-----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, NS6EOMV2BgIMdRsB+9y2dIdhq57PBAZI0uAkDJnnByOr9pSt0GzNb6RjxGCouEUD iCIUI8FwDDNVTlC4Famz9g== 0000927356-97-000798.txt : 19970716 0000927356-97-000798.hdr.sgml : 19970716 ACCESSION NUMBER: 0000927356-97-000798 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970714 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER AIRLINES INC /CO/ CENTRAL INDEX KEY: 0000921929 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 841256945 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24126 FILM NUMBER: 97640559 BUSINESS ADDRESS: STREET 1: 12015 EAST 46TH AVE CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033717400 10KSB 1 FORM 10-KSB FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1997 [_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-24126 FRONTIER AIRLINES, INC. ----------------------- (Exact name of registrant as specified in its charter) Colorado 84-1256945 - --------------------------------------- ----------------------------- (State or other jurisdiction (I.R.S. Employer of incorporated or organization) Identification No.) 12015 E. 46th Avenue, Denver, CO 80239 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Issuer'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 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X] The Company's revenues for its fiscal year ended March 31, 1997: $116,500,634. Aggregate Market Value of Stock held by Non-Affiliates of the Company as of June 30, 1997: $33,009,432, based on a closing average bid and asked price on that date of $3.78 per share. The number of shares of the Company's Common Stock outstanding as of June 30, 1997 is 8,844,375. Transitional Small Business Disclosure Form: Yes: ; No: X . --- --- TABLE OF CONTENTS
Page ---- PART I Item 1: Description of Business............................... 1 Item 2: Description of Property............................... 12 Item 3: Legal Proceedings..................................... 13 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: Management's Discussion and Analysis of Financial Condition and Results of Operations................... 16 Item 7: Financial Statements.................................. 30 Item 8: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 30 PART III Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.......................................... 30 Item 10: Executive Compensation................................ 33 Item 11: Security Ownership of Certain Beneficial Owners and Management........................................ 35 Item 12: Certain Relationships and Related Transactions........ 36 Item 13: Exhibits and Reports on Form 8-K...................... 36
PART I This report contains forward-looking statements that describe the business and prospects of Frontier Airlines, Inc. (the "Company") and the expectations of the Company and management. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth. These risks and uncertainties include, but are not limited to: the timing of, and expense associated with, expansion and modification of the Company's operations in accordance with its business strategy or in response to competitive pressures or other factors such as the Company's commencement of passenger service and ground handling operations at several airports and assumption of maintenance operations at DIA with its own employees; general economic factors and behavior of the fare-paying public and the federal government, such as the crash in May 1996 of another low-fare carrier's aircraft that resulted in a federal investigation of the carrier, suspension of the carrier's operations and increased federal scrutiny of low-fare carriers generally that may increase the Company's operating costs or otherwise adversely affect the Company; actions of competing airlines, such as increasing capacity and pricing actions of United Airlines, other competitors, and Western Pacific Airlines, Inc. ("Western Pacific") if the proposed merger with Western Pacific is not completed; the risk that the merger with Western Pacific is not completed; the current limited supply of Boeing 737 aircraft and the higher lease costs associated with such aircraft, which inhibits the Company's ability to achieve operating economies and implement its business strategy; proposed changes to the present air transportation excise tax of 10% to another type of consumer paid tax, charge or other user fees on air transportation and increasing aviation fuel prices. Because the Company's business, like that of the airline industry generally, is characterized by high fixed costs relative to revenues and low profit margins, small fluctuations in the Company's yield per RPM or expense per ASM can significantly affect operating results. As discussed in "Proposed Merger with Western Pacific Airlines" below, the Company signed a Merger Agreement with Western Pacific on June 30,1997. The discussion contained in this report generally describes the historic business of the Company and plans of the Company as an independent airline. It does not discuss the pro forma effect of the Company's merger with Western Pacific or the operations of a combined company. As such, forward-looking information about the Company in this report relates to operations of the Company prior to consummation of the merger or operations of the Company if the merger does not occur. Further information about the merger and the combined company will be provided in a proxy statement relating to approval of the merger by shareholders of the Company. ITEM 1: DESCRIPTION OF BUSINESS GENERAL Frontier Airlines, Inc. is a low-fare, full-service airline based in Denver, Colorado. Principally serving markets abandoned by Continental Airlines ("Continental") during that carrier's downsizing of its Denver hub in 1993 and 1994, the Company currently operates routes linking its Denver hub to 14 -1- cities in 11 states covering the western two-thirds of the United States. The Company's current route system extends from Denver to Los Angeles, San Diego and San Francisco, California; Chicago and Bloomington/Normal, Illinois; Seattle/Tacoma, Washington; Las Vegas, Nevada; Phoenix, Arizona; St. Louis, Missouri; Minneapolis/St. Paul, Minnesota; Salt Lake City, Utah; Omaha, Nebraska; Albuquerque, New Mexico; and El Paso, Texas. At present, the Company utilizes four gates at Denver International Airport ("DIA") for approximately 54 daily flight departures and arrivals. Organized in February 1994, the Company commenced flight operations in July 1994 with two leased Boeing 737-200 jet aircraft. It has since expanded its fleet to 11 leased jets, including seven Boeing 737-200s and four larger Boeing 737- 300s. The Company has agreed to lease three more Boeing 737-300s, two to be delivered in August 1997 and one in January 1998, after which it plans to add new cities to its route system. The Company's senior management team includes executives with substantial service in the airline industry, including persons who occupied similar positions at a former airline called Frontier Airlines that served regional routes to Denver from 1950 to 1986. From time to time, the former Frontier Airlines served most of the Company's current and intended markets with jet equipment from its Denver hub. PROPOSED MERGER WITH WESTERN PACIFIC AIRLINES On June 30, 1997, the Company signed an Agreement and Plan of Merger (the "Merger Agreement") providing for the merger (the "Merger") of the Company with Western Pacific, a low fare airline based in Colorado Springs, Colorado. Western Pacific commenced service from DIA on June 29, 1997 and currently provides 45 daily departures from DIA. Western Pacific operates approximately 68 total departures per day from DIA and Colorado Springs with 19 Boeing 737 aircraft. Western Pacific also owns a majority interest in Mountain Air Express, a commuter airline that operates out of DIA and Colorado Springs. Western Pacific's common stock is quoted on the Nasdaq National Market under the symbol "WPAC". The following discussion is qualified in its entirety by reference to the Merger Agreement, which is included as an exhibit to this report. In addition, readers are advised to review the reports of Western Pacific filed with the Securities and Exchange Commission (File No. 0-27238). Upon consummation of the Merger, each shareholder of the Company will receive .75 shares (subject to adjustment in certain circumstances) of common stock of Western Pacific for each share of the Company's Common Stock held by such shareholder. The management of Western Pacific will retain managerial control of Western Pacific after the Merger. Three members of the Company's board of directors will be granted seats on Western Pacific's board of directors, which will be increased to nine members. The Company's investment banking firm has issued an opinion to the Company's Board of Directors that the exchange ratio is fair to the Company's shareholders from a financial point of view, and Western Pacific's board of directors has received a similar opinion from its investment banking firm with respect to Western Pacific. -2- The Merger Agreement provides that prior to the completion of the Merger, or termination of the Merger Agreement if that occurs before the Merger is completed, the operations of the Company and Western Pacific will generally be conducted in the ordinary course of business. The Company is prohibited from leasing additional aircraft, raising capital through equity or debt financings (except under certain conditions) or making major capital expenditures without Western Pacific's consent. Certain limitations are placed on Western Pacific's operations as well. The Merger Agreement provides that each company must pay the other a termination fee of $4 million in the event either company enters into a business combination with any other entity, and in certain other circumstances resulting in termination of the Merger Agreement. Closing of the Merger is subject to several conditions, including approval of the Merger by the shareholders of the Company and Western Pacific, regulatory approval of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act, effectiveness of a Registration Statement relating to the Western Pacific common stock to be issued in the Merger, the continued effectiveness of the "fairness opinions" issued by each of the Company's and Western Pacific's investment banking firms and the Company obtaining required consents or waivers of consent to the Merger from aircraft lessors and other third parties. In addition, either the Company or Western Pacific may terminate the Merger Agreement in the event of a material adverse change in the financial condition, business, operations or prospects of the other party to the Merger. There can be no assurance that the conditions will be met or that the Merger will be consummated. The failure of the Company and Western Pacific to consummate the Merger could have a material adverse effect on the Company. In connection with the Merger, the Company entered into a code share agreement (the "Code Share Agreement") with Western Pacific which provides that the parties will jointly market their flight schedules by permitting each party to assign its airline designator code to flights operated by the other party. The Code Share Agreement terminates on December 31, 1997; provided, however, that if the Merger terminates under certain conditions then the Code Share Agreement will terminate on December 31, 1998. BUSINESS STRATEGY AND MARKETS The Company's business strategy is to provide service at low fares to high volume markets from its Denver hub. The strategy is based on the following: . Filling gaps in flight frequencies in markets that the Company has selected from among the approximately 51 Denver routes vacated by Continental Airlines in 1993 and 1994. . Stimulating demand by offering a combination of low fares, quality service and frequent flyer credits in Continental Airlines' OnePass program. . Expanding its Denver hub operation and increasing its connecting traffic through the addition of service to other high volume markets. -3- The Company's initial service pattern in 1994 was designed to fill flight voids on routes to eight relatively small cities in North Dakota and Montana where there was little or no jet competition to Denver after Continental's flight terminations. The Company has since refocused its marketing priorities on more heavily traveled routes --typically markets dominated by one or more major airlines and characterized by high fares due to the lack of low-fare competition prior to the Company's entry. In line with its revised marketing strategy, the Company in 1995 and 1996 suspended service in all eight of its original markets, and redeployed the aircraft used on these routes to a number of Denver's largest markets. The following table sets forth the Company's service commencements and suspensions for the three-year period from its initiation of flight operations in July 1994 through June 1997.
Average Number Date Service Date Service of Daily Denver Market Commenced Suspended Roundtrips - ------------- ------------------ ------------------ ---------- Bismarck, ND July 5, 1994 September 10, 1996 Fargo, ND July 5, 1994 September 10, 1996 Grand Forks, ND July 5, 1994 January 14, 1995 Minot, ND July 5, 1994 January 14, 1995 Bozeman, MT August 8, 1994 September 25, 1995 Missoula, MT August 8, 1994 September 25, 1995 Billings, MT September 26, 1994 September 25, 1995 Great Falls, MT September 26, 1994 September 25, 1995 Tucson, AZ October 13, 1994 April 16, 1995 Albuquerque, NM October 13, 1994 2 El Paso, TX October 13, 1994 2(a) Omaha, NE January 16, 1995 2 Las Vegas, NV January 19, 1995 3(b) Phoenix, AZ September 25, 1995 2 Chicago (Midway), IL September 25, 1995 3 Los Angeles, CA November 3, 1995 2 Minneapolis, MN November 13, 1995 2 Salt Lake City, UT November 13, 1995 3 San Francisco, CA November 17, 1995 2 Seattle, WA May 1, 1996 3 St. Louis, MO June 1, 1996 2 San Diego, CA June 1, 1996 1 Bloomington,/Normal, IL January 6, 1997 1(c)
(a) Flights are operated on Denver-Albuquerque-El Paso routings. (b) Service to be suspended effective August 1, 1997. (c) Flights are operated on Denver-Omaha-Bloomington/Normal routings. -4- The Company plans to introduce low-fare service in additional high volume markets. Management believes that potential markets for its planned route expansions can support greater flight capacity than now provided by the incumbent carriers and that passengers would welcome the restoration of additional capacity, particularly at the low fares offered by the Company. MARKETING The Company's sales efforts are targeted to both the leisure and corporate travel markets. In the leisure market, the Company offers deeply discounted fares marketed through newspaper, radio and television advertising along with special promotions throughout its route system. To balance the seasonal changes in demand in the leisure market, the Company has introduced a number of new programs designed to capture a larger share of the less seasonally affected corporate market. These ongoing programs, launched in the fall of 1996, include negotiated fares for large companies that sign contracts for a specified volume of travel, and future travel credits for small and medium size businesses, and for members of trade and nonprofit associations. The Company also pursues sales opportunities with meeting and convention arrangers, government travel offices and vacation clubs. Personal sales calls, direct mail and telemarketing are the primary tools in attracting this business. The Company offers air/ground vacation packages to Colorado ski resorts and to Las Vegas and other destinations on its route system. An important marketing tool in today's airline environment is the frequent flyer program. The Company joined Continental's OnePass program in January 1995. The selection of OnePass was based on the established membership base in the cities served by the Company and the consistent high marks that the program has received when compared with other programs. The Company has implemented marketing strategies to maintain relationships with travel agencies throughout its route system. The Company communicates with the travel agents through personal visits by Company executives and sales managers, mailings of sales literature, telemarketing and advertising in the travel agents' trade publications. The Company participates in the four major computer reservation systems used by the travel agents to make airline reservations. The Company also maintains a reservations center in Denver, operated by its own personnel. In January 1997, the Company introduced electronic ticketing for passengers who elect to book flights through the Company's reservations center. The Company plans to offer its passengers the option of booking flight reservations through the Company's Internet site starting in the summer of 1997. To gain connecting traffic from other carriers, the Company has negotiated various types of interline agreements with approximately 65 domestic and international airlines serving cities on the Company's route system. Generally, the agreements include joint ticketing and baggage services and other conveniences designed to expedite the connecting process. The Company has code share agreements -5- with Western Pacific and with Aspen Mountain Air with respect to Aspen Mountain Air's routes between DIA and Aspen. Among various sales benefits, these agreements provide prominent listings of the carriers' connecting flights in the travel industry's computer reservations systems. In March 1997 the Company asked the U.S. Department of Transportation for an exemption from the "slot" restrictions at New York's LaGuardia Airport, which, if granted, would permit the Company to operate nonstop Denver-LaGuardia flights. The Company is unable to predict whether the exemption will be granted. PRODUCT PRICING The Company offers all of its seats at various discount fares, which it believes reduces the cost of travel in markets it enters by as much as 60 percent. Seat inventories on each flight are managed through a yield management system. The Company generally offers discounts with three levels of advance purchase requirements. In contrast to most carriers, the Company does not currently require travelers to have a Saturday overnight stay to take advantage of these discount rates. Unlike most other carriers, the Company does not charge a premium for one-way fares. COMPETITION The Airline Deregulation Act of 1978 (the "Deregulation Act") produced a highly competitive airline industry, freed of certain government regulations that for 40 years prior to the Deregulation Act had dictated where domestic airlines could fly and how much they could charge for their services. Since then small carriers such as the Company have entered markets long dominated by large airlines with substantially greater resources such as United Airlines, American Airlines, Northwest Airlines and Delta Air Lines. As shown in the following chart as of June 1997, the Company competes principally with United Airlines, the dominant carrier at DIA with a market share of approximately 70%. This gives United a significant competitive advantage compared to the Company and other carriers serving DIA. -6-
ROUTES FROM DENVER TO: COMPETING AIRLINES DAILY ROUND TRIPS - ---------------------- ------------------ -------------------- Competing Frontier Airlines -------- --------- San Francisco, California United Airlines 2 18 Minneapolis, Minnesota United Airlines, Northwest Airlines 2 14 Salt Lake City, Utah United Airlines, Delta Air Lines, Trans 3 13 World Airlines Los Angeles, California United Airlines 2 21 Phoenix, Arizona United Airlines, America West Airlines 2 18 Chicago (Midway), Illinois United Airlines (O'Hare), American 3 20 Airlines (O'Hare), Las Vegas, Nevada United Airlines, America West Airlines 3 12 Omaha, Nebraska United Airlines 2 6 Albuquerque, New Mexico United Airlines 2 9 El Paso, Texas Southwest Airlines and Delta Air Lines 2* 6 (to and from Albuquerque) Seattle, Washington United Airlines 3 9 St. Louis, Missouri United Airlines, Trans World Airlines 2 10 San Diego, California United Airlines 1 7 Bloomington/Normal, Illinois 1** 0
* Operated via Albuquerque, New Mexico ** Operated via Omaha, Nebraska Western Pacific commenced operations at DIA on June 29, 1997. Simultaneously with execution of the Merger Agreement between the Company and Western Pacific, the parties entered into a Code Share Agreement which is effective as of August 1, 1997 and remains in effect through December 31, 1997. If the Merger is not consummated, Western Pacific will compete with the Company in six or more of the Company's major markets. Western Pacific's nonstop frequencies from Denver in markets in which the Company operates are: Daily Jet Market Round Trips ------ ----------- Denver-Los Angeles 4 Denver-San Francisco 4 Denver-Phoenix 3 Denver-Chicago (Midway) 2 Denver-Seattle 2 Denver-San Diego 2 While United Airlines' competitive reaction to the Company's market entries had generally been limited to matching its lowest fares on a capacity controlled basis, the Company believes that United began engaging in a number of predatory practices in the fall of 1996, following the Company's report of its second quarterly profit. In a written complaint submitted to the U.S. Department of Justice ("DOJ") in February 1997, the Company requested the DOJ to investigate eight separate -7- counts of potential antitrust violations. These include "capacity dumping" (adding an excessive volume of flight capacity in several of the Company's key markets), alleged pricing abuses, "exclusive dealing" with corporate customers, and other tactics. The Company is unable to predict what action, if any, the DOJ will take. AIRCRAFT As of June 1997, the Company operates 11 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: Aircraft No. of Year of Passenger Lease Model Aircraft Manufacture Seats Expiration - ---------- -------- ----------- --------- ------------ B-737-200 5 1968-1969 108 July-October 1999 B-737-200A 2 1981 119 2001 B-737-300 4 1985, 1986, 136(2), 2000(2), 1991, 1997 138(2) 2004, 2005 In addition to the 11 Boeing 737 aircraft currently in operation, the Company has lease agreements for three additional new Boeing 737-300 aircraft, two with scheduled deliveries in August 1997 and one with a scheduled delivery in January 1998. The lease terms for the two August 1997 aircraft are 96 and 84 months, respectively, and 84 months for the January 1998 aircraft. See Note 5 to the Financial Statements. The demand for Boeing 737 aircraft has increased markedly in the past two years. The Company is seeking to lease additional aircraft in order to expand its service and route system. However, there can be no assurance that additional suitable aircraft will be available to the Company at favorable lease rates and terms, or at the times needed for implementation of the Company's plan of operation. See "Management's Discussion and Analysis of Financial Condition and Results of Operation-Liquidity and Capital Resources." MAINTENANCE AND REPAIRS All aircraft maintenance and repairs are accomplished in accordance with the Company's maintenance program approved by the United States Federal Aviation Administration ("FAA"). Spare or replacement parts are maintained by the Company primarily in Denver. Certain of these parts are supplied through a contractual arrangement with a major airline, with others purchased or leased from other airline or vendor sources. There are two categories of aircraft maintenance and repair: routine servicing and checks accomplished on a daily or weekly schedule, and major maintenance. Routine maintenance is performed principally by the Company's mechanics at its own maintenance facilities in Denver, Colorado, and El Paso, Texas. The Company's major maintenance has been performed by the Tramco subsidiary of B.F. Goodrich, and by US Airways. -8- The Company terminated a contract with Continental Airlines for routine maintenance at Denver in August 1996. Since that time the Company has trained, staffed and supervised its own maintenance work force at Denver. The Company leases a portion of Continental Airlines' hangar at DIA where it presently performs its own maintenance through the "B" check level. Major maintenance continues to be performed by outside FAA approved contractors. Under its aircraft lease agreements, the Company pays all expenses relating to the maintenance and operation of the Company's aircraft, and the Company is required under its lease agreements to pay monthly maintenance reserve deposits to the lessors based on usage. Maintenance reserve deposits will be applied against the cost of major maintenance, which is scheduled to occur in late 1997 for three of the Company's aircraft. To the extent not used for major maintenance during the lease terms, maintenance reserve deposits are returned to the aircraft lessors upon redelivery of the aircraft. The Company's monthly completion factors for its fiscal years ending March 31, 1997 and 1996 ranged from 94% to 99.8% and from 95% to 99%, respectively. The completion factor is the percentage of the Company's scheduled flights that were operated by the Company (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 the Company's aircraft will continue to be sufficiently reliable over longer periods of time. FUEL During the fiscal years ending March 31, 1997 and 1996, jet fuel accounted for 16.6% and 15.4%, respectively, of the Company's operating expenses. The Company has arrangements with major fuel suppliers for substantial portions of its fuel requirements, and management believes that such arrangements assure an adequate supply of fuel for current and anticipated future operations. However, the Company has 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 the Company's control. Therefore, the future availability and cost of jet fuel cannot be predicted with any degree of certainty. The Company's average fuel price per gallon including taxes and into-plane fees was 83.1c for the fiscal year ended March 31, 1997, with the monthly average price per gallon during the same period ranging from a low of 74.2c to a high of 91.2c. As of June 11, 1997, the price per gallon was 73.3c. Newer aircraft are more fuel efficient than the Company's Boeing 737-200 aircraft due to improved aircraft airframe design and engine technology. Significant increases in the price of jet fuel would result in a higher increase in the Company's overall total costs than those of competitors whose entire fleet consists of more fuel efficient aircraft such as the Company's Boeing 737- 300 aircraft. Increases in fuel prices or a shortage of supply could have a material adverse affect on the Company's operations and financial results. The Company's ability to pass on increased fuel costs to passengers through price increases or fuel surcharges may be limited, particularly given the Company's low fare strategy. -9- INSURANCE The Company carries $500 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 its aircraft lease agreements, and customary coverage for other business insurance. While the Company believes such insurance is adequate, there can be no assurance that such coverage will fully protect it against all losses which it might sustain. Moreover, the Company's insurance for aircraft loss or damage carries a deductible requiring the Company to pay up to the first $500,000 of loss or damage unless the aircraft is determined to be a total loss. The Company's property damage and passenger and third-party liability insurance coverage exceeds the minimum amounts required by the United States Department of Transportation ("DOT") regulations. EMPLOYEES As of June 15, 1997, the Company had 800 employees, including 700 full-time and 100 part-time personnel. The Company's employees included 120 pilots, 156 flight attendants, 186 customer service agents, 116 reservations agents, 66 mechanics and related personnel, 119 general management personnel, and 46 personnel performing other miscellaneous functions. The Company considers its relations with its employees to be good. The Company believes it operates 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 the Company will continue to realize these advantages over established or other air carriers for any extended period of time. None of the Company's employees is represented by a labor union, although labor unions have approached certain of the Company's employees concerning potential representation. If unionization of the Company's employees occurs, the Company's costs could materially increase. Training, both initial and recurring, is required for many employees. Pilots, flight attendants, ground service personnel, reservationists and mechanics are trained by the Company. FAA regulations require pilots to be licensed as commercial pilots, with specific ratings for aircraft to be flown and to be medically certified as physically fit. Licenses and medical certification are subject to periodic continuation requirements including recurrent training and recent flying experience. Mechanics, quality control inspectors and flight dispatchers must be licensed and qualified for specific aircraft. Flight attendants must have initial and periodic competency fitness training and certification. Training programs are subject to approval and monitoring by the FAA. Management personnel directly involved in the supervision of flight operations, training, maintenance and aircraft inspection must meet experience standards prescribed by FAA regulations. Employees performing safety-sensitive functions are subject to pre-employment and subsequent random drug and alcohol testing. -10- 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 and maintenance standards. In general, regulation of interstate 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. As a result, the level of regulation to which the Company and other airlines is subject has been greatly reduced. By the same token, the availability to the Company of regulatory protection from competition has been virtually eliminated. U.S. Department of Transportation. The Company holds a Certificate of Public Convenience and Necessity ("DOT Certificate") issued by the DOT which allows the Company 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. The Company also holds an operating certificate ("FAA Certificate") issued by the FAA pursuant to Part 121 of the Federal Aviation Regulations. The FAA has jurisdiction over the regulation of flight operations generally, including the licensing of pilots and maintenance personnel, the establishment of minimum standards for training and maintenance, and technical standards for flight, communications and ground equipment. The Company must have and maintains FAA certificates of airworthiness for all of its aircraft. The Company's flight personnel, flight and emergency procedures, aircraft and maintenance facilities are subject to periodic inspections and tests by the FAA. In May 1996, a relatively new domestic airline, as is the Company, 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 for an indefinite period of time. Although the FAA has subsequently, after an intensive and lengthy investigation, allowed the new domestic airline to resume its operations, should the Company experience a similar accident, it is probable that there would be a material adverse effect on the Company's business. 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. The Company is required to comply with all applicable FAA noise control regulations and with current exhaust emissions standards. According to FAA rules, each new entrant airline such as the Company must presently have at least 50% of its fleet in compliance with the FAA's Stage 3 noise level requirements. The balance of each airlines' -11- fleet must be brought into compliance with Stage 3 in phases, with 75% compliance by January 1999 and full compliance by January 2000. The Company's aircraft fleet is currently in compliance with Stage 3 noise level requirements. 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. ANCA recognizes the right of airport operators with special noise problems to implement local noise abatement procedures as long as such procedures do not interfere unreasonably with the interstate and foreign commerce of the national air transportation system. ANCA generally requires FAA approval of local noise restrictions on Stage 3 aircraft and establishes a regulatory notice and review process for local restrictions on Stage 2 aircraft. An agreement between the City and County of Denver and another city adjacent to DIA precludes the use of Stage 2 aircraft, such as certain of the Company's Boeing 737-200 aircraft, on one of DIA's runways. On occasion, this results in longer taxi times for the Company's aircraft than would otherwise be the case. However, this has not had a material adverse effect on the Company's operations. The Company's operations could be adversely affected if additional restrictions are imposed at DIA or if locally-imposed regulations become restrictive at any other cities on the Company's routes. Miscellaneous. All air carriers are also subject to certain provisions of the Communications Act of 1934 because of their extensive use of radio and other communication facilities, and are required to obtain an aeronautical radio license from the Federal Communications Commission ("FCC"). To the extent that the Company is subject to FCC requirements, it takes all necessary steps to comply with those requirements. The Company's operations may become subject to additional federal regulatory requirements in the future under certain circumstances. For example, if the Company's employees were to unionize, the Company's labor relations would be covered under Title II of the Railway Labor Act of 1926 and would be subject to the jurisdiction of the National Mediation Board. During a period of past fuel scarcity, air carrier access to jet fuel was subject to allocation regulations promulgated by the Department of Energy. To the extent that the Company seeks to provide international air transportation in the future, it will be required to obtain additional authority from the DOT and become subject to other regulatory requirements imposed by affected foreign jurisdictions. ITEM 2: DESCRIPTION OF PROPERTY The Company has leased approximately 24,800 square feet of office space in Denver with terms ending in 1999 and 2001 at a current annual cost of $329,700 for the fiscal year ending March 31, 1998. This facility provides space for the Company's reservation center together with space for administrative activities including senior management, purchasing, accounting, sales, marketing, advertising and human resources. -12- Each airport location requires leased space associated with gate operations, ticketing and baggage operations. The ticket counters, gates and airport office facilities at each of the airports the Company serves are leased from the appropriate airport authority or subleased from other airlines. The Company has entered into an airport lease and facilities agreement with the City and County of Denver at DIA that expires in 2005. The Company subleases ticket counter space and four gates at DIA from Continental Airlines until March 1, 2000 and a portion of Continental Airline's hangar at DIA until September 30, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operation-Liquidity and Capital Resources." ITEM 3: LEGAL PROCEEDINGS In February 1997, the Company filed a complaint with the 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. The Company is unable to predict what action, if any, the DOJ will take in response to this complaint. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders of the Company through the solicitation of proxies or otherwise. PART II ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq") under the symbol "FRNT." The following table sets forth the range of high and low bid prices per share for the Common Stock for the periods indicated as reported by Nasdaq. Market quotations represent prices between dealers and do not reflect retail mark-ups, mark-downs or commissions. There was no market for the Common Stock prior to the Company's initial public offering on May 20, 1994. As of June 23, 1997, there were 392 holders of record of the Common Stock. -13-
Price Range of Quarter Ended Common Stock - ------------- --------------------- High Low ---------- --------- June 30, 1996................................ $ 6 $ 4 11/16 September 30, 1995........................... 5 3/4 3 1/4 December 31,1995............................. 8 1/4 4 3/8 March 31,1996................................ 7 3/8 5 1/8 June 30, 1996................................ 10 5/16 7 September 30, 1996........................... 9 3/4 6 3/4 December 31, 1996............................ 6 29/32 3 1/4 March 31, 1997............................... 4 2 5/8
WARRANTS AND OPTIONS The Company issued 2,670,000 warrants to purchase common stock in conjunction with a private placement and its initial public offering. Each warrant entitled the warrant holder to purchase one share of common stock for $5.00. These warrants were subject to redemption at $.05 per warrant by the Company on 45 days written notice if certain conditions were met. The Company met these conditions in May 1996 and on May 14, 1996, the Company notified the warrant holders of the Company's intent to exercise its redemption rights with respect to the warrants not exercised on or before June 28, 1996. Warrant holders exercised 2,666,133 of the warrants, resulting in net proceeds to the Company totaling $13,275,000. At completion of the Company's initial public offering, an underwriter acquired options to purchase up to 110,000 shares of common stock exercisable at a price equal to $5.525 per share. Additionally, the underwriter was granted up to 110,000 warrants to purchase common stock at a price equal to $.325 per warrant and $5.00 per share of common stock. The underwriters in a secondary public offering by the Company received a warrant to purchase 168,500 shares of common stock at $5.55 per share. The options and warrants issued to underwriters in connection with the initial and secondary public offerings expire, respectively, on May 20, 1999 and September 18, 2000. In October 1995, the Company issued to each of two of its Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares of Common Stock for an aggregate purchase price of $500,000. In June 1996, the Company issued two warrants to a Boeing 737-200 lessor, each warrant entitling the lessor to purchase 70,000 shares of common stock for an aggregate price of $503,300 per warrant. In connection with a Boeing 737-300 aircraft to be delivered in August 1997, the Company has issued to the lessor a warrant to purchase 55,000 shares of Common Stock for an aggregate purchase price of $385,000. Warrants issued to aircraft lessors, to the extent not earlier exercised, expire upon expiration of the aircraft leases in March 2000, May and June 2001, and September 2005. -14- As of June 15, 1997, the Company has granted stock options to purchase up to 1,931,250 shares of Common Stock, 1,781,250 of which options are currently exercisable at exercise prices ranging from $1.00 to $9.00 per share. DIVIDEND POLICY Except for the Rights Dividend Distribution described below, the Company has not declared or paid dividends on its Common Stock. The Company currently intends to retain any future earnings to fund operations and the continued development of its business, and, thus, does not expect to pay any cash dividends on its Common Stock in the foreseeable future. Future cash dividends, if any, will be determined by the Board of Directors and will be based upon the Company's earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors. RIGHTS DIVIDEND DISTRIBUTION In February 1997, the Company's Board of Directors declared a dividend distribution of one right (a "Right") for each outstanding share of the Company's no par value common stock ("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 the Company one share of the Company's Common Stock, at a purchase price of $17.50 per share (the "Purchase Price"), subject to adjustment. The Rights expire at the close of business on February 20, 2007, unless earlier redeemed or exchanged by the Company as described below. The description and terms of the Rights are set forth in a Rights Agreement, as amended by an amendment dated June 30, 1997 (as so amended, the "Rights Agreement"). The Rights are exercisable upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons other than the Company, its subsidiaries or any person receiving newly-issued shares of Common Stock directly from the Company or indirectly via an underwriter in connection with a public offering by the Company (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 the Company as set forth below. -15- 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 officers or employees of the Company and who are not related to the Person making such offer, to be fair to and in the best interests of the Company and its shareholders. The Merger Agreement between the Company and Western Pacific constitutes a Qualifying Offer. If after the Stock Acquisition Date the Company is acquired in a merger or other business combination transaction in which the Common Stock is changed or exchanged or in which the Company is 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, the Company 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 the Company, 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. ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's flight operations began on July 5, 1994 with two Boeing 737-200 aircraft operating eight daily flights between Denver, Colorado and four North Dakota cities. Since that time, the Company has increased the number of markets it serves and the number of flights offered. The Company placed three additional Boeing 737-200 aircraft in service in 1994 and added four cities in Montana to its route system. In October 1995, the Company leased two Boeing 737-300 aircraft which were placed in service during November 1995 in conjunction with adding four new, high -16- volume routes linking Denver to Los Angeles and San Francisco, California, Minneapolis-St. Paul, Minnesota, and Salt Lake City, Utah. The Company significantly rescheduled its flights in 1995 through the elimination of Minot and Grand Forks, North Dakota and all four of its Montana destinations, and the addition of Omaha, Nebraska, Las Vegas, Nevada, Chicago (Midway), Illinois and Phoenix, Arizona to its schedule. Flights to Seattle/Tacoma commenced on May 1, 1996, and flights to San Diego, California and St. Louis, Missouri commenced on June 1, 1996 in conjunction with the addition of two additional Boeing 737-200 jets to the Company's fleet. Flights to Bismarck and Fargo, North Dakota, the last two of the Company's eight original markets, were suspended on September 10, 1996. Including subsequent deliveries of two more Boeing 737-300 jets, one in November 1996 and one in May 1997, the Company presently operates a fleet of 11 Boeing 737s on routes between Denver and 14 cities in 11 states spanning the western two-thirds of the United States. The Company's newest destination, Bloomington-Normal, Illinois, was added on January 6, 1997, as an extension of its service between Denver and Omaha, Nebraska. The Company has leased three more Boeing 737-300s, two to be delivered in August 1997 and one in January 1998, at which time it plans to add new cities to its route system or additional frequencies to markets presently being served. Subject to future aircraft availability, the Company plans to lease additional jets in the 737 series to permit the Company to further expand its lines of service. The Merger Agreement between the Company and Western Pacific requires Western Pacific's concurrence in any such additional leases. Demand and competition for Boeing 737 aircraft has increased significantly in the past two years. The Company modified its initial operating plan and expanded operations during the fiscal years ended March 31, 1996 and March 31, 1997. Therefore, the Company's results of operations for the fiscal years ended March 31, 1996 and 1997 are not necessarily comparable or indicative of future operating results. Effective in September 1996, the Company began performing scheduled maintenance on its aircraft using its own mechanics, with the exception of major maintenance cycles which continue to be performed by FAA approved contractors. RESULTS OF OPERATIONS The Company incurred a net loss of $12,186,332 or $1.49 per share for the year ended March 31, 1997 as compared to a net loss of $5,582,000 or $1.23 per share for the year ended March 31, 1996. The increase in net loss was attributable to the increase in operating expenses exceeding the increase in revenues discussed below. During the year ended March 31, 1996, the Company modified its initial operating strategy from serving "local" passengers (those either beginning or ending their trips in Denver) and "connecting" passengers (those transferring to or from other airlines for flights to destinations beyond Denver) and developed its own connecting hub at Denver and to providing service to Denver's largest markets that are more dependent on local traffic and less dependent on connecting traffic. The Company began the implementation of its new business strategy in late September 1995. As a result of the completion of the first phase of its new business and marketing strategy, the Company had its first profitable quarter during the quarter ended March 31, 1996 with net income of $816,000 and its second -17- profitable quarter during the quarter ended June 30, 1996 of the fiscal year ended March 31, 1997 with net income of $1,336,000. Beginning in August 1996, the Company experienced higher fuel costs, short-term lease expenses for aircraft to replace its aircraft during scheduled maintenance cycles, intensive increased competition from DIA's dominant carrier, United Airlines, increased maintenance expenses as it commenced in-house maintenance operations in September 1996, and the return of the 10% passenger excise tax on August 27, 1996. Because of United Airlines' competitive activity, the Company was unable to adjust its fares to permit recovery of these increased expenses. Management believes alleged anticompetitive practices by United in the Denver market have had, and, to the extent they continue, will have a material adverse effect on the Company's revenues and results of operations. (See Part I, Item 3: Legal Proceedings.) Small fluctuations in the Company's yield per RPM or expense per ASM can significantly affect operating results because the Company, like other airlines, has high fixed costs and low operating margins in relation to revenues. Airline operations are highly sensitive to various factors, including the actions of competing airlines and general economic factors, which can adversely affect the Company's liquidity, cash flows and results of operations. The following table sets forth certain quarterly and annual financial and operating data regarding the Company for the year ended March 31, 1997 and annual financial and operating data for the year ended March 31, 1996. -18- SELECTED FINANCIAL AND OPERATING DATA
QUARTER ENDED YEAR ENDED YEAR ENDED ------------------------------ -------------- --------- JUNE 30, 1996 SEPTEMBER 30, DECEMBER 31, MARCH 31, 1997 MARCH 31, 1997 MARCH 31, ------------- ------------- ------------ -------------- -------------- --------- 1996 1996 1996 ---- ---- ---- Passenger revenue $ 27,570,000 $ 29,518,000 $ 24,503,000 32,167,000 $ 113,758,000 $ 68,530,000 Revenue passengers carried 271,000 308,000 272,000 329,000 1,180,000 758,000 Revenue passenger miles (RPMs)(1) 190,541,000 220,982,000 193,316,000 235,100,000 839,939,000 479,887,000 Available seat miles (ASMs)(2) 313,216,000 363,667,000 354,103,000 388,734,000 1,419,720,000 844,161,000 Passenger load factor(3) 60.8% 60.8% 54.6% 60.5% 59.2% 56.9% Break-even load factor(4) 58.3% 66.0% 73.1% 66.9% 66.0% 61.8% Block hours(5) 7,297 8,384 8,089 8,689 32,459 20,783 Average daily block hour utilization(6) 10.97 10.24 9.86 10.09 10.29 9.93 Yield per RPM(7) 14.47c 13.36c 12.68c 13.68c 13.54c 14.28c Yield per ASM(8) 8.80c 8.12c 6.92c 8.27c 8.01c 8.12c Expense per ASM 8.62c 8.98c 9.46c 9.39c 9.13c 9.04c Passenger revenue per block hour $ 3,778.27 $ 3,520.75 $ 3,029.18 $ 3,702.04 $ 3,504.67 $ 3,297.41 Average fare(9) 98 92 86 94 93 88 Average aircraft in service 7.3 9.6 10.3 11.0 9.6 5.7 Operating income (loss) $ 1,138,000 ($2,547,000) ($8,318,000) ($3,434,000) ($13,161,000) ($5,933,000) Net income (loss) $ 1,336,000 ($2,189,000) ($8,043,000) ($3,290,000) ($12,186,000) ($5,582,000)
(1) "Revenue passenger miles," or RPMs, are determined by multiplying the number of fare-paying passengers carried by the distance flown. (2) "Available seat miles," or ASMs, are determined by multiplying the number of seats available for passengers by the number of miles flown. (3) "Passenger load factor" is determined by dividing revenue passenger miles by available seat miles. (4) "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. (5) "Block hours" represent the time between aircraft gate departure and aircraft gate arrival. (6) "Average daily block hour utilization" represents the total block hours divided by the weighted average number of aircraft days in service. (7) "Yield per RPM" is determined by dividing passenger revenues by revenue passenger miles. (8) "Yield per ASM" is determined by dividing passenger revenues by available seat miles. (9) "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. -19- The following table provides information regarding the Company's operating revenues and expenses for the year ended March 31, 1996.
REVENUE/ AMOUNT PERCENT BLOCK HOUR YIELD/ASM YIELD/RPM ----------- ------- ---------- --------- --------- REVENUES - -------- Passenger $68,530,000 97.4% $3,297.41 8.12c 14.28c Cargo 1,148,000 1.6% 55.29 0.14c 0.24c Other 714,000 1.0% 34.36 0.08c 0.15c ----------- ----- --------- --------- --------- Total operating revenues $70,393,000 100.0% $3,387.06 8.34c 14.67c =========== ===== ========= ========= ========= EXPENSE/ EXPENSE/ AMOUNT PERCENT BLOCK HOUR ASM ----------- ------- --------- --------- EXPENSES - -------- Flight operations $28,019,000 39.8% $1,348.17 3.32c Aircraft and traffic servicing 18,487,000 26.3% 889.53 2.19c Maintenance 11,732,000 16.7% 564.50 1.39c Promotion and sales 14,219,000 20.2% 684.16 1.68c General and administrative 3,321,000 4.7% 159.79 .40c Depreciation and amortization 547,000 0.8% 26.32 .06c ----------- ----- --------- --------- Total operating expenses $76,325,000 108.4% $3,672.47 9.04c =========== ===== ========= ========= The following table provides information regarding the Company's operating revenues and expenses for the year ended March 31, 1997. REVENUE/ AMOUNT PERCENT BLOCK HOUR YIELD/ASM YIELD/RPM ----------- ------- ---------- --------- --------- REVENUES - -------- Passenger $113,758,000 97.6% $3,504.67 8.01c 13.54c Cargo 1,956,000 1.7% 60.26 0.14c 0.23c Other 787,000 0.7% 24.25 0.06c 0.09c ------------ ----- --------- --------- --------- Total operating revenues $116,501,000 100.0% $3,589.17 8.21c 13.87c ============ ===== ========= ========= ========= EXPENSE/ EXPENSE/ AMOUNT PERCENT BLOCK HOUR ASM ----------- ------- --------- --------- EXPENSES - -------- Flight operations $ 52,651,000 45.2% $1,622.08 3.71c Aircraft and traffic servicing 24,849,000 21.3% 765.55 1.75c Maintenance 24,946,000 21.4% 768.54 1.76c Promotion and sales 21,526,000 18.5% 663.18 1.52c General and administrative 4,618,000 4.0% 142.27 .33c Depreciation and amortization 1,072,000 0.9% 33.03 .08c ------------ ----- --------- --------- Total operating expenses $129,662,000 111.3% $3,994,64 9.13c ============ ===== ========= =========
REVENUES General. Airline revenues are primarily a function of the number of passengers carried and fares charged by the airline. The Company believes that revenues will gradually increase in a new market over a 60 to 120 day period as market penetration is achieved. This occurred during the -20- year ended March 31, 1996 in January, September and November 1995 when the Company commenced service between Denver and Omaha, Nebraska, Las Vegas, Nevada, Chicago (Midway), Illinois, Phoenix, Arizona, Los Angeles and San Francisco, California, Minneapolis-St. Paul, Minnesota and Salt Lake City, Utah. During the year ended March 31, 1997, the Company commenced service between Denver and Seattle/Tacoma, San Diego and St. Louis in May and June, 1996, and between Denver and Bloomington, Illinois via Omaha in January 1997. The Company's results are highly sensitive to changes in fare levels. Fare pricing policies have a significant impact on the Company's revenues. Following is a table of the Company's average fares: Quarter Ended Average Fare ------------- ------------ June 30, 1995 $96 September 30, 1995 $85 December 31, 1995 $80 March 31, 1996 $93 June 30, 1996 $98 September 30, 1996 $92 December 31,1996 $86 March 31, 1997 $94 In connection with the modification in the Company's strategy, the Company reduced fares to maximize traffic and revenue. During the quarter ended September 30, 1995, the Company reduced its fares system-wide in order to "stimulate" markets and match competitors' fares. During the quarter ended December 31, 1995, the Company's average fare decreased to $80 as a result of introductory fares for its two new markets added in late September 1995 and the four new markets added during the month of November 1995. The Company's average fare for the quarters ended March 31, 1996 and June 30, 1996 increased to $93 and $98, respectively, largely as a result of the Company's new yield management system, the elimination of introductory fares, and the expiration of excise taxes on air transportation effective January 1, 1996. On August 27, 1996, the 10% excise tax on air transportation was reinstated through December 31, 1996. The decrease in the average fare of $98 for the quarter ended June 30, 1996 to $92 for the quarter ended September 30, 1996 and to $86 for the quarter ended December 31, 1996 was largely due to alleged anticompetitive activity by United Airlines in the Denver market which precluded the Company from adjusting fares to recover increased costs, including the reinstatement of the 10% excise tax. The excise tax expired again on December 31, 1996, was subsequently reinstated on March 7, 1997 and is scheduled to expire again on September 30, 1997. Management believes that the excise tax or some other type of tax will be reinstated immediately upon expiration of the present tax and may be as high as 10% of the fare. Given the elasticity of passenger demand, the Company believes that increases in fares will result in a decrease in passenger demand. To maintain passenger traffic in the face of an excise tax increase may require some downward adjustment in net fares realized by the Company. The Company cannot completely predict future fare levels, which depend to a substantial degree on actions of competitors. When sale prices or other price changes are made by competitors in the -21- Company's markets, the Company believes that it must, in most cases, match these competitive fares in order to maintain its market share. Passenger revenues are seasonal in each market. Passenger Revenue. Passenger revenues totaled $113,758,000 for the year ended March 31, 1997 compared to $68,530,000 for the year ended March 31, 1996, or an increase of 66%. The number of revenue passengers carried was 1,180,000 for the year ended March 31, 1997 compared to 758,000 for the year ended March 31, 1997 or an increase of 56%. The average fare for the year ended March 31, 1997 was $93 compared to the average fare for the year ended March 31, 1996 of $88. The Company had an average of 9.6 aircraft in service during the year ended March 31, 1997 compared to an average of 5.7 aircraft during the year ended March 31, 1996 for an increase in ASMs of 575,559,000 or 68%. 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, 1997, the Company's break-even load factor was 66% compared to a passenger load factor of 59.2%. For the year ended March 31, 1996 the Company's break-even load factor was 61.8% compared to a passenger load factor of 56.9%. The Company's break-even load factor increased over the prior comparable period as increased price competition kept the Company from increasing fares to compensate for the higher fuel prices, short term aircraft lease expenses, and increased maintenance expenses associated with the Company's maintenance facility which began operations in September 1996. The increase in these expenses began during August 1996, which increased the break-even load factor from 58.3% for the quarter ended June 30, 1996 to 66% for the quarter ended September 30, 1996. The Company experienced the full impact of these increased expenses in the quarter ended December 31, 1996, as the break-even load factor increased to 73.1%. The break-even load factor decreased to 68.1% for the quarter ended March 31, 1997 largely as a result in the increase in the average fare from $86 to $94 during the quarter ended March 31, 1997. The improvement in the Company's load factor from 56.9% to 59.2% for year ended March 31, 1997 over the prior comparable period reflects the result of the Company's change in business strategy to provide service to higher volume markets. However, management believes that its load factor for the year ended March 31, 1997 could have been higher but was adversely affected by increased competitive fare pricing and by the public's initial reaction to two significant airline accidents which occurred during the year ended March 31, 1997. One of the accidents involved a low fare carrier and the other involved a major national airline. In both accidents the aircraft was destroyed and all passengers and crew were killed. Cargo revenues, consisting of revenues from freight and mail service, totaled $1,956,000 and $1,148,000 for the years ended March 31, 1997 and 1996, representing 1.7% and 1.6% of total operating revenues, respectively. 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 liquor sales and excess baggage fees, totaled $787,000 and $714,000 or less than 1% of total operating revenues for each of the years ended March 31, 1997 and 1996. -22- 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 increased to 111.3% of revenue for the year ended March 31, 1997 compared to 108.4% of revenue for the year ended March 31, 1996. Operating expenses increased as a percentage of revenue largely as result of an increase in flight operations expenses. Flight operations expenses were impacted by increased fuel prices, short-term lease expenses to replace aircraft undergoing scheduled maintenance and an increase in maintenance expenses as a result of the Company's start-up of its own maintenance facility to perform routine maintenance at Denver. As a result, total operating expenses for the year ended March 31, 1997 increased 70% over the prior comparable period. Flight Operations. Flight operations expenses of $52,650,000 and $28,019,000 were 45.2% and 39.8% of total revenue for the year ended March 31, 1997 and 1996, 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 $21,551,000 for 25,926,000 gallons used and $11,775,000 for 16,706,000 gallons used resulted in an average fuel cost of 83.1c and 70.5c per gallon and represented 40.9% and 42.0% of total flight operations expenses for the years ended March 31, 1997 and 1996, respectively. The average fuel cost per gallon increased for the year ended March 31, 1997 over the comparable prior period due to an overall increase in the cost of fuel and the loss of the fuel tax exemption for the entire 1997 fiscal year. In 1993, the United States increased taxes on domestic fuel, including aviation fuel, by 4.3 cents per gallon. This tax increase was first imposed on the Company and other airlines effective October 1, 1995. Fuel prices are subject to change weekly as the Company does not purchase supplies in advance for inventory. Fuel consumption for the years ended March 31, 1997 and 1996 averaged 799 and 804 gallons per block hour, respectively. Fuel consumption per block hour decreased as a result of more fuel efficient aircraft and an increase in the average length of haul. Aircraft lease and insurance expenses, excluding short-term aircraft lease expenses, totaled $15,983,000 (13.7% of total revenue) and $7,980,000 (11.3% of total revenue) for the years ended March 31, 1997 and 1996, respectively, or an increase of 100.3%. The increase is partially attributable to the increase in the average number of aircraft in service to 9.6 from 5.7 for the years ended March 31, 1997 and 1996, respectively, and partially due to higher lease expenses on larger and newer aircraft fleet additions. Beginning August 1996 and November 1995, the Company entered into short-term aircraft lease agreements in order to add a partial spare aircraft to its fleet to improve the Company's on-time performance and completion factors for the year ended March 31, 1997, and to substitute for aircraft in the Company's fleet which rotated out of service for scheduled maintenance for the years ended March 31, 1997 and 1996. The final short-term aircraft lease -23- agreement terminated March 31, 1997. Total expenses associated with the short- term aircraft lease agreements totaled $3,359,000 during the months of August through December 1996 and $526,000 for the months of November 1995 through December 1995. The Company paid a premium for short-term lease agreements and does not anticipate future short-term agreements due to the addition of aircraft to its fleet. Pilot and flight attendant compensation totaled $6,671,000 and $4,025,000 or 5.7% for each of the years ended March 31, 1997 and 1996, or an increase of 65.8%. Pilot and flight attendant compensation increased principally as a result of a 68.4% increase in the average number of aircraft in service and an increase of 56.1% in block hours. During the fiscal year ended March 31, 1997, the Company added two leased aircraft to its fleet in June 1996 and December 1996. During the fiscal year ended March 31, 1996 the Company added two leased aircraft to its fleet in October 1995. The Company pays pilot and flight attendant salaries for training consisting of approximately six and three weeks, respectively, prior to scheduled increases in service, causing the compensation expense for the years ended March 31, 1997 and 1996 to appear high in relationship to the average number of aircraft in service. When the Company is not in the process of adding aircraft to its system, it expects that pilot and flight attendant expense per aircraft will normalize. With a scheduled passenger operation, and with salaried rather than hourly crew compensation, the Company's 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 $24,849,000 and $18,487,000 for the years ended March 31, 1997 and 1996, respectively, and represented 21.3% and 26.3% of total revenue. These include all expenses incurred at airports served by the Company, 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, 1997 over the year ended March 31, 1996 as a result of the Company's rental costs (in particular, the gate rentals at DIA) which are largely fixed costs, remaining relatively constant as compared to the increase in revenue. Additionally, the Company began its own "above wing" operations at DIA (including passenger check-in at ticket counters, concourse gate operations and cabin cleaning) effective April 1996, Los Angeles International Airport in June 1996, Chicago (Midway) in July 1996, Seattle- Tacoma in August 1996, and El Paso, Texas effective October 1996 rather than contracting these services through a third party supplier. Aircraft and traffic servicing expenses will increase with the addition of new cities; however, the increased existing gate utilization at DIA is expected to reduce per unit expenses. Maintenance. Maintenance expenses of $24,946,000 and $11,732,000 were 21.4% and 16.7% of total revenue for the years ended March 31, 1997 and 1996, respectively. These include all maintenance, labor, parts and supplies expenses related to the upkeep of the aircraft. Routine maintenance is charged to maintenance expense as incurred while major engine overhauls and heavy maintenance checks are accrued each quarter. Maintenance cost per block hour was $769 and $565 per block hour for the years ended March 31, 1997 and 1996, respectively. Continental Airlines had been providing routine aircraft maintenance services for the Company at Denver. Continental -24- discontinued this service in mid-September 1996. As a result of the discontinued service, the Company hired its own aircraft mechanics to perform routine maintenance and subleased a portion of a hangar from Continental at DIA in which to perform this work. The performance of this work by the Company, together with the cost of leasing adequate hangar space, increased the Company's maintenance cost per block hour. Management believes that these costs will normalize as it adds additional aircraft to its fleet. During the year ended March 31, 1997, the Company revised the timing of its scheduled maintenance and related estimates for its engine maintenance reserves. The revised estimate resulted in an additional reserve accrual of approximately $765,000 which approximates $23 of the total maintenance cost per block hour of $768 for the year ended March 31, 1997. Promotion and Sales. Promotion and sales expenses totaled $21,526,000 and $14,219,000 and were 18.5% and 20.2% of passenger revenue for the years ended March 31, 1997 and 1996, respectively. These include advertising expenses, telecommunications expenses, wages and benefits for reservationists and reservations supervision as well as marketing management and sales personnel. Credit card fees, travel agency commissions and computer reservations costs are included in these costs. The promotion and sales expenses per passenger were $18.24 and $18.75 for the years ended March 31, 1997 and 1996, respectively. The 51c reduction is largely a result of a decrease in interline service charges and communication expenses. The Company's interline service charges decreased as a result of a 2.8% reduction in the percentage of interline revenue to total revenues. Interline revenue is for travel on the Company's flights ticketed by another airline on connecting traffic. The decrease in interline revenue as a percentage of total revenues is a result of route reductions in regional markets. Advertising expenses of $2,482,000 were 2.2% of passenger revenues for the year ended March 31, 1997, compared to approximately $1,619,000 or 2.4% of passenger revenues for the year ended March 31, 1996. As new cities are added to the Company's flight schedule, advertising and marketing promotions are designed and implemented to increase awareness of the Company's new service, name and brand awareness. Advertising expenses decreased as a percentage of passenger revenues as the Company entered four new markets during the year ended March 31, 1997 compared to six new markets during the year ended March 31, 1996, offset by an increase in advertising expenses during the year ended March 31, 1997 as a result of increased fare competition by United Airlines. General and Administrative. General and administrative expenses for the years ended March 31, 1997 and 1996 totaling $4,618,000 and $3,321,000 were 4.0% and 4.7% of total revenue, respectively. These expenses include the wages and benefits for the Company's executive officers and various other administrative personnel. Legal and accounting expenses, supplies and other miscellaneous expenses are also included in this category. The overall increase in general and administrative expenses is largely a result of an increase in employee benefits and office rent with the increase in the number of full and part-time employees from 533 in March 1996 to 738 in March 1997 and an increase in revenue accounting fees as a result of a 55.6% increase in revenue passengers carried. -25- Depreciation and Amortization. Depreciation and amortization expense of $1,072,000 and $547,000 were approximately one percent of total revenue for the years ended March 31, 1997 and 1996, respectively. These expenses include depreciation of office equipment, ground station equipment, and other fixed assets of the Company. Amortization of start-up and route development costs are not included as these expenses have been expensed as incurred. Nonoperating Income (Expenses). Total net nonoperating income totaled $975,000 for the year ended March 31, 1997 compared to $351,000 for the year ended March 31, 1996, or an increase of 178% principally a result of an increase in interest income of 146%. Interest income increased over the prior comparable period as a result of increases in cash which occurred during the first quarter of the year ended March 31, 1997 as a result of profitable operations during that quarter, a private placement of the Company's Common Stock in April 1996, and capital raised from the exercise of the Company's warrants. Expenses per ASM. The Company's expenses per ASM for the years ended March 31, 1997 and 1996 were 9.13c and 9.04c, respectively, or an increase of 1%. Expenses per ASM increased over the comparable period as a result of increased flight operation expenses resulting from an increase in short-term aircraft lease and fuel expenses and increased maintenance expenses largely a result of the Company's start-up of its own maintenance facility, offset by economies of scale as the fixed costs were spread across a larger base of operations. Expenses per ASM are influenced to some degree by the utilization of aircraft and by the seating configuration that each airline employs. For example, with the 108 seat all coach seating configuration selected by the Company on five of its Boeing 737-200 aircraft, the expenses per ASM of the Company are higher by 11% when compared with the 120 seat alternative used by many carriers. LIQUIDITY AND CAPITAL RESOURCES The Company's balance sheet reflected cash, cash equivalents and short-term investments of $10,286,000 at March 31, 1997. At March 31, 1997, total current assets were $31,470,000 as compared to $32,745,000 of total current liabilities, resulting in a working capital deficit of $1,275,000. At March 31, 1996, total current assets were $25,797,000 as compared to $25,844,000 of total current liabilities, resulting in a working deficit of $47,000. Cash used by operating activities for the year ended March 31, 1997 was $6,409,000. This is largely attributable to the Company's net loss for the period and increases in trade receivables and maintenance deposits, offset by increases in accounts payable, other accrued expenses, and air traffic liability. Cash used by operating activities for the year ended March 31, 1996 was $828,000. This is attributed primarily to the Company's net loss for the period, increases in trade receivables, maintenance and other deposits, prepaid expenses and other assets and a decrease in other accrued expenses, offset by an increase in accounts payable, air traffic liability, and accrued maintenance expenses. Cash used in investing activities for the year ended March 31, 1997 was $5,549,000. Restricted cash increased $600,000 for collateral for a letter of credit given to an aircraft lessor in lieu of a cash security -26- deposit for the Boeing 737-300 aircraft leased in November 1996. The Company spent $2,628,000 for initial lease acquisition security deposits for two Boeing 737-200 and partial security deposits for four Boeing 737-300 aircraft leased during the year ended March 31, 1997 with one delivered in May 1997 and the remaining three to be delivered during the Company's fiscal year ending March 31, 1998. The Company made capital expenditures totaling $3,435,000 for equipment, spare engine, aircraft parts, and aircraft improvements, maintenance equipment for its maintenance facility which began operations in September 1996, ground equipment, computer equipment, and leasehold improvements. Cash used in investing activities totaled $3,895,000 for the year ended March 31, 1996. The Company spent $1,661,000 for initial lease acquisition security deposits for the two Boeing 737-300 aircraft leased in November 1995 and the remaining as security deposit requirements on the five Boeing 737-200 aircraft leased in 1994. The Company made capital expenditures totaling $1,098,000 for spare parts, ground equipment, computer equipment, leasehold improvements and maintenance equipment and was partially offset by miscellaneous equipment sales as a result of closing operations in Montana. Cash provided by financing activities for the years ended March 31, 1997 and 1996 was $15,885,000 and $7,248,000, respectively. In April 1996, the Company completed a private placement of its Common Stock that resulted in net proceeds of approximately $2,721,000. In May 1996, the Company notified the warrant holders of the Company's intent to exercise its redemption rights with respect to warrants not exercised on or before June 28, 1996. The Company received net proceeds from the exercise of these warrants of approximately $13,278,000. During the year ended March 31, 1996, the Company completed a secondary public offering of the Company's Common Stock with net proceeds of $6,305,000. The Company currently has no lines of credit. Five of the Company's Boeing 737-200 aircraft are leased under operating leases which originally expired in 1997. The leases provide for up to two renewal terms of two years each with no increase in basic rent. The Company renewed the leases for the first two-year renewal period and these leases now expire in the year 1999. Under these leases, the Company was required to make security deposits and makes deposits for maintenance of these leased aircraft. These deposits totaled $625,000 and $3,644,000, respectively, at March 31, 1997. The Company leased two Boeing 737-300 aircraft under operating leases in November 1995, which expire in the year 2000. The Company was required to make security deposits and makes deposits for maintenance of these leased aircraft. Security and maintenance deposits for these aircraft totaled $1,505,000 and $2,776,000, respectively, at March 31, 1997. These aircraft are compliant with FAA Stage 3 noise regulations. The Company has issued to each of the two Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares of the Company's Common Stock at an aggregate purchase price of $500,000. These warrants, to the extent not earlier exercised, expire upon the expiration dates of the aircraft leases. In June 1996, the Company leased two additional Boeing 737-200 aircraft under operating leases which expire in the year 2001. The Company was required to make security deposits totaling $858,000. Commencing July 1996 the Company was required to make monthly deposits for maintenance for these leased aircraft. At March 31, 1997, these deposits totaled $1,469,000. These aircraft were "hush- kitted" -27- by the lessor at its expense during 1996 making them compliant with FAA Stage 3 noise regulations. The Company has issued to the aircraft lessor two warrants, each of which entitles the lessor to purchase 70,000 shares of the Company's Common Stock at an aggregate purchase price of $503,300 per warrant. In November 1996, the Company took delivery of a leased Boeing 737-300 aircraft which it placed in scheduled service in December 1996. The lease term for this aircraft is eight years from date of delivery. The Company was required to secure the aircraft lease with a letter of credit totaling $600,000. The Company is required to make monthly cash deposits for maintenance for this aircraft. As of March 31, 1997, the Company had made maintenance deposits associated with this leased aircraft totaling $259,000. During the year ended March 31, 1997, the Company entered into four operating lease agreements for four additional new Boeing 737-300 aircraft with scheduled deliveries during the Company's fiscal year ended March 31, 1998. The Company took delivery of one of these aircraft in May 1997, two have scheduled deliveries in August 1997 and the fourth is scheduled for delivery in January 1998. Delivery of the January 1998 aircraft is subject to the Company maintaining certain financial covenants which, if not met, permit the lessor to terminate the lease prior to delivery. In connection with the Boeing 737-300 aircraft to be delivered in August 1997, the Company has issued to the lessor a warrant to purchase 55,000 shares of Common Stock at an aggregate purchase price of $385,000. At March 31, 1997, the Company had made security deposits totaling $1,818,750 with respect to these aircraft and is required to make additional security deposits between July 1997 and April 1998 totaling $1,292,500 with respect to these aircraft leases. Two each of these lease agreements have seven and eight year terms from date of delivery, respectively. Two of these leases have up to two one year renewal terms and a third may be renewed for up to three one year terms. The Company is required to pay monthly cash deposits to each aircraft lessor based on flight hours and cycles operated to provide funding of future scheduled maintenance costs. Management is continuing to take steps designed to improve the Company's operating performance. Effective September 11, 1996, the Company eliminated its Bismarck and Fargo, North Dakota destinations due to the unprofitability of these routes. The aircraft used to serve these destinations were redeployed to more heavily traveled routes elsewhere on the Company's route system. Effective January 28, 1997, the Company introduced electronic ticketing. Passengers who call the Company directly are presently given the option of receiving a paper ticket or a confirmation number in lieu of a paper ticket. Electronic ticketing will save the Company postage and handling costs, the cost of paper tickets, and reduced revenue accounting fees because the accounting for electronic ticketing is automated. The Company plans to offer its passengers the option of booking flight reservations through the Company's Internet site starting in the summer of 1997. The Company is exploring various means to reduce expenses. These include further reductions in credit card fees and addition of an in-house revenue accounting system. The Company believes that it can reduce its airport operating expenses at certain cities by performing its own "above wing" operations rather than continuing to contract out these services. Since April 1996, conversions to the Company's own "above wing" operations occurred at nine of the Company's 15 airport stations. -28- The Company has a contract with a credit card processor that requires the Company to provide a letter of credit to match the total amount of air traffic liability associated with credit card customers if the Company does not meet certain financial covenants and if the credit card processor requests that the collateral be increased. Although the Company was not in default under the financial covenants required by the contract as of July 1, 1997, there can be no assurance that in the future the Company will be able to meet these financial covenants. If it were in default as of July 1, 1997, the Company could be required under this contract to increase the collateral amount from its present level of $2,000,000 to $4,537,000, which would increase the Company's current restricted investment balance accordingly. The Company's suppliers currently provide goods, services and operating equipment on open credit terms. If such terms were modified to require immediate cash payments, the Company's cash position would be materially and adversely affected. Under the terms of the Merger Agreement with Western Pacific, additional aircraft leases by the Company would require Western Pacific's approval. The Company's goal is to lease a number of additional aircraft to serve additional cities from Denver. The Company believes that such a route system would facilitate a greater volume of connecting traffic as well as a stable base of local traffic and offset the impact of higher DIA-related operating costs through more efficient gate utilization. The proceeds from the private placement completed in April 1996 and the exercise of the warrants in June 1996 have provided additional working capital for the Company and, subject to aircraft availability, will enable it to further expand its operations through the leasing of additional aircraft. The expansion of the Company's operations will entail the hiring of additional employees to staff flight and ground operations in its new markets and significant initial costs such as deposits for airport and aircraft leases. Because of the expansion of the Company's business and the competitiveness of the airline industry, which often requires quick reaction by management to changes in market conditions, the Company may require additional capital to maintain or further expand its business. Effective February 11, 1997, United Airlines commenced service using its low fare United "Shuttle" between Denver, on the one hand, and Phoenix and Las Vegas on the other hand, two markets in which the Company provides service, as well as additional United Airlines flights in certain of the Company's other markets. This additional competition, as well as other competitive activities by United (see Part I, Item 3 "Legal Proceedings") and other carriers, have had and could continue to have a material adverse effect on the Company's revenues and results of operations. The Company has incurred substantial operating losses in 1997 and 1996 and has a working capital deficit at March 31, 1997. In addition, the Company has substantial contractual commitments for leasing and maintaining aircraft. The Company believes that its existing cash balances coupled with improved operating results projected for fiscal 1998 will be adequate to fund the Company's operations at least through March 31, 1998. There can be no assurances, however, that the Company will be successful in improving its operating results in fiscal 1998. If its operating results do not improve, or if the Merger Agreement with Western Pacific does not close, the Company anticipates that it would be required to obtain additional capital or other financing to fund its operations. -29- ITEM 7: FINANCIAL STATEMENTS. The Company's financial statements are filed as a part of this report immediately following the signature page. ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has not, during the past two years and through the date of this report, had a change in its independent certified public accountants or had a disagreement with such accountants on any matter of accounting principles, practices or financial statement disclosure. PART III ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The following table contains the name, age and position with the Company of each executive officer and director of the Company as of June 1997. Their respective backgrounds are described following the table. Each of these officers devotes his or her full-time efforts to the affairs of the Company. NAME AGE POSITION ---- --- -------- Samuel D. Addoms 57 President, Chief Executive Officer, Chief Financial Officer and Director Jimmie P. Wyche 62 Executive Vice President-Operations Jon L. Bartram 59 Vice President-Maintenance William B. Durlin 71 Vice President-Technical Services Jeff S. Potter 37 Vice President-Marketing Elissa A. Potucek 40 Vice President, Controller and Treasurer Robert M. Schulman 64 Vice President-Corporate Communications Arthur T. Voss 54 Vice President-Administration and General Counsel; Secretary Paul Stephen Dempsey 46 Director and Vice Chairman of the Board of Directors B. LaRae Orullian 64 Director and Chair of the Board of Directors William B. McNamara 65 Director D. Dale Browning 59 Director -30- SAMUEL D. ADDOMS is President, Chief Executive Officer, Chief Financial Officer and a director of the Company, having earlier served as Executive Vice President, Treasurer and a director of the Company during its early development in 1993 through September 1994 when he was elected to the position of President. He was elected Chief Executive Officer effective January 1, 1995. Before commencing his involvement in the development of the Company in 1993, he was associated with some 15 firms for the previous ten years, either as an officer, director or consultant. These include Gelco Corporation, Connecting Point of America and Communications World, Inc. His 35 years of management experience include positions as President and Vice President-Finance of Monfort of Colorado, President of the Denver National Bank and Vice President of the Continental Illinois National Bank in Chicago. JIMMIE P. WYCHE has been Executive Vice President-Operations of the Company since August 1995. Prior to that he had been Vice President-Flight Operations of the Company since its inception in February 1994. From 1989 to early 1994 Mr. Wyche was a jet captain with Skyways International, headquartered in Houston, Texas. From 1987 to 1989, he served as Director-Flight Operations with Ports of Call, a Denver-based charter airline. He served in various capacities with the former Frontier Airlines, Inc. between 1961 and 1985, starting as a pilot and then in a succession of management positions including Assistant Chief Pilot, Chief Pilot and Vice President-Flight Operations. He has over 15,500 flying hours. JON L. BARTRAM has been Vice President-Maintenance of the Company since December 1994. From 1993 to 1994 he served as Vice President-Maintenance Operations for DynAir Tech of Texas. He held a number of key maintenance positions with Alaska Airlines between 1987 and 1993 including Director-Production Planning and Director-Base Maintenance. He was an Air Carrier Inspector for the Federal Aviation Administration between 1986 and 1987. Before this, he served with he former Frontier Airlines, Inc., for 27 years (1959-1986) in a succession of maintenance management positions including Director-Base Maintenance and Director-Technical Services. WILLIAM B. DURLIN has been Vice President-Technical Services of the Company since August 1995. Prior to that he had been Vice President, Maintenance and Engineering of the Company since February 1994. Between 1990 and 1993 he served as a consultant to aircraft leasing companies. From 1989 to 1990 he was Vice President-Maintenance and Engineering of Hawaiian Airlines, Inc. in Honolulu, Hawaii. From 1987 to 1988 he was Director of Aircraft Sales for United Airlines. He served in various capacities with the former Frontier Airlines, Inc. from 1948 to 1986, most recently as Vice President-Aircraft Procurement and Vice President-Engineering and Quality Control. JEFF S. POTTER has been Vice President-Marketing of the Company since July 1995. From 1993 to 1995 he was Regional Director of Commercial Marketing-Pacific and Asia, for McDonnell Douglas Corporation, Long Beach, California. He served from 1992 to 1993 as Director-Domestic Schedule Development for Northwest Airlines in Minneapolis, Minnesota, having earlier held a succession of marketing management positions with Continental Airlines (1988-1991), Houston, Texas; Northwest Airlines (1986-1988), Minneapolis, Minnesota; Pacific Southwest Airlines (1985- 1986), San Diego, California; and the former Frontier Airlines, Inc. (1981- 1985), Denver, Colorado. -31- ELISSA A. POTUCEK has been Controller/Treasurer of the Company since June 1995 and was promoted to Vice President in September 1996. From 1991 to 1995 she was Controller of Richardson Operating Company and Richardson Production Company, an oil and gas company based in Denver, Colorado. She served from 1990 to 1991 as Controller of Coral Companies, Inc., Denver, Colorado, having earlier held accounting positions with US West Paging, Inc. (1988-1989), Denver, Colorado, and KPMG Peat Marwick LLP (1985-1988), Denver, Colorado. ROBERT M. SCHULMAN has been Vice President-Corporate Communications of the Company since its inception in February 1994. From 1986 to 1993 he was President of BSI Communications, a consulting firm specializing in public relations programs for airlines and travel agencies, while concurrently (1990- 1992) participating in the development and start-up of Reno Air, Inc., Reno Nevada. He served with the former Frontier Airlines, Inc. from 1974 to 1986, most recently as Senior Director-Corporate Communications. From 1972 to 1974 he was Public Information Officer of the Air Line Pilots Association, Washington, D.C.; from 1970 to 1972, Regional Manager-Public Relations of Eastern Airlines, Inc., Washington, D.C.; and from 1967 to 1970, Director-Corporate Communications of Mohawk Airlines, Inc., Utica, New York. ARTHUR T. VOSS has been Vice President-Administration, General Counsel and Secretary of the Company since September 1995 and Vice President, General Counsel and Secretary of the Company since its inception in February 1994. From 1991 to present, Mr. Voss has been the Vice President-Legal of Professional Fee Examiners, Inc. a professional fee auditing firm based in Denver, Colorado. He was Vice President-Legal of Aeronautics Leasing, Inc., an aircraft leasing firm based in Golden, Colorado, from 1990 to 1991. From 1986 to 1989 he served as Vice President and General Counsel of Aspen Airways, Inc. He held various management positions in the Legal Department of the former Frontier Airlines, Inc. from 1971 to 1985, most recently as Associate General Counsel. PAUL STEPHEN DEMPSEY has been a director of the Company since July 1994 and Vice Chairman of the Board of Directors since December 1996. He is Professor of Law and Director of the Transportation Law Program at the University of Denver, College of Law, Denver, Colorado, having been associated with the institution since 1979. He served as Legal Advisor to the Chairman, U.S. Interstate Commerce Commission, in 1981 and 1982; Attorney-Advisor to the former Civil Aeronautics Board's Office of General Counsel, and its Bureau of Pricing and Domestic Aviation, 1977-1979; and Attorney-Advisor to the Interstate Commerce Commission's Office of Proceedings, Interstate Commerce, 1975-1977. Dr. Dempsey holds the following degrees: A.B.J., J.D., University of Georgia; LL.M., George Washington University; and D.C.L., McGill University. A Fulbright Scholar, he has written more than 40 law review articles, scores of editorials for the news media and six books on topics relating to air transportation. B. LARAE ORULLIAN has been a director of the Company since July 1994 and Chair of the Board of Directors since September 1995. She is Chair of the Board and a director of Colorado Business Bank-Denver Colorado; Vice Chair of Colorado Business Bank-Littleton, Colorado; a director of Colorado Business Bankshares, Inc., a bank holding company; Chair of Colorado Blue Cross/Blue Shield; and Chair of Rocky Mountain Administrative Services Corporation. She is a past National -32- President and former Chair of Girl Scouts of the U.S.A., and is currently active in or serves on the boards of 11 other organizations including the American Bankers Association Education Foundation Advisory Board, the Colorado Governor's Board of Ethics and the Downtown Denver Improvement Association. WILLIAM B. MCNAMARA has been a director of the Company since May 1996. A retired 35-year airline executive specializing in financial management, he most recently served with Continental Airlines, Inc. (1987-1994) as Vice President- Finance. From 1983 to 1987 he was Staff Vice President-Finance with New York Air, Inc. Before that he served in a succession of positions with Trans World Airlines, Inc., for 22 years including service as Staff Vice President-Marketing Administration. D. DALE BROWNING has been a director of the company since July 1996. A long- term bank and bank card executive, he has served since 1995 as President and Chief Executive Office of ProCard, Inc., Golden Colorado, and from 1993 to 1995 as a Senior Consultant to Visa International. He was President and Chief Executive Officer of the Colorado National Bank of Denver from 1986 through 1993, having concurrently served as Vice Chairman and Chief Operating Officer of Colorado National Bankshares and as Chief Executive Officer of Rocky Mountain BankCard System. In 1982 he founded Plus System, Inc., an international automatic teller machine network, and served as President of that company until 1992. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, certain officers and persons holding 10% of the Company's Common Stock to file reports with the Securities and Exchange Commission regarding their ownership and regarding their acquisitions and dispositions of the Company's Common Stock. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons, the Company believes that, during the fiscal year ended March 31, 1997, all filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with. ITEM 10. EXECUTIVE COMPENSATION The following table summarizes the cash and noncash compensation awarded to, earned by or paid to the chief executive officer of the Company (no officer of the Company had total salary and bonus exceeding $100,000) in the fiscal years ended March 31, 1997, 1996 and 1995. -33-
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------------------------------ ------------- OTHER ANNUAL COMPENSATION STOCK OPTIONS NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) $ GRANTED - --------------------------- ---- --------- -------- ------------ ------------- Samuel D. Addoms, 1997 $79,846 0 0 0 Chief Executive Officer 1996 $48,229 0 0 0 1995 $53,260 0 0 0
DIRECTOR COMPENSATION For the year ended March 31, 1997, the Company paid each director who is not a Company employee $5,000 for serving in that capacity. For the Company's fiscal year beginning April 1, 1997 and ending March 31, 1998, the Company has agreed to pay each such director $10,000 for serving as a director. Directors who are also employees of the Company receive no additional compensation for serving as directors. The Company reimburses all of its directors for travel and out-of- pocket expenses in connection with their attendance at meetings of the Board of Directors. The Company's outside directors are also eligible to receive stock options under the Company's 1994 Stock Option Plan. During the year ended March 31, 1997, the Company granted nonqualified options to purchase 10,000 shares at exercise prices of $7.75 per share and $9.00 per share, respectively, to each of Messrs. McNamara and Browning, nonqualified options to purchase 5,000 shares at $7.75 per share to each of Mr. Dempsey and Ms. Orullian, and nonqualified options to purchase 20,000 shares to Mr. Dempsey at $4.00 per share. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth certain information regarding options held by the Chief Executive Officer of the Company at the end of fiscal 1997. There were no options granted to or exercised by the Chief Executive Officer of the Company during the fiscal year ended March 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES --------------------------------------------------------------------------------- NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY ACQUIRED ON OPTIONS AT OPTIONS AT NAME EXERCISE (#) VALUE MARCH 31, 1997 (#) MARCH 31, 1997 (1) - ------------------ ----------- REALIZED ($) -------------------------- -------------------------- ----------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ----------- ------------- ----------- ------------- Samuel D. Addoms None N/A 212,500 0 $ 717,188 0
(1) Based on the closing bid price of the Common Stock on the Nasdaq SmallCap Market of $3.375 per share on March 31, 1997. -34- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of June 30, 1997 by (i) each director of the Company and (ii) all directors and executive officers as a group. To the knowledge of the Company, no person owns beneficially more than five percent of the Company's outstanding Common Stock.
SHARES BENEFICIALLY NAME AND ADDRESS OF BENEFICIAL OWNER PERCENTAGE OF OWNED OWNERSHIP (1) ------------------------------------ ------------------- ------------- Samuel D. Addoms 12015 East 46/th/ Avenue Denver, Colorado 80239 257,918 (2) 2.9% Paul S. Dempsey 12015 East 46/th/ Avenue Denver, Colorado 80239 27,000 (3) * B. LaRae Orullian 12015 East 46/th/ Avenue Denver, Colorado 80239 25,000 (4) * William B. McNamara 12015 East 46/th/ Avenue Denver, Colorado 80239 20,000 (5) * D. Dale Browning 12015 East 46/th/ Avenue Denver, Colorado 80239 20,000 (5) * All directors and executive officers as a group (12 persons) 974,490 (6) 11.2% * Less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of filing of this report upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants or convertible securities are held by such person (but not those held by any other person) and which are exercisable within 60 days of the date of this report have been exercised and converted. This table assumes a base of 8,844,375 shares of Common Stock outstanding as of the date of this report, before any consideration is given to other outstanding options, warrants or convertible securities. (2) Includes 212,500 shares held under option, all of which are currently exercisable, and 1,418 allocated ESOP shares. (3) Includes 25,000 shares held under option, all of which are currently exercisable. (4) Consists of 25,000 shares held under option, all of which are currently exercisable. (5) Consists of 20,000 shares held under option, all of which are currently exercisable. (6) Includes 862,769 shares held under option by the Company's directors and executive officers, which are exercisable within 60 days of this report, and 9,721 allocated ESOP shares. -35- ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. One of the Company's outside directors, Paul S. Dempsey, provides legal services to the Company at a fixed hourly rate. During the fiscal year ending March 31, 1997, the Company paid Mr. Dempsey approximately $8,000 for such services. ITEM 13(a): EXHIBITS. Exhibit Numbers Description of Exhibits - ------- ----------------------- 3.1 Amended and Restated Articles of Incorporation of the Company. (1) 3.2 Amended Bylaws of the Company (June 9, 1997). (5) 4.1 Specimen Common Stock certificate of the Company. (1) 4.2 The Amended and Restated Articles of Incorporation and Amended Bylaws of the Company are included as Exhibits 3.1 and 3.2. 4.3 Form of Warrant. (1) 4.4 Rights Agreement, dated as of February 20, 1997, between Frontier Airlines, Inc. and American Securities Transfer & Trust, Inc, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively, incorporated by reference to Frontier Airlines, Inc. Registration Statement on Form 8- A dated March 11, 1997. (6) 4.4(a) Amendment to Rights Agreement dated June 30, 1997. (5) 10.1 Office Lease. (1) 10.2 Office Lease Supplements and Amendments. (5) 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) -36- 10.7 Airport Use and Facilities Agreement, Denver International Airport (2) 10.8 Aircraft Lease Agreement dated as of July 26, 1994. (2) 10.8(a) Assignment and Assumption Agreements dated as of March 28, 1997 and March 20, 1997 between USAirways, Inc. and First Security Bank, National Association ("Trustee") and Frontier Airlines, Inc. (5) 10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated as of July 26, 1994 between Frontier Airlines, Inc. and First Security Bank, National Association. (5) 10.9 Code Sharing Agreement. (5) 10.10 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177). (3) 10.11 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257). (3) 10.12 Aircraft Lease Agreement dated as of May 1, 1996. (3) 10.13 Aircraft Lease Agreement dated as of June 3, 1996. (3) 10.14 Aircraft Lease Agreement dated as of June 12, 1996. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (3) 10.15 Operating Lease Agreement dated November 1, 1996 between the Company and First Security Bank, National Association. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.16 Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.16(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated May 20, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.17 Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding Company, Inc. Portions of this -37- 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) 10.20 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) -38- 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) 23.1 Consent of KPMG Peat Marwick LLP (5) 27.1 Financial Data Schedule (5) ________________ (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) Filed herewith. (6) Incorporated by reference from the Company's Report on Form 8-K filed on March 12, 1997. ITEM 13(b): REPORTS ON FORM 8-K. Form 8-K filed on March 12, 1997 relating to Rights Agreement dated as of February 20, 1997. -39- SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRONTIER AIRLINES, INC. Date: July 8, 1997 By: /s/ Samuel D. Addom ------------------------------------------ Samuel D. Addoms, Principal Executive Officer and Principal Financial Officer Date: July 8, 1997 By: /s/ Elissa A. Potucek ------------------------------------------ Elissa A. Potucek, Vice President, Controller, Treasurer and Principal Accounting Officer In accordance with the Exchange Act, 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: July 8, 1997 /s/ Samuel D. Addoms, Director ---------------------------------------------- Samuel D. Addoms, Director Date: July 8, 1997 /s/ William B. McNamara, Director ---------------------------------------------- William B. McNamara, Director Date: July 8, 1997 /s/ Paul Stephen Dempsey, Director ---------------------------------------------- Paul Stephen Dempsey, Director Date: July 8, 1997 /s/ B. LaRae Orullian, Director ---------------------------------------------- B. LaRae Orullian, Director Date: July 8, 1997 /s/ D. Dale Browning, Director ---------------------------------------------- D. Dale Browning, Director -40- INDEPENDENT AUDITORS' REPORT THE STOCKHOLDERS AND BOARD OF DIRECTORS FRONTIER AIRLINES, INC.: We have audited the accompanying balance sheet of Frontier Airlines, Inc. as of March 31, 1997 and the related statements of operations, stockholders' equity, and cash flows for the years ended March 31, 1997 and 1996. 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, 1997 and the results of its operations and its cash flows for the years ended March 31, 1997 and 1996 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado June 20, 1997, except as to Note 12, which is as of June 30, 1997 F-1 FRONTIER AIRLINES, INC. BALANCE SHEET--MARCH 31, 1997 ASSETS - ------ Current assets: Cash and cash equivalents $ 10,286,453 Restricted investments 2,000,000 Trade receivables, net of allowance for doubtful accounts of $71,713 7,451,342 Maintenance deposits (note 5) 6,968,379 Prepaid expenses and other assets (note 2) 3,449,871 Inventories 997,102 Deferred lease expenses 289,579 Note receivable - current portion 27,288 ------------ Total current assets 31,470,014 Security, maintenance and other deposits (note 5) 6,596,660 Property and equipment, net (note 3) 4,340,982 Note receivable - long-term portion 31,762 Deferred lease and other expenses 918,994 Restricted investments 734,133 ------------ $ 44,092,545 ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 8,045,533 Air traffic liability 13,058,632 Other accrued expenses (note 4) 3,318,043 Accrued maintenance expense (note 5) 8,277,115 Note payable 9,812 Current portion of obligations under capital leases (note 5) 35,700 ------------ Total current liabilities 32,744,835 Accrued maintenance expense (note 5) 1,408,363 Obligations under capital leases, excluding current portion (note 5) 56,444 ------------ Total liabilities 34,209,642 ------------- 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 20,000,000 shares; 8,844,375 shares issued and outstanding 8,844 Additional paid-in capital 35,764,710 Accumulated deficit (25,890,651) ------------- Total stockholders' equity 9,882,903 ------------- Commitments and contingencies (notes 5, 7, 11 and 12) $ 44,092,545 ============= See accompanying notes to financial statements. F-2 FRONTIER AIRLINES, INC. STATEMENTS OF OPERATIONS--YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996 -------------- -------------- Revenues: Passenger $ 113,758,027 $ 68,530,051 Cargo 1,956,150 1,148,357 Other 786,457 714,167 -------------- ------------- Total revenues 116,500,634 70,392,575 -------------- ------------- Operating expenses: Flight operations 52,650,575 28,019,390 Aircraft and traffic servicing 24,849,388 18,486,719 Maintenance 24,945,636 11,732,102 Promotion and sales 21,526,345 14,218,814 General and administrative 4,617,982 3,320,700 Depreciation and amortization 1,072,160 547,514 -------------- ------------- Total operating expenses 129,662,086 76,325,239 -------------- ------------- Operating loss (13,161,452) (5,932,664) -------------- ------------- Nonoperating income (expenses): Interest income 1,033,508 419,756 Other, net (58,388) (68,774) -------------- ------------- Total nonoperating income, net 975,120 350,982 -------------- ------------- Net loss $ (12,186,332) (5,581,682) ============== ============= Loss per common share $(1.49) (1.23) ============== ============= Weighted average shares outstanding 8,156,302 4,536,914 ============== ============= See accompanying notes to financial statements.
F-3 FRONTIER AIRLINES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY--YEARS ENDED MARCH 31, 1997 AND 1996
Common stock ---------------------------- Additional Total Stated paid-in Accumulated stockholders' Shares value capital deficit equity ------------ ----------- ----------- ------------- -------------- BALANCES, MARCH 31, 1995 3,443,300 $ 3,443 9,761,686 (8,122,637) 1,642,492 Contribution of common stock to employee stock ownership plan 137,340 - 721,000 - 721,000 Issuance of compensatory common stock options - - 60,500 - 60,500 Sale of common stock and warrants, net of offering costs of $1,230,000 1,840,000 1,978 7,279,532 - 7,281,510 Issuance of warrants - - 577,200 - 577,200 Net loss - - - (5,581,682) (5,581,682) ---------- ------------ ----------- ---------- --------- BALANCES, MARCH 31, 1996 5,420,640 5,421 18,399,918 (13,704,319) 4,701,020 Sale of common stock, net of offering costs of $279,385 678,733 679 2,720,615 2,721,294 Exercise of common stock warrants, net of issuance costs of $55,518 2,666,133 2,666 13,275,145 13,277,811 Contribution of common stock to employee stock ownership plan 78,869 78 499,922 500,000 Issuance of warrants 869,110 869,110 Net loss (12,186,332) (12,186,332) ---------- ------------ ----------- ---------- --------- BALANCES, MARCH 31, 1997 8,844,375 $ 8,844 35,764,710 (25,890,651) 9,882,903 ========== ============ =========== ========== ========= See accompanying notes to financial statements.
