action otherwise required to be performed by Frontier before the authorities and courts in United States in order to cause the Aircraft to be repossessed by ILFC, deregistered from the U.S. Federal Aviation Administration and exported from the United States. 3. In the exercise of the rights mentioned in paragraphs 1 and 2, ILFC may make any declarations or statements and sign any public or private documents which may be considered necessary or appropriate. 4. ILFC may delegate the powers conferred hereby, in whole or in part, to any individual(s), including but not limited to employees of ILFC or legal counsel in United States. ILFC is empowered to determine in its sole discretion when to exercise the powers conferred upon ILFC pursuant to this Power of Attorney. Any person, agency or company relying upon this Power of Attorney need not and will not make any determination or require any court judgment as to whether an Event of Default has occurred under the Lease or whether the Lease has been terminated. Frontier hereby waives any claims against (a) any person acting on the instructions given by ILFC or its designee pursuant to this Power of Attorney and (b) any person designated by ILFC or an officer of ILFC to give instructions pursuant to this Power of Attorney. Frontier also agrees to indemnify and hold harmless any person, agency or company which may act in reliance upon this Power of Attorney and pursuant to instructions given by ILFC or its designee. This Power of Attorney is irrevocable until the Aircraft has been returned to the possession of ILFC, deregistered and exported from United States. FRONTIER AIRLINES has made and delivered this Power of Attorney on _________ in ____________. FRONTIER AIRLINES By: Title: EXHIBIT I ASSIGNMENT OF RIGHTS (AIRFRAME) [DATE] Boeing Commercial Airplane Group P.O. Box 3707 Seattle, Washington 98124-2207 Attention: Vice President-Contracts Mail Code 21-34 Subject: Full Assignment of Rights and Obligations - International Lease Finance Corporation as Lessor and Frontier Airlines, Inc. as Lessee of Model B737-300 aircraft bearing manufacturer's serial number 26293 Ladies and Gentlemen: In connection with International Lease Finance Corporation's lease to Frontier Airlines, Inc. ("Lessee") of a Boeing aircraft (more fully described below), reference is made to the following documents: A. Purchase Agreement No. 1500 dated August 25, 1988 between The Boeing Company ("Boeing") and International Lease Finance Corporation ("ILFC") (the "Boeing Agreement") under which ILFC purchased a certain Boeing Model B737-300 aircraft bearing manufacturer's serial number 26293 (the "Aircraft"). B. Aircraft Lease Agreement (the "Lease") for the Aircraft dated as of November __, 1999 between ILFC and Lessee. Capitalized terms used herein without definition will have the same meaning as in the Boeing Agreement. In connection with ILFC's lease of the Aircraft under the Lease, ILFC is transferring to Lessee certain rights of ILFC related to the Aircraft under the Boeing Agreement. To accomplish this transfer of rights, as authorized by the provisions of the Boeing Agreement: 1. Lessee acknowledges that it has received copies of the following specific provisions of the Boeing Agreement applicable to the Aircraft and agrees to be bound by and comply with all the terms, conditions, and limitations contained in such provisions, including without limitation the disclaimer and release, exclusion of liabilities, indemnity and insurance provisions thereof: (a) Boeing Agreement Article 6 - Excusable Delay 6.1 General Article 8 - Assignment, Resale or Lease 8.1 Title and Risk with Boeing 8.2 Buyer's Indemnification of Boeing; Insurance Article 10 - Assignment, Resale or Lease 10.1 No Increase in Boeing Liability 10.3 Sale by Buyer after Delivery 10.4 Lease by Buyer after Delivery 10.5 No Increase in Boeing Liability 10.6 Exculpatory or Indemnity Clause in Post-delivery Sale or Lease Article 12 - Product Assurance; Disclaimer and Release; Exclusion of Liabilities; Customer Support; Indemnification and Insurance (in its entirety) Article 14 - Contractual Notices and Requests Article 15 - Miscellaneous 15.4 Governing Law Exhibit B - Product