-----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, JWOmF2f5jpCwsLmsSWCZKHn8+Xf9ZrtrjlF7MERJGMGmJGL1wB/I4vnY41QVubPY sv+SaqSxJCCD39JR0+O2EA== 0000904020-99-000005.txt : 19990325 0000904020-99-000005.hdr.sgml : 19990325 ACCESSION NUMBER: 0000904020-99-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC COAST AIRLINES HOLDINGS INC CENTRAL INDEX KEY: 0000904020 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 133621051 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21976 FILM NUMBER: 99570808 BUSINESS ADDRESS: STREET 1: 515 A SHAW ROAD CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7039256000 MAIL ADDRESS: STREET 1: 515 A SHAW ROAD STREET 2: ONE EXPORT DRIVE CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: ATLANTIC COAST AIRLINES INC DATE OF NAME CHANGE: 19930507 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 0-21976 ATLANTIC COAST AIRLINES HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 13-3621051 (State of incorporation) (IRS Employer Identification No.) 515-A Shaw Road, Dulles, Virginia 20166 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 925-6000 Securities registered pursuant to Section 12(b) of the Act: Common Stock par value $ .02 NASDAQ National Market (Title of Class) (Name of each exchange on which registered) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ____ The aggregate market value of voting stock held by nonaffiliates of the registrant as of March 1, 1999 was approximately $358,046,414. As of March 1, 1999 there were 20,925,359 shares of Common Stock of the registrant issued and 19,452,859 shares of Common Stock were outstanding. Documents Incorporated by Reference Certain portions of the document listed below have been incorporated by reference into the indicated part of this Form 10-K. Document Incorporated Part of Form 10-K Proxy Statement for 1999 Annual Meeting of Shareholders Part III, Items 10-13 PART I Item 1. Business General This Annual Report on Form 10-K contains forward looking statements. Statements in the Summary of Company Business Strategy and Management's Discussion and Analysis of Operations and Financial Condition sections of this filing, together with other statements beginning with such words as "believes", "intends", "plans", and "expects" include forward-looking statements that are based on management's expectations given facts as currently known by management. Actual results may differ materially. Factors that could cause the Company's future results to differ materially from the expectations described herein include the response of the Company's competitors to the Company's business strategy, market acceptance of regional jet ("RJ") service to new destinations, the cost of fuel, the weather, satisfaction of regulatory requirements and general economic and industry conditions. Atlantic Coast Airlines Holdings, Inc. ("ACAI"), is the holding company of Atlantic Coast Airlines ("ACA"), together, (the "Company"), a large regional airline, serving 51 destinations in 24 states in the Eastern and Midwestern United States as of March 1, 1999 with 530 scheduled non-stop flights system-wide every weekday. The Company markets itself as "United Express" and is the only code- sharing regional airline for United Airlines, Inc. ("United") operating as United Express in the Eastern United States. The Company caters primarily to business travelers with its principle operations at Washington-Dulles International Airport ("Washington- Dulles"), which serves the Northern Virginia and Washington, D.C. markets. In August 1998, the Company began operating as United Express from Chicago's O'Hare International Airport ("Chicago- O'Hare") and, as of December 31, 1998, served six cities from Chicago-O'Hare. The Company coordinates its schedules with United, particularly at Washington-Dulles, where United operates 75 daily departures to 32 destinations in the U.S., Europe and Latin America and at Chicago-O'Hare, where United operates 519 daily departures to 105 destinations in the U.S., Europe, Asia and Latin America. As of March 1, 1999, the Company operated a fleet of 75 aircraft (15 regional jets and 60 turboprop aircraft) having an average age of approximately five years. Summary of Company Business Strategy The Company's long-term corporate objective is to achieve sustained earnings growth by focusing its resources in the following areas: 1. Continue to capitalize on and grow the Company's identity with United: The Company intends to capitalize on and promote its code-sharing relationship with United, which has already contributed significantly to the Company's growth. The Company markets itself as "United Express" under its United Express Agreements ("Agreements") with United. The Agreements, as further described under "United Express Agreement", provide the Company with a shared market identity with United, allow the Company to list its flights under United's two letter flight designator code in airline Computer Reservation Systems ("CRSs") and other published schedules and to award United's "Mileage Plus" frequent flyer miles to its passengers. The Company coordinates its schedules with United, and participates with United in cooperative advertising and marketing agreements. In most cities served by the Company other than Washington-Dulles and Chicago-O'Hare, United provides all airport facilities and related ground support services to the Company. The Company also participates in United's "Apollo" reservation system and all major CRSs, uses the United Express logo and has exterior aircraft paint schemes similar to those of United. 2. Continued implementation of the regional jet fleet: During 1998, the Company placed into service nine additional 50-seat RJs, confirmed the delivery for five of the six outstanding conditionally ordered RJs, and converted an additional 20 option orders to firm deliveries. This brings the total number of firm ordered RJs to 43 with remaining option RJs totaling 27. The future delivery schedule of the remaining undelivered firm ordered RJ aircraft is as follows: For 1999, one RJ was delivered in January and eight additional RJs are scheduled for delivery between March and December. Nine aircraft are scheduled for delivery in 2000 and eleven are scheduled for delivery in 2001. The Company has utilized the RJ to complement its route system by initiating service from Washington-Dulles to markets beyond the economic operating range of turboprop aircraft and selectively deploying the RJ to its existing turboprop routes in the short-haul, high-density East Coast markets. This has provided additional connecting passengers to the Company's turboprop flights and to United's jets flying from Washington-Dulles. During 1998, the Company also initiated RJ service at Chicago's O'Hare airport providing connecting service to United's large hub operation. Operating as United Express with all RJ aircraft, as of March 1, 1999 the Company offered non-stop flights from Chicago-O'Hare to Charleston, WV; Springfield, MO; Wilkes- Barre/Scranton, PA; Sioux Falls, SD; Fargo, ND; and Peoria, IL. 3. Continue to emphasize operational safety and efficiency: During the last four years, the Company has worked with the Federal Aviation Administration ("FAA") to develop a prototype Crew Resource Management ("CRM") training program for the airline industry called Advanced Crew Resource Management ("ACRM"). The research team concluded that developing and training ACRM procedures has a significant advantage over traditional CRM training methods like those being used at most commercial airlines. The Company and the research team developed specific ACRM procedures allowing the crews to use ACRM skills on a daily basis. The Company anticipates that it will continue to work with the FAA on developing new methods for training and evaluating the effectiveness of pilot performance. The Company equipped its turboprop aircraft with an automated aircraft time reporting system which enables the Company to more efficiently communicate with flight crews and further automate the flight tracking process. The Company intends to install an automatic aircraft time reporting system in its RJs as early as the fourth quarter 1999. This system improves the timeliness and accuracy of flight information communicated and displayed to the Company's passengers. The Company has initiated the utilization of global positioning satellite technology ("GPS") and flight management systems ("FMS") onboard its aircraft. With the entire fleet of regional jets and turboprop aircraft equipped with FMS, the Company believes it has improved safety and efficiency. The first 22 of 96 GPS routes between Dulles and other markets were implemented in 1998 with the remaining routes expected to be implemented in the second quarter 1999. These routes, combined with the continued success of FMS procedure development for Washington-Dulles, have reduced the number of required miles flown by ACA aircraft while reducing pilot and air traffic controller workload. In 1999, the Company intends to implement more FMS procedures at Washington-Dulles which will increase the capacity and efficiency of Washington-Dulles' airspace. In 1998 the Company signed an agreement for participation in an airline safety program called Flight Operational Quality Assurance ("FOQA"). FOQA programs obtain and analyze certain data, recorded during flights, to improve many aspects of flight operations, including flight crew performance, training programs, operating and Air Traffic Control ("ATC") procedures, airport maintenance and design as well as aircraft design. Markets As of March 1, 1999, the Company scheduled 232 non-stop flights from Washington-Dulles which was more flights from that airport than any other airline. During 1998, the Company accounted for more passenger boardings from Washington-Dulles than any airline other than United. On a combined basis, the Company and United generated approximately 57% of passenger traffic at Washington- Dulles during 1998. The Company's top four airports based on frequency of operations are Washington-Dulles, Chicago O'Hare, New York-JFK and Newark. During 1998, the Company added new routes from Washington- Dulles and commenced operations at Chicago-O'Hare. The Company increased operations in existing Washington-Dulles markets by 22 daily departures and added new service to six cities: Indianapolis, IN; Greenville/Spartanburg, SC; and Savannah, GA with RJs, and Wilkes-Barre/Scranton, PA; Wilmington, NC; and Worcester, MA with turboprop aircraft. During 1998, the Company also replaced or complemented turboprop service with RJ service in the following markets: Charleston, SC; Charleston, WV; Portland, ME; Raleigh- Durham, NC; Detroit, MI; and Hartford, CT. The Company commenced operations at Chicago-O'Hare on August 3, 1998 with non-stop RJ service to Charleston, WV. Additional Chicago-O'Hare non-stop all RJ service was added to: Springfield/Branson, MO; Wilkes- Barre/Scranton, PA; Fargo, ND; Sioux Falls, SD; and Peoria, IL. In 1998, the Company ceased operations to Worcester, MA. In January 1999, the Company ceased operations to Atlanta, GA and Tampa, FL. The following table sets forth the destinations served by the Company as of March 1, 1999: Washington-Dulles (To/From) Albany, NY Manchester, NH Allentown, PA Nashville, TN Baltimore, MD New York, NY (Kennedy) Binghamton, NY New York, NY (LaGuardia) Buffalo, NY Newark, NJ Burlington, VT** Newport News, VA Charleston, SC** Norfolk, VA Charleston, WV** Philadelphia, PA Charlottesville, VA Pittsburgh, PA Cleveland, OH Portland, ME* Columbia,SC (Effective Providence, RI 5/25/99)* Columbus, OH** Raleigh-Durham, NC** Dayton, OH** Richmond, VA Detroit, MI** Roanoke, VA Fort Myers, FL* Rochester, NY Greensboro, NC Savannah, GA* Greenville/Spartanburg, SC* State College, PA Harrisburg, PA Stewart, NY Hartford, CT** Syracuse, NY Indianapolis, IN* Westchester County, NY Jacksonville, FL* Wilkes-Barre/Scranton, PA Knoxville, TN Wilmington, NC Lynchburg, VA
Chicago-O'Hare (To/From) Charleston, WV* Sioux Falls, SD* Fargo, ND* Springfield/Branson, MO* Peoria, IL* Wilkes-Barre/Scranton, PA* Savannah, GA (Effective 5/17/99) *
Other Routes Served New York, NY (Kennedy) to: Boston, MA; Baltimore, MD; Rochester, NY Boston, MA to Stewart, NY * Denotes all RJ service ** Denotes mixture of RJ and turboprop service United Express Agreements The Company's United Express Agreements ("Agreements") define the Company's relationship with United. The Agreements authorize the Company to use United's "UA" flight designator code to identify its flights and fares in the major CRSs, including United's "Apollo" reservation system, to use the United Express logo and exterior aircraft paint schemes and uniforms similar to those of United, and to otherwise advertise and market its association with United. In December 1998, the Company and United agreed to a ten year extension of the Agreements. Prior to March 31, 2004, United may terminate the Agreements at any time if the Company fails to maintain certain performance standards, and may terminate without cause after March 31, 2004 by providing one year's notice to the Company. If by January 2, 2001 United has not given the Company the ability to operate regional jets of 44 seats or less seating capacity as United Express, in addition to its allocation of 50 seat regional jets, the Company may terminate the Agreements as of March 31, 2004. The Company would be required to provide notice of termination prior to January 2, 2002, which notice would be void if United ultimately grants such authority prior to January 2, 2002. Under the terms of the Agreements, the Company pays United monthly fees based on the total number of revenue passengers boarded by the Company on its flights for the month. The fee per passenger is subject to periodic increases during the duration of the ten year extension period. Company passengers may participate in United's "Mileage Plus" frequent flyer program and are eligible to receive a certain minimum number of United frequent flyer miles for each of the Company's flights. Mileage Plus members are also eligible to redeem their awards on the Company's route system. In 1998, approximately 56% of the Company's passengers participated in United's "Mileage Plus" frequent flyer program. The Company limits the number of "Mileage Plus" tickets that may be used on its flights and believes that the displacement, if any, of revenue passengers is minimal. The Agreements also provide for coordinated schedules and through-fares. A through-fare is a fare offered by a major air carrier to prospective passengers who, in order to reach a particular destination, transfer between the major carrier and its code-sharing partner. Generally, these fares are less expensive than purchasing the combination of local fares. United establishes all through-fares and allows the Company a portion of these fares on a fixed rate or formula basis subject to periodic adjustment. The Agreements also provide for interline baggage handling, and for reduced airline fares for eligible United and Company personnel and their families. Pursuant to the Agreements, United provides a number of additional services to the Company. These include publication of the fares, rules and related information that are part of the Company's contracts of carriage for passengers and freight; publication of the Company's flight schedules and related information; provision of toll-free reservations services; provision of ground support services at most of the airports served by both United and the Company; provision of ticket handling services at United's ticketing locations; provision of airport signage at airports where both the Company and United operate; provision of United ticket stock and related documents; provision of expense vouchers, checks and cash disbursements to Company passengers inconvenienced by flight cancellations, diversions and delays; and cooperation in the development and execution of advertising, promotion, and marketing efforts featuring United Express and the relationship between United and the Company. The Agreements require the Company to obtain United's consent to operate service between city pairs as "United Express". If the Company experiences net operating expenses that exceed revenues for three consecutive months on any required route, the Company may withdraw from that route if United and the Company are unable to negotiate an alternative mutually acceptable level of service for that route. The Agreements also require the Company to obtain United's approval if it chooses to enter into code-sharing arrangements with other carriers, but do not prohibit United from competing, or from entering into agreements with other airlines who would compete, on routes served by the Company. The Agreements restrict the ability of the Company to merge with another company or dispose of certain assets or aircraft without offering United a right of first refusal to acquire the Company or such assets or aircraft. United also has a right of first refusal with respect to issuance by the Company of shares of its Common Stock if, as a result of the issuance, certain of the Company's stockholders and their permitted transferees do not own at least 50% of the Company's Common Stock after such issuance. Because the holdings of these stockholders and their permitted transferees are currently substantially less than 50%, management believes that such a right is unlikely to be exercised. Fleet Description Fleet Expansion: As of March 1, 1999, the Company operated a fleet of 15 RJs and 60 turboprop aircraft, consisting of 32 British Aerospace Jetstream-41 ("J-41s") and 28 British Aerospace Jetstream-32 ("J-32s"). As of March 1, 1999, the Company had a total of 28 RJs on order from Bombardier, Inc., in addition to the 15 already delivered, and held options for 27 additional RJs. During 1998, the Company converted five of the six conditional orders and converted 20 option aircraft to firm orders. Of the remaining 28 firm aircraft deliveries, eight are scheduled for the remainder of 1999, nine are scheduled for 2000, and eleven are scheduled for 2001. Fleet Composition: The following table describes the Company's fleet of aircraft, scheduled deliveries and options as of March 1, 1999: Number of Passenger Average Future
Aircraft Capacity Age in Scheduled Years Deliveries / Options Canadair 15 50 1.0 28/27 Regional Jets British 32 29 4.2 - Aerospace J-41 British 28 19 9.1 - Aerospace J-32 75 5.4 28/27
The Company is continually assessing its fleet requirements, including the feasibility of operating less than 50- seat regional jets. The Company requires United's approval for the addition of regional jet aircraft that exceed its current allocation. The Company previously announced that it is exploring alternatives to accelerate the retirement of its fleet of 28 leased 19 seat J-32 aircraft. The Company is assessing plans to target the phase-out of the J-32 from its United Express operation by the end of 2001. As of March 1, 1999, the Company has J-32 operating lease commitments with remaining lease terms ranging from three to seven years and related minimum lease payments of approximately $47 million. The Company intends to complete its analysis of a phase- out plan, including quantification of any one-time fleet rationalization charge, during 1999. Lufthansa Agreement The Company has a code-sharing agreement with Lufthansa German Airlines ("Lufthansa"), which permits Lufthansa to place its airline code on flights operated by the Company. Additionally, Lufthansa is a member of the STAR Alliance, a global airline alliance, comprised of United, Air Canada, Ansett, SAS, Thai and Varig. The United Express-Lufthansa agreement provides a wide range of benefits for code-share passengers including the ability to check- in once at their initial departure city and receive boarding passes and seat assignments for the flights on both carriers while their luggage is automatically checked through to their final destination. Members of the Lufthansa Miles & More frequent flyer program receive mileage credit for these flights. The following markets served by the Company now carry both the United (UA) and Lufthansa (LH) designator codes on selected flights: Washington-Dulles to: Charlottesville, VA; Cleveland, OH; Charleston, WV; Fort Myers, FL; Greensboro, NC; Greenville, SC; Jacksonville, FL; Nashville, TN; Newport News, VA; Norfolk, VA; Pittsburgh, PA; Raleigh-Durham, NC; Richmond, VA; Roanoke, VA; Savannah, GA; and Syracuse, NY; Chicago-O'Hare to; Springfield, MO. Fuel The Company has not experienced difficulties with fuel availability and expects to be able to obtain fuel at prevailing prices in quantities sufficient to meet its future requirements. During 1998, the Company purchased approximately 50% of its fuel from United Aviation Fuels Corporation ("UAFC"), an affiliate of United, utilizing fixed price forward purchase agreements for the delivery of 33,000 barrels of jet fuel per month at Washington- Dulles. For the first six months of 1999, the Company has hedged the price it will ultimately record as fuel expense for approximately 80% of its anticipated fuel requirements by entering into contracts with independent counterparties that reduce the Company's exposure to upward movements in the price per gallon of jet fuel. The Company has also contracted with UAFC and other fuel suppliers to provide jet fuel at the airports it serves at prevailing market prices. Marketing The Company's advertising and promotional programs emphasize the Company's close affiliation with United, including coordinated flight schedules and the ability of the Company's passengers to participate in United's "Mileage Plus" frequent flyer program. The Company's services are marketed primarily by means of listings in CRSs and the Official Airlines Guide, advertising and promotions, and through direct contact with travel agencies and corporate travel departments. For the year ended December 31, 1998, approximately 72% of the Company's passenger revenue was derived from ticket sales generated through travel agencies and corporate travel departments. In marketing to travel agents, the Company relies on personal contacts and direct mail campaigns, provides familiarization flights and hosts group presentations and other functions to acquaint travel agents with the Company's services. Many of these activities are conducted in cooperation with United