F-4 FRONTIER AIRLINES, INC. STATEMENTS OF CASH FLOWS--YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996 ------------ ----------- Cash flows from operating activities: Net loss $ (12,186,332) $ (5,581,682) Adjustments to reconcile net loss to net cash used by operating activities: Employee stock ownership plan compensation expense 500,000 721,000 Issuance of compensatory common stock options - 60,500 Depreciation and amortization 1,322,916 603,014 Loss on sale of equipment 4,708 62,940 Changes in operating assets and liabilities: Restricted investments 82,458 (842,574) Trade receivables (1,579,184) (2,289,183) Security, maintenance and other deposits (1,608,524) (5,149,965) Prepaid expenses and other assets (562,954) (2,269,203) Inventories (427,926) (362,581) Note receivable 10,950 - Accounts payable 3,643,071 1,590,072 Air traffic liability 1,858,072 7,384,114 Other accrued expenses 1,323,037 (337,294) Accrued maintenance expense 1,151,443 5,572,559 ------------- ------------ Net cash used by operating activities (6,468,265) (838,283) ------------- ------------ Cash flows used by investing activities: Increase (decrease) in short-term investments 1,168,200 (1,168,200) Increase in restricted investments (600,000) - Aircraft lease deposits (2,682,250) (1,661,250) Capital expenditures (3,434,789) (1,097,788) Proceeds from sale of property and equipment - 32,440 ------------- ------------ Net cash used in investing activities (5,548,839) (3,894,798) ------------- ------------
Cash flows from financing activities: Net proceeds from issuance of common stock 15,999,455 7,281,510 Proceeds from short-term borrowings 95,911 101,496 Principal payments on short-term borrowings (96,540) (91,055) Principal payments on obligations under capital leases (54,523) (34,357) ------------- ------------ Net cash provided by financing activities 15,944,303 7,257,594 ------------- ------------ Net increase in cash and cash equivalents 3,927,199 2,524,513 Cash and cash equivalents, beginning of year 6,359,254 3,834,741 ------------- ------------ Cash and cash equivalents, end of year $ 10,286,453 6,359,254 ============= ============
SUPPLEMENTAL INFORMATION: In the years ended March 31, 1997 and 1996 the Company issued warrants to aircraft lessors with an estimated fair market value totaling $869,110 and $577,200, respectively. The unamortized portion of deferred lease expense totaled $1,139,703 at March 31, 1997. In the year ended March 31, 1996, the Company sold equipment and accepted a promissory note in lieu of cash for $70,000. Interest of $20,435 and $22,671 was paid in cash during the year ended March 31, 1997 and 1996. No income taxes were paid in the years ended March 31, 1997 and 1996. See accompanying notes to financial statements. F-5 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS--MARCH 31, 1997 (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS AND INDUSTRY RISKS Frontier Airlines, Inc. (the Company) was incorporated in the State of Colorado on February 8, 1994 and is engaged in the business of operating a commercial airline based in Denver, Colorado which currently serves selected midwestern and western cities. The Company commenced airline operations on July 5, 1994. The airline industry is highly competitive primarily due to the effects of the Airline Deregulation Act of 1978, 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. The Company's results are highly sensitive to changes in fare levels. The Company cannot predict future fare levels, which can change rapidly, and are subject to actions by the Company's competitors. The airline industry is also characterized by low gross profit margins, with fixed costs that are high in relation to revenues. Accordingly, a shortfall from expected revenue levels can have a material adverse effect on profitability and liquidity, including the Company's. The Company's connecting hub is located at Denver International Airport (DIA). DIA opened in March 1995. 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. Management believes that the Company's operating costs at DIA will continue to substantially exceed those that other airlines incur at hub airports in other cities. The airline industry is significantly affected by general economic conditions. Because a substantial portion of business and personal airline travel is discretionary, the industry tends to experience severe adverse financial results during general economic downturns. The Company's business also is seasonal, which can affect the Company's results of operations from quarter to quarter. 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. The future cost and availability of fuel to the Company cannot be predicted, and substantial sustained price increases or the unavailability of adequate fuel supplies could have a material adverse effect on the Company's operations and profitability. F-6 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. RESTRICTED INVESTMENTS Restricted investments include certificates of deposit and government treasury bills which secure certain letters of credit issued primarily to companies which process credit card sale transactions and certain airport authorities. 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. INVENTORIES Inventories consist of expendable parts, supplies and aircraft fuel and are stated at the lower of cost or market. Inventories are accounted for on a first-in, first-out basis and are charged to expense as they are used. The Company has two aircraft parts agreements for the Company's 11 Boeing 737 aircraft discussed in note 5, one with another air carrier and another with an aircraft parts supplier. The Company is required to pay a monthly consignment fee to each of these lessors, based on the value of the consigned parts, and to replenish any such parts when used with a like part. At March 31, 1997, the Company held consigned parts and supplies in the amount of approximately $7,105,944, which are not included in the Company's balance sheet. 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: F-7 Flight equipment 5-20 years Improvements to leased aircraft Life of improvements or term of lease, whichever is less Ground property, equipment, and 3-5 years or term of lease leasehold improvements 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 based on usage; such deposits are applied against the cost of major airframe maintenance checks and landing gear and engine overhauls. These deposits are expensed in the month the usage was incurred and a liability for accrued maintenance is established. Deposit balances remaining at lease termination remain with the lessor and any remaining liability for maintenance checks is reversed against the deposit balance. Additionally, a provision is made for the estimated costs of scheduled major overhauls required to be performed on leased aircraft and components under the provisions of the aircraft lease agreements if the required monthly deposit amounts are not adequate to cover the entire cost of the scheduled maintenance. Accrued maintenance expense expected to be incurred beyond one year is classified as long-term. REVENUE RECOGNITION Passenger, cargo, and other revenues are recognized when the transportation is provided or after the tickets expire and are net of excise taxes. Revenues which have been deferred are included in the accompanying balance sheet as air traffic liability. 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 had maintained a frequent travel award program that provided awards to program members based on accumulated segments flown, which was discontinued effective September 11, 1996. The Company allows its passengers to accumulate mileage on Continental Airlines' OnePass frequent flyer program. The cost of providing mileage on the F-8 OnePass program is based on an agreed upon rate per mileage credit, which is paid to Continental Airlines on a monthly basis. LOSS PER COMMON SHARE Loss per common share is computed based on the weighted average number of common shares and, if dilutive, common stock equivalent shares (options and warrants) outstanding during the respective periods. INCOME TAXES The Company accounts for income taxes using the asset and liability method prescribed by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax bases of the existing assets and liabilities. A valuation allowance for net deferred tax assets is provided unless realizability is judged by management to be more likely than not. The effect on deferred taxes from a change in tax rates is recognized in income in the period that includes the enactment date. RECLASSIFICATIONS Certain 1996 financial statement balances have been reclassified to conform to the 1997 presentation. 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, 1997. STOCK BASED COMPENSATION Statement of Financial Accounting Standards No. 123 Accounting for Stock- Based Compensation (SFAS No. 123), was adopted by the Company effective April 1, 1996. As permitted under SFAS No. 123, the Company has elected to follow Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees ("APB 25") and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company has included the pro forma disclosures required by SFAS No. 123 in Note 8. F-9 IMPAIRMENT OF LONG-LIVED ASSETS Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS No. 121), was adopted by the Company effective April 1, 1997. SFAS No. 121 required that impairment losses be recorded on long-lived assets used in operations when indicators of impairment are present and either the undiscounted future cash flows estimated to be generated by those assets or the fair market value are less than the assets' carrying amount. The adoption of SFAS No. 121 had no effect on the Company's financial statements. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 Earnings Per Share (SFAS No. 128). SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock or potential common stock. This Statement simplifies the computation of earnings per share and is required to be adopted by the Company in the year ended March 31, 1998. The Company has not yet evaluated the effects of adopting this Statement. (2) PREPAID EXPENSES AND OTHER ASSETS The March 31, 1997 prepaid expenses and other assets is comprised of the following:
Prepaid passenger traffic commissions and related expenses $1,484,746 Prepaid aircraft rentals 808,176 Prepaid rent 260,102 Prepaid insurance 189,518 Prepaid landing fees 141,120 Other prepaid expenses and other assets 566,209 ---------- $3,449,871 ==========
(3) PROPERTY AND EQUIPMENT, NET As of March 31, 1997 property and equipment consisted of the following:
Flight equipment and improvements to leased aircraft $3,251,284 Ground property, equipment and leasehold improvements 2,923,658 ---------- 6,174,942 Less accumulated depreciation and amortization (1,833,960) ---------- Property and equipment, net $4,340,982 ==========
F-10 Property and equipment includes certain office equipment under capital leases. At March 31, 1997, office equipment recorded under capital leases was $183,698 and accumulated amortization was $104,479. (4) OTHER ACCRUED EXPENSES The March 31, 1997 other accrued expenses is comprised of the following:
Accrued salaries and benefits $1,950,001 Federal excise taxes payable 522,061 Deferred rent and lease payments 319,551 Passenger facility charges 291,898 Other 234,532 ---------- $3,318,043 ==========
(5) LEASE COMMITMENTS AIRCRAFT LEASES At March 31, 1997, the Company operated 11 aircraft which are accounted for under operating lease agreements with initial terms ranging from 2 to 8 years with certain leases that allow for renewal options. Security deposits related to aircraft leased and in service at March 31, 1997 totaled $2,988,500 and are included in security, maintenance and other deposits on the balance sheet. In addition to scheduled future minimum lease payments, the Company is required to pay to each aircraft lessor monthly cash deposits based on flight hours and cycles operated to provide funding for certain scheduled maintenance costs of leased aircraft. The lease agreements provide that the Company shall pay taxes, maintenance, insurance, and other operating expenses applicable to the leased property. At March 31, 1997, aircraft maintenance deposits totaled $8,142,176 and are reported as a component of security, maintenance and other deposits on the balance sheet. During the year ended March 31, 1997, the Company entered into four operating lease agreements for four additional new Boeing 737-300 aircraft with scheduled deliveries during the Company's fiscal year ended March 31, 1998. The Company took delivery of one of these aircraft in May 1997, two have scheduled deliveries in August 1997 and the fourth is scheduled for delivery in January 1998. Delivery of the January 1998 aircraft is subject to the Company maintaining certain financial covenants which, if not met, permit the lessor to terminate the lease prior to delivery. At March 31, 1997, the Company had made security deposits totaling $1,818,750 with respect to these aircraft and is required to make additional security deposits between July 1997 and April 1998 totaling $1,292,500 with respect to these F-11 aircraft leases. Two each of these lease agreements have 7 and 8 year terms from date of delivery, respectively. Two of these leases have up to two one year renewal terms and a third may be renewed for up to three one year terms. The Company is required to pay monthly cash deposits to each aircraft lessor based on flight hours and cycles operated to provide funding of future scheduled maintenance costs. Any cash deposits paid to aircraft lessors for future scheduled maintenance costs to the extent not used during the lease term remain with the lessor, 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 were not able to satisfy their obligations under the lease agreements. OTHER LEASES The Company leases a spare engine, office space and office equipment for its headquarters, airport facilities, certain ground equipment, and automobiles. The Company also leases certain airport gate facilities on a month-to-month basis. At March 31, 1997, 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: 1998 $ 44,433 $ 29,593,591 1999 44,433 34,305,536 2000 16,656 30,110,931 2001 - 18,746,062 2002 - 17,844,752 Thereafter - 49,853,152 -------- ------------ Total minimum lease payments 105,522 180,454,024 ============ Less amount representing interest (13,377) -------- Present value of obligations under capital leases 92,145 Less current portion of obligations under capital leases 35,700 -------- Obligations under capital leases, excluding current portion $ 56,445 -------- F-12 The obligations under capital leases have been discounted at imputed interest rates ranging from 10.5% to 12.2%. Rental expense under operating leases, including month-to-month leases, for the years ended March 31, 1997 and 1996 was $25,336,749 and $12,625,175, respectively. (6) INCOME TAXES The Company has not recognized any income tax benefit related to net operating losses incurred for the years ended March 31, 1997 and 1996 because the benefit of the net operating losses were offset by an increase in the valuation allowance for net deferred tax assets. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at March 31, 1997 are presented below:
Deferred tax assets: Net operating loss carryforwards $ 7,603,000 Start-up cost deferred for tax purposes 198,000 Accrued maintenance not deductible for tax purposes 717,000 Accrued vacation and health insurance liability not deductible for tax purposes 395,000 Other 117,000 ----------- Total gross deferred tax assets 9,030,000 Less valuation allowance (8,934,000) ----------- 96,000 ----------- Deferred tax liabilities: Equipment depreciation and amortization (96,000) ----------- Net deferred taxes $ - ===========
The valuation allowance for deferred tax assets as of March 31, 1996 was $4,950,000. The increase in the valuation allowance for the year ended March 31, 1997 was $3,989,000. At March 31, 1997, the Company had net operating loss carryforwards of approximately $19,134,000, which expire in the years 2010 to 2012. F-13 (7) WARRANTS The Company issued 2,670,000 warrants to purchase common stock in conjunction with a private placement and its initial public offering. Each warrant entitled the warrant holder to purchase one share of common stock for $5.00. These warrants were subject to redemption at $.05 per warrant by the Company on 45 days written notice if certain conditions were met. The Company met these conditions in May 1996 and on May 14, 1996, the Company notified the warrant holders of the Company's intent to exercise its redemption rights with respect to the warrants not exercised on or before June 28, 1996. 2,666,133 of the warrants were exercised with net proceeds to the Company totaling $13,275,000. At completion of the Company's initial public offering, an underwriter acquired options to purchase up to 110,000 shares of common stock exercisable at a price equal to $5.525 per share. Additionally, the underwriter was granted up to 110,000 warrants to purchase common stock at a price equal to $.325 per warrant and $5.00 per share of common stock. The underwriters in a secondary public offering by the Company received a warrant to purchase 168,500 shares of common stock at $5.55 per share. The options and warrants issued to underwriters in connection with the initial and secondary public offerings expire, respectively, on May 20, 1999 and September 18, 2000. In October 1995, the Company issued to each of two of its Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares of Common Stock for an aggregate purchase price of $500,000. In June 1996, the Company issued two warrants to a Boeing 737-200 lessor, each warrant entitling the lessor to purchase 70,000 shares of common stock at an aggregate exercise price of $503,300 per warrant. In connection with a Boeing 737-300 aircraft to be delivered in August 1997, the Company has issued to the lessor a warrant to purchase 55,000 shares of Common Stock at an aggregate purchase price of $385,000. Warrants issued to aircraft lessors, to the extent not earlier exercised, expire upon expiration of the aircraft leases in March 2000, May and June 2001, and September 2005. (8) STOCK OPTION PLAN The Company has a stock option plan whereby the Board of Directors or its Compensation Committee may issue options to purchase shares of the Company's common stock to employees, officers, and directors of the Company. Under the plan, the Company has reserved an aggregate of 2,250,000 shares of common stock for issuance pursuant to the exercise of options. With certain exceptions, options issued through March 31, 1997 generally vest one year from the date of grant and expire from March 9, 1999 to December 1, 2006. At March 31, 1997, 338,750 options are available for grant under the plan. F-14 A summary of the Plan's stock option activity and related information for the years ended March 31, 1997 and 1996 are as follows:
1997 1996 ------------------------------------------------------ Weighted- Weighted- Average Average Options Exercise Price Options Exercise Price ------------------------------------------------------ Outstanding-beginning of year 1,731,250 $1.27 1,631,250 $1.17 Granted 180,000 7.40 100,000 3.07 ------------------------------------------------------ Outstanding-end of year 1,911,250 $1.85 1,731,250 $1.27 ====================================================== Exercisable at end of year 1,761,250 $1.39 1,671,250 $1.20
(8) STOCK OPTION PLAN (CONTINUED) Exercise prices for options outstanding under the plan as of March 31, 1997 ranged from $1.00 to $9.00 per option share. The weighted-average remaining contractual life of those options is 6.3 years. A summary of the outstanding and exercisable options at March 31, 1997, segregated by exercise price ranges, is as follows:
--------------------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Remaining Average Exercise Price Options Average Contractual Exercisable Exercise Range Outstanding Exercise Price Life (in years) Options Price --------------------------------------------------------------------------------------- $1.00 - $ 2.75 1,600,000 $1.09 5.8 1,600,000 $4.50 $3.13 - $ 4.00 151,250 3.55 8.3 131,250 3.48 $7.75 - $ 9.00 160,000 7.83 9.2 30,000 8.17 ---------------------------------------------------------------------- 1,911,250 $1.85 6.3 1,761,250 $1.39 ======================================================================
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 1997 and 1996, respectively: risk-free interest rate of 6.55% and 6.08%, dividend yields of 0% and 0%; volatility factors of the expected market price of the Company's common stock of 85.39% and 60.86%, and a weighted-average expected life of the options of 7 years for each year. F-15 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. 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 net loss for the years ended March 31, 1997 and 1996, would have been $12,633,987 and $5,628,091, and loss per common share would have been $1.55 and $1.24 per share respectively. (9) EMPLOYEE STOCK OWNERSHIP PLAN The Company has established an Employee Stock Ownership Plan (ESOP) which inures to the benefit of each permanent 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 vary from year to year. In order for an employee to receive an allocation of company common stock from the ESOP, the employee must be employed on the last day of the ESOP's plan year, with certain exceptions. The Company's annual contribution to the ESOP, if any, will be allocated among the eligible employees of the Company as of the end of each plan year in proportion to the relative compensation (as defined in the ESOP) earned that plan year by each of the eligible employees. The ESOP does not provide for contributions by participating employees. Employees will vest in contributions made to the ESOP based upon their years of service with the Company. A year of service is an ESOP plan year during which an employee has at least 1,000 hours of service. Vesting generally occurs at the rate of 20% per year, beginning after the first year of service, so that a participating employee will be fully vested after five years of service. Distributions from the ESOP will not be made to employees during employment. However, upon termination of employment with the Company, each employee will be entitled to receive the vested portion of his or her account balance. The initial Company contribution to the ESOP was made on June 22, 1995 and consisted of 137,340 shares of Common Stock, of which 27,468 shares relate to the plan year ended March 31, 1995 and 109,872 shares relate to the period from April 1, 1995 to December 31, 1995. During the year ended March 31, 1997, the Company contributed 78,869 shares to the plan. The Company recognized compensation expense during the year ended March 31, 1997 of $500,000 related to its contribution to the ESOP. (10) 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, 1997, 75% 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. (11) CONTINGENCIES F-16 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. (12) SUBSEQUENT EVENTS On June 30, 1997, the Board of Directors of the Company approved an Agreement and Plan of Merger (the "Merger Agreement") providing for the merger (the "Merger") of the Company with Western Pacific Airlines, Inc. ("Western Pacific"). Upon consummation of the Merger, each shareholder of the Company will receive .75 shares (subject to adjustment in certain circumstances) of common stock of Western Pacific for each share of the Company's Common Stock held by such shareholder. The management of Western Pacific will retain managerial control of Western Pacific after the Merger. Three members of the Company's board of directors will be granted seats on Western Pacific's board of directors, which will be increased to nine members. The Company's investment banking firm has issued an opinion to the Company's Board of Directors that the provisions of the Merger Agreement are fair to the Company's shareholders from a financial point of view, and Western Pacific's board of directors has received a similar opinion from its investment banking firm with respect to Western Pacific. The Merger Agreement provides that prior to the completion of the Merger, or termination of the Merger Agreement if that occurs before the Merger is completed, the operations of the Company and Western Pacific will generally be conducted in the ordinary course of business. The Company is prohibited from leasing additional aircraft, raising capital through equity or debt financings (except under certain conditions) or making major capital expenditures without Western Pacific's consent. Certain limitations are placed on Western Pacific's operations as well. The Merger Agreement provides that each company must pay the other a termination fee of $4 million in the event either company enters into a business combination with any other entity, and in certain other circumstances resulting in termination of the Merger Agreement. Closing of the Merger is subject to several conditions, including approval of the Merger by the shareholders of the Company, regulatory approval of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act, effectiveness of a Registration Statement relating to issuance of Western Pacific common stock in the Merger and the continued effectiveness of the "fairness opinions" issued by each of the Company's and Western Pacific's investment banking firms. In addition, either the Company or Western Pacific may terminate the Merger Agreement in the event of a material adverse change in the financial condition, business, operations or prospects of the other party to the Merger. There can be no assurance that the conditions will be met or that the Merger will be consummated. The failure of the Company and Western Pacific to consummate the Merger could have a material adverse effect on the Company. In connection with the Merger, the Company entered into a code share agreement (the "Code Share Agreement") with Western Pacific which provides that the parties will jointly market their flight schedules by permitting each party to assign its airline designator code to flights operated by the other party. The Code Share Agreement terminates on December 31, 1997; provided, however, that if the F-17 Merger terminates under certain conditions then the Code Share Agreement will terminate on December 31, 1998. F-18 EX-3.2 2 AMENDED BYLAWS OF THE COMPANY Exhibit 3.2 BYLAWS OF FRONTIER AIRLINES, INC. (As Amended June 9, 1997) INDEX TO BYLAWS OF FRONTIER AIRLINES, INC. Page ---- ARTICLE 1 - Offices - ------------------- Section 1.01 Business Offices.......................... 1 Section 1.02 Registered Office......................... 1 ARTICLE 2 - Shareholders - ------------------------ Section 2.01 Annual Meeting............................ 1 Section 2.02 Special Meetings.......................... 1 Section 2.03 Place of Meetings......................... 1 Section 2.04 Notice of Meetings........................ 1 Section 2.05 Waiver of Notice.......................... 2 Section 2.06 Closing of Transfer Books; Record Date.... 2 Section 2.07 Voting List............................... 3 Section 2.08 Proxies................................... 3 Section 2.09 Quorum and Manner of Acting............... 3 Section 2.10 Extraordinary Matters..................... 4 Section 2.11 Voting of Shares.......................... 4 Section 2.12 Voting of Shares by Certain Holders....... 4 Section 2.13 Action Without a Meeting.................. 5 ARTICLE 3 - Board of Directors - ------------------------------ Section 3.01 General Powers............................ 6 Section 3.02 Number, Tenure and Qualifications......... 6 Section 3.03 Resignation............................... 6 Section 3.04 Removal................................... 6 Section 3.05 Vacancies................................. 6 Section 3.06 Regular Meetings.......................... 6 Section 3.07 Special Meetings.......................... 7 Section 3.08 Meetings by Telephone..................... 7 Section 3.09 Notice of Meetings........................ 7 Section 3.10 Waiver of Notice.......................... 7 Section 3.11 Presumption of Assent..................... 8 Section 3.12 Quorum and Manner of Acting............... 8 Section 3.13 Action Without a Meeting.................. 8 Section 3.14 Executive and Other Committees............ 8 Section 3.15 Compensation.............................. 9 ARTICLE 4 - Officers - -------------------- Section 4.01 Number and Qualifications................. 9 Section 4.02 Election and Term of Office............... 9 Section 4.03 Compensation.............................. 10 Section 4.04 Resignation............................... 10 Section 4.05 Removal................................... 10 Section 4.06 Vacancies................................. 10 Section 4.07 Authority and Duties........... 10 Section 4.08 Surety Bonds................... 12 ARTICLE 5 - Stock - ----------------- Section 5.01 Issuance of Shares............. 12 Section 5.02 Stock Certificates; Uncertificated Shares........ 12 Section 5.03 Consideration for Shares....... 12 Section 5.04 Lost Certificates.............. 13 Section 5.05 Transfer of Shares............. 13 Section 5.06 Holders of Record.............. 13 Section 5.07 Shares Held for Account of Another...................... 13 Section 5.08 Transfer Agents, Registrars and Paying Agents................ 13 ARTICLE 6 - Indemnification - --------------------------- Section 6.01 Definitions.................... 14 Section 6.02 Right to Indemnification....... 15 Section 6.03 Advancement of Expenses........ 15 Section 6.04 Burden of Proof................ 15 Section 6.05 Notification and Defense of Claim........................ 15 Section 6.06 Enforcement.................... 16 Section 6.07 Proceedings by a Party......... 17 Section 6.08 Subrogation.................... 17 Section 6.09 Other Payments................. 17 Section 6.10 Insurance...................... 17 Section 6.11 Other Rights and Remedies...... 17 Section 6.12 Applicability; Effect.......... 17 Section 6.13 Severability................... 18 ARTICLE 7 - Miscellaneous - ------------------------- Section 7.01 Voting of Securities by the Corporation... 18 Section 7.02 Seal...................................... 18 Section 7.03 Fiscal Year............................... 19 Section 7.04 Amendments................................ 19 BYLAWS OF FRONTIER AIRLINES, INC. ARTICLE 1: Offices - ------------------- Section 1.01 Business Offices. The corporation may have such offices, ---------------- either within or outside Colorado, as the board of directors may from time to time determine or as the business of the corporation may require. Section 1.02 Registered Office. The registered office of the ----------------- corporation required by the Colorado Corporation Code to be maintained in Colorado shall be as set forth in the articles of incorporation, unless changed as provided by law. ARTICLE 2: Shareholders - ------------------------ Section 2.01 Annual Meeting. An annual meeting of the shareholders -------------- shall be held for the purpose of electing directors and for the transaction of such other business as may come before the meeting on such date and at such time as the board of directors shall fix in the notice of meeting; the first annual meeting shall be held not later than September 30, 1995, and subsequent annual meetings shall be held within 14 months of the annual meeting prior thereto. Failure to hold an annual meeting as required by these bylaws shall not invalidate any action taken by the board of directors of officers of the corporation. Section 2.02 Special Meetings. Special meetings of the shareholders, ---------------- for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or the board of directors, and shall be called by the president at the request of the holders of not less than 10% of all the outstanding shares of the corporation entitled to vote at the meeting. Section 2.03 Place of Meetings. Each meeting of the shareholders ----------------- shall be held at such place, either within or outside Colorado, as may be designated in the notice of meeting, or, if no place is designated in the notice, at the principal office of the corporation if in Colorado, or if the principal office is not located in Colorado, at the registered office of the corporation in Colorado. Section 2.04 Notice of Meetings. Except as otherwise required by law, ------------------ written notice of each meeting of the shareholders stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be given, either personally (including delivery by private courier) or by first class, certified or registered mail, to each shareholder of record entitled to notice of such meeting, not less than 10 nor more than 50 days before the date of the meeting, except that if the authorized shares of the corporation are to be increased, at least 30 days notice shall be given, and if the sale, lease, exchange or other disposition of all or substantially all of the property and assets of the corporation not in the usual and regular course of business is to be voted on, at least 20 days notice shall be given. Such notice shall be deemed to be given, if personally delivered, when delivered to the shareholder, and, if mailed, when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid, but if three successive notices mailed to the last known address of any shareholder of record are returned as undeliverable no further notices to such shareholder shall be necessary until another address for such shareholder is made known to the corporation. If a meeting is adjourned to another time or place, notice need not be given if the time and place thereof are announced at the meeting, unless the adjournment is for more than 30 days or if after the adjournment a new record date is fixed, in either of which case notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting in accordance with the foregoing provisions of this Section 2.04. Section 2.05 Waiver of Notice. Whenever notice is required by law, ---------------- the articles of incorporation or these bylaws to be given to any shareholder, a waiver thereof in writing signed by the shareholder entitled to such notice, whether before, at or after the time stated therein, shall be equivalent to the giving of such notice. By attending a meeting, a shareholder (a) waives objection to lack of notice or defective notice of such meeting unless the shareholder, at the beginning of the meeting, objects to the holding of the meeting or the transacting of business at the meeting, and (b) waives objection to consideration at such meeting of a particular matter not within the purpose or purposes described in the notice of such meeting unless the shareholder objects to considering the matter when it is presented. Section 2.06 Closing of Transfer Books; Record Date. For the purpose -------------------------------------- of determining shareholders entitled to notice of or to vote at any meeting of the shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may provide that the stock transfer books shall be closed for any stated period not exceeding 50 days. In lieu of closing the stock transfer books the board of directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 50 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books shall be closed or a record date fixed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of the shareholders, such books shall be closed for at least, or such record shall be fixed not less than, 10 days immediately preceding such meeting (30 days if the authorized stock is to be increased, 20 days if the sale, lease, exchange or other disposition of all or substantially all of the property and assets of the corporation not in the usual and regular course of business is to be considered). If the stock transfer books are not so closed or no record date is so fixed, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring the dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of the shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the stock transfer books and the stated period of the closing has expired. Notwithstanding the foregoing provisions of this Section, the record date for determining shareholders entitled to take action without a meeting as provided in Section 2.13 below shall be the date specified in such Section. Section 2.07 Voting List. The officer or agent having charge of the ----------- stock transfer books for shares of the corporation shall make, at least 10 days before each meeting of the shareholders, a complete record of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. For a period of 10 days before such meeting, this record shall be kept on file at the principal office of the corporation, whether within or outside Colorado, and shall be subject to inspection by any shareholder for any purpose germane to the meeting at any time during usual business hours. Such record shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder for any purpose germane to the meeting during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such record or transfer books or to vote at any meeting of the shareholders. Section 2.08 Proxies. At any meeting of the shareholders, a ------- shareholder may vote by proxy executed in writing by the shareholder or his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the proxy. Section 2.09 Quorum and Manner of Acting. At all meetings of --------------------------- shareholders, a majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum. If a quorum is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater proportion or number or voting by classes is otherwise required by the laws of Colorado, the articles of incorporation or these bylaws. In the absence of a quorum, a majority of the shares so represented may adjourn the meeting from time to time for a period not to exceed 60 days at any one adjournment. At any such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. Section 2.10 Extraordinary Matters. Repealed in its entirety, June 9, --------------------- 1997. Section 2.11 Voting of Shares. Subject to the provisions of Section ---------------- 3.06, each outstanding share of record, regardless of class, is entitled to one vote, and each outstanding fractional share of record is entitled to a corresponding fractional vote, on each matter submitted to a vote of the shareholders either at a meeting thereof or pursuant to Section 2.13, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the articles of incorporation as permitted by the Colorado Corporation Code. In the election of directors each record holder of stock entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected, and for whose election he has the right to vote. Cumulative voting shall not be allowed. Section 2.12 Voting of Shares by Certain Holders. ----------------------------------- (a) Shares Held or Controlled by the Corporation. Neither treasury --------------------------------- ----------- shares nor shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation is held by this corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. (b) Shares Held by Another Corporation. Shares standing in the name ---------------------------------- of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe or, in the absence of such provision, as the board of directors of such corporation may determine. (c) Shares Held by More Than One Person. Shares standing of record in ----------------------------------- the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, voting with respect to the shares shall have the following effects: (i) if only one person votes, his act binds all; (ii) if two or more persons vote, the act of the majority so voting binds all; (iii) if two or more persons vote, but the vote is evenly split on any particular matter, each faction may vote the shares in question proportionally, or any person voting the shares of a beneficiary, if any, may apply to any court of competent jurisdiction in Colorado to appoint an additional person to act with the persons so voting the shares, in which case the shares shall be voted as determined by a majority of such persons; and (iv) if a tenancy is held in unequal interests, a majority or even split for the purposes of subparagraph (iii) shall be a majority or even split in interest. The foregoing effects of voting shall not be applicable if the secretary of the corporation is given written notice of alternative voting provisions and is furnished with a copy of the instrument or order wherein the alternative voting provisions are stated. (d) Shares Held in Trust or by a Personal Representative. Shares -------------------------------------- -------------- held by an administrator, executor, guardian, conservator or other personal representative may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. (e) Shares Held by a Receiver. Shares standing in the name of a ------------------------- receiver may be voted by such receiver and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. (f) Pledged Shares. A shareholder whose shares are pledged shall be -------------- entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. (g) Redeemable Shares Called for Redemption. Redeemable shares that --------------------------------------- have been called for redemption shall not be entitled to vote on any matter and shall not be deemed outstanding shares on and after the date on which written notice of redemption has been mailed to shareholders and a sum sufficient to redeem such shares has been deposited with a bank or trust company with irrevocable instruction and authority to pay the redemption price to the holders of the shares upon surrender of certificates therefor. Section 2.13 Action Without a Meeting. Any action required or ------------------------ permitted to be taken at a meeting of the shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Such consent (which may be signed in counterparts) shall have the same force and effect as a unanimous vote of the shareholders and may be stated as such in any document. Unless the consent specifies a different effective date, action taken without a meeting pursuant to a consent in writing as provided herein shall be effective when all shareholders entitled to vote have signed the consent. The record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent. All consents signed pursuant to this Section 2.13 shall be delivered to the secretary of the corporation for inclusion in the minutes or for filing with the corporate records. ARTICLE 3: Board of Directors - ------------------------------ Section 3.01 General Powers. The business and affairs of the -------------- corporation shall be managed by its board of directors, except as otherwise provided in the Colorado Corporation Code, the articles of incorporation or these bylaws. Section 3.02 Number, Tenure and Qualifications. The number of --------------------------------- directors of the corporation shall be not less than three nor more than thirteen, with the actual number being set or changed, from time to time, by resolutions of the then existing board. Except as provided in Sections 2.01 and 3.05, directors shall be elected at each annual meeting of the shareholders. Each director shall hold office until the next annual meeting of the shareholders and thereafter until his successor shall have been elected and qualified, or until his earlier death, resignation or removal. Directors must be at least 18 years old but need not be residents of Colorado or shareholders of the corporation. Section 3.03 Resignation. Any director may resign at any time by ----------- giving written notice to the president or to the board of directors. A director's resignation shall take effect at the time specified in the notice and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.04 Removal. At a meeting called expressly for that purpose, ------- the entire board of directors or any lesser number may be removed, with or without cause, by a vote of the holders of a majority of shares then entitled to vote at an election of directors; except that if the holders of shares of any class of stock are entitled to elect one or more directors by the provisions of the articles of incorporation, the provisions of this Section 3.04 shall apply, with respect to the removal of a director or directors so elected by such class, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. Any reduction in the authorized number of directors shall not have the effect of shortening the term of any incumbent director unless such director is also removed from office in accordance with this Section 3.04. Section 3.05 Vacancies. Unless otherwise required in the articles of --------- incorporation, any vacancy occurring in the board of directors, including vacancies due to an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum, or by the affirmative vote of two directors if there are only two directors remaining, or by a sole remaining director, or by the shareholders if there are no directors remaining. Section 3.06 Regular Meetings. A regular meeting of the board of ---------------- directors shall be held immediately after and at the same place as the annual meeting of the shareholders, or as soon thereafter as conveniently may be, at the time and place, either within or outside Colorado, determined by the board, for the purpose of electing officers and for the transaction of such other business as may come before the meeting. Failure to hold such meeting, however, shall not invalidate any action taken by any officer then or thereafter in office. The board of directors may provide, by resolution, the time and place, either within or outside Colorado, for the holding of additional regular meetings without other notice than such resolution. Section 3.07 Special Meetings. Special meetings of the board of ---------------- directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any convenient place, either within or outside Colorado, as the place for holding any special meeting of the board called by them. Section 3.08 Meetings by Telephone. Unless otherwise provided by the --------------------- articles of incorporation, one or more members of the board of directors may participate in a meeting of the board by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at the meeting. Section 3.09 Notice of Meetings. Notice of each meeting of the board ------------------ of directors (except those regular meetings for which notice is not required) stating the place, day and hour of the meeting shall be given to each director at least five days prior thereto by the mailing of written notice by first class, certified or registered mail, or at least two days prior thereto by personal delivery (including delivery by private courier) of written notice or by telephone, telegram, telex, cablegram or other similar method, except that in the case of a meeting to be held pursuant to Section 3.08 notice may be given by telephone not less than 5 hours prior thereto. The method of notice need not be the same to each director. Notice shall be deemed to be given when deposited in the United States mail, with postage thereon prepaid, addressed to the director at his business or residence address, when delivered or communicated to the director or when the telegram, telex, cablegram or other form of notice is personally delivered to the director or delivered to the last address of the director furnished by him to the corporation for such purpose. Neither the business to be transacted at nor the purpose of any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting unless otherwise required by statute. Section 3.10 Waiver of Notice. Whenever notice is required by law, ---------------- the articles of incorporation or these bylaws to be given to the directors, a waiver thereof in writing signed by the director entitled to such notice, whether before, at or after the time stated therein, shall be equivalent to the giving of such notice. By attending or participating in a meeting, a director waives any required notice of such meeting unless, at the beginning of the meeting, he objects to the holding of the meeting or the transacting of business at the meeting. Section 3.11 Presumption of Assent. A director who is present at a --------------------- meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless he objects at the beginning of the meeting to the holding of the meeting or the transacting of business at the meeting, contemporaneously requests that his dissent to the action taken be entered in the minutes of such meeting or gives written notice of his dissent to the presiding officer of such meeting before its adjournment or to the secretary of the corporation immediately after adjournment of such meeting. The right of dissent as to a specific action taken at a meeting of the board is not available to a director who votes in favor of such action. Section 3.12 Quorum and Manner of Acting. Except as otherwise may be --------------------------- required by law, the articles of incorporation or these bylaws, a majority of the number of directors fixed in accordance with these bylaws, present in person, shall constitute a quorum for the transaction of business at any meeting of the board of directors, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. If less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than an announcement at the meeting, until a quorum shall be present. No director may vote or act by proxy or power of attorney at any meeting of directors. Section 3.13 Action Without a Meeting. Any action required or ------------------------ permitted to be taken at a meeting of the directors may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. Such consent (which may be signed in counterparts) shall have the same force and effect as a unanimous vote of the directors and may be stated as such in any document. Unless the consent specifies a different effective date, action taken without a meeting pursuant to a consent in writing as provided herein is effective when all directors have signed the consent. All consents signed pursuant to this Section 3.13 shall be delivered to the secretary of the corporation for inclusion in the minutes or for filing with the corporate records. Section 3.14 Executive and Other Committees. The board of directors, ------------------------------ by resolution adopted by a majority of the full board, may designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in the resolution establishing such committee, shall have and may exercise all of the authority of the board of directors in the management of the business and affairs of the corporation, except that no such committee shall have the power or authority to (a) declare dividends or distributions, (b) approve, recommend or submit to the shareholders actions or proposals required by law to be approved by the shareholders, (c) fill vacancies on the board of directors or any committee thereof, including any committee authorized by this Section 3.14, (d) amend the bylaws, (e) approve a plan of merger not requiring shareholder approval, (f) reduce earned or capital surplus, (g) authorize or approve the reacquisition of shares of the corporation, unless pursuant to a general formula or method specified by the board of directors, or (h) authorize or approve the issuance or sale of, or any contract to issue or sell, shares of the corporation's stock or designate the terms of a series of a class of shares. The delegation of authority to any committee shall not operate to relieve the board of directors or any member of the board from any responsibility imposed by law. Subject to the foregoing, the board of directors may provide such powers, limitations and procedures for such committees as the board deems advisable. To the extent the board of directors does not establish other procedures, each committee shall be governed by the procedures set forth in Sections 3.06 (except as they relate to an annual meeting) and 3.07 through 3.13 as if the committee were the board of directors. Each committee shall keep regular minutes of its meetings, which shall be reported to the board of directors when required and submitted to the secretary of the corporation for inclusion in the corporate records. Section 3.15 Compensation. By resolution of the board of directors, ------------ notwithstanding any personal interest of a director in such action, a director may be paid his expenses, if any, of attendance at each meeting of the board of directors and each meeting of any committee of the board of which he is a member and may be paid a fixed sum for attendance at each such meeting or a stated salary, or both a fixed sum and a stated salary. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE 4: Officers - -------------------- Section 4.01 Number and Qualifications. The officers of the ------------------------- corporation shall consist of a president, a secretary, a treasurer and such other officers, including a chairman of the board, one or more vice presidents and a controller, as may from time to time be elected or appointed by the board. In addition, the board of directors or the president may elect or appoint such assistant and other subordinate officers, including assistant vice presidents, assistant secretaries and assistant treasurers, as it or he shall deem necessary or appropriate. Any number of offices may be held by the same person, except that no person may simultaneously hold the offices of president and secretary. All officers must be at least 18 years old. Section 4.02 Election and Term of Office. Except as provided in --------------------------- Sections 4.01 and 4.06, the officers of the corporation shall be elected by the board of directors annually at the first meeting of the board held after each annual meeting of the shareholders as provided in Section 3.06. If the election of officers shall not be held as provided herein, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified, or until the expiration of his term in office if elected or appointed for a specified period of time, or until his earlier death, resignation or removal. Section 4.03 Compensation. Officers shall receive such compensation ------------ for their services as may be authorized or ratified by the board of directors and no officer shall be prevented from receiving compensation by reason of the fact that he is also a director of the corporation. Election or appointment as an officer shall not of itself create a contract or other right to compensation for services performed as such officer. Section 4.04 Resignation. Any officer may resign at any time, subject ----------- to any rights or obligations under any existing contracts between the officer and the corporation, by giving written notice to the president or to the board of directors. An officer's resignation shall take effect at the time specified in such notice, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4.05 Removal. Any officer may be removed at any time by the ------- board of directors, or, in the case of assistant and other subordinate officers, by the board of directors or the president (whether or not such officer was appointed by the president) whenever in its or his judgment, as the case may be, the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not in itself create contract rights. Section 4.06 Vacancies. A vacancy in any office, however occurring, --------- may be filled by the board of directors, or, if such office may be filled by the president as provided in Section 4.01, by the president, for the unexpired portion of the term. Section 4.07 Authority and Duties. The officers of the corporation -------------------- shall have the authority and shall exercise the powers and perform the duties specified below and as may be additionally specified by the president, the board of directors or these bylaws (and in all cases where the duties of any officer are not prescribed by the bylaws or by the board of directors, such officer shall follow the orders and instructions of the president), except that in any event each officer shall exercise such powers and perform such duties as may be required by law: (a) President. The president shall, subject to the direction and --------- supervision of the board of directors, (i) be the chief executive officer of the corporation and have general and active control of its affairs and business and general supervision of its officers, agents and employees; (ii) unless there is a chairman of the board, preside at all meetings of the shareholders and the board of directors; (iii) see that all orders and resolutions of the board of directors are carried into effect; and (iv) perform all other duties incident to the office of president and as from time to time may be assigned to him by the board of directors. (b) Vice Presidents. The vice president, if any (or if there is more --------------- than one then each vice president), shall assist the president and shall perform such duties as may be assigned to him by the president or by the board of directors. The vice president, if there is one (or if there is more than one then the vice president designated by the board of directors, or if there be no such designation then the vice presidents in order of their election), shall, at the request of the president, or in his absence or inability or refusal to act, perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president. Vice presidents may be designated as "Senior," "Executive," or "Assistant" vice presidents, at the election of the board of directors, and shall have such powers and perform such duties as may be assigned to them by the president or by the board of directors. (c) Secretary. The secretary shall: (i) keep the minutes of the --------- proceedings of the shareholders, the board of directors and any committees of the board; (ii) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (iii) be custodian of the corporate records and of the seal of the corporation; (iv) keep at the corporation's registered office or principal place of business within or outside Colorado a record containing the names and addresses of all shareholders and the number and class of shares held by each, unless such a record shall be kept at the office of the corporation's transfer agent or registrar; (v) have general charge of the stock books of the corporation, unless the corporation has a transfer agent; and (vi) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. Assistant secretaries, if any, shall have the same duties and powers, subject to supervision by the secretary. (d) Treasurer. The treasurer shall: (i) be the principal financial --------- officer of the corporation and have the care and custody of all its funds, securities, evidences of indebtedness and other personal property and deposit the same in accordance with the instructions of the board of directors; (ii) receive and give receipts and acquittances for moneys paid in on account of the corporation, and pay out of the funds on hand all bills, payrolls and other just debts of the corporation of whatever nature upon maturity; (iii) unless there is a controller, be the principal accounting officer of the corporation and as such prescribe and maintain the methods and systems of accounting to be followed, keep complete books and records of account, prepare and file all local, state and federal tax returns, prescribe and maintain an adequate system of internal audit and prepare and furnish to the president and the board of directors statements of account showing the financial position of the corporation and the results of its operations; (iv) upon request of the board, make such reports to it as may be required at any time; and (v) perform all other duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the board of directors or the president. Assistant treasurers, if any, shall have the same powers and duties, subject to the supervision by the treasurer. Section 4.08 Surety Bonds. The board of directors may require any ------------ officer or agent of the corporation to execute to the corporation a bond in such sums and with such sureties as shall be satisfactory to the board, conditioned upon the faithful performance of his duties and for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE 5: Stock - ----------------- Section 5.01 Issuance of Shares. The issuance or sale by the ------------------ corporation of any shares of its authorized capital stock of any class, including treasury shares, shall be made only upon authorization by the board of directors, except as otherwise may be provided by law. No shares shall be issued until full consideration has been received therefor. Every issuance of shares shall be recorded on the books maintained for such purpose by or on behalf of the corporation. Section 5.02 Stock Certificates; Uncertificated Shares. The shares of ---------------------------------- ------ stock of the corporation shall be represented by certificates, except that the board of directors may authorize the issuance of any class or series of stock of the corporation without certificates as provided by law. If shares are represented by certificates, such certificates shall be signed in the name of the corporation by the chairman or vice chairman of the board of directors or by the president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary and sealed with the seal of the corporation or with a facsimile thereof. The signatures of the corporation's officers on any certificate may also be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. Certificates of stock shall be in such form consistent with law as shall be prescribed by the board of directors. Section 5.03 Consideration for Shares. Shares shall be issued for ------------------------ such consideration expressed in dollars (but not less than the par value thereof, if any) as shall be fixed from time to time by the board of directors. Treasury shares shall be disposed of for such consideration expressed in dollars as may be fixed from time to time by the board. Such consideration may consist, in whole or in part, of money, other property, tangible or intangible, or labor or services actually performed for the corporation, but neither the promissory note of a subscriber or direct purchaser of shares from the corporation, nor the unsecured or nonnegotiable promissory note of any other person, nor future services shall constitute payment or part payment for shares. Section 5.04 Lost Certificates. In case of the alleged loss, ----------------- destruction or mutilation of a certificate of stock the board of directors may direct the issuance of a new certificate in lieu thereof upon such terms and conditions in conformity with law as it may prescribe. The board of directors may in its discretion require a bond in such form and amount and with such surety as it may determine before issuing a new certificate. Section 5.05 Transfer of Shares. Upon presentation and surrender to ------------------ the corporation or to the corporation's transfer agent of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, payment of all transfer taxes, if any, and the satisfaction of any other requirements of law, including inquiry into and discharge of any adverse claims of which the corporation has notice, the corporation or the transfer agent shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transfer on the books maintained for such purpose by or on behalf of the corporation. No transfer of shares shall be effective until it has been entered on such books. The corporation or the corporation's transfer agent may require a signature guaranty or other reasonable evidence that any signature is genuine and effective before making any transfer. Transfers of uncertificated shares shall be made in accordance with applicable provisions of law. Section 5.06 Holders of Record. The corporation shall be entitled to ----------------- treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as may be required by the laws of Colorado. Section 5.07 Shares Held for Account of Another. The board of ---------------------------------- directors, in the manner provided by the Colorado Corporation Code, may adopt a procedure whereby a shareholder of the corporation may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. Upon receipt by the corporation of a certification complying with such procedure, the persons specified in the certification shall be deemed, for the purpose or purposes set forth therein, to be the holders of record of the number of shares specified in place of the shareholder making the certification. Section 5.08 Transfer Agents, Registrars and Paying Agents. The --------------------------------------- ------ board of directors may at its discretion appoint one or more transfer agents, registrars or agents for making payment upon any class of stock, bond, debenture or other security of the corporation. Such agents and registrars may be located either within or outside Colorado. They shall have such rights and duties and shall be entitled to such compensation as may be agreed. ARTICLE 6: Indemnification - --------------------------- Section 6.01 Definitions. For purposes of this Article 6, the ----------- following terms shall have the meanings set forth below: (a) Code. The term "Code" means the Colorado Corporation Code as it ---- exists on the date of the adoption of this Article and as it may hereafter be amended from time to time, but in the case of any amendment, only to the extent that the amendment permits the corporation to provide broader indemnification rights than the Colorado Corporation Code permitted the corporation to provide at the date of the adoption of this Article and prior to the amendment. (b) Corporation. The term "corporation" means the corporation and, in ----------- addition to the resulting or surviving corporation, any domestic or foreign predecessor entity of the corporation in a merger, consolidation or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (c) Expenses. The term "expenses" means the actual and reasonable -------- expenses (including but not limited to expenses of investigation and preparation and fees and disbursements of counsel, accountants or other experts) incurred by a party in connection with a proceeding. (d) Liability. The term "liability" means the obligation to pay a --------- judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan) or expense incurred with respect to a proceeding. (e) Party. The term "party" means any individual who was, is, or is ----- threatened to be made, a named defendant or respondent in a proceeding by reason of the fact that he is or was a director, officer or employee of the corporation and any individual who, while a director, officer or employee of the corporation is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary or agent of any other foreign or domestic corporation or of any partnership, joint venture, trust, other enterprise or employee benefit plan. A party shall be considered to be serving an employee benefit plan at the corporation's request if his duties to the corporation also impose duties on or otherwise involve services by him to the plan or to participants in or beneficiaries of the plan. (f) Proceeding. The term "proceeding" means any threatened, pending ---------- or completed action, suit or proceeding, or any appeal therein, whether civil, criminal, administrative, arbitrative or investigative (including an action by or in the right of the corporation), and whether formal or informal. Section 6.02 Right to Indemnification. The corporation shall ------------------------ indemnify any party to a proceeding against liability incurred in, relating to or as a result of the proceeding to the fullest extent permitted by law (including without limitation in circumstances in which, in the absence of this Section 6.02, indemnification would be (a) discretionary under the Code or (b) limited or subject to particular standards of conduct under the Code). Section 6.03 Advancement of Expenses. In the event of any proceeding ----------------------- in which a party is involved or which may give rise to a right of indemnification under this Article, following written request to the corporation by the party, the corporation shall pay to the party, to the fullest extent permitted by law (including without limitation in circumstances in which, in the absence of this Section 6.02, advancement of expenses would be (a) discretionary under the Code or (b) limited or subject to particular standards of conduct under the Code), amounts to cover expenses incurred by the party in, relating to or as a result of such proceeding in advance of its final disposition. Section 6.04 Burden of Proof. If under applicable law the entitlement --------------- of a party to be indemnified or advanced expenses hereunder depends upon whether a standard of conduct has been met, the burden of proof of establishing that the party did not act in accordance with such standard shall rest with the corporation. A party shall be presumed to have acted in accordance with such standard and to be entitled to indemnification or the advancement of expenses (as the case may be) unless, based upon a preponderance of the evidence, it shall be determined that the party has not met such standard. Such determination and any evaluation as to the reasonableness of amounts claimed by a party shall be made by the board of directors of the corporation or such other body or persons as may be permitted by the Code. Subject to any express limitation of the Code, if so requested by the party, such determination and evaluation as to the reasonableness of the amounts claimed by the party shall be made by independent counsel who is selected by the party and approved by the corporation (which approval shall not be unreasonably withheld). For purposes of this Article, unless otherwise expressly stated, the termination of any proceeding by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not create a presumption that a party did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. Section 6.05 Notification and Defense of Claim. Promptly after --------------------------------- receipt by a party of notice of the commencement of any proceeding, the party shall, if a claim in respect thereof is to be made against the corporation under this Article, notify the corporation in writing of the commencement thereof; provided, however, that delay in so notifying the corporation shall not constitute a waiver or release by the party of any rights under this Article. With respect to any such proceeding: (a) the corporation shall be entitled to participate therein at its own expense; (b) any counsel representing the party to be indemnified in connection with the defense or settlement thereof shall be counsel mutually agreeable to the party and to the corporation; and (c) the corporation shall have the right, at its option, to assume and control the defense or settlement thereof, with counsel satisfactory to the party. If the corporation assumes the defense of the proceeding, the party shall have the right to employ its own counsel, but the fees and expenses of such counsel incurred after notice from the corporation of its assumption of the defense of such proceeding shall be at the expense of the party unless (i) the employment of such counsel has been specifically authorized by the corporation, (ii) the party shall have reasonably concluded that there may be a conflict of interest between the corporation and the party in the conduct of the defense of such proceeding, or (iii) the corporation shall not in fact have employed counsel to assume the defense of such proceeding. Notwithstanding the foregoing, if an insurance carrier has supplied directors' and officers' liability insurance covering a proceeding and is entitled to retain counsel for the defense of such proceeding, then the insurance carrier shall retain counsel to conduct the defense of such proceeding unless the party and the corporation concur in writing that the insurance carrier's doing so is undesirable. The corporation shall not be liable under this Article for any amounts paid in settlement of any proceeding effected without its written consent. The corporation shall not settle any proceeding in any manner that would impose any penalty or limitation on a party without the party's written consent. Consent to a proposed settlement of any proceeding shall not be unreasonably withheld by either the corporation or the party. Section 6.06 Enforcement. The right to indemnification and ----------- advancement of expenses granted by this Article shall be enforceable in any court of competent jurisdiction if the corporation denies the claim, in whole or in part, or if no disposition of such claim is made within 90 days after the written request for indemnification or advancement of expenses is received. If successful in whole or in part in such suit, the party's expenses incurred in bringing and prosecuting such claim shall also be paid by the corporation. Whether or not the party has met any applicable standard of conduct, the court in such suit may order indemnification or the advancement of expenses as the court deems proper (subject to any express limitation of the Code). Further, the corporation shall indemnify a party from and against any and all expenses and, if requested by the party, shall (within 10 business days of such request) advance such expenses to the party, which are incurred by the party in connection with any claim asserted against or suit brought by the party for recovery under any directors' and officers' liability insurance policies maintained by the corporation, regardless of whether the party is unsuccessful in whole or in part in such claim or suit. Section 6.07 Proceedings by a Party. The corporation shall indemnify ---------------------- or advance expenses to a party in connection with any proceeding (or part thereof) initiated by the party only if such proceeding (or part thereof) was authorized by the board of directors of the corporation. Section 6.08 Subrogation. In the event of any payment under this ----------- Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the indemnified party, who shall execute all papers and do everything that may be necessary to assure such rights of subrogation to the corporation. Section 6.09 Other Payments. The corporation shall not be liable -------------- under this Article to make any payment in connection with any proceeding against or involving a party to the extent the party has otherwise actually received payment (under any insurance policy, agreement or otherwise) of the amounts otherwise indemnifiable hereunder. A party shall repay to the corporation the amount of any payment the corporation makes to the party under this Article in connection with any proceeding against or involving the party, to the extent the party has otherwise actually received payment (under any insurance policy, agreement or otherwise) of such amount. Section 6.10 Insurance. So long as any party who is or was an --------- officer or director of the corporation may be subject to any possible proceeding by reason of the fact that he is or was an officer or director of the corporation (or is or was serving in any one or more of the other capacities covered by this Article during his tenure as officer or director), if the corporation maintains an insurance policy or policies providing directors' and officers' liability insurance, such officer or director shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage applicable to any then current officer or director of the corporation, or the corporation shall purchase and maintain in effect for the benefit of such officer or director one or more valid, binding and enforceable policy or policies of directors' and officers' liability insurance providing, in all respects, coverage at least comparable to that provided to any then current officer or director at the corporation. Section 6.11 Other Rights and Remedies. The rights to ------------------------- indemnification and advancement of expenses provided in this Article shall be in addition to any other rights to which a party may have or hereafter acquire under any law, provision of the articles of incorporation, any other or further provision of these bylaws, vote of the shareholders or directors, agreement or otherwise. The corporation shall have the right, but shall not be obligated, to indemnify or advance expenses to any agent of the corporation not otherwise covered by this Article in accordance with and to the fullest extent permitted by the Code. Section 6.12 Applicability; Effect. The rights to indemnification --------------------- and advancement of expenses provided in this Article shall be applicable to acts or omissions that occurred prior to the adoption of this Article, shall continue as to any party during the period such party serves in any one or more of the capacities covered by this Article, shall continue thereafter so long as the party may be subject to any possible proceeding by reason of the fact that he served in any one or more of the capacities covered by this Article, and shall inure to the benefit of the estate and personal representatives of each such person. Any repeal or modification of this Article or of any Section or provision hereof shall not affect any rights or obligations then existing. All rights to indemnification under this Article shall be deemed to be provided by a contract between the corporation and each party covered hereby. Section 6.13 Severability. If any provision of this Article shall be ------------ held to be invalid, illegal or unenforceable for any reason whatsoever (a) the validity, legality and enforceability of the remaining provisions of this Article (including without limitation, all portions of any Sections of this Article containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, all portions of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent of this Article that each party covered hereby is entitled to the fullest protection permitted by law. ARTICLE 7: Miscellaneous - ------------------------- Section 7.01 Voting of Securities by the Corporation. Unless --------------------------------------- otherwise provided by resolution of the board of directors, on behalf of the corporation the president or any vice president shall attend in person or by substitute appointed by him, or shall execute written instruments appointing a proxy or proxies to represent the corporation at, all meetings of the shareholders of any other corporation, association or other entity in which the corporation holds any stock or other securities, and may execute written waivers of notice with respect to any such meetings. At all such meetings and otherwise, the president or any vice president, in person or by substitute or proxy as aforesaid, may vote the stock or other securities so held by the corporation and may execute written consents and any other instruments with respect to such stock or securities and may exercise any and all rights and powers incident to the ownership of said stock or securities, subject, however, to the instructions, if any, of the board of directors. Section 7.02 Seal. The corporate seal of the corporation shall be in ---- such form as adopted by the board of directors, and any officer of the corporation may, when and as required, affix or impress the seal, or a facsimile thereof, to or on any instrument or document of the corporation. Section 7.03 Fiscal Year. The fiscal year of the corporation shall be ----------- as established by the board of directors. Section 7.04 Amendments. The directors may amend or repeal these ---------- bylaws unless the articles of incorporation reserve such power exclusively to the shareholders in whole or in part or the shareholders, in amending or repealing a particular bylaw provision, provide expressly that the directors may not amend or repeal such bylaw. The shareholders may amend or repeal the bylaws even though the bylaws may also be amended or repealed by the directors. (END) EX-4.4.A 3 AMENDMENT TO RIGHTS AGREEMENT DATED 6-30-97 Exhibit 4.4(a) AMENDMENT NO. 1 TO RIGHTS AGREEMENT This Amendment No. 1 to Rights Agreement (the "Agreement"), between Frontier Airlines, Inc., a Colorado corporation (the "Company"), and American Securities Transfer & Trust, Inc., a Colorado corporation (the "Rights Agent") is made as of June 30, 1997. RECITAL The Company and the Rights Agent wish to amend the Rights Agreement, dated February 20, 1997 (the "Rights Agreement") between the Company and the Rights Agent. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the Company and the Rights Agent agree as follows: Pursuant to Section 27 of the Rights Agreement, the Rights Agreement is hereby amended as follows: 1. The first sentence of Section 1(a) is hereby amended in its entirety to read as follows: "Acquiring Person" means any Person that, together with all Affiliates and Associates of such Person, is the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, (ii) any Person who would otherwise become an Acquiring Person solely as a result of a reduction in the number of shares of Common Stock outstanding due to the repurchase of shares of Common Stock by the Company, unless and until such Person shall purchase or otherwise become the Beneficial Owner of additional shares of Common Stock constituting one-half of one percent or more of the then outstanding shares of Common Stock other than pursuant to a Qualifying Offer or (iii) any Person that becomes the Beneficial Owner of 20% or more of the shares of Common Stock pursuant to a Qualifying Offer. 2. Section 1(l) is hereby amended in its entirety to read as follows: "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 members of the Continuing Directors who are not officers or employees of the Company and who are not representatives, nominees, Affiliates or Associates of the Person making such offer, to be (a) at a price that is fair to Shareholders (taking into account all factors that such members of the Board deem relevant) and (b) otherwise in the best interests of the Company and its Shareholders. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. FRONTIER AIRLINES, INC. By:_________________________________________ President and Chief Executive Officer AMERICAN SECURITIES TRANSFER & TRUST, INC. By:_________________________________________ Name:_____________________________________ Title:____________________________________ -2- EX-10.2 4 OFFICE LEASE BETWEEN ORIAM LLC AND FRONTIER EXHIBIT 10.2 OFFICE LEASE BETWEEN ORIAM LIMITED LIABILITY CO. --------------------------- "LANDLORD" -------- AND FRONTIER AIRLINES, INC. ----------------------- "TENANT" ------ FOR SPACE AT THE BUILDING KNOWN AS "AIRPORT PLAZA" 12015 E. 46th Ave., Denver, Colorado 80239 DATED This 31st Day of January, 1996 PART I - BASIC LEASE TERMS PART II - GENERAL PROVISIONS PART III - EXHIBITS AND ADDENDA OFFICE LEASE ------------ PART I BASIC LEASE TERM SHEET ---------------------- BUILDING: Airport Plaza ------------------------------- LEASE DATE: January 29, 1996 ------------------------------- LANDLORD: Oriam Limited Liability Company ------------------------------- Address: 12015 E. 46th Ave., Suite #300 ------------------------------- Denver, CO 80239 ------------------------------- TENANT: Name: Frontier Airlines, Inc. ------------------------------- Address: 12015 E. 46th Ave., Suite #300 ------------------------------- Denver, CO 80239 ------------------------------- (Address for Notice if different than above): _______________________________________ _______________________________________ BROKER OF RECORD: _______________________________________
TENANT'S BROKER (if any): N/A --------------------------------------------------------------------- LEASED PREMISES: Suite Number: #500 Floor: Fifth ----------------------------- ---------------------------------- Address: 12015 E. 46th Ave., Denver, CO 80239 --------------------------------------------------------------------------- Tenant's Rentable Area: 10,571 RSF --------------------------------------------------------------------- LEASE TERM: Lease Commencement Date: February 1, 1996, or DBO, whichever occurs later. See "Other" below. --------------------------------------------------------------------- Lease Expiration Date: January 31, 2001 ---------------------------------------------------------------------
Lease Period: Five (5) years, plus -0- months -------- -------- BASE RENT: $559,382.08 total aggregate Base Rent, payable in monthly ---------- installments as follows: a) From February 1, 1996 through June 30, 1996, a five (5) month rate of - -------------------------------------------------------------------------------- $25,546.60 divided into five (5) equal monthly installments of $5,109.32 due and - -------------------------------------------------------------------------------- payable on the first day of each month. - --------------------------------------- b) From July 1, 1996 through June 30, 1997, a twelve (12) month rate of - -------------------------------------------------------------------------------- $79,282.56 divided into twelve (12) equal monthly installments of $6,606.88 due - -------------------------------------------------------------------------------- and payable on the first day of each month. - ------------------------------------------- c) From July 1, 1997 through January 31, 2001, a forty-three (43) month rate of - -------------------------------------------------------------------------------- $454,553.00 divided into forty-three (43) equal monthly installments of - -------------------------------------------------------------------------------- $10,571.00 due and payable on the first day of each month. - ---------------------------------------------------------- "BUILDING OPERATING COST" REFERENCE (Article 6): BASE YEAR: Calendar Year 1994 [Paragraph 6B(2)], or -- EXPENSE STOP: $ N/A per square foot [Paragraph 6B (3)] -------- TENANT'S PRO RATA SHARE (of Building for Building Operating Costs): ___________________ % SECURITY DEPOSIT: $ -0- ----------------------------- PERMITTED USE: Airline Reservations, Storage, and General Office ------------------------------------------------- PARKING: Number of Parking Spaces: N/A ------------------------------------------- Location of Parking Spaces: N/A ------------------------------------------- GUARANTOR: Name: None ---------------------------------------------------------------- OTHER: As part of the agreement to these lease terms, FRONTIER agrees to return to the possession of the landlord the space currently leased on the fourth floor -- namely suites 470, 470A, and 480. The surrender of these suites is to be made as promptly as possible. Frontier agrees to pay the current fourth floor specs rent for February. Upon occupance of the firth floor, the February rental charges will be prorated between the fourth and fifth floor figures based on the move-in date for the fifth floor space. ------------------- -------------------- Landlord's Initials Tenant's Initials THIS BASIC LEASE TERM SHEET, together with the General Provisions incorporated as Part II and any Exhibits, Riders, Addenda and Guaranty incorporated as Part III, all constitute the entire Lease between the above-described Tenant and Landlord for the Leased Premises described above, made and entered into as of the Lease Date specified above. THIS Agreement is executed as of the date first above written. "LANDLORD" Oriam Limited Liability Company ------------------------------------ a Colorado limited liability company ------------------------------------ By: /s/ ---------------------------------- Its: Managing Partner ------------------------------- "TENANT" Frontier Airlines, Inc. ------------------------------------ a Colorado corporation ------------------------------------ ATTEST: /s/ By: /s/ Arthur T. Voss - ----------------------- ------------------------------------ Its: Vice President -------------------------------- ___________________ ___________________ Landlord's Tenant's Initials Initial 2 Work Agreement -------------- [Landlord Version] LANDLORD: Oriam Limited Liability Company ------------------------------- TENANT: Frontier Airlines, Inc. ----------------------- Landlord to induce Tenant, and Tenant to induce Landlord to enter into the Lease (which is hereby incorporated by reference to the extent that the provisions of this Work Agreement may apply thereto) and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant mutually agree as follows: 1. Definitions. The terms defined in this paragraph, for purposes of this ----------- Work Agreement, shall have the meanings herein specified, and, in addition to the terms defined herein, terms defined in the Lease shall, for purposes of this Work Agreement, have the meanings therein specified. 1. "Building Standard" means the quality of materials, finishing and - ----------------- workmanship specified in writing by Landlord for the Building. 2. "Landlord's Architect" means W.E. Kieding and Associates. - -------------------- 3. "Tenant Improvements" shall have the same meaning as specified in the - ------------------- Lease. 2. Completion of Leased Premises. ----------------------------- 1. (a) Tenant shall meet with Landlord's representative on or before - January 30, 1996 to finalize layout drawings for the Leased Premises sufficiently complete to permit Landlord to prepare and complete structural, mechanical and electrical drawings for the portion of the Tenant Improvements to be contracted by Landlord. Such final layout drawings shall include: (i) partition layout and door location; (ii) electrical outlet locations; (iii) Tenant's telephone systems location of outlets; and (iv) light switches. Based upon such Tenant approved drawings with Tenant's requirements indicated thereon, Landlord shall direct its engineers to prepare mechanical, electrical and structural drawings incorporating such data. (b) Landlord's contractor shall perform all work in, on, and about the Leased Premises in accordance with Building Standard, unless otherwise agreed to in writing by Landlord and Tenant. The cost of Tenant Improvements to be made by Landlord which exceed Building Standard (including non-standard architectural, structural, mechanical, fire protection, telephone system and electrical work), shall be at Tenant's expense. Tenant shall, unless waived by Landlord, deposit 50% of the estimated cost of all Tenant Improvements which Tenant is to pay the cost of, with Landlord prior to commencement of such work, and Tenant shall pay 25% at middle of Tenant Improvement construction and 25% within five days after completion of Tenant Improvements. Such billing may be made periodically as the work is completed. Unless otherwise agreed to in writing by Landlord and Tenant, all work involved in the completion of Tenant Improvements shall be carried out by Landlord's Contractor under the sole direction of Landlord. Tenant and Landlord shall cooperate with each other and with Landlord's Contractor to promote the efficient and expeditious completion of such work. 2. Changes to the approved Working Drawings may be made only by written - direction to Landlord on a form approved by Landlord, which direction must be signed by an authorized representative of Tenant. Landlord may require, as a condition to any change, that Tenant deposit with Landlord, as a condition to Landlord's consent to such change, all costs which Landlord estimates Landlord will incur by virtue of such change, including, but not limited to, the costs of design, labor, materials, supplies, architectural services, engineering, estimating, printing, and incidental expenses, and any additional costs incurred by Landlord as a result of such change, shall be paid for in full by Tenant upon billing by Landlord. 3. Only with Landlord's express written permission shall Tenant ever - alter or modify or in any manner disturb: (a) Any system or installation of the Building, including, but not limited to, Central (as defined below) plumbing system, Central electrical system, Central heating, ventilating and air conditioning systems, Central fire protection and fire alert systems, Central building maintenance systems, Central structural systems, elevators, and anything located within the Central core of the Building; or (b) Any Branch (as defined below) of any system or installation of the Building which is located within the Leased Premises, including, but not limited to, Branch electrical system, Branch heating, ventilating and air conditioning system, and Branch fire protection and alert system. For the purposes of this Section 2.3, "Central" shall be defined as that portion ------- of any Building system or component which is within the core and/or common to and/or serves or exists for the benefit of other tenants in the Building, and "Branch" shall be defined as that portion of any Building system or component - ------- which serves to connect or extend Central systems into the Leased Premises. 4. Commencement of Rent. Tenant's obligation for the payment of Rent due - -------------------- under the Lease shall commence on the Lease Commencement Date. No abatement of Rent shall occur pursuant to paragraph 3 of the Lease if the delay in completion of occupancy for the Leased Premises is due to: (a) Tenant's failure to furnish promptly information concerning Tenant's requirements for finishing the Leased Premises or constructing Tenant Improvements; (b) Tenant's failure to promptly meet with Landlord's representative as required by Section 2.1(a), or to promptly approve the Working Drawings, as required by paragraph (b) of Section 2.01 of this Work Agreement; (c) Tenant's changes in any of the Working Drawings as finally approved; (d) Tenant's request for Tenant Upgrades and related work; or (e) any unauthorized act or omission by Tenant or its agents. 1 3. Miscellaneous Provisions. ------------------------ 1. For purposes of this Work Agreement, whenever Landlord's consent or - approval is required, such consent or approval shall not be unreasonably withheld. 2. Anything in the Lease to the contrary notwithstanding, notice and - other items to be delivered pursuant to this Work Agreement shall be effective upon receipt of same by the party to whom such notice or item is directed. 3. Should any provision of the Lease be in conflict with this Work - Agreement, the terms of this Work Agreement shall control. If the foregoing correctly sets forth our understanding, kindly acknowledge your approval in the space provided below for that purpose. "LANDLORD" Oriam: Limited Liability Company, --------------------------------- a Colorado Limited Liability Company ------------------------------------- By: /s/ ------------------------------ Its: Manager ------------------------ "TENANT" Frontier Airlines, Inc. ----------------------- a Colorado corporation ---------------------- ATTEST: ______________________ By: /s/ Arthur T. Voss -------------------------------- Its: VP --------------------------- OFFICE LEASE ------------ PART I BASIC LEASE TERM SHEET ----------------------
BUILDING: Airport Plaza ------------------------------------------------------------------------------------------------------ LEASE DATE: October 23, 1996 ------------------------------------------------------------------------------------------------------ LANDLORD: Oriam Limited Liability Company, a Colorado limited liability company ------------------------------------------------------------------------------------------------------ Address: 12015 E. 46th Ave., Suite #300 ------------------------------------------------------------------------------------------------------ Denver, CO 80239 ------------------------------------------------------------------------------------------------------ TENANT: Name: Frontier Airlines, Inc., a Colorado corporation ------------------------------------------------------------------------------------------------------ Address: 12015 E. 46th Ave., Suite #200 ------------------------------------------------------------------------------------------------------ Denver, CO 80239 ------------------------------------------------------------------------------------------------------ BROKER OF RECORD: KRM & Co. ------------------------------------------------------------------------------------------------- TENANT'S BROKER (if any): N/A ------------------------------------------------------------------------------------------------- LEASED PREMISES: Suite Number: #601 Floor: Sixth (6th) ---------------------------------------------------- ---------------------------------------- Address: 12015 E. 46th Ave., Denver, CO 80239 ------------------------------------------------------------------------------------------------------------ Tenant's Rentable Area: +/-2,924 RSF (rentable square feet) Note: The rentable square footage is subject to change upon final review of architectural drawings. LEASE TERM: Lease Commencement Date: November 1, 1996, or DBO, if later ---------------------------------------------------------------------------------------------------- Lease Expiration Date: July 14, 1999 ---------------------------------------------------------------------------------------------------- Lease Period: 2 (two) years, plus 8 (eight) months and 14 (fourteen) days with 0 (zero) Options to Renew of 0 ------- --------- ------------- -------- - (zero) years. ------
BASE RENT: $94,913.82 total aggregate Base Rent, payable in monthly --------- installments as follows: From November 1, 1996 through June 30, 1996 for Suite #601 a 32 (thirty- ---------------- ------------- ---- ---------- two) month rate of $93,568.00 divided into 32 (thirty-two) equal monthly - ---- --------- --------------- installments of $2,924.00 due and payable on the first day of each month. -------- From July 1, 1999 through July 14, 1999 for Suite #601 a daily rate of ------------ ------------- ---- $96.13 divided into one (1) monthly installment of $1,345.82 due and payable on - ------ ------- -------- the first day of each month. "BUILDING OPERATING COST" REFERENCE (Article 6): BASE YEAR: Calendar Year 1994 [Paragraph 6B(2)], or -- TENANT'S PRO RATA SHARE (of Building for Building Operating Costs): 4.627% ----- (Percentage refers to this Suite (#601) only.) SECURITY DEPOSIT: $2,924.00 (Equivalent to first month's rent.) -------- PERMITTED USE: General office use and dispatch. ----------------------------------------------------------------- PARKING: Number of Parking Spaces: N/A -------------------------------------------- Location of Parking Spaces: Adjacent to office building -------------------------------------------- THIS BASIC TERM SHEET, together with the General provisions incorporated as Part II and any Exhibits, Riders, Addenda and Guaranty incorporated as Part III, all constitute the entire Lease between the above-described Tenant and Landlord for the Leased Premises described above, made and entered into as of the Lease Date specified above. /s/ /s/ - ----------------- ----------------- Landlord's Tenant's Initials Initials OFFICE LEASE ------------ PART I BASIC LEASE TERM SHEET ---------------------- BUILDING: Airport Plaza ------------------------------------------------------ LEASE DATE: October 23, 1996 ------------------------------------------------------ LANDLORD: Oriam Limited Liability Company, a Colorado limited ------------------------------------------------------ liability company ------------------------------------------------------ Address: 12015 E. 46th Ave., Suite #300 ------------------------------------------------------ Denver, CO 80239 ------------------------------------------------------ TENANT: Name: Frontier Airlines, Inc., a Colorado corporation ------------------------------------------------------ Address: 12015 E. 46th Ave., Suite 200 ------------------------------------------------------ Denver, CO 80239 ------------------------------------------------------ (Address for Notice if ------------------------------------------------------ different than above): ------------------------------------------------------ BROKER OF RECORD: KRM & Co. ---------------------------------------------- TENANT'S BROKER (if any): N/A ---------------------------------------------- LEASED PREMISES: Suite Number: #601 Floor: Sixth (6th) ----------- ----------------------- Address: 12015 E. 46th Ave., Denver, CO 80239 ------------------------------------------------------- Tenant's Rentable Area: 3228 RSF (rentable square feet). ---- LEASE TERM: Lease Commencement Date: November 1, 1996 Lease Expiration Date: July 14, 1999 Lease Period: 2 (two) years, plus 8 (eight) month(s) and 14 ------- --------- -- (fourteen) day(s) with __________ Option(s) to Renew of ___ year(s). BASE RENT: $104,753.82 total aggregate Base Rent, payable in monthly ---------- installments as follows: From November 1, 1996 through June 30, 1999 for Suite #601 a 32 (thirty- ---------------- ------------- ---- ---------- two) month rate of $103,296.00 divided into 32 (thirty-two) equal monthly - ---- ----------- ---------------- installments of $3,228.00 due and payable on the first day of each month. --------- From July 1, 1999 through July 14, 1999 for Suite #601 a daily rate of ------------ ------------- ---- $104.13 divided into 1 (one) monthly installment of $1,457.82 due and payable on - ------- ------- --------- the first day of each month. "BUILDING OPERATING COST" REFERENCE (Article 6): BASE YEAR: Calendar Year 1994 [Paragraph 6B(2)], or -- EXPENSE STOP: $ N/A per square foot [Paragraph 6B(3)]. -------------- TENANT'S PRO RATA SHARE (of Building for Building Operating Costs): 5.107% ----- SECURITY DEPOSIT: $6,456.00 (Equivalent to first and last month's rent.) -------- PERMITTED USE: General Office and Airline Reservations ----------------------------------------------------------- PARKING: Number of Parking Spaces: N/A ------------------------------- Location of Parking Spaces: Adjacent to office building ------------------------------- GUARANTOR: Name: _____________________________________________________________________ Address: __________________________________________________________________ THIS BASIC LEASE TERM SHEET, together with the General Provisions incorporated as Part II and any Exhibits, Riders, Addenda and Guaranty incorporated as Part III, all constitute the entire Lease between the above-described Tenant and Landlord for the Leased Premises described above, made and entered into as of the Lease Date specified above. /s/ /s/ - -------------- -------------------- Landlord's Tenant's Initials Initials 0127504.01 EX-10.4.A 5 AMENDMENT #2 TO 1994 STOCK OPTION PLAN Exhibit 10.4(a) AMENDMENT NO. 2 TO FRONTIER AIRLINES, INC. 1994 STOCK OPTION PLAN WHEREAS the Board of Directors of Frontier Airlines, Inc. (the "Company") on May 14, 1996 adopted a resolution that the number of shares of common stock available for grant of stock options under the Company's 1994 Stock Option Plan be increased by 500,000 to a total of 2,250,000; and, WHEREAS the foregoing increase in the number of shares of common stock available for grant of stock options was approved by vote of the Company's shareholders at the annual meeting of shareholders held on September 13, 1996. NOW, THEREFORE, the Frontier Airlines, Inc. 1994 Stock Option Plan is hereby amended as set forth below. Section 3(a) of the Frontier Airlines, Inc. 1994 Stock Option Plan is deleted and replaced by the following: 3. Stock Subject to the Plan ------------------------- (a) Subject to adjustment as provided in Section 10 below, the aggregate number of shares of Stock ("Shares") to be delivered upon exercise of all Options granted under the Plan shall not exceed two million two hundred fifty thousand (2,250,000). Dated the 19th day of September, 1996. FRONTIER AIRLINES, INC. By: /s/ Samuel D. Addoms ----------------------------------- President EX-10.8.A 6 ASSIGNMENT & ASSUMPTION EXHIBIT 10.8(a) Acknowledgement and Consent --------------------------- Acknowledgement and Consent (this "Consent") of Frontier Airlines, Inc. dated as of March 28, 1997. Recitals: US Airways, Inc., (formerly USAir, Inc., "US Airways"), as lessor and - -------- Frontier Airlines, Inc. ("Lessee"), as lessee, entered into that certain Lease Agreement dated as of July 26, 1994 (the "Lease") whereby US Airways agreed to lease to Lessee and Lessee agreed to lease from US Airways the Boeing 737-201 Airframe and the Engines identified in the Assignment (defined below). US Airways and First Security Bank, National Association, not in its individual capacity but solely as Owner Trustee ("Trustee"), as trustee for the S-C Parties, have entered into an Assignment and Assumption Agreement (the "Assignment") dated as of March 28, 1997, whereby US Airways has assigned to the Trustee all of the right, title and interest of US Airways in and to the Assigned Documents and the Aircraft. The Trustee desires that Lessee acknowledge and consent to the Assignment and reaffirm its representations, warranties and obligations to the Trustee. Accordingly, the Trustee and Lessee agree as follows: 1. Defined Terms. Unless otherwise defined herein or the context requires ------------- otherwise, all capitalized terms used herein shall have the meanings assigned to them in the Assignment. 2. Acknowledgement and Consent. Lessee hereby acknowledges and consents to --------------------------- the Assignment (a copy of which is attached hereto as Exhibit "A"), and all of the terms and conditions contained therein. 3. Representations, Warranties and Obligations. All representations and ------------------------------------------- warranties of Lessee in the Assigned Documents were true and correct when made and, on the Closing Date, will be true and correct. Lessee further affirms its liability to the Trustee for all of its obligations and duties under the Assigned Documents. In reliance upon US Airways' agreement to be responsible therefor and US Airways' performance thereof, Lessee acknowledges and agrees that Trustee shall not be bound by or subject to any of the duties obligating or responsibilities described in Section 4 of the Assignment. PAGE 2 OF 4 4. Notices. Pursuant to Section 19.2 of the Lease and Section 7.5 of the ------- Supplementary Agreement, all requests, notices and other communications to the "Lessor" shall, from the date of this Consent, be addressed to the Trustee, as follows (or to such other address as the Trustee shall specify from time to time): First Security Bank, National Association Corporate Trust Department 79 South Main Street - 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration with copies to: Soros Fund Management LLC 888 Seventh Avenue New York, New York 10106 Attention: Michael C. Neus Facsimile: 212-664-0544 and S-C Domestic Holdings VII LLC c/o Curacao Corporation Company N.V. Kaya Flamboyan 9 Willemstad, Curacao N.A. Attention: Ben Jansen Facsimile: 5999 32 20 01 and C-S Aviation Services, Inc. 888 Seventh Avenue, Suite 2901 New York, New York 10106 Attention: Thomas Seery Facsimile: 212-246-0102 5. Payments. All payments other than Hourly Rent to be made to "Lessor" under -------- the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or to such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 0000 89 Account Name: For further credit to Citibank London Account No. 10990765 Account Name: S-C Domestic Holdings II LLC Account No. 8228825 PAGE 3 OF 4 All payments of Hourly Rent to be made to "Lessor" under the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 000 089 Account Name: For further credit to Citibank London Account No.: 10990765 Account Name: S-C Aircraft Holdings LLC Account No.: 8300631 6. Insurance. Lessee will cooperate in having the Trustee, the S-C Parties --------- and US Airways named as additional insureds under the liability insurance, and the Trustee named as sole loss payee under the hull insurance procured by Lessee under the Lease. 7. Miscellaneous. This Consent may be executed by the parties hereto in ------------- separate counterparts, each fully executed set of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. This Consent shall be governed by the laws of the State of New York. The respective rights and obligations set forth in this Consent shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. PAGE 4 OF 4 The undersigned has executed this Acknowledgement and Consent. Frontier Airlines, Inc. By: ___________________________ Title: ________________________ Agreed: First Security Bank, National Association, as Trustee By: ___________________________ Title: ________________________ EXHIBIT "A" ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of March 28, 1997, by and between US Airways, Inc. ("US Airways"), a Delaware corporation, formerly known as USAir, Inc., and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as Owner Trustee ("Trustee"). RECITALS: -------- US Airways and Trustee desire to effect (a) the transfer by US Airways to Trustee of all of the right, title and interest of US Airways (except as excluded in Section 4 below) in, under and with respect to, among other things, (i) the Aircraft Lease Agreement (as supplemented by the Lease Supplement defined below and to the extent relating to the Aircraft, the "Lease"), dated as of July 26, 1994, between US Airways and Frontier Airlines, Inc. (the, "Lessee"), as supplemented by Lease Supplement No. 4, dated September 9, 1994 (the "Lease Supplement"), (ii) Supplementary Agreement, dated as of June 6, 1994 between US Airways and Lessee, as it relates to the Aircraft (defined below), (iii) all certificates, opinions, and other documents relating to the Operative Document as they relate to the Boeing 737-201 airframe with manufacturer's serial number 19421 and United States Registration Number N205AU and the Pratt & Whitney model JT8D-9A aircraft engines (which engines have 750 or more rated takeoff horsepower or the equivalent) with manufacturer's serial numbers 654736 and 667183 (such airframe and the engines (as further defined in the Lease), the "Aircraft") (all of the foregoing collectively, the "Assigned Documents"), (iv) the Aircraft, (v) the Hourly Rent Balances and the security deposits of Lessee as they relate to the Aircraft (collectively, the "Assigned Accounts"), and (vi) the proceeds from all of the foregoing; and (b) the assumption by Trustee of the obligations of US Airways (except as excluded in Section 4 below) to the extent arising after the Effective Date under the Assigned Documents. The Lease was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. The Lease Supplement was recorded by the Federal Aviation Administration on November 7, 1994 and assigned Conveyance No. LL08354. NOW, THEREFORE, in consideration of the mutual agreements contained herein, it is hereby agreed as follows: 1. Definitions. Capitalized terms used herein without definition shall ----------- have meaning ascribed thereto in the Lease unless the context in which such term is used requires another meaning. 2. Assignment. US Airways does hereby sell, convey, assign, transfer and ---------- set over to Trustee, effective as of the date first above written (the "Effective Date"), all of its right, title and interest in, under and to the Assigned Documents, the Assigned Accounts and all other contracts, agreements, documents or instruments in respect of the aircraft to which US Airways is a party and relating to the Operative Agreements or the Aircraft and any proceeds therefrom, together with all other documents and instruments evidencing any of such right, title and interest. 3. Assumption. Trustee hereby undertakes and assumes all of the duties ---------- and obligations of US Airways relating to the period after the Effective Date pursuant to the Assigned Documents and any other contracts, agreements, documents or instruments relating thereto to which US Airways is a party or by which it is bound, and hereby confirms that it shall be deemed a party to and be bound by the Assigned Documents and each other contract, agreement, document or instrument in respect of the Aircraft relating thereto to which US Airways is a party or by which it is bound as if named therein as "Lessor". 4. Excluded Obligations. Notwithstanding anything to the contrary set -------------------- forth in this Assignment, US Airways is not assigning to Trustee and US Airways shall remain responsible for, and Trustee is not assuming from US Airways: (a) the duties and obligations described on Schedule A, (b) the duties and obligations of US Airways that relate to any period on or prior to the Effective Date, (c) any other duties and obligations of US Airways relating to parts or engine consignments, spare parts or spare engines, and (d) without limiting the foregoing, the right of US Airways to receive any Rent due or accrued to US Airways prior to the Effective Date and any indemnity relating to events occurring prior to the Effective Date. 5. Release of US Airways. Except for obligations not assumed as provided --------------------- in Section 4 hereof and for which US Airways shall remain responsible, US Airways shall have no further duty or obligation to Lessee under the Assigned Documents, the Assigned Accounts or under any other contract, agreement, document or other instrument relating thereto to which US Airways is a party or by which it is bound (other than this Agreement). 6. Further Assignment. In furtherance of the within assignments, US ------------------ Airways assigns and grants to Trustee all right to collect for the account of Trustee all items sold, transferred or assigned to Trustee pursuant hereto; to institute and prosecute all proceedings that Trustee may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the items sold, transferred or assigned; to defend and compromise any and all actions, suits or proceedings as to title to or interest in the Aircraft or any of the property acquired by Trustee; and to do all such acts and things in relating thereto as Trustee shall deem advisable. 7. Payments. US Airways hereby covenants and agrees to pay over to -------- Trustee, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of US Airways that, under Section 2 hereof, belong to Trustee, and Trustee hereby covenants and agrees to pay over to US Airways, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Trustee that, under Section 2 hereof, belong to US Airways. 8. Further Assurances. Each party to this Assignment and Assumption ------------------ Agreement agrees to execute, acknowledge, deliver, file, record and publish such further certificates, amendments, instruments or documents, and to do all such further acts and things, as may be required by law, or as may reasonably be necessary or advisable to carry out the intents and purposes of this Assignment and Assumption Agreement. 9. Expenses. Each party hereto shall bear its own legal fees incurred in -------- connection with the transactions described herein. 10. Governing Law. This Assignment and Assumption Agreement shall be ------------- governed by and construed in accordance with the laws of the State of New York. 11. Headings. Section headings used in this Assignment are for convenience -------- only and shall not be used in interpreting or construing this Assignment and Assumption Agreement and shall not affect the meaning or construction of this Assignment and Assumption Agreement. 12. Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given if delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): a. If to US Airways: ---------------- US Airways, Inc. 2345 Crystal Drive Arlington, Virginia 22227 Attention: Director - Aircraft Sales Facsimile: 703-418-7515 with a copy at the same address to the attention of US Airways' General Counsel, facsimile number (703) 418-5252 b. If to Trustee: ------------- First Security Bank, National Association 79 South Main Street, 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration Facsimile: 801-246-5053 13. Entire Agreement. This Assignment constitutes the entire agreement ---------------- among the parties hereto and supersedes all prior agreements and understandings, both written and oral, with respect to the subject matter hereof. There are no representations and warranties of any party hereto except as expressly set forth herein. 14. Survival of Representations and Warranties. All representations and ------------------------------------------ warranties contained in this Assignment shall survive the Effective Date. 15. Counterparts. This Assignment 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. 16. Successors and Assigns. The respective rights and obligations set ---------------------- forth in this Assignment shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. [remainder of page left blank intentionally] IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment and Assumption Agreement as of the day and year set forth above. US AIRWAYS, INC. BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER TRUSTEE BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ SCHEDULE A Excluded Obligations -------------------- (a) (S)2.6 of the Supplementary Agreement (license of maintenance and weight and balance programs) (b) (S)4.2(f) of the Supplementary Agreement (US Airways' representations) (c) (S)5.2(f) of the Supplementary Agreement (sub-clause (i), second sentence (hushkit procurement assistance); sub-clause (ii) first, second and third sentences (DFDR Program)) (d) (S)5.3 of the Supplementary Agreement (spare parts consignment) (e) (S)5.4 of the Supplementary Agreement (US Airways-provided maintenance work) (f) Without limiting the applicability or scope of the foregoing, all obligations of US Airways to Lessee arising under the Assigned Documents which shall have arisen or occurred on or before the date set forth in the introductory paragraph of this Assignment. EACH OF THE FOREGOING EXCLUDED OBLIGATIONS DESCRIBED IN PARAGRAPHS (A) - (E) SHALL REMAIN THE OBLIGATIONS OF US AIRWAYS DURING THE BASE LEASE TERM AND ANY RENEWAL TERM. Acknowledgement and Consent --------------------------- Acknowledgement and Consent (this "Consent") of Frontier Airlines, Inc. dated as of March 28, 1997. Recitals: US Airways, Inc., (formerly USAir, Inc., "US Airways"), as lessor and - -------- Frontier Airlines, Inc. ("Lessee"), as lessee, entered into that certain Lease Agreement dated as of July 26, 1994 (the "Lease") whereby US Airways agreed to lease to Lessee and Lessee agreed to lease from US Airways the Boeing 737-201 Airframe and the Engines identified in the Assignment (defined below). US Airways and First Security Bank, National Association, not in its individual capacity but soley as Owner Trustee ("Trustee"), as trustee for the S-C Parties, have entered into an Assignment and Assumption Agreement (the "Assignment") dated as of March 28, 1997, whereby US Airways has assigned to the Trustee all of the right, title and interest of US Airways in and to the Assigned Documents and the Aircraft. The Trustee desires that Lessee acknowledge and consent to the Assignment and reaffirm its representations, warranties and obligations to the Trustee. Accordingly, the Trustee and Lessee agree as follows: 1. Defined Terms. Unless otherwise defined herein or the context requires ------------- otherwise, all capitalized terms used herein shall have the meanings assigned to them in the Assignment. 2. Acknowledgement and Consent. Lessee hereby acknowledges and consents to --------------------------- the Assignment (a copy of which is attached hereto as Exhibit "A"), and all of the terms and conditions contained therein. 3. Representations, Warranties and Obligations. All representations and ------------------------------------------- warranties of Lessee in the Assigned Documents were true and correct when made and, on the Closing Date, will be true and correct. Lessee further affirms its liability to the Trustee for all of its obligations and duties under the Assigned Documents. In reliance upon US Airways' agreement to be responsible therefor and US Airways' performance thereof, Lessee acknowledges and agrees that Trustee shall not be bound by or subject to any of the duties obligating or responsibilities described in Section 4 of the Assignment. PAGE 2 OF 4 4. Notices. Pursuant to Section 19.2 of the Lease and Section 7.5 of the ------- Supplementary Agreement, all requests, notices and other communications to the "Lessor" shall, from the date of this Consent, be addressed to the Trustee, as follows (or to such other address as the Trustee shall specify from time to time): First Security Bank, National Asssociation Corporate Trust Department 79 South Main Street - 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration with copies to: S-C Domestic Holdings VII LLC c/o Curacao Corporation Company N.V. Kaya Flamboyan 9 Willemstad, Curacao N.A. Attention: Ben Jansen Facsimile: 5999 32 20 01 and Soros Fund Managment LLC 888 Seventh Avenue New York, New York 10106 Attention: Michael C. Neus Facsimile: 212-664-0544 and C-S Aviation Services, Inc. 888 Seventh Avenue, Suite 2901 New York, New York 10106 Attention: Thomas Seery Facsimile: 212-246-0102 5. Payments. All payments other than Hourly Rent to be made to "Lessor" under -------- the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or to such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021000089 Account Name: Further Credit to Citibank London Account No.: 10990765 Account Name: S-C Domestic Holdings II LLC Account No.: 8228825 PAGE 3 OF 4 All payments of Hourly Rent to be made to "Lessor" under the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 000 089 Account Name: For further credit to Citibank London Account No.: 10990765 Account Name: S-C Aircraft Holdings LLC Account No.: 8300631 6. Insurance. Lessee will cooperate in having the Trustee, the S-C Parties --------- and US Airways named as additional insureds under the liability insurance, and the Trustee named as sole loss payee under the hull insurance procured by Lessee under the Lease. 7. Miscellaneous. This Consent may be executed by the parties hereto in ------------- separate counterparts, each fully executed set of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. This Consent shall be governed by the laws of the State of New York. The respective rights and obligations set forth in this Consent shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. PAGE 4 OF 4 The undersigned has executed this Acknowledgement and Consent. Frontier Airlines, Inc. By: ___________________________ Title: ________________________ Agreed: First Security Bank, National Association, as Trustee By: ___________________________ Title: ________________________ EXHIBIT "A" ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of March 28, 1997, by and between US Airways, Inc. ("US Airways"), a Delaware corporation, formerly known as USAir, Inc., and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as Owner Trustee ("Trustee"). RECITALS: --------- US Airways and Trustee desire to effect (a) the transfer by US Airways to Trustee of all of the right, title and interest of US Airways (except as excluded in Section 4 below) in, under and with respect to, among other things, (i) the Aircraft Lease Agreement (as supplemented by the Lease Supplement defined below, and to the extent relating to the Aircraft, the "Lease"), dated as of July 26, 1994, between US Airways and Frontier Airlines, Inc. (the, "Lessee"), as supplemented by Lease Supplement No. 2, dated July 26, 1994 (the "Lease Supplement"), (ii) Supplementary Agreement, dated as of June 6, 1994 between US Airways and Lessee, as it relates to the Aircraft (defined below), (iii) all certificates, opinions, and other documents relating to the Operative Document as they relate to the Boeing 737-201 airframe with manufacturer's serial number 19423 and United States Registration Number N207AU and the Pratt & Whitney model JT8D-9A aircraft engines (which engines have 750 or more rated takeoff horsepower or the equivalent) with manufacturer's serial numbers 667219 and 667196 (such airframe and the engines (as further defined in the Lease), the "Aircraft") (all of the foregoing collectively, the "Assigned Documents"), (iv) the Aircraft, (v) the Hourly Rent Balances and the security deposits of Lessee as they relate to the Aircraft (collectively, the "Assigned Accounts"), and (vi) the proceeds from all of the foregoing; and (b) the assumption by Trustee of the obligations of US Airways (except as excluded in Section 4 below) to the extent arising after the Effective Date. The Lease was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. The Lease Supplement was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. NOW, THEREFORE, in consideration of the mutual agreements contained herein, it is hereby agreed as follows: 1. Definitions. Capitalized terms used herein without definition shall ----------- have meaning ascribed thereto in the Lease unless the context in which such term is used requires another meaning. 