Assurance Document Part A Boeing Warranty Part B Warranty Repairs and Modifications by Buyer Part C Boeing Service Life Policy Part D Boeing Indemnity Against Patent Infringement Part D-1 Boeing Indemnity Against Copyright Infringement Part E Supplier Warranties and Patent Indemnities Part G Boeing Interface Commitment Part H General Exhibit C-1- Customer Support Document Part B Boeing Customer Support Services Part D Technical Data and Documents Part E Buyer's Indemnification of Boeing and Insurance Exhibit E - Buyer Furnished Equipment Provisions Document Paragraph 8 Indemnification of Boeing Paragraph 9 Patent Indemnity Paragraph 10 Definitions Paragraph 11 Notice of Claim Letter Agreement No. 1500-__ - Seller Purchased Equipment Paragraph 6 Buyer's Indemnification of Boeing 2. Lessee recognizes that Boeing's obligation to provide support and services to Lessee pursuant to Exhibit C of the Boeing Agreement is conditioned on the receipt by Boeing of evidence of compliance by Lessee with the insurance requirements set forth in paragraph 2 of Part E of Exhibit C or in such other form as may be satisfactory to Boeing, prior to the commencement of such support and services. 3. ILFC reserves to itself all rights, claims and interests it may have under the Boeing Agreement not expressly assigned to Lessee hereunder. ILFC will remain responsible to Boeing for any amounts with respect to the Aircraft owed to Boeing under the Boeing Agreement prior to the effective date of this letter, including any amounts owed by ILFC to Boeing under the specific portions of the Boeing Agreement referenced in paragraph 1 above based upon the events or incidents relating to the Aircraft occurring prior to the effective date of this letter. 4. ILFC hereby assigns to Lessee the sole authority to exercise in Lessee's name all rights and powers of ILFC with respect to the Aircraft under the specific portions of the Boeing Agreement referenced in paragraph 1 above. Such authorization will continue until Boeing receives from ILFC written notice to the contrary addressed to Boeing's Vice President, Contracts, P.O. Box 3707, Seattle, Washington 98124-2207 with a copy to Lessee. Until Boeing receives such notice, Boeing will be entitled to deal exclusively with Lessee with respect to the Aircraft under the specific portions of the Boeing Agreement referenced in paragraph 1 above and, with respect to the rights, powers, duties or obligations under such portions of the Boeing Agreement, any and all actions taken by Lessee or agreements entered into by Lessee during the period prior to Boeing's receipt of such notice will be final and binding on ILFC. In addition, any payment made by Boeing as a result of claims made by Lessee will be made to the credit of Lessee. 5. Lessee hereby accepts the authorization set forth in paragraph 4 above and agrees to be bound by and to comply with all the terms, conditions and limitations of the portion of the Boeing Agreement referenced in paragraph 1 above. 6. This Assignment may be signed by the parties hereto in separate counterparts, each of which when executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 7. This Assignment shall be governed by, and construed in accordance with, the laws of the State of Washington, including all matters of construction, validity and performance. We request that Boeing, upon receipt of this letter, acknowledge receipt thereof and the transfer of rights set forth above by signing the acknowledgment and forwarding one copy of this letter to each of the undersigned. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be duly executed as of the dates written below. INTERNATIONAL LEASE FINANCE CORPORATION, FRONTIER AIRLINES, INC., as Lessee as Lessor and Buyer By: By: Its: Its: Receipt of the above letter is acknowledged and transfer of certain rights under the Boeing Agreement with respect to the Aircraft is confirmed, effective as of this date. THE BOEING COMPANY By: Its: Date: EXHIBIT J ASSIGNMENT OF RIGHTS (ENGINES) November __, 1999 CFM INTERNATIONAL, INC. 1 Neumann Way, F-17 Cincinnati, Ohio 45215 Attention: Riv Goldman Commercial Contracts - Warranty Assignment Administrator Dear Ms. Goldman: Reference is hereby made to that Consent to Assignment made as of April 29, 1988, (the "Consent to Assignment"), by and between CFM INTERNATIONAL, INC. ("CFMI") and INTERNATIONAL LEASE FINANCE CORPORATION ("ILFC"). Terms defined in the Consent to Assignment are used herein with the same meaning as in the Consent to Assignment. As of November ___, 1999, ILFC has assigned all of its rights and interest in, to and under the Engine Warranties to Frontier Airlines, Inc. ("Assignee") in connection with its lease to Assignee of a used B737-300 aircraft (the "Aircraft") together with two (2) CFMI Model 56-3C1 bearing Manufacturer's Serial Numbers 724885 and 724886 (the "Engines") as of the date each such Engine was delivered to Assignee. Such assignment shall be effective from such date until ILFC provides written notice to CFMI (with a copy to Assignee) that such assignment has been terminated. The Assignee has accepted such assignment and all the limitations and liabilities pertaining to the Engine Warranties as stated in the provisions of the GTA listed in Schedule 2 to the Consent to Assignment. A copy of the aforesaid assignment is attached hereto. Very truly yours, INTERNATIONAL LEASE FINANCE CORPORATION By: Title: cc: Ruben M. Cabrera Director, Commercial Contracts ASSIGNMENT OF WARRANTIES November __, 1999 In consideration of Frontier Airlines, Inc. ("Lessee") leasing from International Lease Finance Corporation ("ILFC") one (1) B737-300 aircraft together with two (2) CFMI Model 56-3C1 engines bearing manufacturer's serial numbers 724885 and 724886, it is hereby agreed as follows: 1. ILFC hereby assigns and transfers to Lessee all of ILFC's respective rights and interest in and to and in and under the Engine Warranties set forth in and subject to the limitations and liabilities set forth in Exhibit B Warranty, Section X (the "Engine Warranties") of CFM International, Inc. - ILFC General Terms Agreement No. 6-3987 dated 22 June 1984 (the "GTA") during the term of such leases so long as Lessee is not in default thereunder. 2. Lessee hereby accepts such assignment including all the limitations and liabilities pertaining to said Engine Warranties as stated in the provisions of Exhibit B Warranty, Section X of the GTA. In addition, any payment made by CFM International, Inc. as a result of claims made by Lessee will be made to the credit of Lessee. 3. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns to the extent permitted by the GTA and hereunder. 4. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 5. This Agreement may be executed in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument and any party may execute this Agreement by signing any counterpart. IN WITNESS WHEREOF, the authorized representative of the parties hereto have executed this Agreement as of the day and year first above written. For and on behalf of For and on behalf of INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: EXHIBIT K RETURN ACCEPTANCE RECEIPT Date: 1. FRONTIER AIRLINES, INC. as LESSEE, and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have ------ entered into an Aircraft Lease Agreement dated as of May 25, 2000 (the "Lease"). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Lease. 2. LESSOR has this ____ day of __________, ____ (Time: __________) at ____________________ received from LESSEE possession of: (a) One (1) Boeing B737-300 Aircraft bearing Manufacturer's serial number 26293, together with two (2) CFM 56-3C1 Engines bearing manufacturer's serial numbers 724885 and 724886, and all Parts attached thereto and thereon in an airworthy condition and (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Aircraft, Engines, and Parts, as listed in the Document Receipt attached hereto. 