marketing representatives. In addition, the Company and United jointly run radio and print advertising in markets served by the Company. The Company participates in United's electronic ticketing program. This program allows customers to travel on flights of United and the Company without the need for a paper ticket. The primary benefit of this program is improved customer service and reduced ticketing costs. For the year ended December 31, 1998, 43.5% of the Company's passengers utilized electronic tickets up from 25.6% for the year ended December 31, 1997. Competition The Company competes primarily with regional and major air carriers as well as with ground transportation. The Company's competition from other air carriers varies by location, type of aircraft (both turboprop and jet), and in certain cities, comes from carriers which serve the same destinations as the Company but through different hubs. The Company believes that its ability to compete in its market areas is strengthened by its code-sharing relationship with United, which has a substantial presence at Washington-Dulles, thereby enhancing the importance of the "UA" flight designator code on the East Coast. The Company competes with other airlines by offering frequent flights. In addition, the Company's competitive position benefits from the large number of participants in United's "Mileage Plus" frequent flyer program who fly regularly to or from the markets served by the Company. In late 1998, US Airways announced its intention to increase activity at Washington-Dulles utilizing its mainline service, lowfare MetroJet product, and its US Airways Express affiliates. US Airways has since implemented or announced service to eight of the Company's markets using both jet and turboprop equipment. In two of the Company's existing markets, MetroJet will provide the service at a significantly lower fare structure. The Company continually monitors the effects competition has on its routes, fares and frequencies. The Company believes that it can compete effectively with US Airways, however there can be no assurances that US Airways expansion at Washington-Dulles will not have a material adverse effect on the Company's results of operations or financial position. In early 1999, United announced its intention to increase its level of activity at Washington-Dulles by 60% beginning in April and May 1999. The Company believes that United's announced increase will add approximately 7,000 additional daily seat departures to the United/United Express operation at Washington-Dulles. The Company, in concert with United, also announced either increased frequencies or upgraded equipment, or both, in all of its markets affected by the US Airways expansion. The Airline Deregulation Act of 1978 ("Deregulation Act") eliminated many regulatory constraints on airline competition, thereby freeing airlines to set prices and, with limited exceptions, to establish domestic routes without the necessity of seeking government approval. The airline industry is highly competitive, and there are few barriers to entry in the Company's markets. Furthermore, larger carriers with greater resources can impact the Company's markets through fare discounting as well as flight schedule modifications. Yield Management The Company closely monitors its inventory and pricing of available seats by use of a computerized yield management system. Effective with flights departing after January 31, 1999, the Company upgraded its yield management system to United's enhanced revenue management system, "Orion". This system represents the latest in revenue management technology and is designed to manage entire passenger itineraries rather than individual flight legs. The Company now is able to expand the number of booking classes available on its flights. These expanded booking classes will allow the Company to broaden the number of fare categories offered to customers, while simplifying booking procedures. Orion uses an advanced derivative of IBM's "Deep Blue" computer technology to process the large number of complex calculations involved in this analysis. Orion replaces the PROS IV yield management system that the Company had implemented in the second quarter 1997. Slots Slots are reservations for takeoffs and landings at specified times and are required by governmental authorities to operate at certain airports. The Company utilizes takeoff and landing slots at Chicago-O'Hare and the LaGuardia, Kennedy and White Plains, New York airports. The Company also uses slot exemptions at Chicago-O'Hare, which differ from slots in that they allow service only to designated cities and are not transferable to other airlines without the approval of the U.S. Department of Transportation ("DOT"). Airlines may acquire slots by governmental grant, by lease or purchase from other airlines, or by loan when another airline does not use a slot but desires to avoid governmental reallocation of a slot for lack of use. All leased and loaned slots are subject to renewal and termination provisions. As of March 1, 1999 the Company utilized 18 slots at LaGuardia, 15 slots at Kennedy, 30 slots or slot exemptions at Chicago-O'Hare, and six slots at White Plains. These slots can be withdrawn without compensation under certain circumstances. Employees As of March 1, 1999, the Company had 1,918 full-time and 296 part-time employees, classified as follows:
Classification Full- Part- Time Time Pilots 750 - Flight attendants 224 - Station personnel 441 267 Maintenance personnel 208 4 Administrative and 285 25 clerical personnel Management 10 - Total employees 1,918 296
The Company's pilots are represented by the Airline Pilots Association ("ALPA"), its flight attendants by the Association of Flight Attendants ("AFA"), and its mechanics by the Aircraft Mechanics Fraternal Association ("AMFA"). The ALPA collective bargaining agreement was amended on February 26, 1997 and is amendable after three years. The amended contract modified work rules to allow more flexibility, includes regional jet pay rates, and transfers pilots into the Company's employee benefit plans. The AMFA was certified as the collective bargaining representative elected by mechanics and related employees of the Company in 1994. On June 22, 1998, the Company's mechanics ratified an initial four year contract. The new contract includes a pay scale comparable to the Company's peers in the regional airline industry, and a one-time signing bonus, and allows the mechanics to participate in the Company's employee benefit plans. The Company's contract with the AFA became amendable on April 30, 1997. An agreement was negotiated and agreed to between the Company and AFA during 1998, and was ratified by the Company's flight attendants on October 11, 1998. The new agreement is for a four year duration and provides for a higher than previously provided starting pay rate and a pay scale and per diem rate comparable to the Company's peers in the regional airline industry. The Company believes that the wage rates and benefits for other employee groups are comparable to similar groups at other regional airlines. The Company also believes that the incremental costs as a result of the new and amended contracts will not have any material effect on the Company's financial position or results of its operations over the life of the agreements. The Company is unaware of any significant organizing activities by labor unions among its other non-union employees at this time. As the Company continues to pursue its growth strategy, its employee staffing needs and recruitment efforts are expected to increase commensurately. Due to competitive local labor markets and normal attrition to the major airlines, there can be no assurance that the Company will be able to satisfy its hiring requirements. The Company has committed additional resources to its employee recruiting and retention efforts. In 1998, the Company began to pay for new hire pilot training. Annual turnover of Company pilots was approximately 10% during 1998, compared to 11% during 1997. Pilot Training The Company performs pilot training in state-of-the-art, full motion simulators and conducts training in accordance with FAA Part 121 regulations. In 1993, the Company initiated an Advanced Qualification Program ("AQP") to enhance pilot performance in both technical and CRM skills. The FAA has recognized the Company's leadership in CRM training and selected the Company to participate in a FAA sponsored training grant called ACRM. The Company and the grant team were successful in introducing improvements in CRM and AQP training that have benefited not only the Company, but also the entire airline industry. In December 1998, the Company entered into an agreement with Pan Am International Flight Academy ("PAIFA") to provide simulator training for the Company's RJ program. Under terms of the agreement, PAIFA will develop a comprehensive training facility to be based near the Company's headquarters in Loudoun County, VA. This facility is expected to be completed during the fourth quarter of 1999. The Company has committed to purchase an annual minimum number of simulator training hours for a period of ten years at a guaranteed fixed price once the facility receives FAA certification. The Company's payment obligations for the next ten years are approximately $13 million. Regulation Economic. With the passage of the Deregulation Act, much of the regulation of domestic airline routes and rates was eliminated. DOT still has extensive authority to issue certificates authorizing carriers to engage in air transportation, establish consumer protection regulations, prohibit certain unfair or anti- competitive pricing practices, mandate conditions of carriage and make ongoing determinations of a carrier's fitness, willingness and ability to provide air transportation. The DOT can also bring proceedings for the enforcement of its regulations under applicable federal statutes, which proceedings may result in civil penalties, revocation of operating authority or criminal sanctions. The Company holds a certificate of public convenience and necessity, issued by the DOT, that authorizes it to conduct air transportation of persons, property and mail between all points in the United States, its territories and possessions. This certificate requires that the Company maintain DOT-prescribed minimum levels of insurance, comply with all applicable statutes and regulations and remain continuously "fit" to engage in air transportation. Based on conditions in the industry, or as a result of Congressional directives or statutes, the DOT from time to time proposes and adopts new regulations or amends existing regulations which new or amended regulations may impose additional regulatory burdens and costs on the Company. The DOT has also enacted rules establishing guidelines for setting reasonable airport charges and procedural rules for challenging such charges. The DOT has adopted a compliance policy regarding the increasing use of ticketless travel and the consumer- related notices that must be supplied to passengers before travel. The DOT has also proposed rules to implement a statutory directive and a Presidential Commission recommendation to improve notice to families of passengers involved in aviation accidents. The DOT is considering the means by which it will require domestic and international carriers to collect additional passenger-related information, including emergency contact names and telephone numbers and other identifying information. The DOT has estimated that the cost to the industry of obtaining this information from each passenger could be significant. Safety. The FAA extensively regulates the safety-related activities of air carriers. The Company is subject to the FAA's jurisdiction with respect to aircraft maintenance and operations, equipment, ground facilities, flight dispatch, communications, training, weather observation, flight personnel and other matters affecting air safety. To ensure compliance with its regulations, the FAA requires that airlines under its jurisdiction obtain an operating certificate and operations specifications for the particular aircraft and types of operations conducted by such airlines. The Company possesses an Air Carrier Certificate issued by the FAA and related authorities authorizing it to conduct operations with turboprop and turbojet equipment. The Company's authority to conduct operations is subject to suspension, modification or revocation for cause. The FAA has authority to bring proceedings to enforce its regulations, which proceedings may result in civil or criminal penalties or revocation of operating authority. From time to the time, the FAA conducts inspections of air carriers with varying degrees of intensity. The Company underwent an intensive, two-week FAA Regional Aerospace Inspection Program ("RASIP") audit during the fourth quarter of 1997. The final audit report consisted of recommendations and minor findings, none of which resulted in civil penalties. The Company responded to the findings and believes that it has met and continues to meet the required standards for safety and operational performance. The Company's airline operations will continue to be audited by the FAA for compliance with applicable safety regulations. In order to ensure the highest level of safety in air transportation, the FAA has authority to issue maintenance directives and other mandatory orders relating to, among other things, inspection of aircraft and the mandatory removal and replacement of parts that have failed or may fail in the future. In addition, the FAA from time to time amends its regulations. Such amended regulations may impose additional regulatory burdens on the Company such as the installation of new safety-related items. Depending upon the scope of the FAA's order and amended regulations, these requirements may cause the Company to incur substantial, unanticipated expenses. The FAA requires air carriers to adopt and enforce procedures designed to safeguard property, ensure airport security and screen passengers to protect against terrorist acts. The FAA, from time to time, imposes additional security requirements on air carriers and airport authorities based on specific threats or world conditions or as otherwise required. The Company incurs substantial expense in complying with current security requirements and it cannot predict what additional security requirements may be imposed in the future or the cost of complying with such requirements. Associated with the FAA's security responsibility is its program to ensure compliance with rules regulating the transportation of hazardous materials. The Company neither accepts nor ships hazardous materials or other dangerous goods. Employees of the Company are trained in hazardous materials and dangerous goods recognition through a FAA approved training course. The FAA enforces its hazardous material regulations by the imposition of civil penalties, which can be substantial. Other Regulation. In the maintenance of its aircraft fleet and ground equipment, the Company handles and uses many materials that are classified as hazardous. The Environmental Protection Agency and similar local agencies have jurisdiction over the handling and processing of these materials. The Company is also subject to the oversight of the Occupational Safety and Health Administration concerning employee safety and health matters. The Company is subject to the Federal Communications Commission's jurisdiction regarding the use of radio frequencies. The Airport Noise Control Act ("ANCA") requires that airlines phase-out the operation of certain types of aircraft. None of the Company's aircraft are subject to the phase-out provisions of ANCA. While ANCA generally preempts airports from imposing unreasonable local noise rules that restrict air carrier operations, airport operators may implement reasonable and nondiscriminatory local noise abatement procedures, which procedures could impact the ability of the Company to serve certain airports, particularly in off-peak hours. Certain local noise rules adopted prior to ANCA were grandfathered under the statute. Federal Excise Taxes. Ticketing airlines are obligated to collect a U.S. transportation excise tax on passenger ticket sales. This tax, known as the aviation trust tax or the "ticket tax" is used to defray the cost of FAA operations and other aviation programs. Beginning on October 1, 1997, a revised formula for determining the ticket tax took effect. Under this revised formula, the ticket tax is now comprised of a percentage of the passenger ticket price plus a flat fee for each segment flown, and will be adjusted annually. For the period from October 1, 1997 through September 30, 1998, the ticket tax was equal to nine percent of passenger ticket price plus $1 per segment. Beginning October 1, 1998, the ticket tax was eight percent of passenger ticket price plus $2 per segment. Seasonality As is common in the industry, the Company experiences lower demand for its product during the period of December through February. Because the Company's services and marketing efforts are focused on the business traveler, this seasonality of demand is somewhat greater than for airlines which carry a larger proportion of leisure travelers. In addition, the Company's principal geographic area of operations experiences more adverse weather during this period, causing a greater percentage of the Company's and other airlines' flights to be canceled. These seasonal factors have combined in the past to reduce the Company's capacity, traffic, profitability, and cash generation for this three month period as compared to the rest of the year. Item 2. Properties Leased Facilities Airports The Company leases gate and ramp facilities at all of the airports it serves and leases ticket counter and office space at those locations where ticketing is handled by Company personnel. Payments to airport authorities for ground facilities are generally based on a number of factors, including space occupied as well as flight and passenger volume. In June 1998, the Company announced that the Metropolitan Washington Airports Authority ("MWAA") in coordination with the Company, will build a 69,000 square foot passenger concourse at Washington-Dulles dedicated solely to regional airline operations. The 36-gate concourse, designed to support the Company's expanding United Express operation, is scheduled to open in May 1999. MWAA will provide the permanent financing for the $18 million concourse through passenger facility charges and/or airport facility bonds, with the Company agreeing to provide short term interim financing for up to $15 million of construction costs. (See Management's Discussion and Analysis - Other Commitments) Corporate Offices The Company's leased headquarters in Dulles, VA provides over 45,000 square feet in one building for the executive, administrative, training and system control departments. The Company believes that these facilities are adequate to conduct its current and planned operations. Maintenance Facilities The FAA's safety regulations mandate periodic inspection and maintenance of commercial aircraft. The Company performs most line maintenance, service and inspection of its aircraft and engines at its maintenance facilities using its own personnel. In February 1998, the Company occupied its new 90,000 square foot aircraft maintenance facility comprised of 60,000 square feet of hangar space and 30,000 square feet of support space at Washington-Dulles. The Company has consolidated all maintenance functions to this facility which includes hangar, shop and office space necessary to maintain the Company's growing fleet. Item 3. Legal Proceedings The Company is a party to routine litigation and FAA proceedings incidental to its business, none of which is likely to have a material effect on the Company's financial position or the results of its operations. The Company was a party to an action pending in the United States District Court for the Southern District of Ohio, Peter J. Ryerson, administrator of the estate of David Ryerson, v. Atlantic Coast Airlines, Case No. C2-95-611. In September and October 1998, this action and all related litigation was settled, the cost of which was covered by insurance and was not borne by the Company. The Company is also a party to an action pending in the United States Court of Appeals for the Fourth Circuit known as Afzal v. Atlantic Coast Airlines (No. 98-1011). This action is an appeal of the December 1997 decision granted in favor of the Company in a case claiming wrongful termination of employment brought in the United States District Court for the Eastern District of Virginia known as Afzal v. Atlantic Coast Airlines (Civil Action No. 96-1537- A). The Company does not expect the outcome of this case to have any material adverse effect on its financial condition or results of its operations. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted during the fiscal quarter ended December 31, 1998, to a vote of the security holders of the Company through the solicitation of proxies or otherwise. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock, par value $.02 per share (the "Common Stock"), is traded on the Nasdaq National Market ("Nasdaq/NM") under the symbol "ACAI". Trading of the Common Stock commenced on July 21, 1993. On April 14, 1998, the Company declared a 2-for-1 stock split payable as a stock dividend on May 15, 1998. The stock dividend was contingent on shareholder approval to increase the number of authorized Common Shares from 15,000,000 to 65,000,000 shares, which was obtained at the Company's 1998 Annual Meeting. References in the Company's Annual Report on Form 10-K related to Common Shares, including price, number of shares, etc. have been adjusted to reflect the stock split. The following table sets forth the reported high and low closing sale prices of the Common Stock on the Nasdaq/NM for the periods indicated: 1997 High Low First quarter $ 8.50 $ 5.94 Second quarter $ 8.63 $ 6.13 Third quarter $11.00 $ 7.75 Fourth quarter $15.94 $ 9.25 1998 First quarter $25.38 $15.56 Second quarter $33.00 $23.50 Third quarter $35.00 $17.00 Fourth quarter $30.50 $13.25 1999 First quarter (through March 1, 1999) $35.00 $26.81