2. Assignment. US Airways does hereby sell, convey, assign, transfer and ---------- set over to Trustee, effective as of the date first above written (the "Effective Date"), all of its right, title and interest in, under and to the Assigned Documents, the Assigned Accounts and all other contracts, agreements, documents or instruments in respect of the aircraft to which US Airways is a party and relating to the Operative Agreements or the Aircraft and any proceeds therefrom, together with all other documents and instruments evidencing any of such right, title and interest. 3. Assumption. Trustee hereby undertakes and assumes all of the duties ---------- and obligations of US Airways relating to the period after the Effective Date pursuant to the Assigned Documents and any other contracts, agreements, documents or instruments relating thereto to which US Airways is a party or by which it is bound, and hereby confirms that it shall be deemed a party to and be bound by the Assigned Documents and each other contract, agreement, document or instrument in respect of the Aircraft relating thereto to which US Airways is a party or by which it is bound as if named therein as "Lessor". 4. Excluded Obligations. Notwithstanding anything to the contrary set -------------------- forth in this Assignment, US Airways is not assigning to Trustee and US Airways shall remain responsible for, and Trustee is not assuming from US Airways: (a) the duties and obligations described on Schedule A, (b) the duties and obligations of US Airways that relate to any period on or prior to the Effective Date, (c) any other duties and obligations of US Airways relating to parts or engine consignments, spare parts or spare engines, and (d) without limiting the foregoing, the right of US Airways to receive any Rent due or accrued to US Airways prior to the Effective Date and any indemnity relating to events occurring prior to the Effective Date. 5. Release of US Airways. Except for obligations not assumed as provided --------------------- in Section 4 hereof and for which US Airways shall remain responsible, US Airways shall have no further duty or obligation to Lessee under the Assigned Documents, the Assigned Accounts or under any other contract, agreement, document or other instrument relating thereto to which US Airways is a party or by which it is bound (other than this Agreement). 6. Further Assignment. In furtherance of the within assignments, US ------------------ Airways assigns and grants to Trustee all right to collect for the account of Trustee all items sold, transferred or assigned to Trustee pursuant hereto; to institute and prosecute all proceedings that Trustee may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the items sold, transferred or assigned; to defend and compromise any and all actions, suits or proceedings as to title to or interest in the Aircraft or any of the property acquired by Trustee; and to do all such acts and things in relating thereto as Trustee shall deem advisable. 7. Payments. US Airways hereby covenants and agrees to pay over to -------- Trustee, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of US Airways that, under Section 2 hereof, belong to Trustee, and Trustee hereby covenants and agrees to pay over to US Airways, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Trustee that, under Section 2 hereof, belong to US Airways. 8. Further Assurances. Each party to this Assignment and Assumption ------------------ Agreement agrees to execute, acknowledge, deliver, file, record and publish such further certificates, amendments, instruments or documents, and to do all such further acts and things, as may be required by law, or as may reasonably be necessary or advisable to carry out the intents and purposes of this Assignment and Assumption Agreement. 9. Expenses. Each party hereto shall bear its own legal fees incurred -------- in connection with the transactions described herein. 10. Governing Law. This Assignment and Assumption Agreement shall be ------------- governed by and construed in accordance with the laws of the State of New York. 11. Headings. Section headings used in this Assignment are for -------- convenience only and shall not be used in interpreting or construing this Assignment and Assumption Agreement and shall not affect the meaning or construction of this Assignment and Assumption Agreement. 12. Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given if delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): a. If to US Airways: ----------------- US Airways, Inc. 2345 Crystal Drive Arlington, Virginia 22227 Attention: Director - Aircraft Sales Facsimile: 703-418-7515 with a copy at the same address to the attention of US Airways' General Counsel, facsimile number (703) 418-5252 b. If to Trustee: -------------- First Security Bank, National Association 79 South Main Street, 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration Facsimile: 801-246-5053 13. Entire Agreement. This Assignment constitutes the entire agreement ---------------- among the parties hereto and supersedes all prior agreements and understandings, both written and oral, with respect to the subject matter hereof. There are no representations and warranties of any party hereto except as expressly set forth herein. 14. Survival of Representations and Warranties. All representations and ------------------------------------------ warranties contained in this Assignment shall survive the Effective Date. 15. Counterparts. This Assignment 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. 16. Successors and Assigns. The respective rights and obligations set ---------------------- forth in this Assignment shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. [remainder of page left blank intentionally] IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment and Assumption Agreement as of the day and year set forth above. US AIRWAYS, INC. BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER TRUSTEE BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ SCHEDULE A Excluded Obligations --------------------- (a) (S)2.6 of the Supplementary Agreement (license of maintenance and weight and balance programs) (b) (S)4.2(f) of the Supplementary Agreement (US Airways' representations) (c) (S)5.2(f) of the Supplementary Agreement (sub-clause (i), second sentence (hushkit procurement assistance); sub-clause (ii) first, second and third sentences (DFDR Program)) (d) (S)5.3 of the Supplementary Agreement (spare parts consignment) (e) (S)5.4 of the Supplementary Agreement (US Airways-provided maintenance work) (f) Without limiting the applicability or scope of the foregoing, all obligations of US Airways to Lessee arising under the Assigned Documents which shall have arisen or occurred on or before the date set forth in the introductory paragraph of this Assignment. EACH OF THE FOREGOING EXCLUDED OBLIGATIONS DESCRIBED IN PARAGRAPHS (A) - (E) SHALL REMAIN THE OBLIGATIONS OF US AIRWAYS DURING THE BASE LEASE TERM AND ANY RENEWAL TERM. Acknowledgement and Consent --------------------------- Acknowledgement and Consent (this "Consent") of Frontier Airlines, Inc. dated as of March 28, 1997. Recitals: US Airways, Inc., (formerly USAir, Inc., "US Airways"), as lessor and - -------- Frontier Airlines, Inc. ("Lessee"), as lessee, entered into that certain Lease Agreement dated as of July 26, 1994 (the "Lease") whereby US Airways agreed to lease to Lessee and Lessee agreed to lease from US Airways the Boeing 737-201 Airframe and the Engines identified in the Assignment (defined below). US Airways and First Security Bank, National Association, not in its individual capacity but solely as Owner Trustee ("Trustee"), as trustee for the S-C Parties, have entered into an Assignment and Assumption Agreement (the "Assignment") dated as of March 28, 1997, whereby US Airways has assigned to the Trustee all of the right, title and interest of US Airways in and to the Assigned Documents and the Aircraft. The Trustee desires that Lessee acknowledge and consent to the Assignment and reaffirm its representations, warranties and obligations to the Trustee. Accordingly, the Trustee and Lessee agree as follows: 1. Defined Terms. Unless otherwise defined herein or the context requires ------------- otherwise, all capitalized terms used herein shall have the meanings assigned to them in the Assignment. 2. Acknowledgement and Consent. Lessee hereby acknowledges and consents to --------------------------- the Assignment (a copy of which is attached hereto as Exhibit "A"), and all of the terms and conditions contained therein. 3. Representations, Warranties and Obligations. All representations and ------------------------------------------- warranties of Lessee in the Assigned Documents were true and correct when made and, on the Closing Date, will be true and correct. Lessee further affirms its liability to the Trustee for all of its obligations and duties under the Assigned Documents. In reliance upon US Airways' agreement to be responsible therefor and US Airways' performance thereof, Lessee acknowledges and agrees that Trustee shall not be bound by or subject to any of the duties obligating or responsibilities described in Section 4 of the Assignment. PAGE 2 OF 4 4. Notices. Pursuant to Section 19.2 of the Lease and Section 7.5 of the ------- Supplementary Agreement, all requests, notices and other communications to the "Lessor" shall, from the date of this Consent, be addressed to the Trustee, as follows (or to such other address as the Trustee shall specify from time to time): First Security Bank, National Association Corporate Trust Department 79 South Main Street - 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration with copies to: S-C Domestic Holdings VII LLC c/o Curacao Corporation Company N.V. Kaya Flamboyan 9 Willemstad, Curacao N.A. Attention: Ben Jansen Facsimile: 5999 32 20 01 and Soros Fund Management LLC 888 Seventh Avenue New York, New York 10106 Attention: Michael C. Neus Facsimile: 212-664-0544 and C-S Aviation Services, Inc. 888 Seventh Avenue, Suite 2901 New York, New York 10106 Attention: Thomas Seery Facsimile: 212-246-0102 5. Payments. All payments other than Hourly Rent to be made to "Lessor" under -------- the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or to such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 000 089 Account Name: For further credit to Citibank London Account No.: 10990765 Account Name: S-C Domestic Holdings II LLC Account No.: 8228825 PAGE 3 OF 4 All payments of Hourly Rent to be made to "Lessor" under the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 000 089 Account Name: For further credit to Citibank London Account No.: 10990765 Account Name: S-C Aircraft Holdings LLC Account No.: 8300631 6. Insurance. Lessee will cooperate in having the Trustee, the S-C Parties --------- and US Airways named as additional insureds under the liability insurance, and the Trustee named as sole loss payee under the hull insurance procured by Lessee under the Lease. 7. Miscellaneous. This Consent may be executed by the parties hereto in ------------- separate counterparts, each fully executed set of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. This Consent shall be governed by the laws of the State of New York. The respective rights and obligations set forth in this Consent shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. PAGE 4 OF 4 The undersigned has executed this Acknowledgement and Consent. Frontier Airlines, Inc. By: ___________________________ Title: ________________________ Agreed: First Security Bank, National Association, as Trustee By: ___________________________ Title: ________________________ EXHIBIT "A" ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of March 28, 1997, by and between US Airways, Inc. ("US Airways"), a Delaware corporation, formerly known as USAir, Inc., and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as Owner Trustee ("Trustee"). RECITALS: -------- US Airways and Trustee desire to effect (a) the transfer by US Airways to Trustee of all of the right, title and interest of US Airways (except as excluded in Section 4 below) in, under and with respect to, among other things, (i) the Aircraft Lease Agreement (as supplemented by the Lease Supplement defined below, and to the extent relating to the Aircraft, the "Lease"), dated as of July 26, 1994, between US Airways and Frontier Airlines, Inc. (the, "Lessee"), as supplemented by Lease Supplement No. 1, dated July 26, 1994 (the "Lease Supplement"), (ii) Supplementary Agreement, dated as of June 6, 1994 between US Airways and Lessee, as it relates to the Aircraft (defined below), (iii) all certificates, opinions, and other documents relating to the Operative Document as they relate to the Boeing 737-201 airframe with manufacturer's serial number 20212 and United States Registration Number N212US and the Pratt & Whitney model JT8D-9A aircraft engines (which engines have 750 or more rated takeoff horsepower or the equivalent) with manufacturer's serial numbers 667191 and 667215 (such airframe and the engines (as further defined in the Lease), the "Aircraft") (all of the foregoing collectively, the "Assigned Documents"), (iv) the Aircraft, (v) the Hourly Rent Balances and the security deposits of Lessee as they relate to the Aircraft (collectively, the "Assigned Accounts"), and (vi) the proceeds from all of the foregoing; and (b) the assumption by Trustee of the obligations of US Airways (except as excluded in Section 4 below) to the extent arising after the Effective Date under the Assigned Documents. The Lease was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. The Lease Supplement was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. NOW, THEREFORE, in consideration of the mutual agreements contained herein, it is hereby agreed as follows: 1. Definitions. Capitalized terms used herein without definition ----------- shall have meaning ascribed thereto in the Lease unless the context in which such term is used requires another meaning. 2. Assignment. US Airways does hereby sell, convey, assign, ---------- transfer and set over to Trustee, effective as of the date first above written (the "Effective Date"), all of its right, title and interest in, under and to the Assigned Documents, the Assigned Accounts and all other contracts, agreements, documents or instruments in respect of the aircraft to which US Airways is a party and relating to the Operative Agreements or the Aircraft and any proceeds therefrom, together with all other documents and instruments evidencing any of such right, title and interest. 3. Assumption. Trustee hereby undertakes and assumes all of the ---------- duties and obligations of US Airways relating to the period after the Effective Date pursuant to the Assigned Documents and any other contracts, agreements, documents or instruments relating thereto to which US Airways is a party or by which it is bound, and hereby confirms that it shall be deemed a party to and be bound by the Assigned Documents and each other contract, agreement, document or instrument in respect of the Aircraft relating thereto to which US Airways is a party or by which it is bound as if named therein as "Lessor". 4. Excluded Obligations. Notwithstanding anything to the contrary -------------------- set forth in this Assignment, US Airways is not assigning to Trustee and US Airways shall remain responsible for, and Trustee is not assuming from US Airways: (a) the duties and obligations described on Schedule A, (b) the duties and obligations of US Airways that relate to any period on or prior to the Effective Date, (c) any other duties and obligations of US Airways relating to parts or engine consignments, spare parts or spare engines, and (d) without limiting the foregoing, the right of US Airways to receive any Rent due or accrued to US Airways prior to the Effective Date and any indemnity relating to events occurring prior to the Effective Date. 5. Release of US Airways. Except for obligations not assumed as --------------------- provided in Section 4 hereof and for which US Airways shall remain responsible, US Airways shall have no further duty or obligation to Lessee under the Assigned Documents, the Assigned Accounts or under any other contract, agreement, document or other instrument relating thereto to which US Airways is a party or by which it is bound (other than this Agreement). 6. Further Assignment. In furtherance of the within assignments, ------------------ US Airways assigns and grants to Trustee all right to collect for the account of Trustee all items sold, transferred or assigned to Trustee pursuant hereto; to institute and prosecute all proceedings that Trustee may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the items sold, transferred or assigned; to defend and compromise any and all actions, suits or proceedings as to title to or interest in the Aircraft or any of the property acquired by Trustee; and to do all such acts and things in relating thereto as Trustee shall deem advisable. 7. Payments. US Airways hereby covenants and agrees to pay over to -------- Trustee, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of US Airways that, under Section 2 hereof, belong to Trustee, and Trustee hereby covenants and agrees to pay over to US Airways, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Trustee that, under Section 2 hereof, belong to US Airways. 8. Further Assurances. Each party to this Assignment and ------------------ Assumption Agreement agrees to execute, acknowledge, deliver, file, record and publish such further certificates, amendments, instruments or documents, and to do all such further acts and things, as may be required by law, or as may reasonably be necessary or advisable to carry out the intents and purposes of this Assignment and Assumption Agreement. 9. Expenses. Each party hereto shall bear its own legal fees -------- incurred in connection with the transactions described herein. 10. Governing Law. This Assignment and Assumption Agreement shall ------------- be governed by and construed in accordance with the laws of the State of New York. 11. Headings. Section headings used in this Assignment are for -------- convenience only and shall not be used in interpreting or construing this Assignment and Assumption Agreement and shall not affect the meaning or construction of this Assignment and Assumption Agreement. 12. Notices. All notices and other communications hereunder shall ------- be in writing and shall be deemed given if delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): a. If to US Airways: ---------------- US Airways, Inc. 2345 Crystal Drive Arlington, Virginia 22227 Attention: Director - Aircraft Sales Facsimile: 703-418-7515 with a copy at the same address to the attention of US Airways' General Counsel, facsimile number (703) 418-5252 b. If to Trustee: ------------- First Security Bank, National Association 79 South Main Street, 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration Facsimile: 801-246-5053 13. Entire Agreement. This Assignment constitutes the entire ---------------- agreement among the parties hereto and supersedes all prior agreements and understandings, both written and oral, with respect to the subject matter hereof. There are no representations and warranties of any party hereto except as expressly set forth herein. 14. Survival of Representations and Warranties. All representations and ------------------------------------------ warranties contained in this Assignment shall survive the Effective Date. 15. Counterparts. This Assignment 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. 16. Successors and Assigns. The respective rights and obligations set ---------------------- forth in this Assignment shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. [remainder of page left blank intentionally] IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment and Assumption Agreement as of the day and year set forth above. US AIRWAYS, INC. BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER TRUSTEE BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ SCHEDULE A Excluded Obligations -------------------- (a) (S)2.6 of the Supplementary Agreement (license of maintenance and weight and balance programs) (b) (S)4.2(f) of the Supplementary Agreement (US Airways' representations) (c) (S)5.2(f) of the Supplementary Agreement (sub-clause (i), second sentence (hushkit procurement assistance); sub-clause (ii) first, second and third sentences (DFDR Program)) (d) (S)5.3 of the Supplementary Agreement (spare parts consignment) (e) (S)5.4 of the Supplementary Agreement (US Airways-provided maintenance work) (f) Without limiting the applicability or scope of the foregoing, all obligations of US Airways to Lessee arising under the Assigned Documents which shall have arisen or occurred on or before the date set forth in the introductory paragraph of this Assignment. EACH OF THE FOREGOING EXCLUDED OBLIGATIONS DESCRIBED IN PARAGRAPHS (A) - (E) SHALL REMAIN THE OBLIGATIONS OF US AIRWAYS DURING THE BASE LEASE TERM AND ANY RENEWAL TERM. Acknowledgement and Consent --------------------------- Acknowledgement and Consent (this "Consent") of Frontier Airlines, Inc. dated as of March 28, 1997. Recitals: US Airways, Inc., (formerly USAir, Inc., "US Airways"), as lessor and - -------- Frontier Airlines, Inc. ("Lessee"), as lessee, entered into that certain Lease Agreement dated as of July 26, 1994 (the "Lease") whereby US Airways agreed to lease to Lessee and Lessee agreed to lease from US Airways the Boeing 737-201 Airframe and the Engines identified in the Assignment (defined below). US Airways and First Security Bank, National Association, not in its individual capacity but solely as Owner Trustee ("Trustee"), as trustee for the S-C Parties, have entered into an Assignment and Assumption Agreement (the "Assignment") dated as of March 28, 1997, whereby US Airways has assigned to the Trustee all of the right, title and interest of US Airways in and to the Assigned Documents and the Aircraft. The Trustee desires that Lessee acknowledge and consent to the Assignment and reaffirm its representations, warranties and obligations to the Trustee. Accordingly, the Trustee and Lessee agree as follows: 1. Defined Terms. Unless otherwise defined herein or the context requires ------------- otherwise, all capitalized terms used herein shall have the meanings assigned to them in the Assignment. 2. Acknowledgement and Consent. Lessee hereby acknowledges and consents to --------------------------- the Assignment (a copy of which is attached hereto as Exhibit "A"), and all of the terms and conditions contained therein. 3. Representations, Warranties and Obligations. All representations and ------------------------------------------- warranties of Lessee in the Assigned Documents were true and correct when made and, on the Closing Date, will be true and correct. Lessee further affirms its liability to the Trustee for all of its obligations and duties under the Assigned Documents. In reliance upon US Airways' agreement to be responsible therefor and US Airways' performance thereof, Lessee acknowledges and agrees that Trustee shall not be bound by or subject to any of the duties obligating or responsibilities described in Section 4 of the Assignment. PAGE 2 OF 4 4. Notices. Pursuant to Section 19.2 of the Lease and Section 7.5 of the ------- Supplementary Agreement, all requests, notices and other communications to the "Lessor" shall, from the date of this Consent, be addressed to the Trustee, as follows (or to such other address as the Trustee shall specify from time to time): First Security Bank, National Association Corporate Trust Department 79 South Main Street - 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration with copies to: S-C Domestic Holdings VII LLC c/o Curacao Corporation Company N.V. Kaya Flamboyan 9 Willemstad, Curacao N.A. Attention: Ben Jansen Facsimile: 5999 32 20 01 and Soros Fund Management LLC 888 Seventh Avenue New York, New York 10106 Attention: Michael C. Neus Facsimile: 212-664-0544 and C-S Aviation Services, Inc. 888 Seventh Avenue, Suite 2901 New York, New York 10106 Attention: Thomas Seery Facsimile: 212-246-0102 5. Payments. All payments other than Hourly Rent to be made to "Lessor" under -------- the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or to such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 000 089 Account Name: Further Credit to Citibank London Account No.: 10990765 Account Name: S-C Domestic Holdings II LLC Account No.: 8228825 PAGE 3 OF 4 All payments of Hourly Rent to be made to "Lessor" under the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 000 089 Account Name: For further credit to Citibank London Account No.: 10990765 Account Name: S-C Aircraft Holdings LLC Account No.: 8300631 6. Insurance. Lessee will cooperate in having the Trustee, the S-C Parties --------- and US Airways named as additional insureds under the liability insurance, and the Trustee named as sole loss payee under the hull insurance procured by Lessee under the Lease. 7. Miscellaneous. This Consent may be executed by the parties hereto in ------------- separate counterparts, each fully executed set of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. This Consent shall be governed by the laws of the State of New York. The respective rights and obligations set forth in this Consent shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. PAGE 4 OF 4 The undersigned has executed this Acknowledgement and Consent. Frontier Airlines, Inc. By: ___________________________ Title: ________________________ Agreed: First Security Bank, National Association, as Trustee By: ___________________________ Title: ________________________ EXHIBIT "A" ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of March 28, 1997, by and between US Airways, Inc. ("US Airways"), a Delaware corporation, formerly known as USAir, Inc., and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as Owner Trustee ("Trustee"). RECITALS: --------- US Airways and Trustee desire to effect (a) the transfer by US Airways to Trustee of all of the right, title and interest of US Airways (except as excluded in Section 4 below) in, under and with respect to, among other things, (i) the Aircraft Lease Agreement (as supplemented by the Lease Supplement defined below, and to the extent relating to the Aircraft, the "Lease"), dated as of July 26, 1994, between US Airways and Frontier Airlines, Inc. (the, "Lessee"), as supplemented by Lease Supplement No. 3, dated July 27, 1994 (the "Lease Supplement"), (ii) Supplementary Agreement, dated as of June 6, 1994 between US Airways and Lessee, as it relates to the Aircraft (defined below), (iii) all certificates, opinions, and other documents relating to the Operative Document as they relate to the Boeing 737-201 airframe with manufacturer's serial number 20214 and United States Registration Number N214AU and the Pratt & Whitney model JT8D-9A aircraft engines (which engines have 750 or more rated takeoff horsepower or the equivalent) with manufacturer's serial numbers 653726 and 707333 (such airframe and the engines (as further defined in the Lease), the "Aircraft") (all of the foregoing collectively, the "Assigned Documents"), (iv) the Aircraft, (v) the Hourly Rent Balances and the security deposits of Lessee as they relate to the Aircraft (collectively, the "Assigned Accounts"), and (vi) the proceeds from all of the foregoing; and (b) the assumption by Trustee of the obligations of US Airways (except as excluded in Section 4 below) to the extent arising after the Effective Date under the Assigned Documents. The Lease was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. The Lease Supplement was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. NOW, THEREFORE, in consideration of the mutual agreements contained herein, it is hereby agreed as follows: 1. Definitions. Capitalized terms used herein without definition shall ----------- have meaning ascribed thereto in the Lease unless the context in which such term is used requires another meaning. 2. Assignment. US Airways does hereby sell, convey, assign, transfer ---------- and set over to Trustee, effective as of the date first above written (the "Effective Date"), all of its right, title and interest in, under and to the Assigned Documents, the Assigned Accounts and all other contracts, agreements, documents or instruments in respect of the aircraft to which US Airways is a party and relating to the Operative Agreements or the Aircraft and any proceeds therefrom, together with all other documents and instruments evidencing any of such right, title and interest. 3. Assumption. Trustee hereby undertakes and assumes all of the duties ---------- and obligations of US Airways relating to the period after the Effective Date pursuant to the Assigned Documents and any other contracts, agreements, documents or instruments relating thereto to which US Airways is a party or by which it is bound, and hereby confirms that it shall be deemed a party to and be bound by the Assigned Documents and each other contract, agreement, document or instrument in respect of the Aircraft relating thereto to which US Airways is a party or by which it is bound as if named therein as "Lessor". 4. Excluded Obligations. Notwithstanding anything to the contrary set -------------------- forth in this Assignment, US Airways is not assigning to Trustee and US Airways shall remain responsible for, and Trustee is not assuming from US Airways: (a) the duties and obligations described on Schedule A, (b) the duties and obligations of US Airways that relate to any period on or prior to the Effective Date, (c) any other duties and obligations of US Airways relating to parts or engine consignments, spare parts or spare engines, and (d) without limiting the foregoing, the right of US Airways to receive any Rent due or accrued to US Airways prior to the Effective Date and any indemnity relating to events occurring prior to the Effective Date. 5. Release of US Airways. Except for obligations not assumed as --------------------- provided in Section 4 hereof and for which US Airways shall remain responsible, US Airways shall have no further duty or obligation to Lessee under the Assigned Documents, the Assigned Accounts or under any other contract, agreement, document or other instrument relating thereto to which US Airways is a party or by which it is bound (other than this Agreement). 6. Further Assignment. In furtherance of the within assignments, US ------------------ Airways assigns and grants to Trustee all right to collect for the account of Trustee all items sold, transferred or assigned to Trustee pursuant hereto; to institute and prosecute all proceedings that Trustee may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the items sold, transferred or assigned; to defend and compromise any and all actions, suits or proceedings as to title to or interest in the Aircraft or any of the property acquired by Trustee; and to do all such acts and things in relating thereto as Trustee shall deem advisable. 7. Payments. US Airways hereby covenants and agrees to pay over to -------- Trustee, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of US Airways that, under Section 2 hereof, belong to Trustee, and Trustee hereby covenants and agrees to pay over to US Airways, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Trustee that, under Section 2 hereof, belong to US Airways. 8. Further Assurances. Each party to this Assignment and Assumption ------------------ Agreement agrees to execute, acknowledge, deliver, file, record and publish such further certificates, amendments, instruments or documents, and to do all such further acts and things, as may be required by law, or as may reasonably be necessary or advisable to carry out the intents and purposes of this Assignment and Assumption Agreement. 9. Expenses. Each party hereto shall bear its own legal fees incurred -------- in connection with the transactions described herein. 10. Governing Law. This Assignment and Assumption Agreement shall be ------------- governed by and construed in accordance with the laws of the State of New York. 11. Headings. Section headings used in this Assignment are for -------- convenience only and shall not be used in interpreting or construing this Assignment and Assumption Agreement and shall not affect the meaning or construction of this Assignment and Assumption Agreement. 12. Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given if delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): a. If to US Airways: ----------------- US Airways, Inc. 2345 Crystal Drive Arlington, Virginia 22227 Attention: Director - Aircraft Sales Facsimile: 703-418-7515 with a copy at the same address to the attention of US Airways' General Counsel, facsimile number (703) 418-5252 b. If to Trustee: -------------- First Security Bank, N.A. 79 South Main Street, 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration Facsimile: 801-246-5053 13. Entire Agreement. This Assignment constitutes the entire agreement ---------------- among the parties hereto and supersedes all prior agreements and understandings, both written and oral, with respect to the subject matter hereof. There are no representations and warranties of any party hereto except as expressly set forth herein. 14. Survival of Representations and Warranties. All representations and ------------------------------------------ warranties contained in this Assignment shall survive the Effective Date. 15. Counterparts. This Assignment 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. 16. Successors and Assigns. The respective rights and obligations set ---------------------- forth in this Assignment shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. [remainder of page left blank intentionally] IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment and Assumption Agreement as of the day and year set forth above. US AIRWAYS, INC. BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER TRUSTEE BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ SCHEDULE A Excluded Obligations --------------------- (a) (S)2.6 of the Supplementary Agreement (license of maintenance and weight and balance programs) (b) (S)4.2(f) of the Supplementary Agreement (US Airways' representations) (c) (S)5.2(f) of the Supplementary Agreement (sub-clause (i), second sentence (hushkit procurement assistance); sub-clause (ii) first, second and third sentences (DFDR Program)) (d) (S)5.3 of the Supplementary Agreement (spare parts consignment) (e) (S)5.4 of the Supplementary Agreement (US Airways-provided maintenance work) (f) Without limiting the applicability or scope of the foregoing, all obligations of US Airways to Lessee arising under the Assigned Documents which shall have arisen or occurred on or before the date set forth in the introductory paragraph of this Assignment. EACH OF THE FOREGOING EXCLUDED OBLIGATIONS DESCRIBED IN PARAGRAPHS (A) - (E) SHALL REMAIN THE OBLIGATIONS OF US AIRWAYS DURING THE BASE LEASE TERM AND ANY RENEWAL TERM. Acknowledgement and Consent --------------------------- Acknowledgement and Consent (this "Consent") of Frontier Airlines, Inc. dated as of March 20, 1997. Recitals: US Airways, Inc. (formerly USAir, Inc., "US Airways"), as lessor and - -------- Frontier Airlines, Inc. ("Lessee"), as lessee, entered into that certain Lease Agreement dated as of July 26, 1994 (the "Lease") whereby US Airways agreed to lease to Lessee and Lessee agreed to lease from US Airways the Boeing 737-201 Airframe and the Engines identified in the Assignment (defined below). US Airways and First Security Bank, National Association, not in its individual capacity but solely as Owner Trustee ("Trustee"), as trustee for the S-C Parties, have entered into an Assignment and Assumption Agreement (the "Assignment") dated as of March 20, 1997, whereby US Airways has assigned to the Trustee all of the right, title and interest of US Airways in and to the Assigned Documents and the Aircraft. The Trustee desires that Lessee acknowledge and consent to the Assignment and reaffirm its representations, warranties and obligations to the Trustee. Accordingly, the Trustee and Lessee agree as follows: 1. Defined Terms. Unless otherwise defined herein or the context requires ------------- otherwise, all capitalized terms used herein shall have the meanings assigned to them in the Assignment. 2. Acknowledgement and Consent. Lessee hereby acknowledges and consents to --------------------------- the Assignment (a copy of which is attached hereto as Exhibit "A"), and all of the terms and conditions contained therein. 3. Representations, Warranties and Obligations. All representations and ------------------------------------------- warranties of Lessee in the Assigned Documents were true and correct when made and, on the Closing Date, will be true and correct. Lessee further affirms its liability to the Trustee for all of its obligations and duties under the Assigned Documents. In reliance upon US Airways' agreement to be responsible therefor and US Airways' performance thereof, Lessee acknowledges and agrees that Trustee shall not be bound by or subject to any of the duties obligating or responsibilities described in Section 4 of the Assignment. PAGE 2 OF 4 4. Notices. Pursuant to Section 19.2 of the Lease and Section 7.5 of the ------- Supplementary Agreement, all requests, notices and other communications to the "Lessor" shall, from the date of this Consent, be addressed to the Trustee, as follows (or to such other address as the Trustee shall specify from time to time): First Security Bank, National Association Corporate Trust Department 79 South Main Street - 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration with copies to: S-C Domestic Holdings VII LLC c/o Curacao Corporation Company N.V. Kaya Flamboyan 9 Willemstad, Curacao N.A. Attention: Ben Jansen Facsimile: 5999 32 20 01 and Soros Fund Management LLC 888 Seventh Avenue New York, New York 10106 Attention: Michael C. Neus Facsimile: 212-664-0544 and C-S Aviation Services, Inc. 888 Seventh Avenue, Suite 2901 New York, New York 10106 Attention: Thomas Seery Facsimile: 212-246-0102 5. Payments. All payments other than Hourly Rent to be made to "Lessor" under -------- the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or to such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 000 089 Account Name: For further credit to Citibank London Account No.: 10990765 Account Name: S-C Domestic Holdings II LLC Account No. 8228825 PAGE 3 OF 4 All payments of Hourly Rent to be made to "Lessor" under the Assigned Documents shall, from the date of this Consent, be made to the following bank account (or such other account as the Trustee shall specify from time to time): Citibank New York ABA No.: 021 000 089 Account Name: For further credit to Citibank London Account No.: 10990765 Account Name: S-C Aircraft Holdings LLC Account No.: 8300631 6. Insurance. Lessee will cooperate in having the Trustee, the S-C Parties --------- and US Airways named as additional insureds under the liability insurance, and the Trustee named as sole loss payee under the hull insurance procured by Lessee under the Lease. 7. Miscellaneous. This Consent may be executed by the parties hereto in ------------- separate counterparts, each fully executed set of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. This Consent shall be governed by the laws of the State of New York. The respective rights and obligations set forth in this Consent shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. PAGE 4 OF 4 The undersigned has executed this Acknowledgement and Consent. Frontier Airlines, Inc. By: ___________________________ Title: ________________________ Agreed: First Security Bank, National Association, as Trustee By: ___________________________ Title: ________________________ EXHIBIT "A" ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of March 20, 1997, by and between US Airways, Inc. ("US Airways"), a Delaware corporation, formerly known as USAir, Inc. and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as Owner Trustee ("Trustee"). RECITALS: --------- US Airways and Trustee desire to effect (a) the transfer by US Airways to Trustee of all of the right, title and interest of US Airways (except as excluded in Section 4 below) in, under and with respect to, among other things, (i) the Aircraft Lease Agreement (as supplemented by the Lease Supplement defined below, and to the extent relating to the Aircraft, the "Lease"), dated as of July 26, 1994, between US Airways and Frontier Airlines, Inc. (the, "Lessee"), as supplemented by Lease Supplement No. 5, dated October 4, 1994 (the "Lease Supplement"), (ii) Supplementary Agreement, dated as of June 6, 1994 between US Airways and Lessee, as it relates to the Aircraft (defined below), (iii) all certificates, opinions, and other documents relating to the Operative Document as they relate to the Boeing 737-201 airframe with manufacturer's serial number 20215 and United States Registration Number N217US and the Pratt & Whitney model JT8D-9A aircraft engines (which engines have 750 or more rated takeoff horsepower or the equivalent) with manufacturer's serial numbers 667241 and 667213 (such airframe and the engines (as further defined in the Lease), the "Aircraft") (all of the foregoing collectively, the "Assigned Documents"), (iv) the Aircraft, (v) the Hourly Rent Balances and the security deposits of Lessee as they relate to the Aircraft (collectively, the "Assigned Accounts"), and (vi) the proceeds from all of the foregoing; and (b) the assumption by Trustee of the obligations of US Airways (except as excluded in Section 4 below) to the extent arising after the Effective Date. The Lease was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. The Lease Supplement was recorded by the Federal Aviation Administration on November 7, 1994 and assigned Conveyance No. LL08355. NOW, THEREFORE, in consideration of the mutual agreements contained herein, it is hereby agreed as follows: 1. Definitions. Capitalized terms used herein without definition shall have ----------- meaning ascribed thereto in the Lease unless the context in which such term is used requires another meaning. 2. Assignment. US Airways does hereby sell, convey, assign, transfer and set ---------- over to Trustee, effective as of the date first above written (the "Effective Date"), all of its right, title and interest in, under and to the Assigned Documents, the Assigned Accounts and all other contracts, agreements, documents or instruments in respect of the aircraft to which US Airways is a party and relating to the Operative Agreements or the Aircraft and any proceeds therefrom, together with all other documents and instruments evidencing any of such right, title and interest. 3. Assumption. Trustee hereby undertakes and assumes all of the duties and ---------- obligations of US Airways relating to the period after the Effective Date pursuant to the Assigned Documents and any other contracts, agreements, documents or instruments relating thereto to which US Airways is a party or by which it is bound, and hereby confirms that it shall be deemed a party to and be bound by the Assigned Documents and each other contract, agreement, document or instrument in respect of the Aircraft relating thereto to which US Airways is a party or by which it is bound as if named therein as "Lessor". 4. Excluded Obligations. Notwithstanding anything to the contrary set forth in -------------------- this Assignment, US Airways is not assigning to Trustee and US Airways shall remain responsible for, and Trustee is not assuming from US Airways: (a) the duties and obligations described on Schedule A, (b) the duties and obligations of US Airways that relate to any period on or prior to the Effective Date, (c) any other duties and obligations of US Airways relating to parts or engine consignments, spare parts or spare engines, and (d) without limiting the foregoing, the right of US Airways to receive any Rent due or accrued to US Airways prior to the Effective Date and any indemnity relating to events occurring prior to the Effective Date. 5. Release of US Airways. Except for obligations not assumed as provided in --------------------- Section 4 hereof and for which US Airways shall remain responsible, US Airways shall have no further duty or obligation to Lessee under the Assigned Documents, the Assigned Accounts or under any other contract, agreement, document or other instrument relating thereto to which US Airways is a party or by which it is bound (other than this Agreement). 6. Further Assignment. In furtherance of the within assignments, US Airways ------------------ assigns and grants to Trustee all right to collect for the account of Trustee all items sold, transferred or assigned to Trustee pursuant hereto; to institute and prosecute all proceedings that Trustee may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the items sold, transferred or assigned; to defend and compromise any and all actions, suits or proceedings as to title to or interest in the Aircraft or any of the property acquired by Trustee; and to do all such acts and things in relating thereto as Trustee shall deem advisable. 7. Payments. US Airways hereby covenants and agrees to pay over to Trustee, if -------- and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of US Airways that, under Section 2 hereof, belong to Trustee, and Trustee hereby covenants and agrees to pay over to US Airways, if and when received following the Effective Date, any amounts (including any sums payable as interest in respect thereof) paid to or for the benefit of Trustee that, under Section 2 hereof, belong to US Airways. 8. Further Assurances. Each party to this Assignment and Assumption Agreement ------------------ agrees to execute, acknowledge, deliver, file, record and publish such further certificates, amendments, instruments or documents, and to do all such further acts and things, as may be required by law, or as may reasonably be necessary or advisable to carry out the intents and purposes of this Assignment and Assumption Agreement. 9. Expenses. Each party hereto shall bear its own legal fees incurred in -------- connection with the transactions described herein. 10. Governing Law. This Assignment and Assumption Agreement shall be governed ------------- by and construed in accordance with the laws of the State of New York. 11. Headings. Section headings used in this Assignment are for convenience -------- only and shall not be used in interpreting or construing this Assignment and Assumption Agreement and shall not affect the meaning or construction of this Assignment and Assumption Agreement. 12. Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given if delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): a. If to US Airways: ----------------- US Airways, Inc. 2345 Crystal Drive Arlington, Virginia 22227 Attention: Director - Aircraft Sales Facsimile: 703-418-7515 with a copy at the same address to the attention of US Airways' General Counsel, facsimile number (703) 418-5252 b. If to Trustee: -------------- First Security Bank, National Association 79 South Main Street, 3rd Floor Salt Lake City, Utah 84111 Attention: Corporate Trust Administration Facsimile: 801-246-5053 13. Entire Agreement. This Assignment constitutes the entire agreement among ---------------- the parties hereto and supersedes all prior agreements and understandings, both written and oral, with respect to the subject matter hereof. There are no representations and warranties of any party hereto except as expressly set forth herein. 14. Survival of Representations and Warranties. All representations and ------------------------------------------ warranties contained in this Assignment shall survive the Effective Date. 15. Counterparts. This Assignment 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. 16. Successors and Assigns. The respective rights and obligations set forth in ---------------------- this Assignment shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. [remainder of page left blank intentionally] IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment and Assumption Agreement as of the day and year set forth above. US AIRWAYS, INC. BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER TRUSTEE BY: ____________________________ NAME: __________________________ TITLE: _________________________ DATED: _________________________ SCHEDULE A Excluded Obligations --------------------- (a) (S)2.6 of the Supplementary Agreement (license of maintenance and weight and balance programs) (b) (S)4.2(f) of the Supplementary Agreement (US Airways' representations) (c) (S)5.2(f) of the Supplementary Agreement (sub-clause (i), second sentence (hushkit procurement assistance); sub-clause (ii) first, second and third sentences (DFDR Program)) (d) (S)5.3 of the Supplementary Agreement (spare parts consignment) (e) (S)5.4 of the Supplementary Agreement (US Airways-provided maintenance work) (f) Without limiting the applicability or scope of the foregoing, all obligations of US Airways to Lessee arising under the Assigned Documents which shall have arisen or occurred on or before the date set forth in the introductory paragraph of this Assignment. EACH OF THE FOREGOING EXCLUDED OBLIGATIONS DESCRIBED IN PARAGRAPHS (A) - (E) SHALL REMAIN THE OBLIGATIONS OF US AIRWAYS DURING THE BASE LEASE TERM AND ANY RENEWAL TERM. EX-10.8.B 7 AMENDMENT NO. 1 TO LEASE AGREEMENT EXHIBIT 10.8(b) AMENDMENT NO. 1 TO LEASE AGREEMENT THIS AMENDMENT NO. 1 TO LEASE AGREEMENT (this "Amendment") is entered into as of June 5, 1997, by and between First Security Bank, National Association, a national banking association, not in its individual capacity but solely as Owner Trustee under that certain Trust Agreement, dated as of December 20, 1996, as successor-in-interest to US Airways, Inc., formerly known as USAir, Inc. ("Lessor"), and Frontier Airlines, Inc., a Colorado corporation ("Lessee"). R E C I T A L S: A. Lessor and Lessee have entered into the Lease Agreement, dated as of July 26, 1994 (as amended, modified and supplemented to the date hereof and hereby, the "Lease"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth or incorporated by reference in the Lease. B. The Boeing Model 737-201 aircraft bearing manufacturer's serial no. 20212 was leased under the Lease pursuant to Lease Supplement No. 1, dated July 26, 1994 ("Lease Supplement No. 1"). C. The Boeing Model 737-201 aircraft bearing manufacturer's serial no. 19423 was leased under the Lease pursuant to Lease Supplement No. 2, dated July 26, 1994 ("Lease Supplement No. 2"). D. The Boeing Model 737-201 aircraft bearing manufacturer's serial no. 20214 was leased under the Lease pursuant to Lease Supplement No. 3, dated July 27, 1994 ("Lease Supplement No. 3"). E. The Boeing Model 737-201 aircraft bearing manufacturer's serial no. 19421 was leased under the Lease pursuant to Lease Supplement No. 4, dated September 9, 1994 ("Lease Supplement No. 4"). F. The Boeing Model 737-201 aircraft bearing manufacturer's serial no. 20215 (together with the aircraft described in paragraphs (B) through (E), the "Aircraft") was leased under the Lease pursuant to Lease Supplement No. 5, dated October 4, 1994 ("Lease Supplement No. 5"). G. Lessor and Lessee desire to extend the Term of the Lease for each of the Aircraft as hereinafter provided. AMENDMENT NO.1 TO LEASE AGREEMENT PAGE 1 H. The Lease, together with Lease Supplement No. 1, Lease Supplement No. 2 and Lease Supplement No. 3 was recorded by the Federal Aviation Administration on August 22, 1994 and assigned Conveyance No. EE007565. Lease Supplement No. 4 was recorded by the Federal Aviation Administration on November 7, 1994 and assigned Conveyance No. LL08354, and Lease Supplement No. 5 was recorded by the Federal Aviation Administration on November 7, 1994 and assigned Conveyance No. LL08355. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises and of the mutual agreements herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Lessor and Lessee agree as follows: 1. Pursuant to Section 18.1 of the Lease, Lessee has notified Lessor that Lessee has elected to extend the Term of the Lease for one Renewal Term with respect to each of the Aircraft. Lessor and Lessee hereby confirm such extensions, and agree that the Expiration Date of the Term, as extended by the Renewal Term, for each Aircraft shall be as follows:
Manufacturer's Expiration Serial Number Date ------------- ---- N212US July 26, 1999 N207AU July 26, 1999 N214AU July 27, 1999 N205AU September 9, 1999 N217US October 4, 1999
2. Lessee hereby confirms that it shall pay Basic Rent for each of the Aircraft during such Renewal Term in accordance with Section 4.1 of the Lease. 3. Except as amended hereby, the Lease shall remain unmodified and in full force and effect. AMENDMENT NO.1 TO LEASE AGREEMENT PAGE 2 4. Lessee hereby represents and warrants that this Amendment has been duly authorized by all necessary action and, assuming due authorization, execution, and delivery thereof by Lessor, constitutes Lessee's valid and binding obligation. 5. THIS AMENDMENT, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AS APPLICABLE TO CONTRACTS EXECUTED AND DELIVERED IN SUCH STATE BY CITIZENS THEREOF TO BE PERFORMED WHOLLY WITHIN SUCH STATE, WITHOUT REFERENCE TO ANY PRINCIPLES OF CONFLICT OF LAWS. 6. This Amendment 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 one and the same instrument. [This space intentionally left blank.] AMENDMENT NO.1 TO LEASE AGREEMENT PAGE 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first written above. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity but solely as Owner Trustee, as Lessor By:____________________________________ Its:___________________________________ FRONTIER AIRLINES, INC., as Lessee By:____________________________________ Its:___________________________________ AMENDMENT NO.1 TO LEASE AGREEMENT PAGE 4 EX-10.9 8 CODE SHARING AGREEMENT Exhibit 10.9 CODESHARE AGREEMENT ------------------- This CODESHARE AGREEMENT ("Agreement") is entered into as of the 30th day of June, 1997 by and between Western Pacific Airlines, Inc., a Delaware corporation ("WestPac") and Frontier Airlines, Inc., a Colorado corporation ("Frontier"). WHEREAS, the parties hereto have entered into an agreement to merge Frontier into WestPac (the "Merger Agreement") and WHEREAS, pending completion of the Merger including receipt of all necessary approvals and consents, the parties wish to enter into a joint marketing relationship, generally known as a code share agreement; and WHEREAS, each party desires to allow the other party to assign its two letter airline designator code to flights operated by the other party; NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained herein, Frontier and WestPac agree as follows: 1.0. DEFINITIONS ----------- 1.1. In addition to the terms defined elsewhere in this Agreement, the following terms used in this Agreement have the meanings indicated below: "Airline Guides" means the printed and electronic data versions of the "Official Airline Guide" and "ABC World Airlines Guide," and their respective successors. "Applicable Law" means all applicable laws of any jurisdic tion, including without limitation securities laws, tax laws, tariff and trade laws, ordinances, judgments, decrees, injunctions, writs and orders or like actions of any competent authority and the rules, regulations, orders, interpretations, licenses and permits of any competent authority. "Codeshare Flights" has the meaning given in Section 2.1. "Codeshare Passenger" means a passenger traveling on a Marketing Carrier Ticket. "CRS" means a computerized reservations system owned or operated by any entity, including either party to this Agreement, that contains information about commercial airline schedules, fares, cargo rates, passenger and cargo tariff rules, and flight availability that is made available to travel agents, cargo agents, and other non-airline entities to facilitate their ability to make reservations and issue tickets and air waybills. "Marketing Carrier" means the party whose Code is shown in the carrier code box of a flight coupon for a Codeshare Flight but which is not the Operating Carrier. "Marketing Carrier Ticket" means a ticket issued by the Marketing Carrier, Operating Carrier or a third party showing the Marketing Carrier's Code in the carrier box of the flight coupon. "Marketing Flight(s)" means a Codeshare Flight when shown only as a flight of the Marketing Carrier. "Operating Carrier" means the party having operational control of an aircraft used for a given Codeshare Flight. "Ticketing Carrier" means a party to this Agreement or a third party, as the case may be, whose traffic documents are used to issue a ticket. 2.0. CODESHARE SERVICE ----------------- 2.1. The parties will mutually designate certain flights ("Codeshare Flights") on the city-pair(s) identified in Exhibit A to this agreement on which the parties will share their two letter designator codes ("W7" for WestPac and "F9" for Frontier, both being referred to as the "Codes"), as published in the Airlines Guides or CRS's from time to time. The sharing of Codes for Codeshare Flights will occur from and after the respective Implementation Date shown on Exhibit A, unless otherwise agreed by the parties. 2.2. The parties will prepare a procedures manual containing detailed procedures for implementing this Agreement. The procedures manual, including the amendments or additions the parties may make from time to time (in accordance with changes in Applicable Law or for other mutually agreed reasons), is incor porated into and made a part of this Agreement. However, any current or future provisions of the procedures manual which conflict with this Agreement will not be deemed to amend this Agreement and will be superseded by the Agreement to the extent they are inconsistent or incompatible, unless the parties otherwise agree in writing. The foregoing manual, as amended and supple mented from time to time, is referred to in this Agreement as the"Procedures Manual". The parties agree to complete and agree on the initial Procedures manual no later than 15 days before the first date that a Codeshare Flight is conducted (the "Implemen tation Date", as contemplated in Exhibit A). 2.3. The Operating Carrier must provide at least the same standard of in-flight services to Codeshare Passengers as it provides to its own passengers and, must perform its services with respect to Codeshare Passengers in a first quality manner, reasonably in accordance with the standards of customer service established by the Marketing Carrier. Current general passenger service procedures and policies for the Codeshare Flights will be detailed in the Procedures Manual. In order to ensure a con sistently high standard of passenger service, the parties will establish a joint quality monitoring group (consisting of personnel from the parties' respective reservations, scheduling, yield management, airport services and other relevant departments) no later than 30 days before the -2- Implementation Date which will meet as necessary to review, refine and improve passenger service procedures during the term of this Agreement, but no less frequently than once during each quarter. 2.4. The parties will use commercially reasonable efforts to coordinate their schedules to maximize the convenience, and minimize the waiting time, of passengers connecting to and from Codeshare Flights to connecting flights operated by the parties, although neither party is obligated to operate a specific flight or schedule (each party retaining the right to determine the final service schedule of its flights). Each party will assign individuals to serve as schedule coordinators to exchange schedule information on a regular basis and to meet when necessary to improve the coordination of the parties' flight schedules. 2.5. In the event of flight cancellations or other schedule irregularities, the Operating Carrier is required to reaccommodate Codeshare Passengers in accordance with the same criteria applied to its own passengers and as further detailed in the Procedures Manual. 2.6. The text and delivery of in-flight announcements that relate to the Codeshare Passengers will be agreed in advance by the parties, subject to Applicable Law, and will be further detailed in the Procedures Manual. 2.7. In the event this Agreement is silent with respect to which party's policies and procedures are applicable to a Codeshare Flight, and absent any other agreement, Procedure Manual provision or applicable Law, the policies and procedures of the Operating Carrier apply. 2.8. The Operating Carrier agrees to employ prudent safety and loss prevention policies. The Operating Carrier has final authority and responsibility concerning the operation and safety of the aircraft and its passengers. In emergencies, the parties will adhere to the emergency procedures for Codeshare Passengers contained in the Procedures Manual. 2.9. Neither party to this Agreement shall propose to the other any agreement on: (a) price, (b) routes, (c) frequency of service, (d) schedules (except for adjustments in time necessary to facilitate connections as provided for in Section 2.4 hereof), or (e) types of equipment used on routes. Each party shall make its own decisions on those matters unilaterally without consulting the other party. 3.0. COST SHARING ------------ 3.1. Each party will bear its expenses associated with implementing and managing the cooperative services contemplated in this Agreement, in accordance with the following general principles; (a) Each party will generally bear its own out-of-pocket and other expenses that must be incurred, if any, in order to bring its facilities, equipment and personnel to a minimum level shown in industry experience to be necessary to implement and manage the cooperative services contemplated in this Agreement. Following implementation of the Codeshare -3- Flights, each party will bear its own expenses for ongoing maintenance of the improvements mentioned herein and for the marketing of their respective services. Ongoing joint marketing and promotional expenses related to the Codeshare services will be mutually agreed upon both with respect to the scope and the manner in which such expenses will be borne. (b) The expenses of mutually agreed joint facili ties and any future projects that will substantially benefit the parties' codeshare alliance will be shared equally, except as otherwise agreed. The expenses of developing and placing any roadside, exterior, check in, concourse, gate and baggage service signage at airports served by the Codeshare Flights in order to facilitate travel on Codeshare Flights will be borne by the party whose name and/or logo is being added. 4.0. INVENTORY CONTROL AND PROCEDURES -------------------------------- 4.1. The Marketing Carrier will have access to the Operating Carrier's inventory through an automated computerized interface which both parties will maintain throughout the term of this Agreement to expedite the sale of inventory on the Codeshare Flights. Detailed procedures for implementing and maintaining seat inventory access will be contained in the Procedures Manual. 4.2. The parties will map inventory classes of the Marketing Flights to inventory classes of the Operating Carrier on the Codeshare Flights, as set forth in the Procedures Manual. The parties will endeavor to map the average coupon value of the Marketing Carrier's inventory classes to comparable classes of the Operating Carrier to provide nondiscriminatory access for bookings made by the Marketing Carrier for passengers yielding comparable revenue values; it being understood, however, that the Operating Carrier retains ultimate control over the opening, closing and other management of seat inventory availability on Codeshare Flights. 4.3. The Marketing Carrier will be able to book Codeshare Passengers up to the same maximum seat inventory (including authorized overbooking) available to the Operating Carrier for a Codeshare Flight. 4.4. The Operating Carrier and the Marketing Carrier will each assign one or more individuals to serve as inventory control coordinators, who will, to the extent permitted by applicable law, exchange information routinely and conference as necessary to assure that reasonable seat inventory on Codeshare Flights is made available to the Marketing Carrier. 5.0. MARKETING AND PRODUCT DISPLAY ----------------------------- 5.1. Subject to Applicable Law, each party will treat Marketing Flights of the party at least as favorably as its own flights with respect to advertising, promotion and distribution activities. 5.2. The parties will jointly market the Codeshare Flights in accordance with a jointly developed marketing plan. The marke ting plan may, except to the extent prohibited by Applicable -4- Law, take into account the following: product, market objectives, performance measurements and reporting, strategies, activity plans, communications plans and budgets. 5.3. Each party covenants and represents that its respective advertising and promotions will be in compliance with Applicable Law. The Marketing Carrier will disclose, through industry-approved schedule mechanisms (to be defined in the Procedures Manual - e.g., CRSs and Airline Guides), to consumers and travel agents and others selling the Codeshare flights, as well as through appropriate advertising and point-of-sale disclosures, that each Codeshare flight is actually a flight of and operated by the Operating Carrier. 5.4. Each party will include the Marketing Flights in all published listings of industry schedules, including Airline Guides, CRSs and reservations Systems of the parties and other airlines with which each party exchanges interline reservations and traffic. 5.5. The Marketing Carrier may show the Marketing Flights, to the extent permitted by Applicable Law, in Airline guides, CRSs and reservations Systems as using the Marketing Carrier's Code. Any costs incurred for the publication of Marketing Flights or connections to and from such flights in the Airline Guides, CRSs and Reservations Systems will be borne by the party whose Code is displayed on such published flight. 6.0. TRAFFIC DOCUMENT ISSUANCE/SETTLEMENT; OTHER PAYMENT --------------------------------------------------- 6.1. Passenger traffic documents for use on Codeshare Flights may be issued by either party, or third parties with whom the parties from time to time have interline traffic agreements, as for any other flight of the Marketing Carrier or Operating Carrier. 6.2. The acceptance of passenger traffic documents used in connection with the Codeshare Flights, and settlements between the parties for documents honored by the parties, will be governed by the same procedures as those set forth in the IATA Interline Traffic Agreement IATA Revenue Accounting Manual and ACH Manual. The Ticketing Carrier, whether it be the Marketing Carrier or a third party will receive the standard industry interline service charge. The proration of through fares on Codeshare Flights utilizing the services of both parties hereto shall be as mutually agreed by the parties. 6.3. Unless otherwise mutually agreed by both parties and specifically set forth in the Procedures Manual, all tickets (including Marketing Carrier Tickets) used and honored on Codeshare flights will be uplifted and retained by the Operating Carrier, which is responsible for processing and billing of such documents using normal IATA interline settlement process. Marketing Carrier tickets will be treated for billing purposes as if they showed the Code of the Operating Carrier in the carrier code box of the flight coupon. The Ticketing Carrier, whether it be the Marketing Carrier or a third party, will receive the standard interline service charge. 7.0. PASSENGER RESERVATIONS ---------------------- -5- 7.1. The Marketing Carrier will pay any segment booking fees assessed by any CRS (including one owned in whole or in part by either party) for bookings on Marketing Flights. 8.0. INVOLUNTARY REROUTING AND DENIED BOARDING ----------------------------------------- 8.1. The parties will adhere to the procedures for involuntary rerouting and denied boarding of passengers that will be contained in the Procedures Manual and otherwise in accordance with Applicable Law. The Operating Carrier will pay denied boarding compensation or otherwise compensate passengers, including Codeshare Passengers, for denied boarding as further detailed in the Procedures Manual. 9.0. BAGGAGE ------- 9.1. With respect to baggage of passengers traveling on Codeshare Flights, the parties will adhere to the procedures in the Procedures Manual. 10.0. TRAINING -------- 10.1. Except as otherwise agreed, each party will provide or arrange for, at its own cost, all required initial and recurring training of its own personnel to facilitate the Codeshare Flights and operations at airports served by Codeshare Flights, reserva tions and ticket offices, and other points of contact between the parties and with the public. This training will include passenger service, reservations and sales activities, and in-flight service involving the Codeshare Flights, all as more fully described in the Procedures Manual. 11.0. SECURITY -------- 11.1. The Operating Carrier reserves the right to apply the provisions of its own security programs with regard to the carriage of all passengers, baggage, and cargo on board Codeshare Flights. Such provisions will include any then applicable procedures used for the physical screening of passengers, baggage or cargo, interviewing of passengers, or selective loading of baggage or cargo. 11.2. The parties agree to cooperate in matters of security procedures, requirements, and obligations at all airports served by Codeshare Flights. 12.0. FREE AND REDUCED RATE TRANSPORTATION ------------------------------------ 12.1. All airline industry non-revenue (i.e., "ID" tickets) travel on Codeshare Flights will be administered by the Operating Carrier according to the terms and conditions contained in any relevant agreements between the Operating Carrier and other parties, including the Marketing Carrier. -6- 12.2. All other free or discounted travel (i.e., "AD" tickets, Tour Conductor, Escort, Familiarization, etc.) on Codeshare Flights by passengers ticketed by the Marketing Carrier will be administered in accordance with separate agreements of the parties. 13.0. TRADEMARKS AND CORPORATE IDENTIFICATION --------------------------------------- 13.1. It is understood and agreed that the logos, trade marks, service marks and trade names of WestPac and its Affiliates will be and remain at all times their exclusive property and that the logos, trademarks, service marks and trade names of Frontier will be and remain at all times the exclusive property of Frontier regardless of whether such marks and names are registered or registrable. Neither party may use the logos, trademarks, service marks and trade names of the other party without the other party's prior written consent. 13.2. Frontier grants to WestPac, and WestPac accepts, a non-exclusive, non-transferable, royalty-free license for the term of this Agreement to use the service mark "Frontier", subject to the further terms and conditions of this Agreement. This license is limited to the use of the Frontier Licensed Trademark in con nection with the advertising and promotion of the cooperative air transportation services contemplated by this Agreement and only within the United States. 13.3. WestPac grants to Frontier, and Frontier accepts, a non-exclusive, non-transferable, royalty-free license for the terms of this Agreement to use the service mark "Western Pacific Airlines", subject to the further terms and conditions of this Agreement. This license is limited to the use of the Western Pacific Licensed Trademark in connection with the advertising and promotion of the cooperative air transportation services contem plated by this Agreement and only within the United States. 14.0. TAXES ----- 14.1. Any net or gross income or franchise taxes (or taxes of a similar nature) on the revenues or income or any measure thereof from the sale of air transportation are the responsibility of the Operating Carrier to the extent those segments are flown by the Operating Carrier. 14.2. Each Party further agrees to indemnify, defend and hold the other party harmless from and against Taxes levied upon or advanced by the indemnified party but that ultimately the indem nifying party would be responsible for paying and resulting from any transaction or activity contemplated under this Agreement. If a party receives notice from any taxing authority with respect to an assessment or potential assessment or imposition of any Tax (collectively an "Assessment"), that the other party would be responsible for paying, either directly or through an indemnifi cation claim under Section 18 hereof, then the party so notified must inform the other party in writing within 10 days and the claim will be the responsibility of the indemnifying party as to its defense and settlement. The foregoing indemnity obligation survives the termination of this Agreement. 15.0. LIABILITY --------- -7- 15.1. NEITHER PARTY WILL BE LIABLE FOR ANY CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES, INCLUDING LOST REVENUES, LOST PROFITS, OR LOST PROSPECTIVE ECONOMIC ADVANTAGE, ARISING FROM ANY PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, EVEN IF SUCH PARTY KNEW OR SHOULD HAVE KNOWN OF THE EXISTENCE OF SUCH DAMAGES, AND EACH PARTY RELEASES AND WAIVES ANY CLAIMS AGAINST THE OTHER PARTY REGARDING SUCH DAMAGES. 16.0. COVENANT TO COMPLY WITH ALL LAWS -------------------------------- 16.1. Each party undertakes to comply with the requirements of any applicable Workers' Compensation legislation, and will keep covered by legally mandated insurance all persons employed by it in connection with this Agreement. Each party will, upon request by the other party, provide evidence of such insurance coverage and compliance with such legal obligations. 16.2. If either party believes that any provisions of this Agreement are contrary to any Applicable Law, that party will notify the other party promptly, in writing together with a description of the perceived violation and supporting written materials that facilitate the other party's investigation of such perceived violation. If both parties agree that there is an actual or potential violation of Applicable Law, the affected provisions will be treated in accordance with Section 32.1 as regards sever ability and modification of this Agreement. 17.0. PUBLICITY --------- 17.1. Except as required by Applicable Law, neither party may issue any written press release concerning this Agreement without the prior written consent of the other party (which consent will not be unreasonably withheld or delayed). 18.0. INDEMNIFICATION --------------- 18.1. WestPac shall defend, indemnify and hold harmless Frontier, its officers, directors, affiliates, employees, agents and representatives from and against any and all claims, Assess ments, causes of action, lawsuits and damages arising from or in connection with WestPac's responsibilities, obligations, and performance under this Agreement and arising from its carriage. 18.2. Frontier shall defend, indemnify and hold harmless WestPac, its officers, directors, affiliates, employees, agents and representatives from and against any and all claims, Assessments, causes of action, lawsuits and damages arising from or in connec tion with Frontier's responsibilities, obligations, and performance under this Agreement and arising from its carriage. 18.3. Liability and Insurance ----------------------- (a) The Operating Carrier shall undertake any liabilities arising out of its operation, and shall procure and maintain for the benefit of the -8- Marketing Carrier, during the term of this Agreement, with insurance carriers of known financial responsibility, insurance of the type and in the amounts listed below. (1) Comprehensive Airline Liability insurance, including Comprehensive General Liability and Cargo Liability Insurance, in an amount not less than Five Hundred Million United States Dollars ($500,000,000) per any one occur rence. Said policy (i) shall be primary without right of contribution from any insurance carried by the Marketing Carrier, (ii) shall name the Marketing Carrier and its affiliates, subsidiaries, and their respective directors, officers, agents, servants, and employees as additional insured, (iii) shall contain a cross liability clause and a breach of warranty clause in favor of the Marketing Carrier, and (iv) shall specifically ensure the Operating Carrier's Indemnification provision included in this Agreement; and (2) Hull All risk Insurance including War Risk Insurance, and such policy shall include a waiver of subrogation in favor of the Marketing Carrier, and shall specifically ensure the indemnification provision included in this Agreement; and (3) Worker's Compensation and Employer's Liability Insurance, or such other similar insurance carried outside of the United States, in accordance with statutory limits. (b) The Operating Carrier shall provide the Marketing Carrier with certificates of insurance evidencing said coverage. The certificates shall indicate that the above coverage shall not be cancelled or materially altered without thirty (30) days' advance written notice to the Marketing Carrier. Notice with respect to war and allied perils coverage being seven (7) days, or such lesser period as is or may be available, in accor dance with policy conditions. 18.4. The party issuing the ticket and whose flight number is noted on the ticket is liable for and shall indemnify the other party for any costs, damages or expenses resulting from any failure by the first mentioned party to enforce visa and passport require ments for its passengers or any refusal of entry of its passengers. 18.5. In the event that a ticket issued by WestPac to a passenger of a Codeshare Flight operated by Frontier shall fail to be issued in such format or shall fail to contain such wording as shall enable Frontier to have the benefit of any limitations of liability as provided by the Warsaw Convention or any other Convention otherwise applicable to Frontier, then WestPac shall defend, -9- indemnify and hold harmless Frontier, its officers, directors, affiliates, employees, agents and representatives from and against any and all damages, claims, judgments and costs whatsoever incurred as a result of such failure. 18.6. In the event a ticket issued by Frontier to a passenger of a Codeshare Flight operated by WestPac shall fail to be issued in such format or shall fail to contain such wording as shall enable WestPac to have the benefit of any limitations of liability as provided by the Warsaw convention or any other Convention otherwise applicable to WestPac, then Frontier shall defend, indemnify and hold harmless WestPac, its officers, directors, affiliates, employees, agents and representatives from and against any and all damages, claims, judgments and costs whatsoever incurred as a result of such failure. 19.0. TERM ---- 19.1. This Agreement shall become effective as of the date hereof and shall continue thereafter until December 31, 1997, or such later date as the parties may agree in writing provided, in the event the Merger Agreement does not close for any reason other than because the condition set forth in Section 6.3(i) of the Merger Agreement is not fulfilled, this Agreement may be terminated at any time upon sixty (60) days prior written notice by either party to the other. This Agreement will not be implemented until the receipt of all necessary Government and other approvals. 20.0. DEFAULT ------- 20.1. In the event either party hereto shall become insolvent, liquidate or cease paying its debts as they mature or shall make an assignment for the benefit of creditors, or shall file for protection from its creditors under any applicable laws relating to bankruptcy or insolvency or a trustee or receiver or liquidator shall be appointed for such party ("Defaulting Party") or a substantial part of its property, or bankruptcy, liquidation, insolvency or similar proceedings shall be instituted by or against the Defaulting Party under the laws of any jurisdiction, or in the event either party ceases to be in business of providing passenger air transportation, or if either party's authority to engage in air transportation is suspended, revoked, modified or amended in a material way, and in each and every such case the other party at its option may immediately terminate this Agreement upon Notice to the other party. In the event that either party shall materially breach any of the terms, covenants, conditions of this Agreement, including the material terms of the Procedures Manual, the other party may give written notice of such breach and, in the event such breach is not cured within thirty (30) days of the giving of such notice, the other party shall have the option to terminate this Agreement forthwith by further written notice to the party in breach, without prejudice to any rights or remedies which the other party may have. 21.0. APPLICABLE LAW AND DISPUTE SETTLEMENT ------------------------------------- 21.1. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. -10- 21.2. Without prejudice to each parties' rights as set forth in the Agreement, in the event of any dispute concerning the interpretation and application of this Agreement or concerning any rights or obligations based upon, arising from, or related to this Agreement, the Parties shall enter promptly into negotiations and each party shall in good faith take all practical measures to achieve a prompt settlement. If in such negotiations, the parties are unable to resolve the dispute within ten (10) business days of the commencement thereof, such dispute will be resolved by binding arbitration to be held in Denver, Colorado in accordance with the rules of the American Arbitration Association or such other entity which may be agreed upon by the parties. 22.0. GOVERNMENTAL AND REGULATORY APPROVALS ------------------------------------- 22.1. The parties shall use diligence and all commercially reasonable efforts to cooperate with each other to obtain approval which may be necessary from any government authority in the United States. 23.0. FORCE MAJEURE ------------- 23.1. Neither party shall be liable for any loss, injury, damage or delay whatsoever resulting, directly or indirectly from one or more of the following occurrences: a force majeure, act of God, seizure under legal process, governmental sanctions, quaran tine restrictions, fire, fog, flood, or other weather related reason, failure or refusal on the part of any government or govern mental agency to grant or issue approvals, clearances, exemptions, permits or operating authority, or rescission or revocation thereof by any government or governmental agency, damage to or destruction of aircraft or other flight equipment, mechanical difficulties or breakdowns, unavailability of fuel, riot or civil commotion, strikes, lock-outs or labor disputes, war, or any other acts, matters or things whether or not of a similar nature which are beyond the control of either party. Either party will be relieved from its duties and obligations under this Agreement only for such period of time that the effect of any such occurrence precludes the party's performance. 23.0. NOTICES ------- 23.1. All notices to be provided under this Agreement shall be either personally delivered or sent by prepaid registered mail, telex, or telefax to the parties hereto at the following addresses: (a) If to Frontier to the attention of FRONTIER AIRLINES, INC. 12015 East 46th Avenue Denver, Colorado 80239 Attn: Chief Executive Officer -11- (b) If to WestPac to the attention of WESTERN PACIFIC AIRLINES, INC. 2864 South Circle Drive Suite 1100 Colorado Springs, CO 80906 Attn: Chief Executive Officer (c) or, in each case, to such other person and place as WestPac or Frontier furnish to the other party in writing. 25.0. REPRESENTATIONS AND WARRANTIES ------------------------------ 25.1. Each party hereto represents and warrants to the other that (a) it is a duly incorporated and validly existing corporation in good standing; (b) it is an air carrier duly authorized to engage in air transportation; (c) it has the requisite corporate power and authority to enter into and perform its obligations under this agreement; (d) the execution and delivery of, and the perform ance by it of its obligations under this Agreement have been duly authorized by all necessary corporate action; (e) assuming the Agreement is duly executed by both parties it is a valid and binding obligation of it, enforceable by its terms except as enforceability may be limited by the effect of bankruptcy, insolvency or other similar laws affecting creditors' rights generally and the application of general principles of equity and public policy; and (f) neither the execution nor delivery of this document will conflict with or contravene any law or judgement applicable to it or any terms of its certificate of incorporation, bylaws, or any other governing document, or conflict with, result in a material breach of or constitute a material default under any agreements to which it is a party. 26.0. ANNEXES AND CAPTIONS -------------------- 26.1. The Exhibit to this Agreement is an integral part of and has the same force and effect as if fully incorporated into the body of this Agreement. 26.2. The captions and section headings used in this Agreement are for convenience only, and may not be used in inter preting the Agreement. 27.0. ASSIGNMENT ---------- 27.1. Neither party may assign, or otherwise convey this Agreement or any of its rights, or delegate or subcontract any of its duties under this agreement, without the prior written consent of the other party. -12- 28.0. ENTIRE AGREEMENT; AMENDMENTS ---------------------------- 28.1. This Agreement contains the entire agreement between the parties relating to its subject matter, and supersedes any prior understandings or agreements between the parties regarding the same subject matter. This Agreement may not be amended or modified except in writing signed by a duly authorized representative of each party. 29.0. SEVERABILITY ------------ 22.1. Except as otherwise provided in this Agreement, if any indication is received in writing by either party from any compe tent authority to the effect that any part of this Agreement contravenes any Applicable Law and cannot qualify for a clearance or exemption, or if any part of this Agreement is, or will become, or will be declared illegal or unenforceable in any jurisdiction for any reason (including both by reason of legislation or by reason of the decision of any competent authority), such part will be severed from this agreement in the jurisdiction in question and such contravention, illegality, invalidity or unenforceability will not in any way prejudice or affect the remaining parts of this Agreement which will continue in full force and effect. 30.0. RELATIONSHIP OF THE PARTIES --------------------------- 30.1. This Agreement is non-exclusive and does not preclude either party from entering into or maintaining marketing relation ships, including code- sharing, with other airlines, except as to the specific route(s) identified in ------ Exhibit A which the parties may only jointly promote and operate as cooperative services in accordance with this Agreement. 30.2. Each party is engaged and will be acting strictly as an independent contractor in its own separate business in performing this Agreement. Each party retains complete and exclusive control over its personnel and operations and the conduct of its business. Neither party nor its officers, employees or agents may in any manner make any representation or take any action which may give rise to the existence of any employment, agency, partnership, fiduciary duty or other like relationship between the parties. The employees, agents and independent contractors of each party are and will remain employees, agents and independent contractors of such party for all purposes, and under no circum stances will be deemed to be employees, agents or independent contractors of the other party. neither party will have super visory power or control over any employees, agents or independent contractors employed or engaged by the other party (except that the Operating Carrier will have supervisory control over all passengers during any Codeshare Flight, including any employee, agents or contractors of the Marketing Carrier who are on board any such flight). 31.0. TIME ---- 31.1. Time is of the essence in the performance o the obligations of this Agreement. 32.0. FURTHER ASSURANCES ------------------ -13- 32.1. Each party will do and perform such further acts and execute and deliver such further instruments and documents at such party's expense, as may be required by Applicable Law or as may be reasonably requested by the other party to carry out and effectuate the purposes of this Agreement. 33.0. COUNTERPARTS ------------ 33.1. This Agreement may be executed and delivered by the parties in separate and identical counterparts, each of which when so executed and delivered will be an original, but all of which taken together will constitute one and the same instrument. SIGNATURES ON NEXT PAGE -14- IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Agreement as of the date indicated in the preamble. WESTERN PACIFIC AIRLINES, INC. FRONTIER AIRLINES, INC. By:__________________________ By:____________________________ Name: Name: Title: Title: -15- EXHIBIT A LIST OF CODESHARE CITY PAIRS W7* F9* --- --- DEN-ABQ DEN-ABQ DEN-BMI DEN-BMI DEN-ELP DEN-ELP DEN-MDW DEN-MDW DEN-LAS DEN-LAS DEN-LAX DEN-LAX DEN-MSP DEN-MSP DEN-OMA DEN-OMA DEN-PHX DEN-PHX DEN-STL DEN-STL DEN-SLC DEN-SLC DEN-SAN DEN-SAN DEN-SFO DEN-SFO DEN-SEA DEN-SEA DEN-ATL DEN-ATL DEN-CPR DEN-CPR DEN-CYS DEN-CYS DEN-DFW DEN-DFW DEN-GJT DEN-GJT DEN-IAH DEN-IAH DEN-MCI DEN-MCI DEN-EWR DEN-EWR DEN-OKC DEN-OKC DEN-MCO DEN-MCO DEN-SAF DEN-SAF DEN-TUL DEN-TUL DEN-IAD DEN-IAD DEN-GUC DEN-GUC DEN-IND DEN-IND DEN-PDX DEN-PDX *IMPLEMENTATION DATE: AUGUST 1, 1997 EX-10.16.A 9 AMENDMENT TO LEASE Confidential treatment has been sought for portions of this document marked with "*" and such portions have been separately filed with the SEC. EXHIBIT 10.16(a) BOULLIOUN AIRCRAFT HOLDING COMPANY, INC. May 15, 1997 Frontier Airlines, Inc. 12039 E. 46th Avenue, Suite 200 Denver, Colorado 80239 Attention: Mr. Arthur T. Voss Vice President-Administration and General Counsel Re: Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) ------------------------------------------------------- Dear Sir or Madam: Reference is hereby made to that certain Aircraft Lease Agreement (MSN 28760), dated as of December 12, 1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc. ("Lessor") and Frontier Airlines, Inc. ("Lessee"). Capitalized terms used but not defined herein shall have the respective meanings ascribed thereto in the Lease Agreement. Lessor and Lessee hereby agree that Section 4.1 of Schedule 2 to the Lease Agreement is deleted in its entirety and replaced by Attachment 1 hereto. Other than as amended as set forth herein, the Lease Agreement shall remain in full force and effect. Lessor and Lessee hereby agree that this letter agreement shall be an "Operative Document" for all purposes of the Lease Agreement. Frontier Airlines, Inc. May 15, 1997 Page 2 If the foregoing is acceptable to you, please indicate by signing and returning a copy of this letter to Thomas O. Kaluza before 5:00 p.m. (Seattle time) on May 21, 1997. BOULLIOUN AIRCRAFT HOLDING COMPANY, INC. By: /s/ ---------------------------------------------- Title: Senior Vice President, Marketing The foregoing is hereby accepted and agreed to this 20th day of May, 1997. FRONTIER AIRLINES, INC. By: /s/ Arthur T. Voss ---------------------------------------------- Title: Vice President CONFIDENTIAL TREATMENT SOUGHT FOR PORTIONS OF DOCUMENT MARKED WITH " * " Attachment 1 (MSN 28760) 4.1 TERMINATION TRIGGERS. If any one or more of the following is true, then Lessor may, at its sole option, terminate the Lease Agreement and the other Operative Documents by notice to Lessee: 4.1.1 A Default shall have occurred at any time (even if not then continuing). 4.1.2 * 4.1.3 * 4.1.4 * 4.1.5 * 4.1.6 [Intentionally left blank] 4.1.7 [Intentionally left blank] 4.1.8 Notwithstanding Section 6.2.1.3 of the Lease Agreement, prior to the Delivery Date Lessee or one or more of its shareholders enters into an agreement (whether preliminary or final) (1) providing for or allowing Lessee to consolidate with or merge into any other corporation or for any other corporation to consolidate with or merge into Lessee or (2) to effect a change in the Person, or group of Persons, who or which control Lessee. For purposes of this section, "control" means the power, directly or indirectly, to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. The accounting terms used in this Section 4.1 shall be interpreted with reference to generally accepted accounting principles, as set forth in the statements of financial accounting standards issued by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants, and as applied on a basis consistent with prior periods. #127540.02 EX-10.17.A 10 AMENDMENT TO LEASE Confidential treatment has been sought for portions of this document marked with "*" and such portions have been separately filed with the SEC. EXHIBIT 10.17(a) BOULLIOUN AIRCRAFT HOLDING COMPANY, INC. May 15, 1997 Frontier Airlines, Inc. 12039 E. 46th Avenue, Suite 200 Denver, Colorado 80239 Attention: Mr. Arthur T. Voss Vice President-Administration and General Counsel Re: Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) ------------------------------------------------------- Dear Sir or Madam: Reference is hereby made to that certain Aircraft Lease Agreement (MSN 28662), dated as of December 12, 1996 (the "Lease Agreement"), between Boullioun Aircraft Holding Company, Inc. ("Lessor") and Frontier Airlines, Inc. ("Lessee"). Capitalized terms used but not defined herein shall have the respective meanings ascribed thereto in the Lease Agreement. Lessor and Lessee hereby agree that Section 4 of Schedule 2 to the Lease Agreement is deleted in its entirety and replaced by Attachment 1 hereto. Other than as amended as set forth herein, the Lease Agreement shall remain in full force and effect. Lessor and Lessee hereby agree that this letter agreement shall be an "Operative Document" for all purposes of the Lease Agreement. Frontier Airlines, Inc. May 15, 1997 Page 2 If the foregoing is acceptable to you, please indicate by signing and returning a copy of this letter to Thomas O. Kaluza before 5:00 p.m. (Seattle time) on May 21, 1997. BOULLIOUN AIRCRAFT HOLDING COMPANY, INC. By: /s/ --------------------------------------------------------- Title: Senior Vice President, Marketing The foregoing is hereby accepted and agreed to this 20th day of May, 1997. FRONTIER AIRLINES, INC. By: /s/ Arthur T. Voss --------------------------------------------------------- Title: Vice President CONFIDENTIAL TREATMENT SOUGHT FOR PORTIONS OF DOCUMENT MARKED WITH " * " Attachment 1 (MSN 28662) SECTION 4. TERMINATION OF LEASE PRIOR TO DELIVERY. 4.1 TERMINATION TRIGGERS. If any one or more of the following is true, then Lessor may, at its sole option, terminate the Lease Agreement and the other Operative Documents by notice to Lessee: 4.1.1 A Default shall have occurred at any time (even if not then continuing). 4.1.2 [Intentionally left blank] 4.1.3 [Intentionally left blank] 4.1.4 [Intentionally left blank] 4.1.5 [Intentionally left blank] 4.1.6 [Intentionally left blank] 4.1.7 [Intentionally left blank] * 4.2 EFFECT OF TERMINATION. If Lessor does so terminate the Lease Agreement and the other Operative Documents, neither Lessor nor Lessee shall have any further rights or obligations thereunder and Lessor shall return all but US$125,000 of the Security Deposit then held by Lessor (and Lessor shall retain such US$125,000 for its own benefit and without any claim thereon by Lessee). 4.3 COOPERATION. Lessee shall cooperate with Lessor, and will provide to Lessor such information as may be requested by Lessor, to allow Lessor to determine as soon as practicable whether any of the circumstances set forth in Section 4.1 of this Schedule 2 has occurred. Lessee acknowledges and agrees that Lessor may make such determination on the basis of the information available to it from time to time. #127532.02 EX-10.18 11 AIRCRAFT LEASE AGREEMENT EXHIBIT 10.18 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH "*" AND SUCH PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SEC. EXECUTION COPY AIRCRAFT LEASE AGREEMENT Dated as of March 25, 1997 between GENERAL ELECTRIC CAPITAL CORPORATION as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Aircraft : Boeing 737-300 Serial No: 28563 U.S. Reg. No.: N ---------- Note: This Aircraft Lease Agreement has been executed in several counterparts of which this is Counterpart No. [ ]. See Clause 16.15 hereof for information concerning the distinction between various counterparts. INDEX
CLAUSE PAGE - ------ ---- 1. Interpretation......................................................... 1 1.1 Definitions................................................... 1 1.2 Construction.................................................. 17 2. Representations and Warranties......................................... 17 2.1 Lessee's Representations and Warranties....................... 17 2.2 Lessee's Further Representations and Warranties............... 19 2.3 Repetition.................................................... 20 2.4 Lessor's Representations and Warranties....................... 20 3. Conditions Precedent................................................... 21 3.1 Conditions Precedent........................................... 21 3.2 Further conditions precedent................................... 24 3.3 Waiver......................................................... 24 4. Commencement........................................................... 26 4.1 Leasing....................................................... 26 4.2 Delivery...................................................... 26 4.3 Delayed Delivery.............................................. 26 4.4 Licenses...................................................... 27 4.5 Inspection.................................................... 27 4.6 Indemnity..................................................... 27 5. Payments............................................................... 27 5.1 Deposit....................................................... 27 5.2 Rental Periods................................................ 27 5.3 Rent.......................................................... 28 5.4 Maintenance Reserves.......................................... 28 5.5 Payments...................................................... 29 5.6 Withholding................................................... 29 5.7 General Tax indemnity......................................... 29 5.8 Sales and Use Taxes........................................... 30 5.9 Information................................................... 31 5.10 Indemnity Payments to be Made on an After-Tax Basis.......... 31 5.11 Default Interest............................................. 31 5.12 Contest...................................................... 32 5.13 Net Lease.................................................... 33 5.14 Security..................................................... 33 6. Manufacturer's Warranties.............................................. 34 6.1 Assignment.................................................... 34 6.2 Proceeds...................................................... 34 6.3 Parts......................................................... 35 6.4 Agreement..................................................... 35 7. Lessor's Covenants..................................................... 35 7.1 Quiet Enjoyment............................................... 35 7.2 Release of Maintenance Reserves............................... 35 7.3 Lessor Obligations Following Expiry Date...................... 36
I 8. Lessee's Covenants..................................................... 37 8.1 Duration...................................................... 37 8.2 Information................................................... 37 8.3 Lawful and Safe Operation..................................... 38 8.4 Taxes and other Outgoings..................................... 40 8.5 Sub-Leasing and Wet-Leasing................................... 40 8.6 Inspection.................................................... 40 8.7 Title......................................................... 42 8.8 General....................................................... 43 8.9 Records....................................................... 43 8.10 Protection................................................... 43 8.11 Maintenance and Repair....................................... 44 8.12 Removal of Engines and Parts................................. 45 8.13 Installation of Engines and Parts............................ 45 8.14 Non-Installed Engines and Parts.............................. 46 8.15 Pooling of Engines and Parts................................. 47 8.16 Equipment Changes............................................ 47 8.17 Title on an Equipment Change................................. 47 8.18 Third Party.................................................. 48 9. Insurance.............................................................. 48 9.1 Insurances.................................................... 48 9.2 Requirements.................................................. 48 9.3 Change........................................................ 48 9.4 Insurance Covenants........................................... 49 9.5 Failure to Insure............................................. 50 9.6 Continuing Indemnity.......................................... 50 9.7 Application of Insurance Proceeds............................. 50 10. Indemnity.............................................................. 51 10.1 General...................................................... 51 10.2 Duration..................................................... 52 11. Events of Loss......................................................... 52 11.1 Events of Loss............................................... 52 11.2 Substitute Aircraft.......................................... 53 11.3 Requisition.................................................. 54 12. Return of Aircraft..................................................... 54 12.1 Return....................................................... 54 12.2 Final Inspection............................................. 54 12.3 Non-Compliance............................................... 55 12.4 Redelivery................................................... 55 12.5 Acknowledgment............................................... 55 12.6 Maintenance Program.......................................... 55 12.7 Fuel......................................................... 55 12.8 Automatic Extension of Term.................................. 55 13. Default............................................................... 56 13.1 Events....................................................... 56 13.2 Rights....................................................... 59 13.3 Deregistration............................................... 63
II 14. Assignment............................................................. 63 14.1 Lessee's Assignment........................................... 63 14.2 Lessor's Assignment........................................... 63 14.3 Transfer...................................................... 63 15. Illegality............................................................. 64 16. Miscellaneous.......................................................... 64 16.1 Waivers, Remedies Cumulative.................................. 64 16.2 Delegation.................................................... 64 16.3 Certificates.................................................. 64 16.4 Appropriation................................................. 64 16.5 Currency...................................................... 64 16.6 Set-off....................................................... 64 16.7 Severability.................................................. 65 16.8 Remedy........................................................ 65 16.9 Expenses...................................................... 65 16.10 Time of Essence.............................................. 66 16.11 Notices...................................................... 66 16.12 Governing Law and Jurisdiction............................... 67 16.13 Sole and Entire Agreement.................................... 69 16.14 Indemnities.................................................. 69 16.15 Counterparts................................................. 69 16.16 Language..................................................... 69 16.17 No Brokers................................................... 69 17. Disclaimers and Waivers................................................. 70 17.1 Exclusion..................................................... 70 17.2 Waiver........................................................ 70 17.3 Disclaimer of Consequential Damages........................... 71 17.4 Confirmation.................................................. 71 18. Section 1110............................................................ 71 19. Usury Laws.............................................................. 71 20. Modification or Revision................................................ 72 21. Witness................................................................. 73
SCHEDULES SCHEDULE 1. Description of Aircraft....................................... 74 SCHEDULE 2. Certificate of Technical Acceptance........................... 79 SCHEDULE 3. Operating Condition at Redelivery............................. 85 SCHEDULE 4. Insurances Requirements....................................... 89 SCHEDULE 5. Form of Legal Opinion......................................... 93 SCHEDULE 6. Lease Supplement No. ____..................................... 97 SCHEDULE 7. Form of Lease Termination Certificate......................... 100 SCHEDULE 8. Form of Aircraft Usage Report................................. 102