3. The Airframe, Engines, and Parts had the following hours/cycles at return: (a) Airframe: Total hours: ________ Total Landings: _________ Date last "C" check performed: _________________ ______ hours/ ______ cycles since last "C" check Date last "D" check performed: _________________ ______ hours/ ______ cycles since last "D" check (b) Engines: Position Serial No. Total Hours Total Cycles Hrs/Cycles since last shop visit Time Remaining to Next Life Limited Part Removal Part Name Hours Cycles MSN MSN (c) APU: MSN __________ Total hours: __________ ______ hours/ ______ cycles since last Overhaul ______ hours/ ______ cycles remaining on APU life-limited Parts (d) Landing Gears: Position Serial No. Total Hrs/Cycles Hrs/Cycles since Date of last last Overhaul Overhaul Nose Right Main Left Main (e) Fuel on board at return: ______ (circle one) pounds/kilos (______ gallons) 4. Other technical information regarding the Aircraft and its components are correctly set forth on the Technical Evaluation Report (in the form of Exhibit M) attached hereto. - 5. With reference to Article 13.7 of the Lease regarding reimbursement from the Reserves after return of the Aircraft: _____ There are no claims for reimbursement from the Reserves which will be submitted after the date hereof. or _____ Claims for reimbursement from the Reserves will be submitted after the date hereof for the following: Type of Work Estimated Invoice Amount 6. The above specified aircraft, engines and documentation are hereby accepted by LESSOR subject to correction by LESSEE (or procurement by LESSEE at LESSEE's cost) as soon as reasonably possible of the discrepancies specified in Attachment 2 hereto. 7. Subject to the following paragraph, the leasing of the Aircraft by LESSOR to LESSEE pursuant to the Lease is hereby terminated without prejudice to LESSEE's continuing obligations under the Lease including, without limitation, paragraph 6 above, paragraph 8 below, and Articles 10.5, 16 and 17. 8. LESSEE represents and warrants that during the term of the Lease all maintenance and repairs to the Airframe and Engines were performed in accordance with the requirements contained in the Lease. LESSEE further confirms that all of its obligations under the Lease whether accruing prior to the date hereof or which survive the termination of the Lease by their terms and accrue after the date hereof, will remain in full force and effect until all such obligations have been satisfactorily completed. 9. This Return Acceptance Supplement is executed and delivered by the parties in [place]. IN WITNESS WHEREOF, the parties hereto have caused this Return Acceptance Receipt to be executed in their respective corporate names by their duly authorized representatives as of the day and year first above written. INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: ATTACHMENTS: 1. List of Aircraft Documentation 2. List of Loose Equipment 3. List of Discrepancies 4. Engine Maximum Power Assurance Test Conditions and Results 5. Dent and Damage Chart 6. Form of No Accident/Incident Letter 7. Technical Evaluation Report (in the form of Exhibit M) ATTACHMENT 1 TO RETURN ACCEPTANCE RECEIPT LIST OF AIRCRAFT DOCUMENTATION [INSERT LIST] . ATTACHMENT 2 TO RETURN ACCEPTANCE RECEIPT LIST OF LOOSE EQUIPMENT ATTACHMENT 3 TO RETURN ACCEPTANCE RECEIPT LIST OF DISCREPANCIES ATTACHMENT 4 TO RETURN ACCEPTANCE RECEIPT ENGINE MAXIMUM POWER ASSURANCE TEST CONDITIONS AND RESULTS ATTACHMENT 5 TO RETURN ACCEPTANCE RECEIPT DENT AND DAMAGE CHART ATTACHMENT 6 TO RETURN ACCEPTANCE RECEIPT FORM OF NO ACCIDENT/INCIDENT LETTER EXHIBIT L MONTHLY REPORT (SEE FOLLOWING SHEET) MONTHLY AIRCRAFT UTILIZATION AND STATUS REPORT Page 1 of 2 Report Due Date: To: INTERNATIONAL LEASE FINANCE CORPORATION Fax: (310) 788-1990 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, United States Attn: Finance Department From: FRONTIER AIRLINES Contact: Fax: AIRCRAFT TYPE: Boeing B737-300 ENGINE TYPE: CFM56-3C1 REGISTRATION: N-_____ SERIAL NUMBER: 26293 MONTH OF: NOTE: PLEASE RECORD TIME IN HOURS AND MINUTES NOT DECIMALS. Aircraft Total Time Since New As Of Last Month: Hours: Min: Aircraft Total Time Since New: Hours: Min: Aircraft Total Cycles Since New: Cycles: Airframe Hours Flown During Month: Hours: Min: Airframe Cycles/Landings During Month: Cycles: Time Remaining to "D" or Heavy Maintenance Check: HOURS OR CYCLES FLOWN x US$ PER HOUR OR = RESERVES DURING MONTH (as CYCLE (as applicable) applicable) TOTAL AIRFRAME: Hrs: x = TOTAL LANDING GEAR: Hrs: x = Original Engine Serial Number: Hrs: Min: x = Cycles = Original Engine Serial Number: Hrs: Min: x = Cycles = ------------------------------------------------- TOTAL