As of March 1, 1999, the closing sales price of the Common Stock on Nasdaq/NM was $30.875 per share and there were approximately 121 holders of record of Common Stock. The Company has not paid any cash dividends on its Common Stock and does not anticipate paying any Common Stock cash dividends in the foreseeable future. The Company intends to retain earnings to finance the growth of its operations. The payment of Common Stock cash dividends in the future will depend upon such factors as earnings levels, capital requirements, the Company's financial condition, the applicability of any restrictions imposed upon the Company's subsidiary by certain of its financing agreements, the dividend restrictions imposed by the Company's $35 million line of credit, and other factors deemed relevant by the Board of Directors. In addition, ACAI is a holding company and its only significant asset is its investment in its subsidiary, ACA. In July 1997, the Company issued $57.5 million aggregate principal amount of 7.0% Convertible Subordinated Notes due July 1, 2004 (the "Notes"), pursuant to Rule 144A under the Securities Act of 1933, and received net proceeds of approximately $55.6 million related to the sale of the Notes. The Notes are convertible into shares of Common Stock, par value $0.02 of the Company by the holders at any time after sixty days following the latest date of original issuance thereof and prior to maturity, unless previously redeemed or repurchased, at a conversion price of $9 per share, subject to certain adjustments. The Company may not call the Notes for redemption prior to July 1, 2000. In January 1998, $5.9 million face amounts of Notes were converted at the option of several holders into 660,826 shares of the Company's Common Stock. On March 3, 1998, the Company notified holders of the Notes that the Company was temporarily reducing the conversion price in order to induce the holders to redeem their Notes for Common Stock During the reduced conversion price period, which was effective from March 20 through April 8, 1998, $31.7 million of the Notes were converted to common stock, resulting in the issuance of 3,576,782 common shares. The reduced conversion price caused approximately 56,174 additional common shares to be issued to converting Note holders, resulting in a charge of approximately $1.4 million. As of March 1, 1999, approximately $19.8 million principal amount of Notes were outstanding, which were convertible into approximately 2.2 million shares of Common Stock. In July 1997, the Company repurchased 1.46 million shares of the Company's Common Stock from British Aerospace for $16.9 million using a portion of the proceeds received from the issuance of the Notes. Item 6. Selected Financial Data The following selected financial data under the caption "Consolidated Financial Data" and "Consolidated Balance Sheet Data" relating to the years ended December 31, 1994, 1995, 1996, 1997 and 1998 have been derived from the Company's consolidated financial statements. The following selected operating data under the caption "Selected Operating Data" have been derived from Company records. The data should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (Dollars in thousands, except per share amounts and operating data) Consolidated Financial Data: Years ended December 31, 1994 1995 1996 1997 1998 Operating revenues: Passenger revenues $156,047 $153,918 $179,370 $202,540 $285,243 Total operating 158,919 156,968 182,484 205,444 289,940 revenues Operating expenses: Salaries and related 41,590 40,702 44,438 49,661 68,135 costs Aircraft fuel 15,189 13,303 17,124 17,766 23,978 Aircraft maintenance 22,345 15,252 16,841 16,860 22,730 and materials Aircraft rentals 35,565 25,947 29,137 29,570 36,683 Traffic commissions 25,913 25,938 28,550 32,667 42,429 and related fees Facility rent and 9,598 7,981 8,811 10,376 13,475 landing fees Depreciation and 2,329 2,240 2,846 3,566 6,472 amortization Other 15,569 13,281 14,900 16,035 23,347 Write-off of 6,000 - - - - intangible assets Restructuring charges 8,099 (521) (426) - - (reversals) Total operating 182,197 144,123 162,221 176,501 237,249 expenses Operating income (loss) (23,278) 12,845 20,263 28,943 52,691 Interest expense (2,153) (1,802) (1,013) (3,450) (4,207) Interest income - 66 341 1,284 4,145 Debt conversion - - - - (1,410) expense (1) Other income 295 181 17 62 326 (expense), net Total non operating (1,858) (1,555) (655) (2,104) (1,146) expenses Income (loss) before income tax expense (25,136) 11,290 19,608 26,839 51,545 and extraordinary item Income tax provision - (1,212) 450 12,339 21,133 (benefit) Income (loss) before (25,136) 12,502 19,158 14,500 30,412 extraordinary item Extraordinary item (2) - 400 - - - Net Income (loss) $(25,136) $12,902 $19,158 $14,500 $30,412
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (Dollars in thousands, except per share amounts and operating data) Years ended December 31, 1994 1995 1996 1997 1998 Income (loss) per share: Basic: Income (loss) before $(1.84) $0.73 $1.13 $0.93 $1.68 extraordinary item Extraordinary item - 0.03 - - - Net income (loss) per $(1.84) $0.76 $1.13 $0.93 $1.68 share Diluted: Income (loss) before $(1.84) $0.65 $1.08 $0.80 $1.42 extraordinary item Extraordinary item - 0.02 - - - Net income (loss) per $(1.84) $0.67 $1.08 $0.80 $1.42 share Weighted average number of shares used in computation (in 13,716 16,684 16,962 15,647 18,128 thousands) 13,716 19,742 17,840 19,512 22,186 Basic Diluted Selected Operating Data: Departures 134,804 131,470 137,924 146,069 170,116 Revenue passengers 1,545,520 1,423,463 1,462,241 1,666,975 2,534,077 carried Revenue passenger 393,013 348,675 358,725 419,977 792,934 miles (000s) (3) Available seat miles 885,744 731,109 771,068 861,222 1,410,763 (000s) (4) Passenger load 44.3% 47.7% 46.5% 48.8% 56.2% factor (5) Breakeven passenger 47.0% 43.9% 41.4% 41.8% 45.8% load factor (6) Revenue per $0.179 $0.215 $0.237 $0.239 $0.206 available seat mile Cost per available $0.189 $0.198 $0.211 $0.205 $0.168 seat mile (7) Average yield per $0.397 $0.441 $0.500 $0.482 $0.360 revenue passenger mile (8) Average fare $101 $108 $123 $122 $113 Average passenger 254 245 245 252 313 trip length (miles) Aircraft in service 56 54 57 65 74 (end of period) Destinations served 42 41 39 43 53 (end of period) Consolidated Balance Sheet Data: Working capital $(4,488) $4,552 $17,782 $45,028 $68,130 (deficiency) Total assets 40,095 47,499 64,758 148,992 227,626 Long-term debt and capital leases, less 6,675 7,054 5,673 76,145 64,735 current portion Redeemable Series A, Cumulative, 3,825 3,825 - - - Convertible, Preferred Stock Total stockholders' 1,922 14,561 34,637 34,805 110,377 equity
[FN] 1. In connection with the induced conversion of a portion of the 7% Convertible Subordinated Notes ("Notes"), the Company recorded a non-cash, non-operating charge of approximately $1.4 million. No similar charges were recognized for the period from 1994 to 1997. 2. In connection with the early extinguishment of certain senior notes, in 1995 the Company recorded an extraordinary gain of $400,000 associated with the extinguished debt. No similar extinguishments were recognized in 1994, 1996, 1997 or 1998. 3. "Revenue passenger miles" or "RPMs" represent the number of miles flown by revenue passengers. 4. "Available seat miles" or "ASMs" represent the number of seats available for passengers multiplied by the number of scheduled miles the seats are flown. 5. "Passenger load factor" represents the percentage of seats filled by revenue passengers and is calculated by dividing revenue passenger miles by available seat miles. 6. "Breakeven passenger load factor" represents the percentage of seats needed to be filled by revenue passengers for the airline to break even after operating expenses, less other revenues and excluding restructuring and write-offs of intangible assets. Had restructuring and write-offs of intangible assets been included for the years ended December 31, 1994, 1995, 1996, 1997 and 1998, this percentage would have been 51.0%, 43.8%, 41.3%, 41.8% and 45.8%, respectively. 7. "Operating cost per available seat mile" represents total operating expenses excluding restructuring and write-offs of intangible assets divided by available seat miles. Had restructuring and write-offs of intangible assets been included for the years ended December 31, 1994, 1995, 1996, 1997 and 1998, cost per available seat mile would have been $0.206, $0.197, $0.210, $0.205 and $0.168, respectively. 8. "Average yield per revenue passenger mile" represents the average passenger revenue received for each mile a revenue passenger is carried. Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition General In 1998, Atlantic Coast Airlines Holdings, Inc. ("ACAI") and its wholly-owned subsidiary, Atlantic Coast Airlines ("ACA"), together (the "Company"), recorded a profit of $30.4 million compared to a profit of $14.5 million for 1997, and $19.2 million in 1996. The increased profitability from 1997 to 1998 is primarily the result of the Company's growth and operating margin improvement. For 1998, the Company's available seat miles ("ASM") increased 64% with the addition of nine Regional Jets ("RJs") during the year. Passenger acceptance of the RJ and the related increase in connecting traffic to turboprop flights resulted in a 52% increase in total passengers and an 89% increase in revenue passenger miles ("RPM"). The reduction in net income from 1996 to 1997 is primarily due to an increase in the Company's provision for income taxes of approximately $12.3 million in 1997 as compared to approximately $500,000 for 1996. The increase in tax expense was primarily attributable to higher levels of taxable income that could not be offset by net operating loss carryforwards that were fully utilized in 1996. Results of Operations The Company earned net income of $31.8 million (excluding a non-cash, non-operating charge of $1.4 million) or $1.49 per diluted share in 1998 compared to net income of $14.5 million or $0.80 per diluted share in 1997, and $19.2 million or $1.08 per diluted share in 1996. Net income was $30.4 million or $1.42 per diluted share including the $1.4 million charge. During 1998, the Company generated operating income of $52.7 million compared to $28.9 million for 1997, and $20.3 million for 1996. Operating margins for 1998, 1997 and 1996 were 18.2%, 14.1% and 11.1%, respectively. The improvement in operating income from 1997 to 1998 reflects a 63.8% increase in ASMs partially offset by a 13.8% decrease in unit revenue (revenue per ASM) from $0.239 to $0.206 and a 18% decrease in unit cost (cost per ASM) from $0.205 to $0.168. The improvement in operating income from 1996 to 1997 reflects a 0.8% increase in unit revenue (revenue per ASM) from $0.237 to $0.239 coupled with an 11.7% increase in ASMs and a 2.8% decrease in unit cost (cost per ASM). Fiscal Year 1997 vs. 1998 Operating Revenues The Company's operating revenues increased 41.1% to $289.9 million in 1998 compared to $205.4 million in 1997. The increase resulted from a 63.8% increase in ASMs, and an increase in load factor of 7.4 points, partially offset by a 25.3% decrease in revenue per revenue passenger mile (yield). The reduction in yield is caused principally by a 24.2% increase in the average passenger stage length from 252 miles in 1997 to 313 miles for 1998. Revenue passengers increased 52% in 1998 compared to 1997, which combined with the increase in the average passenger stage length resulted in an 88.8% increase in RPMs. Operating Expenses The Company's operating expenses increased 34.4% to $237.2 million in 1998 compared to $176.5 million in 1997 due primarily to the 63.8% increase in ASMs and the 52% increase in passengers. The increase in ASMs reflects the addition of nine RJ aircraft in 1998 and the full year effect of adding five RJs and five British Aerospace Jetstream-41 ("J-41") aircraft during 1997. A summary of operating expenses as a percentage of operating revenue and operating cost per ASM for the years ended December 31, 1997 and 1998 is as follows:
Year Ended December 31, 1997 1998 Percent Cost Percent Cost of of Operating per Operating per ASM ASM Revenues (cents Revenue (cents) ) s Salaries and related 24.2% 5.8 23.5% 4.8 costs Aircraft fuel 8.6% 2.1 8.3% 1.7 Aircraft maintenance 8.2% 2.0 7.8% 1.6 and materials Aircraft rentals 14.4% 3.4 12.7% 2.6 Traffic commissions and 15.9% 3.8 14.6% 3.0 related fees Facility rent and 5.1% 1.1 4.6% 1.0 landing fees Depreciation and 1.7% .4 2.2% .5 amortization Other 7.8% 1.9 8.1% 1.6 Total 85.9% 20.5 81.8% 16.8
Costs per ASM decreased 18% to 16.8 cents in 1998 compared to 20.5 cents in 1997 primarily due to a 63.8% increase in ASMs in 1998 compared to 1997, offset by a 52% increase in passengers carried. The increase in ASMs reflects the addition of nine RJ aircraft during 1998 and the full year effect of adding five RJs and five J-41 aircraft during 1997. Salaries and related costs per ASM decreased 17.2% to 4.8 cents in 1998 compared to 5.8 cents in 1997. In absolute dollars, salaries and related expenses increased 37.2% from $49.7 million in 1997 to $68.1 million in 1998. The increase primarily resulted from the addition of 609 full and part time employees during 1998 to support the additional aircraft. The cost per ASM of aircraft fuel decreased to 1.7 cents in 1998 compared to 2.1 cents in 1997. The total price per gallon of fuel decreased 15% to 67.4 cents in 1998 compared to 79.3 cents in 1997. In absolute dollars, aircraft fuel expense increased 35% from $17.8 million in 1997 to $24 million in 1998 reflecting a 23% increase in block hours and the higher fuel consumption per hour of a RJ aircraft versus a turboprop aircraft. The cost per ASM of aircraft maintenance and materials decreased to 1.6 cents in 1998 compared to 2.0 cents in 1997. The decreased maintenance expense per ASM resulted primarily from the addition of the RJ aircraft. In addition to generating higher ASMs, the RJ aircraft are covered by manufacturer's warranty for up to three years on certain components. The Company did not record any heavy maintenance repair costs related to the RJ aircraft. The RJ cost savings are partially offset by the increasing costs of the turboprop aircraft as they age. In absolute dollars, aircraft maintenance and materials expense increased 34.8% from $16.9 million in 1997 to $22.7 million in 1998. The cost per ASM of aircraft rentals decreased to 2.6 cents in 1998 compared to 3.4 cents in 1997. The decreased unit costs reflect the full year effect of refinancing to lower rental rates, eleven used J-41 aircraft, and the purchase of three used J- 41s all during the second half of 1997 and the refinancing of three J-41s, combined with the purchases of two RJs and one J41 aircraft during 1998. In absolute dollars, aircraft rental expense increased 24.1% to $36.7 million as compared to $29.6 million in 1997 due to the additional aircraft added to the fleet. The cost per ASM of traffic commissions and related fees decreased to 3.0 cents in 1998 as compared to 3.8 cents in 1997. The decrease reflects the reduced (from 10% to 8%) agency commission rate for domestic travel adopted in late 1997. Since substantially all passenger revenues are derived from interline sales, the Company did not begin to realize the savings from this reduction until February 1998. In addition, the Company's percentage of tickets sold by travel agents decreased year over year by approximately ten percentage points due principally to the acceptance of electronic ticketing by the travelling public. Related fees include program fees paid to United and CRS segment booking fees for reservations. In absolute dollars, traffic commissions and related fees increased 29.9% to $42.4 million in 1998 from $32.7 million in 1997. The cost per ASM of facility rent and landing fees decreased to 1.0 cent in 1998 compared to 1.1 cents in 1997. In absolute dollars, facility rent and landing fees increased 29.9% to $13.5 million for 1998 from $10.4 million in 1997. The absolute increase is the result of expansion of the Company's business to new markets and increased landing fees due to the heavier RJ aircraft. The cost per ASM of depreciation and amortization increased to 0.5 cents in 1998 compared to 0.4 cents in 1997. In absolute dollars, depreciation and amortization expense for 1998 increased 81.5% to $6.5 million from $3.6 million in 1997. The absolute increase results from the purchase of two RJ aircraft, a J- 41 aircraft and RJ rotable spare parts in 1998 for approximately $51 million and the full year effect of purchasing four J-41 aircraft and rotable spare parts in late 1997. The cost per ASM of other operating expenses decreased to 1.6 cents in 1998 compared to 1.9 cents in 1997. In absolute dollars, other operating expenses increased 45.6% to $23.3 million for 1998 from $16.0 million in 1997. This absolute increase is caused primarily by increases in crew accommodations and training costs related to the general expansion of the Company's business and increased distressed passenger expenses. During the fourth quarter 1998, the Company began to pay for new hire training. Due to the scheduled addition of six additional RJs in the first five months of 1999, the Company incurred new hire pilot training costs of approximately $678,000 in the fourth quarter 1998. The Company expects pilot training costs to continue to increase as the remaining firm ordered RJ aircraft are received. As a result of the foregoing expense items, total operating expenses were $237.2 million for 1998, an increase of 34.4% compared to $176.5 million in 1997. Total ASMs increased 63.8% year over year causing the cost per ASM to decrease from 20.5 cents in 1997 to 16.8 cents in 1998. Interest expense increased from $3.4 million in 1997 to $4.2 million in 1998. During the first part of 1998, the Company accepted for conversion into common stock approximately $38 million of its 7% Convertible Subordinated Notes ("Notes"). The reduced interest costs resulting from the debt conversion partially offset the full year effect of the debt outstanding for the purchase of four J-41s in 1997, and the issuance of new debt to acquire two RJs and one J-41 in 1998. Interest income increased from $1.3 million in 1997 to $4.1 million in 1998. This is primarily the result of the Company's significantly higher cash balances during 1998 as compared to 1997 and the capitalization of interest on the Company's outstanding aircraft deposits with the manufacturers. From March 20 through April 8, 1998, the Company temporarily reduced the conversion price from $9 to $8.86 for holders of the Notes. During this temporary period, $31.7 million of the Notes converted into approximately 3.6 million shares of common stock. As a result of this temporary price reduction, the Company recorded a $1.4 million charge to other expense during 1998 representing the fair value of the additional shares distributed upon conversion. The Company recorded a provision for income taxes of $21.1 million for 1998, compared to a provision for income taxes of $12.3 million in 1997. The 1998 effective tax rate of approximately 41% and the 1997 effective tax rate of approximately 46% are higher than the statutory federal and state rates. The higher effective tax rates reflect non-deductible permanent differences between taxable and book income. Net operating loss carryforwards were fully utilized in 1996. Fiscal Year 1996 vs. 1997 Operating Revenues The Company's operating revenues increased 12.6% to $205.4 million in 1997 compared to $182.5 million in 1996. The increase resulted from an 11.7% increase in ASMs, an increase in load factor of 2.3 points, partially offset by a 3.6% decrease in yield. The reduction in yield is related in part to the reinstatement of the federal excise ticket tax from March 7, 1997 through the remainder of the year. During 1996, this tax was only in effect from August 27, 1996 to December 31, 1996. Total passengers increased 14.0% in 1997 compared to 1996 as a result of the 11.7% increase in ASMs and 2.3 point increase in load factor. Operating Expenses The Company's operating expenses increased 8.8% to $176.5 million in 1997 compared to $162.2 million in 1996 due primarily to an 11.7% increase in ASMs, and a 14.0% increase in passengers. The increase in ASMs reflects the net addition of five J-41 and five RJ aircraft during 1997. A summary of operating expenses as a percentage of operating revenue and operating cost per ASM for the years ended December 31, 1996 and 1997 is as follows:
Year Ended December 31, 1996 1997 Percent Cost Percent Cost of of Operating per Operating per ASM ASM Revenues (cents) Revenues (cents) Salaries and related 24.4% 5.8 24.2% 5.8 costs Aircraft fuel 9.4% 2.2 8.6% 2.1 Aircraft maintenance 9.2% 2.2 8.2% 2.0 and materials Aircraft rentals 16.0% 3.8 14.4% 3.4 Traffic commissions and 15.6% 3.7 15.9% 3.8 related fees Facility rent and 4.8% 1.1 5.1% 1.1 landing fees Depreciation and 1.5% .4 1.7% .4 amortization Other 8.2% 1.9 7.8% 1.9 Total (before reversals of 89.1% 21.1 85.9% 20.5 restructuring charges)