III AIRCRAFT LEASE AGREEMENT THIS AGREEMENT is made as of the 25th day of March, 1997 between:- (1) GENERAL ELECTRIC CAPITAL CORPORATION, a company incorporated under the laws of New York whose principal place of business is at 260 Long 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. 1 Agreed Value the amount specified for Agreed Value in Letter Agreement No. 1. Air Authority Federal Aviation Administration ("FAA"). Aircraft the aircraft described in Part 1 of Schedule 1, (which term includes where the context admits a separate reference to all Engines, Parts and Aircraft Documents) or any aircraft substituted in place thereof pursuant to Clause 11.1 or 11.2. Aircraft Documents the documents, data and records identified in Part 2 of Schedule 1 and all additions, renewals, revisions and replacements from time to time made in accordance with this Agreement. Airframe the Aircraft, excluding the Engines and Aircraft Documents. Appraisal Procedure the following procedure for determining the "fair market rental value" of the Aircraft: (a) Lessor shall select an independent aircraft appraiser who shall make a determination of "fair market rental value" of the Aircraft; and (b) the fees and expenses of the appraiser shall be paid by Lessee. "Fair market rental value" shall mean the value determined by an appraisal completed on an "as-is" and "where-is" basis. APU the auxiliary power unit installed on the Aircraft on the Delivery Date and any replacement auxiliary power unit installed in accordance with this Agreement. Boeing The Boeing Company, a Delaware corporation with its principal office in Seattle, State of Washington, U.S.A. Business Day a day (other than a Saturday or Sunday) on which business of the nature required by this Agreement is carried out in the State of Incorporation or where used in relation to payments on which banks are open for business in San Francisco and New York. 2 Certificated Air Carrier any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be issued, any Person (except the United States Government) that is a citizen of the United States of America (as defined in Section 40102 of Title 49 of the United States Code) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the United States of America, and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated so as to entitle Lessor, as a lessor, to the benefits of Section 1110 of Title 11 of the United States Code with respect to the Aircraft. Cold Section Refurbishment with respect to any Engine the completion of the following: completely unstacking either high or low or both compressor sections, if needed, and completing the following for the appropriate section(s): visual inspection; de-blading discs as necessary; visual and NDT (Non- Destructive Testing) inspections as necessary of all discs; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the compressor; balance of all rotors; and installation of rotors in the engine. Cycle one take-off and landing of the Aircraft. 3 Damage Notification Threshold the amount specified therefor in Letter Agreement No. 1. Default any Event of Default and any event which with the giving of notice, lapse of time, determination of materiality or fulfillment of other condition would constitute an Event of Default. Delivery Condition Requirements the requirements specified on Part 1 of Schedule 1. Delivery Date the date on which the Aircraft is tendered for delivery by Lessor in accordance with this Agreement. Delivery Location Seattle, Washington, United States or such other location as may be nominated by Lessor. Deposit all amounts payable pursuant to Clause 5.1. Dollars and $ the lawful currency of the United States of America. Engine whether or not installed on the Aircraft:- (a) each engine of the manufacture and model specified in Part 1 of Schedule 1 (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower) which Lessor elects to tender to Lessee with the Aircraft on the Delivery Date, such engines being described as to serial numbers on the certificate of acceptance to be executed by Lessee upon delivery of the Aircraft; or (b) any engine which has replaced that engine, title to which has or should have, passed to Lessor in accordance with this Agreement; and in each case includes all modules and Parts from time to time belonging to or installed in that engine but excludes any 4 properly replaced engine title to which has, or should have, passed to Lessee pursuant to this Agreement. Engine Event of Loss the occurrence with respect to an Engine only, whether or not installed on the Airframe, of any of those events described in provisions (a) through (d) of the definition of Event of Loss. Engine Flight Hour means each hour or part thereof an Engine is operated, elapsing from the moment that wheels of an aircraft on which such Engine is installed leave the ground until the wheels of such aircraft next touch the ground. Engine Refurbishment a complete disassembly, inspection and repair of the modules of an Engine per the engine manufacturer's maintenance manual, so that such Engine shall have a minimum expected on-wing life of 8,000 hours and 6,000 cycles. ERISA the Employee Retirement Income Security Act of 1974, as amended. Event of Default an event or condition specified in Clause 13.1. Event of Loss with respect to the Aircraft (including for the purposes of this definition the Airframe):- (a) the actual or constructive total loss of the Aircraft (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss, or requisition for use or hire which results in an insurance settlement on the basis of a total loss); or (b) it being destroyed, damaged beyond repair or permanently rendered unfit for normal use for any reason whatsoever; or (c) the requisition of title, or other compulsory acquisition, capture, 5 seizure, deprivation, confiscation or detention for any reason of the Aircraft by the government of the State of Registration or other competent authority (whether de jure or de facto), but excluding requisition for use or hire not involving requisition of title; or (d) the hi-jacking, theft, condemnation, confiscation, seizure or requisition for use or hire of the Aircraft which deprives any person permitted by this Agreement to have possession and/or use of the Aircraft of its possession and/or use for more than 15 days (or, if earlier, beyond the Expiry Date). Excusable Delay with respect to delivery of the Aircraft, delay or non-performance due to or arising out of acts of God or public enemy, civil war, insurrection or riot, fire, flood, explosion, earthquake, accident, epidemic, quarantine restriction, any act of government, governmental priority, allocation, regulation or order affecting directly or indirectly, the Aircraft, any manufacturer, Lessor or any materials or facilities, strike or labor dispute causing cessation, slowdown or interruption of work, inability after due and timely diligence to procure equipment, data or materials from manufacturers, suppliers, any existing owner, seller or lessee in a timely manner, damage, destruction or loss, or any other cause to the extent that such cause is beyond the control of Lessor whether above mentioned or not and whether or not similar to the foregoing. Expiry Date the day preceding the numerically corresponding day 96 months after the Delivery Date or if earlier the date on which:- (a) the date Lessor, acting in accordance with the terms of this Agreement 6 terminates the leasing of the Aircraft to Lessee under this Agreement; or (b) Lessor receives the Agreed Value together with any other amounts then due and unpaid by Lessee following an Event of Loss. FAA the Federal Aviation Administration of the United States of America and any successor thereof. FAR the Federal Aviation Regulations set forth in Title 14 of the United States Code of Federal Regulations, as amended and modified from time to time. Federal Aviation Act The Transportation Laws of the United States as set forth at 49 United States Code et seq. or any similar legislation of the United States of America enacted in substitution or replacement thereof. Financing Statements Uniform Commercial Code Financing Statements in respect of the Aircraft and Engines leased hereunder prepared in a form acceptable for filing with the applicable Government Entities in the Habitual Base, the state in which the chief executive office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the Habitual Base) and such other jurisdiction as Lessor shall reasonably require. Flight Hour each hour or part thereof (rounded up to two decimal places) elapsing from the moment the wheels of the Aircraft leave the ground on take off until the wheels of the Aircraft next touch the ground. GAAP generally accepted accounting principles in the United States. Governing Law the laws of the State of California. 7 Government Entity (a) any national government, political subdivision thereof, or local jurisdiction therein; (b) any instrumentality, board, commission, court, or agency of any thereof, however constituted; and (c) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any of the above is a participant. Gross Negligence means any intentional, conscious or voluntary action or decision which is taken with wanton, reckless, flagrant and culpable disregard for the consequences of such action or decision. Habitual Base the State of Colorado or, subject to the prior written consent of Lessor, any other state, country or countries in which the Aircraft is for the time being habitually based. Hot Section Refurbishment with respect to any Engine, the complete visual inspection and repair as necessary of the combustion section of an Engine in an engine repair/overhaul station including without limitation complete unstacking of the high pressure or low pressure turbine or both if needed; complete visual inspection of such turbine(s); de-blading of discs as required; visual and NDT inspections of all discs as required; verification that all snap diameters on discs are within limits; inspection of all blades for proper chord dimensions and cracking; repair or replacement of all blades below minimums; inspection and repair of stators as necessary; blade-up of discs using new lock plates; assembly of rotors in the turbine; balance of all rotors; and installation of rotors in the engine. Indemnitee each of GE Capital Aviation Services, Inc. ("GECASI"), GE Capital Aviation Services 8 Limited ("GECASL"), Lessor, and any of their respective successors and assigns, shareholders, subsidiaries, affiliates, partners, contractors, directors, officers, servants, agents and employees and indemnitees; provided, however, that no such Indemnitee shall be entitled to an indemnification to the extent such Indemnitee is manufacturer of the Aircraft, any Engines, or Parts in its capacity as such. Insurances as defined in Clause 9.1 hereof. Landing Gear the landing gear assembly of the Aircraft excluding any rotable components. Law shall mean and include (a) any statute, decree, constitution, regulation, order judgment or other directive of any Governmental Entity; (b) any treaty, pact, compact or other agreement to which any Governmental Entity is a signatory or party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above. Lease Supplement a Lease Supplement, substantially in the form of Schedule 6 hereto, entered into between Lessor and Lessee. Lessee's Maintenance Program the Maintenance Program specifically approved by the Air Authority for Lessee's maintenance of the Aircraft. Lessor Lien (a) any Security Interest whatsoever from time to time created by or through Lessor in connection with the financing of the Aircraft; (b) any other Security Interest in respect of the Aircraft which results from acts of or claims against Lessor not related to the transactions contemplated by or permitted under this Agreement; and 9 (c) Security Interests in respect of the Aircraft for Lessor Taxes. Lessor Taxes Taxes:- (a) imposed as a direct result of activities of Lessor in the jurisdiction imposing the Tax unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement or the operation of the Aircraft by Lessee; or (b) imposed on the net income, profits or gains of Lessor by any Government Entity in the United State of America; provided, -------- however, that Lessor Taxes shall ------- not include any Tax imposed by any government or taxing authority of any jurisdiction if and to the extent that such Tax results from (i) the use, operation, presence or registration of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax, or (ii) the situs of organization, any place of business or any activity of Lessee or any other Person having use, possession or custody of the Aircraft, the Airframe, any Engine or any Part in the jurisdiction imposing the Tax; or (c) imposed with respect to any period commencing or event occurring after the Expiry Date and unrelated to Lessor's dealings with Lessee or to the transactions contemplated by this Agreement; provided always, that Lessor Taxes shall not include any income taxes or other amounts payable and subject to indemnification in favor of Lessor pursuant to the Tax Indemnity Agreement. Letter Agreement No. 1 that certain Letter Agreement No. 1 between Lessor and Lessee dated as of the date hereof. 10 Maintenance Performer the Lessee, Tramco, USAir Inc., or such other Person as is approved by the FAA to perform maintenance and/or modification services on commercial aircraft and/or commercial aircraft engines, which Person shall be agreed by Lessor and Lessee to have recognized standing and experience, suitable facilities for the level of maintenance being carried out and suitable equipment to perform such services on aircraft and/or engines of the same or improved model as the Aircraft or, in the case of engines, the Engines. Maintenance Program an Air Authority approved maintenance program for the Aircraft based upon the Manufacturer's specifications, service bulletins, planning documents, maintenance manuals and documents and encompassing scheduled maintenance (including block maintenance), condition-monitored maintenance, and/or on-condition maintenance of Airframe, Engines and Parts, including but not limited to, servicing, testing, preventive maintenance, repairs, structural inspections, system checks, overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives, corrosion control, inspections and treatments. Maintenance Reserves all amounts payable under Clause 5.4(a). Major Checks any C-Check, multiple C-Check, D-Check or annual heavy maintenance visit or segment thereof suggested for commercial aircraft of the same model as the Aircraft by its manufacturer (however denominated) as set out in Lessee's Maintenance Program. Manufacturer Boeing. Minimum Liability Coverage the amount set forth therefore in Letter Agreement No. 1. Mortgage Convention shall mean the Convention for the International Recognition of Rights in Aircraft, signed (ad referendum) at Geneva, 11 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 Tax Indemnity Agreement, any schedules or documents prepared in conformance to the Schedules hereto, any side-letters related hereto and any amendments, revisions, supplements or modifications hereto or thereto. Other Agreements any agreement (other than this Agreement) made or to be made between Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) or GPA Group plc (or an associate or affiliate thereof) and Lessee (or an associate or affiliate thereof). Part whether or not installed on the Aircraft:- (a) any component, furnishing or equipment (other than a complete Engine) furnished with the Aircraft on the Delivery Date; and (b) any other component, furnishing or equipment (other than a complete Engine) title to which has, or should have passed to Lessor pursuant to this Agreement; but excludes any such items title to which has, or should have, passed to Lessee pursuant to this Agreement. Permitted Lien (a) any lien for Taxes not assessed or, if assessed, not yet due and payable, or being contested in good faith by appropriate proceedings; (b) any lien of a repairer, mechanic, carrier, hangarkeeper or other similar 12 lien arising in the ordinary course of business or by operation of Law in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings; and (c) any Lessor Lien. but only if (in the case of both (a) and (b)) (i) adequate resources have been provided by Lessee for the payment of the Taxes or obligations; and (ii) such proceedings, or the continued existence of the lien, do not give rise to any likelihood of the sale, forfeiture or other loss of the Aircraft or any interest therein or of criminal liability on Lessor. Person any individual person, corporation, partnership, firm, joint stock company, joint venture, trust, estate, unincorporated organization, association, Government Entity, or organization or association of which any of the above is a member or a participant. Redelivery Location a location on Lessee's route system in the United States designated by Lessor, or such other location as Lessor and Lessee shall agree. Related Agreements any agreement (other than this Agreement) made or to be made between or with Lessor (or an associate or affiliate thereof or a trustee-lessor acting for Lessor as beneficiary, including without limitation Polaris Holding Company) and Lessee (or an associate or affiliate of Lessee). Replacement Engine an engine of the same manufacturer and model, and having equivalent value, utility, modification status, time elapsed since Hot Section Refurbishment and Cold Section Refurbishment and remaining warranty status as the Engine it is intended to replace under Clause 11.1(c), or at Lessee's option, 13 an engine of the same manufacturer as such Engine but of an improved model, and otherwise of an equivalent value and utility and suitable for installation and use on the Airframe without impairing the value or utility of the Airframe and compatible with the remaining installed Engine. Rent all amounts payable pursuant to Clause 5.3. Rental Period each period ascertained in accordance with Clause 5.2. Rent Date the first day of each Rental Period. Return Occasion the date on which the Aircraft is redelivered to Lessor in accordance with Clause 12 hereof. Scheduled Delivery Month August, 1997. Security Interest any mortgage, charge, pledge, lien, assignment, hypothecation, right of set- off or any agreement or arrangement having the effect of creating a Security Interest other than a Permitted Lien. State of Incorporation State of Colorado. State of Registration United States of America. Subsidiary (a) in relation to any reference to accounts, any company whose accounts are consolidated with the accounts of Lessee in accordance with GAAP; (b) for any other purpose an entity from time to time:- (i) of which another has direct or indirect control or owns directly or indirectly more than 50 per cent of the voting share capital; or (ii) which is a direct or indirect subsidiary of another under 14 the laws of the jurisdiction of its incorporation. Tax Indemnity Agreement the Tax Indemnity Agreement of even date herewith between Lessee and Lessor pertaining to U.S. Federal Income Taxes and Lessee operations outside the United States of America. Taxes any and all present and future taxes, duties, withholdings, levies, assessments, imposts, fees and other governmental charges of all kinds together with any penalties, fines, surcharges and interest thereon and any additions thereto. Term the period commencing on the Delivery Date and ending on the Expiry Date, except that the Term may be extended beyond the Expiry Date if the Return Occasion is delayed in the circumstances specified, and subject to the limitation described, in Clause 12.3. United States the United States of America Warrant the warrant referred to in Clause 3.1(a)(xii). Wet Lease any arrangement whereby Lessee agrees to furnish the Aircraft to a third party pursuant to which the Aircraft (i) shall be solely within the operational control of Lessee and shall be operated solely by regular employees of Lessee possessing all current certificates and licenses that would be required under the Federal Aviation Act for the performance by such employees of similar functions within the United States of America, (ii) shall be maintained by Lessee in accordance with Lessee's Maintenance Program and (iii) shall be and remain subject and subordinate to all other terms and conditions of this Agreement; provided, however, that Lessee shall remain primarily liable for the performance of all of the terms of this Agreement (including, without limitation, its obligations set forth in Clause 15 9 of this Agreement) to the same extent as if such arrangement had not been entered into. 16 1.2 CONSTRUCTION (a) In this Agreement, unless the contrary intention is stated, a reference to:- (i) each of "Lessor" or "Lessee" or any other person includes without prejudice to the provisions of this Agreement any successor in title to it and any permitted assignee; (ii) words importing the plural shall include the singular and vice versa; (iii) any document shall include that document as amended, novated or supplemented; (iv) a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement; (v) a reference to "Agreement", "the Agreement" or "this Agreement" shall, unless expressly provided otherwise, mean and include this Aircraft Lease Agreement and each of the other Operative Documents; and (b) the headings in this Agreement are to be ignored in construing this Agreement. 2. REPRESENTATIONS AND WARRANTIES 2.1 Lessee's Representations and Warranties: Lessee represents and warrants to Lessor that:- (a) Status: Lessee is a corporation duly incorporated and validly existing under the laws of the State of Incorporation and has the corporate power to own its assets and carry on its business as it is being conducted and is the holder of all necessary air transportation licenses required in connection therewith and with the use and operation of the Aircraft; (b) Power and authority: Lessee has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, this Agreement and the transactions contemplated by this Agreement; (c) Legal validity: this Agreement has been duly entered into and delivered by Lessee, and this Agreement does, and the Operative Documents when executed and delivered by Lessee will, constitute legal, valid and binding obligations of Lessee, enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally, and, to the extent that certain remedies require or may require enforcement by a court of equity, by such principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) as a court having jurisdiction may impose and by Laws which may affect some of such remedies but which do not make the available remedies inadequate for the substantial realization of the benefits provided herein; 17 (d) Non-conflict: the entry into and performance by Lessee of, and the transactions contemplated by, this Agreement do not and will not:- (i) conflict with any laws binding on Lessee; or (ii) conflict with the constitutional documents of Lessee; or (iii) conflict with or result in default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding upon Lessee or any of its assets nor result in the creation of any Security Interest over any of its assets; (e) Authorization: all authorizations, consents, registrations and notifications required in connection with the entry into, performance, validity and enforceability of, this Agreement and the transactions contemplated by this Agreement, have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; (f) No Immunity: (i) Lessee is subject to civil commercial law with respect to its obligations under this Agreement; and (ii) neither Lessee nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Lessee constitute private and commercial acts; (g) Accounts: the audited consolidated accounts of Lessee and its Subsidiaries most recently delivered to Lessor, including balance sheets and statements of income and retained earnings:- (i) have been prepared in accordance with GAAP; and (ii) fairly represent the consolidated financial condition of Lessee and its Subsidiaries as at the date to which they were drawn up; (h) Restricted Countries: Lessee does not hold a contract or other obligation to operate the Aircraft to or for any of the countries designated under U.S. Code of Federal Regulations 31 CFR Parts 500-599 including, without limitation, Cuba, Iraq, Iran, Libya, North Korea, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola. (i) Chief Executive's Office: Lessee's Chief Executive Office (as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) is located at 12015 East 46th Avenue, 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 18 (j) Citizen of the United States: Lessee is a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code. 2.2 Lessee's Further Representations and Warranties: Lessee further represents and warrants to Lessor that:- (a) No Default: (i) no Default has occurred and is continuing or might result from the entry into or performance of the Operative Documents; and (ii) no other event or condition has occurred and is continuing which constitutes (or with the giving of notice, lapse of time, determination of materiality or the fulfillment of any other applicable condition or any combination of the foregoing, might constitute) a material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, bank loan or credit agreement or other agreement which is binding on Lessee or any assets of Lessee; (b) Registration: (i) except for the filing for recordation of this Agreement and a Lease Supplement with the FAA, and the filing of any Financing Statements required (and continuation statements at periodic intervals), no further filing or recording of this Agreement or of any other document (including any financing statement under Article 9 of the Uniform Commercial Code) and no further action, is or will be necessary under the Laws of the United States, the State of Incorporation, and the State of Registration, the Habitual Base or any other states in order to (A) fully establish, perfect and protect Lessor's title to, and interest in, the Aircraft or any Engine or Part as against Lessee or any third party, or (B) ensure the validity, effectiveness and enforceability of this Agreement or any other Operative Document to which the Lessee is a party; and (ii) under the laws of the State of Incorporation, the State of Registration and the Habitual Base the property rights of Lessor in the Aircraft have been fully established, perfected and protected and this Agreement will have priority in all respects over the claims of all creditors of Lessee; (c) Litigation: no litigation, arbitration or administrative proceedings are pending or to its knowledge threatened against Lessee which, if adversely determined, would have a material adverse effect upon its financial condition or business or its ability to perform its obligations under this Agreement; (d) Pari Passu: the obligations of Lessee under the Operative Documents rank at least pari passu with all other present and future unsecured and unsubordinated obligations (including contingent obligations) of Lessee, with the exception of such obligations as are mandatorily preferred by law and not by virtue of any contract; 19 (e) Material Adverse Change: there has been no material adverse change in the consolidated financial condition of Lessee and its Subsidiaries or the financial condition of Lessee since the date to which the accounts most recently provided to Lessor on or prior to the Delivery Date were drawn up; (f) Taxes: Lessee has delivered all necessary returns and payments due to the tax authorities in the State of Incorporation, the State of Registration and the Habitual Base and is not required by Law to deduct any Taxes from any payments under this Agreement; (g) Information: the financial and other information furnished by Lessee in connection with this Agreement does not contain any untrue statement or omit to state facts, the omission of which makes the statements therein, in the light of the circumstances under which they were made, misleading, nor omits to disclose any material matter to Lessor and all forecasts and opinions contained therein were honestly made on reasonable grounds after due and careful inquiry by Lessee; and (h) ERISA: Lessee is not engaged in any transaction in connection with which it could be subjected to either a civil penalty assessed pursuant to Section 502 of ERISA or any tax imposed by Section 4975 of the Internal Revenue Code; no material liability to the Pension Benefit Guaranty Corporation has been or is expected by Lessee to be incurred with respect to any employee pension benefit plan (as defined in Section 3 of ERISA) maintained by Lessee or by any trade or business (whether or not incorporated) which together with Lessee would be treated as a single employer under Section 4001 of ERISA and Section 414 of the Internal Revenue Code; there has been no reportable event (as defined in Section 4043(b) of ERISA) with respect to any such employee pension benefit plan; no notice of intent to terminate any such employee pension benefit plan has been filed or is expected to be filed, nor has any such employee pension benefit been terminated; no circumstance exists or is anticipated that constitutes or would constitute grounds under Section 4042 of ERISA for the Pension Benefit Guaranty Corporation to institute proceedings to terminate, or to appoint a trustee to manage the administration of, such an employee pension benefit plan; and no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived, exists with respect to any such employee pension benefit plan. 2.3 Repetition: The representations and warranties in Clause 2.1 and Clause 2.2 will survive the execution of this Agreement. The representations and warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be repeated by Lessee on the Delivery Date with reference to the facts and circumstances then existing. The representations and warranties contained in Clause 2.1 will be deemed to be repeated by Lessee on each Rent Date as if made with reference to the facts and circumstances then existing. 2.4 Lessor's Representations and Warranties: Lessor represents and warrants to Lessee that:- 20 (a) Status: Lessor is a company duly incorporated and validly existing under the laws of the State of New York and has the corporate power to own its assets and carry on its business as it is now being conducted; (b) Power and authority: Lessor has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, the Operative Documents and the transactions contemplated by the Operative Documents; (c) Legal validity: the Operative Documents constitute Lessor's legal, valid and binding obligation; (d) Non-conflict: the entry into and performance by Lessor of, and the transactions contemplated by, the Operative Documents do not and will not:- (i) conflict with any laws binding on Lessor; or (ii) conflict with the constitutional documents of Lessor; or (iii) conflict with any document which is binding upon Lessor or any of its assets; (e) Authorization: so far as concerns the obligations of Lessor, all authorizations, consents, registrations and notifications required under the laws of the State of New York in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Operative Documents by Lessor have been (or will on or before the Delivery Date have been) obtained or effected (as appropriate) and are (or will on their being obtained or effected be) in full force and effect; and (f) No Immunity: (i) Lessor is subject to civil commercial law with respect to its obligations under the Operative Documents; and (ii) neither Lessor nor any of its assets is entitled to any right of immunity and the entry into and performance of the Operative Documents by Lessor constitute private and commercial acts. 3. CONDITIONS PRECEDENT 3.1 Conditions Precedent: Lessor's obligation to deliver and lease the Aircraft under this Agreement is subject to satisfaction of each of the following conditions:- (a) receipt by Lessor from Lessee not later than 5 Business Days prior to the Delivery Date of the following satisfactory in form and substance to Lessor:- (i) Constitutional Documents: a copy of the constitutional documents of Lessee including without limitation articles of incorporation, bylaws and a current certificate of good standing issued by the secretary of the state for the State of Incorporation; 21 (ii) Resolutions: a copy of a resolution of the board of directors of Lessee approving the terms of, and the transactions contemplated by, this Agreement, resolving that it enter into this Agreement, and authorizing a specified person or persons to execute this Agreement and the other Operative Documents and accept delivery of the Aircraft on its behalf; (iii) Opinion: evidence that opinions substantially in the form of Schedule 5 will be issued on the Delivery Date by legal counsel acceptable to Lessor; (iv) FAA Opinion: a draft of an opinion of 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 22 the addressee to issue to Lessor, upon Lessor's request from time to time, a statement of account of all sums due by Lessee to the authority in respect of all aircraft (including, without limitation, the Aircraft) operated by Lessee; (x) Deregistration Power: an irrevocable power of attorney authorizing Lessor or such other person as Lessor may from time to time specify to do any thing or act or to give any consent or approval which may be required to obtain deregistration of the Aircraft and to export the Aircraft from the Habitual Base upon termination of the leasing of the Aircraft under this Agreement, duly notarized and legalized; (xi) Certificate of Lease Termination: a certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 7 hereto, acknowledging that this Agreement is no longer in effect with respect to the Aircraft and Engines, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to the Lessee hereunder. (xii) Warrant: evidence of the grant by Lessee to Lessor of a warrant entitling Lessor to purchase 55,000 shares of Lessee's common stock no par value at an aggregate purchase price for all such shares of $385,000, such shares carrying demand registration rights by Lessor and such other rights as Lessor may require, to be set forth in a side letter dated as of the date of this Agreement concerning such warrant. It is understood and acknowledged that upon delivery of the Aircraft, such warrant shall be deemed solely as additional consideration to induce Lessor to deliver the Aircraft to Lessee and shall then and thereafter cease to have any attribute or character of a security or other deposit. Such warrant shall expire at 5:00 p.m. Denver, Colorado, local time on the Expiry Date; (xiii) Side Letter Concerning Warrant: a side letter dated as of the date of this Agreement concerning the issuance of a Warrant for the purchase by Lessor of shares of Lessee's common stock as set forth in subclause (xii) above in form and substance satisfactory to Lessor; (xiv) Documentary Fee: the $5,000 documentary fee specified in Clause 16.9(e); and (xv) General: such other documents as Lessor may reasonably request; (b) the receipt by Lessor on or before the Delivery Date of:- (i) Opinions: a signed original of each of the opinions referred to in Clause 3.1(a)(iii) and 3.1(a)(iv); (ii) Payments: all sums due to Lessor under this Agreement on or before the Delivery Date including, without limitation, the first payment of Rent; 23 (iii) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor that Lessee is taking the required steps to ensure due compliance with the provisions of this Agreement as to Insurances with effect on and after the Delivery Date; (iv) Lease Supplement No. 1: in the form of Schedule 6 hereto, to be dated the Delivery Date, fully completed and executed by Lessor and Lessee, and filed for recording at the FAA; (v) Certificate of Technical Acceptance: in the form of Schedule 2 hereto, to be dated and fully completed, and executed by Lessor and Lessee certifying that Lessee has completed its inspection of the Aircraft in accordance with Clause 4.5 hereof and that Aircraft conforms to the provisions set forth therein and is in all respects acceptable to Lessee, or if not so acceptable, then setting forth discrepancies and corrective action to be taken; (vi) Accounts: the latest available accounts of Lessee as described in Clause 8.2(b)(i) and (ii); (vii) Documents: a confirmation of receipt of the Aircraft Documents delivered with the Aircraft on the Delivery Date; (viii) UCC-1 Financing Statements: in form acceptable to Lessor, and suitable for filing in the States of Colorado and California and signed by Lessee; and (ix) General: such other documents as Lessor may reasonably request. (c) receipt by Lessor of such information and documents relating to the proposed Maintenance Program as Lessor may require and Lessor having agreed the proposed Maintenance Program on or prior to the Delivery Date; and (d) evidence that on the Delivery Date that all filings, registrations, recordings and other actions have been or will be taken which are necessary or advisable to ensure the validity, effectiveness and enforceability of this Agreement and the Assignments and to protect the property rights of Lessor in the Aircraft or any Part. 3.2 Further conditions precedent: The obligations of Lessor to deliver and lease the Aircraft under this Agreement are subject to the further conditions precedent that:- (a) the representations and warranties of Lessee under Clauses 2.1 and 2.2 are correct and would be correct if repeated on delivery of the Aircraft under this Agreement; and (b) no Default has occurred and is continuing or might result from the leasing of the Aircraft to Lessee under this Agreement. 3.3 Waiver: The conditions specified in Clauses 3.1 and 3.2 are for the sole benefit of Lessor and may be waived or deferred in whole or in part and with or without conditions by Lessor. If any of those conditions are not satisfied on the Delivery Date and Lessor 24 (in its absolute discretion) nonetheless agrees to deliver the Aircraft to Lessee, Lessee will ensure that those conditions are fulfilled within 15 days after the Delivery Date and Lessor may treat as an Event of Default the failure of Lessee to do so. 25 4. COMMENCEMENT 4.1 Leasing: Lessor will lease the Aircraft to Lessee and Lessee will take the Aircraft on lease in accordance with this Agreement for the duration of the Term. Lessor will deliver and Lessee will accept the Aircraft on the day in the Scheduled Delivery Month notified by Lessor to Lessee at least 5 Business Days in advance of such date or such other day as may be agreed. In the event (a) Lessee is unwilling or unable to accept delivery of the Aircraft on the date notified by Lessor as the Delivery Date, and (b) the Aircraft meets Delivery Condition Requirements then Lessee's obligation to pay Rent hereunder shall commence on such Delivery Date notwithstanding that Lessee has not accepted possession of the Aircraft. After delivery the Aircraft and every Part will be in every respect at the sole risk of Lessee, who will bear all risk of loss, theft, damage or destruction to the Aircraft from any cause whatsoever. 4.2 Delivery: The Aircraft will be delivered to and accepted by Lessee at the Delivery Location or such other location as may be agreed. Lessee will effect acceptance of the Aircraft by execution and delivery to Lessor of the duly completed and executed Certificate of Acceptance in the form of Schedule 2 and a duly completed and executed Lease Supplement No. 1 in the form of Schedule 6 hereto and by authorizing the filing at the FAA of an executed copy of such Lease Supplement with an executed copy of this Agreement attached thereto. 4.3 Delayed Delivery: If owing to:- (a) any seller, manufacturer or existing lessee of the Aircraft delaying in the delivery of, or failing to deliver, the Aircraft to Lessor for any reason (other than because of any default of Lessor in the performance of its obligations under an agreement with that seller, manufacturer or lessee unless the default arises from any act or omission of Lessee) whether or not in circumstances entitling that seller, manufacturer or lessee to terminate that agreement; (b) any purchase agreement for the Aircraft terminating prior to delivery of the Aircraft (other than because of any default of Lessor in the performance of its obligations under that agreement unless the default arises from any act or omission of Lessee); (c) any Excusable Delay; or (d) notification of any defect or non-conformity pursuant to Clause 4.5; Lessor delays in the delivery of, or fails to deliver, the Aircraft under this Agreement:- (i) Lessor will not be responsible for any losses, including loss of profit, costs or expenses arising from or in connection with the delay or failure suffered or incurred by Lessee; (ii) subject to Clause 4.5, Lessee will not be entitled to terminate this Agreement or to reject the Aircraft when tendered for delivery by Lessor, on the grounds of any such delay; 26 (iii) in the case of termination of a purchase agreement, Lessor may at any time after the termination terminate this Agreement; and (iv) upon any such termination or termination pursuant to Clause 4.5 neither Lessor nor Lessee will have any further obligation to the other under this Agreement other than as expressly set out in this Agreement, except that Lessor will repay to Lessee the Deposit and shall return the warrant certificate representing the Warrant. 4.4 Licenses: Lessee will at its expense obtain all licenses, permits and approvals which may be necessary to export the Aircraft from the Delivery Location. Lessor will furnish such data and information as may be reasonably requested by Lessee in connection with obtaining any such license, permit or approval. 4.5 Inspection: Prior to the Delivery Date, subject to any applicable purchase or lease agreement, Lessor will give Lessee an opportunity:- (a) to inspect the Aircraft at the Delivery Location; and (b) to assign up to 2 representatives to participate as observers in a demonstration flight to demonstrate the condition of the Aircraft. If Lessee notifies Lessor promptly prior to the Delivery Date of any defect or non-conformity with Schedule 1 observed during the inspection or demonstration flight, Lessor will correct or procure the correction of the defect or non-conformity as promptly as practicable (except to the extent otherwise agreed or to the extent in the opinion of Lessor it is impracticable or prohibitively expensive to do so). Subject to Clause 4.3, Lessor may postpone the Delivery Date in such a case to the date which Lessor notifies Lessee that the defect or non-conformity has been rectified. Lessee will be entitled to terminate this Agreement if Lessor notifies it that Lessor does not intend to correct the defect or non- conformity. 4.6 Indemnity: Lessee will indemnify and hold harmless the Indemnitees from and against all Claims (as defined in Clause 10) arising from death or injury to any observer or any employee of Lessee in connection with any demonstration flight or inspection of the Aircraft by Lessee. 5. PAYMENTS 5.1 Deposit: Lessee shall pay to Lessor a Deposit in the amounts set forth in the definition of that term in Letter Agreement No. 1 and in accordance with the schedule set forth therein. So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits then held by Lessor upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 5.2 Rental Periods: The Term will consist of consecutive whole or partial Rental Periods set forth in Letter Agreement No. 1. The first Rental Period will commence on the 27 Delivery Date and each subsequent Rental Period will commence on the date succeeding the last day of the previous Rental Period. Each Rental Period will end on the date immediately preceding the calendar day in the next month numerically corresponding to the Delivery Date, except that: (a) if there is no such numerically corresponding day in that month, it will end on the last day of that month; and (b) if a Rental Period would otherwise overrun the Expiry Date, it will end on the Expiry Date. 5.3 Rent: Lessee will pay to Lessor or its order on each Rent Date, Rent in advance in the amount specified as "Rent" in Letter Agreement No. 1. Payment must be initiated adequately in advance of the Rent Date to ensure that Lessor receives credit for the payment on the Rent Date. If a Rental Period begins on a non-Business Day, the Rent payable in respect of that Rental Period shall be paid on the Business Day immediately preceding the date on which such Rental Period commences. 5.4 Maintenance Reserves: (a) Amount: Lessee will further pay to Lessor Maintenance Reserves in relation to each calendar month or portion thereof during the Term and for the last Rental Period of the Term no later than the 10th day following the end of such calendar month as follows:- (i) in respect of the Airframe, the product of the Airframe Maintenance Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Aircraft during that calendar month ("Airframe Maintenance Reserves"); and (ii) in respect of the life-limited Parts ("LLP") for each Engine, the product of the Life-Limited Parts Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine LLP Refurbishment Reserves"); and (iii) in respect of Engine Refurbishment for each Engine, the product of the Engine Refurbishment Reserve Rate specified in Letter Agreement No. 1 and the number of Engine Flight Hours (or fraction thereof) operated by the Engine during that calendar month ("Engine Refurbishment Reserves"); and (iv) in respect of the Landing Gear, the product of the Landing Gear Reserve Rate specified in Letter Agreement No. 1 and the number of Flight Hours operated by the Landing Gear during that calendar month ("Landing Gear Maintenance Reserves"). (b) Adjustment: Lessor may adjust the amount of Maintenance Reserves after the Delivery Date upon notice to Lessee not more frequently than annually utilizing the Escalation Adjustment set forth in Letter Agreement No. 1. The Engine Reserve Rate may be 28 further adjusted not more frequently than annually as provided in Section III of Letter Agreement No. 1. 5.5 Payments: All payments by Lessee to Lessor under this Agreement will be made for value on the due date in Dollars and in same day funds settled through the New York Clearing House System or such other funds as may for the time being be customary for the settlement in New York City of international payments in Dollars by telegraphic transfer to Bank of America, San Francisco, California, ABA No. 121-000-358, Account No. 14993- 03400 or to such other account as Lessor may advise Lessee in writing. 5.6 Withholding: All payments by Lessee pursuant to the Operative Documents shall be free of all withholdings of any nature whatsoever except to the extent otherwise required by Law, and if any such withholding is so required, Lessee shall pay on an After-Tax Basis an additional amount such that after the deduction of all amounts required to be withheld, the net amount actually received by Lessor on an After-Tax Basis will equal the amount that Lessor would have received on an After-Tax Basis if such withholding had not been required; provided, however, that if Lessee pays any such additional amount to compensate for the withholding of any Lessor Tax, Lessor shall repay to Lessee within 30 days after receipt of Lessee's written request therefor (which request shall include a description in reasonable detail of the Lessor Tax involved and the calculation of the additional amount to be repaid) the amount of such additional amount to the extent attributable to any Lessor Tax. 5.7 General Tax Indemnity: General: (i) Lessee will on demand pay and indemnify each Indemnitee against all Taxes (other than Lessor Taxes) levied or imposed against or upon or payable by such Indemnitee or Lessee and arising from, with respect to or in connection with the transactions pursuant to the Operative Documents (except for the Warrant and the side letter dated as of March 25, 1997 specifically relating thereto, but save in so far as any indemnity by Lessee in respect of Taxes is specifically provided for therein, including (but not limited to) all Taxes relating or attributable to Lessee, any Operative Document or the Aircraft directly or indirectly in connection with the importation, exportation, registration, ownership, leasing, sub-leasing, purchase, delivery, possession, use, operation, repair, maintenance, overhaul, transportation, landing, storage, presence or redelivery of the Aircraft or any part thereof or any rent, receipts, insurance proceeds, income or other amounts arising therefrom. (ii) All Taxes indemnified pursuant to this Clause 5.7 shall be paid by Lessee directly to the appropriate taxing authority (to the extent permitted by applicable Law) at or before the time prescribed by applicable Law. After any payment by Lessee of any Tax directly to a taxing authority, Lessee shall furnish to Lessor, on request, a certified copy of a receipt for Lessee's payment 29 of such Tax or such other evidence of payment of such Tax as is reasonably obtainable by Lessee and reasonably acceptable to Lessor. (iii) Any amount payable by Lessee to an Indemnitee pursuant to Clause 5.7 shall be paid within ten days after receipt of a written demand therefor from the relevant Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable, provided that if an amount of any indemnified Tax is being contested in accordance with Clause 5.12 and Lessee shall have duly performed (and shall continue to perform) all its obligations under Clause 5.12 with respect to such contest, then payment of the indemnity with respect to such Tax under Clause 5.12 shall , at Lessee's election, be deferred until the date the contest has been completed. 5.8. Sales and Use Taxes: (a) Lessee shall pay to Lessor (or, if permitted by applicable Law and if requested by Lessor, Lessee shall pay to the relevant tax authority for the account of Lessor), in addition to the amounts specified as "Rent" in Letter Agreement No. 1: (i) all sales, use, rental, value added, goods and services and similar taxes ("Sales Taxes") required to be paid to the tax authority of the jurisdiction in which the Delivery Location is situated or to the jurisdiction in which the Aircraft is habitually based with respect to the lease of the Aircraft to Lessee pursuant to the Operative Documents unless Lessee delivers to Lessor on or prior to the Delivery Date such exemption certificate or other document as may be acceptable to Lessor to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents; and (ii) all Sales Taxes required to be paid to the tax authority of any jurisdiction in which the Aircraft may be used, operated or otherwise located from time to time unless Lessee delivers to Lessor such exemption certificates or other documents as may be required by applicable Law to evidence Lessee's entitlement to exemption from all Sales Taxes imposed by each such jurisdiction with respect to the lease of the Aircraft pursuant to the Operative Documents. (b) Lessee will cooperate with Lessor in connection with the preparation and filing of any exemption application or similar document that is reasonably necessary or desirable under applicable Law to avoid the imposition of any Sales Taxes with respect to the transactions contemplated by the Operative Documents. (c) The specific obligations with respect to sales and use taxes set forth in this Clause 5.8 are in addition to, and are not in substitution for, the Lessee's obligation to indemnify for sales and use taxes pursuant to Clause 5.7. 30 5.9 Information: (a) If Lessee is required by any applicable Law, or by any third party, to deliver any report or return in connection with any Taxes for which Lessee would be obligated to indemnify Lessor under the Operative Documents, Lessee will complete the same and, on request, supply a copy of the report or return to Lessor. (b) If any report, return or statement is required to be made by Lessor with respect to any Tax for which there is an indemnity obligation of Lessee under this Clause 5, Lessee will promptly notify Lessor of the requirement and: (i) if permitted by applicable Law, make and timely file such report, return or statement (except for any report, return or statement that Lessor has notified Lessee that Lessor intends to prepare and file), prepare such return in such manner as will show the ownership of the Aircraft in Lessor if required or appropriate, and provide Lessor upon request a copy of each such report, return or statement filed by Lessee, or (ii) if Lessee is not permitted by applicable Law to file any such report, return or statement, Lessee will prepare and deliver to Lessor a proposed form of such report, return or statement within a reasonable time prior to the time such report, return or statement is to be filed. Lessee will provide such information and documents as Lessor may reasonably request to enable Lessor to comply with its tax filing, audit and litigation obligations. 5.10 Indemnity Payments to be Made on an After-Tax Basis: Lessee agrees that, with respect to any payment or indemnity pursuant to Clause 5.7 (Tax Indemnity), Clause 5.8 (Sales and Use Taxes) or Clause 10 (Indemnity) to or for the benefit of any Indemnitee, Lessee's indemnity obligations shall include such amount as may be necessary to hold such Indemnitee harmless on an After-Tax Basis from all Taxes required to be paid by such Indemnitee with respect to such payment or indemnity (including any payments pursuant to this Clause 5.10), determined based on the assumption that at the time each such payment or indemnity accrues to the relevant Indemnitee, such payment or indemnity will be subject to (i) United States Federal income tax at the highest marginal statutory tax rate applicable to corporations, (ii) United States state and local income taxes at the composite of the highest marginal statutory tax rates applicable to the Indemnitee and (iii) income taxes (if any) imposed by countries outside the United States at the actual rates imposed on the relevant Indemnitee. 5.11 Default Interest: If Lessee fails to pay any amount payable under this Agreement on the due date, Lessee will pay on demand from time to time to Lessor interest (both before and after judgment) on that amount, from the due date to the date of payment in full by Lessee to Lessor, at the Interest Rate specified in Letter Agreement No. 1; provided, however, that in no event shall such rate exceed the maximum permitted by Law. All such interest will be compounded monthly and calculated on the basis of the actual number of days elapsed in the month assuming a 30 day month and a 360 day year. 31 5.12 Contest: (a) If an Indemnitee receives a written claim for any Tax for which Lessee would be required to pay an indemnity pursuant to Clause 5.7 or Clause 5.8, such Indemnitee shall notify Lessee promptly of such claim, provided that any failure to provide such notice will not relieve Lessee of any indemnification obligation pursuant to Clause 5.7 or Clause 5.8. If requested by Lessee in writing promptly after receipt of such Indemnitee's notice, such Indemnitee shall, upon receipt of indemnity satisfactory to it and at the expense of Lessee (including, without limitation, all costs, expenses, legal and accountants' fees and disbursements, and penalties, interest and additions to tax incurred in contesting such claim) in good faith contest or (if permitted by applicable Law) permit Lessee to contest such claim by (i) resisting payment thereof if practicable and appropriate, (ii) not paying the same except under protest if protest is necessary and proper, or (iii) if payment is made, using reasonable efforts to obtain a refund of such Taxes in appropriate administrative and judicial proceedings. Such Indemnitee shall determine the method of any contest conducted by such Indemnitee and (in good faith consultation with Lessee) control the conduct thereof. Lessee shall determine the method of any contest conducted by Lessee and (in good faith consultation with such Indemnitee) control the conduct thereof. Lessee shall pay in full all payments of Rent and other amounts payable pursuant to the Operative Documents, without reduction for or on account of any Tax, while such contest is continuing. Such Indemnitee shall not be required to contest, or to continue to contest, a claim for Taxes under this Clause 5.12 if (x) such contest would result in a risk of criminal penalties or of a sale, forfeiture or loss of, or the imposition of a Lien (other than a Permitted Lien) on, the Aircraft, or (y) Lessee shall not have furnished an opinion of independent tax counsel selected by such Indemnitee and reasonably satisfactory to Lessee, that a reasonable basis exists for such contest, or (z) a Default or an Event of Default shall be continuing (unless Lessee shall have provided security reasonably satisfactory to such Indemnitee securing Lessee's performance of its obligations under this Clause 5). If such Indemnitee contests any claim for Taxes by making a payment and seeking a refund thereof, then Lessee shall advance to such Indemnitee, on an interest-free basis, an amount equal to the Taxes to be paid by such Indemnitee in connection with the contest and shall indemnify such Indemnitee on an After-Tax Basis for any adverse tax consequences to such Indemnitee of such interest-free advance. Upon the final determination of any contest pursuant to this Clause 5.12 in respect of any Taxes for which Lessee shall have made an advance to such Indemnitee in accordance with the immediately preceding sentence, the amount of Lessee's obligation shall be determined as if such advance had not been made; any indemnity obligation of Lessee to such Indemnitee under this Clause 5 and such Indemnitee's obligation to repay the advance will be satisfied first by setoff against each other, and any difference owing by either party shall be paid within ten days after such final determination. (b) If an Indemnitee obtains a refund of all or any part of any Taxes for which a full indemnity was paid by Lessee, such Indemnitee shall pay Lessee the amount of such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such refund and increased by any Taxes saved by such Indemnitee by reason of the deductibility of such payment by such Indemnitee. If, in addition to such refund, such 32 Indemnitee receives an amount of interest on such refund, such Indemnitee shall pay to Lessee the portion of such interest which is fairly attributable to such refund, reduced by any Taxes imposed on such Indemnitee on receipt or accrual of such interest and increased by any Taxes saved by reason of the deductibility of such payment by such Indemnitee. Such Indemnitee shall not be required to make any payment to Lessee pursuant to this Clause 5.12 if, and for so long as, an Event of Default shall have occurred and be continuing. (c) Any Indemnitee in its sole discretion (by written notice to Lessee) may waive its rights to indemnification pursuant to Clause 5.7 with respect to any claim for any Tax and may refrain from contesting or continuing the contest of such claim, in which event Lessee shall have no obligation to indemnify such Indemnitee for the Taxes that are the subject of such claim. If an Indemnitee agrees to a settlement of any contest conducted pursuant to this Clause 5.11 without the prior written consent of Lessee, which consent shall not be unreasonably withheld, then Lessor shall be deemed to have waived its rights to the indemnification provided for in Clause 5.7 with respect to the Tax liability accepted in such settlement. 5.13 Net Lease: This Agreement is a net lease. Lessee's obligations under this Agreement are absolute and unconditional irrespective of any contingency whatsoever including (but not limited to):- (a) any right of set-off, counterclaim, recoupment, defense or other right which either party to this Agreement may have against the other; (b) any unavailability of the Aircraft for any reason, including, but not limited to, a requisition of the Aircraft or any prohibition or interruption of or interference with or other restriction against Lessee's use, operation or possession of the Aircraft; (c) any lack or invalidity of title or any other defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, or operation of any kind or nature of the Aircraft for any particular use or trade, or for registration or documentation under the laws of any relevant jurisdiction, or any Event of Loss in respect of or any damage to the Aircraft; (d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceedings by or against Lessor or Lessee; (e) any invalidity or unenforceability or lack of due authorization of, or other defect in, this Agreement; (f) and Security Interests with respect to the Aircraft or Taxes; and/or (g) any other cause which but for this provision would or might otherwise have the effect of terminating or in any way affecting any obligation of Lessee under this Agreement. 5.14 Security 33 (a) To the fullest extent permitted by Law and by way of continuing security Lessee as sole beneficial owner charges the Deposit and the Maintenance Reserves and all rights of Lessee to payment thereof and the debt represented thereby (the "Charged Monies") to Lessor by way of first fixed charge as security for Lessee's obligations and liabilities under this Agreement and the Related Agreements (the "Secured Liabilities"). Except as expressly permitted under this Agreement, Lessee will not be entitled to payment of the Charged Monies. Lessee will not assign, transfer or otherwise dispose of all or part of its rights in the Charged Monies and it will enter into any additional documents and instruments necessary or advisable to evidence, create or perfect Lessor's rights to the Charged Monies; (b) If Lessee fails to comply with any provision of this Agreement or any Event of Default has occurred and is continuing, in addition to all rights and remedies accorded to Lessor elsewhere in this Agreement and under Law as a secured party in respect of the Charged Monies, Lessor may immediately or at any time thereafter, without prior notice to Lessee:- (i) set-off all or any part of the Secured Liabilities against the liabilities of Lessor in respect of the Charged Monies; or (ii) apply or appropriate the Charged Monies in or towards the payment or discharge of the Secured Liabilities in such order as Lessor sees fit; and (c) If Lessor has exercised the set-off described in sub-clause (b) above, Lessee shall, following a demand in writing from Lessor, restore the Charged Monies to the level at which they stood immediately prior to such set-off. 6. MANUFACTURER'S WARRANTIES 6.1 Assignment: Notwithstanding this Agreement, Lessor will remain entitled to the benefit of each warranty, express or implied, with respect to the Aircraft, any Engine or Part so far as concerns any manufacturer, vendor, subcontractor or supplier. Except to the extent Lessor otherwise directs, Lessor hereby authorizes Lessee to pursue any claim thereunder in relation to defects affecting the Aircraft, any Engine or Part and Lessee agrees diligently to pursue any such claim which arises at its own cost. Lessee will notify Lessor promptly upon becoming aware of any such claim. 6.2 Proceeds: Except to the extent Lessor otherwise agrees in a particular case, all proceeds of any such claim will be paid directly to Lessor but if and to the extent that such claim relates:- (a) to defects affecting the Aircraft which Lessee has rectified; or (b) to compensation for loss of use of the Aircraft, an Engine or any Part during the Term; and 34 provided no Default has occurred and is continuing the proceeds will be paid to Lessee by Lessor but in the case of (a) above only on receipt of evidence satisfactory to Lessor that Lessee has rectified the relevant defect. 6.3 Parts: Except to the extent Lessor otherwise agrees in a particular case, Lessee will procure that all engines, components, furnishings or equipment provided by the manufacturer, vendor, subcontractor or supplier in replacement of a defective Engine or Part pursuant to the terms of any warranty will be installed promptly by Lessee and that title thereto free of Security Interests vests in Lessor. On installation each part will be deemed to be a Part. In the case of a Replacement Engine, Lessee will satisfy and perform each of the conditions and covenants set forth in Clause 11.1(c), and upon satisfaction of such conditions, such Replacement Engine will be deemed an "Engine" for all purposes of this Agreement. 6.4 Agreement: To the extent any warranties relating to the Aircraft are made available under an agreement between any manufacturer, vendor, subcontractor or supplier and Lessee, this Clause 6 is subject to that agreement. However Lessee will:- (a) pay the proceeds of any claim thereunder to Lessor to be applied pursuant to Clause 6.2 and pending such payment will hold the claim and the proceeds on trust for Lessor; and (b) Lessee will take all such steps as are necessary at the end of the Term to ensure the benefit of any of those warranties which have not expired are vested in Lessor. 7. LESSOR'S COVENANTS 7.1 Quiet Enjoyment: Lessor will not interfere with the quiet use, possession and enjoyment of the Aircraft by Lessee but the exercise by Lessor of its rights under or in connection with this Agreement will not constitute such an interference. Lessor will procure at Lessee's request an undertaking of quiet enjoyment for the benefit of Lessee with respect to any prospective Lessor Lien. 7.2 Release of Maintenance Reserves: Provided no Default has occurred and is continuing Lessor will release funds to Lessee from the Maintenance Reserves respecting maintenance work performed upon submission by Lessee to Lessor within 6 months of the commencement of that maintenance and before the Expiry Date of an invoice and supporting documentation reasonably satisfactory to Lessor evidencing:- (a) with respect to the Airframe, the completion, in accordance with this Agreement, of those items of maintenance (excluding any repairs arising as the result of operational or maintenance mishandling) characterized by the Manufacturer's maintenance planning document and best industry practice as "D" Check and/or individual structural inspections having an interval of not less than 20,000 Flight Hours or 6 years for the Aircraft or any lesser interval for an equivalent major structural inspection if required by the Manufacturer's maintenance planning document subject to retroactive and prospective adjustment of the Reserve Rates as deemed appropriate by Lessor, the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Airframe Maintenance Reserves paid under this Agreement at the time of 35 commencement of that maintenance less the aggregate amount previously released by Lessor under this sub-clause; (b) with respect to any Engine, the performance, in accordance with this Agreement, of all shop visits requiring engine disassembly (other than (i) repairs arising as a result of foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of Quick Engine Change ("QEC") kits), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Engine Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; (c) with respect to life limited parts within any Engine, the performance, in accordance with this Agreement, of any such parts replacement (other than (i) replacement arising as a result of accidents or incidents (whether or not eligible for recovery under Lessee's insurance), foreign object damage or operational or maintenance mishandling and/or (ii) removal, installation, maintenance and repair of QEC kits) and/or (iii) any elective parts replacement), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate of Engine LLP Refurbishment Reserves paid in respect of that Engine under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid in respect of that Engine by Lessor under this sub-clause; and (d) with respect to the Landing Gear, the performance in accordance with this Agreement, of all work on the landing gear in the nature of overhaul and requiring removal and disassembly (other than repairs arising as the result of operational or maintenance mishandling), the lesser of (i) the amount of that invoice and (ii) the amount equal to the aggregate amount of Landing Gear Maintenance Reserves paid under this Agreement at the time of commencement of that maintenance less the aggregate amount previously paid by Lessor under this sub-clause. 7.3 Lessor Obligations Following Expiry Date: Within 5 Business Days of:- (a) redelivery of the Aircraft to Lessor in accordance with and in the condition required by this Agreement; or (b) payment to Lessor of the Agreed Value following an Event of Loss after the Delivery Date; or in each case such later time as Lessor is reasonably satisfied Lessee has irrevocably paid to Lessor all amounts which may then be outstanding or become payable under this Agreement, the other Operative Documents or the Related Agreements and Lessee, Lessor will pay to Lessee:- (i) the balance of the Deposit; and (ii) the amount of any Rent received in respect of any period falling after the date of redelivery of the Aircraft or payment of the Agreed Value, as the case may 36 be; and shall return to Lessee the warrant certificate, if not previously exercised, representing the Warrant. 8. LESSEE'S COVENANTS 8.1 Duration: The undertakings in this Clause and in Clause 12 will:- (a) except as otherwise stated, be performed at the expense of Lessee; and (b) remain in force until the Expiry Date in accordance with this Agreement and thereafter to the extent of any accrued rights of Lessor in relation to those undertakings. 8.2 Information: Lessee will:- (a) notify Lessor forthwith of the occurrence of any Default or any other event which might adversely affect Lessee's ability to perform any of its obligations under this Agreement; (b) furnish to Lessor:- (i) upon request, the consolidated management accounts of Lessee (comprising a balance sheet and profit and loss statement) prepared for the most recent previous financial quarter; (ii) as soon as available but not in any event later than 120 days after the last day of each financial year of Lessee, its audited consolidated balance sheet as of such day and its audited consolidated profit and loss statement for the year ending on such day; (iii) at the same time as it is issued to the shareholders or creditors of Lessee, a copy of each notice or circular issued to Lessee's shareholders or creditors as a group; and (iv) on request from time to time such other information regarding Lessee and its business and affairs as Lessor may reasonably request; (c) keep Lessor informed as to current serial numbers of the Engines and any engine installed on the Aircraft; (d) promptly furnish to Lessor all information Lessor from time to time reasonably requests regarding the Aircraft, any Engine or any Part, its use, location and condition including, without limitation, the hours available on the Aircraft and any Engine until the next scheduled check, inspection, overhaul, refurbishment or shop visit, as the case may be; (e) on request, within 10 days after the end of any Rental Period, furnish to Lessor evidence satisfactory to Lessor of payment of all Taxes due during that or any previous Rental Period; (f) on request, furnish to Lessor evidence satisfactory to Lessor that all Taxes and charges incurred by Lessee with respect to the Aircraft, including without limitation all 37 payments due to the relevant air traffic control authorities, have been paid and discharged in full; (g) within 7 days after the end of each calendar month during the Term, provide Lessor with a monthly report on the Aircraft and each Engine in the form set out in Schedule 8 hereto; (h) give Lessor not less than 60 days' written notice as to the time and location of all Major Checks; and (i) promptly notify Lessor of:- (i) any loss, theft, damage or destruction to the Aircraft, any Engine or any Part, or any modification to the Aircraft if the potential cost may exceed the Damage Notification Threshold; and (ii) any claim or other occurrence likely to give rise to a claim under the Insurances (but in the case of hull claims only in excess of the Damage Notification Threshold) and details of any negotiations with the insurance brokers over any such claim. 8.3 Lawful and Safe Operation: Lessee will:- (a) comply with the law for the time being in force in any country or jurisdiction which may for the time being be applicable to the Aircraft (including without limitation Laws mandating insurance coverage) or, so far as concerns the use and operation of the Aircraft or an owner or operator thereof and take all reasonable steps to ensure that the Aircraft is not used for any illegal purpose; (b) not use the Aircraft in any manner contrary to any recommendation of the manufacturers of the Aircraft, any Engine or any Part or any recommendation or regulation of the Air Authority or for any purpose for which the Aircraft is not designed or reasonably suitable; (c) ensure that the crew and engineers employed by it in connection with the operation and maintenance of the Aircraft have the qualifications and hold the licenses required by the Air Authority and applicable Law; (d) use the Aircraft solely in commercial or other operations for which Lessee is duly authorized by the Air Authority and applicable Law; (e) not use the Aircraft for the carriage of:- (i) whole animals living or dead except in the cargo compartments according to I.A.T.A. regulations, and except domestic pet animals carried in a suitable container to prevent the escape of any liquid and to ensure the welfare of the animal; 38 (ii) acids, toxic chemicals, other corrosive materials, explosives, nuclear fuels, nuclear wastes, or any nuclear assemblies or components, except as permitted for passenger aircraft under the "Restriction of Goods" schedule issued by I.A.T.A. from time to time and provided that all the requirements for packaging or otherwise contained therein are fulfilled; (iii) any other goods, materials or items of cargo which could reasonably be expected to cause damage to the Aircraft and which would not be adequately covered by the Insurances; or (iv) any illegal item or substance; (f) not utilize the Aircraft for purposes of training, qualifying or re- confirming the status of cockpit personnel except for the benefit of Lessee's cockpit personnel, and then only if the use of the Aircraft for such purpose is not disproportionate to the use for such purpose of other aircraft of the same type operated by Lessee; (g) not cause or permit the Aircraft to proceed to, or remain at, any location which is for the time being the subject of a prohibition order (or any similar order or directive) by:- (i) any Government Entity of the State of Registration or the Habitual Base; or (ii) any Government Entity of the country in which such location is situated; or (iii) any Government Entity having jurisdiction over Lessor or the Aircraft; (h) obtain and maintain in full force all certificates, licenses, permits and authorizations required for the use and operation of the Aircraft for the time being, and for the making of payments required by, and the compliance by Lessee with its other obligations under, this Agreement; (i) not operate the Aircraft, or suffer or permit the Aircraft to operate, to or for any country or entity that is the subject of sanctions under the U.S. International Economic Emergency Powers Act or U.N. Security Council directives (presently Iraq, Iran, Libya, the Bosnia-Serb controlled areas of the Republic of Bosnia and Herzegovina and the Unita Rebels of Angola). Lessee also covenants and agrees (i) not to operate or locate, or suffer or permit to be operated or located, the Aircraft in any country restricted under the U.S. Trading with the Enemy Act and the U.S. Export Administration Act except as may be permitted by operating in accordance with the conditions specified by the U.S. Export Administration Regulations (15 CFR Parts 730-799), General License GATS (15 CFR Part 771.19) (presently Cuba, Iran, North Korea, Sudan, and Syria), and (ii) not to operate the Aircraft between Cuba and the United States; and (j) not use, operate, or locate the Aircraft, or cause suffer or permit the Aircraft to be used, operated or located during the Term in any manner not covered by the Insurances or in any area excluded from coverage by the Insurances or in any manner which would prejudice the interests of the Indemnitees in the Insurances, the Aircraft, any Engine or any Part. 39 8.4 Taxes and other Outgoings: Lessee will promptly pay:- (a) all license and registration fees, Taxes (other than Lessor Taxes) and other amounts of any nature imposed by any Government Entity with respect to the Aircraft, including without limitation the purchase, ownership, delivery, leasing, possession, use, operation, return, sale or other disposition of the Aircraft; and (b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other amounts in respect of any premises where the Aircraft or any Part thereof is located from time to time; except to the extent that in the reasonable opinion of Lessor such payment is being contested in good faith by appropriate proceedings, in respect of which adequate resources have been provided by Lessee and non-payment of which does not give rise to any material likelihood of the Aircraft or any interest therein being sold, forfeited or otherwise lost or of criminal liability on the part of Lessor. 8.5 Sub-Leasing and Wet-Leasing: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUB-LEASE, WET LEASE OR PART WITH POSSESSION OF THE AIRCRAFT, THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION (A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR OVERHAUL WORK, OR ALTERATION, MODIFICATIONS OR ADDITIONS TO THE EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT. LESSEE MAY ENTER INTO A WET LEASE FOR THE AIRCRAFT, THE ENGINES OR ANY PART FOR A TERM NOT TO CONTINUE BEYOND THE TERM, ON TERMS CUSTOMARY IN THE INDUSTRY FOR WET LEASES OF SUCH DURATION; PROVIDED, HOWEVER, THAT LESSEE SHALL REMAIN PRIMARILY LIABLE FOR THE PERFORMANCE OF ALL OF THE TERMS OF THIS AGREEMENT (INCLUDING WITHOUT LIMITATION, ITS OBLIGATIONS UNDER CLAUSES 8 AND 9) TO THE SAME EXTENT AS IF SUCH WET LEASE HAD NOT BEEN ENTERED INTO AND PROVIDED, FURTHER, THAT NO SUCH WET LEASE INVOLVES OR RELATES TO A CONTRACT OR AN OPERATION PROHIBITED UNDER CLAUSE 2.1(H) HEREOF. 8.6 Inspection: (a) Lessor and any person designated by Lessor may at any time visit, inspect and survey the Aircraft, any Engine or any Part and for such purpose may, subject to any applicable Air Authority regulation, travel on the flight deck as observer; (b) Lessee will pay to Lessor on an After-Tax Basis on demand all reasonable out-of-pocket expenses incurred by Lessor in connection with any such visit, inspection or survey; and (c) Lessor will:- 40 (i) have no duty or liability to make, or arising out of making or failing to make, any such visit, inspection or survey; and (ii) so long as no Default has occurred and is continuing, not exercise such right other than on reasonable notice and so as not to disrupt unreasonably the commercial operations of Lessee, provided, however, Lessee will take such action as may be reasonably required to facilitate Lessor's inspection. 41 8.7 Title: Lessee will:- (a) not do or knowingly permit to be done or omit or knowingly permit to be omitted to be done any act or thing which might reasonably be expected to jeopardize the rights of Lessor as owner of the Aircraft; (b) on all occasions when the ownership of the Aircraft, any Engine or any Part is relevant, make clear to third parties that title is held by Lessor; (c) not at any time (i) represent or hold out Lessor, GECASI or GACASL as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation or carriage (whether for hire or reward or gratuitously) which may be undertaken by Lessee or (ii) pledge the credit of Lessor; (d) ensure that there is always affixed, and not removed or in any way obscured, a fireproof plate (having dimensions of not less than 10 cm. x 7 cm.) in a reasonably prominent position in the cockpit of the Aircraft and on each Engine stating:- "This Aircraft/Engine is owned by General Electric Capital Corporation and is leased to Frontier Airlines, Inc. and may not be operated by any other person without the prior written consent of General Electric Capital Corporation"; (e) not create or permit to exist any Security Interest upon the Aircraft, any Engine or any Part; (f) not do or permit to be done anything which may reasonably be expected to expose the Aircraft, any Engine or any Part to penalty, forfeiture, impounding, detention, appropriation, damage or destruction and without prejudice to the foregoing, if any such penalty, forfeiture, impounding, detention or appropriation, damage or destruction occurs, give Lessor notice and use best endeavors to procure the immediate release of the Aircraft, any Engine or the Part, as the case may be; (g) not abandon the Aircraft, the Engine or any Part; (h) pay and discharge or cause to be paid and discharged when due and payable or make adequate provision by way of security or otherwise for all debts, damages, claims and liabilities which have given or might give rise to a Security Interest over or affecting the Aircraft, any Engine or any Part; and (i) not attempt, or hold itself out as having any power, to sell, lease or otherwise dispose of the Aircraft, any Engine or any Part; and (j) obtain a waiver of any mechanic's lien or right thereto from any vendor providing maintenance services for Lessee prior to delivering the Aircraft or any Engine or Part to such vendor. 42 8.8 General: Lessee will:- (a) not make any substantial change in the nature of the business in which it is engaged, will preserve its corporate existence (other than in connection with a solvent reconstruction the terms of which have been approved by Lessor, such approval not to be unreasonably withheld), and will conduct its business in an orderly and efficient and will maintain all rights, privileges, licenses and franchises material thereto or material to performing its obligations under this Agreement; (b) ensure that no change will occur in the Habitual Base of the Aircraft without the prior written consent of Lessor; (c) not without giving Lessor 30 days prior notice (in accordance with this Agreement), change its chief executive office (as such term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of Colorado) from 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:- 43 (i) following any change or proposed change in the ownership or financing of the Aircraft; or (ii) following any modification of the Aircraft, any Engine or any Part or the permanent replacement of any Engine or Part in accordance with this Agreement, so as to ensure that the rights of Lessor under this Agreement apply with the same effect as before; or (iii) to establish, maintain, preserve, perfect and protect the rights of Lessor under this Agreement and the interest of Lessor in the Aircraft. 8.11 Maintenance and Repair: Lessee will:- (a) keep the Aircraft airworthy in all respects and in good repair and condition; (b) not change the Maintenance Performer without providing the Lessor with prior written notice; (c) not materially change the Lessee's Maintenance Program or the schedule of the Lessee's Maintenance Program without the prior written consent of Lessor; (d) maintain the Aircraft in accordance with Lessee's Maintenance Program through the Maintenance Performer and perform (at the respective intervals provided in Lessee's Maintenance Program) all Major Checks; (e) maintain the Aircraft in accordance with the standard of maintenance required by FAR Part 121, Subpart L and any other rules and regulations of the FAA and in at least the same manner and with at least the same care, including, without limitation, maintenance scheduling, modification status and technical condition, as is the case with respect to similar aircraft owned or otherwise operated by Lessee and as if Lessee were to retain and continue operating the Aircraft in its fleet after the Expiry Date, including, without limitation, all maintenance to the Airframe, any Engine or any Part required to maintain all warranties, performance guarantees or service life policies in full force and effect except to the extent of conflict with the rules and regulations of the Air Authority; (f) subject to Letter Agreement No. 1, comply with all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date during the Term or within 180 days after the Expiry Date and which are required by the Air Authority and/or mandated by any manufacturer of the Aircraft, any Engine or Part (an "Airworthiness Directive); (g) comply with all applicable Laws and the regulations of the Air Authority and other aviation authorities with jurisdiction over Lessee or the Aircraft, any Engine or Part regardless of upon whom such requirements are imposed and which relate to the maintenance, condition, use or operation of the Aircraft or require any modification or alteration to the Aircraft, any Engine or Part; 44 (h) maintain in good standing a current certificate of airworthiness (in the appropriate category for the nature of the operations of the Aircraft) for the Aircraft issued by the Air Authority except where the Aircraft is undergoing maintenance, modification or repair required or permitted by this Agreement and will from time to time provide to Lessor a copy on request; (i) if required by the Air Authority, maintain a current certification as to maintenance issued by or on behalf of the Air Authority in respect of the Aircraft and will from time to time provide to Lessor a copy on request; and (j) procure promptly the replacement of any Engine or Part which has become time, cycle or calendar expired, lost, stolen, seized, confiscated, destroyed, damaged beyond repair, unserviceable or permanently rendered unfit for use, with an engine or part complying with the conditions set out in Clause 8.13(a) and in the case of any Engine which suffers an Engine Event of Loss, shall procure that such engine complies with the provisions of Clause 11.1(c). 8.12 Removal of Engines and Parts: Lessee will ensure that no Engine or Part installed on the Aircraft is at any time removed from the Aircraft other than:- (a) if replaced as expressly permitted by this Agreement; or (b) if the removal is of an obsolete item and is in accordance with Lessee's Maintenance Program; or (c) (i) during the course of maintaining, servicing, repairing, overhauling or testing that Engine or the Aircraft, as the case may be; or (ii) as part of a normal engine or part rotation program; or (iii) for the purpose of making such modifications to the Engine or the Aircraft, as the case may be, as are permitted under this Agreement; and then in each case (A) with respect to a Part, only if it is reinstalled or replaced by a part complying with Clause 8.13(a) as soon as practicable and in any event no later than the Expiry Date, and (B) with respect to an Engine, title to such Engine shall remain vested in Lessor. 8.13 Installation of Engines and Parts: Lessee will:- (a) ensure that, except as permitted by this Agreement, no engine or part is installed on the Aircraft unless:- (i) in the case of an engine, it is an engine of the same model as, or an improved or advanced version of the Engine it replaces, which is in the same or better operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits and has the same or greater value and utility as the replaced Engine; 45 (ii) in the case of a part, it is in as good operating condition, has substantially similar hours available until the next scheduled checks, inspections, overhauls and shop visits, is of the same or a more advanced make and model and is of the same interchangeable modification status as the replaced Part; (iii) in the case of a part, it has become and remains the property of Owner free from Security Interests and on installation on the Aircraft will without further act be subject to the Head Lease and this Agreement; and (iv) in each case, Lessee has full details as to its source and maintenance records; (b) if no Default has occurred which is continuing, be entitled to install any engine or part on the Aircraft by way of replacement notwithstanding Clause 8.13(a) if:- (i) there is not available to Lessee at the time and in the place that that engine or part is required to be installed on the Aircraft, a replacement engine or, as the case may be, part complying with the requirements of Clause 8.13(a); (ii) it would result in an unreasonable disruption of the operation of the Aircraft and/or the business of Lessee to ground the Aircraft until an engine or part, as the case may be, complying with Clause 8.13(a) becomes available for installation on the Aircraft; and (iii) as soon as practicable after installation of the same on the Aircraft but, in any event, no later than the Expiry Date, Lessee removes any such engine or part and replaces it with the Engine or Part replaced by it or by an engine or part, as the case may be, complying with Clause 8.13(a). 8.14 Non-Installed Engines and Parts: Lessee will:- (a) ensure that any Engine or Part which is not installed on the Aircraft (or any other aircraft as permitted by this Agreement) is, except as expressly permitted by this Agreement, properly and safely stored, and kept free from Security Interests; (b) notify Lessor whenever any Engine is removed from the Aircraft and, from time to time, on request procure that any person to whom possession of an Engine is given acknowledges in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in the Engine and will not seek to exercise any rights whatsoever in relation to it; (c) (notwithstanding the foregoing provisions of this sub-clause), be permitted, if no Default has occurred and is continuing, to install any Engine or Part on an aircraft, or in the case of a Part on an engine:- (i) owned and operated by Lessee free from Security Interests; or (ii) leased or hired to Lessee pursuant to a lease or conditional sale agreement on a long-term basis and on terms whereby Lessee has full operational control of that aircraft or engine; or 46 (iii) acquired by Lessee and/or financed or refinanced, and operated by Lessee, on terms that ownership of that aircraft or engine, as the case may be, pursuant to a lease or conditional sale agreement, or a Security Interest therein, is vested in or held by any other Person; provided that in the case of (ii) and (iii):- (1) the terms of any such lease, conditional sale agreement or Security Interest will not have the effect of prejudicing the interest of Lessor in that Engine or Part; and (2) the lessor under such lease, the seller under such conditional sale agreement or the holder of such Security Interest, as the case may be, has confirmed and acknowledged in writing to Lessor, in form and substance satisfactory to Lessor, that it will respect the interest of Lessor in respect of that Engine or Part and that it will not seek to exercise any rights whatsoever in relation thereto. 8.15 Pooling of Engines and Parts: Lessee will not enter into nor permit any pooling agreement or arrangement in respect of an Engine or Part without the prior written consent of Lessor. 8.16 Equipment Changes: (a) Lessee will not make any modification or addition to the Aircraft (each an "Equipment Change"), except for an Equipment Change which:- (i) is expressly permitted by this Agreement, or (ii) has the prior written approval of Lessor and which does not diminish the value, utility, condition, or airworthiness of the Aircraft; (b) So long as a Default has not occurred and is continuing, Lessee may remove any Equipment Change if it can be removed from the Aircraft without diminishing or impairing the value, utility, condition or airworthiness of the Aircraft; and (c) Lessee shall indemnify Lessor on an After-Tax Basis for any and all Taxes payable by Lessor as the case may be, as a result of an Equipment Change. 8.17 Title on an Equipment Change: (a) Title to all Parts installed on the Aircraft whether by way of replacement, as the result of an Equipment Change or otherwise (except those installed pursuant to Clause 8.13(b)) will on installation, without further act, vest in Lessor subject to this Agreement free and clear of all Security Interests. Lessee will at its own expense take all such steps and execute, and procure the execution of, all such instruments as Lessor may require and which are necessary to ensure that title so passes to Lessor according to all applicable Laws. At any time when requested by Lessor, Lessee will provide evidence to Lessor's 47 satisfaction (including the provision, if required, to Lessor of one or more legal opinions) that title has so passed to Lessor; (b) Lessor may require Lessee to remove any Equipment Change and to restore the Aircraft to its condition prior to that Equipment Change; and (c) Except as referred to in Clause 8.17(b) any Engine or Part at any time removed from the Aircraft will remain the property of Owner until a replacement has been made in accordance with this Agreement and until title in that replacement has passed, according to applicable Laws, to Lessor subject to this Agreement and free of all Security Interests. Upon title to such replacement so passing to Lessor, title to the replaced Engine or Part, will, provided no Default has occurred and is continuing, pass to Lessee. 8.18 Third Party: Lessee will procure that no person (other than Lessor) will act in any manner inconsistent with its obligations under this Agreement and that all persons will comply with those obligations as if references to "Lessee" included a separate reference to those persons. 9. INSURANCE 9.1 Insurances: Lessee will maintain in full force during the Term, and thereafter as expressly required in this Agreement, insurances in respect of the Aircraft in form and substance satisfactory to Lessor (the "Insurances" which expression includes, where the context so admits, any relevant re-insurance(s)) through such brokers and with such insurers and having such deductibles and being subject to such exclusions as may be approved by Lessor from time to time. The Insurances will be effected either:- (a) on a direct basis with insurers of recognized standing who normally participate in aviation insurances in the leading international insurance markets and led by reputable underwriter(s) approved by Lessor; or (b) with a single insurer or group of insurers approved by Lessor who does not retain the risk but effects substantial reinsurance with reinsurers in the leading international insurance markets and through brokers each of recognized standing and acceptable to Lessor for a percentage acceptable to Lessor of all risks insured (the "Reinsurances"). 9.2 Requirements: Lessor's current requirements as to required Insurances are as specified in this Clause and in Schedule 4. Lessor may from time to time stipulate other requirements for the Insurances so that the scope and level of cover is maintained in line with best industry practice and the interests of Lessor protected. 9.3 Change: If at any time Lessor wishes to revoke its approval of any insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers will consult with Lessee and Lessee's brokers (as for the time being approved by Lessor) regarding whether that approval should be revoked to protect the interests of the parties insured. If, following the consultation, Lessor considers that any change should be made, Lessee will then arrange or procure the arrangement of alternative cover satisfactory to Lessor. 48 9.4 Insurance Covenants: Lessee will:- (a) ensure that all legal requirements as to insurance of the Aircraft, any Engine or any Part which may from time to time be imposed by the laws of the State of Registration or any state to, from or over which the Aircraft may be flown, in so far as they affect or concern the operation of the Aircraft, are complied with and in particular those requirements compliance with which is necessary to ensure that (i) the Aircraft is not in danger of detention or forfeiture, (ii) the Insurances remain valid and in full force and effect, and (iii) the interests of the Indemnitees in the Insurances and the Aircraft or any Part are not thereby prejudiced; (b) not use, cause or permit the Aircraft, any Engine or any Part to be used for any purpose or in any manner not covered by the Insurances or outside any geographical limit imposed by the Insurances; (c) comply with the terms and conditions of each policy of the Insurances and not do, consent or agree to any act or omission which:- (i) invalidates or may invalidate the Insurances; or (ii) renders or may render void or voidable the whole or any part of any of the Insurances; or (iii) brings any particular liability within the scope of an exclusion or exception to the Insurances; (d) not take out without the prior written approval of Lessor any insurance or reinsurance in respect of the Aircraft other than those required under this Agreement unless relating solely to hull total loss, business interruption, profit commission and deductible risk; (e) commence renewal procedures at least 30 days prior to expiry of any of the Insurances and provide to Lessor:- (i) if requested by Lessor, a written status report of renewal negotiation 14 days prior to each expiry date; (ii) telexed telecopy confirmation of completion of renewal prior to each expiry date; and (iii) certificates of insurance (and where appropriate certificates of reinsurance), and broker's (and any reinsurance brokers') letter of undertaking in a form acceptable to Lessor in English, detailing the coverage and confirming the insurers' (and any reinsurers') agreement to the specified insurance requirements of this Agreement within 7 days after each renewal date; (f) on request, provide to Lessor copies of documents or other information evidencing the Insurances; (g) on request, provide to Lessor evidence that the Insurance premiums have been paid; 49 (h) not make any modification or alteration to the Insurances material and adverse to the interests of any of the Indemnitees; (i) be responsible for any deductible under the Insurances; and (j) provide any other insurance and reinsurance related information, or assistance, in respect of the Insurances as Lessor may reasonably require. 9.5 Failure to Insure: If Lessee fails to maintain the Insurances in compliance with this Agreement, each of the Indemnitees will be entitled but not bound, (without prejudice to any other rights of Lessor under this Agreement):- (a) to pay the premiums due or to effect and maintain insurances satisfactory to it or otherwise remedy Lessee's failure in such manner (including, without limitation to effect and maintain an "owner's interest" policy) as it considers appropriate. Any sums so expended by it will become immediately due and payable by Lessee to Lessor on an After-Tax Basis together with interest thereon at the rate specified in Clause 5.11, from the date of expenditure by it up to the date of reimbursement by Lessee; and (b) at any time while such failure is continuing to require the Aircraft to remain at any airport or to proceed to and remain at any airport designated by it until the failure is remedied to its satisfaction. 9.6 Continuing Indemnity: Lessee shall effect and maintain insurance after the Expiry Date with respect to its liability under the Indemnity in Clause 10 for 2 years which provides for each Indemnitee to be named as additional insured. Lessee's obligation in this Clause shall not be affected by Lessee ceasing to be lessee of the Aircraft and/or any of the Indemnitees ceasing to have any interest in respect of the Aircraft. 9.7 Application of Insurance Proceeds:- As between Lessor and Lessee:- (a) all insurance payments received as the result of an Event of Loss or Engine Event of Loss occurring during the Term will be paid to Lessor and Lessor will pay the balance of those amounts to Lessee after deduction of all amounts which may be or become payable by Lessee to Lessor under this Agreement (including under Clause 11.1(b)); (b) all insurance proceeds of any property, damage or loss to the Aircraft, any Engine or any Part occurring during the Term not constituting an Event of Loss or Engine Event of Loss and in excess of the Damage Notification Threshold will be applied in payment (or to reimburse Lessee) for repairs or replacement property upon Lessor being satisfied that the repairs or replacement have been effected in accordance with this Agreement. Insurance proceeds in amounts below the Damage Notification Threshold may be paid by the insurer directly to Lessee. Any balance remaining may be retained by Lessor; (c) all insurance proceeds in respect of third party liability will, except to the extent paid by the insurers to the relevant third party, be paid to Lessor to be paid directly in 50 satisfaction of the relevant liability or to Lessee in reimbursement of any payment so made; and (d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the payment of any such insurance proceeds a Default has occurred and is continuing, all such proceeds will be paid to or retained by Lessor to be applied toward payment of any amounts which may be or become payable by Lessee in such order as Lessor sees fit or as Lessor may elect. To the extent insurance proceeds are paid to Lessee, Lessee agrees to comply with the foregoing provisions and apply or pay over such proceeds as so required. 10. INDEMNITY 10.1 GENERAL: LESSEE AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES ON AN AFTER-TAX BASIS FROM AND AGAINST ANY AND ALL CLAIMS, PROCEEDINGS, LOSSES, LIABILITIES, SUITS, JUDGMENTS, COSTS, EXPENSES, PENALTIES OR FINES (EACH A "CLAIM") (REGARDLESS OF WHEN THE SAME IS MADE OR INCURRED, WHETHER DURING OR AFTER THE TERM (BUT NOT BEFORE)):- (A) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED DIRECTLY OR INDIRECTLY AS A RESULT OF OR CONNECTED WITH THE POSSESSION, DELIVERY, PERFORMANCE, MANAGEMENT, OWNERSHIP, REGISTRATION, CONTROL, MAINTENANCE, CONDITION, SERVICE, REPAIR, OVERHAUL, LEASING, USE, OPERATION OR RETURN OF THE AIRCRAFT, ANY ENGINE OR PART (EITHER IN THE AIR OR ON THE GROUND) WHETHER OR NOT THE CLAIM MAY BE ATTRIBUTABLE TO ANY DEFECT IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR TO ITS DESIGN, TESTING OR USE OR OTHERWISE, AND REGARDLESS OF WHEN THE SAME ARISES OR WHETHER IT ARISES OUT OF OR IS ATTRIBUTABLE TO ANY ACT OR OMISSION, NEGLIGENT OR OTHERWISE, OF ANY INDEMNITEE; (B) WHICH ARISE OUT OF ANY ACT OR OMISSION WHICH INVALIDATES OR WHICH RENDERS VOIDABLE ANY OF THE INSURANCES; AND (C) WHICH MAY AT ANY TIME BE SUFFERED OR INCURRED AS A CONSEQUENCE OF ANY DESIGN, ARTICLE OR MATERIAL IN THE AIRCRAFT, ANY ENGINE OR ANY PART OR ITS OPERATION OR USE CONSTITUTING AN INFRINGEMENT OF PATENT, COPYRIGHT, TRADEMARK, DESIGN OR OTHER PROPRIETARY RIGHT OR A BREACH OF ANY OBLIGATION OF CONFIDENTIALITY OWED TO ANY PERSON; BUT EXCLUDING ANY CLAIM IN RELATION TO A PARTICULAR INDEMNITEE TO THE EXTENT THAT THAT CLAIM IS COVERED PURSUANT 51 TO ANOTHER INDEMNITY PROVISION OF THIS AGREEMENT OR TO THE EXTENT IT ARISES SOLELY AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNITEE, LESSOR TAXES OR A LESSOR LIEN. 10.2 Duration: The indemnities contained in this agreement will continue in full force following the end of the Term notwithstanding any breach or repudiation by Lessor or Lessee of this Agreement or any termination of the lease of the Aircraft hereunder. 11. EVENTS OF LOSS 11.1 (a) Pre-delivery: If an Event of Loss occurs prior to delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft of the same manufacture, model, value and utility as the Aircraft. If Lessor exercises such option, Lessee shall be obliged to lease such substitute aircraft pursuant to the terms and conditions of this Agreement and such substitute aircraft shall constitute the Aircraft for all purposes of this Agreement. Lessor shall provide Lessee with details of the substitute aircraft as soon as may be practicable after the occurrence of the Event of Loss. If Lessor advises Lessee that Lessor does not wish to exercise such option, this Agreement will immediately terminate and except as expressly stated in this Agreement neither party will have any further obligation or liability under this Agreement other than pursuant to Clause 16.9 except that Lessor will return the Deposit to Lessee; and (b) Post-delivery: If an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessee will pay the Agreed Value to Lessor on or prior to the earlier of (i) 5 Business Days after the Event of Loss and (ii) the date of receipt of insurance proceeds in respect of that Event of Loss. Subject to the rights of any insurers and reinsurers or other third party, upon irrevocable payment in full to Lessor of that amount and all other amounts which may be or become payable to Lessor under this Agreement, Lessor will without recourse or warranty (except as to Lessor's Liens) and without further act, be deemed to have transferred to Lessee all of Lessor's rights to any Engines and Parts not installed when the Event of Loss occurred, all on an as-is where-is basis, and will at Lessee's expense, execute and deliver such bills of sale and other documents and instruments as Lessee may reasonably request to evidence (on the public record or otherwise) the transfer and the vesting of Lessor's rights in such Engines and Parts in Lessee, free and clear of all rights of Lessor and Lessor Liens. (c) Engine Event of Loss: From the Delivery Date upon an Engine Event of Loss, Lessee shall give Lessor prompt written notice thereof and shall, within 45 days after such occurrence, convey to Lessor, as replacement for the Engine suffering such event, title to a Replacement Engine. Each Replacement Engine shall be free of all Security Interests and shall be in as good an operating condition as the Engine being replaced, assuming the Engine being replaced was in the condition and repair required by the terms hereof immediately prior to the Engine Event of Loss. Upon full compliance by Lessee with the terms of this Clause 11.1(c), Lessor will transfer to Lessee title to the 52 Engine which suffered the Engine Event of Loss. Prior to or at the time of any such conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a full warranty 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 Maintenance Reserves or the amount thereof to be paid by Lessee. Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of one or more Engines pursuant to this Clause 11.1. 11.2 Substitute Aircraft: (a) Without prejudice to the provisions of Clause 11.1 (b), if an Event of Loss occurs after delivery of the Aircraft to Lessee, Lessor will have the option, exercisable by giving Lessee notice in writing, to substitute an alternative aircraft (the "Substitute Aircraft") of the same manufacture and model as the Aircraft and having a value, utility and condition equal to or greater than the Aircraft as at the date of occurrence of the Event of Loss which Substitute Aircraft will be leased by Lessor to Lessee for the remainder of the Term pursuant to the terms and conditions of this Agreement. If Lessor exercises such option, the Substitute Aircraft will constitute the Aircraft for all purposes of this Agreement in respect of facts and circumstances arising after the date of delivery thereof to Lessee. Lessor shall provide Lessee with details of the Substitute Aircraft as soon as may be practicable after the occurrence of the Event of Loss; (b) Lessor will use all reasonable endeavors to deliver the Substitute Aircraft to Lessee as soon as may be practicable following the date of occurrence of the Event of Loss but not later than 3 months after such date; and (c) Lessee agrees to enter into such documentation as Lessor may require in order to reflect the leasing of the Substitute Aircraft as aforesaid including, without limitation, documentation in respect of the Insurances. 53 Lessee shall indemnify each Indemnitee on an After-Tax Basis for any adverse tax consequence to such Indemnitee of the replacement of the Aircraft or Airframe pursuant to this Clause 11.2. 11.3 Requisition: During any requisition for use or hire of the Aircraft, any Engine or Part which does not constitute an Event of Loss:- (a) the Rent and other charges payable under this Agreement will not be suspended or abated either in whole or in part, and Lessee will not be released from any of its other obligations under the Agreement (other than operational obligations with which Lessee is unable to comply solely by virtue of the requisition); and (b) so long as no Default has occurred and is continuing, Lessee will be entitled to any hire paid by the requisitioning authority in respect of the Term. Lessee will, as soon as practicable after the end of any such requisition, cause the Aircraft to be put into the condition required by this Agreement. Lessor will be entitled to all compensation payable by the requisitioning authority in respect of any change in the structure, state or condition of the Aircraft arising during the period of requisition, and Lessor will apply such compensation in reimbursing Lessee for the cost of complying with its obligations under this Agreement in respect of any such change, but so that, if any Default has occurred and is continuing, Lessor may apply the compensation or hire in or towards settlement of any amounts owing by Lessee under this Agreement. 12. RETURN OF AIRCRAFT 12.1 Return: On the Expiry Date or redelivery of the Aircraft pursuant to Clause 13.2 or termination of the leasing of the Aircraft under this Agreement Lessee will, unless an Event of Loss has occurred, at its expense, redeliver the Aircraft and Aircraft Documents to Lessor at the Redelivery Location or such other airport as is mutually acceptable to the parties hereto, in accordance with the procedures and in compliance with the conditions set forth in Schedule 3, free and clear of all Security Interests and Permitted Liens (other than Lessor Liens) and in a condition qualifying for immediate certification of airworthiness by the FAA or as otherwise agreed by Lessor and Lessee. 12.2 Final Inspection: Immediately prior to redelivery of the Aircraft, Lessee will make the Aircraft available to Lessor for inspection ("Final Inspection") in order to verify that the condition of the Aircraft complies with this Agreement. The Final Inspection will permit, and be of sufficient duration for, Lessor to:- (a) inspect the Aircraft Documents; (b) inspect the Aircraft and uninstalled Parts; (c) inspect the Engines, including without limitation (i) a borescope inspection of (A) the low pressure and high pressure compressors and (B) turbine and combustion areas, (ii) engine condition runs and (iii) review of Engine trend monitoring data and technical log reports covering the last ninety (90) days of operation; and 54 (d) perform a complete borescope inspection of the APU; and (e) observe a 2 hour demonstration flight (with Lessor's representatives as on- board observers). 12.3 Non-Compliance: To the extent that, at the time of Final Inspection, the condition of the Aircraft does not comply with this Agreement, Lessee will at Lessor's option:- (a) immediately rectify the non-compliance and to the extent the non-compliance extends beyond the Expiry Date, the Term will be automatically extended and this Agreement will remain in force until the non-compliance has been rectified as provided in Clause 12.8; or (b) redeliver the Aircraft to Lessor and indemnify Lessor on an After-Tax Basis, and provide to Lessor's satisfaction cash as security for that indemnity, against the cost of putting the Aircraft into the condition required by this Agreement. 12.4 Redelivery: Upon redelivery Lessee will provide to Lessor, upon Lessor's request, all documents necessary to export the Aircraft from the Habitual Base (including, without limitation, a valid and subsisting export license for the Aircraft) and required in relation to the deregistration of the Aircraft with the Air Authority. 12.5 Acknowledgment: Provided Lessee has complied with its obligations under this Agreement, following redelivery of the Aircraft by Lessee to Lessor at the Redelivery Location, Lessor will deliver to Lessee an acknowledgment confirming that Lessee has redelivered the Aircraft to Lessor in accordance with this Agreement. 12.6 Maintenance Program: (a) Prior to the Expiry Date and upon Lessor's request, Lessee will provide Lessor or its agent reasonable access to Lessee's Maintenance Program and the Aircraft Documents in order to facilitate the Aircraft's integration into any subsequent operator's fleet; and (b) Lessee will, if requested by Lessor to do so, upon return of the Aircraft deliver to Lessor a certified true current and complete copy of Lessee's Maintenance Program. Lessor agrees that it will not disclose the contents of Lessee's Maintenance Program to any person or entity except to the extent necessary to monitor Lessee's compliance with this Agreement and/or to bridge the maintenance program for the Aircraft from Lessee's Maintenance Program to another program after the Expiry Date. 12.7 Fuel: Upon redelivery of the Aircraft to Lessor, an adjustment will be made in respect of fuel on board on the Delivery Date and the Expiry Date at the price then prevailing at the Redelivery Location. 12.8 Automatic Extension of Term: In the event of Lessee's failure to make the Aircraft available to Lessor for timely inspection pursuant to Clauses 12.1 hereof, non-compliance of the condition of the Aircraft under Clause 12.3 hereof or any other failure of Lessee which prevents timely Redelivery of the Aircraft to Lessor, the Term of this 55 Agreement will be automatically extended and this Agreement will remain in force until such non-compliance has been rectified, with Lessee being obligated to pay Rent at a rate specified in Clause 5.3 plus 50 percent on a per diem basis with respect to the period of such extension. 13. DEFAULT 13.1 Events: Each of the following events will constitute an Event of Default and a repudiation (but not a termination) of this Agreement by Lessee (whether any such event or condition is voluntary or involuntary or occurs by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Government Entity). Lessee acknowledges that the occurrence of any Event of Default would represent a material default in the performance of its obligations under this Agreement:- (a) Non-payment: Lessee fails to make any payment under this Agreement on the due date; or (b) Insurance: Lessee fails to comply with any provision of Clause 9 or any insurance required to be maintained under this Agreement is canceled or terminated or notice of cancellation is given in respect of any such insurance; or (c) Breach: Lessee fails to comply with any other provision of this Agreement and, if such failure is in the reasonable opinion of Lessor capable of remedy, the failure continues for 5 days after notice from Lessor to Lessee; or (d) Representation: any representation or warranty made (or deemed to be repeated) by Lessee in or pursuant to this Agreement or in any document or certificate or statement is or proves to have been incorrect in any material respect when made or deemed to be repeated; or (e) Cross Default: (i) a final judgment for the payment of money not covered by insurance in excess of Two Hundred Fifty Thousand Dollars ($250,000), or final judgments for the payment of money not covered by insurance in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate, shall be rendered against Lessee and the same shall remain undischarged for a period of ninety (90) days during which execution thereof shall not be effectively stayed by agreement of the parties involved, stayed by court order or adequately bonded; or (ii) attachments or other Security Interests shall be issued or entered against substantially all of the property of Lessee and shall remain undischarged or unbonded for ninety (90) days except for Security Interests created in connection with monies borrowed or obligations agreed to by Lessee in the ordinary course of its business; or 56 (iii) Lessee shall default in the payment of any sum which by itself is in excess of $100,000 or any sums which in aggregate exceed $250,000 notwithstanding that any particular individual sum thereof does not exceed $100,000 of any one or more obligations for the payment of borrowed money, for the deferred purchase price of property or for the payment of rent or hire under any lease of aircraft when the same becomes due if such nonpayment results in or would permit an acceleration of such indebtedness, or Lessee shall default in the performance of any other term, agreement, or condition contained in any agreement or instrument under or by which any such obligation is created, evidenced or secured, if the effect of such default is to cause or permit such obligation to become due prior to its stated maturity; or (iv) any event of default or termination event, howsoever described, occurs under the Other Agreements; or (f) Approvals: any consent, authorization, license, certificate or approval of or registration with or declaration to any Government Entity in connection with this Agreement (including, without limitation): - (i) any authorization required by Lessee to obtain and transfer freely Dollars (or any other relevant currency) out of any relevant country; or (ii) required by Lessee to authorize, or in connection with, the execution, delivery, validity, enforceability or admissibility in evidence of this Agreement or the performance by Lessee of its obligations under this Agreement; or (iii) the registration of the Aircraft; or (iv) any airline license or air transport license including, without limitation, authority to operate the Aircraft under FAR Part 121 and a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of the United States Code; is modified in a manner unacceptable to Lessor or is withheld, or is revoked, suspended, canceled, withdrawn, terminated or not renewed, or otherwise ceases to be in full force; or (g) Bankruptcy, etc.: (i) Lessee or any Subsidiary consents to the appointment of a custodian, receiver, trustee or liquidator of itself or all or any material part of Lessee's property or Lessee's consolidated property, or Lessee or any Subsidiary admits in writing its inability to, or is unable to, or does not, pay its debts generally as they come due, or makes a general assignment for the benefit of creditors, or Lessee or any Subsidiary files a voluntary petition in bankruptcy or a voluntary petition seeking reorganization in a proceeding under any bankruptcy or insolvency Laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee or any Subsidiary in any such 57 proceeding, or Lessee or any subsidiary by voluntary petition, answer or consent seeks relief under the provisions of any other bankruptcy, insolvency or other similar Law providing for the reorganization or winding-up of corporations, or provides for an agreement, composition, extension or adjustment with its creditors, or any corporate action (including, without limitation, any board of directors or shareholder action) is taken by Lessee or any Subsidiary in furtherance of any of the foregoing, whether or not the same is fully effected or accomplished; or (ii) an order, judgment or decree is entered by any court appointing, without the consent of Lessee or any of its Subsidiaries, a custodian, receiver, trustee or liquidator of Lessee or any Subsidiary, or of all or any material part of Lessee's property or Lessee's consolidated property is sequestered, and any such order, judgment or decree of appointment or sequestration remains in effect, undismissed, unstayed or unvacated for a period of 30 days after the date of entry thereof or at any time an order for relief is granted; or (iii) an involuntary petition against Lessee or any Subsidiary in a proceeding under the United States Federal Bankruptcy Laws or other insolvency Laws (as now or hereafter in effect) is filed and is not withdrawn or dismissed within 30 days thereafter or at any time an order for relief is granted in such proceeding, or if, under the provisions of any Law providing for reorganization or winding-up of corporations which may apply to Lessee or any Subsidiary, any court of competent jurisdiction assumes jurisdiction over, or custody or control of, Lessee or any Subsidiary or of all or any material part of Lessee's property, or Lessee's consolidated property and such jurisdiction, custody or control remains in effect, unrelinquished, unstayed or unterminated for a period of 30 days or at any time an order for relief is granted in such proceeding; or (h) Unlawful: it becomes unlawful for Lessee to perform any of its obligations under this Agreement or this Agreement becomes wholly or partly invalid or unenforceable; or (i) Suspension of Business: Lessee or any of its Subsidiaries suspends or ceases or threatens to suspend or cease to carry on all or a substantial part of its business; or (j) Disposal: Lessee or any of its Subsidiaries disposes, conveys or transfers or threatens to dispose, convey or transfer of all or a material part of its assets, liquidates or dissolves or consolidates or merges with any other Person whether by one or a series of transactions, related or not, other than for the purpose of a reorganization of the terms of which have received the previous consent in writing of Lessor; or (k) Rights and Remedies: the existence, validity, enforceability or priority of the rights of Lessor as owner and the rights of Lessor as lessor in respect of the Aircraft are challenged by Lessee or any other person claiming by or through Lessee; or (l) Delivery: Lessee fails to timely comply with its obligations under Clause 4 to accept delivery of the Aircraft; or 58 (m) Ownership, Security Interests and Related Matters: Lessee fails to timely comply with its obligations under Clause 8.7; or (n) Transfer: Lessee makes or permits any assignment or transfer of this Agreement, or any interest herein, or of the right to possession of the Aircraft, the Airframe, or any Engine; or (o) Redelivery: Lessee fails to return the Aircraft to Lessor on the Expiry Date in accordance with Clause 12. (p) Adverse Change: any event or series of events occurs which, in the reasonable opinion of Lessor might have a material adverse effect on the financial condition or operations of Lessee and its Subsidiaries or on the ability of Lessee to comply with its obligations under this Agreement; or 13.2 Rights: If an Event of Default occurs, Lessor may at its option (and without prejudice to any of its other rights under this Agreement), at any time thereafter (without notice to Lessee except as required under applicable Law):- (a) by notice to Lessee and with immediate effect on dispatch of such notice terminate the letting of the Aircraft (but without prejudice to the continuing obligations of Lessee under this Agreement), whereupon all rights of Lessee under this Agreement shall cease; and/or (b) proceed by appropriate court action or actions to enforce performance of this Agreement, including, without limitation, the payment of all Rent and all other amounts payable to Lessor or any Indemnitee pursuant to the terms hereof; and/or (c) proceed by appropriate court action or actions to recover damages for the breach of this Agreement which shall include, without limitation: - (i) all Rent and other amounts which are or become due and payable hereunder prior to the date Lessor recovers possession of the Aircraft; (ii) at Lessor's election, either one of the amounts determined pursuant to Clause 13.2(e) or Clause 13.2(f) below or any lost profits suffered by Lessor as a consequence of Lessor's inability to place the Aircraft with another lessee on financial terms that are as favorable to Lessor as the terms of this Agreement; (iii) all costs associated with Lessor's exercise of its remedies hereunder, including, but not limited to, repossession costs, legal fees, Aircraft storage costs, Aircraft re-lease or sale costs and Lessor's internal costs and expenses (including the cost of personnel time calculated based upon the compensation paid to the individuals involved on an annual basis and a general Lessor overhead allocation); 59 (iv) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Aircraft; (v) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to redeliver the Aircraft in the condition required by this Agreement; and (vi) any other losses (including lost profits), damage, expense, cost or liability which Lessor suffers or incurs as a result of the Event of Default and/or termination of this Agreement, including an amount sufficient to fully compensate Lessor for any loss of or damage to Lessors residual interest in the Aircraft caused by Lessee's default; and/or (d) either: - (i) enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and, at Lessor's sole option, remove the same (and/or any engine which is not an Engine but which is installed on the Airframe, subject to the rights of the owner, lessor or secured party thereof) or cause it to be redelivered to Lessor at a location in the United States identified by Lessor (or such other location as Lessor may require) (the "Return Location"), by summary proceedings or otherwise, all without liability accruing to Lessor for or by reason of such entry or taking of possession whether for the restoration of damage to property, or otherwise, caused by such entry or taking, except damages caused by gross negligence or willful misconduct; and Lessor is hereby irrevocably, by way of security for Lessee's obligations under this Agreement, appointed attorney for Lessee in causing the redelivery or in directing the pilots of Lessee or other pilots to fly the Aircraft to that airport and will have all the powers and authorizations necessary for taking that action; or (ii) by serving notice require Lessee to redeliver the Aircraft to Lessor at a point within the continental United States designated by Lessor; and/or (e) sell at private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee; and/or (f) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under paragraph (a), paragraph (b), paragraph (c), paragraph (d), or paragraph (e) of this Clause 13.2, Lessor, by 30 days written notice to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts owing under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus the amount, if any, by which the aggregate Rent for the remainder of the Term (determined without reference 60 to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth at the interest rate of 4 percent (4%) per annum, exceeds the fair market rental value (determined pursuant to the Appraisal Procedure) of the Aircraft for the remainder of the Term, after discounting such fair market rental value periodically (equal to installment frequency) to present worth as of the payment date specified in such notice at the interest rate of 4 percent (4%) per annum; and/or (g) In the event that Lessor, pursuant to Clause 13.2(e) above, shall have relet the Aircraft under a lease which extends at least to the date upon which the Term for the Aircraft would have expired but for Lessee's default, Lessor, in lieu of exercising its rights under Clause 13.2(f) above with respect to the Aircraft, may, if it shall so elect, demand that Lessee pay Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent for the Aircraft due after the time of reletting) any unpaid Rent for the Aircraft due up to the date of reletting and any other amounts owing under this Agreement, plus the amount, if any, by which the aggregate Rent for the Aircraft, which would otherwise have become due over the remainder of the Term (determined without reference to any right of Lessor to terminate the leasing of the Aircraft, whether or not such right is exercised), discounted periodically (equal to installment frequency) to present worth as of the date of reletting at the interest rate of 4 percent (4%) per annum, exceeds the aggregate basic rental payments to become due under the reletting from the date of such reletting to the date upon which the Term for the Aircraft would have expired but for Lessee's default, discounted periodically (equal to installment frequency) to present worth as of the date of the reletting at the interest rate of 4 percent (4%) per annum; and/or (h) in lieu of the remedies set forth in paragraphs (a), (c), (d), (e), (f), and (g) of this Clause 13.2, by 30 days written notice to Lessee specifying a payment date, Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor on the payment date specified in such notice as liquidated damages for loss of bargain and not as a penalty (in lieu of the Rent due for the period commencing after the date specified for payment in such notice), any unpaid Rent for the Aircraft and other amounts payable under this Agreement (prorated in the case of Rent on a daily basis) to and including the payment date specified in such notice, plus an amount equaling the aggregate Rent for the remainder of the Term, discounted periodically (equal to installment frequency) to present worth at the interest rate of 4 per cent (4%) per annum; (i) draw upon the Deposit or the Maintenance Reserves furnished under this Agreement or the Related Agreements (as those times are defined in such agreements) and apply such amounts to amounts owing to Lessor hereunder. Lessee, for itself and for its successors and assigns, hereby agrees that, to the extent now or hereafter permitted by applicable Law, notwithstanding any provision of the Federal Bankruptcy Code as amended from time to time, the title of Lessor to the Aircraft and any right of Lessor to take possession of the Aircraft in compliance with the provisions of this Agreement, in each case, upon the occurrence and continuance of 61 an Event of Default, shall not be affected by the provisions of the Federal Bankruptcy Code, as amended from time to time. In addition to the foregoing, Lessee shall be liable for any and all unpaid Rent and other amounts payable under this Agreement during or after the exercise of any of the aforementioned remedies, together with interest on such unpaid amounts at the Interest Rate set forth in Letter Agreement No. 1, and until satisfaction of all of Lessee's obligations to Lessor hereunder and (on an After-Tax Basis) for all reasonable legal fees and other reasonable costs and expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the return of the Aircraft in accordance with the terms of Clause 12 hereof or in placing the Aircraft in the condition and with airworthiness certification as required by such Clause. In effecting any repossession, Lessor and its representatives and agents, to the extent permitted by Law, shall: (i) have the right to enter upon any premises where it reasonably believes the Aircraft, the Airframe, an Engine or Part to be located; (ii) not be liable, in conversion or otherwise, for the taking of any personal property of Lessee which is in or attached to the Aircraft, the Airframe, an Engine or Part which is repossessed; provided, however, that Lessor shall return to Lessee all personal property of Lessee or its passengers which was on the Aircraft at the time Lessor re-takes possession of the Aircraft; (iii) not be liable or responsible, in any manner, for any inadvertent damage or injury to any of Lessee's property in repossessing and holding the Aircraft, the Airframe, an Engine or Part, except for that caused by or in connection with Lessor's gross negligence or willful acts; (iv) have the right to maintain possession of and dispose of the Aircraft, the Airframe, an Engine or Part on any premises owned by Lessee or under Lessee's control; and (v) have the right to obtain a key to any premises at which the Aircraft, the Airframe, an Engine or Part may be located from the landlord or owner thereof. If reasonably required by Lessor, Lessee, at its sole expense, shall assemble and make the Aircraft, the Airframe, an Engine or Part available at a place designated by Lessor in accordance with Clause 12 hereof. Lessee hereby agrees that, in the event of the return to or repossession by Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express or implied) previously assigned to Lessee or otherwise held by Lessee shall without further act, notice or writing be assigned or reassigned to Lessor, if assignable. Lessee shall be liable to Lessor on an After-Tax Basis for all reasonable expenses, disbursements, costs and fees incurred in (i) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof and (ii) preparing the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby authorized and instructed, at its option, to make reasonable expenditures which Lessor considers advisable to repair and restore the Aircraft, the Airframe, an Engine or Part to the condition required by Clause 12 hereof, all at Lessee's sole expense. 62 At any public sale of the Aircraft, the Airframe, an Engine or Part pursuant to this Clause, Lessor may bid for and purchase such property and Lessee agrees that the amounts paid therefor shall be used in the computation contemplated herein. With the exception that the remedy in Clause 13.2(g) can be elected only if the remedy in Clause 13.2(f) is not elected and the remedy in Clause 13.2(h) can be elected only in lieu of all other remedies save the remedies in Clauses 13.2(b) and 13.2(i), no remedy referred to in this Clause 13 is intended to be exclusive, but, to the extent permissible hereunder or under applicable Law, each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at Law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies; provided, however, that nothing in this Clause 13 shall be construed to permit Lessor to obtain a duplicate recovery of any element of damages to which Lessor is entitled. No express or implied waiver by Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default. 13.3 Deregistration: If an Event of Default occurs, Lessor may sell or otherwise deal with the Aircraft free and clear of any leasehold or other interest of Lessee as if this Agreement had never been made and Lessee will at the request of Lessor take all steps necessary to effect (if applicable) deregistration of the Aircraft and its export from the country where the Aircraft is for the time being situated and any other steps necessary to enable the Aircraft to be redelivered to Lessor in accordance with this Agreement including without limitation execution and filing of a certificate or other instrument of lease termination with the Air Authority and; Lessee hereby irrevocably and by way of security for its obligations under this Agreement appoints (which appointment is coupled with an interest) Lessor as its attorney to execute and deliver any documentation and to do any act or thing required in connection with the foregoing. 14. ASSIGNMENT 14.1 Lessee's Assignment: LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT. 14.2 Lessor's Assignment: Lessor may assign or transfer all or any of its rights under this Agreement and in the Aircraft. In the case of an assignment other than by way of security, Lessor will be released from and will have no further obligation under this Agreement following the assignment of all its rights under this Agreement and the assumption by the assignee or transferee of all of Lessor's obligations under this Agreement. Notwithstanding any such assignment, Lessor will remain entitled to the benefit of each indemnity and the liability insurances effected under this Agreement. Lessee will comply with all reasonable requests of Lessor, its successors and assigns in respect of any such assignment. Lessor will promptly notify Lessee of any assignment. 14.3 Transfer: If Lessor desires to effect any assignment or transfer of its rights and obligations under this Agreement, Lessee agrees to cooperate and take all such steps as 63 Lessor may reasonably request to give the transferee the benefit of this Agreement and to acknowledge the release of Lessor from its obligations hereunder as of the time of such assignment or transfer. 15. ILLEGALITY If it is or becomes unlawful in any jurisdiction for Lessor to give effect to any of its obligations as contemplated by this Agreement or to continue this Agreement, Lessor may by notice in writing to Lessee terminate the leasing of the Aircraft under this Agreement and Lessee will forthwith redeliver the Aircraft to Lessor in accordance with Clause 12. Without prejudice to the foregoing Lessor will consult in good faith with Lessee as to any steps which may be taken to restructure the transaction to avoid that unlawfulness but will be under no obligation to take any such steps. 16. MISCELLANEOUS 16.1 Waivers, Remedies Cumulative: The rights of Lessor under this Agreement:- (i) may be exercised as often as necessary; (ii) are cumulative and not exclusive of its rights under any Law; and (iii) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right will not constitute a waiver of that right. 16.2 Delegation: Lessor may delegate to any person or persons all or any of the trusts, powers or discretions vested in it by these presents and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate) as Lessor in its absolute discretion thinks fit. 16.3 Certificates: Save where expressly provided in this Agreement, any certificate or determination by Lessor as to any rate of interest or as to any other amount payable under this Agreement will, in the absence of manifest error, be conclusive and binding on Lessee. 16.4 Appropriation: If any sum paid or recovered in respect of the liabilities of Lessee under this Agreement is less than the amount then due, Lessor may apply that sum to amounts due under this Agreement in such proportions and order and generally in such manner as Lessor may determine at its sole discretion. 16.5 Currency: Lessee acknowledges that the specification of Dollars in this Agreement is of the essence and that Dollars shall be the currency of account in any and all events. Lessee waives any right it may have in any jurisdiction to pay any amount under this Agreement in a currency other than Dollars. 16.6 Set-off: Lessor may set off any matured obligation owed by Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or 64 any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee against any obligation (whether or not matured) owed by Lessor to Lessee, regardless of the place of payment or currency. If the obligations are in different currencies, Lessor may convert either obligation at the market rate of exchange available in New York or at its option London for the purpose of the set-off. If an obligation is unascertained or unliquidated, Lessor may in good faith estimate that obligation and set off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained or liquidated. Lessor will not be obliged to pay any amounts to Lessee under this Agreement so long as any sums which are then due from Lessee under this Agreement, the Related Agreements or under any other agreement between Lessor (or any affiliate or associate of Lessor or a trustee-lessor acting for Lessor as beneficiary) and Lessee remain unpaid and any such amounts which would otherwise be due will fall due only if and when Lessee has paid all such sums except to the extent Lessor otherwise agrees or sets off such amounts against such payment pursuant to the foregoing. 16.7 Severability: If a provision of this Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect:- (a) the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or (b) the legality, validity or enforceability in any other jurisdiction of that or any other provision of this Agreement. 16.8 Remedy: If Lessee fails to comply with any provision of this Agreement, Lessor may, without being in any way obliged to do so or responsible for so doing and without prejudice to the ability of Lessor to treat the non- compliance as a Default or an Event of Default, effect compliance on behalf of Lessee, whereupon Lessee shall become liable to pay immediately any sums expended by Lessor together with all costs and expenses (including legal costs) in connection therewith. 16.9 Expenses: Whether or not the Aircraft is delivered to Lessee pursuant to this Agreement, Lessee is to pay to Lessor on an After-Tax Basis on demand:- (a) all costs associated with perfecting Lessor's rights in the Aircraft and/or this Agreement in the State of Registration, the Habitual Base of the Aircraft (and other states as appropriate given the operation of the Aircraft), including (but not limited to) the provision of legal opinions, tax advice, stamp duties, translations and registrations, whether required by Lessor or Lessee. (b) all expenses (including legal, professional, and out-of-pocket expenses) incurred or payable by Lessor related to any amendment to or extension of or other documentation in connection with, or the granting of any waiver or consent under this Agreement requested by Lessee or the monitoring of compliance by Lessee with this Agreement; 65 (c) all expenses (including legal, survey and other costs) payable or incurred by Lessor in contemplation of, or otherwise in connection with, the enforcement of or preservation of any of Lessor's or Owner's rights under this Agreement, or in respect of the repossession of the Aircraft; (d) a $25,000 documentary review fee to defray Lessor's expenses of review in connection with each and any request for Lessor's consent to a sub-lease, wet-lease or parting of possession as specified in Clause 8.5; and (e) a $5,000 documentary fee to defray a portion of Lessor's expenses in connection with preparation of this Agreement, receipt whereof is acknowledged. All expenses payable pursuant to this Clause 16.9 will be paid in the currency in which they are incurred by Lessor. 16.10 Time of Essence: The time stipulated in this Agreement for all payments payable by Lessee to Lessor and the prompt, punctual and performance of Lessee's other obligations under this Agreement are of the essence of this Agreement. 