AMOUNT OF RESERVES (US$) PAID THIS MONTH: US$ Monthly Aircraft Utilization and Status Report From: FRONTIER AIRLINES Page 2 of 2 ENGINE SERIAL NUMBER: ENGINE SERIAL NUMBER: ORIGINAL POSITION: ORIGINAL POSITION: ACTUAL LOCATION: ACTUAL LOCATION: CURRENT THRUST RATING: CURRENT THRUST RATING: HOURS:/MIN: HOURS:/MIN: Total Time Since New As Of Last Total Time Since New As Of Last Month: Month: Total Time Since New: Total Time Since New: Total Cycles Since New: Total Cycles Since New: Hours Flown During Month: Hours Flown During Month: Cycles During Month: Cycles During Month: IMPORTANT: IF ILFC-OWNED ENGINE IS REMOVED OR INSTALLED ON ANOTHER AIRCRAFT, IT MUST BE REPORTED MONTHLY ON THIS FORM. 138 EXHIBIT M AIRCRAFT DOCUMENTATION AIRCRAFT RECORDS 1. Copies of original Certificates delivered by Boeing a. Airworthiness Certificate for Export b. Radio installation conformity certificate c. Noise limitation certificate 2. Copies of original Documents delivered by Boeing: a. Airworthiness Directive Compliance list b. Aircraft inspection report c. Aircraft Definition Report d. Weighing report 3. Copies of current Certificates: a. Airworthiness Certificate b. Noise limitation c. Radio license d. Interior material burn certificates e. Certificate of Export f. Aircraft deregistration confirmation e. Aircraft Registration 4. Letters signed and stamped by Quality Assurance: a. Current aircraft hours and cycles b. Current engines hours and cycles c. Accident and Incident report d. Summary of Maintenance Program e. AD compliance during the lease term 5. Aircraft log books and Aircraft readiness log. 6. Aircraft Hard Time (HT) inspection status. 7. One year forecast for HT inspection. 8. Aircraft Modification status, including service bulletins. 9. Last weighing report prior to redelivery. 10. AD compliance report with original signoffs. 11. Routine and non-routine job cards of the last "C" and "D" checks. 12. Past year pilots and maintenance discrepancies. 13. Major and Minor structural repairs with applicable approvals. 14. Compass Swing report of the last three years. 15. Cabin Configuration drawing (LOPA). 16. Emergency equipment location drawing. 17. Last X-RAYs ENGINES RECORDS 1. Last test cell run reports. 2. Life Limited Parts status and traceability. 3. AD compliance report with original signoffs. 4. Engine Modification / service bulletin /inspection report and applicable f 5. Last heavy maintenance records for each module. 6. Engine log books. 7. Engine removal history. 8. Past year trend monitoring reports. 9. Historical borescope reports. 10. Engine component report. APU RECORDS 1. APU status (FH, FC, limits). 2. Life limited Part status and traceability. 3. AD compliance with original signoffs. 4. Modification status. 5. Last heavy maintenance documents. 6. APU log books. 7. Last test cell report. COMPONENT RECORDS 1. Aircraft component inventory. 2. Hard time component inventory. 3. All serviceable tags. 4. Landing Gear status with last overhaul and life limited Part status. 5. AD compliance with original signoffs. 6. Modification status. EXHIBIT N TECHNICAL EVALUATION REPORT (SEE FOLLOWING SHEETS) INTERNATIONAL LEASE FINANCE CORPORATION AIRCRAFT / OPERATOR TECHNICAL EVALUATION REPORT TABLE OF CONTENTS AIRCRAFT SUMMARY..............................................................1 MAINTENANCE & INSPECTION......................................................2 LANDING GEAR..................................................................4 ENGINES.......................................................................5 AUXILIARY POWER UNIT (APU)....................................................8 PASSENGER CABIN CONFIGURATION (Seating).......................................9 GALLEY PROVISIONS............................................................10 LAVATORIES, AUDIO/ENTERTAINMENT, CARGO, INTERIOR.............................11 HYDRAULIC, FUEL, WEIGHT & BALANCE............................................12 AVIONICS SYSTEMS.............................................................13 INSPECTOR RECORD.............................................................16 AIRCRAFT SUMMARY as of / / Aircraft Make Boeing Model FUS No. S/N MFG Date: Current Registration: Country: Previous Registration: Country: Annual Utilization: Hour/Cycle Ratio: Total Aircraft Time: TAT (Hrs) As of (date): Total Aircraft Cycles: TAC (Cyc) Time Since Last "C" or equivalent Check: (Hrs) (Cyc) Time Since Last Structural Check: (Hrs) (Cyc) Engine Make: Model: Thrust Rating: Engine: 1 S/N: 2 S/N: TSN: (Hrs) CSN: (Cyc) IMPORTANT NOTE: THE ENGINE SERIAL NUMBERS SPECIFIED ON THIS REPORT REFLECT THE ENGINE SERIAL NUMBERS THAT DELIVERED WITH THE AIRCRAFT. IF THE ENGINE SERIAL NUMBER HAVE NOT BEEN FILLED IN FOR YOU, PLEASE PROVIDE DATA FOR THE ENGINES ORIGINALLY DELIVERED WITH THE AIRCRAFT (LESSOR OWNED ENGINES). MAINTENANCE PROGRAM GENERAL Aircraft Maintenance Program Provided By: [ ] Operator [ ] Other: Program Approved By Authority Of: [ ] FAA Approved [ ] Other: Repair Station Providing Service: Repair Station Number: FAA Approved?: [ ] Yes [ ] No Primary Line Maintenance Provided By: [ ] Operator [ ] Contract Service Reliability Controlled Maintenance Program?: [ ] Yes [ ] No Component Tags Available For Controlled Components: [ ] Yes [ ] No At Aircraft Delivery Currently Approved By Local Currently Operated/Maintained Aviation Authority ETOPS Qualification: Minutes Minutes Minutes Auto Land Qualification: CAT I, II, IIIa, IIIb, IIIc CAT I, II, IIIa, IIIb, IIIc CAT I, II, IIIa, IIIb, IIIc (Circle one that applies) MAINTENANCE & INSPECTION PROGRAM DESCRIPTION Check Operator's Calendar Frequency Hours Cycles Number of Phases Nomenclature "C" "D" or Structural Program
MAINTENANCE & INSPECTION PROGRAM STATUS Phase or Date Aircraft TAT Aircraft TAC Equivalent Next "C" Phase or Equivalent: /......../ Last "C" Phase or Equivalent: /......../ Time Remaining to Next Phase: (Days) (Hrs) (Cyc) Structural Cards Worked During Last "C" Phase?: [ ] Yes [ ] No CPCP Cards Worked During Last "C" Phase?: [ ] Yes [ ] No Next "D" Phase or Equivalent Structural: /......../ Last "D" Phase or Equivalent Structural: /......../ Time Remaining to Next Phase: (Days) (Hrs) (Cyc) CPCP Cards Worked During Last "D" Phase?: [ ] Yes [ ] No Next CPCP Phase: /......../ Last CPCP Phase: /......../ Time Remaining to Next Phase: (Days) (Hrs) (Cyc) Date of Last ATC Transponder Test: #1 #2 Date of Last Flight Recorder Check: Date of Last Aircraft Weighing: LANDING GEAR MLG Tires: (Size) (MPH Rating) (MFG) NLG Tires: (Size) (MPH Rating) (MFG) Brake Manufacture: Type: [ ] Steel [ ] Carbon LEFT MAIN: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) RIGHT MAIN: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) NOSE: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) ENGINES ENGINE MAINTENANCE PROGRAM Engine Maintenance Program Provided By: Engine Condition Monitoring Trend Analysis Program?: [ ] Yes [ ] No Engine Oil Type: Engine(s) operated at INCREASED or DECREASED Thrust Rating; Program limitations & required Mods. to operate at designated thrust rating ENGINE SPECIFICATIONS ENGINE NUMBER 1 Engine Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) Time Since Last Performance Restoration Visit: (Visit Date) (Hrs) (Cyc) Time Since Last Shop Visit: (visit Date) (Hrs) (Cyc) Test Cell EGT Margin: Work Scope of Last Shop Visit: Agency Performing Service: Agency FAA Approved?: [ ] Yes [ ] No Cert. #: 1st LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) *Provide a copy of a current Disk Sheet for all modules. ENGINE SPECIFICATIONS ENGINE NUMBER 2 Engine Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) Time Since Last Performance Restoration Visit: (Visit Date) (Hrs) (Cyc) Time Since Last Shop Visit: (visit Date) (Hrs) (Cyc) Test Cell EGT Margin: Work Scope of Last Shop Visit: Agency Performing Service: Agency FAA Approved?: [ ] Yes [ ] No Cert. #: 1st LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) *Provide a copy of a current Disk Sheet for all modules. AUXILIARY POWER UNIT APU Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) APU Times Are Recorded By: [ ] APU Clock or [ ] A/C Time Ratio _____:_____ Time Between Overhaul: (Hrs) (Cyc) Time @ Last Hot Section (Date) (Hrs) (Cyc) Refurbishment: Time @ Last Overhaul: (Date) (Hrs) (Cyc) Time @ Last Shop Visit: (Date) (Hrs) (Cyc) Work Scope: Agency Performing Service: Location: Cert. #: Agency FAA Approved?: [ ] Yes [ ] No APU Oil Type: 1st LIMITER Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) PASSENGER CABIN CONFIGURATION SEATING CONFIGURATION Present Configuration Occupancy: No. of Handicap Seats Installed: Passenger Exit Door Configuration: Air Stairs: Installed / Partial Provision/ Full Provision (Circle One) FIRST CLASS. Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No BUSINESS CLASS Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No COACH CLASS Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No Provisions for Life Vests Under Seats?: [ ] Yes [ ] No Entertainment Controls(PCU) Installed?: [ ] Yes [ ] No Manufacturer: Part Number: Emergency Escape Path Lighting: [ ] Floor Mounted [ ] Seat Mounted Configuration Drawing Number: Source: Engineering Order / Installation Document: Installation FAA Approved?: [ ] Yes [ ] No Method of Approval: GALLEY PROVISIONS GALLEY's ARE (Check one): (___) Atlas Standard (___) KSSU Standard (____) Other GALLEY LOCATION MANUFACTURER MODEL NUMBER PART NUMBER EQUIPPED WaterPower 1. [ ] [ ] 2. [ ] [ ] 3. [ ] [ ] 4. [ ] [ ] 5. [ ] [ ] 6. [ ] [ ] 7. [ ] [ ] 8. [ ] [ ] 9. [ ] [ ] 10. [ ] [ ] NOTE: Galley Locations per Spec or LOPA drawing i.e., G1, G2 etc. Galley Location numbers above correspond to the numbers below. OVENS BUN WARMERS REFER CHILLERS COFFEE WATER HOT HOT BEV UNITS MAKERS BOILERS JUGS CUPS JUGS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. LAVATORIES Number of Lavatories: Handicap Provisions?: [ ] Yes [ ] No Locations: IN-FLIGHT AUDIO & ENTERTAINMENT SYSTEM Boarding Music: [ ] Yes [ ] No Auto Evac & Warning: [ ] Yes [ ] No Pre-Recorded Announcement: [ ] Yes [ ] No Passenger Entertainment (Audio): [ ] Yes [ ] No Passenger Entertainment (Video): [ ] Yes [ ] No VTR Format: [ ] VHS [ ]Hi-8 [ ] Other [ ] Projector [ ] PSU Monitor [ ] Isle Monitor [ ] In-Seat (Check All That Apply) Passenger En-Route Information Display: [ ] Yes [ ] No Telephone: [ ] Yes [ ] No [ ] Leased [ ] Owned Satellite: [ ] Yes [ ] No CARGO COMPARTMENT Cargo Loading System Installed: [ ] Yes [ ] No Smoke\Fire Detection System installed: [ ] Yes [ ] No Fire Suppression System installed: [ ] Yes [ ] No INTERIOR COLORS Interior Color Scheme: Carpets: Curtains: PLACARDS & LIGHTED SIGNS English?: [ ] Yes [ ] No Bi-Lingual?: [ ] Yes [ ] No First Language: Second Language: HYDRAULIC SYSTEM Type of Hydraulic Fluid Used: (MFG): FUEL SYSTEM Total Fuel Capacity: U.S. gallons [ ] lbs or [ ] kilos Number of Tanks: Auxiliary Tanks Installed?: [ ] Yes [ ] No Auxiliary Tank Capacity: U.S. gallons [ ] lbs or [ ] kilos Fuel Instrumentation / Calibration: [ ] U.S. pounds [ ] kilograms WEIGHT & BALANCE Has Aircraft Been Modified For Increased Gross Weight by Current Lessee?: [ ] Yes [ ] No From MTOGW To MTOGW Weight & Balance Manual Document No.: Rev: For the below weights specify AFM approved limits: POUNDS KILOS Maximum Takeoff Gross Weight: (MTOGW) / Maximum Taxi Weight: (MTW) / Maximum Landing Weight: (MLW) / Manufacturer's Empty Weight: (MEW) / Maximum Zero Fuel Weight: (MZFW) / Operational Empty Weight: (OEW) / AVIONICS SYSTEMS 22 AUTO FLIGHT QTY COMPONENT MANUFACTURER MODEL or PART NUMBER FMGC - Flight Management & Guidance Computer: FAC - Flight Augmentation Computer: FCU - Flight Control Unit: MCDU - Multipurpose Control Display Unit: 23 COMMUNICATIONS QTY COMPONENT MANUFACTURER MODEL or PART NUMBER CIDS Director - Cabin Intercommunications Data System HF Transceiver: VHF Transceiver: Cockpit Voice Recorder: PRAM Tape Reproducer (Pre-Recorded PAX Address): MPES Tape Reproducer (Audio Entertainment): Tape Reproducer (Video Entertainment): Audio management unit/SELCAL Decoder: ACARS Management Unit: RMP - Radio Management Panel: AVIONICS SYSTEMS (continued) 27 FLIGHT CONTROL COMPUTER QTY COMPONENT MANUFACTURER MODEL or PART NUMBER ELAC - Elevator/Aileron Computer: SFCC - Slat/flap Control Computer: SEC - Spoiler/Elevator Computer: FCDC - Flight Control Data Concentrator: 31 INDICATING AND RECORDING QTY COMPONENT MANUFACTURER MODEL or PART NUMBER Multifunction Printer: DFDR - Flight Data Recorder: FDIU - Digital Flight Data Interface Unit: Accelerometer: FWC - Flight Warning Computers: Windshear Activated: Yes / No QAR - Quick Access Recorder: AIDS - Aircraft Integrated Data System: ELECTRONI INSTRUMENT SYSTEM (EIS) PFD - Primary Flight Display: ND - Navigation Display: SDACS - System Data Acquisition Concentrators: Display Management Computers: EWD - Engine/Warning Display: SD - System Display: CFDIU - Centralized Fault Display Interface: 34 NAVIGATION QTY COMPONENT MANUFACTURER MODEL or PART NUMBER ADIRU - Air Data/Intertial Reference System: DME - Distance Measuring Equipment Interrogators: VHF VOR/Marker Beacon Receiver: VHF ILS Receiver: DDRMI - Digital Distance & Radio Magnetic Indicator: Radio Altimeter Transceiver: Weather Radar Transceiver: TCAS - Traffic Alert and Collision Avoidance System Computer: ATC - Air Traffic Control System Transponder: Microwave Landing Receiver: GPWS - Ground Proximity Warning System: ADF - Automatic Direction Finder Receiver: INSPECTOR RECORD INSPECTED BY: DATE: OPERATOR: REGISTERED OWNER: ADDRESS OF OPERATOR: CONTACT (Name/Title): TELEPHONE: TELEFAX: Email Address: Department Contact Name Phone Fax Email Quality Control: Power Plant Engineering: Maintenance Programs/Planning: EX-19.1 17 0017.txt CHANGE IN ACCOUNTING PRINCIPLE June 28, 2000 Frontier Airlines, Inc. Denver, Colorado Ladies and Gentlemen: We have audited the balance sheets of Frontier Airlines, Inc. as of March 31, 2000 and 1999, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2000, and have reported thereon under date of May 31, 2000. The aforementioned financial statements and our audit report thereon are included in the Company's annual report on Form 10-K for the year ended March 31, 2000. As stated in Note 1 to those financial statements, the Company changed its method of accounting for required periodic maintenance checks from the accrue-in-advance method to the direct expensing method, and states that the newly adopted accounting principle is preferable in the circumstances because there has not been an obligating event prior to the maintenance checks actually being performed and the new method is the predominant method used in the airline industry. Previously, the Company accrued-in-advance for maintenance checks and major overhauls, including the costs for scheduled major airframe, landing gear, and engine overhauls. The Company continues to utilize the accrue-in-advance method for major overhaul, including scheduled major airframe, landing gear and engine overhauls because the Company's aircraft lease agreements require the Company to make non-refundable deposits monthly with the lessor for such costs. In accordance with your request, we have reviewed and discussed with Company officials the circumstances and business judgment and planning upon which the decision to make this change in the method of accounting was based. With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability of one acceptable method of accounting over another acceptable method. However, for purposes of Frontier Airlines, Inc.'s compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter. Based on our review and discussion, with reliance on management's business judgment and planning, we concur that the newly adopted method of accounting is preferable in the Company's circumstances. Very truly yours, KPMG LLP EX-23.1 18 0018.txt CONSENT OF KPMG Consent of Independent Auditors' The Board of Directors Frontier Airlines, Inc.: We consent to the incorporation by reference in the registration statement No. 333-83811 on Form S-8 of our report dated May 31, 2000, with respect to the balance sheets of Frontier Airlines, Inc. as of March 31, 2000 and 1999, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2000, which report appears in the March 31, 2000 Form 10-K of Frontier Airlines, Inc. KPMG LLP Denver, Colorado June 28, 2000 EX-27.1 19 0019.txt FDS
5 0000921929 Frontier Airlines, Inc. 12-MOS MAR-31-2000 APR-01-1999 MAR-31-2000 67,850,933 0 22,361,654 170,819 2,235,183 140,360,651 27,463,015 5,808,753 187,546,038 98,475,114 0 0 0 17,732 67,088,517 187,546,038 329,819,955 329,819,955 0 290,510,731 (4,224,890) 0 119,496 43,414,618 16,954,674 26,460,244 0 0 549,009 27,009,253 1.56 1.43
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