Costs per ASM before reversals of restructuring charges decreased 2.8% to 20.5 cents in 1997 compared to 21.1 cents in 1996 primarily due to an 11.7% increase in ASMs in 1997 compared to 1996, offset by a 14.0% increase in passengers carried. The increase in ASMs resulted from the net addition of five J-41 aircraft and five 50-seat RJ aircraft along with a 1.2% improvement in daily aircraft block hour utilization. Salaries and related costs per ASM remained unchanged at 5.8 cents in 1997 compared to 1996. In absolute dollars, salaries and related expenses increased 11.9% from $44.4 million in 1996 to $49.7 million in 1997. The increase resulted from additional flight payroll related to a contractual increase in May 1996 and February 1997 and a 10.7% increase in profit sharing expense year over year. The cost per ASM of aircraft fuel decreased to 2.1 cents in 1997 compared to 2.2 cents in 1996. The total cost of fuel per gallon decreased 4.2% to 79.3 cents in 1997 compared to 82.8 cents in 1996. In absolute dollars, aircraft fuel expense increased 4.1% from $17.1 million in 1996 to $17.8 million in 1997. The cost per ASM of aircraft maintenance and materials decreased to 2.0 cents in 1997 compared to 2.2 cents in 1996. The decreased maintenance expense resulted primarily from the receipt of performance guarantee fees from an overhaul vendor. In absolute dollars, aircraft maintenance and materials expense increased 0.6% from $16.8 million in 1996 to $16.9 million in 1997. The cost per ASM of aircraft rentals decreased to 3.4 cents in 1997 compared to 3.8 cents in 1996. The decreased unit costs reflect the refinancing to lower rental rates of eleven used J- 41 aircraft and the purchase by the Company of three used J-41s. All of these transactions were accomplished in the second half of 1997. In absolute dollars, aircraft rentals increased 1.7% from $29.1 million in 1996 to $29.6 million in 1997. The cost per ASM of traffic commissions and related fees increased to 3.8 cents in 1997 compared to 3.7 cents in 1996. The increased commissions reflect the contractual increases in program fees paid to United and a higher percentage of tickets sold by travel agencies. Commission rates as a percent of total passenger revenue fluctuate based on the mix of commissionable and non- commissionable tickets, and have changed due to a cap on the total amount of commission that travel agents can earn. Commissions as a percentage of total passenger revenue averaged 7.3% in 1997 and 7.4% in 1996. Related fees include program fees to United and segment booking fees for reservations. In absolute dollars, traffic commissions and related fees increased 14.3% from $28.6 million in 1996 to $32.7 million in 1997. The cost per ASM of facility rent and landing fees remained unchanged at 1.1 cents in 1997 compared to 1996. In absolute dollars, facility rent and landing fees increased 17.8% to $10.4 million for 1997 from $8.8 million in 1996. This absolute increase is the result of expansion of the Company's business to new markets and increased landing fees due to the heavier RJ aircraft. The cost per ASM of depreciation and amortization remained unchanged at 0.4 cents in 1997 compared to 1996. Absolute increases in depreciation expense were offset by increases in ASMs. The absolute increase results primarily from the purchase of four J-41 aircraft (one of these aircraft was new to the fleet in 1997), additional rotable spare parts associated with additional J-41 aircraft, improvements to aircraft, leasehold improvements and purchases of computer equipment. In absolute dollars, depreciation and amortization expense increased 28.6% from $2.8 million in 1996 to $3.6 million in 1997. The cost per ASM of other operating expenses remained unchanged at 1.9 cents in 1997 compared to 1996. Absolute increases were offset by increased ASMs. The absolute increase in expenses are primarily attributable to increased training and distressed passenger expenses. In absolute dollars, other operating expenses increased 7.6% from $14.9 million in 1996 to $16 million in 1997. As a result of the foregoing expense items, total operating expenses before reversals of restructuring charges were approximately $176.5 million for 1997, an increase of 8.5% compared to $162.6 million in 1996. Total ASMs increased 11.7% year over year and the cost per ASM decreased from 21.1 cents for 1996 to 20.5 cents for 1997. The Company reversed excess restructuring reserves of $426,000 in 1996 (0.1 cents per ASM). The Company established the reserves with a charge of $8.1 million in 1994. The reversals reflected remaining unused reserves for pilot requalification, return conditions, spare parts reconciliation and miscellaneous professional fees. As of December 31, 1996, there were no remaining reserves related to the restructuring. Interest expense, net of interest income, was $2.2 million in 1997 and $672,000 in 1996. The increased expense reflects the Company's issuance in July 1997 of $57.5 million of 7% convertible debt and $16.4 million of equipment notes associated with pass through trust certificates issued in September 1997 reduced by a significant increase in the Company's cash balances in 1997 and use of proceeds from the convertible debt to repay higher interest bearing debt. The Company recorded a provision for income taxes of approximately $12.3 million for 1997, compared to a provision for income taxes of approximately $500,000 in 1996. The 1996 effective tax rate of approximately 2.3% was significantly less than the statutory federal and state rates due principally to the full utilization of net operating loss carryforwards and the elimination of the valuation allowance. The 1997 effective tax rate of approximately 46% is higher than the statutory federal and state rates primarily due to permanent differences. Outlook This Outlook section and the Liquidity and Capital Resources section below contain forward-looking statements. The Company's actual results may differ significantly from the results discussed in forward-looking statements. Factors that could cause the Company's future results to differ materially from the expectations described here include the response of the Company's competitors to the Company's business strategy, market acceptance of RJ service to new destinations, the cost of fuel, the weather, satisfaction of regulatory requirements and general economic and industry conditions. A central element of the Company's business strategy is expansion of its jet aircraft fleet. At December 31, 1998, the Company had firm commitments to acquire 29 additional 50-seat RJs. The Company believes that the continued implementation of these aircraft will expand the Company's business into new markets. In general, service to new markets may result in increased operating expenses that may not be immediately offset by increases in operating revenues. In the fourth quarter of 1998, the Company began using United's "ORION" revenue management system for flights departing after January 31, 1999 and beyond. The PROS IV revenue management system, which has been in operation since May 1997 at the Company, was no longer used as of that date. ORION allows the Company to take advantage of state of the art "Origin and Destination" revenue maximization capabilities. As with the previous system, revenue management analysts will continue to monitor forecasts and make adjustments for changes in demand and behavior. The ORION system is designed to optimize all of the passenger itineraries that flow over the entire United/United Express network. Management believes that ORION will further promote maximization of passenger revenue, although there can be no assurance that this will occur. As a result of the recent addition of new RJs, the Company's maintenance expense on these aircraft were not material due to manufacturers' warranties and the generally lower failure rates of major components due to the newness of the aircraft. The current average age of the Company's RJ fleet is approximately one year. The Company's maintenance expense for RJ aircraft will increase in future periods when substantial airframe and engine repair costs are incurred. The Company has fixed, "not to exceed" airframe maintenance cost per hour flown rates guaranteed by the manufacturer. To date, the Company's actual airframe maintenance cost per hour flown has not exceeded the guaranteed rate. In late 1998, US Airways announced its intention to increase activity at Washington-Dulles utilizing its mainline service, lowfare MetroJet product, and its US Airways Express affiliates. US Airways has since implemented or announced service to eight of the Company's markets using both jet and turboprop equipment. In two of the Company's existing markets, MetroJet will provide the service at a significantly lower fare structure. The Company continually monitors the effects competition has on its routes, fares and frequencies. The Company believes that it can compete effectively with US Airways, however there can be no assurances that US Airways' expansion at Washington-Dulles will not have a material adverse effect on the Company's results of operations or financial position. In early 1999, United announced its intention to increase its level of activity at Washington-Dulles by 60% beginning in April and May 1999. The Company believes that United's announced increase will add approximately 7,000 additional daily seat departures to the United/United Express operation at Washington-Dulles. The Company, in concert with United, also announced either increased frequencies or upgraded equipment, or both, in all of its markets affected by the US Airways expansion. Liquidity and Capital Resources The Company's balance sheet improved significantly during 1998 compared to 1997. As of December 31, 1998, the Company had cash and cash equivalents of $64.4 million and working capital of $68.1 million compared to $39.2 million and $45.2 million, respectively, as of December 31, 1997. During the year ended December 31, 1998, cash and cash equivalents increased $25.2 million, reflecting net cash provided by operating activities of $39.7 million, net cash used in investing activities of $39.7 million (related to purchases of aircraft and equipment and decreases in short term investments) and net cash provided by financing activities of $25.2 million. Net cash provided by financing activities increased principally due to the issuance of long term debt to acquire two RJ and one J-41 aircraft. The Company's balance sheet also improved significantly during 1997 compared to 1996. As of December 31, 1997, the Company had cash and cash equivalents of $39.2 million and working capital of $45.2 million compared to $21.5 million and $17.8 million, respectively, as of December 31, 1996. During the year ended December 31, 1997, cash and cash equivalents increased $17.7 million, reflecting net cash provided by operating activities of $21.3 million, net cash used in investing activities of $55.2 million (related to deposits for the RJs, purchases of equipment and increases in short term investments) and net cash provided by financing activities of $51.6 million. Net cash provided by financing activities increased principally due to the receipt of net proceeds of $55.6 million in July 1997 from the issuance of convertible notes due 2004 partially offset by the $16.9 million purchase of the Company's common stock from British Aerospace in July 1997. Other Financing On February 8, 1999, the Company entered into an asset- based lending agreement with two financial institutions that provides the Company with a line of credit of up to $35 million, depending on the amount of assigned ticket receivables and the value of certain rotable spare parts. This line replaced a previous $20 million line. Borrowings under the line of credit can provide the Company a source of working capital until proceeds from ticket coupons are received. The line is collateralized by all of the Company's receivables and certain rotable spare parts. There were no borrowings under the previous line during 1998. The Company pledged $2.9 million of this line of credit as collateral to secure letters of credit issued on behalf of the Company by a financial institution. In July 1997, the Company issued $57.5 million aggregate principal amount of 7% Convertible Subordinated Notes due July 1, 2004 ("the Notes"). The Notes are convertible into shares of Common Stock unless previously redeemed or repurchased, at a conversion price of $9 per share, (after giving effect to the stock split on May 15, 1998) subject to certain adjustments. Interest on the Notes is payable on April 1 and October 1 of each year. The Notes are not redeemable by the Company until July 1, 2000. In January 1998, approximately $5.9 million of the Notes were converted, pursuant to their original terms, into 660,826 shares of Common Stock. From March 20, 1998 to April 8, 1998, the Company temporarily reduced the conversion price from $9 to $8.86 for holders of the Notes. During this period, $31.7 million of the Notes converted into approximately 3.6 million shares of Common Stock. As a result of this temporary price reduction, the Company recorded a non-cash, non-operating charge to earnings during the second quarter of 1998 of $1.4 million representing the fair value of the additional shares distributed upon conversion. In September 1997, approximately $112 million of pass through certificates were issued in a private placement by separate pass through trusts, which purchased with the proceeds, equipment notes (the "Equipment Notes") issued in connection with (i) leveraged lease transactions relating to four J-41s and six RJs, all of which were leased to the Company (the "Leased Aircraft"), and (ii) the financing of four J-41s owned by the Company (the "Owned Aircraft"). The Equipment Notes issued with respect to the Owned Aircraft are direct obligations of ACA, guaranteed by ACAI and are included as debt obligations in the accompanying consolidated financial statements. The Equipment Notes issued with respect to the Leased Aircraft are not obligations of ACA or guaranteed by ACAI. With respect to one RJ leased aircraft, at December 31, 1997 (the "Prefunded Aircraft"), the proceeds from the sale of the Equipment Notes were deposited into collateral accounts, to be released at the closing of a leveraged lease related to the Prefunded Aircraft. In January 1998, an equity investor purchased this aircraft and entered into a leveraged lease with the Company and the collateral accounts were released. Other Commitments In July 1997, the Company entered into a series of put and call contracts having an aggregate notional amount of $39.8 million. The contracts matured between March and September 1998. The contracts were entered into as an interest rate hedge designed to limit the Company's exposure to interest rate changes on the anticipated issuance of permanent financing relating to the delivery of aircraft in 1998. During 1998, the Company settled these contracts, paying the counterparty approximately $2.3 million, and is amortizing this cost over the life of the related aircraft leases or is depreciating the cost as part of the aircraft acquisition cost for owned aircraft. On July 2, 1998, the Company entered into additional put and call contracts having an aggregate notional amount of $51.8 million to hedge its exposure, to interest rate changes on the anticipated issuance of permanent financing for six RJ aircraft scheduled for delivery between October 1998 and April 1999. In the fourth quarter 1998, the Company settled two contracts, paying the counterparty approximately $700,000, and is amortizing this cost over the life of the related aircraft lease for the leased aircraft and is depreciating the cost as part of the aircraft acquisition cost for the owned aircraft. The Company would have been obligated to pay the counterparty approximately $1.5 million had the remaining contracts settled on December 31, 1998. In September and December 1998, the Company entered into call option contracts to hedge price changes on approximately 34,000 barrels of jet fuel per month during the period from January 1999 to June 1999. The contracts provide for a premium payment of approximately $273,000 and sets a cap on the average maximum price equal to 40.625 cents per gallon of jet fuel excluding taxes and into-plane fees with the premium and any gains on this contract to be recognized as a component of fuel expense during the period in which the Company purchases fuel. In October and November 1998, the Company entered into commodity swap transactions to hedge price changes on approximately 34,000 additional barrels of jet fuel per month during the period from January 1999 to June 1999. The contracts provide for an average fixed price of 44.35 cents per gallon of jet fuel with any gains or losses recognized as a component of fuel expense during the period in which the Company purchases fuel. With these transactions, the Company has hedged approximately 80% of its jet fuel requirements for the first half of 1999. Had the commodity swap transactions settled on December 31, 1998, the Company would have incurred approximately $900,000 in additional fuel expense. In the second quarter of 1998, the Company announced that the Metropolitan Washington Airport Authority ("MWAA"), in coordination with the Company, will build an approximately 69,000 square foot regional passenger concourse at Washington-Dulles. The facility is scheduled to open in May 1999. The new facility will offer improved passenger amenities and operational enhancements, and will provide additional space to support the Company's expanded operations resulting from the introduction of RJs. The facility will be designed, financed, constructed, operated and maintained by MWAA, and will be leased to the Company. The lease rate will be determined based upon final selection of funding methods and rates. MWAA has agreed to fund the construction through the proceeds of bonds and, subject to approval by the FAA, passenger facility charges ("PFC"). In order to obtain the most favorable permanent financing, the Company agreed to obtain its own interim financing from a third party lender to fund a portion of the total program cost of the regional concourse for approximately $15 million. MWAA has agreed to replace the Company's interim financing with the proceeds of bonds or, if obtained, PFC funds, no later than one year following the substantial completion date of the project. If MWAA replaces the interim financing with PFC funding rather than bond financing, the Company's lease cost will be significantly lower. The Company obtained financing for this obligation from two banks in February 1999 and has borrowed $4.5 million through March 1, 1999. MWAA has agreed to reimburse principal borrowings but the Company will be responsible for all interest costs. Aircraft The Company has significant lease obligations for aircraft including seven additional RJ leveraged leases entered into in 1998 that are classified as operating leases and therefore are not reflected as liabilities on the Company's balance sheet. The remaining terms of such leases range from two to sixteen and a half years. The Company's total rent expense in 1998 under all non- cancelable aircraft operating leases with remaining terms of more than one year was approximately $37.5 million. As of December 31, 1998, the Company's minimum rental payments for 1999 under all non- cancelable aircraft operating leases with remaining terms of more than one year were approximately $42 million. As of March 1, 1999, the Company had a total of 28 RJs on order from Bombardier, Inc., in addition to the 15 already delivered, and held options for 27 additional RJs. During 1998, the Company converted five of the six conditional orders and converted 20 option aircraft to firm orders. Of the remaining 28 firm aircraft deliveries, eight are scheduled for the remainder of 1999, nine are scheduled for 2000, and eleven are scheduled for 2001. The Company is obligated to purchase and finance (including leveraged leases) the 28 firm ordered aircraft at an approximate capital cost of $520 million. The Company previously announced that it is exploring alternatives to accelerate the retirement of its fleet of 28 leased 19 seat J-32 aircraft. The Company is assessing plans to target the phase-out of the J-32 from its United Express operation by the end of 2001. As of March 1, 1999, the Company has J-32 operating lease commitments with remaining lease terms ranging from three to seven years and related minimum lease payments of approximately $47 million. The Company intends to complete its analysis of a phase- out plan including quantifications of any one-time fleet rationalization charge during 1999. In order to ensure the highest level of safety in air transportation, the FAA has authority to issue maintenance directives and other mandatory orders relating to, among other things, inspection of aircraft and the mandatory removal and replacement of parts that have failed or may fail in the future. In addition, the FAA from time to time amends its regulations. Such amended regulations may impose additional regulatory burdens on the Company such as the installation of new safety-related items. Depending upon the scope of the FAA's order and amended regulations, these requirements may cause the Company to incur substantial, unanticipated expenses. Capital Equipment and Debt Service In 1999 the Company anticipates capital spending of approximately $51 million consisting of $47 million to own two RJ aircraft, rotable spare parts, spare engines and equipment, and $4 million for other capital assets. The Company anticipates that it will be able to arrange financing for the aircraft and spares on generally favorable terms, although there is no certainty that such financing will be available or in place before the commencement of deliveries. Debt service for 1999 is estimated to be approximately $10 million reflecting borrowings related to the purchase of two RJ aircraft, five J-41s acquired in 1997 and 1998 and interest due on the remaining 7% Convertible Subordinated Notes. The foregoing amount does not include additional debt that may be required for the financing of the RJs, spare parts and engines. The Company believes that, in the absence of unusual circumstances, its cash flow from operations, the $35 million credit facility, and other available equipment financing will be sufficient to meet its working capital needs, expected operating lease commitments, capital expenditures, and debt service requirements for the next twelve months. Inflation Inflation has not had a material effect on the Company's operations. Year 2000 Readiness Background The "Year 2000 problem" refers to the potential disruptions arising from the inability of computer and embedded microprocessor systems to process or operate with data inputs involving the years beginning with 2000 and, to a lesser extent, involving the year 1999. As used by the Company, "year 2000 ready" means that a system will function in the year 2000 without modification or adjustment, or with a one-time manual adjustment. State of Readiness The Company is highly reliant on information technology ("IT") systems and non-IT embedded technologies of third party vendors and contractors and governmental agencies, such as the CRS systems, United, aircraft and parts manufacturers, the FAA, the DOT, and MWAA and other local airport authorities. The Company sent questionnaires to these third party vendors, contractors and government agencies. For all mission critical and key vendors, the Company has received a response and has assessed which of their systems may be affected by year 2000 issues and what the status of their remediation plans are. All mission critical and key vendors have stated that they will be year 2000 compliant by June 30, 1999. In cases where the