16.11 Notices: All notices under, or in connection with, this Agreement will, unless otherwise stated, be given in writing by letter, facsimile or SITA. Any such notice is deemed effectively to be given as follows:- (i) if by letter, on the earlier of the date when delivered or the 7th day after dispatch; (ii) if by facsimile or SITA, when transmitted and full transmission has been separately notified by telephone by the transmitting party. The address, telex numbers, SITA, facsimile and telephone numbers of Lessee, Lessor and Owner are as follows:- Lessee: Address: 12015 East 46th Avenue Denver, Colorado 80239 United States of America Attn: General Counsel SITA: DENGAF9 Facsimile: (303) 371-7007 Telephone: (303) 371-7400 66 Lessor: Address: General Electric Capital Corporation c/o GE Capital Aviation Services, Inc. 201 High Ridge Road Stamford, CT 06927-4900 Attn: Senior Vice President-Portfolio and Risk Management, North America Facsimile: (203) 961-5965 Telephone: (203) 357-4585 With a copy to: Address GE Capital Aviation Services, Inc. 201 Mission Street Suite 2700 San Francisco, CA 94105 Attn: Senior Vice President-Marketing Facsimile: (415) 284-7477 Telephone: (415) 284-7400 16.12 Governing Law and Jurisdiction: (a) THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE GOVERNING LAW (WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES); (b) For the benefit of Lessor, Lessee agrees that the courts of the United States District Court for the Northern District of California and any California state court sitting in the City of San Francisco, California are to have nonexclusive jurisdiction to settle any disputes arising out of or relating to this Agreement and submits itself and its property to the nonexclusive jurisdiction of the foregoing courts with respect to such disputes; (c) Without prejudice to any other mode of service, Lessee: - (i) appoints The Prentice-Hall Corporation System, Inc., 1455 Response Road, Suite 250, Sacramento, California, 95815 as its agent for service of process relating to any proceedings before the California courts in connection with this Agreement and agrees to maintain the process agent in California notified to Lessor; (ii) agrees that failure by a process agent to notify Lessee of the process shall not invalidate the proceedings concerned; (iii) consents to the service of process relating to any such proceedings by prepaid mailing of a copy of the process to Lessee's agent at the address identified in paragraph (i) or by prepaid mailing by air mail, certified or registered mail of a copy of the process to Lessee at the address set forth in Clause 16.11; 67 (d) LESSEE: - (i) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH LESSEE MAY NOW OR HEREAFTER HAVE TO THE COURTS REFERRED TO IN CLAUSE 16.12(B) ABOVE ON GROUNDS OF INCONVENIENT FORUM OR OTHERWISE AS REGARDS PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT; (ii) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH LESSEE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE 16.12(B); (iii) AGREES THAT A JUDGMENT OR ORDER OF ANY COURT REFERRED TO IN CLAUSE 16.12(B) IN CONNECTION WITH THIS AGREEMENT IS CONCLUSIVE AND BINDING ON IT AND MAY BE ENFORCED AGAINST IT IN THE COURTS OF ANY OTHER JURISDICTION; (e) NOTHING IN THIS CLAUSE 16.12 LIMITS THE RIGHT OF LESSOR TO BRING PROCEEDINGS AGAINST LESSEE IN CONNECTION WITH THIS AGREEMENT: - (i) IN ANY OTHER COURT OF COMPETENT JURISDICTION; OR (ii) CONCURRENTLY IN MORE THAN ONE JURISDICTION; (f) LESSEE IRREVOCABLY AND UNCONDITIONALLY: - (i) AGREES THAT IF LESSOR BRINGS LEGAL PROCEEDINGS AGAINST IT OR ITS ASSETS IN RELATION TO THIS AGREEMENT NO IMMUNITY FROM SUCH LEGAL PROCEEDINGS (WHICH WILL BE DEEMED TO INCLUDE WITHOUT LIMITATION, SUIT, ATTACHMENT PRIOR TO JUDGMENT, OTHER ATTACHMENT, THE OBTAINING OF JUDGMENT, EXECUTION OR OTHER ENFORCEMENT) WILL BE CLAIMED BY OR ON BEHALF OF ITSELF OR WITH RESPECT TO ITS ASSETS; (ii) WAIVES ANY SUCH RIGHT OF IMMUNITY WHICH IT OR ITS ASSETS NOW HAS OR MAY IN THE FUTURE ACQUIRE; (iii) CONSENTS GENERALLY IN RESPECT OF ANY SUCH PROCEEDINGS TO THE GIVING OF ANY RELIEF OR THE ISSUE OF ANY PROCESS IN CONNECTION WITH SUCH PROCEEDINGS INCLUDING, WITHOUT LIMITATION, THE MAKING, ENFORCEMENT OR EXECUTION AGAINST ANY PROPERTY WHATSOEVER (IRRESPECTIVE OF ITS 68 USE OR INTENDED USE) OF ANY ORDER OR JUDGMENT WHICH MAY BE MADE OR GIVEN IN SUCH PROCEEDINGS. 16.13 Sole and Entire Agreement: This Agreement and the other Operative Documents are the sole and entire agreement between Lessor and Lessee in relation to the leasing of the Aircraft, and supersede all previous agreements in relation to that leasing. 16.14 Indemnitees: All rights expressed to be granted to each Indemnitee under this Agreement (other than Lessor) are given to Lessor on behalf of that Indemnitee. 16.15 Counterparts: This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. To the extent, if any, that this Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no Security Interest in this Agreement may be created through the transfer or possession of any counterpart other than the counterpart that has been marked "Counterpart No. 1" on the cover page thereof. 16.16 Language: All notices to be given under this Agreement will be in English. All documents delivered to Lessor pursuant to this Agreement will be in English, or if not in English, will be accompanied by a certified English translation. If there is any inconsistency between the English version of this Agreement and any version in any other language, the English version will prevail. 16.17 No Brokers: Lessee hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessor or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. Lessor hereby represents and warrants that it has not paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Agreement, to any employee of Lessee or to any person or entity in the State of Registration or elsewhere, except to Excluded Persons, as herein defined. For the purposes hereof, the term "Excluded Persons" shall mean (x) in the case of Lessor, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere, and (y) in the case of Lessee, any of its officers, directors, employees, attorneys or other professional advisors, whether located in the State of Registration or elsewhere. Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, but not limited to reasonable attorneys' fees) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon this Agreement or the Operative Documents or the Aircraft, if such claim damage, cost or expense arises out of any action or alleged action by the indemnifying party, its employees or agents. 69 17. DISCLAIMERS AND WAIVERS 17.1 Exclusion: THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS, WHERE IS" AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO: - (a) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR IN TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE; FOR: - (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH; (ii) THE USE OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO; (iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES; (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART; OR (v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 17.2 Waiver: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, 70 EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE POSSESSION, OPERATION OR PERFORMANCE OF THE AIRCRAFT, ANY ENGINE OR ANY PART OR THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS EXCEPT TO THE EXTENT ARISING UNDER CLAUSE 2.4. 17.3 Disclaimer of Consequential Damages: LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES (AS SUCH TERM IS DEFINED IN SECTION 10520(B) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE) AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR CONTAINED IN THIS AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS. 17.4 Confirmation: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN CALCULATED BASED ON ITS PROVISIONS. 18. SECTION 1110 Lessee acknowledges that Lessor would not have entered into this Agreement unless it had available to it the benefits of a lessor under Section 1110 of Title 11 of the United States Code. Lessee covenants and agrees with Lessor that to better ensure the availability of such benefits, Lessee shall support any motion, petition or application filed by Lessor with any bankruptcy court having jurisdiction over Lessee, whereby Lessor seeks recovery of possession of the Aircraft under said Section 1110 and shall not in any way oppose such action by Lessor unless Lessee shall have complied with the requirements of said Section 1110 to be fulfilled in order to entitle Lessee to continued use and possession of the Aircraft hereunder. In the event said Section 1110 is amended, or if it is repealed and another statute is enacted in lieu thereof, Lessor and Lessee agree to amend this Agreement and take such other action not inconsistent with this Agreement as Lessor reasonably deems necessary so as to afford to Lessor the rights and benefits as such amended or substituted statute confers upon owners and lessors of aircraft similarly situated to Lessor. 19. USURY LAWS: The parties intend to contract in strict compliance with the usury Laws of the States of California and Colorado and, to the extent applicable, the United States of America. Notwithstanding anything to the contrary in the Operative Documents, Lessee will not be obligated to pay any interest in excess of the maximum non-usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by Lessor in connection with the Operative Documents. During any period of time in which the then- applicable highest lawful rate is lower than the rate specified in Clauses 5.11 or 13.2, interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the rate specified in Clauses 5.11 or 13.2, then Lessee will 71 pay interest at the highest lawful rate until the aggregate amount of interest paid by Lessee equals the amount of interest that would have been payable in accordance with the interest rate specified in Clauses 5.11 or 13.2. 20. MODIFICATION OR REVISION: Neither this Agreement nor any term of this Agreement may be modified, rescinded, changed waived, discharged or terminated except by a writing signed by the party to be charged. Lessor and Lessee acknowledge their agreement to the provision of this Clause 20 by their initials below: - LESSOR: LESSEE: ---------- ------------ 72 21. IN WITNESS whereof the parties hereto have executed this Agreement on the date shown at the beginning of this Agreement. WITNESS SIGNED on behalf of GENERAL ELECTRIC CAPITAL CORPORATION By: ------------------------------ Name: ---------------------------- Title: --------------------------- WITNESS SIGNED on behalf of FRONTIER AIRLINES, INC. By: ------------------------------ Name: ---------------------------- Title: --------------------------- 73 SCHEDULE 1 PART 1 DESCRIPTION OF AIRCRAFT AIRCRAFT - -------- MANUFACTURER: Boeing MODEL: 737-300 SERIAL NUMBER: 28563 ENGINES - ------- ENGINE TYPE: CFM-56-3C1 SERIAL NOS: SN [______]; SN [______]; On the Delivery Date the Aircraft shall be in the following condition:- (a) New, ex factory; (b) painted in Lessee's livery, provided that Lessor has been furnished with a detailed working drawing no later than three months prior to the scheduled Delivery Month and that costs in excess of normal aircraft exterior painting costs to accommodate the application of Lessee's decorative decals to the vertical fin and rudder areas shall be reimbursed by Lessee; (c) have had accomplished all outstanding (i.e. at or prior to the Delivery Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Part having a compliance date prior to the Delivery Date or within 90 days after the Delivery Date and which are required by the Air Authority, and/or the FAA and/or mandated by any manufacturer of the Aircraft, any Engine or Part; (d) shall have no open, deferred, continued, carryover or placarded log book items; and (e) equipped for US domestic passenger operation under FAR Part 121. 74 PART 2 AIRCRAFT DOCUMENTS A. CERTIFICATES . FAA Certificate of Airworthiness (on board aircraft) . Current Aircraft Registration Certificate (on board aircraft) B. AIRCRAFT STATUS SUMMARIES . Aircraft record of flight time and cycles (listing of accumulated hours and cycles as of specific dates) . Airworthiness Directive Applicability and Compliance Report . Supplemental Structural Inspection (SSID) Status (if applicable) . Corrosion Prevention and Control Program Task Status . List of Major Repairs and Alterations . List and Status of Life Limited Components . Check/Inspection Status . List and Current Status of Time-Controlled Components . Serialized On-Condition/Condition Monitored Components Inventory of Installed Units C. AIRCRAFT MAINTENANCE RECORDS Airframe inspection, maintenance, modification, and repair documents with maintenance and/or inspection signatures (as required) and description of work done. . Last "A", "B", "C" and "D" Checks (or equivalents) (In the event that a check is performed in phases, all phases necessary to constitute a complete block check are required. In the event that check content varies by multiples of the check, all multiples necessary to constitute a complete cycle are required.) . Airworthiness Directive, Service Bulletin and modification compliance documents including engineering orders, drawings, shop cards, etc., as necessary to establish method of compliance, quality control acceptance, and approval authority 75 . Supplemental Structural Inspection (SSID) compliance documents and findings (if applicable) . Corrosion Prevention and Control Program compliance documents and findings . Documentation of major repairs and alterations including engineering orders, drawings, Supplemental Type Certificates, Master Change Notice, etc., as necessary to define work done, certification basis, and approval authority. . Aircraft weighing records D. AIRCRAFT HISTORY RECORDS . Service Difficulty Reports . Accident or Incident Reports E. ENGINE RECORDS (for each engine) . Engine Master Record (record of installation and removal and accumulated flight time and cycles) . Airworthiness Directive Applicability and Compliance Report . Manufacturer Service Bulletin Compliance Report . List of Operator Modifications Incorporated, if any . List of Major Repairs and Alterations, if any . List of Current Status of Life Limited Components . Check/Inspection Status . List and Status of Time Controlled Components . Serialization On-Condition/Condition Monitored Components Inventory of Installed Units . Repair, overhaul and inspection documents including FAA Forms 337 . Documents necessary to demonstrate installation and traceability to new for life limited components currently installed . Test Cell Records for last test 76 F. APU RECORDS . APU Master Record (record of installation and removal and accumulated time and cycles) . Airworthiness Directive Applicability and Compliance Report . Manufacturer Service Bulletin Compliance Report . List of Operator Modifications Incorporated, if any . List and Current Status of Life Limited Components . List and Status of Time Controlled Components . Serialized On-Condition/Condition Monitored Components Inventory of Installed Units . Repair, overhaul and inspection documents including FAA Forms 337 . Documents necessary to demonstrate installation and traceability to new for life limited components currently installed G. COMPONENT RECORDS . Time Controlled Component Historical Records with installation and serviceability tags . Documents necessary to demonstrate installation and traceability to new for life limited components currently installed . Installation records and serviceability tags for Serialized On- condition/Condition Monitored Components (minimum of last twelve months) H. MANUALS Airplane Delivered Used: . Airplane Flight Manual . Weight and Balance Control and Loading Manual . Maintenance Manual (microfilm) . Wiring Diagram Manual (microfilm) . Illustrated Parts Catalog (microfilm) 77 . Structural Repair Manual (microfilm) . Engine Maintenance Manual (microfilm) . Engine Illustrated Parts Manual (microfilm) . Operator Weight and Balance Manual . Pilots Handbook . Minimum Equipment List I. MISCELLANEOUS TECHNICAL DOCUMENTS . Maintenance Program Specifications . Engine Build Specifications . Reference material necessary for interpretation of status summaries, i.e. Operator Part Number Cross Reference . Interior configuration drawings . Boeing Aircraft Readiness Log . Loose Equipment Inventory . FAA Burn Certificates of Aircraft Interiors and seats 78 SCHEDULE 2 CERTIFICATE OF TECHNICAL ACCEPTANCE This Certificate of Technical Acceptance is delivered, on the date set out below by Frontier Airlines, Inc. ("Lessee"), to GENERAL ELECTRIC CAPITAL CORPORATION ("Lessor"), pursuant to the Aircraft Lease Agreement dated as of the 18th of November, 1996 between Lessor and Lessee (the "Agreement"). The capitalized terms used in this Certificate shall have the meaning given to such terms in the Agreement. 1. DETAILS OF ACCEPTANCE Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this [ ] day of [ ], 199[ ], at [ ], accepted the following, in accordance with the provisions of the Agreement: (a) Boeing Model 737-300 airframe, Manufacturer's Serial No. 28563; (b) CFM-56-3C1 Engines: - Engine Manufacturer's Serial Nos. 1) [______] 2) [______] (Each of which shall have more than 750 rated takeoff horsepower or the equivalent of such horsepower); (c) Fuel on Board Status: [ ] (lbs.) (gals.) (d) Loose Equipment Check List: as per list signed by Lessor and Lessee and attached hereto; and (e) Aircraft Documents: as per list signed by Lessor and Lessee and attached hereto. 79 2. HOURS AND CYCLES DATA (as of Delivery Date) (a) Airframe: -------- Number of Hours since last phase "D" Check (Heaviest Check): ______ hours ----------------------------------------------------------- "C" Check (or Equivalent): ------------------------- Interval: ---------------------------- Time Since: -------------------------- (b) Landing Gear Overhaul: --------------------- Number of Cycles Since Last Overhaul: Left Gear cycles -------------------------- Right Gear cycles ------------------------- Nose Gear cycles -------------------------- Center Gear cycles ------------------------ Interval: Left Gear --------------------- Right Gear ------------------------- Nose Gear -------------------------- Center Gear ------------------------ (c) Engines: ------- Number of Hours Since Last Heavy Shop Visit: S/N : hours ------------ ------- S/N : hours ------------ ------- Number of Hours Since Last Hot Section Refurbishment: S/N : hours ------------ ------- S/N : hours ------------ ------- 80 Number of Hours Since Last Cold Section Refurbishment: S/N : hours ------ S/N : hours ------ Hot Section Inspection: Interval: --------------------------- Time Since (S/N ): -------------------------- Time Since (S/N ): -------------------------- Time Remaining to First Restriction: Engine S/N: Hours: Restriction: ---------- ---------- Cycles: Restriction: ---------- ---------- Engine S/N: Hours: Restriction: ---------- ---------- Cycles: Restriction: ---------- ---------- Average Cycles in Life Limited Parts (see attached Schedule): --------- (d) Auxiliary Power Unit: -------------------- Number of APU Hours Since Last Heavy Shop Visit: hours Date accomplished ---------- ---------- Hot Section Inspection: Interval: ------------------------ Time Since: ------------------------ (e) Time Controlled Components: [See attached DUJX Report] -------------------------- (f) Interior Equipment: ------------------ Number of Passenger Seats and Configuration: --------------- -------------------- 81 Number of Galleys and Location: --------- ---------- Number of Lavatories and Location: --------- ---------- LOPA - Attached --------- ---------- List of Loose Equipment on Board: --------------------------------------------- --------------- --------------------------------------------- --------------- --------------------------------------------- --------------- --------------------------------------------- --------------- --------------------------------------------- --------------- --------------------------------------------- --------------- (g) Avionics: Description Model Part -------- ----------- ----- ---- No. --- --------------------------------------------- --------- ---------------- --------------------------------------------- --------- ---------------- --------------------------------------------- --------- ---------------- --------------------------------------------- --------- ---------------- --------------------------------------------- --------- ---------------- --------------------------------------------- --------- ---------------- 82 3. ACCEPTANCE: The undersigned hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents are acceptable to it, satisfy all of the Delivery Condition Requirements and are in the condition for delivery to and acceptance by Lessee as required under the Agreement, except as described on the EXCEPTIONS LIST attached hereto. LESSEE'S EXECUTION AND DELIVERY OF THIS CERTIFICATE SIGNIFIES LESSEE'S ABSOLUTE AND IRREVOCABLE ACCEPTANCE OF DELIVERY OF THE AIRCRAFT TO IT FOR ALL PURPOSES HEREOF AND OF THE AGREEMENT. IN WITNESS WHEREOF, Lessee has, by its duly authorized representative, executed this Certificate on the date in paragraph 1 above. LESSEE: FRONTIER AIRLINES, INC. By: ------------------------- Title: ------------------------- 83 ATTACHMENT EXCEPTIONS LIST --------------- The items set forth below represent non-conformities to the Delivery Condition Requirements as of the Delivery Date, the corrective action (or payment to Lessee in lieu thereof), if any, to be taken by Lessor and the date of accomplishment. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR'S UNDERTAKINGS SET FORTH HEREIN ARE IN FURTHERANCE OF AND SUBJECT TO THE AIRCRAFT LEASE AGREEMENT DATED AS OF MARCH 25, 1997 BETWEEN LESSOR AND LESSEE (THE "LEASE"), THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, HEREUNDER AND THAT LESSORS UNDERTAKINGS ARE SUBJECT TO EACH AND EVERY DISCLAIMER OF LESSOR SET FORTH IN THE LEASE INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN CLAUSE 17 THEREOF. LESSOR LESSEE By: By: ------------------------------- ------------------------------- Title: Title: ---------------------------- ----------------------------
- ------------------------------------------------------------------------------ ITEM DESCRIPTION AND CORRECTIVE COMPLETION LESSEE'S NO. ACTION DATE INITIALS --------------------------------- 1. --------------------------------- --------------------------------- --------------------------------- ---------------- ---------------- -- 2. --------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------- ---------------- -- 3. --------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------- ---------------- -- - ------------------------------------------------------------------------------
84 SCHEDULE 3 OPERATING CONDITION AT REDELIVERY On the Expiry Date the Aircraft, subject to fair wear and tear generally, will be in the condition set out below:- 1. GENERAL CONDITION The Aircraft will:- (a) be in the same configuration as on the Delivery Date or as reasonably requested by Lessor; (b) be clean by commercial airline standards; (c) have installed the full complement of engines and other equipment, parts, furnishings and accessories as is normally installed in the Aircraft and the loose equipment as was installed in the Aircraft at the time of Delivery, and be in a condition suitable for immediate operation in commercial service; (d) have in existence a valid certificate of airworthiness (or if required by Lessor, a valid export certificate of airworthiness) with respect to the Aircraft issued by the Air Authority and be in compliance without waiver with all current FAR Part 121 requirements; (e) comply with the manufacturer's original specifications or as modified by Lessee with the approval of Lessor, and as required to meet the regulations of the Air Authority at the Expiry Date; (f) have undergone, immediately prior to redelivery, a block 'C' Check so that all inspections falling due within the next following 3,200 Flight Hours, 3,000 Cycles or the next following 12 months of operation in accordance with Lessee's Maintenance Program, have been accomplished; (g) have had accomplished all outstanding (i.e. at or prior to the Expiry Date) mandatory inspection and modification requirements, airworthiness directives and similar requirements applicable to the Aircraft, any Engine or Port having a compliance date during the Term or within 90 days after the Expiry Date and which are required by the Air Authority, and/or mandated by any manufacturer of the Aircraft, any Engine or Part, for this purpose, compliance shall be by terminating action if: the latest date permitted by such Airworthiness Directive for compliance by terminating action falls within 90 days after the Expiry Date; 85 (h) have installed all applicable vendor's and manufacturer's service bulletin kits received free of charge by Lessee that are appropriate for the Aircraft and to the extent not installed, those kits will be furnished free of charge to Lessor; (i) have its fuselage, engine cowlings, and vertical fin and rudder freshly painted in an all white livery and the paint on the wings and the horizontal stabilizer surfaces shall be clean and in good condition, free from cracks, peeling, blistering and erosion and shall be uniform in color and free from areas of local touch up; (j) have all signs and decals clean, secure and legible; (k) shall have no open, deferred, continued, carryover or placarded log book items; and (l) meet the requirements of FAR Part 36, Appendix C, Stage 3 noise compliance as then in effect without waiver or restriction. 2. COMPONENTS (a) Each Flight Hour and Cycle limited component (other than the APU) shall have not less than 3,200 Flight Hours and 3,000 Cycles (whichever is the more stringent test) of life remaining to the next expected removal, in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul and Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (b) Each calendar-limited component including safety equipment will have not less than 12 months life remaining to the next scheduled removal in accordance with Lessee's Maintenance Program and shall be supported by documentation indicating Time Since New, Cycles Since New, Time Since Overhaul, Cycles Since Overhaul and shall be accompanied by appropriate certification documentation acceptable to the Air Authority from the last overhaul or zero time shop visit such as JAR form 1 or FAA form 8130-1; (c) Each life-limited component will be supported by certification documentation necessary to demonstrate traceability of utilization since new (i.e. back-to-birth traceability); (d) Each "on-condition" and "condition monitored" component will be serviceable; (e) The APU will be fresh from a burner can change and have not more than 1,500 Flight Hours since the last hot section inspection (including removal and inspection of the plenum, torus and turbine nozzle), and have not more than 5,000 Flight Hours since last gas path refurbishment in accordance with the manufacturer's specifications and be free of any defects as determined by manufacturer limits; and (f) The installed components as a group will have an average of total flight time since new of not more than that of the Airframe. 86 3. ENGINES Each Engine will be installed on the Aircraft and if not the engines installed on the Delivery Date will be accompanied by all documentation Lessor may require to evidence that title thereto is properly vested in Owner and will:- (a) have not less than 4,000 Engine Flight Hours or 3,500 Cycles (whichever is the more restrictive factor) remaining to next scheduled life limited part replacement and have an expected on-wing remaining life of not less than 4,000 Engine Flight Hours or 3,500 Cycles (whichever is the more restrictive factor). The expected life remaining will be determined by the inspection and checks accomplished by Lessor in accordance with this Agreement; (b) not be "on watch". (For purposes of the Agreement "on watch" shall mean any maintenance condition that would require an Engine removal and/or reinspection or airworthiness directive action that would require an Engine removal within 4,000 flight hours and 3,500 Cycles of the Expiry Date); and (c) be in a condition which can operate at maximum rated take off power at sea level at a temperature of 45oC. 4. FUSELAGE, WINDOWS AND DOORS (a) The fuselage will be free of major dents and abrasions, and any dents and abrasions that require a repetitive inspection or future repair, temporary repairs, and loose or pulled or missing rivets and all structural repairs shall be in accordance with the manufacturer's and Air Authority's approved data for permanent repair; (b) Windows will be free of delamination, blemishes, crazing and will be properly sealed; and (c) Doors will be free moving, correctly rigged and be fitted with serviceable seals. 5. WINGS AND EMPENNAGE (a) Leading edges will be free from damage; (b) Control surfaces will be waxed and polished; (c) Unpainted cowlings and fairings will be polished; and (d) Wings will be free of fuel leaks. 6. INTERIOR (a) Ceilings, sidewalls and bulkhead panels will be clean and free of cracks and stains; (b) Carpets and seat covers will be in good condition, clean and free of stains and meet FAR fire resistance regulations; 87 (c) Seats will be serviceable, in good condition and repainted as necessary; and (d) Emergency equipment having a calendar life will have a minimum of 1 year or 100% of its total approved life, whichever is less, remaining. 7. COCKPIT (a) Fairing panels shall be free of stains and cracks, will be clean secure and repainted as necessary; (b) Floor coverings will be clean and effectively sealed; (c) Seat covers will be in good condition, clean and free of stains and will conform to FAR fire resistance regulation; and (d) Seats will be serviceable, in good condition and will be repainted as necessary. 8. CARGO COMPARTMENTS (a) Panels will be in good condition; and (b) Nets will be in good condition. 9. LANDING GEAR The landing gear and wheel 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. 88 SCHEDULE 4 INSURANCE REQUIREMENTS The Insurances required to be maintained are as follows:- (a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with respect to the Aircraft on an "agreed value basis" for the Agreed Value and with a deductible not exceeding the Deductible Amount set forth in Letter Agreement No. 1, or such other amount agreed by Lessor from time to time; (b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All Risks Policy to the fullest extent available from the leading international insurance markets including confiscation and requisition by the State of Registration for the Agreed Value, however, when the Aircraft is being operated solely in or over the United States of America and/or Canada, coverage may be limited to such perils as are customarily insured by comparable airlines, operating similar equipment in similar circumstances; (c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or in transit other than by air) property insurance on all Engines and Parts when not installed on the Aircraft on an "agreed value" basis for their full replacement value and including engine test and running risks; (d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage) of an amount not less than the Minimum Liability Coverage for the time being any one occurrence (but in respect of products and personal injury liability this limit may be an aggregate limit for any and all losses occurring during the currency of the policy). War and Allied Risks are also to be covered under the Policy in line with prudent market practice for comparable airlines, operating similar equipment in similar circumstances; (e) All required hull and spares insurance (as specified above), so far as it relates to the Aircraft will: - (i) name Lessor and its successors and assigns as additional assureds for their respective rights and interests, warranted, each as to itself only, no operational interest; (ii) provide that any loss will be settled jointly with Lessor and Lessee and will be payable in Dollars to Lessor except where the loss does not exceed the Damage Notification Threshold, and Lessor has not notified the insurers to the contrary, in which case the loss will be settled with and paid to Lessee; 89 (iii) if separate Hull "all risks" and "war risks" insurances are arranged, include a 50/50 provision in accordance with market practice (AVS. 103 is the current market language); (iv) confirm that the insurers are not entitled to replace the Aircraft in the event of an insured Event of Loss; (v) confirm that the insurers will not obtain a valid discharge of the obligations under the Insurances by payment to the broker, notwithstanding market practice to the contrary; (f) All required liability insurances (specified above) will:- (i) include Lessor, GECASI, GECASL and their respective successors and assigns and their respective shareholders, subsidiaries, directors, officers, agents, employees and indemnitees as additional insureds for their respective rights and interests, warranted, each as to itself only, no operational interest; (ii) include a Severability of Interest Clause which provides that the insurance, except for the limit of liability, will operate to give each assured the same protection as if there was a separate policy issued to each assured; (iii) contain a provision confirming that the policy is primary without right of contribution and the liability of the insurers will not be affected by any other insurance of which Lessor or Lessee have the benefit so as to reduce the amount payable to the additional insureds under such policies; (g) All Insurances will:- (i) be in accordance with normal industry practice of persons operating similar aircraft in similar circumstances; (ii) provide cover denominated in Dollars and any other currencies which Lessor may reasonably require in relation to liability insurance; (iii) operate on a worldwide basis subject to such limitations and exclusions as Lessor may agree; (iv) acknowledge the insurer is aware (and has seen a copy) of this Agreement and that the Aircraft is owned by Lessor; (v) provide that, in relation to the interests of each of the additional assureds the Insurances will not be invalidated by any act or omission by Lessee, or any other person other than the respective additional assured seeking protection and shall insure the interests of each of the additional assureds regardless of any breach or violation by Lessee, or any other person other than the respective additional assured seeking protection of any warranty, declaration or condition, contained in such Insurances; 90 (vi) provide that the insurers will hold harmless and waive any rights of recourse and/or subrogation against the additional assureds, including GECASI and GECASL or to be subrogated to any rights of Lessor against Lessee ; (vii) provide that the additional assureds will have no obligation or responsibility for the payment of any premiums due (but reserve the right to pay the same should any of them elect so to do) and that the insurers will not exercise any right of set-off or counter-claim in respect of any premium due against the respective interests of the additional assureds other than outstanding premiums relating to the Aircraft, any Engine or Part the subject of the relevant claim; (viii) provide that the Insurances will continue unaltered for the benefit of the additional assureds for at least 30 days after written notice by registered mail or telex of any cancellation, change, event of non-payment of premium or installment thereof has been sent to Lessor, except in the case of war risks for which 7 days (or such lesser period as is or may be customarily available in respect of war risks or allied perils) will be given, or in the case of war between the 5 great powers or nuclear peril for which termination is automatic; (ix) if reinsurance is a requirement of this Agreement such reinsurance will (i) be on the same terms as the original insurances and will include the provisions of this Schedule, (ii) provide that notwithstanding any bankruptcy, insolvency, liquidation, dissolution or similar proceedings of or affecting the reinsured that the reinsurers' liability will be to make such payments as would have fallen due under the relevant policy of reinsurance if the reinsured had (immediately before such bankruptcy, insolvency, liquidation, dissolution or similar proceedings) discharged its obligations in full under the original insurance policies in respect of which the then relevant policy of reinsurance has been effected; and (iii) contain a "cut-through" clause in the following form (or otherwise, satisfactory to Lessor): "The Reinsurers and the Reinsured hereby mutually agree that in the event of any claim arising under the reinsurances in respect of a total loss or other claim where as provided by the Aircraft Lease Agreement dated March 25, 1997 and made between Lessor and Lessee such claim is to be paid to the person named as sole loss payee under the primary insurances, the Reinsurers will in lieu of payment to the Reinsured, its successors in interest and assigns pay to the person named as sole loss payee under the primary insurances effected by the Reinsured that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Reinsured (subject to proof of loss), it being understood and agreed that any such payment by the Reinsurers will (to the extent of such payment) fully discharge and release the Reinsurers from any and all further liability in connection therewith"; subject to such provisions not contravening any law of the State of Incorporation; (x) contain a provision entitling Lessor or any insured party to initiate a claim under any policy in the event of the refusal or failure of Lessee to do so; and 91 (xi) accept and insure the indemnity provisions of this Agreement to the extent of the risks covered by the policies. 92 SCHEDULE 5 FORM OF LEGAL OPINION To: General Electric Capital Corporation [Date] Dear Sirs, 1. You have asked us to render an opinion in connection with the transaction governed, inter alia, by the under mentioned documents. Words and expressions used herein will bear the same meanings as defined in an Aircraft Lease Agreement (the "Lease") dated March 25, 1997 between General Electric Capital Corporation ("Lessor") and Frontier Airlines, Inc. ("Lessee") in respect of one Boeing 737-300 aircraft with manufacturer's serial number 28563 together with the two installed engines (the "Aircraft"). 1.1. the Lease; 1.2. the Memorandum and Articles of Association of Lessee; 1.3. all other documents, approvals and consents of whatever nature and wherever kept which it was, in our judgment and to our knowledge, necessary or appropriate to examine to enable us to give the opinion expressed below. 2. Having considered the documents listed in paragraph 1 above, and having regard to the relevant laws of [the State of California] [the State of Colorado] we are pleased to advise that in our opinion:- (a) Lessee was duly incorporated in the State of [ ] on [ ] for an indefinite period as a limited company and is a validly existing separate legal entity, is subject to suit in its own name, and, to the best of our knowledge, no steps have been, or are being, taken to appoint a receiver, liquidator, trustee or similar officer over, or to wind up, Lessee; (b) Lessee has the corporate power to enter into and perform, and has taken all necessary corporate action to authorize the entry into, performance and delivery of, the Lease and the transactions contemplated by the Lease; (c) the entry into and performance by Lessee of, and the transactions contemplated by, the Lease do not and will not:- (i) conflict with any laws binding on Lessee; or (ii) conflict with the constitutional documents of Lessee; or 93 (iii) conflict with or result in default under any document which is binding upon Lessee or any of its assets or result in the creation of any Security Interest over any of its assets. (d) no authorizations, consents, licenses, approvals and registrations (other than those which have been obtained and of which copies are attached hereto) are necessary or desirable to be obtained from any governmental or other regulatory authorities in the United States of America (the "United States") to enable Lessee:- (1) to enter into and perform the transactions contemplated by the Lease; (2) to import the Aircraft into the United States for the duration of the Term; (3) to operate the Aircraft in the United States for the transport of fare-paying passengers; or (4) to make the payments provided for in the Lease; (e) except for [the filing and recordation of the Agreement with the FAA and] the filing of the Financing Statements with [ ] (which filing has been duly made on or before this date) it is not necessary or desirable, to ensure the priority, validity and enforceability of all the obligations of Lessee under the Lease that the Lease be filed, registered, recorded or notarized in any public office or elsewhere or that any other instrument relating thereto be signed, delivered, filed, registered or recorded, that any tax or duty be paid or that any other action whatsoever be taken; (f) No steps are necessary or desirable to record or perfect Lessor's interest in the Aircraft in the United States; (g) on termination of the Lease (whether on expiry or otherwise) as contemplated in the Lease, Lessor would be entitled:- (1) to repossess the Aircraft; (2) to export the Aircraft from the United States; without requiring any further consents, approvals or licenses from any governmental or regulatory authority in []; (h) the Lease has been properly signed and delivered on behalf of Lessee and the obligations on the part of Lessee contained therein, are valid and binding on and enforceable against Lessee respectively under the laws of the United States; (i) the events described in Clause 13.1(g) of the Lease comprise an accurate and complete statement of all events and situations provided for by the laws of the United States which may lead to the cessation of activities, winding up or dissolution of Lessee; (j) Lessee is a Certificated Air Carrier; 94 (k) Lessee is a "citizen of the United States" as defined in Section 40102 of Title 49 of the United States Code; (l) Lessor is entitled to the benefits of Section 1110 of Title 11 of the United States Code; (m) Lessee's chief executive office (as defined in the Uniform Commercial Code in effect in [ ]) is located at [ ]; (n) the obligations of Lessee under the Lease rank at least pari passu with all other present and future unsecured and unsubordinated (including contingent obligations) of Lessee; (o) there is no withholding tax or other Tax to be deducted from any payment whatsoever which may be made by Lessee pursuant to the Lease; with respect to any withholdings, the provisions of Clauses 5.6, 5.7 and 5.10 of the Lease are fully effective; and the arrangements contemplated by the Lease do not give rise to any charge whatsoever to Taxes in the United States; (p) there is no applicable usury or interest limitation law in the United States which may restrict the recovery of payments in accordance with the Lease; (q) there are no registration, stamp or other taxes or duties of any kind payable in the United States in connection with the signature, performance or enforcement by legal proceedings of the Lease; (r) Lessor will not violate any law or regulation in the United States nor become liable to tax in the United States by reason of entering into the Lease with Lessee, or performing its obligations thereunder; (s) it is not necessary to establish a place of business in the United States in order to enforce any provisions of the Lease; (t) the choice of the Governing Law to govern the Lease will be upheld as a valid choice of law in any action in the Courts of the United States; (u) the consent to the jurisdiction by Lessee contained in the Lease is valid and binding on Lessee and not subject to revocation; (v) any judgment for a definite sum given by the Courts of the State of California against Lessee would be recognized and accepted by the Courts of the United States without re-trial or examination of the merits of the case; (w) (i) Lessee is subject to civil commercial law with respect to its obligations under the Lease; and (ii) neither Lessee nor any of its assets is entitled to any right of immunity and the entry into and performance of the Lease by Lessee constitute private and commercial acts; and 95 (x) there are no laws or other rules in the United States (including, without limitation, Emergency Powers laws) pursuant to which Lessee may be deprived of the Aircraft by any Government Entity or any other person, other than Lessor or any assignee of Lessor. 3. We do not purport to be experts on and do not purport to be generally familiar with or qualified to express legal opinions based on any law other than the laws of the United States and accordingly express no legal opinion herein based upon any law other than the laws of the United States. Yours faithfully, 96 SCHEDULE 6 LEASE SUPPLEMENT NO. __ LEASE SUPPLEMENT NO. ___, dated _________, 1995, between General Electric Capital Corporation, a corporation organized under the laws of New York ("Lessor"), and Frontier Airlines, Inc. a corporation organized under the laws of the State of Colorado ("Lessee"). Lessor and Lessee have previously entered into that certain Aircraft Lease Agreement dated as of March 25, 1997 (herein referred to as the "Agreement" and the defined terms therein being hereinafter used with the same meaning). The Agreement provides for the execution and delivery from time to time of a Lease Supplement substantially in the form hereof for the purpose of leasing the aircraft described below under the Agreement as and when delivered by Lessor to Lessee in accordance with the terms thereof. The Agreement and this Lease Supplement relate to the Aircraft, Engines and Parts as more precisely described below. A counterpart of the Agreement is attached hereto and this Lease Supplement and the Agreement shall form one document. In consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: - 1. Lessor hereby delivers and leases to Lessee under the Agreement and Lessee hereby accepts, acknowledges receipt of possession and leases from Lessor under the Agreement, that certain Boeing Model 737-300 commercial jet Aircraft, and the two (2) CFM International CFM-56-3-C1 Engines (each of which Engines has 750 or more rated takeoff horsepower or the equivalent of such horsepower) described in Schedule 1 hereto, together with the Aircraft Documents described in the Agreement (the "Delivered Aircraft"). 2. The Delivery Date of the Delivered Aircraft is the date of this Lease Supplement set forth in the opening paragraph hereof. 3. The Term for the Delivered Aircraft shall commence on the Delivery Date and shall end on the Expiry Date. 4. The amount of Rent for the Delivered Aircraft is set forth in Letter Agreement No. 1 to the Agreement. 5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each delivered Engine have been duly marked in accordance with the terms of --------- Clause 8.7(d) of the Agreement, (ii) the Aircraft is insured as required by the Agreement, (iii) the representations and warranties of Lessee referred to in Clause 2 of the Agreement are hereby repeated with effect as of the date first above written, (iv) having inspected the Delivered Aircraft, Lessee acknowledges that the Delivered Aircraft satisfies all 97 conditions required for Lessee's acceptance of delivery as set forth in the Agreement, except as noted in the Exceptions List attached to the Certificate of Technical Acceptance, and (v) the execution and delivery of this Lease Supplement signifies absolute and irrevocable acceptance by Lessee of the Delivered Aircraft for all purposes hereof and of the Agreement. 6. All of the terms and provisions of the Agreement are hereby incorporated by reference in this Lease Supplement to the same extent as if fully set forth herein. 7. This Lease Supplement may be executed in any number of counterparts, each of such counterparts, shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Lease Supplement. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. __ to be duly executed as of the day and year first above written. LESSOR, LESSEE, GENERAL ELECTRIC CAPITAL FRONTIER AIRLINES, INC. CORPORATION By: By: ---------------------------- ---------------------------- Name: Name: -------------------------- -------------------------- Title: Title: ------------------------- ------------------------- 98 SCHEDULE 1 TO LEASE SUPPLEMENT NO. One New Boeing 737-300 Airframe Registration Mark ----------------- N_____ Manufacturer's Serial No. Total Time* Total Cycles* ---------- ---------- ------------ 28563 ---------- ------------ Installed CFM International, Inc. Engines ---------------- Model No. Serial No. Total Time* Total Cycles* - -------- ---------- ---------- ------------ CFM-56-3-C1 [________] ------------- ------------- CFM-56-3-C1 [________] ------------- ------------- Each of the above-described Aircraft Engines is 750 or more rated takeoff horsepower or its equivalent. * The total time and total cycles referred to above are as of ____________ Time,_________,____. Such times and cycles are within________hours and _________cycles of the actual hours and cycles at the time of this Lease Supplement. 99 SCHEDULE 7 FORM OF LEASE TERMINATION CERTIFICATE The undersigned hereby certify that the Aircraft Lease Agreement dated as of March 25, 1997 between the undersigned Lessor and undersigned Lessee, and as further described in the Appendix attached hereto, has terminated and the aircraft and aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this __________ day of ____________________, __________ LESSOR LESSEE GENERAL ELECTRIC CAPITAL FRONTIER AIRLINES, INC. CORPORATION By: By: ------------------------------- --------------------------- Title: Title: ---------------------------- ------------------------ 100 APPENDIX -------- FAA Recording Date FAA Conveyance No. - ------------------ ------------------ 101 SCHEDULE 8 FORM OF AIRCRAFT USAGE REPORT FOR PERIOD BEGINNING ON __________, 199____ AND ENDING ON ___________, 199____ The undersigned Officer of Frontier Airlines, Inc. ("Lessee") hereby certifies as follows: 1. This report is submitted to General Electric Capital Corporation ("Lessor") under that certain Aircraft Lease Agreement dated as of March 25, 1997, between Lessor and Lessee (the "Lease"), and capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the Lease. 2. The Aircraft covered by this report is: Aircraft: Boeing 737-300 Serial No: 28563 U.S. Reg. No.: N_____ 3. During the period covered by this report, the Airframe which is the subject of the Lease was operated for the following number of Flight Hours and Cycles as such terms are defined in the Lease: Flight Hours Cycles --------- ---------- 4. During the period covered by this report, the CFM-56-C1 Engines Bearing respective serial numbers __________ and ____________ which are the subject of the Lease, where each operated for the following number of Engine Flight Hours and Cycles, as defined in the Lease: Engine Flight Hours Cycles ------------------- ------ SN -------- ------------------ ------------------ SN -------- ------------------ ------------------ This Aircraft Usage Report is dated __________________, 199_____, FRONTIER AIRLINES, INC. By: -------------------------------- Title: ----------------------------- 102 EXECUTION COPY LETTER AGREEMENT NO. 1 As of March 25, 1997 Frontier Airlines, Inc. 12015 East 46th Avenue Denver, Colorado 80239 United States of America Re: Letter Agreement No. 1 to Aircraft Lease Agreement dated as of March 25, 1997, between General Electric Capital Corporation, Lessor, and Frontier Airlines, Inc., Lessee - Definitions of Certain Terms and Other Matters Gentlemen: Reference is made to that certain Aircraft Lease Agreement dated as of March 25, 1997 (the "Lease") between General Electric Capital Corporation as lessor ("Lessor") and Frontier Airlines, Inc. as lessee ("Lessee") for the lease of one new Boeing Model 737-300 commercial aircraft bearing manufacturer's serial number 28563 (the "Aircraft"). Terms not otherwise defined herein shall have the meanings ascribed to them in the Lease. In order further to preserve the confidentiality of certain of the business terms of the Lease and the other Operative Documents, Lessor and Lessee have agreed that certain defined terms used in the Lease and their understanding respecting certain other matters shall be set forth in this letter rather than in the body of the Lease. I. Confidentiality. --------------- Lessor and Lessee understand that certain commercial and financial information contained in or provided in connection with the Lease, this Letter Agreement No. 1, Tax Indemnity Agreement and the other documents executed or furnished in connection herewith and therewith, is considered by Lessor and Lessee as privileged and confidential. Lessor and Lessee each hereby agree, that it will treat Letter Agreement No. 1 and each such other document as privileged and confidential and will not, without the prior written consent of the other, disclose or cause to be disclosed, the terms hereof or thereof to any Person, except to its counsel and auditors, or except (a) as may be required by applicable Law or governmental regulation or pursuant to an order, or a valid and binding request, issued by any court or governmental agency or authority having jurisdiction over Lessor or Lessee, as the case may be, or (b) as necessary to enable Lessor to make transfers, assignments or other dispositions to potential transferees, assignees or participants of its interest in and to this Agreement. Frontier Airlines, Inc. As of March 25, 1997 Page 2 In connection with any such disclosure or any filing of the information contained herein or therein pursuant to any such applicable Law or governmental regulation, Lessor or Lessee, as the case may be, shall request and use its best reasonable efforts to obtain confidential treatment of this Letter Agreement No. 1, Tax Indemnity Agreement, such other documents and such information contained herein or therein or furnished in connection therewith and the other party will cooperate in making and supporting any such request for confidential treatment. II. Definitions of Certain Terms. ---------------------------- Lessor and Lessee agree that the following terms shall have the following meanings for all purposes of the Lease, the Lease Supplement and this Letter Agreement No. 1: Agreed Value: * Airframe Maintenance Reserve Rate: The Airframe Maintenance Reserve Rate initially shall be * per Flight Hour. Such rate shall be increased annually by the Escalation Adjustment. Damage Notification Threshold: * Deposit: The Deposit equal to * is to be paid in cash as follows: (i) * (ii) * (iii) * (iv) * Frontier Airlines, Inc. As of March 25, 1997 Page 3 Deductible Amount: * Life Limited Parts Reserve Rate: The Life Limited Parts Reserve Rate initially shall be * per Engine Flight Hour. Such rate shall be increased annually by the Escalation Adjustment and shall be subject to further adjustment from time to time on the terms set forth in Section III to this Letter Agreement No. 1. Engine Refurbishment Reserve Rate: The Engine Refurbishment Reserve Rate for each Engine initially shall be * per Engine Flight Hour. Such rate shall be increased annually by the Escalation Adjustment and shall be subject to further adjustment from time to time on the terms set forth in Section III to this Letter Agreement No. 1. Escalation Adjustment: Each Reserve Rate shall escalate at a rate of *, compounded annually, commencing on the first annual anniversary of the Delivery Date. Interest Rate: * per month, but not to exceed the maximum amount permitted by Law. Landing Gear Reserve Rate: The Landing Gear Reserve Rate for the landing gear shall be * per Flight Hour. Such rate shall be increased annually by the Escalation Adjustment and shall be subject to further adjustment from time to time on the terms set forth in Section III to this Letter Agreement No. 1. Minimum Liability Coverage: Five Hundred Million Dollars ($500,000,000). Frontier Airlines, Inc. As of March 25, 1997 Page 4 Rent: The Rent for the Aircraft for each calendar month during the Term of the Lease shall be payable in ninety six (96) consecutive monthly installments, in advance on each Rent Date with each such installment being in the amount of *. Rental Periods: The Rental Periods of the Term comprise ninety six (96) consecutive monthly Rental Periods, which commence on the Delivery Date. Reserve Rate: The term "Reserve Rate" shall mean any of the Airframe Reserve Rate, Engine Refurbishment Reserve Rate, Engine LLP Reserve Rate and Landing Gear Reserve Rate. III. Further Adjustment of Reserve Rates. ----------------------------------- Lessor and Lessee acknowledge that the Engine Reserve Rates specified herein are based upon the assumption that the Aircraft will operate at 3B1 thrust levels and on a two hour to one cycle ratio (2:1). In the event that the foregoing assumption proves to be incorrect at any time during the Term based upon Lessee's actual operating experience during the previous twelve (12) months, and the hour cycle ratio differs from such assumption by more than 0.1 during such twelve (12) month period, Lessor shall have the right, upon written notice to Lessee, to adjust the Engine Reserve Rates in the case of a decrease in the ratio and Lessor, upon written request from Lessee, will make such an adjustment in the case of an increase in the ratio. Any such adjustment shall be based on the following table:
--------------------------------------------------------------------- PER ENGINE HOUR/CYCLE --------------------------------------------------------------------- 1.5 2.0 2.5 --------------------------------------------------------------------- Engine Refurbishment Reserves Rates * * * --------------------------------------------------------------------- Engine LLP Reserve Rates * * * ---------------------------------------------------------------------
(Note: *this figure shall be increased at a rate of three percent (3%) compounded annually, commencing on the first annual anniversary of the Delivery Date). Actual hour to cycle ratios may fall outside of the amount identified in the table. In such case, the actual values shall be determined by extrapolating the closest observed intervals in the table. (For example, an hour to cycle ratio of 1.7:1 falls in between 1.5:1 and 2.0:1 resulting in the extrapolated values of * for Engine Refurbishment Reserve Rates Frontier Airlines, Inc. As of March 25, 1997 Page 5 and * for Engine LLP Reserve Rates.) In addition, these rates are subject to further adjustment by Lessor in the event that Lessee operates the Engines at other than 3B1 thrust levels. In the event that Lessee's Maintenance Program is materially revised, Lessor may make such adjustment as Lessor determines is necessary in its reasonable discretion to maintain the respective Reserve Rates at levels which accurately reflect the costs associated with obtaining maintenance services at prevailing industry rates. Each such notice shall specify the revised Reserve Rate and the effective date of such revision. Lessee agrees to advise Lessor, in writing, promptly following the occurrence of any circumstances or events which would result in the foregoing assumptions becoming incorrect at any time during the Term. IV. Airworthiness Directives Cost Sharing. ------------------------------------- The Lessor shall, if the cost to Lessee of performing an inspection resulting in modification or terminating action with regard to any Airworthiness Directive or causing such inspection resulting in modification or terminating action being performed with regard to such Airworthiness Directive, exceeds * in respect of any individual item of the same, provided no Default has occurred and is continuing, on receipt by Lessor of evidence of payment for and completion of the relevant work, reimburse Lessee with an amount equal to the solution to the following formula:- * Frontier Airlines, Inc. As of March 25, 1997 Page 6 If this Letter Agreement No. 1 to Aircraft Lease Agreement is consistent with your understanding of the subject matter hereof, please so confirm by executing this letter where indicated at the end hereof and returning the fully executed letter to Lessor. GENERAL ELECTRIC CAPITAL CORPORATION as Lessor, By: --------------------------------- Name: ------------------------------- Title: ------------------------------ The undersigned hereby confirms that the foregoing letter accurately reflects the understanding of the undersigned with respect to the subject matter of such letter. FRONTIER AIRLINES, INC. as Lessee, By: --------------------------------- Name: ------------------------------- Title: ------------------------------ EXECUTION COPY TAX INDEMNITY AGREEMENT ----------------------- TAX INDEMNITY AGREEMENT dated as of March 25, 1997 (the "Tax Indemnity Agreement") between FRONTIER AIRLINES, INC. (the "Lessee") and GENERAL ELECTRIC CAPITAL CORPORATION (the "Lessor"). As inducement to the Lessor to enter into Aircraft Lease Agreement dated as of March 25, 1997 (the "Lease") with respect to one new Boeing 737-300 Aircraft bearing Manufacturer's Serial Number 28563 (the "Aircraft") to be entered into contemporaneously between Lessor and Lessee and in consideration of the mutual covenants contained herein and therein, the Lessee and the Lessor hereby agree as follows: SECTION 1. Definitions. ----------- (a) The term "Lessor" shall mean the Lessor and for any taxable year in which the Lessor joins in the filing of a consolidated federal income tax return, shall include each member of the affiliated group (within the meaning of Section 1504 of the United States Internal Revenue Code of 1986, as amended, or any successor provision thereto (the "Code")) of which the Lessor is a member. (b) "Tax Attribute Period" shall mean the period beginning on the Delivery Date and ending on December 31, 2003, provided that in the event the -------- depreciation period for the Aircraft is other than the period specified in Tax Assumption 2(d)(i) as a result of a Lessee Act (as hereinafter defined), such period shall end on the last day of the calendar year in which a depreciation deduction for the Aircraft is allowed or allowable, or would have been allowable, to the Lessor. (c) "Reasonable Basis" for a position exists if tax counsel may properly advise reporting such position on a tax return in accordance with Formal Opinion 85-352 issued by the Standing Committee on Ethics and Professional Responsibility of the American Bar Association and, for purposes of Sections 6(a) and 7(b), if "substantial authority" for such position exists for purposes of Section 6662 of the Code and the regulations thereunder. (d) "Permitted Percentage" shall mean 5% in each of Lessor's taxable years. (e) Capitalized terms used herein without definition shall have meanings ascribed thereto in Schedule 1 to the Lease. SECTION 2. Assumptions. The transactions described in the Lease have been ----------- entered into on the assumptions (the "Tax Assumptions") that for Federal income tax purposes: 1 (a) at all times during the Term, for federal income tax purposes the Lease will constitute a "true lease", the Lessor will be treated as the owner and lessor of the Aircraft and the Lessee will be treated as the lessee of the Aircraft; (b) The Lessor's taxable year is the calendar year ending December 31, and the Lessor ill include all items of income, gain, loss, deduction, or credit with respect to the transactions contemplated by the Lease using an accrual method of accounting; (c) The Lessor, as the owner of the Aircraft for Federal income tax purposes, will be entitled to the following Federal income tax benefits: (i) cost recovery deductions for 100% of the Lessor's Cost of the Aircraft pursuant to Section 168(b) of the Code, commencing in the Lessor's taxable year in which the Delivery Date occurs, computed (i) on the basis that the Aircraft is "7-year property" (within the meaning of Section 168(e) of the Code), (ii) by using the 200% declining balance method over a 7 year recovery period, switching to the straight-line method for the first taxable year of the Lessor during the term for which such method yields a larger allowance, (iii) assuming salvage value is zero and (iv) using a half-year convention (the "MACRS Deductions"); (ii) for each taxable year of the Lessor during the Tax Attribute Period, not more than the Permitted Percentage of any item of income, deduction or loss with respect to the transactions contemplated by the Lease will be treated for Federal income tax purposes as derived from, or allocable to, sources outside the United States; and (iii) the Lessor will be a domestic corporation subject to a Federal and state income tax rate of (after giving effect to the deductibility of such state income taxes for Federal income tax purposes) 40% (the "Assumed Tax Rate") in 1997 and in each year thereafter, and the Lessor will have sufficient taxable income to be taxed at the Assumed Tax Rate after full utilization of the MACRS Deductions.; and --- (d) The Lessor will not be subject to the minimum tax under Section 55 of the Code. The foregoing assumptions will be appropriately modified or adjusted from time to time to reflect the occurrence of an event for which an indemnity has been paid pursuant to this Tax Indemnity Agreement. SECTION 3. No Inconsistent Action. The Lessee agrees that neither it, nor ---------------------- any Person controlled by it, in control of it, or under common control with it, directly or indirectly, nor any Person claiming by, through or under the Lessee, nor any sublessee or other user or person in possession of the Aircraft (or any part thereof) during the Term, nor any Affiliate of any of the foregoing (but excluding the Lessor or the Lessor or any Person claiming by, through or under the Lessor (but not so excluding any Person claiming directly or indirectly through or under the Lease), unless any such Person is in 2 possession of the Aircraft or any part thereof pursuant to an exercise of remedies in connection with a Lease Event of Default) (each such Person not so excluded, a "Lessee Person") will at any time file any returns or other documents or take any action in dealing with tax authorities (including, without limitation, any action in connection with the examination of any tax return) inconsistent with the assumptions set forth in Section 2 hereof or the representations set forth in Section 5 hereof and the Lessee will file such returns, take such actions in dealing with tax authorities and execute such documents as may be reasonably necessary to facilitate accomplishment of the intent hereof. SECTION 4. Records and Statements. The Lessee shall, at its expense, ---------------------- maintain such information or records relating to the Aircraft as are regularly maintained by the Lessee or as may be required by law to be maintained (including, but not limited to, flight logs). The Lessee shall, at Lessee's expense, provide or cause to be provided any such records or information, and such other information customarily maintained by comparable airlines, as the Lessor may reasonably request from the Lessee to enable the Lessor to fulfill its tax filing, tax audit, and tax litigation obligations, including, but not limited to, its Federal income tax filing obligations. --- SECTION 5. Representations, Warranties and Covenants of Lessee. The --------------------------------------------------- Lessee represents, warrants and covenants that: (a) on the Delivery Date, the Aircraft will qualify as 7-year property within the meaning of Section 168(e) of the Code; (b) neither Lessee nor any other Lessee Person thereof has claimed or will claim the MACRS Deductions, or claim to be the owner of the Aircraft in respect of any period during the Term, or has taken or will take any action or position (not required by the Lease) inconsistent with the status of the Lessor as the sole owner of the Aircraft for Federal, state, local and foreign tax purposes, in each case, with respect to any period after the Delivery Date; (c) assuming that neither Lessor nor any Affiliate of Lessor is a "tax- exempt entity" within the meaning of Section 168(h)(2) of the Code during the Tax Attribute Period, neither the Aircraft nor any part thereof will be "tax- exempt use property" within the meaning of Section 168(h) of the Code; or (d) during the Tax Attribute Period, neither the Aircraft nor any part thereof will be treated as "used predominantly outside the United States" within the meaning of Section 168(g) of the Code. SECTION 6. Federal Income Tax Indemnity. ---------------------------- (a) If for any taxable year, (i) as a result of (A) any act or omission on the part of the Lessee or any Lessee Person (other than the execution and delivery of the Lease or an act required under the Lease or permitted under Clause 4.5 of the Lease (provided, however, that the following acts shall not be treated as required under the Lease for purposes of this paragraph: any, maintenance, repair, improvements, alterations, 3 modifications or additions to the Aircraft (or any part thereof), the temporary or permanent removal from service of the Aircraft (or any part thereof) or the replacement or substitution of the Aircraft (or any part thereof)), or (B) the inaccuracy or breach of any representation, agreement, covenant or warranty of the Lessee contained herein (each such act, omission, inaccuracy, breach or event, a "Lessee Act"), the Lessor shall suffer a loss, disallowance or deferral of, shall suffer a delay in claiming, shall not have the right to claim (based on a written opinion of independent tax counsel selected by the Lessor and reasonably acceptable to the Lessee that there is not a Reasonable Basis for claiming the item in question), or shall be required to recapture (a "Recapture"), all or any portion of the MACRS Deductions (hereinafter referred to as a "Tax Loss"), then the Lessee, after written notice from the Lessor of such Tax Loss, shall pay to the Lessor as an indemnity, form time to time as required, an amount which, after deduction of the amount of all additional Federal, state, local, and foreign taxes required to be paid by the Lessor in respect of the receipt or accrual of such amount, shall be equal to the increase in income taxes payable by (or not refundable to) the Lessor as a result of such Tax Loss, plus the amount of any actual interest, penalties and additions to tax payable by the Lessor with respect to such Tax Loss. Further, for purposes of determining the amounts of the increase in income taxes as a result of the Tax Loss, the applicable tax rate shall be the Assumed Tax Rate and shall be calculated on a hypothetical basis (i.e., assuming that the Lessor pays taxes ---- and can fully utilize the MACRS Deductions). Each payment by the Lessee pursuant to this Section 6(a) shall be made within 30 days after receipt of a written demand certifying that there has been a Tax Loss, describing in reasonable detail the Tax Loss in question, the amount of additional income tax, interest, penalties and additions to tax and the calculation of the payment due in respect thereof and describing the event or condition that Lessor claims gives rise to an obligation by the Lessee to indemnify hereunder (but in no event earlier than five (5) Business Days prior to the date the indemnified tax liability is, or would be, due); provided that, if a contest of the Tax Loss is being conducted -------- ---- pursuant to Section 8 hereof, payment (other than payments required under Section 8), shall not be required from the Lessee until 30 days after the Final Determination (as hereinafter defined) of such contest. (b) If, as the result of a Tax Loss, the amount of Federal income taxes payable by the Lessor for any taxable year shall be less than the amount of such taxes which would have been payable by the Lessor had such Tax Loss not occurred (or as the result thereof the Lessor shall receive a refund of Federal income taxes, which shall be greater than the amount of such refund, if any, which the Lessor would have received had such Tax Loss not occurred), then the Lessor shall pay to the Lessee the amount of such increased reduction in taxes (or refund, including any actual interest (net of any taxes payable with respect to such interest) received thereon), plus any net additional Federal, state, local or foreign tax benefits actually realized by the Lessor as the result of any payment made pursuant to this sentence (such reduction in or increased refund of income taxes to be determined on a hypothetical basis, i.e., assuming the ---- Lessor can utilize any additional tax benefits resulting form the Tax Loss at the Assumed Tax Rate; provided, however, that the amount payable by the Lessor -------- ------- pursuant to this sentence shall not exceed the sum of the amounts previously paid by the Lessee to the Lessor pursuant to Section 6(a) with respect to such Tax Loss to the extent not previously taken into account under this provision; provided, further, that the Lessor shall not be obligated to make any - -------- ------- 4 payment pursuant to this sentence if a Payment Default or Event of Default under the Lease shall have occurred and be continuing. If an amount payable by the Lessor to the Lessee pursuant to this Section 6(b) is not paid when due because of the occurrence and continuation of such Payment Default or Event of Default, such amount shall be payable by the Lessor to the Lessee upon the Lessee's curing such Payment Default or Event of Default. Each payment made by the Lessor to the Lessee pursuant to this Section 6(b) shall be made within 30 days after the Lessor files a tax return or received a refund or adjustment from the Internal Revenue Service which reflects such reduction in federal income tax. (c) Any taxes that are imposed on the Lessor as a result of the subsequent disallowance of all or any portion of a reduction (or refund) of the Lessor's tax liability, which reduction (or refund) was taken into account under Section 6(b), shall be treated as a Tax Loss subject to indemnification under this Agreement without regard to Section 7 hereof. (d) (i) If, as a result of the use or operation or location of the Aircraft outside the United States by any Lessee Person, the Tax Assumption set forth in Section 2(d)(ii) hereof shall be inaccurate during any taxable year of the Lessor included in whole or in part within the Tax Attribute Period (an "Excess Foreign Allocation"), and if as a result thereof the amount of the foreign tax credits available for utilization by the Lessor for any taxable year shall be less than the amount of the foreign tax credits that would have been available for utilization by the Lessor if such Tax Assumption had been accurate (such event being referred to herein as a "Foreign Tax Credit Loss"), then the Lessee shall pay to the Lessor as an indemnity an amount which, after deduction of the amount of all additional federal, state, local and foreign taxes actually required to be paid by the Lessor in respect of the receipt or accrual of such amount, is equal to the actual increase in the Federal income taxes payable by (or not refundable to) the Lessor for such taxable year as a result of such Foreign Tax Credit Loss, plus the amount of any interest, penalties and additions to tax payable by the Lessor as a result of such Foreign Tax Credit Loss. The amounts of any increase in Federal income taxes payable by (or not refundable to) the Lessor as a result of a Foreign Tax Credit Loss shall be computed on the assumption that any reduced amount of foreign tax credits of the Lessor is attributable to an Excess Foreign Allocation and foreign source losses arising from other equipment leasing transactions that provided the Lessor with indemnification for the loss of foreign tax credits, on a pro rata basis, prior to being attributable to any other foreign source deductions or losses of the Lessor; (ii) If, as a result of (A) an Excess Foreign Allocation or (B) the usage or location of the Aircraft outside the United States so that more than the Permitted Percentage of any item of income or gain with respect to the transactions contemplated by the Lease during any taxable year following the Tax Attribute Period is treated as derived from sources outside the United States, the amount of the foreign tax credits that the Lessor utilizes against its tax liability for a taxable year exceeds the amount of such foreign tax credits to which the Lessor would have otherwise been entitled, and provided that no Payment Default or Event of Default under the Lease shall have occurred and be continuing (in which event such amounts shall become payable upon the Lessee's curing 5 such Payment Default or Event of Default, then the Lessor shall pay to the Lessee the amount of any actual reduction in its Federal income tax liability (or actual increase in a refund of Federal income taxes owning to the Lessor), plus any net additional Federal, state, local and foreign income tax benefits actually realized by the Lessor as the result of such payment; provided, -------- however, that the sum of the amounts payable by the Lessor pursuant to this - ------- sentence shall not exceed the sum of the amounts previously paid by the Lessee to the Lessor pursuant to this Section 6(d) to the extent not previously taken into account under this provision and provided, further, however, that no -------- ------- ------- payment shall be required with respect to clause (B) above unless and until the usage or location outside the United States has resulted in an aggregate amount of increased foreign tax credits being available to the Lessor (calculated for this purpose without regard to the otherwise applicable requirement that foreign source gain or income exceed the "Permitted Percentage" of 5%) equal to the aggregate amount of unindemnified tax increases (reduced by any utilization of foreign tax credit carryovers or carryforwards that would, under principles applicable to clause (A) above, have resulted in an obligation to made a payment to the Lessee if the Permitted Percentage during the year in which the unindemnified tax increase occurred were zero) suffered by the Lessor resulting from the application of the Permitted Percentages during the Tax Attribute Period. For purposes of this Section 6(d)(ii), in determining the order in which the Lessor utilizes any foreign tax credits against the Lessor's Federal income taxes, the Lessor shall be deemed to utilize (A) first, all foreign tax credits other than those described in clause (B) of this sentence, and (B) then, on a pro rata basis, all foreign tax credits, the utilization of which by the --- ---- Lessor results from either (x) the carryover or the carryforward of foreign tax credits which were unutilized due to foreign source losses arising from equipment leasing transactions that provided the Lessor with indemnification for the loss of foreign tax credits (including this transaction), or (y) foreign source income or gain generated by such transactions to the extent such foreign source income or gain is sufficient to give rise to a payment obligation to the Lessee thereunder (except any such transaction entered into prior to the Delivery Date which provides that foreign tax credits arising out of such transaction are deemed utilized prior to or after those credits arising out of other lease transactions). Once a foreign tax, the loss of the credit in respect of which Lessor was indemnified and paid by Lessee in accordance with Section 6(d) hereof, is deemed to be utilized pursuant to the ordering rules set forth above, it shall not subsequently be recharacterized as not having been utilized as a result of a foreign tax liability arising in a subsequent year. (iii) Each payment by the Lessee pursuant to this Section 6(d) shall be made within 30 days after receipt of a written demand therefor accompanied by a written statement describing in reasonable detail the Foreign Tax Credit Loss in question, the amount of additional Federal income tax, interest, penalties and additions to tax and the calculation of the payment due in request thereof (but in no event earlier than five (5) Business Days prior to the date such additional Federal income taxes are due); provided that, if a contest of the -------- ---- Foreign Tax Credit Loss is being conducted pursuant to Section 8 hereof, payment (other than payments required under Section 8) shall not be required from the Lessee until 30 days after the Final Determination of such contest. Each 6 payment by the Lessor to the Lessee pursuant to this Section 6(d) in respect of an actual increase in available foreign tax credits shall be made within 30 days after the Lessor files a tax return (or receives a refund or adjustment) which reflects the utilization of such increased foreign tax credit. Notwithstanding anything herein to the contrary, any taxes that are imposed on the Lessor as a result of the subsequent disallowance of the reduction of the Lessor's tax liability, for which reduction the Lessor has made payment pursuant to this Section 6(d), shall be treated a as Foreign Tax Credit Loss subject to indemnification under this Agreement without regard to Section 7 hereof. (e) Upon request of the Lessee, the accuracy of the Lessor's calculation of the amount or amounts payable to either the Lessor or the Lessee pursuant to this Section 6 shall be verified by the independent accounting firm regularly ----------- engaged by the Lessor and, in order to enable such accountants to verify such adjustments, the Lessor shall provide to such accountants (for their own confidential use and not be disclosed to the Lessee or any other person) all information reasonably necessary for such verification, including any computer analyses used by the Lessor to calculate such amount or amounts. The cost of such verification shall be borne by the Lessee unless it is the determination of such verification that the actual amount payable deviates, in a manner favorable to the Lessee, by more than 5% from the amount originally determined by the Lessor in which case such cost shall be borne by the Lessor. SECTION 7. Excluded Events. The Lessor shall not be entitled to any --------------- payment from the Lessee under Section 6 hereof in respect of any Tax Loss or Foreign Tax Credit Loss to the extent such Tax Loss or Foreign Tax Credit Loss would not have occurred but for one or more of the following events: (a) any voluntary sale, assignment, transfer or other disposition (including any deemed disposition under Section 338 of the Code or any similar provision) by the Lessor of any interest in the Aircraft or any part thereof or the lease, unless such sale, assignment, transfer or other disposition occurs in connection with the exercise of remedies in connection with an Event of Default under the Lease that has occurred and is continuing, or any involuntary sale, assignment, transfer or disposition (including any deemed disposition under Section 338 of the Code or any similar provision) of any such interest resulting from the bankruptcy or insolvency of, or proceedings for the relief of debtors, or foreclosure proceedings, against the Lessor unless, in each case, such involuntary sale, assignment, transfer, disposition (including any deemed disposition under Section 338 of the Code or any similar provision) bankruptcy or insolvency or foreclosure results from such Event of Default; (b) the failure of the Lessor properly and in a timely manner to claim the MACRS Deductions or the inclusion by the Lessor of any Recapture in the Lessor's gross income as reported on its Federal income tax returns, (i) unless the Lessor shall have received a written opinion of independent tax counsel selected by the Lessor and reasonably satisfactory to Lessee that no Reasonable Basis exists for making such claim or failing to so include in gross income or (ii) unless such failure or inclusion is caused by the Lessee's failure to provide accurate and timely information pursuant to the Lessee's obligations under this Agreement or the Lease to furnish information to the Lessor. 7 (c) except in the case of a Tax Loss resulting from a substitution or replacement of the Aircraft or any part thereof, any amendment or addition to, or change in, the Code or Income Tax Regulations, which is enacted or adopted after the Delivery Date, provided that a change in Federal income tax rates -------- shall be taken into account in determining the indemnity amounts payable to the extent specified in Sections 6(a) and 6(d) above; (d) the failure of the Lease to be a "true lease", or the Lessor to be treated as the owner of the Aircraft, for Federal income tax purposes, unless, in either case, as a result of a Lessee Act; (e) any failure of the Lessor to take in a timely manner all actions in contesting a claim if the Lessor was required to take such actions pursuant to Section 8 hereof and such failure precludes the Lessee from exercising its contest rights under Section 8 hereof; (f) the willful misconduct or gross negligence of the Lessor or any Affiliate thereof; (g) the status for Federal income tax purposes of the Lessor as a "tax- exempt entity" within the meaning of Section 168(h) of the Code or as a Person that is not a "United States person" within the meaning of Section 7701(a)(30) of the Code; (h) a change in the Lessor's taxable year from the calendar year to a fiscal year or the Lessor's having a taxable year other than a full calendar year but only to the extent of a resulting increase in Lessee's indemnity obligation hereunder; (i) the failure of the Lessor to have sufficient taxable income or tax liability for U.S. Federal income tax purposes to benefit from the Federal income tax benefits described in Section 2(c); (j) a determination that the basis of the Aircraft is or was not equal to Lessor's Cost on the Delivery Date; (k) the application of any federal or state minimum tax, including the alternative minimum tax imposed under Sections 55 et seq. of the Code; (l) any Loss to the extent incurred or imposed solely in respect of or relating to any period after the later of (i) the expiration or earlier termination of the Lease in accordance with the terms thereof or (ii) delivery of possession of the Aircraft to the Lessor (or any designee of the Lessor); or (m) application of the mid-quarter convention described in Section 168(d)(4)(C) of the Code. 8 SECTION 8. Contest Provisions and Proceedings. ---------------------------------- (a) The Lessor shall promptly (but in no event less than twenty (20) days prior to the last day for submitting a protest to the Internal Revenue Service) notify the Lessee in writing of receipt from the Internal Revenue Service of a written proposed or final revenue agent's report, a 30-day letter or a notice of deficiency (as described in Section 6212 of the Code), in which an adjustment is proposed to the Federal income taxes of the Lessor for which the Lessee would be required to indemnify the Lessor pursuant to this agreement if such adjustment were sustained. Such notice shall specify the name of Lessor's counsel (if the existence of a Lessor's counsel is at that point necessary under this Agreement), the terms of the proposed adjustment, and any action taken or proposed to be taken by the Internal Revenue Service with respect to the proposed adjustment. After the giving of such notice, the Lessor shall for at least 20 days after the giving of such notice forbear (if such forbearance is permitted by law) payment of any tax (including interest, penalties and additions to tax thereon) asserted to be payable as a result of such proposed adjustment. If the Lessee promptly (and in any event within 20 days of receipt of notice from the Lessor) requests, in writing, the Lessor to do so, the Lessor shall contest the proposed adjustment, shall consider in good faith any suggestion made by the Lessee as to the method of pursuing such contest, and, provided the Lessee is complying with its obligations under this Section 8, shall not, without the consent of the Lessee, except as provided in the last sentence of this Section 8(a), settle such proposed adjustment; provided, -------- however, that the Lessor shall not be obligated to contest such adjustment - ------- unless (i) independent tax counsel selected by the Lessor and reasonably acceptable to Lessee ("Tax Counsel") delivers an opinion that there is a Reasonable Basis for contesting the matter in question, (ii) the amount of the proposed adjustment is in excess of $50,000, (iii) no Event of Default shall have occurred and be continuing, (iv) the Lessor has determined, in good faith, that the contest shall not result in a material risk of the loss or forfeiture of the Aircraft (unless the Lessee has provided to the Lessor a bond or other sufficient protection against such risk of loss or forfeiture reasonably satisfactory to the Lessor) or the imposition of criminal penalties and (v) the Lessee shall have acknowledged, in writing, that the contest is with respect to a liability that is the Lessee's responsibility pursuant to this Agreement except that the Lessee shall not be bound by its acknowledgment of liability if the Final Determination articulates conclusions of law and fact that clearly and unambiguously demonstrate that the Lessee has not liability for the contested amounts hereunder. The Lessor shall afford Lessee reasonable opportunities to consult the Lessor and shall keep Lessee reasonably informed of the nature of all actions taken to contest such proposed adjustment, including (x) whether any action to contest such proposed adjustment will initially be by way of judicial or administrative proceedings, or both, (y) whether any such proposed adjustment will be contested by resisting paying thereof or by paying the same and seeking a refund thereof and (z) if the Lessor shall undertake judicial action with respect to such proposed adjustment, the court or other judicial body before which such action will be commenced; but in all cases the Lessor shall have ultimate discretion to determine the nature (and forum) of, and shall control the prosecution of, all such action. The Lessor shall upon the conclusion of any administrative proceedings, promptly notify the Lessee of the outcome of such proceedings, and shall notify the Lessee at least 60 days in advance of the last date for filing a petition in the Tax Court. In the event of an unfavorable resolution of 9 administrative proceedings, the Lessor shall, if requested by the Lessee in a timely manner, (x) contest any proposed adjustment beyond the level of administrative proceedings, (y) consider in good faith any advice offered by the Lessee's counsel concerning the court of competent jurisdiction in which the adjustment is most likely to be favorably resolved, and (z) keep the Lessee reasonably informed as to the progress of any litigation and, if requested by the Lessee, shall consult with the Lessee's counsel and consider in good faith any recommendations by the Lessee's counsel concerning the conduct of such proceedings, and shall permit Lessee's counsel to review and comment in advance on all submissions to the extent relating to the Loss provided that the final form and substance of such submissions shall be determined by Lessor's Counsel. The Lessor shall take such reasonable action during the course of such proceedings as the Lessor's counsel deems advisable after consultation with the Lessee's counsel to preserve as a basis for appeal any legal issue that the Lessee or the Lessee's counsel has identified in writing. The Lessor shall be required to appeal any adverse judicial determination only if (A) an appeal is timely requested in writing by the Lessee, and (B) the Lessor is furnished with an opinion of Tax Counsel selected by the Lessor and reasonably acceptable to the Lessee that it is more likely than not that Lessor will prevail on such appeal; provided, however, that in no event shall the Lessor be required to appeal any adverse decision in the U. S. Supreme Court. At any time, whether before or after commencing to take the actions set forth in this Section 8, the Lessor may decline to contest or appeal all or any portion of a proposed adjustment, or may compromise or settle any such proposed adjustment, by notifying the Lessee in writing that the Lessee is relieved of its obligation to indemnify the Lessor with respect to such adjustment or such portion, as the case may be; provided, however, that (x) the Lessor shall promptly notify the Lessee of the Lessor's intent to decline to contest or appeal all or any portion of proposed adjustment, or to compromise or settle all or any portion of a proposed adjustment and (y) the Lessee shall not be obligated to indemnify the Lessor hereunder with respect to any other Tax Loss or Foreign Tax Credit Loss for which a successful contest or appeal is foreclosed as a result of the failure to take action with respect to such contest or appeal (or the settlement or compromise of such contest or appeal without the consent of the Lessee), and the Lessor shall repay to the Lessee such amounts theretofore advanced or paid by the Lessee related to such adjustment, contest or appeal (other than reimbursement of costs and expenses of the Lessor), plus interest at the rate that would have been payable if such contest had been successfully concluded at such time. (b) The Lessor shall not be required to take any action pursuant to this Section 8 unless and until the Lessee shall have agreed in writing to reimburse the Lessor (on demand and on a basis grossed-up for all applicable Federal, state, local and foreign taxes for all reasonable fees and expenses, any statutory or regulatory penalties, interest, additions to tax, or other liabilities, costs or losses which the Lessor may incur as a result of contesting the validity of any proposed adjustment (including, without limitation, any reasonable fees and disbursements of counsel incurred in connection with taking any action or rendering any opinion described in Section 8(a)). If the Lessor determined to contest any adjustment by paying the additional tax and suing for a refund, the Lessee shall timely lend to the Lessor on an interest-free basis an amount equal to the sum of any tax, interest, penalties and additions to tax required to be paid and shall indemnify the Lessor in a manner satisfactory to the Lessor against any adverse tax consequences 10 resulting from such advance. Upon receipt by the Lessor of a refund (or upon application of amounts otherwise refundable against other tax liability of the Lessor) of any amount paid by it, in respect of which amount the Lessor shall have been paid or advanced an equivalent amount by the Lessee, the Lessor shall pay to the Lessee the amount of such refund (plus any amounts otherwise refundable but applied against other tax liability of the Lessor) (which, in the case of any contest in which a loan has been advanced pursuant to this paragraph, shall be deemed to be in repayment of the loan advanced by the Lessee to the extent fairly attributable thereto), together with any interest received by the Lessor on such refund (or application) that is fairly attributable to the amount and the period of such payment or advance by the Lessee (net of any taxes actually payable by the Lessor with respect to the receipt or accrual of such interest), plus any net additional Federal, state local and foreign tax benefits actually realized by the Lessor as the result of such payment; and, upon disallowance of any such refund, the Lessee shall forgive the amount of the loan fairly attributable thereto and shall pay to the Lessor the balance of the amount of its indemnity obligation hereunder (including such amount as shall be equal to the sum, on an after-tax basis, of any tax, interest, penalties or additions to tax payable with respect to the forgiveness of such loan) (or if such advance exceeds the amount of such disallowance, the Lessor shall pay such excess to the Lessee). Any subsequent loss of such refund (or of such application of amounts otherwise refundable) to the extent having resulted in a payment to Lessee, shall be treated as a Tax Loss subject to indemnification pursuant to Section 6 hereof without regard to Section 7 hereof. If the Lessor receives an award of attorney's fees or related expenses in a contest for which the Lessee has paid or reimbursed all or any portion of such fees and expenses, the Lessor shall pay to the Lessee the portion of such award attributable to such fees and expenses paid or reimbursed by the Lessee. (c) If any adjustment referred to in this Section 8 shall be proposed and the Lessee shall have requested the Lessor to contest such adjustment as above provided and the Lessee shall have duly complied with the terms of this Section 8, then notwithstanding any provision to the contrary in Section 6 hereof, the Lessee's liability with respect to such adjustment shall become fixed upon a "Final Determination" of such adjustment. A "Final Determination" with respect to a Tax Loss shall mean (i) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all allowable appeals (in the case of the Lessor as required under this Section 8) by either party to the action have been exhausted or the time for filing such appeal has expired, (ii) a closing agreement entered into under Section 7121 of the Code, or any other settlement agreement entered into in connection with an administrative or judicial proceeding and with the consent of the Lessee where required, (iii) the expiration of the time for instituting suit with respect to the claimed deficiency, or (iv) the expiration of the time for instituting a claim for refund, or if such a claim was filed, the expiration of the time for instituting suit with respect thereto. SECTION 9. Survival of Agreement. The representations, warranties, --------------------- covenants, obligations and liabilities of the Lessee and the Lessor arising under this Agreement shall continue in full force and effect, notwithstanding the expiration or other termination of the Lease, until all such obligations under this Agreement have been met and all such 11 liabilities under this Agreement have been paid in full. This Agreement shall inure to the benefit of any successor or assign to the Lessor or the Lessee permitted pursuant to the Lease; provided, however, that (a) such successor or -------- ------- assign which is not a Permitted Transferee as defined in the Lease shall have specifically agreed in writing to be bound by the terms and conditions of this Agreement to perform the obligations imposed hereunder on the Lessor or the Lessee, as the case may be, in accordance with the interest of such successor or assign in the Aircraft and the Lease, (b) the successor or assign shall not be entitled to indemnity payment or other rights or benefits greater than the payments, rights or benefits to which the Lessor or the Lessee, as the case may be, would have been entitled if no transfer or assignment had occurred, and (c) in applying the terms hereof to such successor or assign, the terms "Lessor" and "Lessee" as used herein shall mean such respective successor or assign. SECTION 10. Notices. Any notice, request, or other communication provided ------- for in this Agreement shall be given in the manner provided in the Lease. SECTION 11. Payments. Payments made by the Lessee or the Lessor pursuant -------- to this Agreement shall be made by wire transfer of immediately available funds to such bank and/or account in the continental United States as specified by the other party in written directions to the paying party at least five (5) Business Days prior to the due date thereof, and if no such direction shall have been given, by check payable in immediately available funds to the order of such payee and mailed to such payee by certified mail, postage prepaid, at its address provided for purposes of the Lease. SECTION 12. No Setoff. No payment required to be made by the Lessee --------- pursuant to this Agreement shall be subject to any right of setoff, counterclaim, defense, abatement, suspension, deferment or reduction; and, except in accordance with the express terms hereof, neither the Lessor nor the Lessee shall have the right to terminate this Agreement or to be released, relieved or discharged from any obligation or liability under this Agreement for any reason whatsoever. SECTION 13. Late Payments, Interest. Any late payment by any party hereto ----------------------- of any of its obligations under this Agreement shall bear interest at the Interest Rate set forth in Letter Agreement No. 1. SECTION 14. Exclusive Remedy. The indemnities and other rights provided ---------------- to the Lessor in this Agreement shall be the sole remedy of the Lessor for a breach or inaccuracy of any representation, warranty or covenant contained herein or for loss of income tax benefits. SECTION 15. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California applicable to contracts made and to be performed entirely within such state. SECTION 16. Counterparts. This Agreement may be simultaneously executed ------------ in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute and be one and the same instrument. 12 SECTION 17. Confidentiality. Lessee and Lessor shall keep this Tax --------------- Indemnity Agreement confidential and shall not disclose, or cause to be disclosed, the same to any Person, except (A) to prospective and permitted transferees of Lessee's or Lessor's interests or their respective counsel or special counsel, auditors, or other agents who agree to hold such information confidential, (B) to Lessee's or Lessor's counsel or special counsel, auditors, or other agents or Affiliates who agree to hold such information confidential, (C) as may be required by any statute, court or administrative order or decree, legal process or governmental ruling or regulation, or by Internal Revenue Service auditors, (D) by mutual agreement by the parties hereto, or (E) such other Persons as are reasonably deemed necessary by the disclosing party in order to protect the interests of such party or for the purposes of enforcing this document by such party; provided that any and all disclosures permitted -------- above shall be made only to the extent necessary to meet the specific requirements or needs of the Persons making such disclosures. SECTION 18. Assignment. This Agreement shall not be assignable by either ---------- party without the consent of the other; provided, however, that either party may assign this Agreement without such consent in connection with the sale of all of its interests in the Aircraft and the Lease. 13 IN WITNESS WHEREOF, the Lessee and the Lessor have caused this instrument to be duly executed as of the day and year first above written. FRONTIER AIRLINES, INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- GENERAL ELECTRIC CAPITAL CORPORATION By: -------------------------------- Name: ------------------------------ Title: ----------------------------- 14 EX-10.19 12 SPACE AND USE AGREEMENT EX 10.19 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH " * " AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC 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," along with any improvements thereon. 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. 1. EFFECTIVE DATE: March 2, 1995 -------------- 2. COMPANY: The name, address and telephone number of the COMPANY are as ------- follows: NAME: Frontier Airlines, Inc. ADDRESS: 12015 East 46th Avenue Denver, CO 80239 TELEPHONE: (303) 371-7000 ATTENTION: Arthur T. Voss Vice President, Human Resources & General Counsel 3. DESCRIPTION OF PREMISES: Certain space on and within the Denver ----------------------- International Airport, as well as reasonable rights of ingress and egress and the use of associated areas, being more fully described on Exhibits A - K, attached hereto and made a part hereof. 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: A) Commercial airline operations as granted to CONTINENTAL under the BASE LEASE. 5. PROPERTY OWNER: City and County of Denver, hereinafter referred to as -------------- "OWNER," has granted to CONTINENTAL, the right to use the PREMISES and certain other rights and privileges under the following Lease, hereinafter referred to as the "BASE LEASE": Lessor: City and County of Denver Lessee: Continental Airlines Dated: January 1, 1993 6. CONSIDERATION/RENTAL: In consideration for the rights granted by -------------------- CONTINENTAL hereby, COMPANY, agrees to pay to Continental Airlines, Inc., * annually in twelve, equal monthly installments of * paid in advance, on the first day of each calendar month. Company further agrees to pay as additional rental any increases in rental charges to Continental and Continental agrees to afford Company the benefit of any decreases in rental charges to Continental at the following: CONTINENTAL AIRLINES, INC CREDIT MANAGEMENT P.O. BOX 100023 HOUSTON, TX 77212 ATTENTION: OUTSIDE SALES & SERVICE 7. TERM: This agreement shall begin on March 2, 1995 and shall continue until ---- March 1, 2000, unless otherwise terminated in accordance with the terms and provisions hereof. 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: Staff Vice President Vice President, Human Resources Properties & Facilities & General Counsel Continental Airlines, Inc. Frontier Airlines, Inc. 2929 Allen Parkway, Suite #1401 12015 East 46th Avenue Houston, TX 77019 Denver, CO 80239 9. SECURITY DEPOSIT: Concurrently with the execution of this Agreement, ---------------- COMPANY shall deliver to CONTINENTAL, as a Security Deposit, $0, 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. 10. ADDITIONAL RENTAL / CHARGES / FEES: The COMPANY shall be responsible for ---------------------------------- and pay the following amounts: None. -2- 11. INSURANCE COVERAGE REQUIREMENTS ------------------------------- Without limiting COMPANY's obligation to indemnify CONTINENTAL, as provided for in this Agreement, COMPANY shall procure and maintain, at its own cost, at all times during the term of this agreement, insurance of the following types and in amounts not less than those indicated, with responsible insurers satisfactory to CONTINENTAL providing the following coverage: DESCRIPTION =====================================================================
1) Aviation General or Per Occurrence: $500,000,000* Comprehensive General combined single limits covering bodily Liability injury and property damage, endorsed to include Premises Liability and Contractual Liability. *COMPANY limits if higher - --------------------------------------------------------------------- 2) Worker's Compensation Statutory - --------------------------------------------------------------------- 3) Employer's Liability $10,000,000 =====================================================================
-3- 12. SPECIAL PROVISIONS: ------------------ A. ADDITIONAL SPACE - Frontier shall pay to Continental for use of one, two, ---------------- three or four gates at a single rate based on 13,814.60 SF of rented space. Should Frontier elect to lease a fifth gate from Continental, Frontier shall pay rental for that gate at the Standard Denver International Airport ("DIA") rate for 5,000 SF. Should Frontier elect to lease six or more gates from Continental, then the rent for all gates leased from Continental shall be at the Standard DIA rate for 5,000 SF. B. SPECIAL CANCELLATION - COMPANY shall have the right to terminate this -------------------- Agreement upon 60 days prior written notice to CONTINENTAL in the event COMPANY (i) terminates all scheduled air service at Denver International Airport ("DIA") or (ii) Company determines in its reasonable judgment that the cost paid by the COMPANY for the DIA Concourse A automated baggage system places the COMPANY at an unacceptable competitive disadvantage compared to the cost paid for the baggage system at DIA's Concourse C by those air carriers operating at that concourse. Item (ii) of this Paragraph notwithstanding, Frontier may not terminate if Continental, at its sole option, for as long as it chooses to do so, reduces the amount due from Frontier for rental hereunder by the amount of that difference in costs. 13. STANDARD PROVISIONS: ------------------- USE OF PREMISES 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, 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 appropriate to this Agreement. COMPANY further covenants that this Agreement shall be, in all respects, subject and subordinate to the BASE LEASE, 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 by the BASE LEASE shall in no event be deemed a violation of this Agreement. 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, -4- 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. RENTAL 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, such 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. SECURITY DEPOSIT A. If at any time during the term of this Agreement, any of the rent herein reserved, or any other amounts due from COMPANY shall be overdue or unpaid, or in the event of failure by COMPANY to keep and perform any of the terms, covenants and conditions of this Agreement to be kept and performed by COMPANY, then 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 Security Deposit, as required herein, within five (5) 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. -5- D. Within thirty (30) days after expiration or other termination of this Agreement, and upon vacation of the PREMISES and satisfaction of any and all events of default by COMPANY, including payment of all amounts due and past due, the Security Deposit shall be returned in full to COMPANY. E. In the event any bankruptcy, insolvency, reorganization or other creditor- debtor proceedings shall be instituted by or against COMPANY, the Security Deposit shall be deemed to be applied first to any rents and/or other charges due CONTINENTAL for all periods prior to the institution of such proceedings, and the balance, if any, of the Security Deposit may be retained by CONTINENTAL in partial liquidation of CONTINENTAL's damages. F. COMPANY covenants and agrees that it shall not assign or encumber or attempt to assign or encumber this Security Deposit, and that CONTINENTAL shall not be bound by any such assignment, encumbrance or attempt to assign or encumber. UTILITIES CONTINENTAL shall furnish the PREMISES with utilities and services to the extent that they are furnished to Continental under the BASE LEASE. Continental shall not be liable for, and COMPANY hereby releases and waives any claims against CONTINENTAL resulting from any failure or interruption of such services. COMPANY shall pay Continental, as additional rent, for any extraordinary electrical, gas or water consumption. 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. -6- 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. 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 one, 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 attorneys fees and other costs of defense incurred in connection therewith. GOVERNMENTAL REQUIREMENTS COMPANY covenants and agrees, at its sole expense, 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. 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 safety, health and preservation and security of the PREMISES. MAINTENANCE AND REPAIRS A. Any construction or alteration of the PREMISES required by COMPANY shall be made by COMPANY at its sole expense' and only upon prior, written approval by CONTINENTAL and OWNER. -7- B. COMPANY covenants and agrees to maintain the PREMISES, and shall at its sole cost, 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, all of which shall be in accordance with the standards of the facility and of a quality and class not inferior to the original material and workmanship, normal wear and tear and damage by fire or other casualty excepted. All maintenance and repair work undertaken by COMPANY shall be performed in a good and workmanlike manner, leaving the PREMISES free of liens for labor and materials. C. 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 nominally 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. D. 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. SURRENDER Upon expiration or other termination of this Agreement in accordance with the provisions herein, COMPANY shall remove all signs, trade fixtures and any other personal property, repair all damage caused by removal, and surrender the PREMISES in the clean, neat and orderly condition. required herein. In the event COMPANY fails to surrender 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. 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. -8- TAXES COMPANY agrees to pay, before they become delinquent, all taxes (both general and special), assessments, fees and charges of any kind whatsoever, levied or assessed against the PREMISES, and 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 PREMISES or any of COMPANY's leasehold improvements, equipment, furniture, fixtures, personal property or business operations, COMPANY shall reimburse such amount to CONTINENTAL within five (5) days after receipt of a written statement thereof. 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 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. 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 thirty (30) days. RELATIONSHIP The relationship between COMPANY and CONTINENTAL shall be that of independent contractor for all purposes and 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. -9- INDEMNIFICATION 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 failure to make repairs, or unavailability of utilities or for any cause whatsoever except the gross negligence or willful misconduct of CONTINENTAL. 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"lndemnitees"), from and against all liabilities, losses, damages, penalties, claims, costs, charges and expenses, causes of action and judgements of any nature whatsoever, including without limitation reasonable attorneys' fees, costs and related expenses, 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, except if caused by the gross negligence or willful misconduct of the Indemnities: A. 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; B. Any act or omission of COMPANY or any of its directors, officers, agents, contractors, servants, employees, licensees, invitees, successors and assigns; C. Any act or omission of Company or any of its directors, officers, agents, contractors, servants, employees, licensees, invitees, successors and assigns which causes any accident, injury to or death of any person, or damage to or destruction of any property occurring on -10- or in the vicinity of the PREMISES, including but not limited to aircraft or interference with CONTINENTAL's operations; D. Any failure on the part of COMPANY to comply with any of the covenants, agreements, terms or conditions contained in this Agreement, the BASE LEASE or any law, rule, regulation, requirement, order or directive for which it is responsible; CONTINENTAL shall promptly notify COMPANY of any such claim asserted against it, and forward copies of all papers or legal process served upon it in connection with any action or proceeding brought against any Indemnitee by reason of any such claim. ENVIRONMENTAL OPERATIONS COMPANY covenants and agrees: 1) that it shall not cause or permit any hazardous or toxic substance to be brought upon the PREMISES without the written consent of CONTINENTAL, and shall advise CONTINENTAL of any known or suspected environmental contamination; 2) that its operations shall at all times remain in compliance with: A) CONTINENTAL's written restrictions and requirements governing the identification and use of chemical products; B) 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; 3) that it shall: A) secure at its own expense, all required permits, licenses and authorizations necessary for such compliance; B) advise CONTINENTAL of any notice of potential or actual non- compliance; C) immediately upon receipt, provide CONTINENTAL with copies of any notice or notices relating to non-compliance: D) CONTINENTAL's designated representatives the unrestricted right to inspect and review its on-premises operations and equipment. Unless necessary in an -11- emergency situation, CONTINENTAL's representatives shall not purposefully interfere with or inhibit COMPANY's operation. 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 Health and Safety Department 15333 JFK Boulevard, Suite 425 Houston, TX 77032 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 judgements of any nature whatsoever, including but not limited to reasonable attorney, consultant and expert fees, costs and related expenses; and including, but not limited to clean-up or other curative measures ordered by the Occupational, Safety and Health Administration or the Environmental Protection Agency or any other federal, state or local agency or entity asserting jurisdiction; arising out of the discharge, disbursal, release or escape of any hazardous substance, toxic chemical, pollutant, contaminant or irritant, in solid, liquid or gaseous forms; 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. INSURANCE COMPANY shall cause the required insurance coverages to be duly and properly endorsed by its insurance underwriters to provide that: (1) CONTINENTAL, OWNER, and their respective officers, directors, agents and employees are named as additional insured thereunder to the extent of COMPANY's obligation to indemnify CONTINENTAL under this Agreement, where allowed by law. (2) The policies shall include a standard cross liability clause. (4) COMPANY's insurance shall be primary insurance and that any other insurance policy or policies of CONTINENTAL are noncontributory, secondary or excess insurance. -12- (5) COMPANY's policy expressly insures COMPANY's contractual liability assumed by COMPANY under this Agreement. (6) COMPANY's insurers waive all rights of subrogation against CONTINENTAL, its officers, directors agents and employees and its insurers. (7) CONTINENTAL shall be given thirty (30) days prior, written notice of any cancellation, or other material or adverse changes. (8) 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. 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. 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, 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 one hundred twenty (120) 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 -13- be appointed and such taking or appointment shall not be stayed or vacated within a period of thirty (30) days. C. Immediately upon written notice to COMPANY, if COMPANY fails to pay any installment of rent or additional rent within ten (10) days after such amount is due. D. Immediately upon written notice to COMPANY, if COMPANY fails to perform, keep, and observe any 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. 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. F. Abandonment of the PREMISES by COMPANY for more than 48 hours, unless due to circumstances beyond COMPANY's reasonable control. In the event that this Agreement is terminated in accordance with the foregoing prior to the expiration of the term hereof, or during any extension thereof, CONTINENTAL may relet the PREMISES for any term and under any conditions it may deem satisfactory, which shall not affect or impair CONTINENTAL's right to recover actual damages occasioned by any default by COMPANY. 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 creed 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. -14- 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 orth in 41 CFR Sec. 60-250.4. D. The requirements of the Occupational Safety and Health Act and regulations issued thereunder; E. Titles l, ll, 111, IV, and V of the Americans with Disabilities Act of 1990; as the foregoing may be amended or replaced, which provisions are incorporated herein by reference as if set forth in full. By execution of this Agreement each party represents and warrants compliance with the aforementioned regulations and will furnish proof thereof on demand. COMPANY further covenants and agrees to: 1) Indemnify and defend Continental from and against any and all claims, liabilities, losses and judgements 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. Non-Discrimination Breach In the event of any breach of any of the above non-discrimination covenants, CONTINENTAL shall have the right to terminate this Agreement and to reenter and repossess the PREMISES, and hold the same as if this Agreement had never been made or issued. This provision shall not be effective until the procedures of Title 49, CFR Part 21, are followed and completed, including exercise or expiration of appeal rights. 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. TEXAS LAW THIS AGREEMENT SHALL BE CONSTRUED AND PERFORMANCE THEREOF SHALL BE DETERMINED ACCORDING TO THE LAWS OF THE STATE OF TEXAS. -15- 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. 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. 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. WAIVER No waiver by either party at any time of any of the terms, conditions, covenants or agreements herein or of any forfeiture, 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 delay, failure or omission of CONTINENTAL to reenter the PREMISES, or to exercise any right, power, privilege or option shall be construed to be a waiver of any default or relinquishment thereof, or acquiescence thereto, and no notice by CONTINENTAL shall be required to restore or revive any right, power, privilege, option or remedy after waiver by CONTINENTAL of default in one or more instances. No right, power, privilege, option or remedy of CONTINENTAL 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, and the exercise of one right, power, option or remedy by either party shall not impair its right to any other right, power, option or remedy except in those cases where it is expressly so provided. 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; but, subject to the foregoing, this Agreement and the rights and obligations of the parties hereby created, -16- 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. 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. APPROVAL BY OWNER The parties hereto agree that this Agreement is subject to the consent and approval of OWNER. If written consent thereto is not forthcoming within thirty (30) days of execution of this Agreement, given, either party may, at its option, rescind its signature and this Agreement shall become null and void, and the parties shall become discharged from all liabilities hereunder. ENTIRE AGREEMENT This Agreement, including any exhibits and inclusions by reference, contains the entire understanding between the parties hereto, and supersedes and revokes all previous negotiations, arrangements, letters of intent, offers, proposals, representations, and information conveyed, whether oral or in writing, between the parties hereto or their respective representatives or any person purporting to represent either. COMPANY acknowledges that it has not been induced to enter into this Agreement by any representation or construction of this Agreement, and agrees that CONTINENTAL shall have no liability for any consequences arising as a result of such representation. No amendment, change or addition to this Agreement shall be binding upon either party hereto unless in writing and signed by the parties hereto. 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: /s/ Arthur T. Voss ----------------------------- ---------------------------- TITLE: TITLE: Vice President -------------------------- ------------------------- DATE: DATE: 9/6/95 --------------------------- -------------------------- -17- CITY AND COUNTY OF DENVER BY:_____________________________ TITLE:__________________________ DATE:___________________________ -18- EXHIBIT A Subject to the conditions set forth in the Agreement, the COMPANY shall have: (1) The right to use for commercial airline operations as granted to CONTINENTAL under the BASE LEASE the PREMISES as detailed on Exhibits B through K -19- ATTACHMENT B FRONTIER AIRLINES SPACE ALLOCATION AND BILLING - DEN ---------------------------------------------------- 05-Sep-95