Company has not received assurances from non critical third parties that their systems are year 2000 ready, it is initiating further mail or phone correspondence. The Company also has surveyed its internal IT and non-IT systems and embedded operating systems to evaluate and prioritize those which are not year 2000 ready. The Company has completed remediation and testing of approximately 97% of its internal IT and non-IT systems, and expects the Company's remaining IT systems to be remediated and tested by April 30, 1999. Costs The Company has utilized existing resources and has not incurred any significant costs to evaluate or remediate year 2000 issues to date. The Company does not utilize older mainframe computer technology in any of its internal IT systems. In addition, most of its hardware and software were acquired within the last few years, and many functions are operated by third parties or the government. Because of this, the Company believes that the cost to modify its own non-year 2000 ready systems or applications will not have a material effect on its financial position or the results of its operations. Risks The Company's year 2000 compliance efforts are heavily dependent on year 2000 compliance by governmental agencies, United, CRS vendors and other critical vendors and suppliers. The failure of any one of these mission critical functions (which the Company believes to be the most likely worst case scenario), such as a shut- down of the air traffic control system, could result in the reduction or suspension of the Company's operations and could have a material adverse effect on the Company's financial position and results of its operations. The failure of other systems could cause disruptions in the Company's flight operations, service delivery and/or cash flow. Until it has fully completed its evaluation of all internal IT and non-IT systems, the Company cannot accurately estimate all risks of its Year 2000 issue. The Company may identify internal systems that present a risk of Year 2000 related disruption. Any such disruption could have a material adverse effect upon the Company's financial condition and results of operations. Contingency Plans The Company is in the process of developing year 2000 contingency plans. The Company intends to closely monitor the year 2000 compliance efforts of the third parties upon which it is heavily reliant and its own internal remediation efforts. While certain of the Company's systems could be handled manually, under certain scenarios the Company may not be able to operate in the absence of certain systems, in which cases the Company would need to reduce or suspend operations until such systems were restored to operational status. Any such reduction or suspension could have a material adverse effect upon the Company's financial condition and results of operations. Recent Accounting Pronouncements The American Institute of Certified Public Accountants issued Statement of Position 98-5 on accounting for start-up costs, including preoperating costs related to the introduction of new fleet types by airlines. The new accounting guidelines will take effect for fiscal years beginning after December 15, 1998. The Company has previously deferred certain start-up costs related to the introduction of the RJs and is amortizing such costs to expense ratably over four years. The Company will be required to expense any remaining unamortized amounts as of January 1, 1999 as a cumulative effect of a change in accounting principle. In January 1999, the Company recorded a charge for the remaining unamortized balance of approximately $1.5 million associated with preoperating costs. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments and all hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on its designation and effectiveness. For derivatives that qualify as effective hedges, the change in fair value will have no impact on earnings until the hedged item affects earnings. For derivatives that are not designated as hedging instruments, or for the ineffective portion of a hedging instrument, the change in fair value will affect current period earnings. The Company will adopt Statement No. 133 during its first quarter of fiscal 2000 and is currently assessing the impact this statement will have on interest rate swaps and any future hedging contracts that may be entered into by the Company. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company's principal market risk results from changes in jet fuel pricing and in interest rates. For 1999, the Company has hedged its exposure to jet fuel price fluctuations by entering into jet fuel option contracts for approximately 40% of its estimated 1999 fuel requirements. The option contracts are designed to provide protection against sharp increases in the price of jet fuel. Based on the Company's 1999 projected fuel consumption of 45 million gallons, a one-cent increase in the average annual price per gallon of jet fuel would increase the Company's annual aircraft fuel expense by approximately $366,000. The Company's exposure to market risk associated with changes in interest rates relates to the Company's commitment to acquire regional jets. The Company has entered into put and call contracts designed to limit the Company's exposure to interest rate changes until permanent financing is secured upon delivery of the aircraft. At December 31, 1998 the Company had four swap contracts outstanding related to the delivery of the next four RJs. A one percentage point decrease in interest rates from the Company's call contracts would increase the Company's annual aircraft lease or ownership costs associated with these contracts by $160,000. As of March 1, 1999, the Company has commitments to purchase 28 additional RJ aircraft. The Company expects to finance this commitment using a combination of debt, leveraged leases and single entity operating leases. Changes in interest rates will impact the actual cost to the Company for these transactions in the future. The Company does not have significant exposure to changing interest rates on its long-term debt as the interest rates on such debt are fixed. Likewise, the Company does not hold long-term interest sensitive assets and therefore is not exposed to interest rate fluctuations for its assets. The Company does not purchase or hold any derivative financial instruments for trading purposes. Item 8. Consolidated Financial Statements INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Page Independent Auditors' Report for the years ended December 36 31, 1997 and 1998 Report of Independent Certified Public Accountants for the 37 year ended December 31, 1996 Consolidated Balance Sheets as of December 31, 1997 and 38 1998 Consolidated Statements of Operations for the years ended 39 December 31, 1996, 1997 and 1998 Consolidated Statements of Stockholders' Equity for the 40 years ended December 31, 1996, 1997 and 1998 Consolidated Statements of Cash Flows for the years ended 41 December 31, 1996, 1997 and 1998 Notes to Consolidated Financial Statements 42 Independent Auditors' Report The Board of Directors and Stockholders Atlantic Coast Airlines Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Atlantic Coast Airlines Holdings, Inc. and subsidiary as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Atlantic Coast Airlines Holdings, Inc. and subsidiary as of December 31, 1997 and 1998 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. KPMG LLP Washington, D.C. January 27, 1999 Report of Independent Certified Public Accountants Board of Directors and Stockholders Atlantic Coast Airlines Holdings, Inc. We have audited the accompanying consolidated statements of income, stockholders'equity and cash flows of Atlantic Coast Airlines Holdings, Inc. and subsidiary, as of December 31, 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 audit 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 consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Atlantic Coast Airlines Holdings, Inc. and subsidiary at December 31, 1996 in conformity with generally accepted accounting principles. BDO Seidman, LLP Washington, D.C. January 24, 1997, except for Note 18, The date which is May 29, 1997
(In thousands, except for share data and par values) December 31, 1997 1998 Assets Current: Cash and cash equivalents $ $ 39,167 64,412 Short term investments 10,737 63 Accounts receivable, net 22,321 30,210 Expendable parts and fuel inventory, net 2,477 3,377 Prepaid expenses and other current 2,006 3,910 assets Deferred tax asset - 2,534 Total current assets 76,708 104,506 Property and equipment at cost, net of accumulated depreciation and amortization 40,638 88,326 Preoperating costs, net of accumulated 2,004 1,486 amortization Intangible assets, net of accumulated 2,613 2,382 amortization Deferred tax asset 688 - Debt issuance costs, net of accumulated 3,051 3,420 amortization Aircraft deposits 19,040 21,060 Other assets 4,250 6,446 Total assets $ $ 148,992 227,626 Liabilities and Stockholders' Equity Current: Current portion of long-term debt $ $ 1,851 3,450 Current portion of capital lease 1,730 1,334 obligations Accounts payable 4,768 5,262 Accrued liabilities 23,331 26,330 Total current liabilities 31,680 36,376 Long-term debt, less current portion 73,855 63,289 Capital lease obligations, less current 2,290 1,446 portion Deferred tax liability - 6,238 Deferred credits, net 6,362 9,900 Total liabilities 114,187 117,249 Stockholders' equity: Preferred Stock: $.02 par value per share; shares authorized - - 5,000,000; no shares issued or outstanding in 1997 or 1998 Common stock: $.02 par value per share; shares authorized 15,000,000 in 1997 and 65,000,000 in 1998; shares issued 16,006,514 in 1997 and 20,821,001 in 1998; shares 175 416 outstanding 14,534,014 in 1997 and 19,348,501 in 1998 Class A common stock: nonvoting; par value; $.02 stated value per share; shares - - authorized 6,000,000; no shares issued or outstanding Additional paid-in capital 40,296 85,215 Less: Common stock in treasury, at cost, 1,472,500 shares in 1997 and in 1998 (17,069) (17,069) Retained earnings 11,403 41,815 Total Stockholders' Equity 34,805 110,377 Total Liabilities and Stockholders' $ $ Equity 148,992 227,626 Commitments and Contingencies See accompanying notes to consolidated financial statements.
(In thousands, except for per share data) Years ended December 31, 1996 1997 1998 Operating revenues: Passenger $ $ $ 179,370 202,540 285,243 Other 3,114 2,904 4,697 Total operating revenues 182,484 205,444 289,940 Operating expenses: Salaries and related costs 44,438 49,661 68,135 Aircraft fuel 17,124 17,766 23,978 Aircraft maintenance and materials 16,841 16,860 22,730 Aircraft rentals 29,137 29,570 36,683 Traffic commissions and related fees 28,550 32,667 42,429 Facility rents and landing fees 8,811 10,376 13,475 Depreciation and amortization 2,846 3,566 6,472 Other 14,900 16,035 23,347 Restructuring charges (reversals) (426) - - Total operating expenses 162,221 176,501 237,249 Operating income 20,263 28,943 52,691 Other income (expense): Interest expense (1,013) (3,450) (4,207) Interest income 341 1,284 4,145 Debt conversion expense - - (1,410) Other income (expense), net 17 62 326 Total other expense (655) (2,104) (1,146) Income before income tax provision 19,608 26,839 51,545 Income tax provision 450 12,339 21,133 Net income $19,158 $14,500 $30,412 Income per share: Basic $1.13 $0.93 $1.68 Diluted $1.08 $0.80 $1.42 Weighted average shares used in computation: 16,962 15,647 18,128 Basic 17,840 19,512 22,186 Diluted See accompanying notes to consolidated financial statements.
(In thousands, except for share data) Common Stock Addit Treasury Stock Retained ------------- ional --------------- Earnings ------------- Paid- -------------- (Deficit) -- In Shares Shares Capit Amount Amount al Balance, December 31, 8,356,411 167 36,774 12,500 (125) (22,255) 1995 Exercise of common 142,499 3 351 - - - stock options Tax benefit of stock - - 564 - - - option exercise Net Income - - - - - 19,158 Balance December 31, 8,498,910 170 37,689 12,500 (125) (3,097) 1996 Exercise of common 240,597 5 1,250 - - - stock options Tax benefit of stock - - 1,357 - - - option exercise Purchase of treasury - - - 1,460,000 (16,944) - stock Net Income - - - - - 14,500 Balance December 31, 8,739,507 $175 $40,296 $1,472,500 $(17,069) $11,403 1997 Exercise of common 286,011 6 2,473 - - - stock options Tax benefit of stock - - 4,239 - - - option exercise Amortization of deferred - - 574 - - - compensation Stock split 9,673,901 193 (193) - - - Conversion of debt 2,121,582 42 37,826 - - Net Income - - - - - 30,412 Balance December 31, 20,821,001 $416 $85,215 1,472,500 $(17,069) $41,815 1998 See accompanying notes to consolidated financial statements.
(In thousands) Years ended December 31, 1996 1997 1998 Cash flows from operating activities: Net income $ 19,158 $ 14,500 $ 30,412 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,434 3,111 5,829 Amortization of intangibles and 412 455 690 preoperating costs Provision for uncollectible 387 168 124 accounts receivable Provision for inventory 50 63 86 obsolescence Amortization of deferred credits (27) (243) (801) Amortization of debt issuance - 181 465 costs Capitalized interest, net - - (1,640) Deferred tax (benefit) provision (1,640) 2,452 4,392 Net loss on disposal of fixed 1 450 247 assets Amortization of debt discount and 46 76 70 finance costs Debt conversion expense - - 1,410 Deferred compensation - - 574 Changes in operating assets and liabilities: Accounts receivable (1,741) (5,829) (6,077) Expendable parts and 41 (781) (990) fuel inventory Prepaid expenses and (796) 403 other current assets (2,512) Preoperating costs - (2,057) - Accounts payable 238 998 423 Accrued liabilities 1,590 7,313 7,028 Net cash provided by 20,153 21,260 39,730 operating activities Net cash provided by (used in) operating activities Cash flows from investing activities: Purchase of property and equipment (2,128) (26,005) (51,020) Proceeds from sales of fixed assets - - 1,318 Maturities of short term - investments (10,737) 10,677 Refund of aircraft deposits - - 120 Payments for aircraft and other (61) (18,447) (832) deposits Net cash used in (2,189) (55,189) (39,737) investing activities Cash flows from financing activities: Proceeds from issuance of long-term 486 75,220 29,650 debt Payments of long-term debt (1,234) (3,241) (2,248) Payments of capital lease (1,171) (2,258) (2,656) obligations Proceeds from receipt of deferred 513 809 96 credits and other Deferred financing costs (239) (3,215) (2,069) Payment of convertible preferred (335) - - stock dividend Redemption of convertible preferred (3,825) - - stock Proceeds from exercise of stock 915 1,255 2,479 options Purchase of treasury stock - (16,944) - Net cash (used in) (4,890) 51,626 25,252 provided by financing activities Net increase in cash and cash 13,074 17,697 25,245 equivalents Cash and cash equivalents, beginning 8,396 21,470 39,167 of year Cash and cash equivalents, end of year $ 21,470 $ 39,167 $ 64,412 See accompanying notes to consolidated financial statements.
1. Summary of (a) Accounting Basis of Presentation Policies The accompanying consolidated financial statements include the accounts of Atlantic Coast Airlines Holdings, Inc. ("ACAI") and its wholly- owned subsidiary, Atlantic Coast Airlines ("ACA"), together, (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. As of December 31, 1998, the Company operated in the air transportation industry providing scheduled service for passengers to 53 destinations in 24 states in the Eastern and Midwestern United States. All of the Company's flights are currently operated under a code sharing agreement with United Airlines, Inc. ("United") and are identified as United Express flights in computer reservation systems. (b)Cash, Cash Equivalents and Short-Term Investments The Company considers investments with an original maturity of three months or less when purchased to be cash equivalents. Investments with an original maturity greater than three months and less than one year are considered short-term investments. All short-term investments are considered to be available for sale. Due to the short maturities associated with the Company's investments, the amortized cost approximates fair market value. Accordingly, no adjustment has been made to record unrealized holding gains and losses. (c)Airline Revenues Passenger fares and cargo revenues are recorded as operating revenues at the time transportation is provided. Substantially all of the Company's passenger tickets are sold by other air carriers. The value of unused passenger tickets sold by the Company, which is minimal, is included in current liabilities. The Company participates in United's Mileage Plus frequent flyer program. The Company does not accrue for incremental costs for mileage accumulation relating to this program because the Company believes such costs are immaterial. Incremental costs for awards redeemed on the Company's flights are expensed as incurred. (d)Accounts Receivable Accounts receivable are stated net of allowances for uncollectible accounts of approximately $269,000 and $364,000 at December 31, 1997 and 1998, respectively. Amounts charged to costs and expenses for uncollectible accounts in 1996, 1997 and 1998 were $387,000, $168,000 and $124,000, respectively. Write-off of accounts receivable were $650,000, $186,000 and $29,000 in 1996, 1997 and 1998, respectively. Accounts receivable included approximately $700,000 and $3.6 million related to manufacturers credits to be applied towards future spare parts purchases and RJ pilot training expenses for the years ended December 31, 1997 and 1998, respectively. (e)Concentrations of Credit Risk The Company provides commercial air transportation in the Eastern and Midwestern United States. Substantially all of the Company's passenger tickets are sold by other air carriers. The Company has a significant concentration of its accounts receivable with other air carriers with no collateral. At December 31, 1997 and 1998, accounts receivable from air carriers totaled approximately $18.7 million and $24.4 million, respectively. Such accounts receivable serve as collateral to a financial institution in connection with the Company's line of credit arrangement. (See note 4). Of the total amount, approximately $14.8 million and $20.8 million at December 31, 1997 and 1998, respectively, were due from United. Historically, accounts receivable losses have been insignificant. (f)Risks and Uncertainties The airline industry is highly competitive and volatile. The Company competes primarily with other air carriers and, particularly with respect to its shorter flights, with ground transportation. Airlines primarily compete on the basis of pricing, scheduling and type of equipment. The Company's operations are primarily dependent upon business-related travel and are not subject to wide seasonal fluctuation. However, some seasonal decline does occur during portions of the winter months due to lesser demand. The ability of the Company to compete with ground transportation and other air carriers depends upon public acceptance of its aircraft and the provision of convenient, frequent and reliable service to its markets at reasonable rates. The Company operates under code-sharing and other marketing agreements with United, which expire on March 31, 2009, unless earlier terminated by United (the "Agreements"). Prior to March 31, 2004, United may terminate the Agreements at any time if the Company fails to maintain certain performance standards, and may terminate without cause after March 31, 2004 by providing one year's notice to the Company. If by January 2, 2001 United has not given the Company the abiltiy to operate regional jets of 44 seats or less seating capacity as United Express, in addition to its allocation of 50 seat regional jets, the Company may terminate the Agreements as of March 31, 2004. The Company would be required to provide notice of termination prior to January 2, 2002, which notice would be void if United ultimately grants such authority prior to January 2, 2002. Under the terms of the Agreements, the Company pays United monthly fees based on the total number of revenue passengers boarded by the Company on its flights for the month. The fee per passenger is subject to periodic increases during the duration of the ten year extension period. The agreement allows the Company to operate under United's colors, utilize the "United Express" name and identify its flights using United's designator code. The Company believes that its relationship with United substantially enhances its ability to compete for passengers. The loss of the Company's affiliation with United could have a material adverse effect on the Company's business. The Agreements require the Company to obtain United's consent to operate service between city pairs as "United Express". If the Company experiences net operating expenses that exceed revenues for three consecutive months on any required route, the Company may withdraw from that route if United and the Company are unable to negotiate an alternative mutually acceptable level of service for that route. The Agreements also require the Company to obtain United's approval if it chooses to enter into code- sharing arrangements with other carriers, but do not prohibit United from competing, or from entering into agreements with other airlines who would compete, on routes served by the Company. The Agreements may be canceled if the Company fails to meet certain financial tests or performance standards or fails to maintain certain minimum flight frequency levels. The Company's pilots are represented by the Airline Pilots Association ("ALPA"), its flight attendants by the Association of Flight Attendants ("AFA"), and its mechanics by the Aircraft Mechanics Fraternal Association ("AMFA"). The ALPA collective bargaining agreement was amended on February 26, 1997 and becomes amendable again in February 2000. The current contract modified work rules to allow more flexibility, includes regional jet pay rates, and transfers pilots into the Company's employee benefit plans. The AMFA was certified as the collective bargaining representative elected by mechanics and related employees of the Company in 1994. On June 22, 1998, the Company's mechanics ratified an initial four year contract. The new contract includes a pay scale comparable to the regional airline industry and a one-time signing bonus, and allows the mechanics to participate in the Company's employee benefit plans. The Company's contract with the AFA became amendable on April 30, 1997. An agreement was negotiated and agreed to between the Company and AFA during 1998, and was ratified by the Company's flight attendants on October 11, 1998. The new agreement is for a four year duration and provides for a higher starting pay rate and a pay scale and per diem rate comparable to the regional airline industry. The Company believes that the wage rates and benefits for other employee groups are comparable to similar groups at other regional airlines. The Company is unaware of significant organizing activities by labor unions among other non-union employees at this time. (g)Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make certain estimates and assumptions regarding valuation of assets, recognition of liabilities for costs such as aircraft maintenance, differences in timing of air traffic billings from United and other airlines, operating revenues and expenses during the period and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimated. (h)Expendable Parts Expendable parts and supplies are stated at the lower of cost or market, less an allowance for obsolescence of $232,600 and $318,000 as of December 31, 1997 and 1998, respectively. Expendable parts and supplies are charged to expense as they are used. Amounts charged to costs and expenses for obsolescence in 1996, 1997 and 1998 were $49,950, $62,652 and $86,000, respectively. (i)Property and Equipment Property and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets which range from five to sixteen and one half years. Capital leases and leasehold improvements are amortized over the remaining life of the lease. Amortization of capital leases and leasehold improvements is included in depreciation expense. The Company periodically evaluates whether events and circumstances have occurred which may impair the estimated useful life or the recoverability of the remaining balance of its long-lived assets. If such events or circumstances were to indicate that the carrying amount of these assets would not be recoverable, the Company would estimate the future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss would be recognized by the Company. (j)Preoperating Costs Preoperating costs represent the cost of integrating new types of aircraft. Such costs, which consist primarily of flight crew training and aircraft ownership related costs, are deferred and amortized over a period of four years on a straight-line basis. During 1997 the Company capitalized approximately $2.1 million of these costs related to the introduction of the regional jet ("RJ") into the Company's fleet. Accumulated amortization of preoperating costs at December 31, 1997 and 1998 were $53,000 and $571,000, respectively. In 1997, the J-41 preoperating costs were completely amortized. In 1999, the Company will write-off the remaining unamortized preoperating costs balance (See Note 16). (k)Intangible Assets Goodwill of approximately $3.2 million, representing the excess of cost above the fair value of net assets acquired in the acquisition of ACA, is being amortized by the straight-line method over twenty years. The primary financial indicator used by the Company to assess the recoverability of its goodwill is undiscounted future cash flows from operations. The amount of impairment, if any, is measured based on projected future cash flows using a discount rate reflecting the Company's average cost of funds. Costs incurred to acquire slots are being amortized by the straight-line method over twenty years. Accumulated amortization of intangible assets at December 31, 1997 and 1998 was $1.1 million and $1.3 million, respectively. (l)Maintenance The Company's maintenance accounting policy is a combination of expensing events as incurred and accruing for certain maintenance events. For the J-41 and J-32 aircraft, the Company accrues for airframe components and certain engine repair costs on a per flight hour basis. For the RJ aircraft, the Company accrues for the replacement of major engine life limited parts on a per cycle basis and for APU repairs on a per APU hour basis. All other maintenance costs are expensed as incurred. (m)Deferred Credits The Company accounts for incentives provided by the aircraft manufacturers as deferred credits for leased aircraft. These credits are amortized on a straight-line basis as a reduction to lease expense over the respective lease term. The incentives are credits that may be used to purchase spare parts, pay for pilot training expenses, satisfy aircraft return conditions or be applied against future rental payments. (n)Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts for existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled. (o)Stock-Based Compensation The Company accounts for its stock-based compensation plans using the intrinsic value method prescribed under Accounting Principles Board (APB) No. 25. Under these principles, the Company records compensation expense for stock options and awards only if the exercise price is less than the fair market value of the stock on the measurement date. (p)Income Per Share Basic income per share is computed by dividing net income, after deducting any preferred dividend requirements, by the weighted average number of common shares outstanding. Diluted income per share is computed by dividing net income, after deducting any preferred dividend requirements, by the weighted average number of common shares outstanding and common stock equivalents, which consist of shares subject to stock options computed using the treasury stock method. In addition, dilutive convertible securities are included in the denominator while interest, on convertible debt, net of tax, is added back to the numerator. In 1996, the dilutive effect of convertible preferred stock is included in the calculation of diluted income per share. In 1997, the calculation included the dilutive effect of new convertible debt, but not the convertible preferred stock as it was redeemed in 1996. In 1998, the calculation included the dilutive effect of the convertible debt issued in 1997 A reconciliation of the numerator and denominator used in computing income per share is as follows (in thousands, except per share amounts):
1996 1997 1998 Basic Diluted Basic Diluted Basic Diluted Share calculation: Average number of common shares 16,962 16,962 15,647 15,647 18,128 18,128 Outstanding Incremental shares due to - 622 - 701 - 876 assumed exercise of options Incremental shares due to assumed - 256 - - - - conversion of preferred stock Incremental shares due to assumed - - - 3,164 - 3,182 conversion of convertible debt Weighted average common shares 16,962 17,840 15,647 19,512 18,128 22,186 Outstanding Adjustments to net income: Net income $19,158 $19,158 $14,500 $14,500 $30,412 $30,412 Preferred dividend requirements based on average number (64) - - - - - of preferred shares Interest expense on - - - 1,187 - 1,202 convertible debt, net of tax Net income available to common shareholders $19,094 $19,158 $14,500 $15,687 $30,412 $31,614 Net income per share $1.13 $1.08 $0.93 $0.80 $1.68 $1.42
(q)Reclassifications Certain prior year amounts as previously reported have been reclassified to conform to the current year presentation. (r)Interest rate hedges The Company has periodically used swaps to hedge the effects of fluctuations in interest rates associated with aircraft financings. These transactions meet the requirements for current hedge accounting. Gains and losses resulting from the interest rate swap contracts are deferred until the contracts are settled and then amortized over the aircraft lease term or capitalized as part of acquisition cost, if purchased, and depreciated over the life of the aircraft. (s)Segment Information In 1998, the Company adopted the provisions of Financial Accounting Standards Board Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information (SFAS 131). SFAS 131 establishes standards for reporting information about operating segments and related disclosures about products and services. Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by chief operating decision makers in deciding how to allocate resources or in assessing performance. The Company's chief decision makers assess operating and financial performance based on the consolidated results of the Company and accordingly, no further disclosure of segment information is considered necessary. Substantially all of the Company's revenues and operating activity relate to passenger airline transportation service. The Company does not have any international service. 2. Property Property and equipment consist of and the following: Equipment
(in thousands) 1997 1998 December 31, Owned aircraft and improvements $ $ 18,916 58,912 Improvements to leased aircraft 3,521 4,949 Flight equipment, primarily 18,456 27,420 rotable spare parts Maintenance and ground equipment 4,166 5,850 Computer hardware and software 2,029 2,408 Furniture and fixtures 445 753 Leasehold improvements 1,831 2,144 49,364 102,436 Less: Accumulated depreciation 8,726 14,110 and amortization $ 40,638 $88,326
3. Accrued Accrued liabilities consist of the Liabilities following:
(in thousands) December 31, 1997 1998 Payroll and employee benefits $ 6,914 $ 9,597 Air traffic liability 1,404 516 Interest 1,352 1,061 Aircraft rents 1,644 2,118 Passenger related expenses 2,441 3,233 Maintenance costs 3,589 3,866 Fuel 977 2,260 Taxes payable 2,704 - Other 2,306 3,679 $23,331 $26,330
4. Debt On November 1, 1995, the Company entered into a line of credit agreement with a financial institution which, based on a specified percentage of outstanding interline receivables (financing base), provides for borrowings of up to $20 million. The line of credit is collateralized by accounts receivable and general intangibles and will expire on September 30, 2000, or upon termination of the United Express marketing agreement, whichever is sooner. Interest is payable monthly at an annual rate of prime plus 1% (9% at December 31, 1998). The Company has pledged approximately $5.8 million of this line as collateral to secure letters of credit issued on behalf of the Company. At December 31, 1998, the Company's remaining available borrowing limit was approximately $7.5 million. There was no balance outstanding under the line of credit at December 31, 1997 or December 31, 1998. On February 8, 1999, the Company replaced the $20 million line of credit agreement with a new line of credit with two financial institutions which provides for borrowings up to $35 million. See footnote 15 for additional information regarding this matter. Long-term debt consists of the following: (in thousands) December 31, 1997 1998 Convertible subordinated notes, principal due July 1, 2004, interest payable in semi-annual installments on the $57,500 $19,820 outstanding principal with interest at 7%, unsecured. Equipment Notes associated with Pass Through Trust Certificates, due January 1, 2008 and January 1, 2010, principal payable annually through January 1, 2006 and semi-annually 16,431 15,388 thereafter through maturity, interest payable semi-annually at 7.49% throughout term of notes, collateralized by J-41 aircraft. Notes payable to supplier, due December 1999, principal and interest payable in monthly installments of $14,027, with 331 161 interest at 8%, collateralized by flight equipment, spare engines and parts, and ground equipment. Notes payable to supplier, due between May 15, 2000 and January 15, 2001, principal 1,225 1,839 payable monthly with interest of 6.74% and 7.86%, unsecured. Notes payable to institutional lenders, due between March 29 and May 19, 2015, principal payable semiannually with - 25,556 interest of 5.65% and 5.88% through maturity, collateralized by RJ aircraft. Note payable to institutional lender, principal payable monthly with interest 217 - at 6.61%, unsecured. Note payable to institutional lender, due October 2, 2006, principal payable - 3,975 semiannually with interest at 6.56%, collateralized by J41 aircraft. Other 2 - Total 75,706 66,739 Less: Current Portion 1,851 3,450 $73,855 $63,289
In September 1997, approximately $112 million of pass through certificates were issued in a private placement by separate pass through trusts, which used the proceeds to purchase equipment notes (the "Equipment Notes") issued in connection with (i) leveraged lease transactions relating to four J-41s and six RJs (delivered or expected to be delivered), all of which are leased to the Company (the "Leased Aircraft"), and (ii) the financing of four J-41s owned by the Company (the "Owned Aircraft"). The Equipment Notes issued with respect to the Owned Aircraft are direct obligations of ACA, guaranteed by ACAI and are included as debt obligations in the accompanying financial statements. These borrowings carry a weighted average interest rate of approximately 7.49% with three Equipment Notes maturing on January 1, 2008, and one Equipment Note maturing January 1, 2010. The Equipment Notes issued with respect to the Leased Aircraft are neither debt obligations of ACA nor guaranteed by ACAI. With respect to one RJ leased aircraft, at December 31, 1997 (the "Prefunded Aircraft"), the proceeds from the sale of the Equipment Notes were deposited into collateral accounts, to be released at the closing of a leveraged lease related to the Prefunded Aircraft. In January 1998, an equity investor purchased this aircraft and entered into a leveraged lease with the Company and the collateral accounts were released. In July 1997, the Company issued $57.5 million aggregate principal amount of 7% Convertible Subordinated Notes due July 1, 2004 ("the Notes"). The Notes are convertible into 6.4 million shares of Common Stock, $9 per share, (after giving effect to the stock split on May 15, 1998) subject to certain adjustments. Interest on the Notes is payable on April 1 and October 1 of each year. The Notes are not redeemable by the Company until July 1, 2000. Thereafter, the Notes will be redeemable, at any time, on at least 15 days notice at the option of the Company, in whole or in part, at the redemption prices set forth in the Indenture dated July 2, 1997, in each case, together with accrued interest. The Notes are unsecured and subordinated in right of payment in full to all existing and future Senior Indebtedness as defined in the Indenture. The holders of the Notes have certain registration rights with respect to the Notes and the underlying Common Stock. In January 1998, approximately $5.9 million of the Notes were converted, pursuant to their original terms, into 660,826 shares of Common Stock. From March 20, 1998 to April 8, 1998, the Company temporarily reduced the conversion price from $9 to $8.86 for holders of the Notes. During this period, $31.7 million of the Notes converted into approximately 3.6 million shares of Common Stock. As a result of this temporary price reduction, the Company recorded a non-cash, non-operating charge to earnings during the second quarter of 1998 of $1.4 million representing the fair value of the additional shares distributed upon conversion. On April 1, 1997, the Company executed an $11 million short-term promissory note for deposits related to the acquisition of RJs. The promissory note was paid in full on July 2, 1997 from the proceeds of the Notes issued on July 2, 1997 as described above. During 1997, the Company retired $3.1 million of certain high interest rate debt with the proceeds of the Notes. On September 29, and November 19, 1998 the Company issued long-term promissory notes for $12.7 million and $12.9 million respectively, for the acquisition of two new RJ aircraft. The promissory notes mature on March 29, 2015 and May 19, 2015 respectively, and are collateralized by the RJ aircraft delivered, with principal and interest at rates of 5.65% and 5.88%, payable on a semi-annual basis through maturity. On September 29, 1998, the Company issued a long- term promissory note for approximately $4 million for the acquisition of one Jetstream 41 ("J-41) aircraft that was delivered in December 1997 under an interim manufacturer financing arrangement. The promissory note matures on October 2, 2006 and is collateralized by the J-41 aircraft delivered with principal and interest, at a rate of 6.56%, payable semiannually through maturity. As of December 31, 1998, maturities of long-term debt are as follows: (in thousands) 1999 $ 3,450 2000 3,439 2001 2,575 2002 2,742 2003 2,865 Thereafter 51,668 $66,739 The Company has various financial covenant requirements associated with its debt and United marketing agreements. These covenants require meeting certain financial ratio tests, including tangible net worth, net earnings, current ratio and debt service levels. 5. Obligations The Company leases certain equipment for Under noncancellable terms of more than one year. The net Capital book value of the equipment under capital leases at Leases December 31, 1997 and 1998, is $4.5 million and $3.0 million, respectively. The leases were capitalized at the present value of the lease payments. The weighted average interest rate for these leases is approximately 8 %. At December 31, 1998, the future minimum payments, by year and in the aggregate, together with the present value of the net minimum lease payments, are as follows: (in thousands) Year Ending December 31, 1999 $ 1,501 2000 686 2001 453 2002 358 2003 161 Future minimum lease payments 3,159 Amount representing interest 379 Present value of minimum lease 2,780 payments Less: Current maturities 1,334 $ 1,446 6. Operating Future minimum lease payments under noncancellable Leases operating leases at December 31, 1998 are as follows: (in thousands)
Year ending December 31, Aircraft Other Total 1999 $42,322 $2,789 $45,111 2000 42,057 2,640 44,697 2001 40,684 2,498 43,182 2002 39,992 2,060 42,052 2003 38,257 2,078 40,335 Thereafter 259,880 29,108 288,988 Total minimum $463,192 $41,173 $504,365 lease payments
Certain of the Company's leases require aircraft to be in a specified maintenance condition at lease termination or upon return of the aircraft. The Company's lease agreements generally provide that the Company pay taxes, maintenance, insurance and other operating expenses applicable to leased assets. Operating lease expense related to aircraft was $33.8 million; $35.7 million; and $37.5 million for the years ended December 31, 1996, 1997 and 1998, respectively. 7. Stockholders' Stock Split Equity On April 14, 1998, the Company declared a 2-for-1 stock split payable as a stock dividend on May 15, 1998. The stock dividend was contingent on shareholder approval to increase the number of authorized Common Shares from 15,000,000 to 65,000,000 shares. Shareholder approval was obtained on May 5, 1998. The effect of this stock split is reflected in the calculation of income per share and in the stock option table presented below as of and for the years ended December 31, 1996, 1997 and 1998, respectively. Stock Option Plans The Company has two nonqualified stock option plans which provide for the issuance of options to purchase common stock of the Company to certain employees and directors of the Company. Under the plans, options are granted by the compensation committee of the board of directors and vest over a one, three or five year period, commencing one year after the date of the grant. In 1998, the Company's shareholders approved the addition of one million shares to the Company's stock based compensation plans. The Company has reserved 4,000,000 shares of common stock for issuance upon the exercise of options and stock awards granted under the plans. A summary of the status of the Company's stock options awarded as of December 31, 1996, 1997 and 1998 and changes during the periods ending on those dates is presented below: 1996 1997 1998 Weighted- Weighted- Weighted-
average average average Shares Shares Shares exercise exercise exercise price price price Options outstanding at 1,459,116 $1.43 1,916,784 $3.16 2056922 $5.14 beginning of year Granted 791,000 $5.71 684,000 $8.91 539000 $19.42 Exercised 284,998 $1.24 481,194 $2.60 572023 $4.33 Canceled 48,334 $3.92 62,668 $5.45 260000 $17.25 Options outstanding at 1,916,784 $3.16 2056922 $5.14 1763899 $7.97 end of year Options exercisable at 1,062,887 $1.67 916,568 $2.27 872,878 $3.88 year-end Options available for 1,649,514 1,028,182 649,182 granting at year end Weighted-average fair value of options $4.25 $6.49 $11.88 granted during the year
The Company awarded 100,000 shares of restricted stock to certain employees during 1998. These shares vest over three years. The Company recognized $281,000 in compensation expense associated with these awards and $293,000 associated with other stock options awards during 1998. No such expense was recognized in the years ended 1996 and 1997. The Company uses the Black Sholes stock option model to estimate fair value. A risk-free interest rate of 5.25%, 5.8% and 4.73% for 1996, 1997 and 1998, respectively, a volatility rate of 71%, 50% and 55% for 1996, 1997 and 1998, respectively, with an expected life of 7.5 years for 1996 and 1997 and 6.5 years for 1998, was assumed in estimating the fair value. No dividend rate was assumed for any of the years. The following table summarizes information about stock options outstanding at December 31, 1998:
$0.00 - $3.23 527,666 3.9 $ 1.13 527,666 $ 1.13 $3.23 - $6.45 290,113 7.4 $ 5.20 134,114 $ 4.82 $6.45 - $9.68 415,181 8.2 $ 7.63 108,502 $ 7.83 $9.68 - $12.90 246,939 8.8 $11.08 76,930 $11.05 $12.90 - $16.13 86,000 9.7 $14.43 1,666 $15.25 $16.13 - $19.35 68,000 9.1 $17.25 24,000 $17.25 $19.35 - $22.58 1,000 9.8 $20.00 - $ 0.00 $22.58 - $29.03 49,500 9.9 $24.61 - $ 0.00 $29.03 - $32.25 79,500 9.4 $30.24 - $ 0.00 1,763,899 7.1 $ 7.97 872,878 $ 3.88
The following summarizes the pro forma effects assuming compensation for such awards had been recorded based upon the estimated fair value. The proforma information disclosed below does not include the impact of awards made prior to January 1, 1995 (in thousands, except per share data):
1996 1997 1998 As Pro As Pro As Pro Reporte Forma Report Forma Reporte Forma d ed d Net Income $ $ $ $ $ $ 19,158 18,117 14,500 13,436 30,412 27,201 Basic earnings $ $ $ $ $ $ per share 1.13 1.07 0.93 0.86 1.68 1.50 Diluted earnings $ $ $ $ $ $ per share 1.08 1.02 0.80 0.75 1.42 1.28