ANNUAL -------------- MONTHLY JUNE ACH ROOM # SPACE DESCRIPTION SQ. FT. RATE/(1)/ COST COST BILLING - ------ ----------------- ------- -------- ---- ---- ------- - -------------------------------------------------------------------------------------------- CONCOURSE AREAS - -------------------------------------------------------------------------------------------- Ramp Level - ---------- 1514 IDF 72.00 * * * * 1340 A/C Shop 2,615.90 * * * * 1340-1 Men's Locker Room 276.30 * * * * 1340-2 Janitor 50.50 * * * * 1340-3 Women's Locker Room 257.40 * * * * 1340-4 Plumbing Access 40.00 * * * * 1340-5 Office 106.30 * * * * 1340-6 Breakroom 282.60 * * * * 1340-7 Office 128.60 * * * * 1340-8 IDF 89.30 * * * * 1340-9 Office 236.50 * * * * 1340-9A Office 22.20 * * * * 1350-12 GSE Wash Bay 485.40 * * * * 1350-12A Hotsy 94.70 * * * * 1370 Remote Ready Room 90.00 * * * * NA Circulation 247.00 * * * * SUBTOTAL --------- ---- ---- ------- 5,094.70 * * * Concourse Level - --------------- 2505 F9 Gate Lobby - A32 1,996.80 * * * 2347 F9 Gate Lobby - A34 1,953.90 * * * * 2343 F9 Gate Lobby - A36 1,953.90 * * * * 2325 F9 Gate Lobby - A38 1,910.30 * * * * SUBTOTAL --------- ---- ---- ------- $7,814.90 * * * RAMP AREA (LINEAR FEET) 560.00 * * * * CONCOURSE A JOINT USE ALLOCATION/(2)/ * * * TOTAL CONCOURSE AREAS 12,909.60 * * * - ----------------------------------------------------------------------------------------
-20-
ATTACHMENT B Frontier Airlines Space Allocation and Billing - DEN ---------------------------------------------------- 05-Sep-95 Annual Monthly June ACH --------------- Room # Space Description Sq. Ft. Rate/(1)/ Cost Cost Billing ------ ----------------- ------- --------- ---- ---- ------- - ----------------------------------------------------------------------------------------------------------------- TERMINAL AREAS - ----------------------------------------------------------------------------------------------------------------- Level Six - --------- NA F9 Tckt Positions (#13-19) 480.00 * * * * - ----------------------------------------------------------------------------------------------------------------- 68B36 Office 425.00 * * * * --------- ---- ---- ---- ---- SUBTOTAL 905.00 * * * * - ----------------------------------------------------------------------------------------------------------------- TOTAL TERMINAL AREAS 905.00 * * * * ---- ---- ---- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- TOTAL ALL AREAS/(3)/ 13,814.60 * * * * - -----------------------------------------------------------------------------------------------------------------
/(1)/ Square footage rates are comprised of tenant finish and basic rental components. /(2)/ Concourse A Joint Use costs are allocated based upon $ of total exclusive square footage. /(3)/ Please note that variable costs associated with baggage system usage are not included. These amounts will be billed directly to Frontier Airlines by the City and County of Denver. -21- CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH " * " AND SUCH PROTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC FIRST AMENDMENT This Amendment is made as of the 15th day of November, 1995, but actually entered into as of the date last set forth below, by and between Continental Airlines, Inc. ("Continental") and Frontier Airlines, Inc. ("Frontier"). WHEREAS, Continental has leased certain premises in Concourse A of the Denver International Airport from the City and County of Denver ("Owner"); and WHEREAS, by that certain Space and Use Agreement dated March 2, 1995 (the "Agreement"), Continental has granted to Frontier the right to use part of such premises (the "Premises") and Frontier has accepted the Premises; and WHEREAS, Continental and Frontier desire to amend the Agreement pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the terms and covenants contained herein, the Agreement is hereby amended as follows: 1. Effective as of November 15, 1995 and continuing during the term of the Agreement, and while Frontier is not in default under its obligations thereunder or hereunder, after submission to Continental of copies of proper invoices received by Frontier from the City, Continental will * . Unless Continental elects to make such payments directly to the City as hereinbelow provided, such * will be accomplished through the Airline Clearing House on the latest Airline Clearing House settlement date that is at least five days prior to the date that such charges are required to be paid to the City, or through such other agreed upon method as will not require Frontier to pay such charges to the City prior to reimbursement by Continental; provided, further, that such reimbursement for the period November 15, 1995 through February 29, 1996 shall be made on or before February 29, 1996. If elected by Continental, Continental may pay such amounts required hereunder to be reimbursed by Continental to Frontier directly to the City. Frontier shall promptly (and in any event prior to delinquency) remit to City any sums reimbursed to Frontier by Continental hereunder. 2. Effective * , and while Continental is not in default under its obligations under Section 1 above, the amount payable by Frontier to Continental under Paragraph 6 of the Agreement shall be * each at the same time and manner as payments are required to be paid by Frontier to Continental under Paragraph 6 of the Agreement; provided, that the additional monthly payments for each of the months of January, February and March of 1996 shall be * , and shall be made on or before February 29, 1996 (and such increased amount for such months shall not affect Frontier's obligation for the remaining months of 1996 or thereafter). If and when, and at each time that, the City of Denver rental rates or charges for Concourses A or C at Denver International Airport are hereafter increased -1- or decreased, then the * amount (and related monthly payments referred to above, as such amount is adjusted as herein provided from time to time, shall thereafter be increased or decreased, as the case may be, so that the annual amount paid by Frontier to Continental under this Section 2 will be adjusted to equal the new annual amount that would be obtained by substituting the new rental rates and charges for the rental rates and charges shown on Exhibit "A", which is attached hereto and incorporated herein by this reference, and by thereafter performing the same calculations as are indicated on such Exhibit to solve for the new annual amount (in place of the * annual amount now set forth on Exhibit "A") (with all other aspects of the methodology reflected on Exhibit "A", including, without limitation, the square footages and percentage allocations reflected thereon, remaining the same). However, in no event shall any increase in costs for which Continental is required under Section 1 above to reimburse Frontier cause the annual amount to be paid by Frontier hereunder to decrease. Frontier shall prepare the new Exhibit "A" reflecting the adjusted calculations and shall deliver such new Exhibit to Continental for Continental's approval. Upon approval of such new Exhibit reflecting the new annual amount referred to above, such Exhibit shall then be deemed a part of this Amendment without need of any formal amendment. 3. Paragraph 12A of the Space and Use Agreement is deleted and replaced with a provision stating that if Frontier leases additional Concourse A gate(s) from Continental, its rent obligation to Continental shall be based on the actual square feet of the additional leased gate(s) and the actual square feet of any additional Concourse A space leased from Continental. 4. Paragraph 12B of the Space and Use Agreement relating to Special Cancellation rights in Frontier as a result of Concourse A Automated Baggage System charges is deleted. 5. Except as expressly provided in this Amendment, the Agreement is unmodified and remains in full force and effect. Frontier and Continental agree that the Agreement, as modified by this Amendment, sets forth the entire agreement of the parties with respect to the matters addressed therein and herein and that each such party is fully bound by the terms of the Agreement, as modified by this Amendment. This Amendment supercedes and replaces that certain Term Sheet executed by Continental and Frontier relating to the subject matter hereof. 6. By execution below, the City (i) approves the Agreement and this Amendment, and (ii) acknowledges and agrees that nothing contained herein shall be deemed to create any rights in favor of the City to require Continental to pay to the City any sums attributable to Frontier's use of Concourse A or the ABS, whether under a third party beneficiary theory or otherwise, and that the City shall look solely to Frontier for payment of any costs associated with the ABS or for payment of any other amounts that Frontier may have agreed to pay to the City. 7. This Amendment shall not be effective until executed by the parties hereto and the City. This Amendment may be executed in multiple counterparts (and delivered by facsimile transmission), each of which shall constitute an original, but all of which together shall constitute one and the same instrument. -2- Agreed: Agreed: Continental Airlines, Inc. Frontier Airlines, Inc. By /s/ H. Shannon By /s/ Arthur T. Voss -------------------- ------------------ Name Holden Shannon Name Arthur T. Voss -------------------- ------------------ Title Staff Vice President Title Vice President -------------------- ------------------ Date 2/12/96 Date 2/7/96 -------------------- ------------------ Agreed: City and County of Denver By _______________________________ Name _______________________________ Title ______________________________ Date _______________________________ -3- LETTER AGREEMENT This letter agreement incorporates the City and County of Denver ("OWNER") comments to the Continental Airlines, Inc. ("CONTINENTAL") sublease agreement with Frontier Airlines, Inc. ("COMPANY") effective March 2, 1995 and executed by CONTINENTAL on September 7, 1995 and by COMPANY on September 6, 1995. It is mutually agreed that, effective March 2, 1995, the sublease agreement will incorporate the following revisions requested by the OWNER which have been underlined for clarification purposes only. Section 3. Description of Premises on page 1. This section will read as follows: Certain space on and within the Denver International Airport, as well as reasonable rights of ingress and egress and the use of associated areas, being more fully described in Exhibits B-K, attached hereto and made a part - hereof. Section 13. Standard Provisions on page 6. The section heading Use of Premises will be replaced as follows: SUBJECT TO BASE LEASE --------------------- Section 13. Standard Provisions on page 13 Environmental Operations. Item (3)(B) of this section will read as follows: advise CONTINENTAL and OWNER of any notice of potential or actual non- --------- compliance. Section 13. Standard Provisions on page 14 Environmental Operations. Item (3)(C) of this section will read as follows: immediately upon receipt, provide CONTINENTAL and OWNER with copies of any --------- notice or notices relating to non-compliance. Section 13. Standard Provisions on page 14 Environmental Operations. Item (3)(D) of this section will read as follows: allow CONTINENTAL's and OWNER's designated representatives the unrestricted ----- ----------- right to inspect and review its on-premises operations and 1 equipment. Unless necessary in an emergency situation, neither ------- CONTINENTAL's nor OWNER's representatives shall purposely interfere with or ----------- inhibit COMPANY's operation. Section 13. Standard Provisions on page 14 Environmental Operations. Shall include the following paragraph: As used herein, the term "Hazardous Material" includes any hazardous, --------------------------------------------------------------------- explosive, radioactive, or toxic substance, material, or waste which is or -------------------------------------------------------------------------- becomes regulated by any local governmental authority, the state in which ------------------------------------------------------------------------- the Sublease PREMISES is located or the United States, including, without ------------------------------------------------------------------------- limitation, any material or substance which is (a) defined or listed as a ------------------------------------------------------------------------- "hazardous waste," "extremely hazardous waste," "restricted hazardous --------------------------------------------------------------------- waste," "hazardous substance," "hazardous material," "pollutant," or -------------------------------------------------------------------- "contaminant" under any Law, (b) a petroleum or 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. --------------------------------- Section 13. Standard Provisions on page 14 Environmental Indemnity. The sentence which begins "COMPANY covenants and agrees to release...." will read as follows: COMPANY covenants and agrees to release, indemnify, hold harmless and defend OWNER and 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 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 substance, toxic chemical pollutant, contaminant or irritant, in solid, liquid or gaseous form; arising out of or in any manner connected with any act or omission of COMPANY or its directors, officers, agents, contractors, servants, employees, licensees, invitees, successors and assigns. 2 Section 13. Standard Provision of page 15 Insurance. Item (1) of this section will read as follows: CONTINENTAL, OWNER, and their respective officers, directors, agents and employees are named as additional insured thereunder to the extent of COMPANY'S obligations to indemnify them under this Agreement, where allowed ---- by law. Section 13. Standard Provision on page 15 Insurance. Item (4) of this section will read as follows: COMPANY'S insurance shall be primary insurance and that any other insurance policy or policies of CONTINENTAL and OWNER are noncontributory, secondary --------- or excess insurance. Section 13. Standard Provisions on page 15 Insurance. Item (6) of this section will read as follows: COMPANY'S insurers waive all rights of subrogation against CONTINENTAL and --- OWNER, and their respective officers, directors, agents, and employees and --------------------------- their insurers. ----- Section 13. Standard Provision on page 15 Insurance. Item (8) of this section will read as follows: COMPANY'S insurers agree that COMPANY'S breach of any warranty set forth in its policy of insurance will not invalidate the insurance as to CONTINENTAL and OWNER. --------- Section 13. Standard Provisions on page 17 NON-DISCRIMINATION AND EQUAL OPPORTUNITY item 1 of the Company covenant and agreement will read as follows: COMPANY further covenants and agrees to: 1) Indemnify and defend CONTINENTAL and OWNER from and against any and all --------- claims, liabilities, losses and judgments arising out of COMPANY'S failure to comply with these provisions; and 3 Section 13. Standard Provisions on page 18 TEXAS LAW will now read COLORADO -------- LAW. Section 13. Standard Provisions on page 20 ENTIRE AGREEMENT. The sentence which begins "No amendment, change or addition...." Will read as follows: No amendment, change or addition to the Agreement shall be binding upon either party hereto unless in writing and signed by the parties hereto and --- approved by the Manager of Aviation. ----------------------------------- The parties hereto have caused this Letter Agreement to be executed as of the effective date hereof. CONTINENTAL AIRLINES, INC. FRONTIER AIRLINES, INC. BY:_________________________ BY: /s/ Arthur T. Voss ------------------------------------ TITLE:______________________ TITLE: V.P. ------------------------------- DATE:______________________ DATE: Effective March 2, 1995 --------------------------- CITY AND COUNTY OF DENVER BY:_________________________ TITLE:______________________ DATE:______________________ 4 EX-10.20 13 LETTER OF UNDERSTANDING EX 10.20 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH " * " AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC [Contintenal Airlines Letterhead] August 16, 1996 Mr. John Hershner Director of Properties Frontier Airlines, Inc. 12015 East 46th Avenue Denver, CO 80239 RE: DIA - CONTINENTAL HANGER FACILITY Dear John: After reviewing the Art Voss memorandum of August 9, 1996 and our conversations this past week, the following will summarize Continental's position: 1. Effective September 23, 1996, Frontier and Continental will negotiate for the entering into of a sublease agreement for certain hangar, office, and related maintenance space totaling approximately 43,437 square feet (approximately 34,384 exclusive and 9,053 common area) located at the Continental Maintenance Facility at Denver International Airport. The sublease shall contain the terms and conditions set forth below. 2. Frontier will pay Continental * for this exclusive and joint use space in equal monthly installments. This amount includes utilities and common M&O expenses. A * security deposit is required in the form of cash or irrevocable letter of credit. 3. The term of this sublease agreement will be two years. Frontier or Continental may terminate this agreement at any time after the first year upon ten months' written notice. If a third party offers to sublease the entire hangar from Continental, Frontier will have a right of first refusal to take the deal on the same terms offered by the third party. If Frontier declines, Continental may terminate Frontier's sublease with five months' written notice. In addition, Continental may terminate Frontier's sublease upon five months' written notice if Continental determines to reoccupy the entire hangar. 4. This proposal is subject to normal corporate approvals by Continental Airlines or from any other party from whom approval may be required. Further, each party agrees that any commitment expressed herein shall not be binding until fully executed documents are exchanged by both parties and all necessary approvals have been obtained in written form. Mr. John Hershner August 16, 1996 Page 2 As previously discussed, Frontier will be obligated to pay separately for maintenance equipment and tooling pursuant to agreement reached between Jon Bartram and Bill Meehan. If this letter represents acceptable terms and conditions, please acknowledge by signing and returning it to my attention. I will begin preparing an agreement for this transaction. If you have any questions, please do not hesitate to contact me. Sincerely, /s/ Jeffrey W. Kelly FRONTIER AIRLINES, INC. Jeffrey W. Kelly Corporate Real Estate Read, Acknowledged & Accepted By: /s/ Samuel Addoms TITLE: President DATE: August 19, 1996 cc: Blake Burke Ben Curran Bill Meehan Joe Megna Randy Miller Holden Shannon EX-10.21 14 SERVICE AGREEMENT BETWEEN FRONTIER AND GREENWICH EX 10.21 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH " * " AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC [LOGO OF GREENWICH AIR SERVICES, INC. APPEARS HERE] _______________________________________________________________________________ Miami, Florida Dallas, Texas East Granby, Connecticut Prestwick, Scotland _______________________________________________________________________________ SERVICE AGREEMENT BETWEEN FRONTIER AIRLINES, INC. AND GREENWICH AIR SERVICES, INC. FOR CFM 56 AND JT8D ENGINES MAY 19, 1997 _______________________________________________________________________________ CONFIDENTIAL INFORMATION NOTICE THE INFORMATION CONTAINED IN THIS DOCUMENT IS THE PROPRIETARY PROPERTY OF GREENWICH AIR SERVICES, INC. AND SHALL NOT BE USED, DISCLOSED TO OTHERS, OR REPRODUCED WITHOUT THE PRIOR WRITTEN CONSENT OF GREENWICH AIR SERVICES, INC. TABLE OF CONTENTS
ARTICLE SUBJECT PAGE ------- ------- ---- 1 Definitions.......................................... 1 2 Term................................................. 3 3 Procedures........................................... 3 4 Delivery - Repair Time............................... 4 5 Pricing/Payment...................................... 5 6 Exchange Parts....................................... 6 7 Missing or Damaged Parts............................. 7 8 Miscellaneous........................................ 7 9 Warranty............................................. 8 10 Indemnity............................................ 8 11 Insurance............................................ 9 12 Limitation of Liability.............................. 9 13 Force Majeure........................................ 10 14 Notices.............................................. 10 15 Renegotiation and Escalation......................... 10 16 Termination.......................................... 11 17 Taxes and Other Charges.............................. 12 18 Governing Law and Severability....................... 12 19 Entire Agreement..................................... 12 Signatures........................................... 13 EXHIBITS - -------- Exhibit A Schedule 1 - CFM56 & JT8D Time and Material Pricing.. A-1 Schedule 2 - Field Service Pricing................... A-4 Schedule 3 - CFM56 & JT8D Accessory Pricing.......... A-5 Exhibit B Aircraft Engine Service Warranty..................... B-1 Exhibit C Accessory Shops Standard Overhaul Warranty........... C-1
i SERVICE AGREEMENT THIS AGREEMENT, is made as of this 19th day of May, 1997, by and between FRONTIER AIRLINES, INC., a Delaware corporation, of 12015 E. 46th Avenue, Denver, Colorado 80239 ("Customer") and GREENWICH AIR SERVICES, INC., a Delaware corporation, having its principal place of business at Miami, Florida 33122 and a mailing address of P.O. Box 522187, Miami, Florida 33152, for itself and on behalf of its affiliated companies ("Greenwich") . WITNESSETH: WHEREAS, Greenwich is a Federal Aviation Administration ("FAA") approved overhaul, service, and repair facility and operates facilities for the servicing of aircraft engines, components, Q.E.C. components, and parts thereof at Miami, Florida; East Granby, Connecticut; Dallas, Texas; and Prestwick, Scotland; WHEREAS, Customer requires overhaul, check, inspection, modification, repair, and/or service on its CFM56 and JT8D Engines, assemblies, subassemblies, components, Q.E.C. components, and parts thereof (collectively, the "Equipment"); and WHEREAS, Greenwich agrees to overhaul, check, inspect, modify, repair, and/or service such CFM56 and JT8D series Engines, modules, related accessories, and other Equipment as Customer shall furnish to Greenwich for such service during the period of this agreement; NOW THEREFORE, and in consideration of the mutual promises and covenants herein contained, the parties agree as follows. ARTICLE 1 DEFINITIONS 1.1 Definitions. In addition to terms elsewhere defined in this Agreement, the terms used in this Agreement shall have the following meanings unless some other meaning is apparent from the context in which these terms are used. (A) "Accessories" or "Components" shall mean those items (excluding Engines) which are renewable and inventory controlled on a unit basis, usually by serial number, with a potential for reuse through inspection, overhaul, repair or calibration, as judged by Greenwich and approved by Customer. (B) "Basic Workscope" shall mean the document executed by Customer listing the Services (as hereinafter defined) to be performed by Greenwich hereunder, including a repair/purchase order covering the cost of repair. (C) "Business Day" shall mean any day on which banks are open for business in Dallas, Texas, U.S.A. 1 (D) "CLP" shall mean the current manufacturer's list price. (E) "Condemned", as applied to any part, shall mean a part that is beyond repair limits or that has repair costs in excess of economical limits as determined by Greenwich. Greenwich shall take title to and dispose of all Condemned parts at its own expense, after obtaining Customer's concurrence on the Condemned classification. (F) "Customer Engineering Order" or "Modification" shall mean an order, direction or request from Customer to use parts, procedures, or modifications not approved by the manufacturer or not contained in the manuals supplied by the manufacturer. (G) "Engine" shall mean the CFM56 or JT8D Engine series assembly plus its essential accessories as described in the CFM56 and JT8D manufacturer's specification manuals. (H) "Exchange Part(s)" shall mean those part(s) utilized from Greenwich's inventory to replace Customer's repairable parts. (I) "Field Service Support" shall mean any Services provided by Greenwich at a site other than at the Service Center (as hereinafter defined). (J) "Overhaul" shall mean to perform such work services as are required to return the Equipment to "as new" condition or limits as established by the manufacturer's specifications, or to the condition contemplated by the parties in any Customer engineering order. (K) "Refurbish", "Repair" and "Restore" shall mean to perform such work services as required and authorized to the Equipment to permit the item to continue its service life. (L) "Repairable" shall mean the condition of an item which is capable of being made "serviceable" by subjecting it to certain processes and procedures as indicated in the appropriate original manufacturer's overhaul or specification manuals, Customer's engineering order or Greenwich's engineering order approved by Customer. (M) "Replacement" shall mean any part or unit which is physically replaced by a different part or unit from that installed on the Engine at the time of receipt by Greenwich (not necessarily a part number change). (N) "Rework" or "Update" shall mean to perform such work services as are required by service bulletin, technical order, Customer engineering order, or other document that will alter or modify the item from its original condition or configuration. (O) "Service" shall mean those services requested by Customer which Greenwich agrees 2 to perform. (P) "Serviceable Condition" shall mean the condition of a Repaired item which can be used for the same purpose as a newly manufactured item. (Q) "Service Center" shall mean any one or all of Greenwich's FAA approved Repair Stations. ARTICLE 2 TERM 2.1 Term. This Agreement shall be exclusive for CFM56 Engines and non- exclusive for JT8D Engines, shall commence upon the date first written above and, unless sooner terminated pursuant to Section 16 herein, is to continue through April 30, 2002, and shall continue in effect from year to year thereafter as long as Customer continues to operate CFM56 or JT8D series Engines (the "Term") or, unless and until either party shall terminate the same, by sixty (60) days advance written notice. ARTICLE 3 PROCEDURES 3.1 Engine Procedures. Greenwich shall furnish all labor, facilities, equipment, parts, materials, supplies, painting and plating, and testing devices required to perform the Services required by Customer pursuant hereto and shall accomplish such Service in a good and workmanlike manner in accordance with the requirements of the Engine manufacturer, the Federal Aviation Administration (FAA), the Joint Airworthiness Authority of Europe (JAA), or Customer; as applicable. The following procedures shall govern the processing of work by Greenwich on Engines, subject to the terms and conditions contained herein: (A) Basic Workscope. With respect to any Engine, Customer shall provide Greenwich with a Basic Workscope outlining the (a) removal cause; (b) life limited parts ("LLP") Replacement requirements; (c) extent of disassembly; and (d) Customer's work specifications, if applicable, together with a repair/purchase order for the cost of Repairs. The Basic Workscope may be amended by Customer as agreed with Greenwich. (B) Receiving Inspection. Upon delivery to Greenwich of any Engine to be Repaired, Greenwich shall accomplish a standard receiving inspection to include, as applicable: (a) borescope inspection; (b) Component inventory; (c) filter contamination check; and (d) external inspection. Greenwich shall provide copies of the results of this inspection to Customer. (C) Disassembly. Greenwich shall disassemble each Engine as requested by Customer in Article 3.1(A) above. (D) Inspection. Greenwich shall clean and inspect the disassembled Engine and promptly thereafter provide Customer with a cost estimate for the Services required. 3 Greenwich, upon Customer's request, shall provide a list of known rotable parts to be scrapped or replaced. (E) Cost Estimate. Any quotation related to the cost of Services ("Cost of Services") is provided to and accepted by the Customer only as an estimate ("Cost Estimate"), is given solely for the purpose of guidance and not for reliance, and is entirely without prejudice to the calculation of the Cost of Services in accordance with the provisions of this Agreement. The Cost of Services performed shall be based on the actual condition of the Equipment and the actual cost of the Repair. The Cost of Services shall be as stated in the invoice(s) and Customer shall be responsible for all invoiced amounts regardless of the Cost Estimate. Any trailing invoice(s) shall reflect actual charges which were not available at the time of the earlier invoice(s) and which have been reconciled with any estimated amounts previously invoiced to Customer. Upon receipt of Customer's approval of the Cost Estimate, Greenwich shall Repair the Engine in accordance with the manufacturer's or Customer's specifications. (F) Test Procedures. Greenwich shall test the Engine in accordance with the manufacturer's or Customer's specifications, as designated by Customer. Following this acceptance test, Greenwich shall preserve the Engine's fuel and oil systems. (G) Post Test Procedures. Greenwich shall accomplish a post test borescope inspection and prepare the Engine for shipment. (H) Certification Procedures. Greenwich shall accomplish an Engine records review. If Serviceable, the Engine shall be tagged with an FAA Serviceable Tag. Greenwich shall compile an Engine records package and forward such package to Customer. (I) Redelivery. The Engine shall be made available for redelivery to Customer as described in Article 4. (J) Final Invoice. Greenwich shall prepare a final invoice and present such invoice to Customer for payment as described in Article 5 herein. 3.2 Parts Procedure. Parts not received as part of an Engine will be subject to a separate procedure as agreed by the parties. ARTICLE 4 DELIVERY - REPAIR TIME 4.1 Delivery. Customer shall deliver all Engines to Greenwich's designated freight agent F.O.B. Customer's facility, as designated by Customer. Greenwich shall redeliver the same items to Customer F.O.B. Greenwich's designated freight agent at Customer's facility, as designated by Customer. Customer shall deliver all Parts, Accessories, Components, and other items shipped separate from an Engine to Greenwich, F.O.B. Greenwich's Texas facility. Greenwich shall redeliver the same items to Customer or its designated agent, F.O.B. Greenwich's Texas facility. 4 4.2 Repair Time. (A) Engine repairs shall be accomplished by Greenwich in sixty (60) calendar days (the "Turn Time") from approval of the Cost Estimate to the date of test acceptance. Such time may be extended under the Force Majeure provisions of Article 13 herein and/or any delays caused by Customer in providing required documentation, approvals, or timely delivery of Customer Furnished Material. (B) Greenwich shall provide Customer an estimate of the redelivery date following disassembly, cleaning, and inspection. (C) If the Turn Time, for any engine, exceeds sixty (60) days, and the reason for such delay is not a cause set forth in either Section 4.2 (A) or Section 13 herein, and for JT8D engines eighty percent (80%) of Customer's removals for the previous twelve (12) months have gone to Greenwich, and Customer is in an AOG condition, Greenwich shall, as liquidated damages and not as a penalty: (i) Lease to Customer, under a separate engine lease agreement, a spare Engine, if available, for Customer's use until redelivery of the repaired engine. Customer agrees to pay Greenwich hourly charges for the hours of operation of the Engine, which charges shall be determined at a rate which is standard in the industry at the time of such lease. Customer shall make available the leased spare Engine for shipment to Greenwich within five (5) days of redelivery of its repaired Engine to Customer's facility, or the Customer shall pay, in addition to the hourly charges for Engine operation, the daily lease rate, which is standard in the industry at the time of lease, from such time until the leased spare Engine is made available for shipment to Greenwich. Such spare engine will not be delivered to Customer until the Lease Agreement is fully executed; or (ii) in the event that Greenwich is unable to provide a lease Engine to Customer under this provision and Customer is in an AOG situation due to circumstances entirely outside Customers control, Greenwich shall reimburse Customer its daily charge only, up to a maximum daily charge of two thousand U S Dollars ($2000.00) per day for CFM56 Engine requirement and/or a maximum daily charge of three hundred twenty-five U S Dollars ($325.00) per day for JT8D Engine requirement, until redelivery of the repaired Engine, or upon delivery at Customer's facility of a lease Engine from Greenwich, or when Customer is no longer in an AOG situation, whichever occurs first. ARTICLE 5 PRICING/PAYMENT 5.1 Pricing. Charges for labor, material, outside services, testing and Field Service Support shall be in accordance with the prices listed on Exhibit A. 5 5.2 Payment. All payments under this Agreement shall be made via wire transfer by Customer to Greenwich in United States dollars, immediately available for use, without any right of set-off or deduction. All sums past due shall bear interest at the rate of one and one-half percentage (1.5%) points per month, or at the highest legal interest rate permitted by law, whichever is lower. 5.3 Payment Terms. (A) In accordance with Exhibit A hereof, Customer shall pay one hundred percent (100%) of the Cost Estimate after test acceptance and prior to redelivery of the Engine. (B) As set forth in Section 3.1(E) above, Customer agrees that any Cost Estimate and Initial Invoice is preliminary and may include estimated charges for rework, subcontractor work, and other related services when the actual charges for those activities are not available, and is subject to revision based on the condition of the Equipment and the actual cost of the repair. Subsequent "trailing" invoices reflecting the actual charges will be submitted to Customer as soon as practicable and will be reconciled with the estimated amounts previously invoiced to Customer. Customer shall pay the "trailing" invoice within thirty (30) calendar days of receipt. 5.4 Mechanic's Lien/Security Interest. Customer hereby grants to Greenwich a security interest in all property of Customer in the possession of Greenwich at any time to secure all amounts owed by Customer to Greenwich now or in the future, and Greenwich shall have all rights of a secured party under the Uniform Commercial Code with respect to such property. ARTICLE 6 EXCHANGE PARTS 6.1 Procedure. Greenwich shall determine which Exchange Parts are required to Repair the Equipment, and will issue these parts from rotable stock. Greenwich shall transfer ownership to Customer (without representation of warranty except as expressly provided herein) of these Exchange parts in exchange for ownership of the respective parts removed, and provided that such removed parts are Repairable. During the production process, Customer may, with reasonable advance notification, review Greenwich's Exchange Parts documentation and actions. Repairable parts received by Greenwich in exchange for parts in Serviceable Condition will be Repaired by Greenwich or an outside source, at Greenwich's sole option. Greenwich shall invoice Customer for such Repairs and exchange fees as per Exhibit A. 6.2 Condemned Parts. If the part that is removed from Customer's Equipment in an Exchange Part transaction is subsequently Condemned, then such transaction shall be void, and the Exchange part provided by Greenwich will be deemed to have been purchased by Customer at the price provided in the Price List at Exhibit A, less any exchange fee. 6 6.3 Scrapped Parts. All scrapped parts determined to be unserviceable and/or not economically repairable shall become Greenwich's vested property fifteen (15) days after completion of engine services. During this fifteen (15) day period, Customer may take possession of such parts and immediately ship or dispose of said parts at its sole cost and expense. Parts which become Greenwich's vested property hereunder shall be Greenwich's responsibility at its sole expense and without any further adjustment to Customer, to mutilate and dispose of such parts as to preclude any further use as an Engine part. 6.4 Customer parts provisioning. Customer may, at its discretion, review Greenwich's list of rotable parts required to repair its Engine. After this review, Customer may elect to provide certain rotable parts. If Customer so elects to provide certain rotable parts, it must inform Greenwich of such election within five calendar days of receipt of the Greenwich provided rotable parts list as to which parts it intends to provide. All parts provided by Customer must be serviceable, tagged in accordance with FAA requirements, and in a condition to be installed on the Engine. All such parts must be delivered to Greenwich in a timely manner which does not affect Greenwich's production schedule. If any part is not received by Greenwich prior to the scheduled installation date of such part, in an immediately usable condition, Greenwich may, at its sole option, either delay the turn time day for day until such part is received and reinduction of the engine into the production schedule can be accomplished, or provide a Greenwich owned rotable part under the terms of this Agreement. Charges for Customer supplied parts shall be in accordance with Exhibit I. ARTICLE 7 MISSING OR DAMAGED PARTS 7.1 Missing or Damaged Parts. Greenwich shall advise Customer of (i) parts missing from any Equipment when received at Greenwich's facility; and (ii) parts found to have been damaged in transit. Should (i) or (ii) occur, resulting in the excusable delay of redelivery, Greenwich shall provide notice to Customer. Greenwich may replace such parts with the express consent of Customer. If neither party can provide Replacements immediately, then the redelivery date shall be extended by the length of the delay in receiving the Replacement parts. ARTICLE 8 MISCELLANEOUS 8.1 Subcontracted Work. Greenwich shall have the right to subcontract any work it deems necessary to an authorized repair facility; provided, that Greenwich shall provide Customer with any warranties received from such subcontractors which are assignable. Greenwich will make its best efforts to minimize work subcontracted to outside vendors. Upon request, Greenwich shall provide Customer a list of its subcontractors. 8.2 Work in Process. Upon the expiration or termination of this Agreement, Greenwich shall complete all work in process in a diligent manner; provided, that Customer has deposited sufficient monies with Greenwich to pay the estimated charges for all such work, in 7 accordance with the price list at Exhibit A. 8.3 Field Service Support. Greenwich shall provide Field Service Support at the daily rates provided in the price list at Exhibit A. 8.4 Service Center Representatives. Customer may appoint an employee or representative as Service Center Representative to act as liaison with Greenwich. The Service Center Representative is authorized to review work, request additional work, revise the original workscope, and approve (i) the labor performed, (ii) any parts, materials, or supplies furnished by Greenwich, and (iii) receive notices for Customer. The Customer Representative has the authority to request a stoppage of the work being performed on Customer's Engines; however, any such stoppage and subsequent restart will result in an adjusted turn time and a minimum additional charge of twenty five (25) manhours per occurrence to Customer. Greenwich shall provide the Service Center Representative with a suitable work area at its Service Center while this Agreement is in force. Customer shall provide all workman's compensation and other insurance required for such representatives. Customer agrees to defend, indemnify, save, and hold harmless Greenwich, its affiliates, directors, officers, agents, and employees, from and against any and all responsibilities, liabilities, claims, demands, suits, judgements, damages, losses, costs, and expenses of any nature or description whatsoever for any injury to or death of any person associated with or employed by Customer, at Greenwich's facility for the purposes stated herein. 8.5 Spare Component Support. Greenwich will maintain one each of the following spare components, available for shipment within forty eight (48) hours to a location designated by Customer. These components will be provided to Customer in accordance with the terms of the exchange parts program found in Article 6 of this Agreement A. JT8D Gearbox B. JT8D C1 Fan Assembly C. JT8D C2 Fan Assembly 8.6 Spare Engine Support. At the end of each calendar year, for the term of this contract, Greenwich shall credit Customer * for each of the first two (2) "full restoration" CFM56-3 engines input during the preceding year. This * maximum credit is specifically for the purpose of offsetting a portion of the expense associated with Customer's guaranteed spare engine program. ARTICLE 9 WARRANTY 9.1 Workmanship. Greenwich warrants its work to be free from defects in workmanship in the Services it performs hereunder, as set forth in its Engine Service Warranty contained in Exhibit B and its Accessory Shops Standard Overhaul Warranty contained in Exhibit C hereto. 9.2 EGT Margin Guaranty. Full performance restoration, including or excluding LPT repair, provides for EGT margin guaranty of 30 degrees C for B1 powered CFM56 Engines and 25 8 degrees C for B2 powered CFM56 Engines. ARTICLE 10 INDEMNITY 10.1 Indemnity. From and after delivery hereunder, Customer agrees to defend, indemnify, save, and hold harmless Greenwich, its affiliates, directors, officers, agents and employees, from and against any and all responsibilities, liabilities, claims, demands, suits, judgments, damages, losses, costs, and expenses of any nature or description whatsoever (including, without limitation, investigation costs and expenses and attorneys' fees and expenses in connection therewith) for any loss of, damage to, or destruction of any property (including the Equipment ) or for any injury to or death of any person, arising from and after the delivery of the Equipment to Greenwich and arising out of or connected with (i) the maintenance, operation, Repair, or condition of the Equipment before delivery hereunder or (ii) the ownership, use, operation, Repair, maintenance, or disposition by Customer, its successors, assigns, or agents of the Equipment, regardless of the negligence of Greenwich, its directors, officers, employees, or agents; provided, however, that Customer shall 9 not be required to indemnify Greenwich for any claims or liabilities arising directly from Greenwich's gross negligence or willful misconduct. ARTICLE 11 INSURANCE 11.1 The following insurance shall be provided: A. Hangar (or Shop) Keeper's Insurance. Greenwich agrees to maintain Hangarkeeper's liability insurance protecting Customer from loss, damage, or destruction of Customer's property in the care, custody, or control of Greenwich, from which loss, damage, or destruction Greenwich, subject to Article 10.1, agrees to defend, indemnify, save, and hold harmless customer. B. Products Liability Insurance. Greenwich agrees to maintain products liability insurance in an amount not less than One Hundred Million U.S. Dollars ($100,000,000.00) for personal injury and property damage to third parties, from which personal injury or property damage Greenwich, subject to Article 10.1, agrees to defend, indemnify, save, and hold harmless customer. C. Public Liability Insurance. Customer agrees to maintain public liability insurance in an amount not less than Five Hundred Million U.S. Dollars ($500,000,000.00). Customer shall cause its insurer to name Greenwich, its affiliates, directors, officers, employees, agents, and representatives as additional insureds, and to specifically state that the indemnification requirements in Article 7 are insured as a contractual obligation. 11.2 Certificates of Insurance. Each party hereto agrees to furnish the other party, appropriate Certificates of Insurance evidencing its maintenance of the above insurance, applicable to it, at the commencement of this Agreement and each renewal thereof. Each party shall maintain the applicable insurance until two (2) years after the expiration of this Agreement. In addition, each party hereto agrees to provide the other party written notice not less than thirty (30) calendar days prior to any cancellation or adverse material change in the maintenance of the above Insurance. ARTICLE 12 LIMITATION OF LIABILITY 12.1 TOTAL LIABILITY. THE TOTAL LIABILITY OF GREENWICH, INCLUDING ITS SUBCONTRACTORS AND SUPPLIERS, FOR ANY AND ALL CLAIMS, WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE OF ANY DEGREE), OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, OR RESULTING FROM THE PERFORMANCE OR NON- PERFORMANCE OF THE ACCEPTED WORKSCOPE, SHALL NOT EXCEED GREENWICH'S INVOICE FOR THE REPAIRED OR OVERHAULED ITEM WHICH GIVES RISE TO THE CLAIM HEREIN, PROVIDED THAT GREENWICH'S LIABILITY WILL BE LIMITED TO THE LESSER OF THE COST TO PERFORM SAID REPAIRS OR THE COST TO REPLACE THE ENGINE WITH A SUBSTITUTE ENGINE OF EQUAL VALUE AND UTILITY. 12.2 DAMAGES. IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, WARRANTY, TORT, (INCLUDING NEGLIGENCE OF ANY DEGREE), OR OTHERWISE, SHALL GREENWICH, ITS SUBCONTRACTORS, AND/OR SUPPLIERS, BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, RESULTANT, INCIDENTAL, INDIRECT, OR 10 EXEMPLARY DAMAGES. ARTICLE 13 FORCE MAJEURE 13.1 Inability, Delays, and Force Majeure. Greenwich shall not be liable for any failure to perform or any delays in performance due to acts of God; the public enemy, war; declared or undeclared, or warlike conditions; inability to secure parts or material (provided such inability stems from scarcity or difficulty and not from delays by Greenwich in placing orders); insurrection or riots; floods; explosions; fires; earthquakes; hurricanes; any governmental act; failure of transportation; strikes or other labor disputes; or any other cause beyond its control. 13.2 Customer's Obligation to Pay. Section 13.1 above shall not relieve Customer of its obligations to pay for Services actually performed. ARTICLE 14 NOTICES 14.1 Acknowledgment. All notices required or permitted under this Agreement shall be in writing and shall be delivered personally, facsimiled, sent by courier service, or express mail, addressed as follows: If to Greenwich: If to Customer: ---------------------------- ----------------------- Greenwich Air Services, Inc. Frontier Airlines, Inc. 4590 N.W. 36th Street 12015 E. 46th Avenue Bldg. 23 MIAD Suite 200 Miami, Florida 33122 Denver, CO 80239 Attn: Director of Contracts Attn: Jon Bartram Phone: 305 526-7000 V.P. of Maintenance Fax: 305 526-7005 Phone: 303-371-7400 Fax: 303-371-7007 or such other address as either party may designate in writing to the other party from time to time. 14.2 Effect of Notices. Notices shall be effective and shall be deemed to have been given when received. ARTICLE 15 RENEGOTIATION AND ESCALATION 15.1 Renegotiation and Escalation. Pricing and rates shown herein shall be adjusted in accordance with the following: (A) Labor. Labor rates, vendor pricing, and test cell fees shown herein are valid through December 31, 1997. At that time, and each January 1st thereafter, Greenwich 11 reserves the right to increase the hourly labor charges and fixed labor charges by an amount which is proportionate to any increase in the National Labor Index of the "Hourly Earnings of Aircraft Engine and Engine Parts Production Workers" SIC 3724, as prepared by the U.S. Department of Labor, Bureau of Labor Statistics for the previous twelve (12) month period. Each such increase shall be effective as to units completed on or after the relevant change date. (B) Material. Charges for material caps shown herein are valid through December 31, 1997. At that time, and each January 1st thereafter, Greenwich reserves the right to increase the such charges by an amount which is proportionate to any increase to the manufacturer's parts price book increase. Such increase shall be effective as to units completed on or after the relevant change date. 15.2 At any time and from time to time after execution of this agreement, Greenwich may, with Customer=s concurrence, establish new fixed rates for labor to service Engines, modules, and accessories and new fixed job rates for special processes, plasmas, platings, coatings, standards, and exchanges. The new rates shall be effective as to units completed on or after the date on which Customer is notified of the new rates. 15.3 If, at any time during the term of this Agreement, the Engine related Services required by Customer decline to a level not supportive of rates and fees herein offered, then Greenwich may, by written notice to Customer, request that this Agreement be opened for renegotiation of prices, term of agreement, and performance times. Within thirty (30) days after receipt of said notice from Greenwich, the parties hereto will meet to discuss proposals and counter proposals. Any revision agreed to by the parties shall be made retroactive to the date that the parties met to commence renegotiations. ARTICLE 16 TERMINATION 16.1 Material Provisions. This Agreement may be terminated by either party upon sixty (60) calendar days advance written notice to the other party for any failure to comply with any material provision, and shall expire without further act or deed on the date indicated in such written notice, unless the failure shall have been completely cured or the party in breach has substantially performed all acts required to cure the failure prior to the expiration date, except for reason of termination pursuant to Section 16.2 below. 16.2 Required Payments/Insurance. Greenwich or Customer may terminate this Agreement on ten (10) calendar days notice if either party fails to make any of the required payments or to provide the required insurance, unless such party cures such nonpayment or provides the required insurance within such time period. 16.3 Effect of Agreement. In the event that either party terminates this Agreement, any liabilities, obligations, expenses, or charges having accrued to the parties under this Agreement shall remain in full force and effect. 16.4 Redelivery of Customer Furnished Material. Upon termination of this Agreement, Customer furnished material in Greenwich's possession shall be redelivered to Customer at the Service Center on the date of termination or the date of completion of work performed, after the payment of all charges by Customer to Greenwich. 12 ARTICLE 17 TAXES AND OTHER CHARGES 17.1 Taxes, Duties, or Charges. Any and all taxes, custom duties, brokerage fees, or other charges, excluding any income taxes payable by Greenwich, resulting from performance under this Agreement, ("Charges") shall be borne by Customer. 17.2 Exemption. If Customer is claiming exempt status from the State Sales Tax, Customer shall, prior to the effective date of this Agreement, provide Greenwich with a copy of its state sales tax exemption certificate or affidavit in the form required by the State Department of Revenue. ARTICLE 18 GOVERNING LAW AND SEVERABILITY 18.1 Governing Law. This Agreement shall be deemed to have been made in Dallas, Dallas County, Texas, and shall be interpreted, and the rights and liabilities of the parties hereto determined in accordance with the law of the State of Texas, U.S.A. without regard to conflicts of law principles. The parties consent and hereby submit to the exclusive jurisdiction of the state and federal courts located in Dallas County, Texas, U.S.A. for the determination of any and all issues between the parties relating to this Agreement. Nothing in this clause limits the right of Greenwich to bring proceedings in any other court of competent jurisdiction; nor shall the bringing or continuing of proceedings in one or more jurisdictions preclude the bringing or continuing of proceedings in any other jurisdiction, whether concurrently or otherwise. Customer irrevocably waives any objection which it may have at any time to the laying of the venue of any proceedings in any court referred to in this section, to any claim that any such proceedings have been brought in any inconvenient forum, to any right to trial by jury in any proceedings, and to any objection to service of process if such service is by certified mail, return receipt requested, at the address provided, or updated as provided, herein. Customer agrees to be subject to the Texas Long Arm Statute for service of process. 18.2 Severability. If any portion of this Agreement shall be determined to be in violation of or contrary to any law, rule or regulation by a court of competent jurisdiction, then that portion shall be unenforceable and deleted from the Agreement. However, the balance of this Agreement shall remain in full force and effect notwithstanding the unenforceability of said portion. ARTICLE 19 ENTIRE AGREEMENT 19.1 Contents. This Agreement contains the entire agreement between the parties and supersedes all prior and contemporaneous understandings, representations, warranties, and agreements. 19.2 Non-Waiver of Rights and Remedies. Any failure or delay in the exercise of any rights or remedies hereunder shall not operate to waive or impair such rights or remedies. Any waiver 13 given shall not be construed to require said party to make any future or further waivers. 19.3 Additional Documentation. The parties agree to cooperate with each other and to execute any additional documentation as may reasonably be necessary to give effect to this Agreement. 19.4 Titles/Subtitles. The titles and subtitles given to the sections of this Agreement are for convenience only and shall not in any manner be deemed to limit or restrict the context of the article or section to which they relate. The words "hereof", "hereunder", "herein", "herewith", and similar terms are not to be deemed restrictive and refer to the entire Agreement including all Exhibits. 19.5 Modification. This Agreement may only be modified, supplemented, or amended by a writing duly signed by authorized representatives of both parties hereto. 19.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but both of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year written below. GREENWICH AIR SERVICES, INC. FRONTIER AIRLINES, INC. By:_______________________________ By:_____________________________ Name: ____________________________ Name: __________________________ Title: ___________________________ Title:__________________________ Date: _____________________________ Date: __________________________ 14 SCHEDULE 1 EXHIBIT A FRONTIER AIRLINES - CFM56 & JT8D PRICING I. JT8D T&M PRICING 1. Labor (Basic & Rework) * 2. Special Processes * 3. Material A. New * B. Serviceable * C. Serviceable LLP * D. Rotable Scrap * E. Customer Supplied Material (a) New Parts: * (b) Serviceable Parts: * * (c) LLP (used serviceable) * 4. Subcontract Services * 5. Rotable Fee * 6. Test Cell Fee * 7. Fuel & Oil * 8. Transportation * 9. Engine Condition Monitoring * A-1 (Waive 12 months following shop visit) SCHEDULE 1 (cont'd) II. CFM56 PRICING 1. Time & Material Pricing A. Labor * B. Special Processes * C. Material a. New * b. Serviceable * c. Serviceable LLP * D. Subcontract * E. Rotable Fee * F. Test Cell Fee * G. Fuel & Oil * H. Transportation * I. ECM * A-2 SCHEDULE 1 (cont'd) 2. Engine Flat Rates (specific work scopes to be provided) A. Full Performance Restoration including LPT Repair $ * through 12/31/97 B. Full Performance Restoration excluding LPT Repair $ * through 12/31/97 The above flat rates include all basic and rework labor, subcontract charges, special processes, test cell fee, fuel & oil and rotable fees. The above flat rates exclude bench check, repair, or overhaul of accessories, and all material. 3. Material issued Flat Rated engines A. New Current Manufacturer's Catalog Price B. Serviceable Current Manufacturer's Catalog Price C. Serviceable LLP Fair Market Value 4. Accessories for Flat Rated engines See Exhibit A-3.B. Work that is over and above the defined workscope for the Performance Restoration Flat Rate Repair (with or without penetration of the LLP) shall be invoiced at the T&M pricing below: A-3 EXHIBIT A SCHEDULE 2 FRONTIER AIRLINES - FIELD SERVICE PRICING CFM56 & JT8D A. For each Technical Service Representative charged with providing technical assistance or support to Operator. Charges applicable from time of dispatch to return less periods of rest. 1) Monday through Friday Rates (minimum 8 hour daily charge): 0800 to 1700 Hours $ * 1700 to 0800 Hours $ * 2) Saturday Rates (minimum 8 hour daily charge): 0001 to 2400 Hours $ * 3) Sunday and Holiday Rates (minimum 8 hour daily charge): 0001 to 2400 Hours $ * B. For Contractor-supplied tooling (i.e., borescopes, etc.): Regular Borescope $ * Video Borescope $ * Vibration Survey Equipment $ * Tooling $ * C. Operator to be invoiced all reasonable costs to Contractor associated with travel, baggage and tooling, freight, lodging, meals, rental cars, local taxes and licenses, etc. A-4 EXHIBIT A SCHEDULE 3 FRONTIER AIRLINES - ACCESSORY PRICING A. JT8D ACCESSORY PRICING Basic Labor only to service accessories as applicable to JT8D engines (all material and rework of parts is additional, if required):
Overhaul Bench Check Exchange --------- ----------- --------- Cable Assy-Thermocouple........ $ * $ * * Cable - Exciter (Bendix)....... $ * $ * * (Simmonds)......... $ * $ * * Control Assy-PRBC.............. $ * $ * $ * Control-Fuel (JFC-1, -2)....... $ * $ * $ * (JFC-3).................. $ * $ * $ * (JFC-6 w/o SB 73-24)........ $ * $ * * (JFC-6 w/SB 73-24).......... $ * $ * * Cooler Assy - Oil, Fuel........ $ * $ * * Exciter (Bendix)............... $ * $ * $ * (Simmonds)............. $ * $ * $ * Flyweight Set-Fuel Control (min. qty. of 10 set/input) (grind only).................. $ * * * Heater - Fuel De-icing......... $ * $ * $ * Lead Assy - Thermocouple....... $ * $ * * Manifold Assy, Fuel (each)..... $ * * * Nozzle & Support Assy, Fuel (JT8D-small)................... $ * * * (JT8D-200 w/o SB 6169)......... $ * * * (JT8D-200 w/SB 6169)........... $ * * * Nozzle, Fuel (only)............ $ * * $ * Pump Assy, Oil, Main........... $ * * * Pump, Fuel, Main............... $ * $ * $ * (TRW, i.e., 243601, 358201 371901 379201, 384301) (Convert to 378201)........... $ * * $ * Switch, Differential Fluid Pressure (Custom)............. $ * $ * * (P&W)........................ $ * $ * $ * Valve & Actuator-Air Shutoff... $ * $ * $ * Valve Assy - Compressor Bleed.. $ * $ * * Valve Assy- Fuel Pressurizing & Dump....... $ * $ * Valve - Oil Drain.............. $ * $ * * Valve - Start Bleed Control.... $ * $ * *
Other at Direct Hourly Rate JT8D T&M pricing A-5 SCHEDULE 3 (cont'd) B. CFM56 ACCESSORY PRICING
Overhaul Bench Check Exchange --------- ----------- --------- Main Engine Control........................................ $ * $ * * Fuel Pump.................................................. $ * $ * * Fuel Pump with SB 073-085.................................. * $ * * Sensor, CIT................................................ * $ * * Heater, Fuel Servo......................................... * $ * $ * Valve, Turbine Clearance................................... $ * $ * * Valve, Turbine Clearance (9th Stage Hsg)........................................... * $ * * Cable, VBV................................................ * $ * * Cable, VSV................................................ * $ * * Motor, Hydraulic Gear...................................... * $ * * VSV Actuator.............................................. * $ * $ * VSV Piston................................................ $ * * * Lube Unit (including service bulletins).................... * $ * $ * Oil, Heater Exchanger (Secan or Serik)..................... * $ * $ * Oil Tank................................................... * $ * * Sensor, Fan Inlet Temperature............................. * $ * * Sensor, T12............................................... * $ * * Valve, Start Bleed....................................... * $ * $ * Ignitor Plug............................................... * $ * * Exciter.................................................... * $ * * N1 Speed Sensor (with SB 77-022)........................... * $ * * Oil Screen (lots of 5 minimum)(each)....................... * $ * * Oil Screen (less than 5)(each)............................. * * * Alternator Stator.......................................... * $ * $ *
(*price is to bench check and modify) Other at Direct Hourly Labor Rate.......................... CFM56 T&M Pricing The above flat rates for both CFM56 and JT8D accessories are for basic labor only. All material is invoiced separately, as is repair of individual parts or components. A-6 EXHIBIT B AIRCRAFT ENGINE SERVICE WARRANTY -------------------------------- Greenwich warrants its serviced Engines against defective workmanship relating to the work that Greenwich performs. Greenwich will repair any such Engine that has failed for this reason. Greenwich's obligations are expressly limited to correction of such defects by Greenwich at its expense and to specific periods after redelivery of the Engine to Customer, as follows: If, within one (1) year after redelivery, or within the first one thousand (1,000) hours or cycles (whichever is greater) of operation, whichever occurs first, the Engine fails due to a defect warrantable hereunder, Greenwich shall correct such defect at no cost to Customer. This warranty covers all defects which Customer can establish after Customer's notice to Greenwich of the defect as having occurred, provided: (1) Customer submits written notice of the defect within thirty (30) calendar days of discovery; and (2) the Engine is returned to Greenwich's facility, freight prepaid, within sixty (60) calendar days after discovery, accompanied by a written description of the nature of the defect; and (3) after redelivery to Customer, the Engine has not been improperly installed by Customer or by a subcontractor utilized by Customer; and (4) subsequent to redelivery, the Engine was operated and maintained in accordance with FAA and other applicable standards; was used under normal operating conditions; was not subjected to misuse, abuse, neglect, accident or incident; was properly stored and was not repaired or altered by anyone other than Greenwich; and (5) the Engine is returned with all proper records and necessary documents, all of which shall be in English; and (6) the Engine has not been sold to another; and (7) Customer has met all of its financial obligations under the contract; and (8) the Engine has not incurred Foreign Object Damage or has not failed as a result of the failure of Customer supplied material. Greenwich reserves the right to disclaim liability for costs which are incurred in correcting any defect but which reasonably would not have occurred had the workscope not excluded, at Customer's direction, work which otherwise would have been performed, or which would have included inspection and repairs, that would have revealed or anticipated the defect. Further, Greenwich shall not warrant work excluded from Customer's workscope, when such work had been recommended by Greenwich in writing. B-1 This warranty expressly excludes correction of any defect in the Engine if it must, following redelivery, be removed from operation due to performance or material defects attributable to inadequacies or deficiencies in design, materials or tooling as identified in applicable manufacturers' reports and documents or due to problems generally recognized to be industry-wide. Greenwich's total liability in connection with the service of Engines is expressly limited to workmanship and any warranty for material will be the warranty of the manufacturer of the material and Greenwich shall use its best efforts to assist in obtaining that warranty for its Customer. Greenwich reserves the right to determine whether the failure of the Engine falls under the terms of this warranty and will have the option of repairing, reworking, restoring or replacing the Engine and returning it to service or crediting Customer on a prorata basis. If it is determined that the subsequent repair is covered by this warranty, all freight charges will be reimbursed to Customer. After repair or rework, to correct any such defect, the Engine will be returned to Customer at Greenwich's expense. The warranties provided for herein shall be for the benefit of Customer, and no other party. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, GUARANTEES, OR REPRESENTATIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ANY OTHER LIABILITY OF ANY NATURE WHATSOEVER WITH RESPECT TO WORK DONE, SERVICES PERFORMED OR PARTS OR MATERIALS PROVIDED BY GREENWICH. WITHOUT LIMITATION OF THE FOREGOING, GREENWICH SHALL HAVE NO LIABILITY FOR INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY KIND DUE TO ANY DEFECT IN WORKMANSHIP, AND CUSTOMER HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO SUCH DAMAGES. THIS WARRANTY SHALL NOT BE ALTERED EXCEPT BY WRITTEN AMENDMENT TO THIS AGREEMENT BY AN AUTHORIZED OFFICER OF GREENWICH. B-2 EXHIBIT C ACCESSORY SHOPS STANDARD OVERHAUL WARRANTY -------------------------- Greenwich warrants its Accessory Shop's services to be free from defects in workmanship at the time of delivery. Greenwich's liability is expressly limited to replacing or repairing, at its option, any part which may be damaged as a result of such defect, within one (1) year after redelivery of the part, subject to the following conditions: (1) Greenwich is notified in writing of the defect within ten (10) calendar days of discovery. (2) The assembly is returned to Greenwich freight prepaid, within thirty (30) calendar days after discovery of the defect. (3) Customer shall be responsible for costs of removal, reinstallation or other associated expenditures. (4) The assembly or part has been operated and maintained in accordance with current manufacturer's manuals, operator handbooks, written recommendations, service bulletins and procedures. (5) Proper records have been kept on the part or assembly, especially installation dates, where time in service is the only criterion. (6) The assembly has not experienced any foreign object or external (casualty) damage. (7) If warranty request is approved by Greenwich, repairs shall be completed with continued time applicable to the original overhaul transaction (8) Warranty claims are subject to proration for time or use. (9) Upon completion of the warranty work, Customer shall sign a release indicating that all warranty work has been satisfactorily completed and that all potential or actual claims related to the warranty work have been satisfied. Greenwich will, at its discretion, determine whether or not the failure or defect is covered under the terms of the warranty. If it is determined that the subsequent repair is covered by this warranty, this freight charge will be reimbursed to Customer. The warranties provided for herein shall be for the benefit of Customer, and no other party. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, GUARANTEES, OR REPRESENTATIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ANY OTHER LIABILITY OF ANY NATURE WHATSOEVER WITH RESPECT TO WORK DONE, SERVICES PERFORMED OR PARTS OR MATERIALS PROVIDED BY GREENWICH. WITHOUT LIMITATION OF THE FOREGOING, GREENWICH SHALL HAVE NO LIABILITY FOR INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY KIND DUE TO ANY DEFECT IN WORKMANSHIP, AND CUSTOMER HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO SUCH DAMAGES. THIS WARRANTY SHALL NOT BE C-1 ALTERED EXCEPT BY WRITTEN AMENDMENT TO THIS AGREEMENT BY AN AUTHORIZED OFFICER OF GREENWICH. C-2 EX-10.22 15 AGREEMENT BETWEEN FRONTIER AND DALLAS AEROSPACE ENGINE EX 10.22 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH "*" AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC. DALLAS AEROSPACE, INC. ENGINE AGREEMENT WITH FRONTIER AIRLINES, INC. FOR MANAGING REPAIR OF JT8D ENGINES This Agreement dated April 17, 1997, is between DALLAS AEROSPACE, INC., a Texas Corporation having its principal place of business at 1875 North I-35E, Carrollton, Texas 75006, U.S.A. ("Seller") and FRONTIER AIRLINES, INC., a Delaware Corporation having its principal place of business at 12015 East 46th Avenue, Denver, Colorado 80239, U.S.A. ("Buyer") in consideration of their mutual promises and undertakings set forth below, and intending to be legally bound hereby. The parties agrees as follows: 1A. Repair Management ----------------- Subject to all the provisions of this Agreement, Seller agrees to accept and professionally manage the accomplishment of JT8D repair service on Buyer's engines removed for repair and redeliver the engines to Buyer. Seller agrees that it will use its best efforts to meet the estimated repair schedule. Buyer agrees to accept the terms of management by Seller described as follows: Engine shall be repaired for return to service by an FAA Approved Repair Station as mutually agreed upon. Buyer represents that it has sole authority to authorize repair of this engine either as the owner or acting on behalf of the owner and Buyer accepts full responsibility for payment of all repair bills associated with this Agreement in accordance with Paragraph 5. The engine shall be serviced in accordance with the planned workscope approved by Buyer and managed by Seller as required. Seller will keep Buyer apprised of those Seller recommended workscope changes and of any significant increases in charges due to changes in the planned workscope. Upon completion of necessary repairs, the engine will be tested in accordance with Pratt & Whitney specifications and will receive a current maintenance release and a FAA Form 337 prior to delivery to Buyer. 1B. Field Support Exchange Pool --------------------------- During the term of this Agreement, Seller will furnish to Buyer at no charge, one (1) Gearbox Assembly (bare), one (1) First Stage Fan Assembly (-9A), one (1) Second Stage Fan Assembly (-9A/-17) and two (2) Fan Inlet Case Assembly (non oil dampened/oil dampened) for use on Buyer's equipment. When one (1) of the Assemblies mentioned above are consumed by Buyer, the removed assembly will be returned to Seller by Buyer for rework or replacement. At that time Seller will invoice Buyer for the cost of the consumed assembly, in accordance with the Labor & Material Charges as contained in Annex A. Seller will have the removed assembly reworked and when made serviceable, returned to the Field Support Exchange Pool or offer a suitable replacement for inclusion in the Exchange Pool. Subject Assemblies to be returned to Seller by Buyer in like condition and value as received by Buyer, upon the expiration of this Agreement. 1C. Standby and Lease Engine Charges -------------------------------- Page 1 of 7 Seller will provide Buyer with one Standby JT8D-9A Engine in Boeing 737 QEC, less nose cowl, tailpipes and thrust reverser, for use on Buyer's equipment. Buyer agrees to pay Seller a standby fee and all transportation cost per Annex A of this Agreement. In the event that Buyer installs the Standby Engine on Buyer's equipment, lease charges as stated in Annex A of this Agreement will prevail along with standard stipulations of the than current Engine Lease Agreement. At no time will the Engine Lease charges in Annex A be increased or decreased for the term of this Agreement, without mutual written agreement. Buyer and Seller will execute an Aircraft Engine Lease Agreement for the Standby Engine or any other Engines that are sent to Buyer prior to shipment of any Engine (Annex B). The Aircraft Engine Lease Agreement will stipulate the Standby and Lease Engine charges as stated in Annex A. 2. Term of Agreement ----------------- This Agreement shall remain in force for three (3) years from the date of signing. This Agreement may be canceled by either party upon giving of one hundred and twenty (120) days written notice to the other party for failure to comply with any material provision of this Agreement and failing to correct such non-compliance within five (5) days of written notification of such non-compliance. 3. Labor and Material Charges -------------------------- The estimated and final invoice charges for labor and material shall be invoiced per the terms contained in Annex A. 4. Scheduling and Engine Process Time ---------------------------------- The current average engine process time (turn-time) for bare engine is about sixty (60) calendar days from date of induction to date of completion. Seller agrees that it will use its best efforts to meet the scheduled process time requirements of Buyer. 5. Payment ------- Seller shall submit estimated invoice for the charges on the engine. Buyer shall make the following payments: . Initial (Estimated) Invoice After engine disassembly and inspection, Seller shall provide an initial (estimated) invoice for the engine repair charges to Buyer and payment shall be made in full within thirty (30) days. . Second Invoice Upon completion of the engine, an invoice shall be provided to Buyer for any charge beyond the estimated invoice and payment shall be made in full within thirty (30) days. . Final Invoice After all repairs are complete and outside vendor charges are known, a final (reconciliation) invoice will be issued for any additional charges or credits due. Payment shall be made in full within thirty (30) days. . Credit Agreement Page 2 of 7 Seller may apply a late fee of one percent (1%) per month on any past due balance. Buyer will be responsible for payment of any collection costs and reasonable attorney's fees to collect any past due account. 6. Delays ------ The engine process time is a best efforts estimate only and Seller shall not be liable to Buyer for any loss or damage sustained by the Buyer or other party as a result of failure to comply with such date or period for completion or delivery. 7. Transfer of Engine and Delivery of Records ------------------------------------------ Buyer will be responsible for all transportation cost of the engine. All required maintenance records will be made available to Seller when requested. 8. Inspection of Powerplant and Inventory of Powerplant Appliances --------------------------------------------------------------- Upon induction of the engine, the repair station will conduct an internal and external inspection to determine the presence of any defects and perform an inventory of all installed accessories. Seller will advise Buyer of any inventory discrepancies and of any unreported conditions found. 9. Engine Determined to be Beyond Economical Repair (BER) ------------------------------------------------------ Seller will assist Buyer in reviewing the options available including but not limited to the availability of an exchange engine (price to be mutually agreed upon) or the purchase of the BER engine by Seller, for those engines determined by Buyer to be BER. For any such BER engine, Buyer may exchange the engine with a supplier other than Seller, after comparing offers. Any cost associated with the BER engine by Seller will be invoiced to Buyer in accordance with the Labor & Material charges as contained in Annex A if the engine is exchanged with a supplier other than Seller. 10. Scrapped Material ----------------- Parts deemed scrap will be held by Seller for a material review by Buyer for thirty (30) days. All scrap material will be disposed of locally unless otherwise notified in writing by Buyer. 11. Warranty -------- EACH ENGINE REPAIR STATION WILL WARRANT IT'S OWN REPAIR WORK AGAINST DEFECTIVE WORKMANSHIP OF REPAIRS PERFORMED, AND SUCH ENGINE REPAIR STATION WILL BE DIRECTED BY SELLER TO ISSUE SUCH WARRANTY DIRECTLY TO BUYER. STANDARD WARRANTIES ARE USUALLY FOR TWELVE (12) MONTHS OR TWELVE HUNDRED (1200) FLIGHT HOURS, WHICHEVER OCCURS FIRST, BUT COULD DIFFER BETWEEN REPAIR FACILITIES. ANY SUBCONTRACT WORK PERFORMED SHALL CARRY WITH IT WHATEVER WARRANTIES ARE OFFERED BY THE SUBCONTRACTOR; AND SUCH WARRANTIES SHALL PASS THROUGH TO BUYER FROM SELLER. PARTS PURCHASED IN "FACTORY NEW" CONDITION FROM ORIGINAL EQUIPMENT MANUFACTURERS (OEM's) OR FAA PARTS MANUFACTURER APPROVAL (PMA) SHALL CARRY WARRANTIES AGAINST DEFECTS IN MATERIAL OR WORKMANSHIP AS PROVIDED BY THE OEM OR PMA; AND SUCH WARRANTIES SHALL PASS THROUGH TO BUYER FROM SELLER. Page 3 of 7 BUYER ACKNOWLEDGES THAT SELLER IS NOT A REPAIR OR OVERHAUL AGENCY AND DOES NOT PERFORM REPAIR, OVERHAULS OR ANY OTHER WORK DIRECTLY ON OR TO SUBJECT PARTS OR ENGINES. AS SUCH, IT IS FULLY ACKNOWLEDGED BY BUYER THAT SELLER DOES NOT DIRECTLY PROVIDE ANY WARRANTIES EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF SUITABILITY FOR A PARTICULAR PURPOSE, USE OR SERVICE. IN NO EVENT SHALL SELLER BE LIABLE FOR ANY ACTUAL OR CONSEQUENTIAL DAMAGES ARISING WITH RESPECT TO MATERIAL, WORK, REPAIRS, OVERHAULS, PURCHASES OR SERVICES SUPPLIED UNDER OR IN CONNECTION WITH THIS AGREEMENT. 12. Waiver ------ Except as set forth in Section 10. above Buyer hereby waives any right of action or claims it may have against Seller arising out of the maintenance or repair of the engine, other than for the gross negligence or willful misconduct of Seller and Seller's appointed repair stations. 13. Indemnification --------------- At all times following delivery of each powerplant, Buyer agrees to assume liability for and to defend, indemnify, protect Seller and it's officers, directors, employees and agents from and against any an all liabilities, damage, losses, taxes, (other than taxes on net income) claims, actions, suits, judgments, demands and/or expenses of whatsoever kind, including without limitation reasonable legal fees, costs and expenses imposed on, incurred by, or asserted against Seller, it's officers, directors, employees and/or agents, or otherwise, for the death of or injury to any person or persons (other than any officers, directors, employees or agents of Seller) or for the loss of, damage to, or the destruction of any property, including any one or more of the powerplants, in any manner arising or resulting from the ownership, possession, registration, use, condition, performance, airworthiness, maintenance or modification of the powerplant or Buyer's operation of the powerplant, or arising or resulting from any third party or parties using, maintaining, modifying or operating the powerplant, or from any other cause whatsoever, including the doctrine of strict liability. Buyer's indemnity shall not apply to any death or bodily injury, or any loss of, damage to or destruction of any property or any other liabilities or claims whatsoever which were caused by the gross negligence or willful misconduct of Seller or it's officers, directors, employees or agents. Buyer shall have the obligation to control the negotiation and settlement of any claim or defense of any action or suit brought against Seller, it's officers, directors, employees and/or it's agents from which Buyer has indemnified Seller. Seller shall reasonably assist Buyer, if requested, in the defense of any such action or suit, at Buyer's expense, without releasing or waiving any obligation, liability or undertaking on the part of Buyer. 14 Notices ------- Any notices required or permitted to be given hereunder shall be in writing and shall be given to the parties at their respective address shown below, or to such other address as either party may subsequently notify the other and shall be deemed given when a copy is sent by facsimile transmission with the original thereof sent by certified mail. If to Seller: DALLAS AEROSPACE, INC. 1875 North I-35E Carrollton, Texas 75006 Attn: George Eddy Director Product Support Phone: 972-245-9633 Facsimile: 972-245-9695 Page 4 of 7 If to Buyer: FRONTIER AIRLINES, INC. 12015 East 46th Avenue Denver, Colorado 80239 Attn: ------------------------------------ ------------------------------------ Phone: ( ) Facsimile: ( ) --- ---------- --- ----------- 15. Governing Law and Assignment ---------------------------- This Agreement shall be binding upon its successors and assigns of each party; however, this Agreement may not be assigned by either party without the prior written consent of the other party. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. Executed by the parties as of the date first written above. Dallas Aerospace, Inc. Frontier Airlines, Inc. By: By: ---------------------- ---------------------- Name: Name: --------------------- --------------------- Title: Title: -------------------- -------------------- Date: Date: --------------------- --------------------- Page of 5 of 7 ANNEX A - JT8D SCHEDULE OF CHARGES
A. Engine Shop Charges Function Charges to Buyer -------- ---------------- All Shop Cost * (Labor, Special Processes, Test Charges, Outside Services, Expendable Material, etc.) B. DAI's Subcontract * C. Material Charges New Material * Serviceable Non-Life Limited Material * Serviceable Life Limited Material * Exchange Serviceable Rotable Material * D. Engine Management Services Engine Management Repair Cost of $200,000. or more * Repair Cost of $101,000. to $199,000. * Repair Cost of $100,000 or less * E. Standby and Lease Engine Charges Standby * Lease Engine * F. Freight Charges Engine/Engine Stand * Modules-Exchange Pool * Other Parts/Accessories *
Page 6 of 7 ANNEX B - AIRCRAFT ENGINE LEASE AGREEMENT Page 7 of 7 AIRCRAFT ENGINE LEASE AGREEMENT THIS AGREEMENT is made as of the 17th day of April between DALLAS AEROSPACE, INC., a Texas Corporation having its principal place of business at 1875 North I-35E, Carrollton, Texas, 75006, U.S.A. ("Lessor"), and FRONTIER AIRLINES, INC., a Delaware Corporation having its principal place of business at 12015 East 46th Avenue, Denver, Colorado 80239, U.S.A. (Lessee"). In consideration of the mutual promises and undertakings set forth below, and intending to be legally bound, the parties hereby agree as follows: 1. Definitions. The following capitalized terms used in this agreement shall ----------- have the meanings set forth below. a. "Engine" - An aircraft Engine owned by Lessor of the type(s) and model(s) described on Schedules A and B attached hereto, together with all the Pratt & Whitney basic accessories and full Boeing 737 QEC on the Engine at the time it is delivered by Lessor to Lessee or to a carrier for transport to Lessee. b. "Standby/Lease Term" - Will begin on the day when an Engine and associated records are delivered to the Lessee or to a carrier for delivery to Lessee (whichever occurs first) and ends on the date on which the Engine and associated records are returned to Lessor as provided herein. The Standby/Lease Term Lease term is for ____________ days and may be extended by mutual consent of Lessee and Lessor. 2. Standby/Lease of Engines. At the request of Lessee from time to time during ------------------------ the term of this agreement and subject to all of the provisions hereof, Lessor shall provide standby/lease Engines to Lessee to be operated by Lessee. 3. Rental. Lessee shall pay rental to Lessor for the Lease Term at Lessor's ------ rates in effect at the time of the Engine lease. Lessor's current rental rates for Engines in effect on the date of this agreement are set forth on Schedule A. All rental rates are exclusive of applicable taxes, which shall be paid by Lessee in addition to the rental (excluding only taxes on the income received by Lessor). 4. Standard Terms and Conditions. Each standby/lease of an Engine to Lessee ----------------------------- pursuant to this agreement shall be subject to Lessor's Standard Terms and Conditions for Engine Leases (Schedule C), a copy of which is attached hereto and made a part hereof. 5. Termination. This agreement may be terminated by Lessor as set forth in ----------- Schedule C, effective upon giving notice of such termination to Lessee, provided that the provisions of this Agreement will continue to apply to any Engine which is leased to Lessee at the time of such termination. Furthermore, any such termination shall not affect the rights or obligations of the parties hereunder which have accrued or become fixed as of the effective termination date. Page 1 of 12 IN WITNESS WHEREOF, the parties have signed this agreement as of the date first written above. FOR DALLAS AEROSPACE, INC. FOR FRONTIER AIRLINES, INC. (Lessor) (Lessee) By: By: ------------------------- --------------------------- Title: Title: ---------------------- ------------------------ Name: Name: ----------------------- ------------------------- Officer of: Officer of: Dallas Aerospace, Inc. ------------------------------ Page 2 of 12 SCHEDULE A to Aircraft Engine Lease Agreement ---------------------------------- A. Lessee shall pay monthly Rental Fees as shown, monthly in advance on the first day of each month. Operating hour/cycle charges shall be paid on the 15th day of each month following the month in which the operating hours/cycles were accumulated on the Engine.
Standby Aircraft Engine Standard Rental Rates (US$) Manufacturer Model Serial Number Per Month ------------ ------ ------------- --------- Pratt & Whitney JT8D-9A ________ $ * Full Boeing 737 QEC
Once the Engine is removed from standby status and is placed into service by Lessee than the following rates will immediately take effect:
Leased Aircraft Engine Standard Rental Rates (US$) Manufacturer Model Serial Number Per Day Per Operating ------------ ------ ------------- ------- ------------- Hour/Cycle* ---------- Pratt & Whitney JT8D-9A ________ $ * USD $ * USD Full Boeing per hour or 737 QEC cycle* *Whichever is greater
Plus Post Rental Inspection Charges. Upon return of Engine, Lessor will conduct borescope inspection, comply with a cell run, and subject to the results of these inspections, issue a Serviceable Yellow Tag. Lessee will be billed costs of post rental inspection. B. Standby/Lease charges will commence upon the date in which the engine leaves Dallas Aerospace's facility and continues until the engine is received at Lessor's facility in Dallas, Texas. C. This Lease is contingent upon Lessor receiving JT8D off-wing engines for repair. The off-wing engine repairs will be determined under a separate agreement for managing the repairs. D. Post Lease inspection or repair charges required and paid by Lessor shall be invoiced to Lessee in the amount of charges paid by Lessor. E. Prior to shipment of engine Lessee will wire transfer a deposit equal to five percent (5%) of the stipulated loss value of the Engine as defined under Schedule C, Section 11 of this Agreement to Lessor's U.S. Bank Account. Wire transfer instructions are as follows: Page 3 of 12 To the Account of Dallas Aerospace, Inc. Account No. 4054-7609 ABA No. 021000089, CITIBANK, 399 Park Avenue, New York, NY 10043 F. Lessee agrees to pay as necessary other miscellaneous applicable freight, transportation, repair, legal, insurance, test and inspection charges which might arise as described in Schedule "C" Items "3", "4", "5", "7", "11" and "12". Page 4 of 12 SCHEDULE B to Aircraft Engine Lease Agreement ---------------------------------- Engine Disk Sheet Page 5 of 12 SCHEDULE C to Aircraft Engine Lease Agreement ---------------------------------- STANDARD TERMS AND CONDITIONS FOR ENGINE LEASES 1. Applicability. These terms and conditions shall apply to each lease of an -------------- Engine by Lessor to Lessee pursuant to the attached Aircraft Engine Lease Agreement (hereafter referred to as the "Agreement") and shall form a part of the agreement. Capitalized terms used herein shall have the meanings defined in the Agreement. 2. Credit Approval and Payment. Each lease of an Engine to Lessee shall be ---------------------------- subject to credit approval of Lessee by Lessor's Financial Services Department. Lessee shall pay the rental and applicable taxes to Lessor according to the terms of invoices which will be prepared and submitted by Lessor to Lessee. All payments to Lessor by Lessee hereunder shall be made in U.S. Dollars and shall be payable at the payment location appearing on Lessor's invoices to Lessee, or otherwise at Dallas, Dallas County, Texas. Any invoiced amounts not paid when due shall bear interest at the highest rate permitted by applicable law from the due date until paid at the lesser of: (i) the highest lawful rate which may be established in written agreements, or (ii) 18% per annum. Lessee shall reimburse Dallas Aerospace, Inc., for reasonable attorney's fees and other legal expenses incurred by Lessor for the purpose of attempting to collect any past due sums payable by Lessee hereunder or for the purpose of repossessing an Engine following the expiration of the Lease Term. 3. Delivery and Redelivery. Lessor will deliver the Engine to Lessee on the ------------------------ Delivery Date F.O.B. the Lessor's facility. The Engine will have a F.A.A. approved return to service tag affixed to it. Upon termination of the Lease the Engine will be redelivered F.O.B. to Lessor's facility in Dallas, Texas in serviceable condition as set forth in this Lease Agreement. 4. Use and Operation. Without the prior written consent of Lessor, the Engines ------------------ shall be operated only by Lessee, and shall continuously remain in the possession of Lessee except during periods of maintenance and transportation incident thereto. Any such consent by Lessor shall not excuse Lessee from performing any of its obligations under the agreement. Lessee shall operate the Engines in accordance with the recommendations of the manufacturers thereof, and otherwise in a lawful, safe, and prudent manner. All operations of the Engines shall be properly recorded in the records for the Engines. 5. Repair and Maintenance. At its sole expense, Lessee shall cause required ---------------------- field-level maintenance to be performed on the Engines in accordance with all applicable requirements and recommendations of the manufacturers thereof, and shall promptly repair any damage to an Engine occurring during the Lease Term in a facility acceptable to Lessor, resulting from improper operation, foreign object ingestion, accidents or any other causes, whether or not involving the fault of Lessee; except, with normal wear and tear excepted. Lessee shall cause all maintenance of, and repairs to, the Engines to be recorded in the records for the Engines. Each accessory, part, or component installed on an Engine in connection with a repair shall be identical in manufacturer and part number to the item which it replaces, shall be airworthy and in serviceable condition, and if a life-limited or "hard time" item shall have a remaining life equal to or greater than the remaining life of the replaced item. 6. Reports. Lessee shall report to Lessor the number of hours and cycles the -------- Engines have been operated monthly and other information regarding the location, condition, operation, performance and Page 6 of 12 maintenance of the Engines at such times and in such manner as Lessor may direct. Lessee shall immediately report to Lessor all information regarding any incident, accident or abnormal occurrence which may have been caused in whole or part by the condition, operation or performance of an Engine and which involves actual or potential loss of or damage to an Engine or to other property, or injury to or death of any person. Lessee shall cooperate with any investigation of such incident, accident or abnormal occurrence by Lessor or its representatives. 7. Return Condition, Acceptance and Inspection. At the end of the Lease Term, -------------------------------------------- or at such time as that Lease Term may be sooner terminated in accordance with Section 11 below, Lessee shall have an acceptable Engine test and a borescope acceptable to Lessor performed at an FAA approved facility and provide a serviceable tag for the Engine from said facility. Lessee shall promptly return the Engines to Lessor in the same serviceable condition as at the beginning of the Lease Term, ordinary wear and tear resulting from proper operation excepted. Lessee shall pay to Dallas Aerospace, Inc., on demand the cost of repairing the Engine to return it to serviceable condition or for replacing any accessories, parts, or components of the Engines which are damaged or missing when the Engines are returned to Lessor. At all reasonable times, Lessor and its representatives shall have the right to inspect the Engines while in the possession of Lessee or others and to examine all log books and other records reflecting the operation and maintenance of the Engines. 8. Title. At all times, title to the Engines shall remain solely in Lessor. ------ Lessee shall not represent to other persons, firms or governmental authorities that Lessee has any interest in the Engines, other than as Lessee. Lessee shall take such actions as Lessor may direct for the purposes of evidencing Lessor's ownership of the Engines and/or notifying other persons or firms of such ownership. Lessee shall not permit any lien, security interest or encumbrance to attach to an Engine as a result of any act or omission by Lessee, and shall promptly cause the discharge, release, or termination of any such lien, security interest or encumbrance, at the expense of Lessee. 9. Warranty. Lessor warrants to Lessee that Lessor has the right to lease to --------- Lessee. Lessor further warrants to Lessee that the Engines are in airworthy condition at the beginning of the Lease Term. The sole remedy of Lessee if an Engine does not conform to the foregoing warranty shall be the repair or replacement of such Engine or the nonconforming portion thereof by Lessor. EXCEPT AS SET FORTH ABOVE IN THIS SECTION, DALLAS AEROSPACE, INC., MAKES NO EXPRESS OR IMPLIED WARRANTY INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE OR ANY IMPLIED WARRANTY ARISING FROM COURSE OF DEALING OR USAGE OF TRADE IN REGARD TO THE ENGINES. THE ENGINES ARE LEASED TO AND ACCEPTED BY LESSEE "AS-IS" AND "WITH ALL ------- --------- FAULTS." LESSOR SHALL NOT BE LIABLE TO LESSEE FOR ANY INCIDENTAL OR -------- CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION, ANY LOSS OR REVENUES, PROFITS OR USE EVEN IF LESSOR HAS BEEN NOTIFIED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. NO OFFICER, EMPLOYEE OR AGENT OF LESSOR HAS AUTHORITY TO MODIFY OR EXPAND LESSOR'S LIABILITY UNDER THIS SECTION. 10. Indemnity. Lessee shall defend Lessor and its employees and underwriters ---------- (individually or collectively, the "Indemnified Parties") against any claims or suits seeking recovery of damages from the Indemnified parties for loss of or damage to property or for injury to or the death of any person arising out of the possession, use, operation or condition of an Engine by Lessee or by others during the Lease Term; except as caused by the negligence or willful misconduct of the indemnified parties. Lessee shall indemnify the Indemnified Parties against any sums paid to settle such claims or suits, any damages and costs awarded by judgment in such suits, and any incidental costs and expenses Page 7 of 12 incurred in connection with the claims or suits (including, without limitation, reasonable attorney's fees if for any reason Lessee does not defend the Indemnified Parties as required herein). Lessor shall endeavor to promptly notify Lessee of any such claims or suits, but any delay in giving notice to Lessee shall not excuse Lessee from its defense and indemnity obligations except to the extent, if any, that Lessee is prejudiced by the delay. Lessor shall furnish reasonable cooperation to Lessee and its representatives in the defense of such claims or suits at the request and expense of Lessee. The defense and indemnity obligations of Lessee under this section shall survive the end of the Lease Term and the expiration or termination of the agreement. 11. Insurance. During the term of the Agreement, Lessee shall continuously ---------- maintain the following types of insurance coverage with insurance companies of recognized international standing. a. physical damage insurance protecting against loss of or damage to the Engines at all times while an Engine is in the possession of Lessee or others (whether or not installed on an aircraft) or is being transported to or from Lessor, in amounts sufficient to cover the full replacement value of the Engine(s),__________________ Thousand U.S. Dollars ($______.00), with any loss payable to Lessor as its interests may appear; and b. aviation liability insurance, including contractual liability coverage for the indemnity obligation of Lessee hereunder, with minimum limits of $100 million per occurrence (or such other limits as may be approved by Lessor), and with Lessor named as an additional insured as to any liability arising in connection with the agreement. Upon the execution of the agreement and during the term hereof, Lessee shall cause Lessor to be furnished with one or more certificates of insurance reflecting the effectively of the above coverages and endorsements and providing for not less than thirty days prior written notice to Lessor in the event of cancellation or modification of the coverages reflected thereon. 12. Premature Termination of Lease Term. Lessor may terminate the Lease Term ------------------------------------ for an Engine immediately upon the occurrence of any of the following events: a. Lessee fails to pay when due any rental charge, overhaul or repair charge, or other sum owing to Lessor under the agreement or otherwise, and does not cure such failure within three days after the earlier of: (i) the date on which Lessee has knowledge of such failure, or (ii) the date on which Lessor gives notice thereof to Lessee; b. Lessee fails to comply with any provision of the agreement or to perform any of its obligations hereunder, and does not cure such failure within ten days after the date on which Lessor gives notice thereof to Lessee; or c. Lessee makes a general assignment for the benefit of creditors, or generally fails to meet its financial obligations as they become due, or becomes the subject of voluntary or involuntary bankruptcy proceedings, or has a receiver or custodian or liquidator appointed for any of its assets, or ceases to conduct the whole or a substantial portion of its business in the manner in which such business was conducted on the date of the agreement. Lessor shall give notice of any such termination to Lessee, following which Lessee shall immediately discontinue further operation of the Engines and shall return the Engines and records to Lessor at Carrollton, Texas or at such other location as Lessor may direct, at the expense of Lessee. 13. Miscellaneous. -------------- Page 8 of 12 a. Notices. All notices required or permitted to be given hereunder shall ------- be in writing and shall be deemed to have been given when hand-delivered or sent by next business day delivery service to the party to which they are directed at the address shown below, or to such other address as either party shall hereafter notify the other: (i) If to Lessee, to: FRONTIER AIRLINES, INC. 12015 East 46th Avenue Denver, Colorado 80239 Attn: ---------------------------------- Phone: ( ) --- ------------------ Facsimile: ( ) --- ---------------- (ii) If to Lessor, to: DALLAS AEROSPACE, INC. 1875 North I-35E Carrollton, Texas 750066 Attn: George Eddy, Director Products Support Phone: (214) 245-9633 Facsimile: (214) 245-9695 b. No Waiver. No act or failure or delay in acting by either party shall ---------- be deemed to be a waiver of any right or remedy given to it in the Agreement, except for an express written waiver signed by an authorized representative of that party. c. No Assignment. Lessee may not assign the agreement or sublease any -------------- Engine without the prior written consent of Lessor and any attempted assignment or sublease by Lessee without such consent shall be of no legal effect. d. Successors. The agreement shall be binding upon the successors and ----------- permitted assigns of Lessee and shall inure to the benefit of the successors and assigns of Lessor. e. Severability. If any provision of the agreement should be declared ------------- illegal or unenforceable by a court of competent jurisdiction, such declaration shall not affect the legality or enforceability of any other provision of the agreement. f. Governing Law. The agreement shall be interpreted in accordance with -------------- the laws of the state of Texas, excluding any conflicts of law provisions thereof which would result in the application of the laws of any other jurisdiction. In any suit arising out of the agreement, Lessee hereby irrevocably agrees to be subject to the non-exclusive personal jurisdiction of the courts of the state of Texas and the federal courts located in the state of Texas and agrees that the venue for such suit is proper in Dallas, County, Texas. Lessee agrees to be subject to the Texas Long Arm Statute for service of process. Page 9 of 12 g. Entire Agreement. The agreement contains the entire agreement of the ---------------- parties as to the general subject matter hereof and supersedes any prior negotiations, understandings or agreements regarding such subject matter. The terms or conditions of any purchase order or other commercial document pertaining to the leasing of Engines which may be submitted to Lessor by Lessee shall not be binding upon Lessor. Page 10 of 12 EQUIPMENT DELIVERY RECEIPT FROM: FRONTIER AIRLINES, INC. (Lessee) TO: DALLAS AEROSPACE, INC. (Lessor) The undersigned hereby acknowledges that on this______th day of_______, 1996, Lessor delivered to Lessee that certain JT8D-_____Engine, Manufacturer's Serial Number__________in Shipping Stand Serial Number_____and certain Engine records in Lessor's possession required by Lessee, including a copy of the disk profile attached as Schedule B to the Aircraft Engine Lease Agreement. The undersigned further acknowledges receipt of and acceptance of the Engine, basic engine components and all such records in compliance thereof with all the terms and conditions of that certain Aircraft Engine Lease Agreement dated as of_________, ______, between Lessee and Lessor. Signed this______th day of______, 199_. FOR: FRONTIER AIRLINES, INC. By: -------------------------- Name: ------------------------ Title: ----------------------- Page 11 of 12 AIRCRAFT ENGINE LEASE AGREEMENT STANDARD USAGE REPORT FOR FRONTIER AIRLINES, INC. Date: Return Form By Fax: Dallas Aerospace ------------------------------ Leasing Dept. 972-245-9695 Contact: --------------------------- Total Operating Cycles Operated for Previous Month: -------------------- Total Operating Hours Operated for Previous Month: ---------------------- Aircraft Engine Beginning Totals for Previous Month: Hours/ Cycles ---------------------------- Aircraft Engine Ending Totals for Previous Month: Hours/ Cycles ------------------------------- Please note that Dallas Aerospace, Inc. bills based on total operating hours/total operating cycles, whichever is greater. We require that both the operating hours/cycles be reported, for the prior months usage, on this form and returned to us no later than the 5th day of each month during the Lease Term. We also request that you list the engines total hours/cycles above for the beginning and end of the previous months usage. Frontier Airlines' billing period starts on the 1st day of each month and should conclude on the last day of each month for each billing period during the Lease Term. DEFINITIONS: Operating Cycle: A completed take-off and landing sequence. Operating Hour: The engine operating time from start-up to shutdown. I,____________________________, acknowledge that on this____day of_______, 199_, that the numbers reported above are true and correct according to our records. Signature: --------------------------- Name: -------------------------------- Title: ------------------------------- Page 12 of 12 EX-10.23 16 GENERAL SERVICES AGREEMENT EX 10.23 SERVICES AGREEMENT THIS SERVICES AGREEMENT ("Agreement") is made as of this 6 day of August, 1996 by and between TRAMCO, INC., a Washington corporation ("Tramco"), and FRONTIER AIRLINES, INC., a Colorado corporation ("Customer"). RECITALS A. Customer desires that Tramco provide Customer with certain modification, maintenance, repair, overhaul and other services with respect to the maintenance, repair, overhaul and modification of certain Aircraft (as defined herein). B. Tramco desires to provide such services on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereby agree as follows: AGREEMENTS 1. Definitions. Capitalized terms used but not defined herein shall have ----------- the meanings given in Exhibit 1 hereto. 2. Airframe Services. Tramco shall provide to Customer the following ----------------- services (collectively, the "Airframe Services"): 2.1 Heavy Maintenance. Tramco shall provide to Customer Heavy ----------------- Maintenance, and Customer shall purchase the same from Tramco, subject to and in accordance with the charges, terms and conditions set forth herein. Scheduling of the Heavy Maintenance shall be advised by Customer in consultation with Tramco. 2.2 Modification Work. In addition to the Heavy Maintenance Work, ----------------- Tramco shall provide to Customer the Modification Work and Customer shall purchase the same from Tramco, subject to and in accordance with the charges, terms and conditions set forth herein. Scheduling of the Modification Work shall be advised by Customer in consultation with Tramco. 3. Workscope, Parts Identification. ------------------------------- 3.1 Workscope. For each Aircraft for which Customer desires that --------- Tramco perform Airframe Services hereunder, Customer shall be responsible for developing and delivering to Tramco an initial statement of work at least fourteen (14) days in advance or such Aircraft's anticipated date for arrival at the Tramco Airframe facility for Airframe Services which describes work tasks Tramco is to provide. Tramco will review the initial statement of work and will advise -1- Customer of any necessary revisions or otherwise clarify details of the statement of work prior to and, if determined by Tramco to be necessary, during aircraft inspection. After such review and agreement between Customer and Tramco as to the statement of work, Customer and Tramco will execute a definitive, written Workscope prior to Tramco's commencement of any Airframe Services on the Aircraft, which Workscope will be attached to the applicable Airframe Services Order. 3.2. Parts Identification. As part of the Workscope, Customer shall -------------------- identify those certain parts and components (other than Expendable and Consumable parts typically used or consumed in connection with Airframe Services) that will need to be procured to accomplish the Workscope. Such parts and components will include, but are not limited to, the following: hardtime change components, systems modifications, interior material changes, and other potential lead-time sensitive items. 3.3. Engineering Services. In the event that Customer will require -------------------- that Tramco perform any engineering services or technical support as part of or in connection with any Airframe Services, then Customer will provide to Tramco, not less than sixty (60) days prior to the delivery of the Aircraft for which such services are to be provided, a description of the desired engineering services. Upon agreement by Tramco, the description of such engineering services shall be included in the Workscope for the Airframe Services. 4. Orders for Airframe Services. Upon finalization of the Workscope ---------------------------- pursuant to Section 3 above and in all events prior to the commencement of performance of the Airframe Services, Customer and Tramco shall execute a written services order, substantially in the form of the "Airframe Services Order" form attached as Exhibit 4 hereto (each, an "Airframe Services Order"). Each Airframe Services Order shall set forth the information required by the form of Airframe Services Order (including pricing information pursuant to the terms of Section 5) and shall be attached to a copy of the Workscope relating to such Airframe Services Order. Upon the mutual agreement of Customer and Tramco to the terms set forth in an Airframe Services Order, Customer and Tramco each shall have a copy of such Airframe Services Order signed by a duly authorized representative. Terms and conditions set forth in any Airframe Services Order shall apply only to the performance of the Airframe Services on the Aircraft identified in such Airframe Services Order and, unless expressly referenced in any additional subsequent Airframe Services Order, shall not apply to any subsequent Airframe Services Order under this Agreement. 5. Airframe Services Terms and Conditions. Unless otherwise expressly set -------------------------------------- forth in an Airframe Services Order (and in such case only with respect to the Airframe Services and Aircraft identified in such Order), charges for Airframe Services provided to Customer in connection with this Agreement shall be as follows: 5.1. Estimated Labor Hours. For each Workscope contained in an --------------------- Airframe Services Order, Customer and Tramco shall mutually agree on the number of labor hours estimated to be required to complete the Airframe Services set forth in the Workscope (the "Estimated Labor Hours"). The agreed upon Estimated Labor Hours shall be set forth in the Airframe Services Order for such Workscope. Such Estimated Labor Hours shall include, without additional labor charge, all labor as may be required to complete the Airframe Services in accordance with the Workscope, but shall not include Additional Work, any Customer Request Items, Non-Routines, or any changes -2- to the content of the Workscope, any deviation from or failure of the assumptions and conditions set forth in the Workscope, or similar changes that would increase the time required to perform the Workscope. Regardless of the actual number of labor hours expended by Tramco, Tramco shall perform the Workscope at a charge equal to (i) the number of Estimated Labor Hours multiplied by the Labor Rate, plus (ii) the number of actual labor hours expended by Tramco in performance of Additional Work, Customer Request Items, Non-Routines, or other items outside of the Workscope multiplied by the Labor Rate, plus (iii) charges for materials and third party services pursuant to Section 5.2. 5.2. Material Charges. (a) Expendables and Consumables. Tramco ---------------- shall bill Customer for the cost of Expendables and Consumables used by Tramco in connection with the Airframe Services at the fixed rate specified in the Airframe Services Order relating to such item of Labor Work. Charges for Expendables and Consumables will be included in the Invoices. (b) Other Materials. Parts, materials and third party services used or consumed in connection with Airframe Services (other than Expendables and Consumables) shall be charged to Customer at their actual cost plus a mark- up of twenty percent (20%), provided that no single part, material item or outside service shall be marked-up in excess of two hundred and fifty dollars ($250.00). Notwithstanding the foregoing, any single part, material item or outside service with an actual cost to Tramco of $5,000 or greater shall be billed to Customer at their actual cost plus a mark-up of twenty percent (20%) with no maximum mark-up amount. For purposes of this Section 5.2, divisions or business units of The B.F.Goodrich Company other than Tramco shall be considered third parties and parts or services obtained from such divisions or business units shall be charged to Customer in accordance with this Section 5.2. Outside services include, without limitation, non-destructive testing, plating, machining, fueling/defueling, parts fabrication and oxygen bottle servicing. As an exception to the foregoing, (i) parts, components and material purchased from Boeing and charged directly to Customer through a Customer purchase order or Customer open account; and (ii) parts, components and material furnished by Customer; shall not be charged to Customer or marked-up by Tramco. 5.3. Labor. The "Labor Rate" shall be the rate per hour specified in ----- the applicable Airframe Services Order. Except as otherwise provided on the applicable Airframe Services Order, the Labor Rate shall apply to all categories of Tramco labor in connection with the Airframe Services, including without limitation labor incident to expediting services, labor time otherwise chargeable at applicable overtime rates, engineering services, inspection services, NDT/NDI, parts research services, AOG services, development engineering services, direct lead labor time, and direct quality control labor time. 5.4. Estimates of Delivery. Notwithstanding anything to the contrary --------------------- contained in this Agreement, any Airframe Services Order or any other communications between Tramco and Customer, delivery dates or turn-times quoted or communicated to Customer, whether orally or in writing, from time to time with respect to Airframe Services shall in all cases be estimates of the time for completion of performance of such services and in no event shall such estimates be construed as binding delivery commitments. -3- 5.5. Other Terms. ----------- 5.5.1. Scheduling and Capacity. Customer's Designated ----------------------- Maintenance Representative(s) shall be responsible for scheduling Airframe Services with Tramco. Aircraft shall be delivered by Customer to Tramco Airframe on the date(s) specified in the Airframe Services Order, or as may otherwise be agreed in writing between Customer and Tramco. Customer shall provide Tramco with not less than fourteen (14) days advance notice of the delivery of any Aircraft and shall use all reasonable efforts to provide Tramco with at least sixty (60) days advance notice of the anticipated delivery of Aircraft for Airframe Services. In all events, Customer shall provide Tramco with written schedule confirmation not less than fourteen (14) days in advance of the delivery of any Aircraft for Airframe Services. Performance of Airframe Services is in all cases subject to availability of space and sufficient capacity at Tramco. 5.5.2. Ferry and Flight Tests. Customer shall provide its own ---------------------- crew for; pay all expenses related to; and have sole responsibility for the transportation of all Aircraft to and from the Tramco Airframe facilities, including any flight test of an Aircraft receiving Airframe Services hereunder. Tramco will provide technicians to assist in flight test and redelivery. Customer shall take all action necessary to extend its insurance coverages required hereunder to such Aircraft and any flight tests thereof. 5.5.3. Technical Data. Customer shall be solely responsible -------------- for, and shall bear any costs associated with, obtaining any licenses or other rights from third parties necessary to enable Tramco's use of the Technical Data in connection with Airframe Services, and such obligation shall be a condition precedent to any such services hereunder. Not less than seven (7) days prior to the commencement of any Airframe Services hereunder, Customer shall have delivered copies to Tramco of all necessary maintenance, repair or overhaul manuals or instructions, including, without limitation, wiring diagrams, structural repair manuals, and any approved maintenance program for a particular Aircraft, which maintenance program will include a manual describing the relevant maintenance and inspection program, and corresponding maintenance work cards and forms, together with any other published technical data required to accomplish the services requested (the "Technical Data"). Without limiting the generality of the foregoing, Technical Data includes any necessary manuals or instructions from manufacturers or suppliers of the airframe or components thereon. 5.5.4. Designated Maintenance Representatives. Customer shall -------------------------------------- designate in writing one or more representatives of Customer each of whom shall have authority to authorize and approve for and on behalf of Customer any Airframe Services or changes thereto, including but not limited to Non-Routine Maintenance and any Buyer Request Items. One Designated Maintenance Representative shall be available at the Tramco Airframe repair facility during normal business hours while the Airframe Services are being provided. Tramco shall provide at its expense appropriate office accommodations for one Designated Maintenance Representative at the Tramco Airframe facilities, with shared secretarial support and access to computers, fax machines and telephones. Customer shall reimburse Tramco for all out-of-pocket expenses, long-distance telephone and fax expenses incurred by Tramco on account of the Designated Maintenance Representatives. Customer shall be responsible for all travel, lodging and related expenses incurred by the Designated Maintenance Representatives. Subject to reasonable -4- restrictions imposed by Tramco to safeguard proprietary information and to maintain the security and safety of the Tramco facility, Tramco will allow the Designated Maintenance Representatives reasonable access at all reasonable times (i) to the Tramco records contemplated by Section 6.2.2 of this Agreement, (ii) to observe the performance of all Airframe Services being performed by Tramco for Customer, and (iii) to observe and inspect all materials and parts obtained by Tramco for use or installation on the Aircraft. The Designated Maintenance Representatives, and all other employees, agents and representatives of Customer, shall abide by Tramco's security and safety procedures and restrictions. Customer shall be completely responsible for sickness or injury to its Designated Maintenance Representatives and other employees, including without limitation with respect to death or injuries occurring at the Tramco facility or as a result of actions or inactions (negligent or otherwise) of Tramco employees, agents or representatives. 5.5.5. Warranty. Tramco shall warrant the Airframe Services -------- exclusively as set forth in Exhibit 5.5.5 to this Agreement. 6. Customer Payments. ----------------- 6.1. Charges/Invoices. Customer shall compensate Tramco at the rates ---------------- and terms as provided in this Agreement and the applicable Airframe Services Order for the various services rendered hereunder by Tramco. Charges for costs or expenses which this Agreement specifically provides are to be incurred by Tramco for the account of Customer shall be charged to Customer as provided herein. Such costs and expenses shall be included in the Invoices, but identified separately. 6.2. Time and Method of Payments. --------------------------- 6.2.1. Invoicing. Upon completion of Airframe Services with --------- respect to an Aircraft, Tramco will prepare and submit to Customer an invoice or invoices with respect to such Aircraft listing charges for the Airframe Services and related parts and materials (the "Invoices"). Prior to redelivery of any Aircraft to Customer, Customer shall pay to Tramco an amount equal to eighty percent (80%) of the Estimated Labor Hours, eighty percent (80%) of the estimated additional labor charges with respect to Airframe Services on such Aircraft performed by Tramco on a Time and Materials basis, and one hundred percent (100%) of the estimated charges for materials and third party services on such Aircraft pursuant to Section 5.2. All such estimates shall not be construed as a fixed determination of Invoice amounts, and as soon as practicable following Aircraft redelivery Tramco will submit supplemental or additional Invoices to reflect actual labor, material and other charges payable by Customer pursuant to this Agreement. Additional amounts owing by Customer pursuant to such additional Invoices shall be due and payable in United States Dollars 30 days from the Invoice date. All Customer payments shall be made by check or wire transfer to a Tramco account designated by Tramco in writing to Customer. Any payments made by check shall be sent via overnight air courier services (e.g. FedEx, UPS) to the Tramco address designated from time to time by Tramco in writing. Notwithstanding the foregoing and in addition to any other remedy to which Tramco may be entitled, Tramco may in its sole discretion demand complete payment for 100% of all labor charges for Airframe Services with respect to any Aircraft prior to the departure of such Aircraft from -5- Tramco Airframe. In the event Tramco elects to require such payment, Customer will be notified not less than five (5) days prior to the scheduled departure of such Aircraft. 6.2.2. Right of Customer to Review Records. On the written ----------------------------------- request of Customer from time to time during the Term of this Agreement (but not more frequently than once in any twelve month period) and in addition to the rights set forth in Section 5.5.4 with respect to Designated Maintenance Representatives, Customer shall be permitted during normal business hours to review Tramco's records related exclusively to (a) the manner and quality of performance of Airframe Services on the Aircraft by Tramco, and (b) the accuracy of any fees or charges invoiced by Tramco to Customer with respect to Airframe Services provided by Tramco. The right of Customer to review Tramco records shall extend to any agent, consultant or advisor of Customer reasonably acceptable to Tramco which agrees to execute a confidentiality agreement in form and substance satisfactory to Tramco, and which agrees to abide by applicable Tramco safety and security restrictions. Notwithstanding the foregoing, neither Customer nor its agents, consultants or advisors shall have any right to review any other books and records of Tramco, including without limitation any books and records relating to Tramco's fees or charges to any other customer or Tramco's general accounts or financial information. 6.2.3. Disputed Amounts. Any Invoice submitted by Tramco ---------------- shall be final as to Customer unless Customer shall have notified Tramco in writing (a "Notice of Disagreement") within ninety (90) days of the Invoice date of a disagreement with respect to all or a portion of any Invoice. Such Notice of Disagreement shall specify the dollar amount of the disagreement (the "Disputed Amount") and identify in reasonable detail the basis of Customer's good faith determination that the invoice amount is incorrect. Customer shall pay when due all amounts other than Disputed Amounts. Following receipt by Tramco of a Notice of Disagreement, Tramco and Customer shall use good faith efforts to resolve such Disputed Amounts. If Tramco and Customer are unable to satisfactorily resolve such Disputed Amounts within thirty (30) days of receipt of the Notice of Disagreement, then the Disputed Amount shall be promptly submitted (by either party) to an independent public accounting firm of national reputation which shall not have provided professional services to either Tramco or Customer during the three year period prior to the date of the Notice of Disagreement (the "Accounting Firm"). Customer and Tramco agree that the Seattle, Washington office of Price Waterhouse LLP shall serve as the Accounting Firm, provided that if such firm is unable or unwilling to provide such service in any instance (including by reason of disqualification under the terms of this Agreement), then the Seattle, Washington office of Deloitte & Touche LLP shall serve as the Accounting Firm. If both Price Waterhouse LLP and Deloitte & Touche LLP are unable or unwilling to serve as the Accounting Firm, then Tramco and Customer shall mutually agree on the Accounting Firm. The Accounting Firm shall be instructed to review the Disputed Amounts and to notify Customer and Tramco as soon as practicable, and in any event not later than sixty (60) days following the date of submission of the Disputed Amount to the Accounting Firm, of its determination of the correct amount of the invoice payable by Customer. Customer and Tramco agree to make available to the Accounting Firm such information, books and records relating to the Disputed Amounts as may be reasonably determined by the Accounting Firm to be necessary to complete its review. The determination of the Accounting Firm shall be final and binding and Customer shall pay to Tramco within five (5) days following receipt of the report of the Accounting Firm such amount as the Accounting Firm has determined is properly payable. The fees and expenses of the Accounting Firm shall be allocated ratably between the parties in -6- proportion to the dollar amount of adjustment to the Tramco invoice determined by the Accounting Firm to be appropriate compared to the dollar amount of the Disputed Amount. 