Preferred Stock The Board of Directors of the Company is authorized to provide for the issuance by the Company of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof, including, without limitation, dividend rights, dividend rates, conversion rights, voting rights, terms of redemption or repurchase, redemption or repurchase prices, limitations or restrictions thereon, liquidation preferences and the number of shares constituting any series or the designation of such series, without any further vote or action by the stockholders. 8. Employee Employee Stock Ownership Plan Benefit Plans The Company established an Employee Stock Ownership Plan (the "ESOP") covering substantially all employees. For each of the years 1992 through 1995, the Company made contributions to the ESOP which were used in part to make loan and interest payments. No contributions were made to the ESOP in 1996, 1997 or 1998. Shares of common stock acquired by the ESOP are to be allocated to each employee based on the employee's annual compensation. The number of shares allocated to the plan at December 31, 1998 was 1,110,754. Effective June 1, 1998, the Board of Directors of the Company voted to terminate the Plan. On March 15, 1999, the Internal Revenue Service issued a determination letter notifying the Company that the termination of the Plan does not adversely affect the Plan's qualification for federal tax purposes. Upon termination of the Plan, a participant becomes 100% vested in his or her account. The interest of each participant will be distributed to such participant or his or her beneficiary at the time prescribed by the Plan terms. As a result of this termination, no new participants were eligible to join the Plan during 1998. 401K Plan Effective January 1, 1992, the Company adopted a 401(k) Plan (the "Plan"). The Plan covers substantially all full-time employees who meet the Plan's eligibility requirements. Employees may elect a salary reduction contribution up to 17% through June 30, 1998 and 15% thereafter of their annual compensation not to exceed the maximum amount allowed by the Internal Revenue Service. Effective October 1, 1994, the Plan was amended to require the Company to make contributions to the Plan for eligible pilots in exchange for certain concessions. These contributions are in excess of any discretionary contributions made for the pilots under the original terms of the plan. These contributions are 100% vested and equal to 3% of the first $15,000 of each eligible pilot's compensation plus 2% of compensation in excess of $15,000. The Company's contributions for the pilots shall not exceed 15% of the Company's adjusted net income before extraordinary items for such plan year. The Company's obligations to make contributions with respect to all plan years in the aggregate is limited to $2.5 million. Contribution expense was approximately $370,000, $445,000, and $552,000 for 1996, 1997 and 1998, respectively. Effective June 1, 1995 and October 1, 1998, the Plan was amended to allow the Company to make a discretionary matching contribution for non-union employees, pilots and mechanics equal to 25% of salary contributions up to 4% of total compensation. The Company's matching contribution, if any, vests ratably over five years. Contribution expense was approximately $29,000, $133,000 and $235,000 for 1996, 1997 and 1998, respectively. Effective April 1, 1997, all eligible pilots were included under the terms of the Plan. Profit Sharing Programs The Company has profit sharing programs which result in periodic payments to all eligible employees. Profit sharing compensation, which is based on attainment of certain performance and financial goals, was approximately $2.6 million, $3.6 million, and $3.9 million in 1996, 1997 and 1998, respectively. 9. Income The provision (benefit) for income taxes includes the following components: Taxes
(in thousands) Year Ended December 31, 1996 1997 1998 Federal: Current $ $ $ 1,699 7,342 13,580 Deferred (1,344) 1,907 3,591 Total federal 355 9,249 17,171 provision State: Current 391 2,545 3,161 Deferred (296) 545 801 Total state provision 95 3,090 3,962 Total provision $ 450 $ 12,339 $ 21,133
A reconciliation of income tax expense at the applicable federal statutory income tax rate of 35% to the tax provision recorded is as follows:
(in thousands) Year ended December 31, 1996 1997 1998 Income tax expense at statutory rate $ 6,863 $ 9,394 $18,041 Increase (decrease) in tax expense due to: Change in valuation (1,640) - - allowance Utilization of net operating (5,811) - - loss carryforward Permanent differences 58 937 517 and other State income taxes, net 980 2,008 2,575 of federal benefit Income tax expense $ 450 $12,339 $21,133
Deferred income taxes result from temporary differences which are the result of provisions of the tax laws that either require or permit certain items of income or expense to be reported for tax purposes in different periods than for financial reporting purposes. The following is a summary of the Company's deferred income taxes as of December 31, 1997, and 1998:
(in thousands) December 31, 1997 1998 Deferred tax assets: Engine maintenance $ 1,489 $ 1,268 accrual Intangible assets 1,139 934 Air traffic liability 746 503 Allowance for bad debts 150 146 Deferred aircraft rent - 530 Deferred credits 1,940 2,335 Accrued vacation 392 534 Other 323 582 Total deferred tax 6,179 6,832 assets Deferred tax liabilities: Depreciation and (4,614) (9,756) amortization Preoperating costs (828) (596) Other (49) (184) Total deferred tax (5,491) (10,536) liabilities Net deferred income tax $ 688 $(3,704) assets (liabilities)
No valuation allowance was established in either 1997 or 1998 as the Company believes it is more likely than not that the deferred tax assets can be realized. The Tax Reform Act of 1986 enacted an alternative minimum tax ("AMT") system, generally effective for taxable years beginning after December 31, 1986. The Company is not subject to alternative minimum tax for the year ended December 31, 1998. An AMT tax credit carryover of approximately $564,000 was fully utilized in 1997. 10. Aircraft Commitments and As of December 31, 1998, the Company had a total of Contingencie 29 RJs on order from Bombardier, Inc., and held s options for 27 additional RJs. Of the remaining firm aircraft deliveries, nine are scheduled for delivery in 1999, nine in 2000 and eleven in 2001. The Company is obligated to purchase and finance (including leveraged leases) the 29 firm ordered aircraft at an approximate capital cost of $539 million. The Company is continually assessing its fleet requirements, including the feasibility of operating less than 50-seat regional jets. The Company requires United's approval for the addition of regional jet aircraft that exceed its current allocation. The Company previously announced that it is exploring alternatives to accelerate the retirement of its fleet of 28 leased 19 seat J-32 aircraft. The Company is assessing plans to target the phase- out of the J-32 from its United Express operation by the end of 2001. As of March 1, 1999, the Company has J-32 operating lease commitments with remaining lease terms ranging from three to seven years and related minimum lease payments of approximately $47 million. The Company intends to complete its analysis of a phase-out plan, including quantification of any one-time fleet rationalization charge, during 1999. Training The Company has entered into an agreement with Pan Am International Flight Academy ("PAIFA") whereby PAIFA will develop a RJ simulator training facility. The Company has committed to purchase an annual minimum number of simulator training hours for a period of ten years at a guaranteed fixed price once the facility receives Federal Aviation Administration ("FAA") certification. At December 31, 1998, the Company's payment obligations are as follows: (in thousands) Year ended December 31, 1999 $ - 2000 1,748 2001 1,331 2002 1,351 2003 1,371 Thereafter 7,457 $13,258
Derivative Financial Instruments In July 1997, the Company entered into a series of put and call contracts having an aggregate notional amount of $39.8 million. The contracts matured between March and September 1998. The contracts were entered into as an interest rate hedge designed to limit the Company's exposure to interest rate changes on the anticipated issuance of permanent financing relating to the delivery of aircraft in 1998. During 1998, the Company settled these contracts, paying the counterparty approximately $2.3 million, and is amortizing this cost over the life of the related aircraft leases or is depreciating the cost as part of the aircraft acquisition cost for owned aircraft. On July 2, 1998, the Company entered into additional put and call contracts having an aggregate notional amount of $51.8 million to hedge its exposure to interest rate changes on the anticipated issuance of permanent financing for six RJ aircraft scheduled for delivery between October 1998 and April 1999. In the fourth quarter 1998, the Company settled two contracts, paying the counterparty approximately $700,000, and is amortizing this cost over the life of the related aircraft lease for the leased aircraft and is depreciating the cost as part of the aircraft acquisition cost for the owned aircraft. The Company would have been obligated to pay the counterparty approximately $1.5 million had the remaining contracts settled on December 31, 1998. In September and December 1998, the Company entered into call option contracts to hedge price changes on approximately 34,000 barrels of jet fuel per month during the period from January 1999 to June 1999. The contracts provide for a premium payment of approximately $273,000 and set a cap on the average maximum price equal to 40.625 cents per gallon of jet fuel excluding taxes and into-plane fees with the premium and any gains on this contract to be recognized as a component of fuel expense during the period in which the Company purchases fuel. In October and November 1998, the Company entered into commodity swap transactions to hedge price changes on approximately 34,000 additional barrels of jet fuel per month during the period from January 1999 to June 1999. The contracts provide for an average fixed price of 44.35 cents per gallon of jet fuel with any gains or losses recognized as a component of fuel expense during the period in which the Company purchases fuel. With these transactions, the Company has hedged approximately 80% of its jet fuel requirements for the first half of 1999. Had the commodity swap transactions settled on December 31, 1998, the Company would have incurred approximately $900,000 in additional fuel expense. 11. The Company wrote off the remaining accruals for Restructuring restructuring costs of $426,000 as of December 31, Charges 1996 related to a fleet simplification plan initiated in 1994. No similar costs were recorded in 1997 or 1998. 12. Litigation The Company is a party to routine litigation and FAA proceedings incidental to its business, none of which is likely to have a material effect on the Company's financial position or the results of its operations. The Company was a party to an action pending in the United States District Court for the Southern District of Ohio, Peter J. Ryerson, administrator of the estate of David Ryerson, v. Atlantic Coast Airlines, Case No. C2-95-611. In September and October 1998, this action and all related litigation was settled, the cost of which was covered by insurance and was not borne by the Company. The Company is also a party to an action pending in the United States Court of Appeals for the Fourth Circuit known as Afzal v. Atlantic Coast Airlines, Inc. (No. 98-1011). This action is an appeal of the December 1997 decision granted in favor of the Company in a case claiming wrongful termination of employment brought in the United States District Court for the Eastern District of Virginia known as Afzal v. Atlantic Coast Airlines, Inc. (Civil Action No. 96-1537-A). The Company does not expect the outcome of this case to have any material adverse effect on its financial condition or results of its operations. 13. Financial In December 1995, the Company adopted Statement of Financial Accounting Standards No. 107, "Disclosure Instruments of Fair Value of Financial Instruments" (SFAS 107). SFAS 107 requires the disclosure of the fair value of financial instruments; however, this information does not represent the aggregate net fair value of the Company. Some of the information used to determine fair value is subjective and judgmental in nature; therefore, fair value estimates, especially for less marketable securities, may vary. The amounts actually realized or paid upon settlement or maturity could be significantly different. Unless quoted market price indicates otherwise, the fair values of cash and cash equivalents, short term investments, accounts receivable and accounts payable generally approximate market because of the short maturity of these instruments. The Company has estimated the fair value of long term debt based on quoted market prices. The estimated fair values of the Company's financial instruments, none of which are held for trading purposes, are summarized as follows (brackets denote liability):
(in thousands) December 31, December 31, 1997 1998 Carrying Estimated Carrying Estimated Amount Fair Amount Fair Value Value Cash and cash equivalents $39,167 $39,167 $64,412 $64,412 Short-term investments 10,737 10,737 63 63 Long-term debt (75,706)(120,125) (66,739) (101,975) See note 10 for information regarding the fair value of derivative financial instruments. 14. Supplemental disclosures of cash flow Supplemental information: Cash Flow Year ended December 31, (in thousands) Cash paid during the Information period for: 1996 1997 1998 - Interest $883 $1,778 $3,665 - Income taxes 1,319 5,767 15,426 The following non cash investing and financial activities took place in 1996, 1997 and 1998: In 1996, the Company acquired $1.2 million in rotable parts, ground equipment, telephone system upgrades and Director's and Officer's Liability Insurance under capital lease obligations and by issuing notes. These purchases were financed by suppliers and outside lenders. In 1997, the Company acquired $2.9 million in rotable parts, spare engines, market planning software and other fixed assets and expendable parts under capital lease obligations and through the use of manufacturers credits. As of December 31, 1997, there was a remaining balance of $700,000 in earned, but unused manufacturer credits which is reflected in accounts receivable. In November 1997, the Company received $4.3 million in additional manufacturers credits pursuant to the terms of aircraft agreements of which $261,000 was received in cash by the end of 1997 leaving a balance of $4.1 million due from the manufacturer as of December 31, 1997. Such amount has been classified as other assets. In September and December 1998, the Company received $352,000 of manufacturers credits which were applied against the purchase price of two RJs purchased in 1998 from the manufacturer. The credits will be utilized primarily through the purchase of rotable parts and other fixed assets, expendable parts, and pilot training. In 1998, the Company acquired $3.0 million consisting primarily of rotable parts and other fixed assets and expendable parts under capital lease obligations and through the use of manufacturer credits. As of December 31, 1998, there was a remaining balance of approximately $607,000 in earned, but unused manufacturer credits which is reflected in accounts receivable. In 1998, the note holders elected to convert $37.8 million of the Company's Notes to common stock resulting in a recognition of $1.4 million of debt conversion expense. In April 1998, the Company declared a 2-for-1 stock split payable as a stock dividend. Pursuant to this dividend, $193,000 was transferred from additional paid-in capital to common stock to properly maintain the par value per share. On September 29, and November 19, 1998 the Company issued long-term promissory notes for $12.7 million and $12.9 million respectively, for the acquisition of two new RJ aircraft. The promissory notes mature on March 29, 2015 and May 19, 2015 respectively, and are collateralized by the RJ aircraft delivered with principal and interest, at rates of 5.65% and 5.88%, payable on a semiannual basis through maturity. In 1998, the Company capitalized $1.7 million in interest related to a $15 million deposit with a manufacturer. 15. SubsequentIn February 1999, the Company entered into an Events asset-based lending agreement with two financial institutions that provides the Company with a line of credit of up to $35 million, depending on the amount of assigned ticket receivables and the value of certain rotable spare parts. Borrowings under the line of credit can provide the Company a source of working capital until proceeds from ticket coupons are received. The line is collateralized by all of the Company's receivables and certain rotable spare parts. The Company pledged $2.9 million of this line of credit as collateral to secure letters of credit issued on behalf of the Company by a financial institution. In the second quarter of 1998, the Company announced that the Metropolitan Washington Airport Authority ("MWAA"), in coordination with the Company, will build an approximately 69,000 square foot regional passenger concourse at Washington Dulles International Airport. The facility is scheduled to open in May 1999. The new facility will offer improved passenger amenities and operational enhancements, and will provide additional space to support the Company's expanded operations resulting from the introduction of RJs. The facility will be designed, financed, constructed, operated and maintained by MWAA, and will be leased to the Company. The lease rate will be determined based upon final selection of funding methods and rates. MWAA has agreed to fund the construction through the proceeds of bonds and, subject to approval by the FAA, passenger facility charges ("PFC"). In order to obtain the most favorable permanent financing, the Company agreed to obtain its own interim financing from a third party lender to fund a portion of the total program cost of the regional concourse for approximately $15 million. MWAA has agreed to replace the Company's interim financing with the proceeds of bonds or, if obtained, PFC funds, no later than one year following the substantial completion date of the project. If MWAA replaces the interim financing with PFC funding rather than bond financing, the Company's lease cost will be significantly lower. The Company obtained financing for this obligation from two banks in February 1999 and has borrowed $4.5 million through March 1, 1999. MWAA has agreed to reimburse principal borrowings but the Company will be responsible for all interest costs. 16. Recent The American Institute of Certified Public Accounting Accountants issued Statement of Position 98-5 on Pronouncement accounting for start-up costs, including s preoperating costs related to the introduction of new fleet types by airlines. The new accounting guidelines will take effect for fiscal years beginning after December 15, 1998. The Company has previously deferred certain start-up costs related to the introduction of the RJs and is amortizing such costs to expense ratably over four years. The Company will be required to expense any remaining unamortized amounts as of January 1, 1999 as a cumulative effect of a change in accounting principle. In January 1999, the Company recorded a charge for the remaining unamortized balance of approximately $1.5 million associated with preoperating costs. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments and all hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on its designation and effectiveness. For derivatives that qualify as effective hedges, the change in fair value will have no impact on earnings until the hedged item affects earnings. For derivatives that are not designated as hedging instruments, or for the ineffective portion of a hedging instrument, the change in fair value will affect current period earnings. The Company will adopt Statement No. 133 during its first quarter of fiscal 2000 and is currently assessing the impact this statement will have on interest rate swaps and any future hedging contracts that may be entered into by the Company. 17. Selected Quarterly Financial Data (in thousands, except per share amounts) (Unaudited)
Quarter Ended March 31, June 30, September December 31, 1998 1998 30, 1998 1998 Operating $58,055 $75,759 $78,100 $78,026 revenues Operating 5,875 17,358 17,055 12,403 income Net income 2,983 9,092 10,613 7,725 Net income per share Basic $ 0.20 $ 0.48 $ 0.55 $ 0.40 Diluted $ 0.16 $ 0.421 $ 0.49 $ 0.36 Weighted average 22,034 22,246 22,244 22,289 shares outstanding
Quarter Ended
Operating $41,114 $53,220 $54,864 $56,246 revenues Operating 1,037 9,968 9,054 8,884 income Net income 703 5,885 4,844 3,068 Net income per share Basic $ 0.04 $ 0.35 $ 0.34 $ 0.21 Diluted $ 0.04 $ 0.33 $ 0.26 $ 0.17 Weighted average 17,002 17,675 21,149 21,545 shares outstanding