6.2.4. Late Payment Charges. If any Customer payment -------------------- obligation hereunder is not paid when due, (i) Customer shall pay interest on such amount calculated from the date such amount is due until the date of payment in full at the lower of one and one-half percent per month or the maximum rate allowable under applicable law, and (ii) Tramco shall have the right upon notice to Customer to suspend performance of Airframe Services and to terminate this Agreement. No forbearance or course of dealing shall affect these rights of Tramco. 6.3. Customer as Responsible Party. Customer represents that it has ----------------------------- all necessary authority to authorize the Airframe Services on the Aircraft. Notwithstanding any understandings or agreements that Customer may have from time to time with third parties and without limiting Tramco's rights or remedies upon Customer's default, Tramco shall look solely to Customer for payment of all amounts owing under this Agreement and the performance of all obligations of Customer under this Agreement. Customer shall hold harmless and defend Tramco from and against any claims or charges asserted by any third parties claiming an interest in the Aircraft, or questioning the purchase of the Airframe Services by Customer from Tramco. 7. Material Supply. --------------- 7.1. Material Procurement. Tramco will provide all Expendables and -------------------- Consumables which are required to perform the Airframe Services. Parts and components (other than Expendables and Consumables) identified pursuant to Section 3.2 of this Agreement as required to complete the Workscope or otherwise necessary for the performance of any Airframe Services will be provided by Customer or, upon mutual agreement, by Tramco at the charges specified in Section 5. Customer and Tramco agree to cooperate in order to facilitate timely procurement of parts and components. All parts and components to be furnished by Customer in connection with the Airframe Services shall be provided at Tramco Airframe no later than seven days prior to commencement of the Airframe Services on the Aircraft for which such part or component is required. In no event shall Tramco be liable for any delayed or untimely performance hereunder as a result of (i) failure by Customer to deliver to Tramco any parts or components (other than Expendables and Consumables) in a timely manner, or (ii) failure by Tramco to obtain any parts which Customer has requested Tramco to obtain on its behalf. 7.2. Customer Parts and Equipment. Any parts and material delivered ---------------------------- to Tramco Airframe by or on behalf of Customer in connection with the Airframe Services shall be handled by Tramco through its normal incoming material receiving inspection routine. A Customer Designated Maintenance Representative shall be notified by Tramco of the inspection findings, and shall direct Tramco as to the disposition of inspected items. Tramco will hold any parts and material determined by Customer to be scrapped, returned to the vendor or otherwise disposed of, including any parts or materials removed from Customer Aircraft (collectively, "Excess Material") at Tramco's facilities for a maximum period of thirty (30) days, after which time Customer shall be responsible for the removal, shipping and disposition of such Excess Material. With Tramco's consent and agreement, Excess Material may remain at Tramco's facilities beyond such thirty (30) day period upon Customer's payment to Tramco of storage fees in an -7- amount which in Tramco's judgment is sufficient to compensate Tramco for all costs and expenses related to the storage of such Excess Material. Tramco shall maintain any parts and materials supplied to Tramco by Customer for use in connection with the Airframe Services (and any Excess Material for the period specified above) in a physically separated area within the Tramco facilities, with appropriate identification of such parts and materials as the property of Customer. Tramco acknowledges and agrees that title to such parts and materials supplied by Customer (and any Excess Material) shall at all times remain with Customer. Risk of loss with respect to the Customer supplied parts and materials and Excess Materials shall remain with Tramco while such items are located in the Tramco facility, and shall transfer to Customer at the time physical possession of such parts or materials are delivered to Customer, or such parts or materials are physically placed on an Aircraft. 8. Taxes. Tramco shall pay any federal, state or local taxes based upon ----- Tramco's income or profits in connection with payments received under this Agreement, including any gross receipts or business and occupation taxes. Customer shall be responsible for the amount of any Washington State sales or use taxes that result from the delivery of the Airframe Services provided by Tramco hereunder or the purchase, sale, lease, exchange, transfer, replenishment or maintenance of parts and supplies and other personal property for use in connection with the Airframe Services as contemplated hereby, except for transactions for which an appropriate tax exemption certificate is furnished to Tramco by Customer. The amount of any such taxes for which Customer is responsible, if paid by Tramco, shall be billed to Customer from time to time during the term hereof. 9. Proprietary Rights. Except as otherwise agreed in writing or as ------------------ specifically provided herein, each of Tramco and Customer shall retain all of their own proprietary rights of any kind in and to their respective patents, trademarks, names, information, documents, procedures, methods or know-how that may be used or disclosed in connection with the performance of the Airframe Services. Any such items disclosed to the other (including without limitation the terms of this Agreement and any Airframe Service Orders) shall be held in confidence and shall not be disclosed or provided to any third-party without the specific prior written approval of the disclosing party, and neither party shall reproduce any documents reflecting the same except for copies necessary for its own internal usage. The foregoing obligations shall not apply to any such information, documents, procedures, methods or know-how which: (i) at the time of disclosure or thereafter is or becomes generally available to the public through no fault or action by the receiving party or by its agents, representatives or employees, (ii) is or becomes available to the receiving party on a nonconfidential basis from a source other than the disclosing party or the disclosing party's employees, agents or representatives, which is not prohibited from disclosing such portions by a contractual, legal or fiduciary obligation, or (iii) was within the receiving party's possession prior to its being furnished to the receiving party by or on behalf of the disclosing party, provided that the source of such information was not bound by a confidentiality agreement with the disclosing party in respect thereof, or was not subject to any duty, contractual or otherwise, prohibiting transmission of information to the disclosing party. -8- 10. Certain Record Keeping and FAR Responsibilities. ----------------------------------------------- 10.1 Tramco. Except as otherwise provided herein, in connection with ------ the Airframe Services provided by Tramco hereunder, Tramco shall comply with all provisions of the FARs applicable thereto, including, but not limited to, Part 145, and shall maintain all required records and documents pursuant thereto. Such records and documents shall be available for inspection at all times during Tramco's normal business hours. In no event shall Tramco be deemed to be an airline for any purpose whatsoever. 10.2 Customer. Notwithstanding anything to the contrary contained -------- herein, Customer shall have responsibility for and shall maintain all records, manuals and otherwise comply with all provisions of the FARs applicable to its operations, including, but not limited to, Part 121, and shall maintain all required records and documents pursuant thereto. Without limiting the generality of the foregoing, Customer shall have sole responsibility for Customer's compliance with records relating to airworthiness directives, ground and crew qualifications, maintenance of training records and records relating to parts histories, and creation and maintenance of FAA required manuals, policies and procedures. During the Term of this Agreement, Tramco will provide reasonable storage at Tramco Airframe for records of Customer relating to the Airframe Services. 11. Independent Contractor. In performing its obligations hereunder, ---------------------- Tramco shall in all respects be an independent contractor and shall not be deemed an employee, agent, partner or franchisee of Customer. No partnership, corporation, or other entity or relationship is created by this Agreement. 12. Insurance; Liabilities. ---------------------- 12.1 Customer Policies and Limits. Customer shall provide and ---------------------------- maintain in effect during the Term and until the expiration of the final Warranty Period extended for the Airframe Services the insurance coverages described on Exhibit 12.1 hereto, with limits no less than those indicated on Exhibit 12.1. 12.2 Tramco Policies and Limits. Tramco shall provide and maintain -------------------------- in effect during the Term and until the expiration of the final Warranty Period extended for the Airframe Services the insurance coverages described on Exhibit 12.2 hereto, with limits no less than those indicated on Exhibit 12.2. 12.3 Requirements/Certificates. Insurance coverages required herein ------------------------- of either party (other than any self-insured portion) shall be provided through insurance companies rated A or better by Best's, or insurers of comparable recognized responsibility. The reference to insurance limits in Exhibits 12.1 and 12.2 shall not in any event limit either party's liability to the other. Within 10 days of the date of this Agreement, and thereafter at the request of either party, the other party shall furnish one or more certificates of insurance indicating: (a) that insurance of the types described above is provided in at least the limits set forth above; -9- (b) the name of the insurance company or companies carrying such coverage; (c) the effective date and expiration dates of such coverage or policies; and (d) that thirty (30) days advance written notice will be given to the parties of any material change or alteration of the policies or coverage. 12.4 Limitations on Liability. In any action brought by either party ------------------------ seeking to obtain damages for breach of this Agreement or for failure to perform the requirements of this Agreement, no damages or other relief shall be awarded or permitted based upon expectations of continued performance or future performance by the defaulting party for the then remaining Term of this Agreement, and for purposes of such action this Agreement shall be deemed to have expired effective as of the date of the claimed breach or failure to perform, regardless of whether this Agreement has in fact been terminated as of such date or any subsequent date. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NEITHER TRAMCO NOR CUSTOMER SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF USE, COVER OR LOST PROFITS SUSTAINED OR INCURRED AS A RESULT OF THE AIRFRAME SERVICES OR THE WARRANTY PROVIDED FOR IN EXHIBIT 3.5.6 TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, AND REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE. 13. Excused Performance. Neither party will be liable for, or be ------------------- considered to be in breach of or default under this Agreement on account of any delay or failure to perform as required by this Agreement (other than with respect to the obligation to make payments pursuant to Section 6 hereof) as a result of any cause or condition beyond such party's reasonable control, including, but not limited to: fire, explosions, earthquakes, storms, flood, wind, drought and acts of God or the elements; court orders; acts, delays and failures to act by civil, military or other governmental authority; strikes, lockouts, labor interruptions or slowdowns, riots, insurrections, sabotage and war; breakdown or destruction of, or damage or casualty to, any equipment, facilities or other property; interruption, suspension, curtailment or other disruption of utilities; unavailability of materials, supplies, parts, equipment, personnel or other necessary items; and, acts or omissions of persons or entities other than such party (each such event being herein sometimes referred to as an event of "Force Majeure"). Upon the occurrence of an event or condition of Force Majeure, Tramco shall have reasonable opportunity to make alternative satisfactory arrangements to perform its obligations under this Agreement. 14. Term; Termination. ----------------- 14.1. Term. The term of this Agreement shall commence effective as ---- of the date first specified above and shall continue in effect for an initial period ending one year after the date of this Agreement (the "Term"). The Term shall be extended for additional one year terms unless, not less than thirty (30) days prior to the expiration of the Term then in effect, either party shall give -10- written notice to the other of its desire to terminate the Agreement as of the expiration of the Term. 14.2. Termination. Notwithstanding the provisions of Section 14.1, ----------- either party may terminate this Agreement as follows: a. At any time with or without cause prior to the expiration of the Term by giving at least thirty (30) days prior written notice. b. To the extent permitted by applicable law, immediately upon written notice in the event that the other party (i) files a voluntary petition in bankruptcy; (ii) is declared insolvent or bankrupt or makes a general assignment or other similar arrangement for the benefit of its creditors; (iii) proceedings in bankruptcy or insolvency are instituted against the other party and are not dismissed within 60 days thereafter; (iv) a court takes and retains for at least 60 days jurisdiction of the other party or its assets under any reorganization or insolvency act; or (v) a receiver of the other party or a substantial portion of its assets is appointed by a court and is not discharged or opposed within 60 days. c. Immediately upon written notice in the event the other party dissolves or liquidates. 14.3. Completion of Airframe Services. Notwithstanding the ------------------------------- expiration or termination of this Agreement, Tramco and Customer agree that, unless otherwise agreed by Tramco and Customer, Tramco shall continue to perform and complete any Airframe Services required to be performed under any existing Airframe Services Orders which have not yet been completed as of the date of termination. 15. Miscellaneous. ------------- 15.1 Notices. All notices (including by facsimile) or other ------- communications required or permitted by this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person by Tramco to a Designated Maintenance Representative or otherwise if delivered by United States mail, postage prepaid, overnight delivery service, or facsimile, in each case addressed as follows: (a) if to Customer: Frontier Airlines, Inc. 12015 East 46th Avenue Denver, CO 80239-3116 Attention: Jon Bartram Fax: (303) 371-7007 -11- and (b) if to Tramco: c/o Tramco, Inc. 11323 30th Ave. W., Paine Field Everett, Washington 98204 Attention: General Manager, Airframe Services Fax: 206/347-1034 with copy to: BFGoodrich Aerospace 250 N. Cleveland-Massillon Road Akron, Ohio 44334 Attention: Vice President, Legal Fax: 330/374-3139 or to such other addresses as may be specified by either party hereto pursuant to notice given by such party in accordance with the provisions of this Section 15.1. 15.2 Benefit of the Agreement. This Agreement shall be binding upon ------------------------ and inure to the benefit of the parties hereto and their respective successors and their permitted assigns. 15.4 Names, Advertising. Each of the parties agrees that they will ------------------ not, without the prior written consent of the other, make any use whatsoever of, or cause others to make or assist others in making any use whatsoever, of the respective corporate or trade names of the other (including the corporate or trade names of their respective subsidiaries and affiliates) or any portion thereof, or any of their respective trademarks, or any portion thereof, in connection with any advertising, promotion, publicity or for any other business purpose that is not directly related to the performance of their respective obligations hereunder. 15.5 Headings. The headings used in this Agreement are for -------- convenience only, shall not be deemed to constitute a part hereof, and shall not be deemed to limit, characterize or in any way affect the provisions of this Agreement. 15.6 Entire Agreement. This Agreement contains the entire agreement ---------------- and understanding of the parties with respect to the subject matter hereof, and no other representations, promises, agreements or understandings regarding the subject matter hereof shall be of any force or effect unless in writing, executed by the parties hereto subsequent to the date hereof. 15.7 Amendments. This Agreement shall not be modified or amended ---------- except by written instrument specifically referencing this Agreement which is signed by the parties hereto. The terms and conditions of this Agreement shall not be altered or changed by, and Tramco hereby objects to, any different or additional terms contained in any other document (other than an -12- amendment as provided above), including, without limitation, any invoices, purchase orders or acknowledgment forms submitted by Customer to Tramco. 15.8 Waiver. No waiver of any provision of this Agreement shall be ------ valid or binding unless it is in writing dated subsequent to the date hereof and signed by the parties hereto. No waiver of any breach, term or condition of this Agreement by either party shall constitute a subsequent waiver of the same or any other breach, term or condition. No failure or delay of either party in exercising any right under this Agreement shall operate as a waiver thereof, nor shall any partial exercise by either party of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right. 15.9 Assignment. This Agreement may not be assigned by either party ---------- in whole or in part (including for purposes of this Section 15.9 any transfer by merger, reorganization, sale of a majority of the voting capital stock, or other transfer by operation of law) without the prior written consent of the other party. Consent to such assignment in one instance shall not constitute consent to any other assignment. No assignment shall relieve the assignee from its obligations under this Agreement. Any assignment or attempted assignment in violation of the terms of this Section 15.9 shall be void. Notwithstanding the provisions of this Section 15.9, Tramco may assign this Agreement to The B.F.Goodrich Company, or to any direct or indirect subsidiary or other affiliate of Tramco or The B.F.Goodrich Company without the consent of Customer. 15.10 Separable Provisions. If any provision of this Agreement shall -------------------- be held invalid or unenforceable, the remainder nevertheless shall remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it nevertheless shall remain in full force and effect in all other circumstances. 15.11 Mandatory Disclosure; Securities Laws Compliance. (a) Customer agrees that without the prior written consent of Tramco, Customer will not disclose or provide copies of this Agreement or any Airframe Services Orders to any third party or entity, including any court or other governmental agency or body. In the event that Customer receives notification of a legal requirement to disclose, or becomes legally compelled to disclose, a copy of or the terms of this Agreement or any Airframe Services Orders or any proprietary information subject to the provisions of Section 9 of this Agreement (collectively, the "Information"), whether by deposition, interrogatory, request for documents by a court or any governmental agency or body, subpoena, or other process or requirement, whether legal, administrative or otherwise, Customer will provide Tramco with prompt advance written notice (which shall not be less than five business days in advance of the time for any such mandatory disclosure) so that Tramco may seek a protective order, confidential treatment, waiver or other appropriate protective relief with respect to all or part of such request or requirement, or waive compliance with the provisions of this Agreement with respect to all or part of such request or requirement. In the event that such protective order, confidential treatment, waiver or other remedy is not obtained prior to the deadline for complying with such request or requirement, and upon advice of counsel Customer reasonably believes that it is legally compelled to disclose Information, then Customer may disclose only that portion of the Information which it is advised in writing by counsel that it is legally compelled to disclose. Customer will use its best efforts to assist Tramco and in no event will oppose any action by -13- Tramco to obtain appropriate confidential treatment or protective relief as contemplated by this Section 15.11 (b) Tramco acknowledges and agrees that Customer may be required by applicable securities laws to issue a press release and to file this Agreement with the Securities and Exchange Commission ("SEC"). Customer agrees that it will provide Tramco with an advance copy of any press release and that release of such press release or other public communication concerning the arrangements contemplated hereby will be subject to the reasonable advance consent of Tramco and will not, in any event disclose any specific pricing, labor rates or other detailed business terms in such press release. Customer acknowledges that the public disclosure of the commercial terms of this Agreement is likely to cause substantial competitive harm to Tramco. Therefore, Customer agrees to cooperate with Tramco to use all reasonable efforts to obtain confidential treatment by the SEC of any portions of this Agreement and any Airframe Services Orders which may be commercially sensitive. 15.12 Counterparts. This Agreement may be executed simultaneously in ------------- two or more counterparts, including signature by facsimile, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 15.13 Interpretation. This Agreement shall be governed by and --------------- construed in accordance with the laws of the State of Washington, without reference to any conflict of laws principles. The language of this Agreement is and will be deemed to be the language chosen by the parties jointly to express their mutual understanding. No rule of construction based on which party drafted the agreement or certain of its provisions will be applied against either party. 15.14 Authorization. Each of the parties hereby represents and ------------- warrants to the other that the execution, delivery and performance of this Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action, and this Agreement, when duly authorized, executed and delivered by the other party, will be a valid and binding obligation of each party, respectively. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TRAMCO, INC. FRONTIER AIRLINES, INC. By: By: /s/ Jon Bartram -------------------------------- --------------------------------- Its Its Vice President-Maintenance -------------------------------- --------------------------------- -14- LIST OF EXHIBITS AND SCHEDULES Exhibit 1 DEFINITIONS Exhibit 4 FORM OF AIRFRAME SERVICES ORDER Exhibit 5.5.5 WARRANTY Exhibit 12.1 CUSTOMER--REQUIRED INSURANCE COVERAGES AND LIMITS Exhibit 12.2 TRAMCO--REQUIRED INSURANCE COVERAGES AND LIMITS -15- Exhibit 1 DEFINITIONS "Additional Work" means any modification work or airframe maintenance services --------------- not included in the Workscope. Additional Work shall include Buyer Request Items and Non-Routine Maintenance. "Aircraft" means Customer's aircraft on which the Airframe Services are to be -------- performed by Tramco, as further identified in the Airframe Services Order. "Airframe Services" means Modification Work and Heavy Maintenance. ----------------- "Airframe Services Order" means the order for Airframe Services entered into ----------------------- between Tramco and Customer pursuant to Section 4. "Base Maintenance" means minor maintenance, repair, and inspection activities, ---------------- and record keeping related thereto, on Aircraft at Customer base locations, including but not limited to "A" checks, "B" checks, service checks, and routine and non-routine overnight maintenance requirements, including log-book discrepancies. "Buyer Request Items" shall mean changes or additions to engineering orders, ------------------- specifications, or other items of work requested in writing or orally by a Designated Maintenance Representative, although not specifically required by the terms of the Workscope. "Designated Maintenance Representative(s)" shall mean any one or more ---------------------------------------- representatives of Customer designated pursuant to Section 5.5.4 of this Agreement. "Discrepancy" shall mean a determination by Tramco of the existence of any ----------- condition with respect to an Aircraft, or the Airframe Services which varies from the applicable requirements or standards set forth in the maintenance program, FAA requirements, or the Technical Data, whether or not this condition could eventually result in failure of the component or of the Aircraft. "Estimated Labor Hours" means the number of labor hours estimated pursuant to --------------------- Section 5.1 with respect to any Airframe Services. "Expendables and Consumables" means those parts and supplies which are used, --------------------------- consumed or expended in connection with Airframe Services performed by Tramco hereunder and which have a unit acquisition cost to Tramco per item less than $1.00, but excluding any paint and any parts or items special ordered by Tramco for use on the Aircraft. "FAA" means the U.S. Federal Aviation Administration or any federal agency or --- administrative body that assumes its functions or is the successor thereto. -16- "FAR" or "FARs" means any of those certain regulations promulgated by the FAA, --- ---- including, without limitation, those set forth in Title 14 of the Code of Federal Regulations, as from time to time in effect. "Force Majeure" shall mean an event or condition contemplated by Section 11. ------------- "Heavy Maintenance" means the airframe heavy maintenance to Aircraft as ----------------- specified in the applicable Airframe Services Order, but excluding Line --------- Maintenance, Base Maintenance, or any overhaul services with respect to aircraft engines or any services not permitted by Tramco's FAA Section 145 certificate. "Labor Rate" shall have the meaning set forth in Section 5.3. ---------- "Line Maintenance" means minor maintenance, repair, and inspection activities, ---------------- and record keeping related thereto, on Aircraft at all remote stations that Customer services, including, but not limited to, checking fluid levels, interface with flight crew, visual airframe and systems inspections, and replacement of minor components. "Modification Work" means modifications of the interior of Aircraft as specified ----------------- in the applicable Airframe Services Order. "Non-Routine Maintenance" means identified corrective work discovered during the ----------------------- performance of Routine Maintenance or Buyer Request Items or resulting from findings by Tramco of Discrepancies during the performance of Routine Maintenance or Buyer Request Items. "Routine Maintenance" shall mean those items of inspection or work specifically ------------------- called out in the Workscope. "Term" means the term of this Agreement as provided in Section 14. ---- "Time and Materials Basis" means: (i) with respect to labor, Tramco will charge ------------------------ the Labor Rate multiplied by the actual number of labor hours performed in connection with the identified services or statement of work; and (ii) except as otherwise provided herein, with respect to parts and materials and other direct charges, Tramco will charge the amounts specified in Section 5.2. "Tramco Airframe" means the facility of Tramco located in Everett, Washington, --------------- which performs the Airframe Services and presently operated by Tramco. "Workscope" means the workscope identifying the services to be performed by --------- Tramco as part of any Modification Work or Heavy Maintenance, as attached to the applicable Airframe Services Order. -17- Exhibit 4 Airframe Services Order under Tramco-Vanguard Agreement dated , 1996 ----------- Aircraft No. ------------- Workscope: Attached as Exhibit A hereto. The Workscope shall control over any conflict or inconsistency between the general descriptions of the Airframe Services included in this Exhibit 4. Labor Pricing Modification Work Fixed Price (Fixed charge for all labor for Modification Work identified in the Workscope) $ ------------------ Heavy Maintenance Fixed Price (Fixed charge for all labor for Heavy Maintenance identified in the Workscope) $ ------------------ Labor Rate (applicable to any Additional Work) ------------------ Material Charges Expendables and Consumables shall be charged at a fixed rate equal to % of the labor charges -------- invoiced to Customer as part of all Airframe Services Estimated date of Aircraft delivery to Tramco ------------------ Estimated duration of Workscope days ------------ Other ------------------ ------------------
This Airframe Services Order is issued and agreed pursuant to that certain Services Agreement between Tramco, Inc. and Vanguard dated , 1996. ---------- The terms of this Airframe Services Order shall apply only to the Aircraft described in this Airframe Services Order and the terms of this Airframe Services Order shall control in the event they conflict with any terms contained in the Services Agreement. Capitalized terms used herein shall have the same meanings given in the Services Agreement. The terms of this Airframe Services Order shall not affect any other Airframe Services performed or to be performed for Vanguard. Executed this day of , 199 . --- --------- -- TRAMCO, INC. VANGUARD AIRLINES, INC. By By -------------------------------- --------------------------------- Name Name ------------------------------ ------------------------------- Title Title ----------------------------- ----------------------------- -18- Exhibit 5.5.5 AIRFRAME SERVICES WARRANTY 1 Warranty. Subject to the other provisions contained in this Warranty, -------- Tramco warrants to Customer that the Airframe Services provided hereunder will be free from defects in workmanship introduced during Tramco's servicing thereof. The foregoing warranty shall not apply to any parts, material or third party services incorporated in such Airframe Services and Tramco makes no warranty, express or implied, with respect to such parts, material or services. Tramco workmanship shall not be deemed defective if such workmanship was in compliance with applicable manufacturer's operating and maintenance instructions or procedures or applicable governmental regulations for such service in effect at the time of such service. 2 Warranty Period and Notice. -------------------------- a. Warranty Period. The warranty set forth in paragraph 1 of this --------------- Warranty extends for a period of (i) 12 months from the date the serviced Aircraft is delivered to Customer, or (ii) 1200 flying hours subsequent to the date the serviced Aircraft is delivered to Customer, whichever is the first to occur (the "Warranty Period"). In the event that Tramco repairs or re-services an item under this Warranty, the warranty provided hereunder shall extend to such repair or re-serviced item for the remainder of the original Warranty Period applicable to the item and no new Warranty Period shall be established therefor. b. Notice. Customer's remedy and Tramco's obligation and liability ------ under this Warranty with respect to each defect, are conditioned upon Customer providing written notice to Tramco of its warranty claim at the earlier of (i) ------- the date which is thirty days after the defect is discovered by Customer; or (ii) the expiration of the Warranty Period. 3 Return and Statement. Customer's remedy and Tramco's obligation and -------------------- liability under this Warranty with respect to each defect, are also subject to the following conditions. a. Return. Customer returns the serviced Aircraft or any part, ------ accessory or component thereof which is subject to a warranty claim hereunder at its cost, transportation charges prepaid, as soon as reasonably practical to the Tramco servicing facility or another location as may be mutually agreed between the parties. In the event that a Warranty Claim is accepted by Tramco in accordance with the terms hereof, Tramco will reimburse Customer for aircraft ferry costs at a rate of $3,000 per flight hour, but not to exceed the maximum total amount of $6,000. The foregoing reimbursement shall only apply if warranty service requires that the Aircraft be returned to the Tramco servicing facility and only if the return for warranty service causes an unscheduled routing of the Aircraft. b. Statement. Customer provides a written statement to Tramco --------- describing the nature of the claimed defect. 4. Parts and Material. To the extent assignable, Tramco shall assign to ------------------ Customer any warranties received by Tramco with respect to parts and material transferred to Customer by Tramco or incorporated by Tramco into the Airframe Services. Customer shall have sole responsibility for processing and pursuing any applicable warranty claims against manufacturers and vendors of any such parts or material. 5 Disclaimer. THE WARRANTY SET FORTH IN THIS WARRANTY AND THE OBLIGATIONS ---------- AND LIABILITIES OF TRAMCO HEREUNDER, ARE IN LIEU OF, AND CUSTOMER HEREBY WAIVES AND RELEASES ALL OTHER WARRANTIES OR -19- GUARANTEES, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES PROVIDED. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, TRAMCO SHALL NOT BE LIABLE FOR AND CUSTOMER HEREBY WAIVES AND RELEASES ANY AND ALL CLAIMS WITH RESPECT TO ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; (B) IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; (C) CLAIM IN TORT, WHETHER OR NOT ARISING IN WHOLE OR IN PART FROM TRAMCO'S FAULT, NEGLIGENCE, STRICT LIABILITY OR PRODUCT LIABILITY; OR (D) CLAIM FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, CONSEQUENTIAL DAMAGES, COVER OR ANY LOSS OF PROFIT, REVENUE OR USE. TRAMCO'S LIABILITY AND CUSTOMER'S SOLE REMEDY HEREUNDER WITH RESPECT TO SERVICES PROVIDED HEREUNDER, INCLUDING BREACH OF THE WARRANTY SET FORTH HEREIN, WHETHER IN TORT, CONTRACT OR OTHERWISE, SHALL BE LIMITED TO, AT TRAMCO'S OPTION, TRAMCO'S REPAIR OR RE-SERVICE OF THE ITEM OR TASK AND IN NO EVENT SHALL TRAMCO'S LIABILITY HEREUNDER EXCEED THE COMPENSATION PAID BY CUSTOMER TO TRAMCO FOR THE SPECIFIC SERVICE PERFORMED. IN THE EVENT THAT THIS DISCLAIMER OR ANY PORTION HEREOF SHALL BE HELD TO BE INVALID OR UNENFORCEABLE, THE REMAINING PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT. -20- Exhibit 12.1 Customer Insurance Coverages and Limits ---------------------------------------
Coverage Limits -------- ------ Aircraft Operations/Aviation Liability $200 million (provided that no more than $20 million of such amount is self-insured) Commercial General Liability $2 million per occurrence Automobile Insurance $2 million per occurrence Workers Compensation Statutory Requirement in each jurisdiction where employees are located
-21- Exhibit 12.2 Tramco Insurance Coverages and Limits -------------------------------------
Coverage Limits -------- ------ Aircraft Products Liability $200 million (provided that no more than $20 million of such amount is self-insured) Hangarkeeper's Liability $200 million Commercial General Liability $2 million per occurrence Automobile Insurance $2 million per occurrence Workers Compensation Statutory Requirement in each jurisdiction where employees are located
-22- EX-10.24 17 ENGINE LEASE AGREEMENT DATED 8-15-96 EXHIBIT 10.24 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH "*" AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC. GENERAL TERMS ENGINE LEASE AGREEMENT BETWEEN TERANDON LEASING CORPORATION, as Lessor AND FRONTIER AIRLINES, INC., as Lessee TABLE OF CONTENTS SECTION TITLE
1 TERM OF THIS GTA.................................... 1 2. INDIVIDUAL ENGINE LEASES; TERM...................... 1 3. DELIVERY, INSPECTION AND ACCEPTANCE................. 2 4. CHARGES AND PAYMENT................................. 3 5. COMPLIANCE WITH LAWS................................ 4 6. USE AND MAINTENANCE................................. 4 7. RECORDS............................................. 5 8. MODIFICATION........................................ 6 9. RISK OF LOSS........................................ 6 10. NO ABATEMENT OR SET OFF............................. 7 11. RELEASE AND INDEMNITY............................... 7 12. WARRANTY; DISCLAIMER................................ 7 13. INSPECTION.......................................... 8 14. INSURANCE........................................... 8 15. TITLE TO EQUIPMENT..................................10 16. TAXES...............................................10 17. SUBLEASES; ASSIGNMENT...............................11 18. RETURN OF EQUIPMENT.................................11 19. EVENTS OF DEFAULT; REMEDIES.........................13 20. LESSOR'S LENDER.....................................17
21. NOTICES.............................................19 22. RECORDING...........................................20 23. BROKERS/FINDERS.....................................20 24. MISCELLANEOUS.......................................20 25. APPLICABLE LAW......................................21 26. JURISDICTION AND VENUE..............................21 27. QUIET ENJOYMENT.....................................21 28. FINANCIAL STATEMENTS................................22
EXHIBITS EXHIBIT A -- AIRCRAFT ENGINE LEASE AGREEMENT EXHIBIT B -- EQUIPMENT DELIVERY RECEIPT GENERAL TERMS ENGINE LEASE AGREEMENT BETWEEN TERANDON LEASING CORPORATION AND FRONTIER AIRLINES, INC. CONTRACT NUMBER 01 This General Terms Engine Lease Agreement ("GTA") is dated as of August 15, 1996, by and between TERANDON LEASING CORPORATION ("Lessor") with offices at 180 Harbor Drive, Suite 200, Sausalito, CA 94965 and FRONTIER AIRLINES, INC. ("Lessee") with offices at 12015 East 46th Avenue, Denver, CO 80239. In consideration of the premises and mutual promises herein contained, Lessor and Lessee hereby agree as follows: 1. Term of this GTA The term of this GTA will commence on the date hereof and will continue thereafter until canceled by either Lessor or Lessee. 2. Individual Engine Leases; Term (a) Lessor will lease aircraft engines to Lessee and Lessee will lease aircraft engines from Lessor from time to time to the extent such engines are desired by Lessee and are available from Lessor, all upon the terms and conditions hereof. Such individual engine leases will be initiated by the execution by Lessee and Lessor of an Aircraft Engine Lease Agreement ("Lease") substantially in the form of Exhibit A. Each Lease will be for a single engine described by serial number in such Lease, together with all parts and attachments thereto ("Engine"), all Engine records in the possession of Lessor which are requested by Lessee, all Engine records generated by Lessee during the Lease Term, any QEC unit and any engine stand ("Engine Stand") or other items related to the Engine (the Engine, such Engine records, QEC unit, Engine Stand and related items, collectively, the "Equipment"). Each Lease will constitute a separate lease of the Equipment and will be deemed to incorporate therein all the terms and conditions of this GTA. Notwithstanding cancellation of this GTA by either Lessor or Lessee during the term of any Lease, this GTA will remain in full force and effect as to such Lease. (b) The term of each Lease will be the period specified in such Lease ("Lease Term"); provided, however, that notwithstanding the expiration of the -------- ------- Lease Term, all obligations of Lessee under the Lease shall continue until the Equipment is returned to Lessor in the condition required by Section 18 hereof. (c) Lessee will redeliver the Equipment to Lessor upon the expiration or earlier termination of the Lease pertaining to such Equipment. 3. Delivery, Inspection and Acceptance (a) Lessor will deliver the Equipment to Lessee on the Delivery Date and at the FOB location specified in the applicable Lease. On the Delivery Date, the Engine will have a Federal Aviation Administration ("FAA") approved return to service maintenance release tag affixed to it. (b) On the Delivery Date, Lessee will deliver to Lessor a receipt for the Equipment substantially in the form of Exhibit B, duly executed by an authorized representative of Lessee. (c) Lessor's obligation to deliver any Equipment pursuant to any Lease is subject to the following conditions precedent: (i) Receipt by Lessor of the Transaction Fee required by Section 4(b)(i) and the payments required by Section 4(b) (ii) and (iii) below attributable to Monthly Rent and by Marine Midland Bank ("Lessor's Lender") of the payment required pursuant to Section 4(b)(iv) attributable to the Use Fee; (ii) Receipt by Lessor's Lender of an Assignment of Lease and Lessee's Acknowledgment of and Consent to Assignment of Lease, in form and substance acceptable to Lessor's Lender, executed by Lessee; (iii) Receipt by Lessor and Lessor's Lender of a legal opinion from counsel to Lessee in form and substance acceptable to Lessor and Lessor's Lender; (iv) Receipt by Lessor and Lessor's Lender of the insurance certificates required by Section 14(h) below; (v) Receipt by Lessor and Lessor's Lender of such other documentation as may be required by Lessor and Lessor's Lender, including but not limited to, (i) Certified Copy of Resolutions authorizing Lessee's execution and delivery of this GTA, the Lease and related documentation and (ii) a Certificate of Incumbency identifying affairs of the Lessee authorized to enter into the GTA, the Lease and related documentation on behalf of the Lessee All documentation required hereunder shall be satisfactory to Lessor and Lessor's Lender and their respective counsel. 2 4. Charges and Payment (a) Lessee will pay to Lessor: (i) The one-time Transaction Fee specified in each Lease; and (ii) The Monthly Rent specified in each Lease for each day or fraction thereof during the term of each such Lease, commencing with the Delivery Date specified in each such Lease and continuing until the return of the Equipment in accordance with the terms of this GTA and each such Lease; and (iii) The Use Fee specified in each Lease for each hour of Engine operation or fraction thereof, or each cycle of operation (or cycle of accumulation in the case of JT8D-200 series engines), whichever is greater during each successive calendar month of each Lease Term; and (iv) The Security Deposit specified in the Lease. (b) On the Delivery Date, Lessee will make a payment (A) to Lessor consisting of (i) the Transaction Fee, (ii) the Monthly Rent for the first full calendar month of the Lease Term and (iii) the pro rated amount of the Monthly Rent for the period from the Delivery Date to the last day of the calendar month in which the Delivery Date occurs and will pay (B) to Lessor's Lender for the account of Lessor (i) the Use Fee for the first thirty (30) days of each Lease (based on the estimated Daily Flight Hours stated in each such Lease), and (ii) the Security Deposit. (c) Thereafter, Lessee will pay Lessor in advance (i) on the first day of each succeeding calendar month of the Lease Term, the Monthly Rent for such succeeding month, and will pay Lessor's Lender for the account of Lessor (ii) on the tenth day of each succeeding calendar month, the Use Fee based on the actual hours and cycles of operation in such preceding month (or in the case of the first such month, since the Delivery Date). (d) During the Lease Term for each Lease, commencing on the first calendar month in which payment of the Use Fee is due pursuant to (c) (ii) above, Lessee shall submit to Lessor, in writing, no later than the fifth day of each calendar month and on the last day of the Lease Term or other termination day, a statement of the actual hours and cycles of operation 3 in the prior month (or, in the case of the first such month, since the Delivery Date, and in the case of the last day of the Lease Term or other termination day, since the beginning of such final month). (e) The amount of the payment set forth in subsection (b)(ii) hereof for each Lease paid in respect of Monthly Rent shall be credited to the account of Lessee in respect of the payment due in respect of Monthly Rent for the first full calendar month of the Lease Term. The amount of the payment set forth in subsection (b)(ii) hereof for each Lease paid in respect of the Use Fee shall be credited to the account of Lessee in respect of Use Fees payments due for the last thirty (30) days of the Lease Term. (f) All payments shall be made by wire transfer of immediately available funds in U.S. dollars to the account of Lessor or Lessor's Lender as provided in Section 20 hereof. In respect of any payment not made when due, Lessee shall pay to Lessor or Lessor's Lender, as the case may be, an amount equal to interest on such payment at the rate of 18% per annum computed from the due date of such payment to the actual date such payment is made. (g) Any payment due on a day which is not a business day in San Francisco, California shall be due on the next preceding business day. (h) Except for the right to use of Use Fees as expressly provided in Section 6(c) below, Lessee shall have no interest in or rights with respect to Engine Reserves or Use Fees. In the event an Event of Default hereunder occurs and is continuing, Lessor and/or Lessor's Lender shall have the right to apply an Engine Reserves or Use Fees to discharge the obligations of Lessee hereunder. Upon termination of the Lease Term or earlier termination of any Lease the unapplied Engine Reserves and Use Fees shall be the property of Lessor free and clear of any interest of the Lessee. Lessee shall not be entitled to any interest on accumulated Engine Reserves or Use Fees. 5. Compliance with Laws Lessee will comply in all respects with all laws, ordinances, rules, regulations and orders of all governmental authorities applicable to the installation, operation and maintenance of all Equipment. 6. Use and Maintenance (a) Lessee will use each Engine in a safe manner and in accordance with the manufacturer's recommended operating procedures and manuals and instructions in effect from time to time only on commercial transport aircraft owned or operated by Lessee. Lessee agrees not to operate or locate the Equipment or permit the Equipment to be operated or located in any area excluded from insurance coverages required to be maintained pursuant to Section 14 hereof. Lessee further agrees that each engine shall not be used outside the territorial limits of the United States without prior consent of Lessor and Lessor's Lender. 4 (b) During the Lease Term, Lessee will service, repair, overhaul, and maintain the Engine, subject to subsection (c) below at its sole expense, in accordance with the Lessee's FAA approved part 121 maintenance program, so as to keep the Engine in as good operating condition as when delivered to Lessee, reasonable wear and tear excepted. Such maintenance will include all major shop visit work as well as line maintenance and replacement of components and parts as may be required. In addition, Lessee will replace any loss to or repair any damage to the Engine, regardless of cause. Lessee will advise Lessor and obtain Lessor's approval before commencing any non-routine repairs, such approval not to be unreasonably delayed or denied. (c) Lessee shall be entitled to the use of accumulated Use Fees ("Engine Reserves") to the extent adequate to cover off wing major shop visit work required due to normal Exhaust Gas Temperature ("EGT") margin deterioration, and the replacement or restoration of parts necessary for the engine to meet manufacturers specification and limitations for reinstallation on an aircraft, provided Lessee first presents maintenance facility invoices or a workscope satisfactory to Lessor evidencing the work completed or intended for such maintenance or repair. Lessee shall have the right to apply Engine Reserves only if no Event of Default has occurred and is continuing. In the event that Engine Reserves are not sufficient to pay for such maintenance and repair, Lessee shall pay any deficiency. The obligations, covenants and liabilities of Lessee under this provision arising prior to return of the Equipment to Lessor shall continue in full force and effect notwithstanding any termination arising out of an Event of Default under any Lease or otherwise, until such time as Lessor has received all sums and performances to which it is entitled under any Lease. (d) Lessee will ensure that all replacement parts will be (i) free and clear of liens, (ii) of the most recent modification status, and (iii) of equal or better time status and value than the parts replaced, assuming the parts replaced were in the condition required by this GTA; and upon installation on the Engine, title to such replacement parts shall immediately vest in Lessor. All such replacement parts must be of the same manufacturer and model number as the replaced parts (unless otherwise approved in writing by Lessor or unless such parts are FAA approved substitutes) and must have been last serviced by an FAA approved repair facility. (e) If any modification or repair to any Equipment is required to be made during the Lease Term by reason of any law, Airworthiness Directive, regulation or advisory circular promulgated by the FAA or Alert Service Bulletin issued by the manufacturer of the Engine ("Mandatory Change"), Lessee shall make such Mandatory Change at Lessee's expense. There shall be no abatement of Monthly Rent for any out-of-service period required to perform any Mandatory Change. 7. Records (a) Lessor will deliver to Lessee on the Delivery Date for any Engine all records for such Engine requested in writing by Lessee reasonably in advance of such Delivery Date which are in the possession of Lessor. (b) Lessee will maintain and provide to Lessor complete and accurate records in English for each Engine. All such records will be deemed Equipment as of the time generated. 5 Lessee will report hours and cycles of operation and location of operation of each Engine to Lessor prior to the fifth day of each calendar month during the Lease Term of each Lease. (c) Upon redelivery of the Engine to Lessor, Lessee will return all Engine records delivered to Lessee by Lessor, together with all Engine records generated by Lessee. (d) With respect to any part installed by Lessee during a Lease and not removed prior to the return of an Engine, the records returned to Lessor will include: (i) Manufacturer, part number, description and serial number (if part is serialized); and (ii) Historical records, including but not limited to (A) serviceability status of the part at installation, (B) for a time-controlled part, total time and cycles, time and cycles since overhaul as may be applicable and total time and cycles of the Engine at the time of part installation and (C) for a life- limited part, documentation tracing usage of the part since new. 8. Modification Lessee will not make any modifications or alterations to any Equipment, except for any Mandatory Change, without Lessor's prior written consent. 9. Risk of Loss Lessee shall bear the entire risk of loss of any Equipment from any and every cause whatsoever whether or not insured. In the event of actual or constructive total loss or destruction of any Equipment or damage thereto beyond economic repair during the Lease Term of a Lease, or the loss of possession of any Equipment for more than thirty (30) days for any reason, including but not limited to seizure, requisition, theft, disappearance or otherwise, Lessee will immediately notify Lessor thereof. In the event of such loss, damage or loss of possession, or if Lessee fails to redeliver any Equipment in accordance with the terms hereof, Lessee will pay Lessor upon demand the Agreed Value of such Equipment as specified in the Lease in full discharge and satisfaction of Lessee's liability for such loss or destruction, together with all other payments owing under the Lease through such date, and the Lease will terminate upon payment of such amount. Upon compliance by Lessee with the terms hereof, and provided no Event of Default shall have occurred and then be continuing, Lessor shall pay to Lessee any insurance proceeds theretofore or thereafter received by Lessor in respect of such Equipment. 10. No Abatement or Set Off Each Lease is a net lease. Lessee's obligation to pay all charges provided for herein is absolute and unconditional, and Lessee will not be entitled to any abatement, reduction of or set 6 off against rents or other payments due Lessor under any circumstances or for any reason whatsoever. 11. Release and Indemnity (a) LESSEE HEREBY RELEASES AND AGREES TO INDEMNIFY, DEFEND AND HOLD LESSOR, LESSOR'S LENDER AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, DEMANDS, SUITS, DAMAGES AND LOSSES (INCLUDING WITHOUT LIMITATION ALL REASONABLE ATTORNEY'S FEES, COSTS AND EXPENSES IN CONNECTION THEREWITH OR INCIDENT THERETO), FOR DEATHS OF OR INJURIES TO ANY PERSONS WHOMSOEVER (INCLUDING WITHOUT LIMITATION LESSEE'S EMPLOYEES), AND FOR LOSS OF OR DAMAGE TO OR DELAY IN THE DELIVERY OF ANY PROPERTY WHATSOEVER (INCLUDING WITHOUT LIMITATION ANY AIRCRAFT ON WHICH ANY ENGINE MAY BE INSTALLED AND LOSS OF USE THEREOF), IN ANY MANNER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE DELIVERY, OWNERSHIP (INCLUDING WARRANTY, PRODUCT LIABILITY AND STRICT LIABILITY IN TORT BY VIRTUE OF OWNERSHIP) LEASING, STORAGE, TRANSPORTING, INSTALLATION, OPERATION, MAINTENANCE OR USE OF ANY EQUIPMENT WHILE UNDER LEASE, OR THE ATTACHMENT OR DETACHMENT OF ANY EQUIPMENT IN CONNECTION WITH THE DELIVERY OR REDELIVERY OF ANY SUCH EQUIPMENT HEREUNDER, REGARDLESS OF NEGLIGENCE, ACTIVE, PASSIVE OR ANY OTHER TYPE, OF LESSOR, LESSOR'S LENDER AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS; PROVIDED THE FOREGOING INDEMNIFICATION WILL NOT APPLY TO ANY CLAIM OR LIABILITY RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR, LESSOR'S LENDER AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS. (b) IN NO EVENT WILL LESSOR BE LIABLE FOR ANY REASON FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, SUCH AS LOST REVENUES, LOST PROFITS OR LOSS OF PROSPECTIVE ECONOMIC ADVANTAGE, RESULTING FROM ANY PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT. 12. Warranty; Disclaimer (a) Lessor warrants it will have good title to the Equipment at the time of delivery to Lessee and that Lessor has the right to lease such Equipment. (b) The Equipment is leased and accepted by Lessee in "AS IS" condition and with all faults. Lessor makes no warranties whatsoever with respect to any Equipment, express or implied, except the warranties appearing in Section 12(a) above. (c) THE WARRANTIES SET FORTH IN THIS SECTION 12 AND THE OBLIGATIONS AND LIABILITIES OF LESSOR THEREUNDER, ARE EXPRESSLY IN 7 LIEU OF, AND LESSEE HEREBY WAIVES AND RELEASES LESSOR FROM, ANY AND ALL OTHER WARRANTIES, AGREEMENTS, GUARANTEES, CONDITIONS, DUTIES, OBLIGATIONS, REMEDIES OR LIABILITIES, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY AND FITNESS FOR INTENDED USE, WITH RESPECT TO ANY EQUIPMENT LEASED HEREUNDER OR LESSOR'S PERFORMANCE HEREUNDER. NO AGREEMENT OR UNDERSTANDING VARYING, ALTERING OR EXTENDING LESSOR'S LIABILITY WILL BE BINDING ON LESSOR UNLESS IN WRITING AND SIGNED BY LESSEE'S AND LESSOR'S DULY AUTHORIZED OFFICER OR REPRESENTATIVE. (d) Provided Lessee is not in default under the Lease, Lessor hereby assigns to Lessee, for the duration of the Lease Term, any and all assignable warranties of manufacturers, maintenance facilities and overhaul agencies, of and for the Equipment, as such warranties may be extended from time to time. During the Lease Term Lessee shall, at Lessee's expense, take reasonable steps to enforce the rights arising under any warranties of manufacturers, maintenance facilities and overhaul agencies applicable to the Equipment and assigned to Lessor. 13. Inspection During the Lease Term, Lessee will permit any person designated by Lessor, or Lessor's Lender, in writing to visit and inspect the Equipment, work performed on the Equipment by Lessee, and the records maintained in connection therewith, and to make copies of such records all at such reasonable times and as often as Lessor or Lessor's Lender may reasonably request, provided that such inspection does not unreasonably disrupt or interfere with the Lessee's day to day operation of the Equipment. 14. Insurance (a) Lessee will procure from a third party rated a Best A insurer and maintain in full force and effect at all times during the term of each Lease policies of insurance of the type and in the minimum amounts stated below and with companies acceptable to Lessor and Lessor's Lender and under terms reasonably satisfactory to Lessor and Lessor's Lender: (i) Comprehensive Airline Liability Insurance with an aggregate limit of not less than Five Hundred Million Dollars ($500,000,000) per occurrence, naming Lessor and Lessor's Lender and their respective directors, officers, agents and employees as additional insureds. Such policy will expressly cover the obligations assumed by Lessee in Section 11 above. (ii) Aircraft hull insurance covering all risks, ground and flight, to the Equipment in a minimum amount not less than the Agreed Value stated in the Lease for such Equipment. Such policy will include Lessor and Lessor's Lender as additional insureds as their interests may appear and shall name Lessor's Lender as sole loss payee. 8 (iii) All risk spares insurance, including in transit coverage, on the Equipment covering any damage which may occur while in Lessee's care, custody and control but not then attached to an aircraft in a minimum amount not less than the Agreed Value stated in the Lease for such Equipment. Such policy will include Lessor and Lessor's Lender as additional insureds as their interests may appear and shall name Lessor's Lender as sole loss payee. (b) All insurance coverage listed in Section 14(a) above will include war risk, hijack and confiscation coverage and, if requested by Lessor or Lessor's Lender, political risk coverage, in amounts requested by Lessor or Lessor's Lender. (c) All policies will provide that all insurance carriers, including the hull insurance carrier for the aircraft on which any Engine may be installed, waive any and all rights of subrogation that such carriers may or could have against Lessor, Lessor's Lender and their respective directors, officers, agents and employees by virtue of such insurance contracts. (d) Any deductibles in the insurance coverage described in this Section 14 are the sole responsibility of Lessee and will be paid to the designated loss payee of such insurance. (e) All of the policies of insurance required of Lessee will include breach of warranty protection in favor of Lessor and Lessor's Lender. (f) All policies required of Lessee will provide that such insurance will be primary insurance and that any other insurance of Lessor and Lessor's Lender will be secondary or excess insurance. (g) All policies will provide that Lessor and Lessor's Lender will be given thirty (30) days prior written notice by the insurers of policy cancellation or material change thereof except for coverages in Section 14(b) which will require seven (7) days prior written notice. (h) Lessee will provide Lessor and Lessor's Lender with certificates of insurance satisfactory to Lessor and Lessor's Lender evidencing the above coverage in accordance with Section 3(c). (i) All losses will be adjusted with Lessor and the Lessor's Lender, as the case may be, and Lessee. (j) Lessee's deductibles for any insurance required under Section 14(a) above shall not exceed $250,000. (k) All policies will include (i) a severability of interest clause, (ii) waiver of set-off or counterclaim, and (iii) Lessor's Lender's right, but not obligation, to pay premiums and be accompanied by a broker's letter of undertaking. 15. Title to Equipment 9 Title to Equipment will remain in Lessor at all times. Lessee will not permit any lien, claim, mortgage or encumbrance ("Liens"), except Liens arising by or through Lessor ("Lessor's Liens"), to attach to any Equipment. Lessee will indemnify Lessor and Lessor's Lender for any damage suffered by Lessor or Lessor's Lender, including costs and expenses incident thereto, occurring as a result of any Liens not permitted hereunder. Lessee's rights will be solely those of a lessee and nothing contained herein is intended or will be interpreted as granting to Lessee any other right, title or interest in or to any Equipment, whether legal or equitable. Lessee will attach to each Engine a placard stating: "THIS ENGINE IS OWNED BY TERANDON LEASING CORPORATION AND IS SUBJECT TO A FIRST PRIORITY SECURITY INTEREST IN FAVOR OF MARINE MIDLAND BANK" Lessee will assure that said placard remains affixed to each Engine at all times during the Lease Term. 16. Taxes The charges set forth herein and in each Lease, including the Monthly Rent, Transaction Fee and Use Fee, are exclusive of any duties, charges, imposts or sale, use, ad valorem, excise, transfer, gross receipts, withholding taxes, or any other taxes or charges, (including interest, penalties or additions to tax in respect thereto) which may be imposed by any governmental jurisdiction or taxing authority, in connection with the lease, ownership, operation, possession or use of any Equipment, or upon the rentals, receipts or earnings arising therefrom (collectively, "Taxes"). Lessee will pay, and will indemnify, defend and hold Lessor and Lessor's Lender harmless on a net after tax basis from and against any and all Taxes of whatever kind or nature, including costs or expenses incurred in connection therewith, which may be assessed against, chargeable to or collectible from any of Lessee, Lessor's Lender or Lessor by any governmental jurisdiction or taxing authority, foreign, federal, state or local, and which are based upon, levied or assessed with respect to the lease of any Equipment or the operation, possession, purchase, ownership, delivery, or use of such Equipment while under any Lease, or upon the rentals, receipts or earnings arising therefrom, except Taxes based on the net income of Lessor that are imposed by the United States of America or any state or local government or taxing authority in any state of the United States in which Lessor is subject to tax as a result of business or transactions unrelated to the transactions contemplated by this GTA and any Lease. Upon demand to Lessor or Lessor's Lender by any governmental jurisdiction or taxing authority for payment of any Tax reimbursable hereunder, Lessor or Lessor's Lender will as soon as reasonably possible notify Lessee and if Lessor or Lessor's Lender pays such Tax, Lessor or Lessor's Lender will invoice Lessee for the amount of such Tax paid by Lessor or Lessor's Lender together with an amount, if any, necessary to cause the net after tax return of Lessor or Lessor's Lender to be the same as would have been the case if such Tax had not been assessed, and Lessee will immediately reimburse Lessor or Lessor's Lender for such amount(s). 17. Subleases; Assignment 10 Lessee may not assign this GTA or any Lease in whole or in part, sublease any Equipment or otherwise relinquish possession thereof to anyone other than Lessor or Lessor's Lender, as the case may be, for any purpose except with the prior written consent of Lessor and Lessor's Lender; and any such attempted assignment or sublease will be null and void. 18. Return of Equipment (a) At the time the Equipment is returned to Lessor, the Equipment shall have all due maintenance completed in accordance with the Lessee's FAA approved maintenance program, and shall be in at least the same condition as when delivered to Lessee, ordinary wear and tear excepted. (b) At the time the Equipment is returned to Lessor, the time remaining on the Engine, in hours and cycles, to the next shop visit for engine heavy maintenance shall be not less than one half the hours and cycles accumulated between such shop visits. The interval for this calculation will be based upon the Lessee's mean time between scheduled shop visits for engine heavy maintenance of the Engine, as determined at the conclusion of the Lease Term. In addition, in no event shall any life-limited component have less than 3,000 cycles remaining at the time the Engine is returned to Lessor. (c) Upon return of the Equipment, Lessee shall make a payment to Lessor to compensate Lessor for any difference between the condition of the Equipment on the Delivery Date and the condition of the Equipment at the time of return. With respect to the Engine, Lessee shall compensate Lessor if the number of hours and cycles on the Engine since the most recent shop visit for engine heavy maintenance at the time of return is more than the number of such hours and cycles on the Engine on the Delivery Date. The per-hour and per-cycle charge payable to Lessor in respect of such difference shall be the shop visit cost estimated by an FAA approved overhaul facility (acceptable to Lessor) for engine heavy maintenance of the Engine at the time of redelivery divided by the mean time (in hours and cycles) between scheduled shop visits for engine heavy maintenance as set forth in (b) above, but excluding costs for life-limited parts. In addition, Lessee shall compensate Lessor at the conclusion of the Lease Term for life used on life-limited parts during the Lease Term, as determined by the difference between the disk sheets for the Engine on the Delivery Date and the disk sheets for the Engine at the time of return. The amount of such compensation shall be calculated by reference to the applicable manufacturer's parts price catalogue current at the time of redelivery. (d) Lessee will perform or cause to be performed on each Engine immediately prior to its return to Lessor, at Lessee's sole expense, a full (compressor and turbine section) videotaped borescope inspection and a full performance test cell run. If the borescope inspection or test cell run identifies an Engine defect, Lessee will immediately notify Lessor of the findings and repair the same at Lessee's sole expense, except for the expense of work required for EGT margin deterioration or replacement or restoration of parts as defined in Section 6(c) of this GTA for which Use Fees may be used by the Lessee. 11 (e) Upon expiration of the Lease Term or other termination of a Lease, Lessee will return the leased Equipment. at Lessee's cost, free of all Liens other than Lessor's Liens to the delivery location described in the applicable Lease or, at Lessor's option, to such other location in the continental U.S. serviced by Lessee as Lessor may designate. (f) In addition to any other requirements of this GTA, upon return of the Equipment to Lessor, the Lessee will have affixed to the Engine a current serviceable tag pursuant to U.S. FAA requirements and issued by an authorized U.S. domestic FAA facility together with a completed FAA form 337 marked approved for return to service. (g) Prior to returning the Equipment to Lessor, Lessee will prepare each Engine for shipment by (i) capping and plugging all openings of the Engine; (ii) preserving the Engine for ninety (90) days or more storage; (iii) completely sealing the Engine with heavy gauge vinyl plastic; and (iv) otherwise preparing the Engine for shipment in accordance with the manufacturer's specifications/recommendations. Any trucks used for shipment of the Engine will be equipped with air ride or air cushion trailers. On any given shipment, such truck will be dedicated to Engines belonging solely to Lessor; except that additional items may be transported on the truck, provided that (A) the Engine may be offloaded at the redelivery location without disturbing any of the additional items and (B) Lessor will not handle or reposition any of the additional items on the truck. (h) Lessee agrees that, at the request of Lessor and at no cost to Lessor, Lessee shall store and insure the Equipment as required in Section 14 hereof for up to 60 days following the termination of the Lease. (i) If the Engine is a JT9D that has been operating during the Lease Term, Lessee will return such Engine with at least fifty (50) cycles remaining until the next Diffuser Case Rear Rail Inspection (AD# 86-11-04, SB5591-R4, as amended). (j) In the event any Equipment is not returned to Lessor as required by this Section 18 or at the time and location required by the relevant Lease, in addition to all other rights and remedies available to Lessor, Lessor may deem the Lease Term extended as to such Equipment, and Monthly Rent and Use Fees shall continue to be payable as set forth in Section 4 until such Equipment is returned in the condition required by this Section 18 and pursuant to all other terms and conditions of the relevant Lease. 19. Events of Default; Remedies (a) Event of Default. The occurrence of any of the following events shall constitute an Event of Default and material breach of this GTA and all Leases hereunder by Lessee (whether such events shall be voluntary or involuntary or come about or be effected 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 administrative or governmental body): 12 (i) If Lessee shall fail to make any payment due hereunder in the manner provided herein within five (5) days after the date when such payment is due; (ii) If Lessee shall fail to carry and maintain insurance on or in respect of any Engine in accordance with the provisions of Section 14 hereof or shall operate any Engine without such insurance being in full force and effect with regard to such operations; (iii) If Lessee shall fail to observe or perform any of its other obligations hereunder and in any Lease shall fail to cure the same within ten (10) days after written notice thereof from Lessor; (iv) If any representation or warranty of Lessee herein or in any document or certificate furnished to Lessor in connection herewith shall be incorrect in any material respect; (v) If Lessee either temporarily or permanently discontinues business or sells or otherwise disposes of all or substantially all of its assets or if Lessee voluntarily suspends all or substantially all of its commercial airline operations or the franchises, concessions, permits, rights or privileges required for the conduct of the business and operations of Lessee are revoked, canceled or otherwise terminated or the free and continued use and exercise thereof curtailed or prevented, and as a result thereof the preponderant business activity of Lessee ceases to be that of a commercial airline or Lessee no longer is an air carrier operating under a certificate issued by the Secretary of Transportation pursuant to Chapter 447 of Title 49 of the United States Code. (vi) If Lessee shall (A) be insolvent, (B) be generally not paying its debts (trade or other) as they become due, (C) file, or consent by answer or otherwise to the filing against it of, a petition of relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, (D) make an assignment of the benefit of its creditors, (E) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property or (F) take corporate action for the purpose of any of the foregoing; (vii) If a court or governmental authority of competent jurisdiction shall enter an order appointing, without the consent of Lessee, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of Lessee, or if any such petition 13 shall be filed against Lessee and such petition shall not be dismissed within thirty (30) days; or (viii) If a final judgment for the payment of money in excess of $100,000 shall be rendered against Lessee by any court or courts of competent jurisdiction (which judgment or judgments shall be rendered by a court or courts in the United States of America or in jurisdictions whose judgments are recognized by courts in the United States of America) and the same shall remain undischarged for a period of thirty (30) days during which execution of such judgment shall not be effectively stayed, or an attachment or attachments or other Lien or Liens shall be issued or entered against any of the property of Lessee, for an amount in excess of $100,000 and shall remain undischarged or unbonded for thirty (30) days. (b) Upon the occurrence of any Event of Default and at any time thereafter so long as the same shall be continuing Lessor may, at its option, declare this GTA and any Leases hereunder to be in Default; and at any time thereafter, so long as Lessee shall not have remedied all continuing Events of Default, Lessor may in its sole discretion elect to do one or more of the following with respect to the Equipment, to the extent permitted by, and subject to compliance with any mandatory requirements of, applicable law then in effect: (i) Lessor may do anything for Lessee's account; including, but not limited to, the right to apply advance payments made by the Lessee hereunder, to discharge the obligations of the Lessee hereunder, that may reasonably be required to cure any Event of Default and recover from Lessee all reasonable costs, including reasonable attorneys' fees, incurred in so doing, plus interest thereon, as calculated in Section 4(f); (ii) Lessor may proceed by appropriate court action or actions to enforce performance by Lessee of this GTA and any Leases hereunder or to recover damages for the breach hereof and thereof; (iii) Lessor may: (A) Terminate any and all Leases between Lessor and Lessee; (B) Demand that Lessee, and Lessee shall upon such demand, return any Equipment promptly to Lessor free of any claims or rights of Lessee in the manner and condition required by, and otherwise in accordance with, all the provisions of Section 18 as if such Equipment were being returned at the end of the Lease Term; or Lessor, at its option, may enter upon the premises where such Equipment is located and take immediate possession of and remove the same by summary proceedings or otherwise free of any claims or rights of Lessee, all without liability to Lessor for or by reason of such entry or taking of possession or removal, whether for the restoration of damage to property caused by such taking or 14 otherwise, and Lessee shall be responsible for any costs associated with restoring such Equipment to the condition required by, and in accordance with all the provisions of, Section 18 as if such Equipment were being returned at the end of the Lease Term; (C) Sell any Equipment at public or private sale, as Lessor may determine, and at which Lessor may bid for and purchase the same, free of any rights of Lessee and without any duty to account to Lessee with respect to such sale or for the proceeds thereof (except to the extent required by Section 19(c) below if Lessor elects to exercise its rights under said Section), in which event Lessee's obligation to pay Monthly Rent in respect of such Equipment accruing after the date of such sale shall terminate; or (D) Hold, keep idle or lease any Equipment to others, as Lessor in its sole discretion may determine, free of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or for any proceeds with respect thereto, except that Lessee's obligation to pay Monthly Rent in respect of such Equipment or part thereof accruing after Lessee shall have been deprived of possession of such Equipment or part thereof pursuant to this Section 19 shall be reduced as provided in Section 19 (c) below if Lessor elects to exercise its rights under said Section in respect of the leasing of such Equipment to any person other than Lessee. (c) Lease or Sale. Lessor, at its option, in addition to all other rights it may have as herein set forth and all other rights granted to it in law or in equity, may after an Event of Default by Lessee hereunder and upon notice to Lessee: (i) lease any Equipment to any third party upon such terms and conditions as Lessor determines are reasonable at the time and apply the rental therefrom to the amounts due to Lessor as provided herein; or (ii) sell any Equipment, or any part thereof, to the highest bidder at public auction or at an arms-length private sale, at a price which Lessor shall reasonably determine is its fair market value. The total proceeds of any such lease or sale shall be retained by Lessor to the exclusion of Lessee; provided, however, that the rental payments actually received by Lessor in respect thereof, to the extent such actually received rental payments and in respect of a lease charging rental payments in excess of Monthly Rentals provided herein, only that portion of such rental payments as equal the Monthly Rental are attributable to the unexpired portion of the Lease related to such Equipment (calculated from the date of such lease or sale to the last day of the Lease Term), less Lessor's reasonable expenses incurred in connection therewith, including all reasonable attorney's fees and expenses, shall be applied to the total amount due to Lessor under this GTA and such Lease, and Lessee shall pay to Lessor immediately any deficiency. For 15 purposes hereof, the amounts from such sale or lease, prior to the deduction of expenses, applicable by Lessor to Lessee's account shall be calculated as: (A) in the case of any lease, the lesser of (x) the Monthly Rent times the number of months remaining in the Lease, and (y) the monthly rent actually received under such lease times the number of months remaining in the Lease; and (B) in the case of any sale, the lesser of (p) the Monthly Rent times the number of months remaining in the Lease and (q) the sales price divided by the remaining life (in days) of the Equipment, times the number of days remaining in the Lease. (d) Other Elections. On the date on which Lessor shall become entitled to repossession of any Equipment, Lessor, in addition to all other remedies herein provided, may declare all sums and all performances due under this GTA to be due and payable and may institute such action or judicial proceedings as Lessor in its sole election shall determine. All Monthly Rent under this GTA which would have accrued from the date of such Event of Default through expiration of the Lease Term, discounted at the rate of 8% per annum, and any and all costs or expenses incurred by Lessor in enforcing any of the terms and provisions herein contained, including without limitation all reasonable attorneys' fees and expenses incurred by Lessor in the enforcement and/or interpretation of any of the terms and provisions herein contained, shall be then all due, payable and performable by Lessee and, from the date of such Event of Default until paid, shall earn interest at the rate of 18% per annum. (e) Remedies Cumulative. Each and every power and remedy hereby specifically given to Lessor shall be in addition to every other power and remedy specifically so given or now or hereafter existing at law or in equity, and each and every power and remedy may be exercised from time to time individually or simultaneously and as often and in such order as may be deemed expedient by Lessor. All such powers and remedies shall be cumulative and the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of Lessor in the exercise of any such power or remedy and no renewal or extension of any payments due hereunder shall impair any such power or remedy or shall be construed to be a waiver of any Default or any acquiescence therein. In the event that Lessor or Lessee shall bring any suit to enforce any of its rights hereunder, then in such suit, the prevailing party may recover reasonable expenses, and the amount thereof shall be included in such judgment to the extent permitted by law. (f) Lessor's Waiver Election. Lessor may at its election waive any Event of Default and its consequences and rescind and annul any notice of termination of this GTA or any Lease by notice to Lessee in writing to that effect, and thereupon the respective rights of the parties shall be as they would have been if no Event of Default had occurred and no such notice had been given. Notwithstanding the provisions of this Section 19, it is expressly understood and agreed by Lessee that no waiver, rescission or annulment shall extend to or affect any other or subsequent Default or impair any rights or remedies of Lessor consequent thereon and that time is of the essence with regard to Lessee's obligations under this GTA and any Leases hereunder. (g) Section 1110. Lessee represents and warrants that it is, on the date of execution of this GTA, and shall continue to be during the term of this GTA and each Lease, (i) a citizen of 16 the United States as defined in Section 40102 of Title 49 of the United States Code ("Code"), (ii) an air carrier operating under a certificate issued by the Secretary of Transportation pursuant to Chapter 447 of Title 49 of the Code, and (iii) shall be in satisfaction of all other threshold requirements applicable to Lessee as a "debtor" under Section 1110 of Title 11 of the Code, ("Section 1110") or any superseding statutes, as the same may be amended from time to time. Lessor and Lessee agree that each Lease is to be treated as lease for United States federal income tax purposes and to the extent permitted by law, Lessee hereby agrees, in accordance with Section 1110 or any superseding statutes, as amended from time to time, that the title of Lessor to the Equipment and any right of Lessor, or Lessor's Lender, as the case may be, to take possession of such Equipment in compliance with the provisions of this GTA will not be affected by the provisions of Section 362, 363 or 1129 of such Title 11, or other analogous part of any superseding statutes, as amended from time to time. 20. Lessor's Lender (a) Lessee acknowledges that Lessor will assign each Lease to Lessor's Lender and grant a first priority security interest in all Equipment to Lessor's Lender as security for a loan made by Lessor's Lender to Lessor pursuant to the Assignment and Consent to Assignment of Lease, in the form attached hereto as Exhibit C. Lessee specifically consents to such assignment and agrees that Lessor's Lender shall be entitled to all the benefits of, but shall not be deemed to have assumed any of Lessor's obligations under, any Lease. (b) Lessee, until further advised by Lessor's Lender, shall remit all payments in respect of Monthly Rent, and all other payments due under each Lease, except Use Fees, Security Deposits, Transaction Fees and payments for the account of Lessor made pursuant to Sections 11 and 14(a)(i) hereof, by wire without offset, deduction or abatement for any reason whatsoever to: ABA #: 121 000 248 Bank: Wells Fargo Bank San Francisco, CA Account #: 6001-945518 Acct Name: Terandon Leasing Corporation Monthly Rent Account Provided, however, that upon written notice sent by Lessor's Lender to Lessee certifying that an Event of Default has occurred under the loan facility between Lessor and Lessor's Lender, the Lessee shall remit all payments specified above directly to Lessor's Lender, all without offset, deduction or abatement for any reason whatsoever, at: Marine Midland Bank One Marine Midland Center Buffalo, New York 14203 ABA #: 021-001-088 Account Name: Marine Midland Bank Account #: 750-16718-1 Attention: Ms. Amy McThomas 17 Use Fees and Security Deposits, if any, due under the Lease shall be remitted without offset, deduction or abatement for any reason whatsoever to: ABA #: 021 001 088 Bank: Marine Midland Bank Buffalo, NY Account #: 750-460512 Acct Name Terandon Leasing Corporation Maintenance Reserve Deposit Account Payments, if any, for the account of Lessor's Lender made pursuant to Section 11 and 14 hereof, shall be remitted, without offset, deduction of abatement for any reason whatsoever to: Marine Midland Bank One Marine Midland Center Buffalo, New York 14203 ABA #: 021-001-088 Account Name: Marine Midland Bank Account #: 750-16718-1 Attention: Ms. Amy McThomas Transaction Fees and payments for the account of Lessor made pursuant to Sections 11 and 14(a)(i) hereof shall be remitted, without offset, deduction or abatement for any reason whatsoever, to: ABA #: 121 000 248 Bank: Wells Fargo Bank 525 Miller Avenue Mill Valley, CA Account # 0524-026143 Acct Name: Terandon Leasing Corporation (c) As and when requested by Lessor, Lessee shall execute and deliver to Lessor's Lender such documents as are usual and customary, including but not limited to an opinion of Lessee's counsel addressed to Lessor and Lessor's Lender as to the validity and enforceability of each Lease and an Assignment of Lease and Lessee's Acknowledgment of and consent to Assignment of Lease in form and substance acceptable to Lessor's Lender. 21. Notices All notices or requests given in connection with this GTA or any Lease will be given in writing and sent prepaid by certified mail, return receipt requested, telegram, teletype, telex, cable or facsimile transmission to the person at the address listed below unless either party notifies the other party of a different address. 18 Lessor: Terandon Leasing Corporation 180 Harbor Drive, Suite 200 Sausalito, CA 94965 Attn: Charles F. Willis Telefax No.: (415) 331-0607 Lessee: Frontier Airlines, Inc. 12015 East 46th Avenue Denver, CO 80239 Attn: Rolan Meese Telefax No.: (303) 371-7007 Lessor's Lender: Marine Midland Bank One Marine Midland Center 15th Floor Buffalo, NY 14203 Attn: Credit Risk Management Telefax No: 716 841 2707 22. Recording Lessor intends to record this GTA and all Leases with the Department of Transportation, Federal Aviation Administration, FAA Engine Registry, Oklahoma City, Oklahoma, or such other similar authority in each jurisdiction applicable to this GTA and any Lease, the costs of which including the costs for any required translation thereof shall be borne by Lessee. Upon the termination of this GTA or any Lease for any reason whatsoever, each of the parties will execute and deliver to the other party promptly such documents as the other party may reasonably request in order to file a termination of this GTA or any Lease with the FAA or other authority. Lessee hereby appoints Lessor as its attorney-in-fact for the sole purposes of executing all such termination documents. 23. Brokers/Finders Lessor and Lessee each represents to the other that there are and will be no third parties involved as brokers or finders with respect to this GTA or any Leases entered into for any Equipment, and each party agrees to indemnify and hold harmless the other from liability for fees, commissions or other claims of any intermediary arising as a result of actions of the indemnifying party. 24. Miscellaneous (a) This GTA and each Lease entered into hereunder contain the entire understanding of the parties with respect to the leasing of Equipment and no warranties, representations or 19 undertakings have been made by either party except as expressly set forth in this GTA and the respective Lease(s) entered into hereunder. (b) This GTA has been negotiated between the parties, each party having had the benefit of legal counsel. The construction or interpretation of any clause or provision of this GTA or any Lease will not be construed or resolved against Lessor solely because Lessor drafted any such clause or provision or otherwise prepared or caused the GTA or Lease documents to be drafted. (c) This GTA and any Lease may not be amended, changed, waived or terminated in whole or in part orally, but only by an express instrument in writing signed by the party against which the enforcement of the change, waiver or termination is sought and with the prior consent of Lessor's Lender. (d) This GTA will be binding upon and inure to the benefit of the respective permitted successors and assigns of the parties. (e) This GTA may be executed in counterparts. Such counterpart documents, when taken together, will constitute one and the same instrument. Each Lease shall be executed in 20 at least five (5) serially numbered counterparts, only counterpart 1 of which shall be deemed chattel paper for financing purposes and shall be so marked. 25. Applicable Law This GTA and all Leases will be deemed to have been entered into and performed in the State of California and will be construed in accordance with the laws of the State of California, without regard to any conflict of laws or rules which might result in the application of the law of another jurisdiction. 26. Jurisdiction and Venue The parties (i) agree that any state or federal court located in San Francisco, California shall have exclusive jurisdiction to hear any suit, action or proceeding arising out of or in connection with this GTA or any Lease, and consent and submit to the exclusive jurisdiction of any such court in any such suit, action or proceeding and (ii) hereby waive, and agree 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, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper, or that this GTA or any Lease or the subject matter of any thereof or any of the transactions contemplated hereby or thereby may not be enforced in or by such courts. Service of process may be made against a party either in person, wherever such party may be found, or by notice as permitted herein to the address of the party or its agent, if any, for service of process set forth in this GTA. Lessee specifically appoints The Prentice-Hall Corporation Systems, Inc., 2730 Gateway Oaks Drive, Suite 100, Sacramento, California 95833, as Lessee's agent to receive service of process in any such action or proceeding. To the extent that the Lessee may now or hereafter be entitled, in any jurisdiction, to claim for itself or its property, immunity from suit, legal action or other proceeding, for the jurisdiction of any court, from service of legal process judgment or otherwise) or other legal process or order and, to the extent that in any such jurisdiction there may now or hereafter be attributed to itself or its property any such immunity (whether or not claimed), the Lessee hereby irrevocably and unconditionally waives such immunity to the fullest extent permitted by applicable law of such jurisdiction. 27. Quiet Enjoyment So long as no Event of Default hereunder or under any Lease shall have occurred and be continuing, Lessee shall have the peaceful and quiet enjoyment of all Equipment free from all claims or interference of Lessor or anyone claiming by, through or under Lessor. 28. Financial Statements 21 During the Base Term, or any Renewal Term of any Lease, Lessee shall regularly provide Lessor with its quarterly financial statements within sixty (60) days of the end of each quarter and its audited annual financial statements within ninety (90) days after the close of the Lessee's fiscal year. IN WITNESS WHEREOF, the parties have executed this General Terms Engine Lease Agreement as of the day and year first above written. TERANDON LEASING FRONTIER AIRLINES, INC. CORPORATION By: __________________ By: ____________________________ Name: Lynn Mailliard Name: ____________________________ Title: Corporate Secretary Title: ____________________________ 22 EXHIBIT A to GENERAL TERMS ENGINE LEASE AGREEMENT COUNTERPART NO. ____ OF ____SERIALLY NUMBERED, MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER UNDER THE UCC, NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1. Aircraft Engine Lease Agreement ------------------------------- This Aircraft Engine Lease Agreement ("Lease") made and entered into as of August 15, 1996 by and between TERANDON LEASING CORPORATION ("Lessor") and FRONTIER AIRLINES, INC. ("Lessee"). W I T N E S S E T H : ARTICLE I Agreement to Lease Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the Equipment described in ARTICLE IV herein, subject to the terms and provisions of this Lease. This Lease is entered into pursuant to, and by this reference incorporates all the terms and conditions of, the General Terms Engine Lease Agreement dated as of August 15, 1996 (the "GTA") between Lessor and Lessee. Capitalized terms used but not defined herein shall have the respective meanings given such terms in the GTA. ARTICLE II Lease Term The term of this Lease will be * (the "Delivery ------------------ Date"), and ending on * ("Base Lease Term") subject to the Renewal ----------- Options set forth in Section X hereof. ARTICLE III Delivery/Redelivery Locations The Equipment will be delivered to Lessee FOB Denver, Colorado and upon termination of the Lease, the Equipment will be redelivered to Lessor FOB a location in the Continental United States selected by Lessor.
ARTICLE IV Equipment Engine Engine Engine Total Time Total Cycles Engine Stand Make Model Serial No. Since New Since New Serial No. CFM 56-3B2 721397 13,104 7,922 AA1
Equipment includes, together with the Engine and Engine Stand listed above, (i) a QEC unit consisting of all components set forth in Appendix A hereto, (ii) all Engine parts and attachments, and (iii) all Engine records in the possession of Lessor requested by Lessee and all Engine records generated by Lessee during the Lease Term. The Engine described above is rated in excess of 750 horsepower. ARTICLE V Agreed Value of Equipment: * ARTICLE VI Lease Payments: Transaction Monthly Fee Rent Use Fee --- ---- ------- * * * ARTICLE VII Estimated Daily Flight Hours: 10 ARTICLE VIII Payments Due On Delivery: Security Advance Prorated Transaction Advance Total Deposit Monthly Rent Rent Fee Use Fee Payment - ------- ------------ ---- ----------- ------- ------- * * * * * * (* Less * deposit already received - total due at delivery is * ) ARTICLE IX Maintenance Costs 2 Lessee to be responsible for equipment maintenance and repair costs in accordance with Section 6 of the GTA. Mandatory Change Costs - ---------------------- Notwithstanding the terms of Section 6(e) of the GTA, Mandatory Change costs with respect to the Equipment shall be shared as follows: Lessee shall be responsible for the first * of the cost of a Mandatory Change required to be made during the Base Lease Term and which Mandatory Change is completed during the Base Term or within ninety (90) days thereafter. Mandatory Change costs in excess of * shall be shared by Lessor and Lessee depending on the year of Mandatory Change completion on the following basis: Base Term Lessor/Lessee Year Cost Sharing ---- ------------ * * Airworthiness Directives required to be completed, based on hours and cycles, and due after the lease termination date, will be calculated on the previous six (6) months' average of hours and cycles. ARTICLE X Renewal Options Provided Lessor and Lessee first agree as to the rental to apply for the applicable Renewal Term, upon 180 days prior written notice, and provided no Event of Default has occurred and is continuing under the Lease, Lessee may renew the Lease for * . ARTICLE XI Security Deposit As a condition to delivery of the Equipment, Lessee shall pay to Lessor's Lender on the Delivery Date and shall maintain at all times during the Lease Term, as security for this Lease, a security deposit (the "Security Deposit") in the amount of U.S. * . 3 Lessee shall not be entitled to any interest on the Security Deposit. Provided no Event of Default shall have occurred and be continuing, Lessor shall return the Security Deposit to Lessee upon the return of the Equipment to lessor in the condition required by, and otherwise in accordance with all the return provisions of, this Lease. Lessor shall not be required to apply the Security Deposit to cure any Event of Default under this Lease. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. TERANDON LEASING FRONTIER AIRLINES, INC. CORPORATION By: __________________ By: _____________________________ Name: Lynn Mailliard Name: _____________________________ Title: Corporate Secretary Title: _____________________________ 4 EXHIBIT B to GENERAL TERMS ENGINE LEASE AGREEMENT Equipment Delivery Receipt FROM: FRONTIER AIRLINES, INC. TO: TERANDON LEASING CORPORATION The undersigned hereby acknowledges that on this ____ day of ________, 1996, Terandon Leasing Corporation ("Lessor") delivered to Frontier Airlines, Inc. ("Lessee") that certain CFM56-3B2 Engine, Manufacturer's Serial No. 721397 (the "Engine"), and Engine Stand, Manufacturer's Serial No. AA1 (the "Engine Stand"), QEC unit consisting of all the components set forth in Appendix A hereto, and all Engine records in Lessor's possession requested by Lessee, including a copy of the disk profile attached as Appendix B hereto, at _____________________________________. The undersigned further acknowledges receipt and acceptance of the Engine, Engine Stand, QEC unit and all such records and compliance thereof with all the terms and conditions of that certain Aircraft Engine Lease Agreement dated as of August _______, 1996, between Lessee and Lessor. Signed this ______ day of August, 1996 at _______________________. FRONTIER AIRLINES, INC. By: ------------------------------ Name: ------------------------------ Title: ------------------------------ B-1 COUNTERPART NO. ____ OF ____SERIALLY NUMBERED, MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER UNDER THE UCC, NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1. Aircraft Engine Lease Agreement ------------------------------- This Aircraft Engine Lease Agreement ("Lease") made and entered into as of August ____, 1996 by and between TERANDON LEASING CORPORATION ("Lessor") and FRONTIER AIRLINES, INC. ("Lessee"). W I T N E S S E T H : ARTICLE I Agreement to Lease Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the Equipment described in ARTICLE IV herein, subject to the terms and provisions of this Lease. This Lease is entered into pursuant to, and by this reference incorporates all the terms and conditions of, the General Terms Engine Lease Agreement dated as of August 15, 1996 (the "GTA") between Lessor and Lessee. Capitalized terms used but not defined herein shall have the respective meanings given such terms in the GTA. ARTICLE II Lease Term The term of this Lease will be sixty (60) months, commencing August ________, 1996 (the "Delivery Date"), and ending on August ________, 2001 ("Base Lease Term") subject to the Renewal Options set forth in Section X hereof. ARTICLE III Delivery/Redelivery Locations The Equipment will be delivered to Lessee FOB Denver, Colorado and upon termination of the Lease, the Equipment will be redelivered to Lessor FOB a location in the Continental United States selected by Lessor. ARTICLE IV Equipment
Engine Engine Engine Total Time Total Cycles Engine Stand Make Model Serial No. Since New Since New Serial No. CFM 56-3B2 721397 13,104 7,922 AA1
Equipment includes, together with the Engine and Engine Stand listed above, (i) a QEC unit consisting of all components set forth in Appendix A hereto, (ii) all Engine parts and attachments, and (iii) all Engine records in the possession of Lessor requested by Lessee and all Engine records generated by Lessee during the Lease Term. The Engine described above is rated in excess of 750 horsepower. ARTICLE V Agreed Value of Equipment: $3,500,000.00 ARTICLE VI Lease Payments:
Transaction Monthly Fee Rent Use Fee --- ---- ------- $5,000.00 $35,000.00 $85.00 per hour at a 2:1 hour:cycle ratio
ARTICLE VII Estimated Daily Flight Hours: 10 ARTICLE VIII Payments Due On Delivery:
Security Advance Prorated Transaction Advance Total Deposit Monthly Rent Rent Fee Use Fee Payment - ------- ------------ ---- ----- ------- ------- $105,000.00 $35,000.00 $2,333.00 $5,000.00 $25,000.00 $172,333.00*
(* Less $50,000.00 deposit already received - total due at delivery is $122,333.00) ARTICLE IX Maintenance Costs 2 Lessee to be responsible for equipment maintenance and repair costs in accordance with Section 6 of the GTA. Mandatory Change Costs - ---------------------- Notwithstanding the terms of Section 6(e) of the GTA, Mandatory Change costs with respect to the Equipment shall be shared as follows: Lessee shall be responsible for the first $50,000 of the cost of a Mandatory Change required to be made during the Base Lease Term and which Mandatory Change is completed during the Base Term or within ninety (90) days thereafter. Mandatory Change costs in excess of $50,000 shall be shared by Lessor and Lessee depending on the year of Mandatory Change completion on the following basis:
Base Term Lessor/Lessee Year Cost Sharing ---- ------------ 1 50/50 2 50/50 3 50/50 4 50/50 5 and 90 days 50/50 thereafter
Airworthiness Directives required to be completed, based on hours and cycles, and due after the lease termination date, will be calculated on the previous six (6) months' average of hours and cycles. ARTICLE X Renewal Options Provided Lessor and Lessee first agree as to the rental to apply for the applicable Renewal Term, upon 180 days prior written notice, and provided no Event of Default has occurred and is continuing under the Lease, Lessee may renew the Lease for two (2) consecutive periods of two (2) years each (each a "Renewal Term") on the same terms and conditions otherwise set forth in the Lease. ARTICLE XI Security Deposit As a condition to delivery of the Equipment, Lessee shall pay to Lessor's Lender on the Delivery Date and shall maintain at all times during the Lease Term, as security for this Lease, a security deposit (the "Security Deposit") in the amount of U.S. $105,000.00. Lessee shall not be entitled to any interest on the Security Deposit. Provided no Event of Default shall have occurred and be continuing, Lessor shall return the Security Deposit to Lessee upon the return of the Equipment to lessor in the condition required by, and otherwise in accordance with 3 all the return provisions of, this Lease. Lessor shall not be required to apply the Security Deposit to cure any Event of Default under this Lease. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. TERANDON LEASING FRONTIER AIRLINES, INC. CORPORATION By: By: -------------------------- ---------------------------- Name: Lynn Mailliard Name: ---------------------------- Title: Corporate Secretary Title: ---------------------------- 4 EX-10.25 18 LEASE AGREEMENT DATED 12-11-95 EXHIBIT 10.25 CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED "*" AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC. AGREEMENT BETWEEN AIRCRAFT INSTRUMENT & RADIO CO., INC. AND FRONTIER AIRLINES INC. IN RESPECT OF THE LEASE OF AIRCRAFT TECHNICAL SPARES December 11, 1995 AIRCRAFT COMPONENT LEASE AGREEMENT made this 11th day of December, 1995 Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. between AIRCRAFT INSTRUMENT & RADIO CO., INC. (the "Lessor") of 1853 s. Eisenhower Ct., Wichita, Kansas U.S.A. and FRONTIER AIRLINES INC. (the "Lessee") at 12015 E. 46TH Avenue, Denver, Colorado U.S.A. WHEREAS the Lessor agrees to lease the aircraft technical spares as specified in Appendix A hereof (hereinafter referred to as "Spares") to the Lessee and the Lessee agrees to avail of and pay for the Spares on the terms and conditions hereinafter contained. IT IS HEREBY AGREED AS FOLLOWS: 1 NATURE OF THE LEASE ------------------- 1.1 The Lessor will lease the Spares to the Lessee. The Lessor will deliver the Spares to the Lessee FOB the Lessor's facility at 1853 S. Eisenhower Court, Wichita, KS, U.S.A. The Spares will be tagged "new", "serviceable" or "overhauled condition", indicating their condition, upon delivery to the Lessee. 2. OBLIGATIONS OF THE LESSEE ------------------------- In addition to the obligations elsewhere contained in this Agreement the Lessee will: 2.1 Provide or arrange for, at its own cost and expense, suitable storage accommodation for the Spares. 2.2 Give access to the Lessor, and its representatives, from time to time, for the purpose of auditing and inspecting the Spares. Date and times of such audits to be agreed between the parties. 2.3 Upon termination of the lease of the Spares, such Spares will be returned immediately to the Lessor's facility at 1853 S. Eisenhower Ct., Wichita, Kansas, U.S.A., at the expense of the Lessee. 3. CHARGES AND PAYMENTS -------------------- Aircraft Instrument & Radio Co., Inc. Aircraft Component lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS DOCUMENT MARKED WITH "*" AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC. 3.1 The Lessor will charge USD * per month (2.2% of total spares value), for the spares listed in Appendix A. 3.2 The Lessee will pay the Lessor one (1) months payment of USD * in advance, followed by fifty-nine (59) equal monthly payments of USD *. Payments will be made by standing order. 3.3 Late payments by the Lessee shall be subject to a late fee at the rate of 2% per day, of the total monthly lease amount. 3.4 Upon termination of the Lease of the Spares, Lessee will be responsible and charged for any recertification repair costs, to return them to Lessor in the same, or better condition as indicated in Appendix A, with matching vendor tags. 3.5 The Lessee shall pay all costs, charges, fees, and expenses in connection with the use, possession and operation of the spares, including maintenance, insurance, state and local taxes (except for taxes based on the net income of the Lessor), and risk of loss or other casualty. 4. FORCE MAJEURE ------------- 4.1 Neither party will be liable to the other party for failure to meet its obligations hereunder due to acts of God or the public enemy, civil wars, insurrections or riots, floods, explosions, earthquakes or serious accidents, epidemics or quarantine restrictions, any act of government, governmental priorities, allocation regulations or orders affecting material, facilities or completed aircraft, strikes, labor troubles causing cessation, slow-down or interruption of work, inability after due and timely diligence to procure materials accessories, equipment or parts or to obtain any necessary governmental permission or approval or any other cause to the extent it is beyond the reasonable control of either party. Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. 5. REPRESENTATIONS AND WARRANTIES OF THE LESSOR -------------------------------------------- 5.1 The Lessor warrants it holds title to the Spares and Spares are free of all liens, charges, claims and encumbrances of any kind whatsoever. 5.2 The Spares will be tagged "new". serviceable" or "overhaul condition", indicating their condition, upon delivery to Lessee. 6. INDEMNITIES AND LIABILITIES --------------------------- 6.1 The Lessee will not be liable for any loss of or damage to property, including the Spares, caused by the negligence and/or willful misconduct of the Lessor. 6.2 The Lessee holds the Lessor harmless from any and all claims, demands, suits, judgments or causes of action including costs and expenses incident thereto for or an account of injury to or death of the Lessee's personnel arising directly out of the performance of this Agreement unless caused by the negligence and/or willful misconduct of the Lessor. 7. INSURANCE --------- 7.1 The Lessee shall at its expense, maintain in force, or cause to be maintained in force, with reputable and substantial insurers All Risks insurance in respect of the leased spares in an amount not less than $2,000,000.USD. 7.2 The Lessee shall provide Lessor with a copy of the applicable Certificate of Insurance showing Aircraft Instrument & Radio Co., Inc., as additional Loss Payee. Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. 8. LEASE TERM AND RENEWAL ---------------------- 8.1 The effective date of this Agreement is the 11th day of December, 1995, and unless otherwise terminated as provided herein (Default), will continue in full force and effect for a minimum period of five years. 8.2 Lessee may extend the term of Agreement with respect to spares for two (2) consecutive one (1), or two (2) year terms. Lessee shall give Lessor 120 days written notice of Lessee's intent to renew the Agreement prior to the expiration of the original Agreement term, or renew al terms, as appropriate. The monthly rental for each renewal term shall be at fair market value. 8.3 Upon termination of Agreement, Lessee shall have the option to purchase the spares listed in Appendix "A" of this Agreement at 50% of the spares fair market value. 9. DEFAULT ------- 9.1 The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: 9.1.1 Lessee fails to pay monthly rent or other charges when due; 9.1.2 Lessee fails to comply with any other material term, condition or provision of this Agreement and fails to cure such non- compliance within five (5) days of the receipt of such non- compliance from Lessor; 9.1.3 Lessee becomes insolvent or ceases to do business as a going concern; 9.1.4 Lessee makes an assignment for the benefit of creditors or a petition for bankruptcy, reorganization, or receivership is filed by or against Lessee; or, 9.1.5 Lessor has grounds for insecurity with respect to the performance by Lessee of its obligations under this Agreement and Lessee fails, after a demand for adequate assurances from Lessor, to provide such assurance within ten (10) days after the date of Lessor's demand therefor. Aircraft Instruments & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. 9.6 Upon the occurrence of an "Event of Default", in addition to any rights Lessor may have to collect damages at law or equity, Lessor shall have the right to: 9.2.1 terminate this lease without affecting rent monies, or other charges due under this Agreement; 9.2.2 take possession of the leased spares, wherever located, without demand or notice and without any court order or other judicial process or law; and, 9.2.3 take whatever other action or pursue any other remedy Lessor is permitted under applicable law. 10. ASSIGNMENT AND LAW ------------------ 10.1 This Agreement will inure to the benefit of and will be binding upon each of the parties hereto. It may not be assigned wholly or in part by either party without the prior written consent of the other party. 10.2 Irrespective of where executed, this Agreement will be governed and construed in accordance with the laws of the State of Kansas, U.S.A., without regard to its conflict of laws rules. Lessee hereby voluntarily submits itself to the non-exclusive jurisdiction of the state and federal courts situated in Sedgwick County, Kansas for any dispute arising hereunder. 10.3 The Lessee shall conform to all applicable Federal, State, County and Municipal laws, ordinances, codes, priority requirements, and rules and regulations with respect to performance under this lease agreement. 10.4 The Lessor shall be permitted to file one (1) or more UCC-1 financing statements as he deems appropriate, or necessary in order to secure his interest in the leased spares in accordance with the Uniform Commercial Code. Lessee agrees to cooperate with Lessor in this regard by, among other things, signing any UCC-1 financing statement(s) that Lessor decides to file. Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. 11. NOTICES AND REQUESTS -------------------- 11.1 All notices and requests in connection with this Agreement will be given in English and in writing and save as otherwise provided herein may be given by registered mail, SITA or facsimile and addressed as follows: FRONTIER AIRLINES INC. 12015 E. 46th Avenue SITA: HDQF9RP Denver, Colorado U.S.A. Fax: 303.371.7007 AIRCRAFT INSTRUMENT & RADIO CO., INC. 1853 S Eisenhower Ct. Telex: 417497 Wichita SITA: ICTIRXD Kansas Fax: 316.945.8014 U.S.A. or to such other address as the party to receive the notice or request will designate by notice to the other. 11.2 All notices given by registered mail will be deemed to be received on the expiration of seventy two hours after the posting of such letter containing the same. All notices given in the other ways herein before provided will be deemed to be received simultaneously upon completion of transmission. 12. MISCELLANEOUS ------------- 12.1 PURCHASE OF ADDITIONAL ROTABLE 737-300 SPARES: At pre-determined --------------------------------------------- intervals, any rotable 737-300 spares purchased by Lessor to the Lessee at fair market value, can become subject to the lease Agreement (by a sale/leaseback amendment), subject to verification of condition, paperwork, etc. Required spares other than 737-300 may also be added, subject to Lessor approval. 12.2 CONFIDENTIALITY: The terms of this Agreement will be treated --------------- confidentially by Lessee and not disclosed to any third party without Lessor's consent. Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. 12.3 ATTORNEY'S FEES: Lessor shall be entitled to recover from Lessee, and --------------- Lessee agrees to pay, all costs of suit and attorney's fees incurred by Lessor in the event that Lessor initiates an action, by way of claim or counterclaim, for the collection of payments due Lessor from Lessee under this Agreement, or for repossession of leased spares. Signed on behalf of: Signed on behalf of: AIRCRAFT INSTRUMENT FRONTIER AIRLINES INC. & RADIO CO., INC. By:____________________________ By:_____________________________ MARTIN POTASH ________________________________ President Printed Name Title:__________________________ Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement - Addendum / Appendix "A" Prepared for Frontier Airlines Inc. APPENDIX "A" AGREEMENT/LEASE COMPONENT LISTING SPARES TOTAL VALUE: $ 1,600,000.USD MONTHLY LEASE RATE: 2.2%
QTY PART NUMBER DESCRIPTION CONDITION OUTRIGHT PRICE EA. - ----- ------------- ----------- --------- ------------------ 2 10-631045-1 EXCITER OHC $ * 1 10031-0000-01 INDICATOR SERV $ * 1 107492-2 REGULATOR OHC $ * 1 124-837 INDICATOR OHC $ * 1 162BL804A INDICATOR OHC $ * 1 168925-05-01 FMC OEM SERV $ * 2 172625-6 VALVE OHC $ * 1 182936 OXY PRES OHC $ * 1 1FA14012-6 ACTUATOR OHC $ * 1 20-035008-300 MODULE OHC $ * 1 20041-0000-03 OIL QTY OHC $ * 1 20043-0000-01 XMTR OHC $ * 1 2061-14-1 INDICATOR OHC $ * 1 2083-11-1 MACH ASI OHC $ * 1 2-792-02 BATTERY OHC $ * 1 2120-54-1 INDICATOR OHC $ * 1 315A1803-2 ACTUATOR OHC $ *
Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. APPENDIX "A" - AGREEMENT/LEASE COMPONENT LISTING CONT.
QTY PART NUMBER DESCRIPTION CONDITION OUTRIGHT PRICE EA. - ----- --------------- ----------- --------- ------------------ 1 3214552-5 VALVE OHC $ * 1 3289562-4 VALVE OHC $ * 1 3289630-2 VALVE OHC $ * 2 3505716-5 STARTER NEW $ * 1 371380 PUMP OHC $ * 1 3810056-106 MODULE OEM SERV $ * 4 40176-7 BATTERY OHC $ * 1 4051600-914 FCC OEM SERV $ * 1 418-20044 XMTR OHC $ * 1 522782 INDICATOR OHC $ * 1 568-1-26713-005 PUMP OHC $ * 1 569670 MOTOR OHC $ * 1 607400-1-1 SELECTOR OHC $ * 1 65-44760-15 ACTUATOR OHC $ * 1 65-52807-39 ACCY UNIT OHC $ * 1 65-52813-16 ACCY UNIT OHC $ * 1 65-52818-9 MODULE OHC $ * 1 65C25465-15 COMPUTER OHC $ * 1 6672M201 MONITOR OHC $ * 1 69-37346-146 MODULE OHC $ * 1 708600-2 PUMP OHC $ * 1 735511B CSD OEM SERV $ * 1 755SUE2-3 ATC OEM SERV $ *
Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "A" Prepared for Frontier Airlines Inc. APPENDIX "A" - AGREEMENT/LEASE COMPONENT LISTING CONT.
QTY PART NUMBER DESCRIPTION CONDITION OUTRIGHT PRICE EA. - --- ------------ ----------- --------- ------------------ 1 772-5005-009 ADI OHC $ * 1 803162-03 COUPLING OHC $ * 1 8063-200 MEC OEM SERV $ * 1 8TJ124GGM1 XMTR OHC $ * 1 965-0648-005 GPWS OEM SERV $ * 1 976J498-2 GENERATOR OHC $ * 1 AR6460M2 SERVO OHC $ * 1 D31354-433 SLIDE OHC $ * 1 D31591-462 SLIDE OHC $ * 1 DG1035AB03 ADAPTOR OEM SERV $ * 2 G1248B1 ANNUN OHC $ * 1 H321AKM1 HORIZON OHC $ * 1 HG1050AD05 IRU OEM SERV $ * 1 SEL0C4W INDICATOR OHC $ * 1 SRDL6D INDICATOR OHC $ * 1 SRL0C7EM INDICATOR OHC $ * 1 UA538551-2 COOLER OHC $ * 1 WL101EED3 INDICATOR OEM SERV $ * 1 WL201EED2 INDICATOR OEM SERV $ * 1 WL202EED3 INDICATOR OEM SERV $ *
Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "B" Prepared for Frontier Airlines Inc ADDENDUM TO LEASE OF AIRCRAFT TECHNICAL SPARES AGREEMENT The following shall constitute as amendment to the Lease of Aircraft Technical Spares Agreement between the two parties. To the extent the term(s) of this addendum conflict with the term(s) of the Lease of Aircraft Technical Spares Agreement, the term(s) of this addendum shall control and the Lease of Aircraft Technical Spares Agreement is modified hereby. This addendum is effective upon approval provided by signature of both parties below. APPENDIX "B" AGREEMENT/LEASE COMPONENT LISTING Monthly Lease Rate: 2.2%
PART NUMBER SERIAL NUMBER DESCRIPTION COND OUTRIGHT PRICE / EA 10037-1000-0153 1221 INDICATOR F/N * 10033-0000-02 B0557 INDICATOR N/S * G4239 137 VHF COMM SERV * 30-0906-105 3765 LT WINGTIP STRB LT OHC * 30-0906-104 4451 RT WINGTIP STRB LT OHC * 30-0906-104 4552 RT WINGTIP STRB LT OHC * 2067631-5153 7107 RALT XCEIVER OHC * 3605812-17 261-8050C STARTER OHC * SRDL0C7E 579 INDICATOR OHC * 622-9353-221 794 INDICATOR OHC * 69-37313-78 D01371 PANEL NEW * 69-37331-48 D01114 MODULE NEW * 69-37321-52 D00841 MODULE N/S * 65-52818-5 M00092 COMPUTER SERV * G6560-03 795 AUDIO OHC * 2588809-902 03770842 CONTROL PANEL OHC * 27660-08 1842 REGULATOR OHC * 69-37335-88 D00920 MODULE N/S * 166891-01-01 0001023 FMC-CNTL DISP UNIT SERV * C5C 17260 STANDBY COMPASS SERV * 622-1181-008 6326 VHF TRANSCEIVER OHC * 18-1738-9 0463 FLAP POS XMTR OHC * CG1135AC01 674 CNTL DISPLAY UNIT SERV * 2041217-0416 5652 WXR R/T (TURB) SERV * 10037-1000-0155 717 INDICATOR OHC * 622-5132-106 2606 RECEIVER XMTR OHC *
Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement-Addendum/Appendix "B" Prepared for Frontier Airlines Inc.
PART NUMBER SERIAL NUMBER DESCRIPTION COND OUTRIGHT PRICE / EA 2013-1A 54720 BATTERY PACK ASSY SERV * 2012-1 29046 BATTERY CHGR ASSY SERV * 83000-05603 0156 MODULE F/N * 42-719-02 0995 CONTROL BOX SERV * 39B168-1C 339 INVERTER OHC * 622-2921-006 14754 DME TRANSCEIVER OHC * 622-3257-001 6868 VOR/ILS/NAV RCVR OHC * 30-0909-201 0794 TAIL STROBE LIGHT OHC * 831SG250-20R 28888 OXY PRESS XDUCER F/N * 65-44761-21 8086A AILRN/ELEV PWR UN OHC * 57186-10 145624 AC MTR DRVR PUMP OHC * 5034-1 313 AUDIO SELECT PNL SERV * 5039-1 150 AUDIO SELECT PNL SERV * 622-5135-002 1462 ANTENNA MT DRIVE OHC * 622-5137-001 2141 ANT-WEATHER RADR SERV * 2041234-3422 3155 VHF NAV RECEIVER SERV * 10037-1000-0155 720 INDICATOR OHC * 071-50001-8102 X20191 TCAS ANTENNA SERV * 69-37320-105 D02162 MODULE NEW * 3214446-4 2854C HIGH STAGE VALVE OHC * 4030952-906 88072835 YAW DAMPER CPLR OHC * 30-0909-201 1709RU TAIL STROBE LIGHT OHC * 706400-4 13906 VSV MOTOR N/S * HS140-3 005689 PWR LVR ANGL MTR F/N *
Signed on behalf of: Signed on behalf of: AIRCRAFT INSTRUMENT & RADIO CO., INC. FRONTIER AIRLINES INC. BY: ____________________________ BY: _____________________________ MARTIN POTASH PRESIDENT _________________________________ Printed Name DATE: __________________________ _________________________________ Title DATE: ___________________________ Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement - Addendum / Appendix "C" Prepared for Frontier Airlines Inc. ADDENDUM TO LEASE OF AIRCRAFT TECHNICAL SPARES AGREEMENT The following shall constitute as amendment to the Lease of Aircraft Technical Spares Agreement between the two parties. To the extent the term(s) of this addendum conflict with the term(s) of the Lease of Aircraft Technical Spares Agreement, the term(s) of this addendum shall control and the Lease of Aircraft Technical Spares Agreement is modified hereby. This addendum is effective upon approval provided by signature of both parties below. APPENDIX "C" AGREEMENT/LEASE COMPONENT LISTING
Monthly Lease Rate: 2.2% PART NUMBER SERIAL NUMBER DESCRIPTION COND OUTRIGHT PRICE / EA G2610A 186 Annun, Nav Warn OHC * HG480B42 G1164 Air Data Computer OHC * 4019700-907 85120863 Attitude Director Ind SERV * 65-52817-9 D00908 AP Accessory Unit N/S * 4051601-938 90051303 Mode Control Panel SERV * R1053M18-2 851108 Mechanical Limiter OHC * 65-52804-217 M01291 Audio Unit SERV * 980-4100 DXUS 5315 Flight Data Recorder OHC * 8901-274 WYG39316 Cmpt Inlet Temp Sns SERV * 2070484-5103 1094 Ralt Ind OHC * 2228401-2 011 Unit SERV * RMC1018-1 13935 Regulator Assy N/S *
Signed on behalf of: Signed on behalf of: AIRCRAFT INSTRUMENT & RADIO CO., INC. FRONTIER AIRLINES INC. BY: ____________________________ BY: _____________________________ MARTIN POTASH PRESIDENT _________________________________ Printed Name DATE: __________________________ _________________________________ Title DATE: ___________________________ Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement - Addendum / Appendix "D" Prepared for Frontier Airlines Inc. ADDENDUM TO LEASE OF AIRCRAFT TECHNICAL SPARES AGREEMENT The following shall constitute as amendment to the Lease of Aircraft Technical Spares Agreement between the two parties. To the extent the term(s) of this addendum conflict with the term(s) of the Lease of Aircraft Technical Spares Agreement, the term(s) of this addendum shall control and the Lease of Aircraft Technical Spares Agreement is modified hereby. This addendum is effective upon approval provided by signature of both parties below. APPENDIX "D" - REVISION 1* AGREEMENT/LEASE COMPONENT LISTING
Monthly Lease Rate: 2.2% PART NUMBER SERIAL NUMBER DESCRIPTION COND OUTRIGHT PRICE / EA 65C37030-1 NSN Mechanism NEW * 65-52819-23 D01036 Computer SERV * A42899-10-115 K1303A Servo Pneu OHC * Altimeter 2588810-903 10801229 Channel Pitch SERV * Control HG480B13 H1618 Digtl Air Data OHC * Computer 384300 5911 Fuel Pump OHC * 745608 U2MR9500571 Heater Assembly OHC * 383152-19-1 23986 Starter OHC * 383152-19-1 19897 Starter OHC * NA134D2 EL3066 Selcal Decoder OHC * 65-44931-11 0003AL Valve Assembly N/S * 522-4538-002 1146 Passenger OHC * address 2067635-5114 2017 Altitude OHC * Indicator 9550604L DEC68-773E Anti-Skid Valve OHC * 42-651-01 392 Anti-Skid Unit OHC * 2587335-12 5120492 Vertical Gyro OHC * EA1065A2406 1904M Transmitter SERV * 4034559-901 83060696 Distance OHC * Bearing Ind 3117L-B-2-1-P 5983 Radio Magnetic OHC * Inc 65-52808-7 D00046 Overhead OHC * Module Comp 69-37319-86 D02604 Module AC N/S * 2070-03-1 640 Servoed Vert OHC * Speed Ind *65-51602-8 SWA104 Control OHC * 393080-117 M370 Total Fuel Qty OHC * Ind 777-1397-004 4H6052 Horizontal OHC * Situation Ind
Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement Addendum-Appendix "D" Prepared for Frontier Airlines Inc.
PART NUMBER SERIAL NUMBER DESCRIPTION COND OUTRIGHT PRICE / EA 2588812-902 04801213 Roll Channel OHC * Control 10-353875-4 090304 Ignition OHC * Exciter 10-353875-4 089076 Ignition OHC * Exciter 39-353 364 Anti-Skid OHC * Control Valve 69-37307-112 D01739 Unit N/S * 56019-003 1075-06AA Stab Trim Servo OHC * 56019-003 069-09AA Stab Trim Servo OHC * 39-353 7989 Anti-Skid OHC * Control Value 40-817 0011 Anti-Skid OHC * Transducer 40-817 11782 Anti-Skid NEW * Transducer EA1065A-2406 1906M Water Qty N/S * Transmitter EA1093A-3544 22947-66 Tank Unit OHC * Assembly 772-5005-005 7C2688 Attitude OHC * Director Ind 772-5005-005 7G2756 Attitude OHC * Director Ind 11611-142 121-6 Slide OHC * D31355-440 * D31354-438 * 21520-1 1249 Fan OHC * 65-52811-109 D00475 Unit Assembly OHC * 18-1739-2 089B Transmitter OHC * 18-1738-1 0627B Flap Postn OHC * Transmitter MI585161 2219 Receiver/ SERV * Transmitter MI585162-2 2610 Digital OHC * Indicator 2041234-3401 4987 VHF Nav NEW * Receiver JG865C3 Y-4/1 Electric OHC * Altimeter Ind 8047-20 9081 Altimeter SERV * 777-1493-004 4129 Single ADF OHC * Control 2CM9ABY7 N0456 Tach Generator OHC * JG1052AC03 S-18 Altitude OHC * Alerter 2588810-903 9801215 Channel Pitch SERV * Control 69-37317-29 M00811 Mod OHC * G4026 * G2584 357 Audio SERV * 69-37307-112 D00145 Engine & APU OHC * Fire Ctrl 8DJ81WAG4U S4137 Tachometer OHC * *8DJ81WAG4U S2395 N1 Tach Ind OHC * 8DJ81LYV4 R4872 Tachometer Ind OHC * G4804 75 NAV/DME VHF OHC * gray 5v.w 787-6211-003 4158 ATC Transponder OHC * 066-1019-23 20782 DME Transceiver OHC * 066-50001-1001 2215 TA/IVSI SERV *
Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement Addendum-Appendix "D" Prepared for Frontier Airlines Inc.
PART NUMBER SERIAL NUMBER DESCRIPTION COND OUTRIGHT PRICE / EA 071-01480-0017 1263 Control Panel SERV * 393026-047 M298 Indicator OHC * 8TJ50GCA3 S-0282P Fuel Flow OHC * Transmitter 8TJ95GAB3 P0037 Power Supply OHC * 65-52805-315 * 39B168-1-B 1836 Static Inverter SERV * 65-52810-25 D00175 Unit Assembly OHC * 65-73606-29 M00676 Engine OHC * Accessory Unit 65-52806-110 M00498 Solid State OHC * Module *65-52807-26 M00712 Unit Assembly OHC * 65-52809-15 D00004 Unit Assembly OHC * 2067631-5115 5337 Radio Altimeter OHC * 65-52804-79 M00688 Unit OHC * NA134D2 255AD00059 Selcal Decoder OHC * 255-5 859 Passenger OHC * Address Amp 522-3949-001 1738 Warning Monitor OHC * 2591201-922 91048010 Compass Coupler OHC * 777-1397-004 2L5388 Horizonal OHC * Situation Ind 42-651 183 U/T Assembly SERV * Anti-Skid EA10934-3679 872 Tank Unit OHC * Assembly MI585164-1 1293 Antenna OHC * Pedestal *763810-2 GJ4053 Cabin Press OHC * Control 69-55179-23 M00303 Annun & Dimg OHC * Module
Signed on behalf of: Signed on behalf of: AIRCRAFT INSTRUMENT & RADIO CO., INC. FRONTIER AIRLINES INC. BY: ____________________________ BY: /s/ Samuel D. Addoms MARTIN POTASH _____________________________ PRESIDENT _________________________________ Printed Name DATE: __________________________ _________________________________ Title DATE: Nov. 18, 1996 ___________________________ Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement - Addendum / Appendix "E" Prepared for Frontier Airlines Inc. ADDENDUM TO LEASE OF AIRCRAFT TECHNICAL SPARES AGREEMENT The following shall constitute as amendment to the Lease of Aircraft Technical Spares Agreement between the two parties. To the extent the term(s) of this addendum conflict with the term(s) of the Lease of Aircraft Technical Spares Agreement, the term(s) of this addendum shall control and the Lease of Aircraft Technical Spares Agreement is modified hereby. This addendum is effective upon approval provided by signature of both parties below. APPENDIX "E" - REVISION 1* AGREEMENT/LEASE COMPONENT LISTING
Monthly Lease Rate: 2.2% PART NUMBER SERIAL NUMBER DESCRIPTION COND OUTRIGHT PRICE / EA 2083-08-1 896 Mach Airspeed Ind OHC * 2070945-4301 1007 VHF Comm OHC * 777-1492-004 6692 ADF Receiver OHC * 157771-01-01 * 15625 3888 Trip & Date Endocer N/S * GM5341-6 1656 Transducer N/S * 711003-3 840670 Cabin Outflow Vlv As OHC * 711002-5 80C5489 Panel, Control PR OHC * SRLOC4N 7657 Oil Pressure Ind OHC * 171019-13 2087 Valve SERV * 65075-06 223517A Pump Assembly OHC * 705-7V4 7088 Horizon Gyro OHC * 965-0876-030-B05-B08 * A100-80 54960 Cockpit Voice Recorder OHC * 93-A152-00 1664 Control OHC * 2067631-0506 5295 Radio Altimeter OHC * 9561006-3R MAR67-10 Skid Control Unit OHC * 75-0149-11 * *45080-1 65783 Shut-Off Valve NEW * *162BL901 A602 Indicator OHC * 102AH2AG 35689 Probe SERV * *WL113AMAJA5 * *69-37320-104 D01413 Eng-wing tat module OHC * *393026-047 M796C Indicator OHC * *65-52807-12 M00048 Flap Acc Unit OHC *
Aircraft Instrument & Radio Co., Inc. Aircraft Component Lease Agreement Addendum-Appendix "E" Prepared for Frontier Airlines Inc. *R1053M17-2 880402 Actuator N/S * *393026-047 M373C Indicator OHC *
Signed on behalf of: Signed on behalf of: AIRCRAFT INSTRUMENT & RADIO CO., INC. FRONTIER AIRLINES INC. BY: ____________________________ BY: _____________________________ MARTIN POTASH PRESIDENT _________________________________ Printed Name DATE: _____________________________ _________________________________ Title DATE: ___________________________ EX-10.26 19 AGREEMENT AND PLAN OF MERGER Exhibit 10.26 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER is dated as of June 30, 1997 (the "Agreement") by and between Western Pacific Airlines, Inc., a Delaware - ---------- corporation ("West Pac"), and Frontier Airlines, Inc., a Colorado corporation -------- ("Frontier"). - ---------- R E C I T A L S: WHEREAS, the Board of Directors of each of West Pac and Frontier have determined that a business combination between West Pac and Frontier is in the best interests of their respective companies and stockholders and presents an opportunity for their respective companies to achieve long-term strategic and financial benefits, and accordingly have agreed to effect the merger provided for in this Agreement upon the terms and subject to the conditions set forth in this Agreement; and WHEREAS, the respective Boards of Directors of West Pac and Frontier have received the opinions of Lehman Brothers Inc. ("Lehman Brothers") and Smith --------------- Barney Inc. ("Smith Barney"), respectively, that the Exchange Ratio (as defined ------------ in Section 1.4(a)) is fair to their respective stockholders from a financial point of view; and WHEREAS, on the date hereof, the parties hereto have entered into a Code Sharing Agreement (the "Code Sharing Agreement") in the form attached hereto as ---------------------- Exhibit A; and - --------- WHEREAS, it is the intention of the parties to this Agreement that (a) for federal income tax purposes, the merger provided for in this Agreement shall qualify as a "reorganization" within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); and (b) for accounting purposes, ---- the merger provided for in this Agreement shall qualify as a "pooling of interests." NOW, THEREFORE, in consideration of the premises and of the representations, warranties, covenants and agreements set forth in this Agreement, the parties to this Agreement hereby agree as follows: ARTICLE I THE MERGER 1.1. The Merger. Upon the terms and subject to the conditions of this ---------- Agreement, at the Effective Time (as defined in Section 1.3 of this Agreement), Frontier shall be merged with and into West Pac in accordance with the laws of the States of Delaware and Colorado, and the terms of this Agreement (the "Merger"), whereupon (a) the separate corporate existence of Frontier shall - ------- cease, and (b) West Pac shall be the surviving corporation of the Merger (sometimes referred to herein as the "Surviving Corporation"). --------------------- 1.2. Closing. Subject to the terms and conditions of this Agreement, the ------- closing of the Merger (the "Closing") shall take place (a) at the offices of ------- West Pac located at 2864 South Circle Drive, Suite 1100, Colorado Springs, Colorado 80906 at 10:00 a.m. on the second business day after all the conditions set forth in Article VI of this Agreement (other than those that are waived by the party or parties for whose benefit such conditions exist) are satisfied; or (b) at such other place, time, and/or date as the parties to this Agreement may otherwise agree. The date upon which the Closing shall occur is referred to herein as the "Closing Date." ------------ 1.3. Effective Time. If all the conditions to the Merger set forth in -------------- Article VI of this Agreement have been fulfilled or waived and this Agreement shall not have been terminated as provided in Article VII hereof, the parties to this Agreement shall cause certificates of merger to be properly executed and filed in accordance with the laws of the States of Delaware and Colorado and the terms of this Agreement as soon as practicable following the Closing. The parties to this Agreement shall also take such further actions as may be required under the laws of the States of Delaware and Colorado in connection with the consummation of the Merger. The Merger shall become effective at such time as the certificates of merger are duly filed with the Secretaries of State of the States of Delaware and Colorado or at such later time as is specified in the certificates of merger (the "Effective Time"). From and after the Effective -------------- Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of West Pac and Frontier, all as provided under applicable law. 1.4. Conversion of Shares. -------------------- (a) At the Effective Time: (i) each share of Common Stock, par value $0.001 per share ("West Pac Common Stock"), of West Pac outstanding immediately prior to ----------------------- the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, shall remain outstanding and shall represent one share of West Pac Common Stock, as the Surviving Corporation of the Merger; (ii) each share of any class or series of preferred stock of West Pac outstanding immediately prior to the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, shall remain outstanding and shall represent one share of such class or series of preferred stock of the Surviving Corporation; and (iii) each share of Common Stock, no par value per share ("Frontier -------- Common Stock"), of Frontier outstanding immediately prior to the Effective ------------ Time, together with each associated right issued pursuant to the terms of the Rights Agreement (as defined herein), by virtue of the Merger and without any action on the part of the holder thereof, except as otherwise provided in this Section 1.4 or Sections 1.8 or 5.2(b) hereof, shall be converted into the right to receive .75 share of West Pac Common Stock (such ratio being referred to herein as the "Exchange Ratio"). -------------- 2 (b) As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time, all shares of Frontier Common Stock shall cease to be outstanding and shall be canceled and retired and shall cease to exist, and each holder of shares of Frontier Common Stock shall thereafter cease to have any rights with respect to such shares of Frontier Common Stock, except for the right to receive (except as otherwise provided in Section 1.8 hereof), without interest, the West Pac Common Stock and cash for fractional shares of West Pac Common Stock in accordance with Section 1.6 of this Agreement upon the surrender of a certificate (each, a "Certificate") representing such shares of ----------- Frontier Common Stock in accordance with the provisions of this Article I. (c) At the Effective Time, each share of (i) Frontier Common Stock held by Frontier as treasury stock or owned by West Pac or any Subsidiary (as defined in Section 1.4(d) of this Agreement) of West Pac immediately prior to the Effective Time; and (ii) Preferred Stock, no par value per share ("Frontier -------- Preferred Stock"), of Frontier, none of which has been issued, shall be - --------------- canceled, and no payment shall be made with respect thereto. (d) For purposes of this Agreement, (i) the word "Subsidiary" when used ---------- with respect to any Person means any corporation or other organization, whether incorporated or unincorporated, of which (A) at least fifty percent (50%) of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries; or (B) such Person or any other Subsidiary of such Person is a general partner, it being understood that representations and warranties of a Person concerning any former Subsidiary of such Person shall be deemed to relate only to the periods during which such former Subsidiary was a Subsidiary of such Person; and (ii) the word "Person" means an individual, a corporation, a limited ------ liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof, or any affiliate (as that term is defined in the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act")) of any of the foregoing. ------------ 1.5. Stock Options. All options and warrants (individually, a "Frontier ------------- -------- Option" and collectively, the "Frontier Options") outstanding at the Effective - ------ ---------------- Time to purchase securities of Frontier under any stock option plans or agreements adopted by Frontier or otherwise (the "Frontier Stock Option Plans") --------------------------- shall remain outstanding following the Effective Time. At the Effective Time, such Frontier Options, by virtue of the Merger and without any further action on the part of Frontier or the holder of such Frontier Options, shall be assumed by West Pac in such manner that West Pac (a) is a corporation (or a parent or a subsidiary corporation of such corporation) "assuming a stock option in a transaction to which Section 424(a) applied" within the meaning of Section 424 of the Code; or (b) to the extent that Section 424 of the Code does not apply to any such Frontier Options, would be such a corporation (or a parent or a subsidiary corporation of such corporation) were Section 424 applicable to such option. Each Frontier Option assumed by West Pac shall be exercisable upon the same terms and conditions as under 3 the applicable Frontier Stock Option Plan and the applicable option agreement issued thereunder, except that (x) the unexercised portion of each such Frontier Option shall be exercisable for that whole number of shares of West Pac Common Stock (rounded to the nearest whole share, with 0.5 rounded upward) equal to the number of shares of Frontier Common Stock subject to the unexercised portion of such Frontier Option multiplied by the Exchange Ratio; and (y) the option exercise price per share of West Pac Common Stock shall be an amount equal to the option exercise price per share of Frontier Common Stock subject to such Frontier Option in effect at the Effective Time divided by the Exchange Ratio (the option price per share, as so determined, being rounded to the nearest full cent, with $0.005 rounded upward). No payment shall be made for fractional interests. The term, exercisability, vesting schedule, status as an "incentive stock option" under Section 422 of the Code, if applicable, and all of the other terms of the Frontier Options shall otherwise remain unchanged unless modified by or as a result of the transaction contemplated by this Agreement. As soon as practicable after the Effective Time, West Pac shall deliver to the holders of Frontier Options appropriate notices setting forth such holders' rights pursuant to such Company Options, as amended by this Section 1.5, as well as notice of West Pac's assumption of Frontier's obligations with respect thereto (which occurs by virtue of this Agreement). West Pac shall take all corporate actions necessary to reserve for issuance such number of shares of West Pac Common Stock as will be necessary to satisfy exercises in full of all Frontier Options after the Effective Time. Within forty-five (45) days after the Effective Time, West Pac shall register the shares of West Pac Common Stock issuable upon exercise of such Frontier Options with the Securities and Exchange Commission on Form S-8 and, for a period running until the earlier of (i) ten (10) years after the Effective Time; or (ii) the exercise of all of the Frontier Options, shall maintain the effectiveness of such Form S-8 Registration Statement unless the Surviving Corporation is acquired after the Effective Time by any Person that does not have a class of securities registered under the Exchange Act. 1.6. Exchange of Certificates Representing Frontier Common Stock. ----------------------------------------------------------- (a) As of the Effective Time, West Pac shall deposit with an exchange agent selected by West Pac, which shall be West Pac's Transfer Agent or such other party reasonably satisfactory to Frontier (the "Exchange Agent"), for the -------------- benefit of the holders of shares of Frontier Common Stock, for exchange in accordance with this Section 1.6, certificates representing the shares of West Pac Common Stock and the cash in lieu of fractional shares (such cash and certificates for shares of West Pac Common Stock, together with any dividends or distributions with respect thereto (relating to record dates for such dividends or distributions after the Effective Time), being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant to this ------------- Section 1.6 in exchange for outstanding shares of Frontier Common Stock. (b) Promptly after the Effective Time, West Pac shall cause the Exchange Agent to mail to each holder of record of shares of Frontier Common Stock, other than to holders of Frontier Dissenting Shares (as defined herein) (i) a letter of transmittal specifying that delivery shall be effected, and risk of loss and title to such shares of Frontier Common Stock shall pass, only upon delivery of the Certificates representing such shares to the Exchange Agent and which 4 shall be in such form and have such other provisions as are agreed to by West Pac and Frontier; and (ii) instructions for use in effecting the surrender of such Certificates in exchange for certificates representing shares of West Pac Common Stock and cash in lieu of fractional shares. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, the holder of the shares represented by such Certificate shall be entitled to receive in exchange therefor (i) a certificate representing that number of whole shares of West Pac Common Stock; and (ii) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the Certificate surrendered pursuant to the provisions of this Section 1.6, after giving effect to any required withholding tax, and the shares represented by the Certificate so surrendered shall forthwith be canceled. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of shares of Frontier Common Stock. In the event of a transfer of ownership of Frontier Common Stock which is not registered in the transfer records of Frontier, a certificate representing the proper number of shares of West Pac Common Stock, together with a check for the cash to be paid in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, may be issued to such a transferee if the Certificate representing such Frontier Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (c) Notwithstanding anything to the contrary contained herein, no dividends or other distributions declared after the Effective Time on West Pac Common Stock shall be paid with respect to any shares of Frontier Common Stock represented by a Certificate until such Certificate is surrendered for exchange as provided herein. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder of the certificates representing whole shares of West Pac Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of West Pac Common Stock and not paid, less the amount of any withholding taxes which may be required thereon; and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of West Pac Common Stock, less the amount of any withholding taxes which may be required thereon. (d) If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for certificates for shares of West Pac Common Stock and cash in lieu of fractional shares, if any, deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 1.6. Certificates surrendered for exchange by any person constituting an "affiliate" of Frontier for purposes of Rule 145(c) under the Securities Act of 1933, as amended (the "Securities Act"), -------------- shall not be exchanged until West Pac has received a written agreement from such person as provided in Section 5.9. 5 (e) No fractional shares of West Pac Common Stock shall be issued pursuant to this Agreement. In lieu of the issuance of any fractional share of West Pac Common Stock pursuant to Section 1.4(b), cash adjustments will be paid to holders in respect of any fractional share of West Pac Common Stock that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the Average Closing Price of a share of West Pac Common Stock. For purposes hereof, the term "Average Closing Price" --------------------- shall mean the average of the per share daily closing price of West Pac Common Stock as quoted on the Nasdaq National Market System ("Nasdaq") (and as reported ------ by the Wall Street Journal or, if not reported thereby, by another authoritative source) during the ten (10) consecutive trading days ending on the second trading day prior to the Closing Date. (f) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any shares of West Pac Common Stock) that remains unclaimed by the former stockholders of Frontier one year after the Effective Time shall be delivered to the Surviving Corporation. Except for holders of Frontier Dissenting Shares, any former stockholders of Frontier who have not theretofore complied with this Section 1.6 shall thereafter look only to the Surviving Corporation for payment of their shares of West Pac Common Stock, cash in lieu of fractional shares and unpaid dividends and distributions on the West Pac Common Stock deliverable in respect of each share of Frontier Common Stock such stockholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. (g) None of West Pac, Frontier, the Surviving Corporation, the Exchange Agent or any other person shall be liable to any former holder of shares of Frontier Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (h) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate, the shares of West Pac Common Stock and cash in lieu of fractional shares, and unpaid dividends and distributions on shares of West Pac Common Stock as provided in this Section 1.6, deliverable in respect thereof pursuant to this Agreement. 1.7. Adjustment of Exchange Ratio. In the event that, subsequent to the ---------------------------- date of this Agreement but prior to the Effective Time, the outstanding shares of West Pac Common Stock or Frontier Common Stock, respectively, shall have been changed into a different number of shares or a different class as a result of a stock split, reverse stock split, stock dividend, subdivision, reclassification, split, combination, exchange, recapitalization or other similar transaction, the Exchange Ratio shall be appropriately and proportionately adjusted. 6 1.8. Dissenting Shares. Notwithstanding anything to the contrary ----------------- contained in this Agreement, any shares of Frontier Common Stock held by a person who complies with all of the provisions of applicable law concerning the rights of such person to dissent from the Merger and to require appraisal of such person's shares of Frontier Common Stock (the "Frontier Dissenting ------------------- Shares"), shall not be converted into the right to receive shares of West Pac - ------ Common Stock pursuant to Section 1.4 of this Agreement but shall entitle the holder of such Frontier Dissenting Shares to receive such consideration as may be determined to be due to such holder pursuant to applicable law; provided however, that any Frontier Dissenting Shares held by a person at the Effective Time who shall, after the Effective Time, withdraw the demand for appraisal or lose the right to appraisal, in either case pursuant to applicable law, shall be deemed to have been converted, as of the Effective Time, into shares of West Pac Common Stock pursuant to Section 1.4 of this Agreement. 1.9. Taking of Necessary Action; Further Action. If, at any time after ------------------------------------------ the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of Frontier, the officers and directors of Frontier are fully authorized to take, and will take, all such lawful and necessary action, so long as such action is consistent with this Agreement. ARTICLE II CERTAIN MATTERS RELATING TO THE SURVIVING CORPORATION 2.1. Certificate of Incorporation of the Surviving Corporation. The --------------------------------------------------------- Certificate of Incorporation of West Pac in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation until amended in accordance with applicable law. 2.2. By-Laws of the Surviving Corporation. The By-Laws of West Pac in ------------------------------------ effect immediately prior to the Effective Time shall be the By-Laws of the Surviving Corporation until amended in accordance with applicable law. 2.3. Directors of the Surviving Corporation. Except as otherwise -------------------------------------- provided in Section 5.12 hereof, the directors of West Pac at the Effective Time shall be the directors of the Surviving Corporation and shall hold office until their successors are duly appointed or elected in accordance with applicable law. 2.4. Officers of the Surviving Corporation. Except as otherwise provided ------------------------------------- in Section 5.12 hereof, the officers of West Pac at the Effective Time shall be the officers of the Surviving Corporation and shall hold office until their successors are duly appointed or elected in accordance with applicable law. 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF WEST PAC West Pac represents and warrants to Frontier that the statements contained in this Article III are true and correct, except as set forth in the disclosure schedule delivered by West Pac to Frontier concurrently herewith and identified as the "West Pac Disclosure Schedule." All exceptions noted in the West Pac ---------------------------- Disclosure Schedule are numbered to correspond to the applicable Sections to which such exception refers; provided, however, that any disclosure set forth on any particular schedule shall be deemed disclosed in reference to all applicable schedules. 3.1. Existence, Good Standing, Corporate Authority. West Pac is a --------------------------------------------- corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. West Pac is duly licensed or qualified to do business as a foreign corporation and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to be in good standing would not have a material adverse effect on the business, results of operations or financial condition of West Pac (a "West Pac Material Adverse ------------------------- Effect"). West Pac has all requisite corporate power and authority to own, - ------ operate and lease its properties. The copies of West Pac's Restated Certificate of Incorporation and Bylaws previously delivered to Frontier are true and correct. 3.2. Authorization, Validity and Effect of Agreements. Subject only to ------------------------------------------------ the approval of this Agreement and the transactions contemplated hereby by the holders of a majority of the outstanding shares of West Pac Common Stock, West Pac has the requisite corporate power and authority to execute and deliver this Agreement and all agreements and documents to be executed and delivered by West Pac in connection herewith (the "West Pac Ancillary Documents"). Subject only to ---------------------------- the approval of this Agreement and the transactions contemplated hereby by the holders of a majority of the outstanding shares of West Pac Common Stock, the consummation by West Pac of the transactions contemplated hereby has been duly authorized by all requisite corporate action. This Agreement constitutes, and the West Pac Ancillary Documents (when executed and delivered pursuant to this Agreement for value received) will constitute, the valid and legally binding obligations of West Pac, enforceable against West Pac in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity and the approval of this Agreement and the West Pac Ancillary Documents by the stockholders of West Pac. 3.3. Compliance with Laws--General. ----------------------------- (a) West Pac holds all permits, licenses, variances, exemptions, orders and approvals of any court, arbitrator, tribunal, administrative agency or commissioner or other governmental 8 or other regulatory authority or agency ("Governmental Entities") (including, --------------------- but not limited to, those related to occupational health and safety, controlled substances, Environmental Laws (as defined herein), Tax (as defined herein) laws, labor, ERISA (as defined herein), employment and employment practices or EEOC matters) necessary for the lawful conduct of its business (the "Permits"), ------- and is in compliance with such Permits, in each case, except where the failure to hold or comply with such Permits would not have a West Pac Material Adverse Effect. (b) West Pac is in substantial compliance with all laws, ordinances or regulations of all Governmental Entities (including, but not limited to, those related to occupational health and safety, controlled substances or employment and employment practices) that are applicable to West Pac, except for any noncompliance that would not have a West Pac Material Adverse Effect. (c) As of the date of this Agreement, and as of the Closing, no investigation, review, inquiry or proceeding by any Governmental Entity with respect to West Pac is pending, or, to the knowledge of West Pac, threatened that would have a West Pac Material Adverse Effect. (d) West Pac is not subject to any agreement, contract or decree with any Governmental Entities arising out of any current or previously existing violations of any laws, ordinances or regulations applicable to West Pac, including, without limitation, any such agreement, contract or decree entered into with or issued by the U.S. Department of Transportation ("DOT") or the --- Federal Aviation Administration ("FAA") that would have a West Pac Material --- Adverse Effect. 3.4. Capitalization. -------------- (a) The authorized capital stock of West Pac consists of (i) 40,000,000 shares of West Pac Common Stock; (ii) 200,000 shares of Series B Preferred Stock, par value $0.001 per share ("Series B Preferred"); (iii) 10,000 shares of ------------------ Series C Preferred Stock, par value $0.001 per share ("Series C Preferred"); and ------------------ (iii) 2,837,000 shares of Preferred Stock, $0.001 par value per share. As of May 30, 1997, there were 13,527,977 shares of West Pac Common Stock issued and outstanding. As of the date hereof, there were 200,000 shares of Series B Preferred and 10,000 shares of Series C Preferred issued and outstanding. Since May 30, 1997, no additional shares of capital stock of West Pac have been issued, except pursuant to the exercise of options outstanding under West Pac's stock option and employee stock purchase plans (the "West Pac Stock Option --------------------- Plans"). West Pac has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of West Pac on any matter. All issued and outstanding shares of West Pac Common Stock, Series B Preferred and Series C Preferred are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. (b) There are currently no outstanding, and as of the Closing, there will be no outstanding (i) securities convertible into or exchangeable for any capital stock of West Pac, (ii) options, warrants or other rights to purchase or subscribe to capital stock of West Pac or securities 9 convertible into or exchangeable for capital stock of West Pac, or (iii) contracts, commitments, agreements, understandings, arrangements, calls or claims of any kind relating to the issuance of any capital stock of West Pac. 3.5. Subsidiaries; Other Interests. West Pac does not own any ----------------------------- Subsidiaries. Except for interests disclosed on the West Pac Disclosure Schedule, West Pac does not own, directly or indirectly, any interest or investment (whether equity or debt) in any corporation, partnership, limited liability company, joint venture, business, trust or entity ((other than investments in short-term investment securities) and corporate, partnership, development, cooperative marketing and similar undertakings and arrangements entered into in the ordinary course of business and other investments the aggregate market value of which is less than $100,000). 3.6. No Violation. Neither the execution and delivery by West Pac of ------------ this Agreement, nor the consummation by West Pac of the transactions contemplated hereby in accordance with the terms hereof, will (a) conflict with or result in a breach of any provisions of the Restated Certificate of Incorporation or Bylaws of West Pac; (b) result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to, or accelerate vesting under, any of the West Pac Stock Option Plans, or any grant or award made under any of the foregoing; (c) violate, conflict with, result in a breach of any provision of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination, or in a right of termination or cancellation of, accelerate the performance required by, result in the triggering of any payment or other material obligations pursuant to, result in the creation of any lien, security interest, charge or encumbrance upon any of the material properties of West Pac under, or result in being declared void, voidable, or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any material license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which West Pac is a party, or by which West Pac or any of its properties is bound or affected, except for any of the foregoing matters which would not have a West Pac Material Adverse Effect; (d) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to West Pac which would have a West Pac Material Adverse Effect; or (e) other than the filings provided for in Section 1.3, filings under applicable federal, state and local regulatory filings, filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the Exchange Act, the ------- Securities Act, or applicable state securities and "Blue Sky" laws or filings in connection with the maintenance of qualification to do business in other jurisdictions (collectively, the "Regulatory Filings"), require any consent, ------------------ approval or authorization of, or declaration, of or registration with, any domestic governmental or regulatory authority, the failure to obtain or make which would have a West Pac Material Adverse Effect. 3.7. Conduct of Business. The business of West Pac is not being ------------------- conducted in default or violation of any term, condition or provision of (a) its Articles of Incorporation or By-Laws or similar organizational documents; (b) any note, bond, mortgage, indenture, contract, agreement, lease or other instrument or agreement or any kind to which West Pac is now a party or by which 10 West Pac or any of its properties or assets may be bound; (c) any federal, state, local or foreign statute, law, ordinance, rule, regulation or approval applicable to West Pac, except, with respect to the foregoing clauses (b) and (c), defaults or violations that would not have a West Pac Material Adverse Effect. 3.8. Books and Records. West Pac's books, accounts and records are, and ----------------- have been, in all material respects, maintained in West Pac's usual, regular and ordinary manner, in accordance with GAAP, and since West Pac's inception, all material transactions to which West Pac is or has been a party are properly reflected therein. 3.9. SEC Documents. West Pac has delivered or made available to ------------- Frontier each registration statement, report, proxy statement or information statement (as defined in Regulation 14C under the Exchange Act) prepared by it since January 1, 1995, which reports constitute all of the documents required to be filed by West Pac with the Securities and Exchange Commission ("SEC") since --- such date, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "West Pac SEC Reports"). As of their -------------------- respective dates, the West Pac SEC Reports and any West Pac SEC Reports filed after the date hereof and prior to the Effective Time (a) complied as to form in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations thereunder; and (b) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. West Pac has timely filed with the SEC all reports required to be filed under Sections 13, 14 and 15(d) of the Exchange Act since January 1, 1995. Each of the balance sheets of West Pac included in or incorporated by reference into the West Pac SEC Reports (including the related notes and schedules) fairly present in all material respects the financial position of West Pac as of its date (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), and each of the consolidated statements of income, retained earnings and cash flows of West Pac included in or incorporated by reference into the West Pac SEC Reports (including any related notes and schedules) fairly present in all material respects the results of operations, retained earnings or cash flows, as the case may be, of West Pac for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect). The financial statements of West Pac, including the notes thereto, included in or incorporated by reference into the West Pac SEC Reports comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP") (except as may be indicated in the notes thereto). Since January 1, ---- 1995, there has been no material change in West Pac's accounting methods or principles except as described in the notes to such West Pac financial statements. 11 3.10. Proprietary Rights. ------------------ (a) All of West Pac's patents, patent applications, trademarks, trademark applications, copyrights, trade names, and airline industry specific computer software (collectively, the "Intellectual Property") are listed in the --------------------- West Pac Disclosure Schedule. For purposes of this Agreement, the Intellectual Property, together with all other computer software, software programs, trade secrets, formulations, service marks, inventions, drawings, designs, customer lists, proprietary know-how or information or other rights with respect thereto, are collectively referred to herein as the "Proprietary Rights". ------------------ (b) To West Pac's knowledge, West Pac owns or possesses adequate licenses or other rights to use any and all of its Proprietary Rights used in or required for its business as currently conducted free and clear of any liens, claims or encumbrances, except where the failure to possess such Proprietary Rights would not have a West Pac Material Adverse Effect. (c) West Pac has no knowledge of any claims, disputes, actions, proceedings, suits or appeals pending or threatened against West Pac relating to any of its Proprietary Rights which, if adversely determined to West Pac, could reasonably be expected to result in a loss of any of its material Proprietary Rights or any other loss that could reasonably be expected to have a West Pac Material Adverse Effect. (d) To West Pac's knowledge, none of its Proprietary Rights infringe on the proprietary rights of any third party nor are the Proprietary Rights of any third party infringing on the Proprietary Rights of West Pac, where such infringement could reasonably be expected to result in a loss of any of West Pac's material Proprietary Rights or any other loss that could reasonably be expected to have a West Pac Material Adverse Effect. (e) To West Pac's knowledge, West Pac has not disclosed any of its trade secrets to any Person without obtaining an agreement obligating the recipient to maintain the confidentiality thereof and West Pac has taken reasonable security measures to protect the confidentiality and value of its trade secrets. (f) West Pac has not disposed of or granted any license to use any of its Proprietary Rights, nor has West Pac granted any options to purchase or obtain a license to, or any other lien, claim or encumbrance on, any of its Proprietary Rights. 3.11. Disclosure Documents. The Joint Proxy Statement Prospectus to be -------------------- delivered to the stockholders of each of West Pac and Frontier in connection with the approval of the transactions contemplated by this Agreement, or any amendment or supplement thereto (the "Proxy Statement"), at the time of mailing --------------- thereof and at the time of the respective meetings of stockholders of Frontier and West Pac, or, in the case of the Form S-4 (as defined in Section 5.7 of this Agreement) and each amendment or supplement thereto, at the time it is filed or becomes effective when filed with the SEC, will not include an untrue statement of a material fact or omit 12 to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing shall not apply to the -------- extent that any such untrue statement of a material fact or omission to state a material fact was made by West Pac in reliance upon and in conformity with written information concerning Frontier furnished to West Pac by Frontier specifically for use in the Proxy Statement. 3.12. Litigation. There are no actions, suits or proceedings pending ---------- against West Pac or, to West Pac's knowledge, threatened against West Pac, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, none of which, individually or in the aggregate, would have a West Pac Material Adverse Effect. To West Pac's knowledge, there is no such action, suit, investigation or proceeding which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the Merger or any of the other transactions contemplated hereby. 3.13. Aviation Act; Aircraft; Assets. ------------------------------ (a) West Pac is an air carrier operating under a Certificate of Public Convenience and Necessity issued by the DOT under Section 401 of the Federal Aviation Act of 1958, as amended (the "Aviation Act"), and holding an air ------------ carrier operating certificate and operations specifications issued pursuant to Part 121 of the Federal Aviation Regulations issued by the FAA under the Aviation Act (collectively such certificates are called the "Operating --------- Authorizations"), which Operating Authorizations are in full force and effect, - -------------- and West Pac is operating in compliance with all rules and regulations of the FAA, the DOT and the Operating Authorizations, except where the failure to maintain such Operating Authorizations or comply with such rules and regulations would not have a West Pac Material Adverse Effect. West Pac does not operate under any orders pursuant to the Essential Air Service Program of the DOT. (b) To West Pac's knowledge, all aircraft owned, leased or in the possession and control of West Pac and all other material assets of West Pac, are in sound operating condition and are being maintained in all material respects according to FAA regulatory standards, West Pac's FAA-authorized maintenance program and all other applicable laws, except where the failure to maintain such Operating Authorizations or comply with such rules and regulations would not have a West Pac Material Adverse Effect. A list of all aircraft now owned, leased or in the possession and control of West Pac is set forth on the West Pac Disclosure Schedule. West Pac has good and valid title to such assets and properties that are owned by West Pac, free and clear of any liens, claims or other encumbrances, other than (i) statutory liens for taxes not yet due, (ii) liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due; and (iii) liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security. West Pac has not received notice that any of its assets or properties is in violation of any existing law or any health, safety or other ordinance, code or regulation, except for violations that would not have a West Pac Material Adverse Effect. All material leases of equipment, software 13 or other personal property to which West Pac is a party are valid and subsisting leases, and, except as terminated in the ordinary course of business, upon consummation of the transactions contemplated hereby, shall continue to entitle West Pac to the use and possession of the personal property purported to be covered thereby for the terms specified in such leases. 3.14. Material Adverse Change. Since December 31, 1996 to the date of ----------------------- this Agreement, West Pac has not suffered any change to its business, operations, assets, liabilities, financial condition or prospects which would reasonably have a West Pac Material Adverse Effect. Since December 31, 1996 to the date of this Agreement, (a) West Pac has not entered into any transaction outside the ordinary course of business which will be required to be disclosed in West Pac's Form 10-K for the year ended December 31, 1997; (b) West Pac has not (i) declared, set aside or paid any dividend or made any other distribution or payment with respect to any shares of its capital stock or other ownership interests; or (ii) directly or indirectly, redeemed, purchased or otherwise acquired any shares of its capital stock, or made any commitment for any such action; or (c) West Pac has not voluntarily elected to alter the manner of keeping its books, accounts or records, or changed in any manner the accounting practices therein reflected, except for (i) changes that would not have a West Pac Material Adverse Effect; or (ii) changes in accounting laws which effect all airline companies generally. 3.15. Real Property. West Pac does not own any real property. The West ------------- Pac Disclosure Schedule describes all material real property leased by West Pac (the "West Pac Real Property"), along with a brief description of the property ---------------------- and all improvements thereon and a brief description of all material leases (the "West Pac Leases") under which such West Pac Real Property is leased by West --------------- Pac. Full and complete copies of all the West Pac Leases have been made available to Frontier. To West Pac's knowledge, all of the West Pac Real Property and improvements thereon are suitable for the purposes for which they are currently used. To West Pac's knowledge, none of the West Pac Leases is in default, no waiver, indulgence or postponement of West Pac's obligations thereunder has been granted by the lessor and no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default thereunder. 3.16. Material Contracts. West Pac is not a party to or bound by, ------------------ and none of its properties is subject to (a) any loan agreements, promissory notes, guaranties or other material evidence of indebtedness; (b) any distributorship, non-employee commission or marketing agent, representative or franchise agreement providing for the marketing and/or sale of the products or services of West Pac; (c) any agreement relating to the ownership or control of any interest in a partnership, corporation, limited liability company, joint venture or other entity or similar arrangement; (d) any employment contracts or consulting arrangements entered into by West Pac or agreements or arrangements with respect to severance or similar matters; (e) any agreement or arrangement restricting in any manner (i) West Pac's right to compete with any other person or entity; (ii) West Pac's right to sell to or purchase from any other person or entity; (iii) the right of any other party to compete with West Pac; or (iv) the ability of such person or entity to employ any of West Pac's employees; (f) any secrecy or confidentiality agreement; (g) any contract, agreement or arrangement containing change of control provisions; (h) any agreement or arrangement between West Pac and any of its officers, directors or other Affiliates; (i) any contract, agreement or arrangement requiring 14 a payment or receipt of funds in excess of $100,000.00 in any twelve month period; (j) any contract, agreement or arrangement required to be disclosed in a Form 10-K or 10-Q under the Exchange Act; or (k) any contract not entered into in the ordinary course of business consistent with past practices (collectively, the "West Pac Contracts"). All the West Pac Contracts are valid, subsisting, in ------------------ full force and effect in all material respects, and binding upon West Pac in accordance with their terms, and, to West Pac's knowledge, binding upon the other parties thereto in accordance with their terms. West Pac is not (with or without notice or lapse of time or both) in default under any West Pac Contract nor, to its knowledge, is any other party to any such contract or other agreement (with or without notice or lapse of time or both) in default thereunder, except for any defaults that would not have a West Pac Material Adverse Effect. 3.17. Taxes. West Pac (a) has filed on a timely basis all material ----- federal, state and foreign tax returns required to be filed by any of them for tax years ended prior to the date hereof or requests for extensions have been timely filed and any such request shall have been granted and not expired, and all such returns are complete and accurate in all material respects; (b) has paid or accrued all taxes shown to be due and payable on such returns; (c) has properly accrued all such taxes for such periods subsequent to the periods covered by such returns; and (d) has "open" years for federal income tax returns only as set forth in the West Pac Disclosure Schedule. 3.18. Employee Benefit Plans. All employee benefit plans and other benefit ---------------------- arrangements covering employees of West Pac (the "West Pac Benefit Plans") and ---------------------- all employee agreements providing compensation, severance or other benefits to any employee or former employee of West Pac or any of its Subsidiaries are set forth in the West Pac Disclosure Schedule. True and complete copies of all West Pac Benefit Plans, including any related trust or funding vehicles, policies or contracts, have been made available to Frontier. To the extent applicable, the West Pac Benefit Plans comply, in all material respects, with the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and ----- the Code, and any West Pac Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service (the "IRS") to be so qualified and has been timely amended and filed with the IRS --- with respect to changes required by the Tax Reform Act of 1986 and subsequent legislation. Neither West Pac nor any ERISA Affiliate of West Pac (during the period of its affiliated status and prior thereto, to its knowledge) maintains, contributes to or has in the past maintained or contributed to any benefit plan which is covered by Title IV of ERISA or Section 412 of the Code. Neither West Pac nor any West Pac Benefit Plan have incurred any liability or penalty under, and to West Pac's knowledge, there is no instance that West Pac or any West Pac Benefit Plan may incur any liability or penalty under, Section 4975 of the Code or Section 502(i) of ERISA. Each West Pac Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. To West Pac's knowledge, there are no pending or anticipated material claims against or otherwise involving any of the West Pac Benefit Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of West Pac Benefit Plan activities) has been brought against or with respect to any such West Pac Benefit Plan, except for any of the foregoing which would not have a West Pac Material Adverse Effect. All contributions required to be made as of the date hereof to the West Pac Benefit Plans have been made or provided for. Neither West Pac nor any ERISA Affiliate of West Pac (during the period of its 15 affiliated status and prior thereto, to its knowledge) has contributed to, or been required to contribute to, or has any liability or potential liability to, any "multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA). Except as required by applicable law or as set forth in the West Pac Disclosure Schedule, West Pac does not maintain or contribute to any plan or arrangement which provides or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment, and West Pac has never represented, promised or contracted (whether in oral or written form) to any employee or former employee that such benefits would be provided. The execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit plan, policy, arrangement or agreement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. No West Pac Benefit Plan which is an "employee pension plan" within the meaning of Section 3(3) of ERISA has been completely or partially terminated. None of the West Pac Benefit Plans has any material unfunded liabilities which are not reflected in the West Pac SEC Reports. Neither West Pac nor any of its directors, officers, employees or any other "fiduciary", as such term is defined in Section 3(21) of ERISA, has any material liability for failure to comply with ERISA or the Code or failure to act in connection with the administration or investment of any Plan. For purposes of this Agreement "ERISA Affiliate" means any business or entity which is a member of the same - ---------------- "controlled group of corporations," under "common control" or an "affiliated service group" with an entity within the meanings of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with the entity under Section 414(o) of the Code, or is under "common control" with the entity, within the meaning of Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of the foregoing Sections. 3.19. Labor Matters. West Pac is not a party to, or bound by, any ------------- collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. There is no unfair labor practice or labor arbitration proceeding pending or, to West Pac's knowledge, threatened against West Pac relating to its business. To West Pac's knowledge, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of West Pac. There is no labor strike, dispute, slowdown or work stoppage pending or threatened against West Pac nor has West Pac experienced any of the same during the last three years. All employees of West Pac are employed at will. A list of West Pac's employees who earned in excess of $50,000.00 during calendar year 1996 or who West Pac reasonably expects will earn in excess of such amount during calendar year 1997, together with such employee's current job title and salary history during the last three years, is described in the West Pac Disclosure Schedule. 3.20. Environmental Matters. --------------------- (a) West Pac has provided to Frontier, accompanied by a cover letter specifically identifying each such item and containing a brief description thereof, true and correct copies of (i) all reports and letters of inspections of West Pac's business and properties through the date hereof under 16 all applicable federal, state, foreign and local aviation, transportation, environmental, health and safety laws and regulations; (ii) all environmental analyses, environmental audits, reports of inspection, consulting studies and compilations made by or for West Pac by any non-governmental Person relating to any property, asset or right of West Pac or non-governmental Person relating to any property, asset or right of West Pac; and (iii) all correspondence and summaries of communications with or from any Governmental Entity including, without limitation, all such correspondence and summaries pursuant to which West Pac is advised of any noncompliance with any laws or orders or which otherwise relates to any such noncompliance. (b) As of the date hereof: (i) There has been no order, degree, complaint, citation or notice with regard to air emissions, water discharges, noise emissions, Hazardous Substances, Environmental Liabilities or other environmental or health requirement affecting any of the properties occupied or utilized by West Pac and, to West Pac's knowledge, no facts, circumstances or conditions exist which could reasonably give rise to such orders, decrees, complaints, citations or notices. (ii) To West Pac's knowledge, West Pac is not in violation of any Environmental Law and has not received any notice from any Governmental Entity, or any actual, threatened or alleged violation of any Environmental Law by West Pac or any other Person for whose conduct it is or may be responsible. To West Pac's knowledge, the conduct of West Pac's business and operations, as conducted previously and as of the date hereof, complies in all material respects with all Environmental Laws. (iii) To West Pac's knowledge, there are not now and there have not been any Hazardous Substances used, generated or stored or any structures, fixtures, equipment or other storage vessels including, without limitation, underground storage tanks, containing Hazardous Substances present upon any of the premises occupied or utilized by West Pac in the conduct of its business in violation of applicable Environmental Laws. To West Pac's knowledge, there has been no spill, discharge, release, contamination or cleanup of any Hazardous Substances at any of such properties or otherwise including, without limitation, into or upon the soil, surface water or ground water, such properties leased by West Pac are clean of all such wastes and substances and none of such properties leased by West Pac contains any underground treatment or storage tanks or water, gas or oil wells or other underground improvements. (iv) To West Pac's knowledge, West Pac has no liability under any EnvironmentaLaw with respect to any of the premises now or formerly utilized by West Pac and with respect to any adjacent or neighboring sites or facilities or any other site or facility. (c) As used in this Agreement, "Environmental Laws" means any and all ------------------ federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and governmental restrictions, whether now or hereafter in effect, relating to human health, the environment or to emissions, discharges or releases of pollutants, contaminants, Hazardous 17 Substances or wastes into the environment, including without limitation, ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "Environmental Liabilities" ------------------------- with respect to any Person means any and all liabilities of or relating to such Person or any of its Subsidiaries (including any entity which is, in whole or in part, a predecessor of such Person or any of its Subsidiaries), whether vested or unvested, contingent or fixed, actual or potential, known or unknown, which (a) arise under or relate to matters covered by Environmental Laws; and (b) relate to actions occurring or conditions existing on or prior to the Closing Date. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise -------------------- hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics, including, without limitation, any substance regulated under Environmental Laws. 3.21. Takeover Statutes. No "fair price", "moratorium", "control share ----------------- acquisition" or other similar anti-takeover statute or regulation enacted under state or federal laws in the United States (each a "Takeover Statute"), ---------------- applicable to West Pac applies to the Merger or any of the other transactions contemplated hereby. 3.22. Absence of Indemnifiable Claims, etc. There are no outstanding ------------------------------------ losses, claims, damages, costs, expenses, liabilities or judgments which would entitle any director, officer or employee of West Pac to indemnification by West Pac under applicable law, the Articles of Incorporation or By-laws of West Pac or any insurance policy maintained by West Pac. 3.23. Insurance. The West Pac Disclosure Schedule describes all material --------- insurance policies, to the extent any exist, providing insurance coverage of any nature to West Pac. To West Pac's knowledge, all of such policies are in full force and effect, are valid and enforceable in accordance with their terms. None of West Pac's insurance carriers have threatened to cancel any of West Pac's insurance policies, or increase the premiums payable under any such policy by more than 20% from the immediately preceding period of coverage thereunder 3.24. No Brokers. West Pac has not entered into any contract, ---------- arrangement or understanding with any person or firm which may result in the obligation of Frontier or West Pac to pay any finder's fee, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that West Pac has retained Lehman Brothers and Hanifen Imhoff Inc. as its financial advisors. Other than the foregoing arrangements, West Pac is not aware of any claim for payment of any finder's fees, brokerage or agent's commission or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transaction contemplated hereby. 3.25. Opinion of Financial Advisor. The Board of Directors of West Pac ---------------------------- has received the opinion of Lehman Brothers to the effect that, as of the date of this Agreement, the Exchange Ratio is fair to West Pac from a financial point of view. 18 3.26. West Pac Common Stock. Subject only to the approval of this --------------------- Agreement and the transactions contemplated hereby by the holders of a majority of the outstanding shares of West Pac Common Stock, the issuance and delivery by West Pac of shares of West Pac Common Stock in connection with the Merger and this Agreement have been duly and validly authorized by all necessary corporate action on the part of West Pac. The shares of West Pac Common Stock to be issued in connection with the Merger and this Agreement, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF FRONTIER Frontier represents and warrants to West Pac that the statements contained in this Article IV are true and correct, except as set forth in the disclosure schedule delivered by Frontier to West Pac concurrently herewith and identified as the "Frontier Disclosure Schedule." All exceptions noted in the ---------------------------- Frontier Disclosure Schedule are numbered to correspond to the applicable Sections to which such exception refers; provided, however, that any disclosure set forth on any particular schedule shall be deemed disclosed in reference to all applicable schedules. 4.1. Existence, Good Standing, Corporate Authority. Frontier is a --------------------------------------------- corporation duly incorporated, validly existing and in good standing under the laws of Colorado. Frontier is duly licensed or qualified to do business as a foreign corporation and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to be in good standing would not have a material adverse effect on the business, results of operations or financial condition of Frontier (a "Frontier Material Adverse Effect"). -------------------------------- Frontier has all requisite corporate power and authority to own, operate and lease its properties. The copies of Frontier's Amended and Restated Articles of Incorporation and Bylaws previously delivered to West Pac are true and correct. 4.2. Authorization, Validity and Effect of Agreements. Subject only to ------------------------------------------------ the approval of this Agreement and the transactions contemplated hereby by the holders of a majority of the outstanding shares of Frontier Common Stock, Frontier has the requisite corporate power and authority to execute and deliver this Agreement and all agreements and documents to be executed and delivered in connection herewith (collectively, the "Frontier Ancillary Documents"). Subject ---------------------------- only to the approval of this Agreement and the transactions contemplated hereby by the holders of a majority of the outstanding shares of Frontier Common Stock, the consummation by Frontier of the transactions contemplated hereby has been duly authorized by all requisite corporate action. This Agreement constitutes, and the Frontier Ancillary Documents (when executed and delivered pursuant to this Agreement for value received) will constitute, the valid and legally binding obligations of Frontier, enforceable against Frontier in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity and approval of this Agreement and the Frontier Ancillary Documents by the 19 Frontier stockholders. 4.3. Compliance with Laws--General. ----------------------------- (a) Frontier holds all Permits of any Governmental Entities (including, but not limited to, those related to occupational health and safety, controlled substances, Environmental Laws, Tax laws, labor, ERISA, employment and employment practices or EEOC matters) necessary for the lawful conduct of its business, and is in compliance with such Permits, in each case, except where the failure to hold or comply with such Permits would not have a Frontier Material Adverse Effect. (b) Frontier is in substantial compliance with all laws, ordinances or regulations of all Governmental Entities (including, but not limited to, those related to occupational health and safety, controlled substances or employment and employment practices) that are applicable to Frontier, except for any noncompliance that would not have a Frontier Material Adverse Effect. (c) As of the date of this Agreement, and as of the Closing, no investigation, review, inquiry or proceeding by any Governmental Entity with respect to Frontier is pending, or, to the knowledge of Frontier, threatened that would have a Frontier Material Adverse Effect. (d) Frontier is not subject to any agreement, contract or decree with any Governmental Entities arising out of any current or previously existing violations of any laws, ordinances or regulations applicable to Frontier, including, without limitation, any such agreement, contract or decree entered into with or issued by the DOT or the FAA that would have a Frontier Material Adverse Effect. 4.4. Capitalization. -------------- (a) The authorized capital stock of Frontier consists of 20,000,000 shares of Frontier Common Stock and 1,000,000 shares of Frontier Preferred Stock. As of May 30, 1997, there were (i) 8,844,375 shares of Frontier Common Stock issued and outstanding; (ii) no shares of Frontier Preferred Stock issued and outstanding; and (iii) 2,714,750 shares of Frontier Common Stock reserved for issuance upon the exercise of all outstanding Frontier Options. The Frontier Disclosure Schedule identifies, as of the date thereof, the option holder, the number of shares subject to each option, the exercise price, the vesting schedule and the expiration date of each outstanding Frontier Option. Since May 30, 1997, no additional shares of capital stock of Frontier have been issued, except pursuant to the exercise of options or warrants outstanding under the Frontier Stock Option Plans. Frontier has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of Frontier on any matter. All issued and outstanding shares of Frontier Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. (b) There are currently no outstanding, and, as of the Closing, there will be no outstanding (i) securities convertible into or exchangeable for any capital stock of Frontier, (ii) options, warrants 20 or other rights to purchase or subscribe to capital stock of Frontier or securities convertible into or exchangeable for capital stock of Frontier, or (iii) contracts, commitments, agreements, understandings, arrangements, calls or claims of any kind to which Frontier is a party or is bound relating to the issuance of any of its capital stock. 4.5. Subsidiaries; Other Interests. Frontier does not own any ----------------------------- Subsidiaries. Except for interests disclosed on the Frontier Disclosure Schedule, Frontier does not own, directly or indirectly, any interest or investment (whether equity or debt) in any corporation, partnership, limited liability company, joint venture, business, trust or entity ((other than investments in short-term investment securities) and corporate, partnership, development, cooperative marketing and similar undertakings and arrangements entered into in the ordinary course of business and other investments the aggregate market value of which is less than $100,000). 4.6. No Violation. Neither the execution and delivery by Frontier of ------------ this Agreement, nor the consummation by Frontier of the transactions contemplated hereby in accordance with the terms hereof, will (a) conflict with or result in a breach of any provisions of the Amended and Restated Articles of Incorporation or Bylaws of Frontier; (b) result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to, or accelerate vesting under, any of the Frontier Stock Option Plans, or any grant or award made under any of the foregoing; (c) violate, conflict with, result in a breach of any provision of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination, or in a right of termination or cancellation of, accelerate the performance required by, result in the triggering of any payment or other material obligations pursuant to, result in the creation of any lien, security interest, charge or encumbrance upon any of the material properties of Frontier under, or result in being declared void, voidable, or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any material license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which Frontier is a party, or by which Frontier or any of its properties is bound or affected, except for any of the foregoing matters which would not have a Frontier Material Adverse Effect; (d) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to Frontier which would have a Frontier Material Adverse Effect; or (e) other than the Regulatory Filings, require any consent, approval or authorization of, or declaration, of or registration with, any domestic governmental or regulatory authority, the failure to obtain or make which would have a Frontier Material Adverse Effect. 4.7. Conduct of Business. The business of Frontier is not being ------------------- conducted in default or violation of any term, condition or provision of (a) its Amended and Restated Articles of Incorporation or By-Laws or similar organizational documents; (b) any note, bond, mortgage, indenture, contract, agreement, lease or other instrument or agreement or any kind to which Frontier is now a party or by which Frontier or any of its properties or assets may be bound; (c) any federal, state, local or foreign statute, law, ordinance, rule, regulation or approval applicable to Frontier, except, with respect to the foregoing clauses (b) and (c), defaults or violations that would not have a Frontier Material Adverse Effect. 21 4.8. Books and Records. Frontier's books, accounts and records are, and ----------------- have been, in all material respects, maintained in Frontier's usual, regular and ordinary manner, in accordance with GAAP, and since Frontier's inception, all material transactions to which Frontier is or has been a party are properly reflected therein. 4.9. SEC Documents. Frontier has delivered or made available to West Pac ------------- each registration statement, report, proxy statement or information statement (as defined in Regulation 14C under the Exchange Act) prepared by it since January 1, 1995, which reports constitute all of the documents required to be filed by Frontier with the SEC since such date, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "Frontier SEC Reports"). As of their respective dates, the Frontier SEC Reports - --------------------- and any Frontier SEC Reports filed after the date hereof and prior to the Effective Time (a) complied as to form in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations thereunder; and (b) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Frontier has timely filed with the SEC all reports required to be filed under Section 13, 14 and 15(d) of the Exchange Act since January 1, 1995. Each of the balance sheets of Frontier included in or incorporated by reference into the Frontier SEC Reports (including the related notes and schedules) fairly present in all material respects the financial position of Frontier as of its date (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), and each of the statements of income, retained earnings and cash flows of Frontier included in or incorporated by reference into the Frontier SEC Reports (including any related notes and schedules) fairly present in all material respects the results of operations, retained earnings or cash flows, as the case may be, of Frontier for the periods set forth therein (subject, in the case of unaudited statements, to normal year- end audit adjustments which would not be material in amount or effect). The financial statements of Frontier, including the notes thereto, included in or incorporated by reference into the Frontier SEC Reports comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and have been prepared in accordance with GAAP (except as may be indicated in the notes thereto). Since January 1, 1995, there has been no material change in Frontier's accounting methods or principles except as described in the notes to such financial statements. 4.10. Proprietary Rights. ------------------ (a) All of Frontier's Intellectual Property is listed in the Frontier Disclosure Schedule. (b) To Frontier's knowledge, Frontier owns or possesses adequate licenses or other rights to use any and all of its Proprietary Rights used in or required for its business as currently conducted free and clear of any liens, claims or encumbrances, except where the failure to possess such Proprietary Rights would not have a Frontier Material Adverse Effect. 22 (c) Frontier has no knowledge of any claims, disputes, actions, proceedings, suits or appeals pending or threatened against Frontier relating to any of its Proprietary Rights which, if adversely determined to Frontier, could reasonably be expected to result in a loss of any of its material Proprietary Rights or any other loss that could reasonably be expected to have a Frontier Material Adverse Effect. (d) To Frontier's knowledge, none of its Proprietary Rights infringe on the proprietary rights of any third party nor are the Proprietary Rights of any third party infringing on the Proprietary Rights of Frontier, where such infringement could reasonably be expected to result in a loss of any of Frontier's material Proprietary Rights or any other loss that could reasonably be expected to have a Frontier Material Adverse Effect. (e) To Frontier's knowledge, Frontier has not disclosed any of its trade secrets to any Person without obtaining an agreement obligating the recipient to maintain the confidentiality thereof and Frontier has taken reasonable security measures to protect the confidentiality and value of its trade secrets. (f) Frontier has not disposed of or granted any license to use any of its Proprietary Rights, nor has Frontier granted any options to purchase or obtain a license to, or any other lien, claim or encumbrance on, any of its Proprietary Rights. 4.11. Information Supplied. The information supplied or to be supplied -------------------- by Frontier for inclusion or incorporation by reference in (a) the Proxy Statement will not, at the time the Proxy Statement is first mailed to the stockholders of Frontier and West Pac, and at the time such stockholders vote on adoption of this Agreement, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading; and (b) the Form S-4, together with all amendments and supplements thereto, will not, at the time the Form S-4 is filed or becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 4.12. Litigation. There are no actions, suits or proceedings pending ---------- against Frontier or, to Frontier's knowledge, threatened against Frontier, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, none of which, individually or in the aggregate, would have a Frontier Material Adverse Effect. To Frontier's knowledge, there is no such action, suit, investigation or proceeding which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the Merger or any of the other transactions contemplated hereby. 4.13. Aviation Act; Aircraft; Assets. ------------------------------ (a) Frontier is an air carrier operating under the Operating Authorizations, which Operating Authorizations are in full force and effect, and Frontier is operating in compliance with all rules and regulations of the FAA, the DOT and the Operating Authorizations, except where the 23 failure to maintain such Operating Authorizations or comply with such rules and regulations would not have a Frontier Material Adverse Effect. Frontier does not operate under any orders pursuant to the Essential Air Service Program of the DOT. (b) To Frontier's knowledge, all aircraft owned, leased or in the possession and control of Frontier and all other material assets of Frontier, are in sound operating condition and are being maintained in all material respects according to FAA regulatory standards, Frontier's FAA-authorized maintenance program and all other applicable laws, except where the failure to maintain such Operating Authorizations or comply with such rules and regulations would not have a West Pac Material Adverse Effect. A list of all aircraft now owned, leased or in the possession and control of Frontier is set forth on the Frontier Disclosure Schedule. Frontier has good and valid title to such assets and properties that are owned by Frontier, free and clear of any liens, claims or other encumbrances, other than (i) statutory liens for taxes not yet due, (ii) liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due; and (iii) liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security. Frontier has not received notice that any of its assets or properties is in violation of any existing law or any health, safety or other ordinance, code or regulation, except for violations that would not have a Frontier Material Adverse Effect. All material leases of equipment, software or other personal property to which Frontier is a party are valid and subsisting leases, and, except as terminated in the ordinary course of business, upon consummation of the transactions contemplated hereby, shall continue to entitle Frontier to the use and possession of the personal property purported to be covered thereby for the terms specified in such leases. 4.14. Material Adverse Change. Since December 31, 1996, Frontier has ----------------------- not suffered any change in its businesses, operations, assets, liabilities, financial condition or prospects which would reasonably have a Frontier Material Adverse Effect. Since December 31, 1996, (a) Frontier has not entered into any transaction outside the ordinary course of business which would be required to be disclosed in Frontier's Forms 10-K for the years ended March 31, 1997 or 1998; (b) Frontier has not (i) declared, set aside or paid any dividend or made any other distribution or payment with respect to any shares of its capital stock or other ownership interests; or (ii) directly or indirectly, redeemed, purchased or otherwise acquired any shares of its capital stock, or made any commitment for any such action; or (c) voluntarily elected to alter the manner of keeping its books, accounts or records, or changed in any manner the accounting practices therein reflected, except for (i) changes that would not have a Frontier Material Adverse Effect; or (ii) changes in accounting laws that affect all airline companies generally. 4.15. Real Property. Frontier does not own any real property. The ------------- Frontier Disclosure Schedule describes all material real property leased by Frontier (the "Frontier Real Property"), along with a brief description of the ---------------------- property and all improvements thereon and a brief description of all material leases (the "Frontier Leases") under which such Frontier Real Property is leased --------------- by Frontier. Full and complete copies of all the Frontier Leases have been made available to West Pac. To Frontier's knowledge, all of the Frontier Real Property and improvements thereon are suitable for the purposes for which they are currently used. To Frontier's knowledge, none of the Frontier Leases 24 is in default, no waiver, indulgence or postponement of Frontier's obligations thereunder has been granted by the lessor and no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default thereunder. 4.16. Material Contracts. Frontier is not a party to or bound by, ------------------ and none of its properties is subject to (a) any loan agreements, promissory notes, guaranties or other material evidence of indebtedness; (b) any distributorship, non-employee commission or marketing agent, representative or franchise agreement providing for the marketing and/or sale of the products or services of Frontier; (c) any agreement relating to the ownership or control of any interest in a partnership, corporation, limited liability company, joint venture or other entity or similar arrangement; (d) any employment contracts or consulting arrangements entered into by Frontier or agreements or arrangements with respect to severance or similar matters; (e) any agreement or arrangement restricting in any manner (i) Frontier's right to compete with any other person or entity; (ii) Frontier's right to sell to or purchase from any other person or entity; (iii) the right of any other party to compete with Frontier; or (iv) the ability of such person or entity to employ any of Frontier's employees; (f) any secrecy or confidentiality agreement; (g) any contract, agreement or arrangement containing change of control provisions; (h) any agreement or arrangement between Frontier and any of its officers, directors or other Affiliates; (i) any contract, agreement or arrangement requiring a payment or receipt of funds in excess of $100,000.00 in any twelve month period; (j) any contract, agreement or arrangement required to be disclosed in a Form 10-K or 10-Q under the Exchange Act; or (k) any contract not entered into in the ordinary course of business consistent with past practices (collectively, the "Frontier Contracts"). All ------------------ the Frontier Contracts are valid, subsisting, in full force and effect in all material respects, and binding upon Frontier in accordance with their terms, and, to Frontier's knowledge, binding upon the other parties thereto in accordance with their terms. Frontier is not (with or without notice or lapse of time or both) in default under any Frontier Contract nor, to its knowledge, is any other party to any such contract or other agreement (with or without notice or lapse of time or both) in default thereunder, except for any defaults that would not have a Frontier Material Adverse Effect. 4.17. Taxes. Frontier (a) has filed on a timely basis all material ----- federal, state and foreign tax returns required to be filed by any of them for tax years ended prior to the date hereof or requests for extensions have been timely filed and any such request shall have been granted and not expired, and all such returns are complete and accurate in all material respects; (b) has paid or accrued all taxes shown to be due and payable on such returns; (c) has properly accrued all such taxes for such periods subsequent to the periods covered by such returns; and (d) has "open" years for federal income tax returns only as set forth in the Frontier Disclosure Schedule. 4.18. Employee Benefit Plans. All employee benefit plans and other ---------------------- benefit arrangements covering employees of Frontier (the "Frontier Benefit ---------------- Plans") and all employee agreements providing compensation, severance or other benefits to any employee or former employee of Frontier or any of its Subsidiaries are set forth in the Frontier Disclosure Schedule. True and complete copies of all Frontier Benefit Plans, including any related trust or funding vehicles, policies or contracts, have been made available to West Pac. To the extent applicable, the Frontier Benefit Plans comply, in all material respects, with the requirements of the ERISA and the Code, and any Frontier Benefit Plan 25 intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified and has been timely amended and filed with the IRS with respect to changes required by the Tax Reform Act of 1986 and subsequent legislation. Neither Frontier nor any ERISA Affiliate of Frontier (during the period of its affiliated status and prior thereto, to its knowledge) maintains, contributes to or has in the past maintained or contributed to any benefit plan which is covered by Title IV of ERISA or Section 412 of the Code. Neither Frontier nor any Frontier Benefit Plan have incurred any liability or penalty under, and to Frontier's knowledge, there is no instance that Frontier or any Frontier Benefit Plan may incur any liability or penalty under, Section 4975 of the Code or Section 502(i) of ERISA. Each Frontier Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. To Frontier's knowledge, there are no pending or anticipated material claims against or otherwise involving any of the Frontier Benefit Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Frontier Benefit Plan activities) has been brought against or with respect to any such Frontier Benefit Plan, except for any of the foregoing which would not have a Frontier Material Adverse Effect. All contributions required to be made as of the date hereof to the Frontier Benefit Plans have been made or provided for. Neither Frontier nor any ERISA Affiliate of Frontier (during the period of its affiliated status and prior thereto, to its knowledge) has contributed to, or been required to contribute to, or has any liability or potential liability to, any "multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA). Except as required by applicable law or as set forth in the Frontier Disclosure Schedule, Frontier does not maintain or contribute to any plan or arrangement which provides or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment, and Frontier has never represented, promised or contracted (whether in oral or written form) to any employee or former employee that such benefits would be provided. The execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit plan, policy, arrangement or agreement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. No Frontier Benefit Plan which is an "employee pension plan" within the meaning of Section 3(3) of ERISA has been completely or partially terminated. None of the Frontier Benefit Plans has any material unfunded liabilities which are not reflected in the Frontier SEC Reports. Neither Frontier nor any of its directors, officers, employees or any other "fiduciary", as such term is defined in Section 3(21) of ERISA, has any material liability for failure to comply with ERISA or the Code or failure to act in connection with the administration or investment of any Plan. 4.19. Labor Matters. Frontier is not a party to, or bound by, any ------------- collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. There is no unfair labor practice or labor arbitration proceeding pending or, to Frontier's knowledge, threatened against Frontier relating to its business. To Frontier's knowledge, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of Frontier. There is no labor strike, dispute, slowdown or work stoppage pending or threatened against Frontier nor has Frontier experienced any of the same during the last three years. All employees of Frontier are employed at will. A list of Frontier's 26 employees who earned in excess of $50,000.00 during calendar year 1996 or who Frontier reasonably expects will earn in excess of such amount during calendar year 1997, together with such employee's current job title and salary history during the last three years, is described in the Frontier Disclosure Schedule. 4.20. Environmental Matters. --------------------- (a) Frontier has provided to West Pac, accompanied by a cover letter specifically identifying each such item and containing a brief description thereof, true and correct copies of (i) all reports and letters of inspections of Frontier's business and properties through the date hereof under all applicable federal, state, foreign and local aviation, transportation, environmental, health and safety laws and regulations; (ii) all environmental analyses, environmental audits, reports of inspection, consulting studies and compilations made by or for Frontier by any non-governmental Person relating to any property, asset or right of Frontier or non-governmental Person relating to any property, asset or right of Frontier; and (iii) all correspondence and summaries of communications with or from any Governmental Entity including, without limitation, all such correspondence and summaries pursuant to which Frontier is advised of any noncompliance with any laws or orders or which otherwise relates to any such noncompliance. (b) As of the date hereof: (i) There has been no order, degree, complaint, citation or notice with regard to air emissions, water discharges, noise emissions, Hazardous Substances, Environmental Liabilities or other environmental or health requirement affecting any of the properties occupied or utilized by Frontier and, to Frontier's knowledge, no facts, circumstances or conditions exist which could reasonably give rise to such orders, decrees, complaints, citations or notices. (ii) To Frontier's knowledge, Frontier is not in violation of any Environmental Law and has not received any notice from any Governmental Entity, or any actual, threatened or alleged violation of any Environmental Law by Frontier or any other Person for whose conduct it is or may be responsible. To Frontier's knowledge, the conduct of Frontier's business and operations, as conducted previously and as of the date hereof, complies in all material respects with all Environmental Laws. (iii) To Frontier's knowledge, there are not now and there have not been any Hazardous Substances used, generated or stored or any structures, fixtures, equipment or other storage vessels including, without limitation, underground storage tanks, containing Hazardous Substances present upon any of the premises occupied or utilized by Frontier in the conduct of its business in violation of applicable Environmental Laws. To Frontier's knowledge, there has been no spill, discharge, release, contamination or cleanup of any Hazardous Substances at any of such properties or otherwise including, without limitation, into or upon the soil, surface water or ground water, such properties leased by Frontier are clean of all such wastes and substances and none of such properties leased by Frontier contains any underground treatment or storage tanks or water, gas or oil wells or other underground improvements. 27 (iv) To Frontier's knowledge, Frontier has no liability under any Environmental Law with respect to any of the premises now or formerly utilized by Frontier and with respect to any adjacent or neighboring sites or facilities or any other site or facility. 4.21. Takeover Statutes. No Takeover Statute applicable to Frontier ----------------- applies to the Merger or any of the other transactions contemplated hereby. 4.22. Absence of Indemnifiable Claims, etc. There are no outstanding ------------------------------------ losses, claims, damages, costs, expenses, liabilities or judgments which would entitle any director, officer or employee of Frontier to indemnification by Frontier under applicable law, the Amended and Restated Articles of Incorporation or By-laws of Frontier or any insurance policy maintained by Frontier. 4.23. Insurance. The Frontier Disclosure Schedule describes all material --------- insurance policies, to the extent any exist, providing insurance coverage of any nature to Frontier. To Frontier's knowledge, all of such policies are in full force and effect, are valid and enforceable in accordance with their terms. None of Frontier's insurance carriers have threatened to cancel any of Frontier's insurance policies, or increase the premiums payable under any such policy by more than 20% from the immediately preceding period of coverage thereunder. 4.24. No Brokers. Frontier has not entered into any contract, ---------- arrangement or understanding with any person or firm which may result in the obligation of Frontier or West Pac to pay any finder's fee, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that Frontier has retained Smith Barney as its financial advisor. Other than the foregoing arrangement, Frontier is not aware of any claim for payment of any finder's fees, brokerage or agent's commission or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transaction contemplated hereby. 4.25. Opinion of Financial Advisor. The Board of Directors of Frontier ---------------------------- has received the opinion of Smith Barney to the effect that, as of the date of this Agreement, the Exchange Ratio is fair to the holders of Frontier Common Stock from a financial point of view. 4.26. West Pac Stock Ownership. Frontier does not own any shares of West ------------------------ Pac Common Stock or other securities convertible into West Pac Common Stock. 4.27. Rights Agreement. On or prior to the date hereof, Frontier has ---------------- taken all necessary action to cause the provisions of that certain Rights Agreement dated February 20, 1997, between Frontier and American Securities Transfer and Trust, Inc., as Rights Agent (the "Rights Agreement"), to be ---------------- inapplicable to the Merger, without any payment to holders of rights issued pursuant to such Rights Agreement. 28 ARTICLE V COVENANTS 5.1. Alternative Proposals. Prior to the Effective Time, each of West --------------------- Pac and Frontier agrees (a) that it shall not, and it shall direct and cause its officers, directors, employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by it) not to initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its stockholders) with respect to a merger, acquisition, consolidation or similar transaction involving it, or any purchase of all or any significant portion of its assets or any of its equity securities (any such proposal or offer being hereinafter referred to as an "Alternative ----------- Proposal") or engage in any negotiations concerning, or provide any confidential - -------- information or data to, or have any discussions with, any person relating to an Alternative Proposal, or otherwise facilitate any effort or attempt to make or implement an Alternative Proposal; provided, however, that an Alternative Proposal shall not include (i) a proposal made to West Pac or Frontier to acquire the Surviving Corporation, whether by merger, acquisition, consolidation or otherwise (a "Combined Proposal"); (ii) the issuance of securities of West ------------------ Pac in connection with additional equity investments in West Pac or additional financing transactions involving West Pac, including, without limitation, aircraft lease transactions; or (iii) a proposal of a merger, acquisition, consolidation or other similar transaction to a party hereto without any meetings or other discussions relating to the proposal and such party's sole response to the proposal is to inform the proposing party that such party is not interested in the proposal; (b) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing, and it will take the necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this Section 5.1; and (c) that it will notify the other party immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it; provided, however, that nothing -------- contained in this Section 5.1 shall prohibit its Board of Directors from (A) furnishing information to or entering into discussions or negotiations with, any person or entity that makes an unsolicited proposal to acquire it pursuant to a merger, consolidation, share exchange, purchase of a substantial portion of assets, business combination or other similar transaction, if, and only to the extent that, (i) its Board of Directors determines in good faith that such action is required for its Board of Directors to comply with its fiduciary duties to stockholders imposed by law; (ii) subject to any confidentiality agreement with such person or entity (which it determined in good faith was required to be executed in order for its Board of Directors to comply with its fiduciary duties to stockholders imposed by law), prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, it provides written notice to the other party to the effect that it is furnishing information to, or entering into discussions or negotiations with, such person or entity; and (iii) subject to any confidentiality agreement with such person or entity (which it determined in good faith was required to be executed in order for its Board of Directors to comply with its fiduciary duties to stockholders imposed by law), it keeps the other party informed of the status of any such discussions or negotiations; and (B) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Alternative Proposal. Nothing in this Section 5.1 shall (x) permit 29 West Pac or Frontier to terminate this Agreement (except as specifically provided in Article VII hereof); (y) permit West Pac or Frontier to enter into any agreement with respect to an Alternative Proposal during the term of this Agreement (it being agreed that during the term of this Agreement, neither West Pac nor Frontier shall enter into any agreement with any person that provides for, or in any way facilitates, an Alternative Proposal (other than a confidentiality agreement in customary form)); or (z) affect any other obligation of West Pac or Frontier under this Agreement. Upon receipt by either West Pac or Frontier of a Combined Proposal, the receiving party agrees (x) to provide written notice to the other party immediately of such Combined Proposal; and (y) to permit one representative of the other party to be present at any meetings relating to such Combined Proposal (other than non-scheduled phone calls made by one party of the proposed Combined Proposal to the other); provided, however, that Frontier shall be prohibited from entering into any agreement or letter of intent relating to a Combined Proposal. 5.2. Interim Operations. ------------------ (a) Prior to the Effective Time, and to allow West Pac and Frontier to coordinate their respective operations between the date hereof and the Effective Time, except as contemplated by any other provision of this Agreement or by the Frontier Disclosure Schedule, unless West Pac has consented in writing thereto, Frontier: (i) Shall conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (ii) Shall use its reasonable efforts to preserve intact its business organizations and goodwill, keep available the services of its respective officers and employees and maintain satisfactory relationships with those persons having business relationships with it; (iii) Shall not amend its Articles of Incorporation or Bylaws or comparable governing instruments; (iv) Shall promptly notify West Pac of any material emergency or other material change in its condition (financial or otherwise), business, properties, assets, liabilities, prospects or the normal course of its business or of its properties, any material litigation or material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach of any representation or warranty contained herein; (v) Shall promptly deliver to West Pac true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement; (vi) Shall not (A) except pursuant to (I) the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement; (II) the issuance of options or warrants in the ordinary course of business consistent with past practices; or (III) the issuance of Frontier Common Stock in connection with additional equity investments in Frontier permitted under the provisions of this Section 5(a), issue any shares of its 30 capital stock, effect any stock split or otherwise change its capitalization as it existed on the date hereof; (B) increase any compensation or enter into or amend any employment agreement with any of its present or future officers, directors or employees, except for normal increases consistent with past practice (provided, however, that no such increase shall exceed 5% per annum) and the payment of cash bonuses to officers pursuant to and consistent with existing plans or programs; (C) grant any severance or termination package to any employee or consultant other than in the ordinary course of business consistent with past practices; or (D) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; (vii) Shall not (A) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock or other ownership interests; or (B) directly or indirectly, redeem, purchase or otherwise acquire any shares of its capital stock, or make any commitments for any such action; (viii) Except in connection with agreements, obligations or undertakings in effect on the date hereof and disclosed in the Frontier Disclosure Schedule or otherwise permitted hereunder, shall not enter into any material transaction, or agree to enter into any material transaction, outside the ordinary course of business, including, without limitation, any transaction involving a merger, consolidation, joint venture, partial or complete liquidation or dissolution, reorganization, recapitalization, restructuring or a purchase, sale, lease or other disposition of a substantial portion of assets or capital stock, or enter into any additional aircraft lease; provided, however, that the foregoing shall not prohibit Frontier from issuing and selling up to an aggregate of $10,000,000 of shares of Frontier Common Stock, or any securities convertible or otherwise exchangeable into shares of Frontier Common Stock at an issue price, or with respect to convertible or exchangeable securities, a conversion or exchange price, that shall not exceed a thirty percent (30%) discount to the market value of such shares of Frontier Common Stock as of the date of issuance, so long as, (A) the issuance of such shares by Frontier does not contain any provisions impairing West Pac's ability to issue additional securities or incur additional indebtedness before or after the Effective Time; (B) any shares issued by Frontier are not senior to the Series B Preferred or the Series C Preferred after the consummation of the Merger; (C) the issuance of such shares by Frontier shall not impair the ability of either party to consummate the Merger; and (D) in the case of securities convertible or otherwise exchangeable into shares of Frontier Common Stock, appropriate provision is made in the governing documents relating to such securities to give effect to the Merger, including adjustments to the conversion or exchange price consistent with the adjustments for Frontier Options pursuant to Section 1.5 of this Agreement; (ix) Shall not incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of others other than in the ordinary course of its business consistent with past practices, but in no event in an amount exceeding $1,000,000 in the aggregate (other than normal expenditures for the purchase of raw materials or other supplies); provided, however, that Frontier may incur up to an aggregate of $10,000,000 of such indebtedness on commercially reasonable terms with the prior written approval of West Pac, which approval shall not be unreasonably withheld; 31 (x) Shall not make any loans, advances or capital contributions to, or investments in, any other Person, except loans, advances or capital contributions to, or investments in, any of its Subsidiaries or made in the ordinary course of business consistent with past practices; (xi) Except in connection with agreements, obligations or undertakings in effect on the date hereof and disclosed in the Frontier Disclosure Schedule or otherwise permitted hereunder, shall not make or commit to make any capital expenditures in excess of $500,000 in the aggregate; (xii) Except in connection with agreements, obligations or undertakings in effect on the date hereof and disclosed in the Frontier Disclosure Schedule or otherwise permitted hereunder, shall not apply any of its assets to the direct or indirect payment, discharge, satisfaction or reduction of any amount payable directly or indirectly to or for the benefit of any affiliate of Frontier or enter into any transaction with any affiliate of Frontier; (xiii) Shall not alter the manner of keeping its books, accounts or records, or change in any manner the accounting practices therein reflected; (xiv) Shall not grant or make any mortgage or pledge or subject itself or any of its material properties or assets to any lien, charge or encumbrance of any kind, except (A) statutory liens for taxes not yet due, (B) liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due; and (C) liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (xv) Shall maintain insurance on its tangible assets and its businesses in such amounts and against such risks and losses as are currently in effect; and (xvi) Shall use commercially reasonable efforts, which shall not require the payment of money or other consideration, to terminate, on or before the Effective Time, that certain Marketing and Code Sharing Agreement, dated as of January 20, 1997 between Frontier and Exec Express II (d/b/a Aspen Mountain Air) and Peak International. (b) Prior to the Effective Time, and to allow West Pac and Frontier to coordinate their respective operations between the date hereof and the Effective Time, except as contemplated by any other provision of this Agreement or by the West Pac Disclosure Schedule, unless Frontier has consented in writing thereto, West Pac: (i) Shall conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (ii) Shall use its reasonable efforts to preserve intact its business organizations and goodwill, keep available the services of its respective officers and employees and maintain satisfactory relationships with those persons having business relationships with it; 32 (iii) Shall not amend its Restated Certificate of Incorporation or By-Laws, except for amendments to the Restated Certificate of Incorporation of West Pac necessary in order to (A) increase the number of authorized shares of West Pac Common Stock to 40,000,000; or (B) designate the rights of any series or class of preferred stock of West Pac in connection with the issuance of securities by West Pac in connection with additional equity investments in West Pac or additional financing transactions involving West Pac permitted under the terms of this Section 5.2(b); (iv) Shall promptly notify Frontier of any material emergency or other material change in its condition (financial or otherwise), business, properties, assets, liabilities, prospects or the normal course of its business or of its properties, any material litigation or material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach of any representation or warranty contained herein; (v) Shall promptly deliver to Frontier true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement; (vi) Shall not (A) except pursuant to (I) the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement; (II) the issuance of options or warrants in the ordinary course of business consistent with past practices; or (III) the issuance of securities in connection with additional equity investments in West Pac or additional financing transactions involving West Pac permitted under the provisions of this Section 5(b), including, without limitation, the issuance of warrants in connection with aircraft lease transactions, issue any shares of its capital stock, effect any stock split or otherwise change its capitalization as it existed on the date hereof; (B) increase any compensation or enter into or amend any employment agreement with any of its present or future officers, directors or employees, except for normal increases consistent with past practice (provided, however, that no such increase shall exceed 5% per annum) and the payment of cash bonuses to officers pursuant to and consistent with existing plans or programs; (C) grant any severance or termination package to any employee or consultant other than in the ordinary course of business consistent with past practices; provided, however, that West Pac may enter into severance arrangements with any Person who currently has an employment agreement with West Pac; or (D) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; (vii) Shall not (A) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock or other ownership interests, other than regularly scheduled dividend payments on shares of Series B Preferred Stock; or (B) directly or indirectly, redeem, purchase or otherwise acquire any shares of its capital stock, or make any commitments for any such action, other than the redemption of shares of Series B Preferred Stock in accordance with their terms; 33 (viii) Except in connection with agreements, obligations or undertakings in effect on the date hereof and disclosed in the West Pac Disclosure Schedule or otherwise permitted hereunder, shall not enter into any material transaction, or agree to enter into any material transaction, outside the ordinary course of business, including, without limitation, any transaction involving a merger, consolidation, joint venture, partial or complete liquidation or dissolution, reorganization, recapitalization, restructuring or a purchase, sale, lease or other disposition of a substantial portion of assets or capital stock or enter into any additional aircraft leases; provided, however, that the foregoing shall not prohibit West Pac to (A) enter into any additional aircraft leases for up to an additional seven (7) aircraft; (B) issue and sell up to an aggregate of $10,000,000 of shares of West Pac Common Stock, or any securities convertible or otherwise exchangeable into shares of West Pac Common Stock ("Tranche A") for a per share issue price, or with respect to convertible --------- or exchangeable securities, a per share conversion or exchange price of not less than five dollars ($5.00) per share (the "Tranche A Issue Price"), provided, --------------------- however, that West Pac may issue and sell all or any portion of Tranche A at less than the Tranche A Issue Price if the Exchange Ratio is adjusted upward as follows: Average per Share Tranche A Adjusted Exchange Ratio --------------------------- ----------------------- Issue Price ----------- $4.50 - 4.99 0.76 $4.00 - 4.49 0.77 $3.50 - 3.99 0.78 (C) in addition to the issuance of Tranche A, (I) after the issuance of the entire Tranche A, issue and sell additional shares of West Pac Common Stock, or any securities convertible or otherwise exchangeable into shares of West Pac Common Stock ("Tranche B") for a per share issue price, or with respect to --------- convertible or exchangeable securities, a per share conversion or exchange price of not less than seven dollars ($7.00) per share (the "Tranche B Issue Price"), --------------------- provided, however, that West Pac may issue and sell all or any portion of Tranche B at less than the Tranche B Issue Price if the Exchange Ratio is adjusted as set forth on Exhibit B attached hereto; or (II) enter into any --------- additional non-convertible debt financing transactions on commercially reasonable terms, in an aggregate amount of up to $30,000,000, provided, however, that with respect to any non-convertible debt incurred by West Pac between the date hereof and the Effective Time in excess of $15,000,000, such non-convertible debt may only be incurred by West Pac with the prior written approval of Frontier, which approval shall not be unreasonably withheld; (D) enter into a lease with respect to West Pac's satellite terminal located in Colorado Springs, Colorado in connection with the issuance of Special Facility Bonds by the City of Colorado Springs (the "Special Bond"); or (E) take any ------------ action directly related to or directly arising from West Pac's contemplated move to the Denver International Airport and any transaction entered into by West Pac in connection therewith (the "Denver Transactions"); ------------------- (ix) Except as otherwise permitted by the terms of this Section 5.2(b), including, without limitation, the provisions of Section 5(b)(viii), shall not incur any indebtedness for borrowed 34 money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of others other than in the ordinary course of its business consistent with past practices (other than normal expenditures for the purchase of raw materials or other supplies); (x) Shall not make any loans, advances or capital contributions to, or investments in, any other Person, except loans, advances or capital contributions to, or investments in, any of its Subsidiaries or made in the ordinary course of business consistent with past practices; (xi) Except for capital expenditures directly related to the Denver Transactions or in connection with agreements, obligations or undertakings in effect on the date hereof and disclosed in the West Pac Disclosure Schedule or otherwise permitted hereunder, shall not make or commit to make any capital expenditures in excess of $1,500,000 in the aggregate; (xii) Except in connection with agreements, obligations or undertakings in effect on the date hereof which are disclosed in the West Pac Disclosure Schedule or otherwise permitted hereunder, shall not apply any of its assets to the direct or indirect payment, discharge, satisfaction or reduction of any amount payable directly or indirectly to or for the benefit of any affiliate of West Pac or enter into any transaction with any affiliate of West Pac; (xiii) Shall not alter the manner of keeping its books, accounts or records, or change in any manner the accounting practices therein reflected; (xiv) Except as made in connection with any transaction otherwise permitted by the terms of this Section 5.2(b), shall not grant or make any mortgage or pledge or subject itself or any of its material properties or assets to any lien, charge or encumbrance of any kind, except (A) statutory liens for taxes not yet due, (B) liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due; and (C) liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security taxes not currently due; and (xv) Shall maintain insurance on its tangible assets and its businesses in such amounts and against such risks and losses as are currently in effect. (c) In order to allow Frontier and West Pac to coordinate airline scheduling and to facilitate West Pac's scheduled move to begin operations at the Denver International Airport prior to the Effective Time, the operations of both West Pac and Frontier shall be conducted in accordance with the terms of the Code Sharing Agreement. Notwithstanding the fact that the Code Sharing Agreement provides that it shall terminate on December 31, 1997, if the Merger does not close because the condition set forth in Section 6.3(i) is not fulfilled, the termination date of the Code Sharing Agreement shall be extended to December 31, 1998. 5.3. Meetings of Stockholders. Each of West Pac and Frontier will take ------------------------ all action necessary 35 in accordance with applicable law and their respective Certificates of Incorporation and Bylaws to convene a meeting of their respective stockholders as promptly as practicable to consider and vote upon the approval of this Agreement and the transactions contemplated hereby. The Board of Directors of each of West Pac and Frontier shall recommend such approval and West Pac and Frontier shall each take all lawful action to solicit such approval, including, without limitation, timely mailing the Proxy Statement to their respective stockholders; provided, however, that such recommendation or solicitation is subject to any action (including any withdrawal or change of its recommendation) taken by, or upon authority of, the Board of Directors of West Pac or Frontier, as the case may be, in the exercise of its good faith judgment as to its fiduciary duties to its stockholders imposed by law. It shall be a condition to the mailing of the Proxy Statement that (x) West Pac shall have received a "comfort" letter from KPMG Peat Marwick LLP, independent public accountants for Frontier, dated the date of the Proxy Statement, with respect to the financial statements of Frontier included in the Proxy Statement, substantially in the form described in Section 6.3(e); and (y) Frontier shall have received a "comfort" letter from Arthur Andersen LLP, independent public accountants for West Pac, dated the date of the Proxy Statement, with respect to the financial statements of West Pac included in the Proxy Statement, substantially in the form described in Section 6.2(d). 5.4. Filings; Other Action. Subject to the terms and conditions herein --------------------- provided, Frontier and West Pac shall: (a) promptly make their respective filings and thereafter make any other required submissions under the HSR Act with respect to the Merger; (b) use all reasonable efforts to cooperate with one another in (i) determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, permits or authorizations are required to be obtained prior to the Effective Time from, governmental or regulatory authorities of the United States, the several states and foreign jurisdictions in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; and (ii) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (c) use commercially reasonable efforts to obtain all consents under or with respect to, any contract, lease, agreement, purchase order, sales order or other instrument or Permit, where the consummation of the transactions contemplated hereby would be prohibited or constitute an event of default, or grounds for acceleration or termination, in the absence of such consent; and (d) take, or cause to be taken, all other commercially reasonable actions as are reasonably necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If, at any time after the Effective Time, any further reasonable action is necessary or desirable to carry out the purpose of this Agreement, the proper officers and directors of the Surviving Corporation shall take all such necessary action. 5.5. Inspection of Records. From the date hereof to the Effective Time, --------------------- each of Frontier and West Pac shall (a) allow all designated officers, attorneys, accountants and other representatives of the other reasonable access at all reasonable times to the offices, records and files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles and financial position, or otherwise pertaining to the business and affairs, of Frontier and West Pac and their respective Subsidiaries, as the case may be; (b) furnish to the other, the other's counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other 36 information as such persons may reasonably request; and (c) instruct the employees, counsel and financial advisors of Frontier or West Pac, as the case may be, to cooperate with the other in the other's investigation of the business of it and its Subsidiaries. All information disclosed by a party hereto to the other party hereto and their respective representatives shall be subject to the terms of that certain Non-Disclosure Agreement (the "Confidentiality Agreement") ------------------------- dated as of January 15, 1997 between West Pac and Frontier. 5.6. Publicity. In order to coordinate the disclosure of information to --------- the public prior to the Effective Time, neither party hereto shall make any press release or public announcement with respect to this Agreement, the Merger or the transaction contemplated hereby without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld); provided, however, that each party hereto may make any disclosure or announcement which such party, in the opinion of its legal counsel, is obligated to make pursuant to applicable law or regulation of Nasdaq or any national securities exchange, in which case, the party desiring to make the disclosure shall consult with the other party hereto prior to making such disclosure or announcement. 5.7. Registration Statement. West Pac and Frontier shall cooperate and ---------------------- promptly prepare and West Pac shall file with the SEC as soon as practicable a Registration Statement on Form S-4 (the "Form S-4") under the Securities Act, -------- with respect to the West Pac Common Stock issuable in the Merger, a portion of which Registration Statement shall also serve as the Proxy Statement. The respective parties will cause the Proxy Statement and the Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder. West Pac shall use all reasonable efforts, and Frontier will cooperate with West Pac, to have the Form S-4 declared effective by the SEC as promptly as practicable. Subject to the terms and conditions of this Agreement, West Pac shall use its best efforts to obtain, prior to the effective date of the Form S-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement and will pay all expenses incident thereto. No amendment or supplement to the Proxy Statement will be made by West Pac or Frontier without the approval of the other party. West Pac will advise Frontier, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the West Pac Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. 5.8. Further Action. Subject to the terms and conditions of this -------------- Agreement, each party hereto shall, subject to the fulfillment at or before the Effective Time of each of the conditions of performance set forth herein or the waiver thereof, perform such further acts and execute such documents as may be reasonably required to effect the Merger. 5.9. Affiliate Letters. 1 At least 30 days prior to the Closing Date, ----------------- Frontier shall deliver to West Pac a list of names and addresses of those persons who were, in Frontier's reasonable judgment, at the record date for its stockholders' meeting to approve the Merger, "affiliates" (each such person, an "Affiliate") of Frontier within the meaning of Rule 145 of the rules and --------- regulations promulgated 37 under the Securities Act. Frontier shall provide West Pac such information and documents as West Pac shall reasonably request for purposes of reviewing such list. Frontier shall deliver or cause to be delivered to West Pac, prior to the Closing Date, from each of the Affiliates of Frontier identified in the foregoing list, an Affiliate Letter in the form attached hereto as Exhibit C. --------- West Pac shall be entitled to place legends as specified in such Affiliate Letters on the certificates evidencing any West Pac Common Stock to be received by such Affiliates pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the West Pac Common Stock, consistent with the terms of such Affiliate Letters. 5.10. Expenses. Whether or not the Merger is consummated, all costs and -------- expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses except as expressly provided herein and except that (a) the filing fee in connection with the HSR Act filing; (b) the filing fee in connection with the filing of the Form S-4 or Proxy Statement with the SEC; and (c) the expenses incurred in connection with printing and mailing the Form S-4 and the Proxy Statement shall be shared equally by Frontier and West Pac. 5.11. Indemnity. --------- (a) From and after the Effective Time of the Merger, West Pac agrees to indemnify and hold harmless, and to cause the Surviving Corporation to honor its separate indemnification to, each person who is an officer or director of Frontier on the date of this Agreement and all former officers and directors of Frontier (each an "Indemnified Person") from and against all damages, ------------------ liabilities, judgments and claims (and related expenses (the "Indemnification --------------- Expenses") including, but not limited to, attorney's fees and amounts paid in - -------- investigation or settlement)based upon or arising from his or her capacity as an officer or director of Frontier, to the same extent he or she would have been indemnified under the Restated Certificate of Incorporation and By-laws of West Pac and to the extent permitted under applicable law. West Pac shall advance all Indemnification Expenses reasonably incurred by such Indemnified Person to the extent permitted under the Restated Certificate of Incorporation and By-Laws of West Pac and to the extent permitted under applicable law. (b) The rights granted to the Indemnified Persons hereby shall be contractual rights inuring to the benefit of all Indemnified Persons and shall survive this Agreement and any merger, consolidation, reorganization or similar transaction involving West Pac. (c) The rights to indemnification granted by this Section 5.11 are subject to the following limitations: (i) amounts otherwise required to be paid by West Pac to an Indemnified Person pursuant to this Section 5.11 shall be reduced by any amounts that such Indemnified Person has recovered by virtue of the claim for which indemnification is sought and West Pac shall be reimbursed for any amounts paid by West Pac that such Indemnified Person subsequently recovers by virtue of such claim; (ii) any claim for indemnification pursuant to this Section 5.11 must be submitted in writing to the Chief Executive Officer of West Pac promptly upon such Indemnified Person becoming aware of such claim, provided that any such failure to advise promptly will not cause a loss of indemnity unless it has a prejudicial effect on West Pac; and (iii) an Indemnified Person shall not settle any claim for which indemnification is provided herein without the prior written consent of West Pac, which 38 consent shall not be unreasonably withheld. 5.12. Governance. West Pac's Board of Directors shall take all action ---------- necessary to cause the directors comprising the full Board of Directors of West Pac at the Effective Time to be increased by three (3) directors and shall take all such action necessary to cause three (3) of the current directors of Frontier (which directors shall be mutually acceptable to Frontier and West Pac) to be elected as director(s) of West Pac for terms expiring respectively at each of the next three annual meeting of stockholders following the Effective Time in order to fill the vacancies resulting from such newly created directorships. If, prior to the Effective Time, any of such persons shall decline or be unable to serve as a director, Frontier shall designate another person to serve in such person's stead, which person shall be reasonably acceptable to West Pac. 5.13. Pooling; Reorganization. From and after the date hereof and until ----------------------- the Effective Time, neither Frontier nor any of its affiliates shall (a) knowingly take any action, or knowingly fail to take any action, that would jeopardize the treatment of the Merger as a "pooling of interests" for accounting purposes; (b) knowingly take any action, or knowingly fail to take any action, that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code; or (c) knowingly enter into any contract, agreement, commitment or arrangement with respect to either of the foregoing. 5.14. Employee Benefit Plans. As of the Closing Date, Frontier shall ---------------------- take, or cause to be taken, all such action as may be necessary to effect the cessation of active participation of employees in the Frontier Benefit Plans and the future accrual of benefits thereunder. Notwithstanding the foregoing, with respect to Frontier's welfare benefit plans, any claims incurred under such plans (regardless whether reported) on or prior to the Closing Date should be paid in accordance with the provisions under such Plans under such plans prior to the Closing Date. With respect to Frontier's retirement plans, Frontier and West Pac shall mutually agree as to the future disposition of such plans and their assets. After the Effective Time, West Pac shall provide benefits to employees of Frontier which are substantially similar to the benefits provided to similarly situated employees of West Pac and its Subsidiaries. With respect to the West Pac Benefit Plans, West Pac shall grant all employees of Frontier who become participants in such plans after the Closing Date credit for all services with Frontier and its predecessors prior to the Closing Date for all purposes for which such service was recognized by Frontier. To the extent the West Pac Benefit Plans provide medical or dental welfare benefits after the Closing Date, West Pac shall cause all pre-existing condition exclusions and actively at work requirements to be waived and West Pac shall provide that any expenses incurred on or before the Closing Date shall be taken into account under the West Pac Benefit Plans for purposes of satisfying the applicable deductible, coinsurance and maximum out-of-pocket provisions for such employees and their covered dependents. 5.15. Insurance. For a period of five years after the Effective Time, --------- West Pac shall provide each individual who served as a director or officer of Frontier at any time prior to the Effective Time with liability insurance covering acts or omissions of such persons occurring on or prior to the Effective Time to the same extent that such insurance is provided to similarly situated West Pac officers and directors after the Effective Time. 39 5.16. Access to Employees. From the date hereof and for a period of one ------------------- year from the date of termination of this Agreement, neither West Pac nor Frontier shall solicit for employment or employ, without first receiving the prior written approval of the other party, any employee employed by the other; provided, however, that the term "solicit for employment" shall not be deemed to include any advertising in newspapers, trade publications or any other publicly distributed medium addressed to the general public and either party may employ any person who, without other solicitation, responds to such an advertisement. 5.17. Severance. West Pac and Frontier hereby acknowledge and agree that --------- (a) the severance obligations of Frontier attached hereto as Exhibit D shall be --------- assumed by the Surviving Corporation as of the Effective Time; and (b) except as otherwise set forth in the Frontier Disclosure Schedule, no other severance obligations of Frontier shall be assumed by the Surviving Corporation, which obligations shall be deemed null and void as of the Effective Time. ARTICLE VI CONDITIONS 6.1. Conditions to Each Party's Obligation to Effect the Merger. The ---------------------------------------------------------- respective obligation of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of each of the following conditions: (a) This Agreement and the transactions contemplated hereby shall have been approved in the manner required by applicable law or by the applicable regulations of any stock exchange or other regulatory body, as the case may be, by the holders of the issued and outstanding shares of capital stock of each of Frontier and West Pac. (b) The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. (c) No preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the Merger or materially changes the terms or conditions of this Agreement shall have been issued and remain in effect. Subject to the terms and conditions of this Agreement, in the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. (d) The Form S-4 shall have been declared effective by the SEC and shall be effective at the Effective Time, and no stop order suspending the effectiveness of the Form S-4 shall have been issued, no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been initiated and be continuing, and all necessary approvals under state securities laws relating to the issuance or trading of the West Pac Common Stock to be issued to Frontier stockholders in connection with the Merger shall have been received. 40 (e) All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board or other regulatory body required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filings in connection with the Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a West Pac Material Adverse Effect or a Frontier Material Adverse Effect, as the case may be, following the Effective Time. (f) West Pac shall have received the opinion of D'Ancona & Pflaum, special counsel to West Pac, dated the Closing Date, to the effect that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that Frontier and West Pac will each be a party to that reorganization within the meaning of Section 368(b) of the Code. (g) Frontier shall have received the opinion of Parcel, Mauro, Hultin & Spaanstra, P.C., special counsel to Frontier, dated the Closing Date, to the effect that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that Frontier and West Pac will each be a party to that reorganization within the meaning of Section 368(b) of the Code. (h) The West Pac Common Stock to be issued to Frontier stockholders in connection with the Merger shall have been authorized for trading on the Nasdaq National Market, subject only to official notice of issuance. 6.2. Conditions to Obligation of Frontier to Effect the Merger. The --------------------------------------------------------- obligation of Frontier to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following additional conditions: (a) West Pac shall have performed, in all material respects, all of its agreements contained herein that are required to be performed by West Pac on or prior to the Closing Date, and Frontier shall have received a certificate of the President or a Vice President of West Pac, dated the Closing Date, certifying to such effect. (b) The representations and warranties of West Pac contained in this Agreement and in any document delivered in connection herewith shall be true and correct, in all material respects, as of the Closing, and Frontier shall have received a certificate of the President or a Vice President of West Pac, dated the Closing Date, certifying to such effect. (c) Frontier shall have received from West Pac certified copies of the resolutions of West Pac's Boards of Directors approving and adopting this Agreement and the transactions contemplated hereby. (d) Frontier shall have received a "comfort" letter from Arthur Andersen LLP, of the kind contemplated by the Statement of Auditing Standards with respect to Letters to Underwriters 41 promulgated by the American Institute of Certified Public Accountants (the "AICPA Statement"), dated the Closing Date, in form and substance reasonably --------------- satisfactory to Frontier, in connection with the procedures undertaken by them with respect to the financial statements of West Pac and its Subsidiaries contained in the Form S-4 and the other matters contemplated by the AICPA Statement and customarily included in comfort letters relating to transactions similar to the Merger. (e) The fairness opinion from Smith Barney, to the effect that the Exchange Ratio is fair to the holders of Frontier Common Stock from a financial point of view, shall not have been withdrawn or materially and adversely modified as of the Effective Time. (f) From the date of this Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business, operations or prospects of West Pac and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have a West Pac Material Adverse Effect. 6.3. Conditions to Obligation of West Pac to Effect the Merger. The --------------------------------------------------------- obligations of West Pac to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following additional conditions: (a) Frontier shall have performed, in all material respects, all of its agreements contained herein that are required to be performed by Frontier on or prior to the Closing Date, and West Pac shall have received a certificate of the President or a Vice President of Frontier, dated the Closing Date, certifying to such effect. (b) The representations and warranties of Frontier contained in this Agreement and in any document delivered in connection herewith shall be true and correct, in all material respects, as of the Closing, and West Pac shall have received a certificate of the President or a Vice President of Frontier, dated the Closing Date, certifying to such effect. (c) West Pac shall have received from Frontier certified copies of the resolutions of Frontier's Board of Directors approving and adopting this Agreement and the transactions contemplated hereby. (d) West Pac shall have received a "comfort" letter from KPMG Peat Marwick LLP, of the kind contemplated by the AICPA Statement, dated the Closing Date, in form and substance reasonably satisfactory to West Pac, in connection with the procedures undertaken by them with respect to the financial statements and other financial information of Frontier contained in the Form S-4 and the other matters contemplated by the AICPA Statement and customarily included in comfort letters relating to transactions similar to the Merger. (e) All required consents to transfer to the Surviving Corporation the aircraft leases of Frontier with respect to aircraft that have been delivered to Frontier as of the date of this Agreement shall have been obtained or waived, other than with respect to not more than two 737-200 aircraft. All required consents to transfer to the Surviving Corporation all other leases or agreements of 42 Frontier (other than aircraft leases) shall have been obtained or waived, except to the extent that the failure to secure any such consents, either individually or in the aggregate, shall not have a material adverse effect on the business, results of operations or financial condition of the Surviving Corporation. (f) From the date of this Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business, operations or prospects of Frontier that would have or would be reasonably likely to have a Frontier Material Adverse Effect. (g) West Pac shall have received from Frontier certified copies of the resolutions of the Compensation Committee of Frontier approving the actions and transactions contemplated by Section 1.5 of this Agreement. (h) West Pac shall have received a fairness opinion from Lehman Brothers, dated as of the date of the Proxy Statement, to the effect that the Exchange Ratio is fair to West Pac from a financial point of view, which opinion shall not have been withdrawn or materially and adversely modified as of the Effective Time. (i) The holders of not more than three percent (3%) of the outstanding shares of Frontier Common Stock shall have perfected dissenters' rights under applicable law. ARTICLE VII TERMINATION 7.1. Termination by Mutual Consent. This Agreement may be terminated and ----------------------------- the Merger may be abandoned at any time prior to the Effective Time, before or after the approval of this Agreement by the stockholders of Frontier and/or West Pac, by the mutual consent of West Pac and Frontier. 7.2. Termination by Either West Pac or Frontier. This Agreement may be ------------------------------------------ terminated and the Merger may be abandoned by action of the Board of Directors of either West Pac or Frontier if (a) the Merger shall not have been consummated by December 31, 1997; provided, however, that the right to terminate this Agreement under this Section 7.2(a) will not be available to any party whose failure to fulfill any obligation under this Agreement in violation of this Agreement has been the cause of, or resulted in, the failure of the Merger to occur on or before such date; (b) the approval of Frontier's stockholders required by Section 6.1(a) shall not have been obtained at a meeting duly convened therefor or at any adjournment thereof; provided, however, that Frontier shall not have the right to terminate this Agreement under this Section 7.2(b) if Frontier caused (directly or indirectly) or aided in the failure to obtain such approval in violation of this Agreement; (c) the approval of West Pac's stockholders required by Section 6.1(a) shall not have been obtained at a meeting duly convened therefor or at any adjournment thereof; provided, however, that West Pac shall not have the right to terminate this Agreement under this Section 7.2(c) if West Pac caused (directly or 43 indirectly) or aided in the failure to obtain such approval in violation of this Agreement; or (d) a court of competent jurisdiction or a governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action either (i) permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement; or (ii) compelling West Pac or the Surviving Corporation to dispose of or hold separate all or a material portion of the respective businesses or assets of West Pac and Frontier, and such order, decree, ruling or other action shall have become final and non-appealable; provided, that the party seeking to terminate this Agreement pursuant to this clause (d) shall have used all reasonable efforts to remove such injunction, order or decree. 7.3. Termination by Frontier. This Agreement may be terminated and the ----------------------- Merger may be abandoned at any time prior to the Effective Time, before or after the adoption and approval by the stockholders of Frontier referred to in Section 6.1(a), by action of the Board of Directors of Frontier, if (a) Frontier receives an Alternative Proposal and the Board of Directors of Frontier determines in good faith and pursuant to the exercise of its fiduciary duties to its stockholders, that such Alternative Proposal is more favorable to Frontier stockholders from a financial point of view than the transaction contemplated by this Agreement, and the Board of Directors of Frontier accepts, recommends or resolves to accept or recommend to Frontier's stockholders such Alternative Proposal; (b) the Board of Directors of West Pac shall have recommended an Alternative Proposal to West Pac stockholders; (c) the Board of Directors of West Pac shall have withdrawn or modified in a manner materially adverse to Frontier its approval or recommendation of this Agreement and/or the Merger (other than upon the happening of an event described in Sections 7.4(d) or 7.4(e)); (d) there has been a breach by West Pac of any representation or warranty contained in this Agreement which would have a West Pac Material Adverse Effect; (e) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of West Pac, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Frontier to West Pac; (f) any Person (other than a Person that holds shares of Series B Preferred or Series C Preferred, as of the date hereof), after the date hereof, shall become the beneficial owner (directly or indirectly) of twenty percent (20%) or more of the outstanding shares of West Pac Common Stock or any Person shall have commenced a bona fide tender offer or exchange offer to acquire at least twenty percent (20%) of the then outstanding shares of West Pac Common Stock; or (g) West Pac enters into a letter of intent or a binding agreement with respect to a Combined Proposal. 7.4. Termination by West Pac. This Agreement may be terminated and the ----------------------- Merger may be abandoned at any time prior to the Effective Time, before or after the approval by the stockholders of West Pac referred to in Section 6.1(a), by action of the Board of Directors of West Pac, if (a) West Pac receives an Alternative Proposal and the Board of Directors of West Pac determines in good faith and pursuant to the exercise of its fiduciary duties to its stockholders, that such Alternative Proposal is more favorable to West Pac stockholders from a financial point of view than the transaction contemplated by this Agreement, and the Board of Directors of West Pac accepts, recommends or resolves to accept or recommend to West Pac's stockholders such Alternative Proposal; (b) the Board of Directors of Frontier shall have recommended an Alternative Proposal to Frontier stockholders; (c) the Board of Directors of Frontier shall have withdrawn or modified in a manner materially adverse to West Pac its approval or recommendation of this Agreement or the Merger 44 (other than upon the happening of an event described in Sections 7.3(d) or 7.3(e)); (d) there has been a breach by Frontier of any representation or warranty contained in this Agreement which would have a Frontier Material Adverse Effect; (e) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of Frontier, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by West Pac to Frontier; or (f) any Person, after the date hereof, shall become the beneficial owner (directly or indirectly) of twenty percent (20%) or more of the outstanding shares of Frontier Common Stock or any Person (other than West Pac or its Subsidiaries) shall have commenced a bona fide tender offer or exchange offer to acquire at least twenty percent (20%) of the then outstanding shares of Frontier Common Stock. 7.5. Effect of Termination and Abandonment. ------------------------------------- (a) In the event that (i) any person shall have made an Alternative Proposal for Frontier and thereafter this Agreement is terminated by Frontier pursuant to Section 7.3(a) or by West Pac pursuant to Section 7.4(b); or (ii) this Agreement is terminated by (A) Frontier pursuant to Section 7.2(a) or (B) by West Pac pursuant to Sections 7.4(c), 7.4(d), 7.4(e) or 7.4(f), and, in either case, within six months from the date of termination of this Agreement, Frontier enters into an agreement regarding an Alternative Proposal with an entity with whom it had discussions relating to an Alternative Proposal at any time during the six month period immediately prior to the date of termination of this Agreement, then Frontier shall promptly, but in no event later than two days after such termination or entering into such agreement, as the case may be, pay West Pac a fee in an amount equal to $4,000,000, which amount shall be payable by wire transfer of same day funds. Frontier acknowledges that the agreements contained in this Section 7.5(a) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, West Pac would not enter into this Agreement. (b) In the event that (i) any person shall have made an Alternative Proposal for West Pac and thereafter this Agreement is terminated by Frontier pursuant to Section 7.3(b) or by West Pac pursuant to Section 7.4(a); or (ii) this Agreement is terminated by (A) West Pac pursuant to Section 7.2(a) or (B) by Frontier pursuant to Sections 7.3(c), 7.3(d), 7.3(e) or 7.3(f), and, in either case, within six months from the date of termination of this Agreement, West Pac enters into an agreement regarding an Alternative Proposal with an entity with whom it had discussions relating to an Alternative Proposal at any time during the six month period immediately prior to the date of termination of this Agreement, then West Pac shall promptly, but in no event later than two days after such termination or entering into such agreement, as the case may be, pay Frontier a fee in an amount equal to $4,000,000, which amount shall be payable by wire transfer of same day funds. West Pac acknowledges that the agreements contained in this Section 7.5(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Frontier would not enter into this Agreement. (c) If this Agreement is (i) terminated by Frontier pursuant to Sections 7.3(c), 7.3(d) or 7.3(e); or (ii) by West Pac pursuant to Sections 7.4(c), 7.4(d) or 7.4(e), the non-terminating party shall reimburse the terminating party for all actual out-of-pocket costs and expenses incurred by such 45 terminating party in connection with this Agreement and the consummation and negotiation of the transactions contemplated hereby, including, without limitation, legal, professional and service fees and expenses, but in any event, in an amount not to exceed $500,000 in the aggregate, which amount shall be payable by wire transfer of same day funds. (d) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article VII, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to the provisions of Sections 5.2(c), 5.6, 5.10, 5.16, 7.5, 8.2, 8.3, 8.4, 8.6, 8.9, 8.12 and 8.13, which Sections shall survive the termination of this Agreement. 7.6. Extension; Waiver. At any time prior to the Effective Time, any ----------------- party hereto, by action taken by its Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto; (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto; and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE VII GENERAL PROVISIONS 8.1. Nonsurvival of Representations, Warranties and Agreements. All --------------------------------------------------------- representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall be deemed to the extent expressly provided herein to be conditions to the Merger and, shall not survive the Merger, provided, however, that the agreements contained in Sections 1.4, 1.5, 1.6, 1.8, 1.9, Article II, 5.11, 5.12, 5.14, 5.15 and 5.17 and this Article 8 and the agreements delivered pursuant to this Agreement shall survive the Merger. 8.2. Notices. Any notice required to be given hereunder shall be ------- sufficient if in writing, and sent by facsimile transmission and by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), addressed as follows: (i) if to West Pac, to it at: Western Pacific Airlines, Inc. 2864 South Circle Drive Suite 1100 Colorado Springs, Colorado 80906 Telecopier No.: (719) 527-7259 Telephone No.: (719) 527-7421 Attention: Robert A. Peiser 46 with a copy to: D'Ancona & Pflaum 30 North LaSalle Street Suite 2900 Chicago, Illinois 60602 Telecopier No.: (312) 580-0923 Telephone No.: (312) 580-2111 Attention: Allan J. Reich (ii) if to Frontier, to it at: Frontier Airlines, Inc. 12015 East 46th Avenue, Suite 200 Denver, Colorado 80239-3116 Telecopier No.: (303) 371-9669 Telephone No.: (303) 371-7400 Attention: Samuel D. Addoms with a copy to: Parcel Mauro, Hultin & Spaanstra, P.C. 1801 California Street, Suite 3600 Denver, Colorado 80202-2636 Telecopier No.: (303) 295-3040 Telephone No.: (303) 292-6400 Attention: Douglas R. Wright or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. 8.3. Assignment, Binding Effect. Neither this Agreement nor any of the -------------------------- rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective permitted successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except for the provisions of Sections 1.4, 1.5, 1.6, 1.7, 5.11, 5.14 and 5.15, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 8.4. Entire Agreement. This Agreement, the Exhibits, the Frontier ---------------- Disclosure Schedule, the West Pac Disclosure Schedule, the Confidentiality Agreement and any documents delivered by the parties in connection herewith constitute the entire agreement among the parties with respect to the 47 subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 8.5. Amendment. This Agreement may be amended by the parties hereto, by --------- action taken by their respective Boards of Directors, at any time before or after approval of matters presented in connection with the Merger by the stockholders of Frontier and West Pac, but after any such stockholder approval, no amendment shall be made which by law requires the further approval of stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 8.6. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware without regard to its rules of conflict of laws. Each of Frontier and West Pac hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Delaware and of the United States of America located in the State of Delaware (the "Delaware Courts") for any litigation arising out of or --------------- relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Delaware Courts and agrees not to plead or claim in any Delaware Court that such litigation brought therein has been brought in an inconvenient forum. 8.7. Counterparts. This Agreement 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 one and the same instrument. 8.8. Headings. Headings of the Articles and Sections of this Agreement -------- are for the convenience of the parties only and shall be given no substantive or interpretive effect whatsoever. 8.9. Interpretation. In this Agreement, unless the context otherwise -------------- requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. 8.10. Waivers. Except as provided in this Agreement, no action taken ------- pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 8.11. Incorporation of Exhibits. The Frontier Disclosure Schedule, the ------------------------- West Pac Disclosure Schedule and all Exhibits attached hereto and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. 48 8.12. Severability. Any term or provision of this Agreement which is ------------ invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 8.13. Enforcement of Agreement. The parties hereto agree that irreparable ------------------------ damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any Delaware Court, this being in addition to any other remedy to which they are entitled at law or in equity. 49 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. WESTERN PACIFIC AIRLINES, INC. FRONTIER AIRLINES, INC. By: _______________________ By: _______________________ Title: _______________________ Title: _______________________ No schedules or exhibits mentioned in this Agreement are being filed with SEC. The Registrant hereby agrees to furnish supplementally a copy of any schedule or exhibit to the SEC upon request. 50 EX-23 20 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23 INDEPENDENT AUDITOR'S CONSENT THE STOCKHOLDERS AND BOARD OF DIRECTORS FRONTIER AIRLINES, INC.: We consent to the incorporation by reference in the registration statement (No. 333-07699) on Form S-3 and registration statement (No. 333-13333) on Form S-8 of Frontier Airlines, Inc. of our report dated June 20, 1997, except as to Note 12, which is as of June 30, 1997, relating to the balance sheets of Frontier Airlines, Inc. as of March 31, 1997, and the related statements of operations, stockholder's equity, and cash flows for each of the years ended March 31, 1997 and 1996, which report appears in March 31, 1997, annual report on Form 10-KSB of Frontier Airlines, Inc. [SIGNATURE OF KPMG PEAT MARWICK LLP APPEARS HERE] KPMG Peat Marwick LLP Denver, Colorado July 10, 1997 EX-27 21 FINANCIAL DATA SCHEDULE
5 YEAR YEAR MAR-31-1997 MAR-31-1996 APR-01-1996 APR-01-1995 MAR-31-1997 MAR-31-1996 10,286,453 6,359,254 0 0 7,582,105 5,904,299 71,713 32,141 997,102 569,176 31,470,014 25,797,029 6,174,942 2,747,599 1,833,960 764,539 44,092,545 30,990,191 32,744,835 25,844,576 0 0 0 0 0 0 8,844 5,421 9,874,059 4,695,599 44,092,545 30,990,191 0 0 116,500,634 70,392,575 0 0 129,662,086 76,325,239 37,953 46,103 0 0 20,435 22,671 0 0 0 0 (12,186,332) (5,581,682) 0 0 0 0 0 0 (12,186,332) (5,581,682) 1.49 1.23 0 0
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