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Reference is hereby made to the Company's Form 8-K Item 4, filed October 29, 1997. PART III The information required by this Part III (Items 10, 11, 12 and 13) is hereby incorporated by reference from the Company's definitive proxy statement which is expected to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 not later than 120 days after the end of the fiscal year covered by this report. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements The Consolidated Financial Statements listed in the index in Part II, Item 8, are filed as part of this report. 2. Consolidated Financial Statement Schedules Reference is hereby made to the Consolidated Financial Statements and the Notes thereto included in this filing in Part II, Item 8. 3. Exhibits Exhibit Number Description of Exhibit 3.1 (note 3) Restated Certificate of Incorporation of the Company. 3.2 (note 3) Restated By-laws of the Company. 4.1 (note 1) Specimen Common Stock Certificate. 4.2 (note 9) Stockholders' Agreement, effective as of October 15, 1991, among the Company, the stockholders and the holder of warrants of the Company named on the signature pages thereto and a trust established pursuant to the Atlantic Coast Airlines, Inc. Employee Stock Ownership Plan, together with Amendment and Second Amendment thereto dated as of February 24, 1992 and May 1, 1992 respectively. 4.3 (note 9) Registration Rights Agreement, dated as of September 30, 1991, among the Company and the stockholders named on the signature pages thereto (the "Stockholders Registration Rights Agreement"). 4.4 (note 9) Form of amendment to the Stockholders Registration Rights Agreement. 4.17 (note 5) Indenture, dated as of July 2, 1997, between the Company and First Union National Bank of Virginia 4.18 (note 6) Registration Rights Agreement, dated as of July 2, 1997, by and among the Company, Alex. Brown & Sons Incorporated and the Robinson-Humphrey Company, Inc. 4.19 (note 2) Rights Agreement between Atlantic Coast Airlines Holdings, Inc. and Continental Stock Transfer & Trust Company dated as of January 27, 1999 10.1 (note 9) Atlantic Coast Airlines, Inc. 1992 Stock Option Plan. 10.2 (note 6) Restated Atlantic Coast Airlines, Inc. Employee Stock Ownership Plan, effective October 11, 1991, as amended through December 31, 1996. 10.4 (note 6) Restated Atlantic Coast Airlines 401(k) Plan, as amended through February 3, 1997. 10.4(a) (note 4) Amendment to the Atlantic Coast Airlines 401(k) Plan effective May 1, 1997 10.6 (notes 9 & 10) United Express Agreement, dated October 1, 1991, among United Airlines, Inc., Atlantic Coast Airlines and the Company, together with Amendment No. 1, dated as of April 1, 1993. 10.6(a) (note 4) Third Amendment to United Express Agreement, dated March 3, 1998, among United Airlines, Inc., Atlantic Coast Airlines and the Company. 10.6(b) notes 1 & 11 Fourth Amendment to the United Express Agreement, dated December 11, 1998, among United Airlines, Inc., Atlantic Coast Airlines and the Company. 10.7 (notes 9 & 10) Agreement to Lease British Aerospace Jetstream-41 Aircraft, dated December 23, 1992, between British Aerospace, Inc. and Atlantic Coast Airlines. 10.12(b) (note 1) Amended and Restated Severance Agreement, dated as of January 20, 1999, between the Company and Kerry B. Skeen. 10.12(c) (note 1) Amended and Restated Severance Agreement, dated as of January 20, 1999, between the Company and Thomas J. Moore. 10.12(h) (note 1) Form of Severance Agreement. The Company has entered into substantially identical agreements with Michael S. Davis, renewed as of January 1, 1999, and with Paul H. Tate, renewed as of February 1, 1999. 10.13(a) (note 6) Form of Indemnity Agreement. The Company has entered into substantially identical agreements with the individual members of its Board of Directors. 10.21 (note 8) Acquisition Agreement, dated as of December 30, 1994, by and among Jetstream Aircraft, Inc., JSX Capital Corporation, and Atlantic Coast Airlines. 10.21(a) (note 6) Amendment Number One to Acquisition Agreement, dated as of June 17, 1996, by and among Jetstream Aircraft, Inc., JSX Capital Corporation, and Atlantic Coast Airlines. 10.23 (note 1) Amended and Restated Loan and Security Agreement dated February 8, 1999 between Atlantic Coast Airlines and Fleet Capital Corporation. 10.24 (note 1) Stock Incentive Plan of 1995, as amended as of May 5, 1998. 10.25(a) (note 1) Form of Incentive Stock Option Agreement. The Company enters into this agreement with employees who have been granted incentive stock options pursuant to the Stock Incentive Plans. 10.25(b) (note 1) Form of Incentive Stock Option Agreement. The Company enters into this agreement with corporate officers who have been granted incentive stock options pursuant to the Stock Incentive Plans. 10.25(c) (note 1)Form of Non-Qualified Stock Option Agreement. The Company enters into this agreement with employees who have been granted non-qualified stock options pursuant to the Stock Incentive Plans. 10.25(d) (note 1) Form of Non-Qualified Stock Option Agreement. The Company enters into this agreement with corporate officers who have been granted non-qualified stock options pursuant to the Stock Incentive Plans. 10.25(e) (note 1) Form of Restricted Stock Agreement. The Company entered into this agreement with corporate officers who were granted restricted stock pursuant to the Stock Incentive Plans. 10.27 (note 7) Split Dollar Agreement, dated as of December 29, 1995, between the Company and Kerry B. Skeen. 10.27(a) (note 6) Form of Split Dollar Agreement. The Company has entered into substantially identical agreements with Thomas J. Moore and with Michael S. Davis, both dated as of July 1, 1996, and with Paul H. Tate, dated as of February 1, 1998. 10.29 (note 7) Agreement of Assignment of Life Insurance Death Benefit As Collateral, dated as of December 29, 1995, between the Company and Kerry B. Skeen. 10.29(a) (note 6) Form of Agreement of Assignment of Life Insurance Death Benefit As Collateral. The Company has entered into substantially identical agreements with Thomas J. Moore and with Michael S. Davis, both dated as of July 1, 1996, and with Paul H. Tate, dated as of February 1, 1998. 10.31 (note 6) Summary of Senior Management Bonus Program. The Company has adopted a plan in substantially the form as outlined in this exhibit for 1999 and 1998. 10.32 (note 4) Summary of "Share the Success" Profit Sharing Plan. The Company has adopted a plan in substantially this form for 1999 and for the three previous years. (what about the change from 3 bonus groups to three - was this filed?) 10.40A (notes 1, 10 & 11)Purchase Agreement between Bombardier Inc. and Atlantic Coast Airlines Relating to the Purchase of Canadair Regional Jet Aircraft dated January 8, 1997, as amended through December 31, 1998. 10.50(a) (note 4)Form of Purchase Agreement, dated September 19, 1997, among the Company, Atlantic Coast Airlines, Morgan Stanley & Co. Incorporated and First National Bank of Maryland, as Trustee. 10.50(b) (note 4)Form of Pass Through Trust Agreement, dated as of September 25, 1997, among the Company, Atlantic Coast Airlines, and First National Bank of Maryland, as Trustee. 10.50(c) (note 4)Form of Pass Through Trust Certificate. 10.50(d) (note 4)Form of Participation Agreement, dated as of September 30, 1997, Atlantic Coast Airlines, as Lessee and Initial Owner Participant, State Street Bank and Trust Company of Connecticut, National Association, as Owner Trustee, the First National Bank of Maryland, as Indenture Trustee, Pass-Through Trustee, and Subordination Agent, including, as exhibits thereto, Form of Lease Agreement, Form of Trust Indenture and Security Agreement, and Form of Trust Agreement. 10.50(e) (note 4)Guarantee, dated as of September 30, 1997, from the Company. 10.80 (note 4) Ground Lease Agreement Between The Metropolitan Washington Airports Authority And Atlantic Coast Airlines dated as of June 23, 1997. 10.85 (note 1) Lease Agreement Between The Metropolitan Washington Airports Authority and Atlantic Coast Airlines, with amendments as of March 12, 1999. 10.90 (notes 4 & 10) Schedules and Exhibits to ISDA Master Agreement between the Company and Bombardier Inc. dated as of July 11, 1997 (the Company entered into substantially similar arrangements for interest rate hedges that are presently outstanding). 21.1 (note 1) Subsidiaries of the Company. 23.1 (note 1) Consent of KPMG Peat Marwick. 23.2 (note 1) Consent of BDO Seidman. Notes (1) Filed as an Exhibit to this Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (2) Filed as Exhibit 99.1 to Form 8-A (File No. 000- 21976), incorporated herein by reference. (3) Filed as Exhibit to the Quarterly Report on Form 10-Q for the three month period ended June 30, 1998. (4) Filed as an Amendment to the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, incorporated herein by reference. (5) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the three month period ended June 30, 1997, incorporated herein by reference. (6) Filed as an Amendment to the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, incorporated herein by reference. (7) Filed as an Exhibit to the Annual report on Form 10-K for the fiscal year ended December 31, 1995, incorporated herein by reference. (8) Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, incorporated herein by reference. (9) Filed as an Exhibit to Form S-1, Registration No. 33-62206, effective July 20, 1993, incorporated herein by reference. (10) Portions of this document have been omitted pursuant to a request for confidential treatment that has been granted. (11) Portions of this document have been omitted pursuant to a request for confidential treatment that is pending. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 18, 1999. ATLANTIC COAST AIRLINES, INC. By /S/ : / C. Edward Acker Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 16, 1998. Name Title /S/ Chairman of the Board of Directors C. Edward Acker /S/ Director, President Kerry B. Skeen and Chief Executive Officer (principal executive officer) /S/ Director, Executive Vice President Thomas J. Moore and Chief Operating Officer /S/ Senior Vice President, Treasurer and Paul H. Tate Chief Financial Officer (principal financial officer) /S/ Vice President, Financial Planning and Controller David W. Asai (principal accounting officer) /S/ /S/ John Sullivan Susan M. Coughlin Director Director /S/ /S/ Robert Buchanan James Kerley Director Director /S/ /S/ Joseph Elsbury James Miller Director Director _______________________________ 1 Excluding a non-cash, non-operating charge to earnings during the second quarter of 1998 of $1.4 million representing the fair value of the additional shres distributed upon conversion. EX-4 2 Exhibit 4.1 SPECIMEN COMMON STOCK CERTIFICATE COMMON STOCK COMMON STOCK - ------------------------ --------------- - - NUMBER ACA ATLANTIC COAST AIRLINES HOLDINGS, INC. SHARES - ------------------------ --------------- - - SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 048396 10 5 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE THIS CERTIFIES that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF ATLANTIC COAST AIRLINES HOLDINGS, INC., transferable on the books of the Corporation in person or by attorney upon surrender of this certificate duly endorsed or assigned. This certificate and the shares represented hereby are subject to the laws of the State of Delaware, and to the Restated Certificate of Incorporation and By-Laws of the Corporation, as now or hereafter amended. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ Richard J. Kennedy /s/ Kerry B. Sheen Secretary President [SEAL] Countersigned and Registered: CONTINENTAL STOCK TRANSFER & TRUST COMPANY (Jersey City, NJ) Transfer Agent and Registrar Authorized Officer THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- .........................Custodian.......................... (Cust) (Minor) TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors JT TEN -- as joint tenants with right Act.......................................... of survivorship and not as (State) tenants in common Additional abbreviations may also be used though not in the above list. For value received, ...........................................................h ereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ............................................................ ............................................................ ............................................................ .......... Please print or typewrite name and address including postal zip of assignee ............................................................ ............................................................ ............................................................ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ............................................................ ............................................................ ............................................................ ........... Attorney to transfer the said stock on the books of the within-named Company with full power of substitution in the premises. Dated,...................................................... ..... NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration or enlargement, or any change whatever. This certificate also represents Rights that entitle the holder hereof to certain rights as set forth in a Rights Agreement between the Corporation and Continental Stock Transfer & Trust Company, as Rights Agent, dated as of January 27, 1999, as it may be amended from time to time in accordance with its terms (the "Rights Agreement"), the terms, conditions and limitations of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Corporation will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or beneficially owned by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. EX-10 3 Exhibit 10.6(b) CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. FOURTH AMENDMENT TO THE UNITED EXPRESS AGREEMENT [United Airlines Letterhead] December 11, 1998 Mr. Kerry B. Skeen President & CEO Atlantic Coast Airlines 515A Shaw Road Dulles, VA 20166 Re: Fourth Amendment to United Express Agreement, dated October 1, 1991, and as amended from time to time thereafter (the "United Express Agreement") Dear Kerry: This letter, when countersigned by you, will constitute a further amendment to the United Express Agreement as follows: 1. Parties. Atlantic Coast Airlines Holdings, Inc. will be a party to the United Express Agreement, and, together with Atlantic Coast Airlines, will be referred to in the United Express Agreement as "Contractor". 2. Extension of the United Express Agreement a. Article 2.B of the United Express Agreement is hereby amended to read as follows: "B. This Agreement becomes effective on October 1, 1991 ("Effective Date"), and, subject to termination at an earlier date pursuant to one or more provisions of this Agreement, will continue in effect until March 31, 2009; provided, however, United may terminate this Agreement without cause effective no earlier than March 31 2004 upon one (1) years' prior written notice; provided further, however, if United so terminates this Agreement upon one (1) years prior written notice, the liquidated damages under Article 16.G will not apply. In the event, however, that by January 2, 2001 United fails to grant Contractor the ability, separate and apart from the allocations of fifty seat regional jet aircraft, to operate regional jet aircraft of 44 seats or less capacity under this Agreement, then Contractor will have the right to notify United that the Agreement will terminate as of March 31, 2004, which notice must be given by Contractor by no later than January 2, 2002; provided, however, if Contractor timely gives such notice but United then makes such allocation on or before January 2, 2002 then Contractor's aforesaid notice will be null and avoid." b. The fifth and sixth lines of Article 16.G (2) are amended to read as follows: ". . . during the period commencing with the date of termination through the end of the term of this Agreement in accordance with Article 2.B; provided, however, if United secures . . ." c. To the extent the agreements entered into between the parties related to the United Express Agreement (including agreements relating to Mileage Plus participation, prorate/revenue sharing, interline travel, groundhandling, and emergency response) contain a termination date, all such agreements are hereby amended such that each of such agreements will continue in effect for a term equal to that stated in Article 2.B of the United Express Agreement; provided, however, that all such agreements automatically will terminate contemporaneously with the termination of the United Express Agreement. The parties confirm that previous extensions of the United Express Agreement were intended to effectuate extensions of these other agreements as well. 3. Program Fee. Appendix I of the United Express Agreement is amended by the addition of the following paragraph: "Notwithstanding anything else contained in this United Express Agreement to the contrary, the current Program Fee will be fixed through March 31, 2000 and will be subsequently adjusted only in accordance with the terms of this paragraph. [ * ] 4. Regional Jets. A new Article 4.F, entitled "Regional Jets" is hereby added to the United Express Agreement as follows: "F. Regional Jets (1) Contractor is authorized to operate up to 43 regional jet aircraft, 50-seat capacity, as United Express under the terms of this Agreement. The schedule for the introduction of the 34th through 43 such aircraft will be as set forth in a schedule to this Fourth Amendment to this Agreement to be agreed upon by December 21, 1998. The deployment of any regional jet aircraft operated by Contractor, as United Express or operated with United Express livery, must be approved by United on a city pair by city pair basis. [ * ] The allocation of any such aircraft to Contractor thereafter will be governed by subparagraph F.(2), below. (2) If the operation of greater than a total of [* ] fifty seat regional jet aircraft within the United Express system is approved and allocated by United, Contractor will be authorized to operate a minimum of [ * ] of any such aircraft above [ *]. Said percentage will be based upon the total number of such aircraft approved and allocated for operation in the total United Express fleets of all United Express carriers, in excess of the initial [ *] fifty seat regional jet aircraft, measured as of the end of each calendar year; provided, however, in applying the foregoing percentage to determine the number of aircraft allocable to Contractor fractional aircraft shall be disregarded." 5. Additional Terms a. The parties agree to revise the Operating Performance Standards contained in the United Express Agreement to mutually agreed levels and agree upon mutually agreed revised incentives and consequences based upon achievement or lack thereof of those Operating Performance Standards. b. The terms of the letter of understanding, dated November 2, 1998, regarding Contractor's use of Orion and its IRS database are incorporated into the United Express Agreement. c. The following Article 4.G is hereby added to the United Express Agreement: "G. [ * ] d. Article 16.D of the United Express Agreement is amended to read as follows: "D. United may immediately terminate this Agreement if Contractor enters into a similar arrangement (including, without limitation, a code share arrangement) with any other carrier, unless United has given Contractor its express prior written approval of such arrangement." e. A new Article 12.G is hereby added to the United Express Agreement as follows: G. United hereby assumes liability for and agrees to indemnify, release, defend, protect, save and hold Contractor, its officers, directors, agent, and employees harmless from and against any and all liabilities, damages, expenses, losses, claims, demands, suits, fines, or judgments, including, but not limited to, attorneys' and witnesses' fees, costs, and expenses incident thereto, which may be suffered by, accrue against, be charges to or be recovered from Contractor, its officers, directors, employees, or agents, by reason of any injuries to or deaths of persons or the loss of, damage to, or destruction of property, including the loss of use thereof, arising out of, in connection with, or in any way related to any act, error, omission, operation, performance or failure of performance of United or its officers, directors, employees or agents, which is in any way related to the services of United contemplated by or provided pursuant to this Agreement." f. Pursuant to Article 3.1 of the United Express Agreement, United will provide a minimum co-op advertising budget for calendar year 1999 of [ *]. 6. Other Terms and Conditions. Except as specifically stated above, all other terms and conditions of the United Express Agreement remain in full force and effect. Please confirm the concurrence of Atlantic Coast Airlines and Atlantic Coast Airlines Holdings, Inc. to the foregoing by signing below. Very truly yours United Air Lines, Inc. By: /s/ Thomas Hanley_________ Thomas Hanley By: /s/ Rono Dutta____________ Rono Dutta Accepted and Agreed to this 17th day of December, 1998 Atlantic Coast Airlines Atlantic Coast Airlines Holdings, Inc. By: /s/Kerry B. Skeen__________ Kerry B. Skeen President and CEO EX-10 4 Exhibit 10.12(b) AMENDED AND RESTATED SEVERANCE AGREEMENT THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement") is made and entered into as of this 20th day of January, 1999 (the "Effective Date"), by and between ATLANTIC COAST AIRLINES HOLDINGS, INC., a Delaware corporation ("ACAH"), ATLANTIC COAST AIRLINES, a California corporation ("ACA") (ACAH and ACA are herein collectively referred to as the "Company") and KERRY B. SKEEN ("Skeen"). WITNESSETH THAT: WHEREAS, Skeen is currently employed by the Company as Chief Executive Officer and President, and in connection with such employment entered into a Severance Agreement (dated October 16, 1991), as amended (April 28, 1994, April 27, 1995 and October 16, 1996), with the Company; and WHEREAS, the Company wishes to assure itself of the continued services of Skeen; and WHEREAS, the Board of Directors of the Company has determined that the best interests of the Company would be served by entering into this amended and restated Agreement with Skeen; and WHEREAS, this Amended and Restated Severance Agreement is intended to correct and restate the Severance Agreement dated July 20, 1998; NOW, THEREFORE, the parties, for and in consideration of the mutual and reciprocal covenants and agreements hereinafter contained, and intending to be legally bound hereby, do contract and agree as follows: 1. Employment: Company hereby employs Skeen and Skeen hereby accepts employment by Company and agrees to perform his duties and responsibilities hereunder upon all of the terms and conditions as are hereinafter set forth. 2. Duties: Skeen shall serve in the capacities of Chief Executive Officer and President of the Company and of any other entity(ies) to which the Company's obligations under this Agreement shall be assigned pursuant to Paragraph 11. Skeen shall be responsible for supervising and directing all operations of the Company. All other officers of the Company shall report to Skeen except the Chairman of the Board of Directors (to the extent such person is deemed to be an officer). Skeen shall otherwise be responsible for carrying out all duties assigned to the President by the Company's Board of Directors and under ACAH's and ACA's Bylaws. The Company shall use its good faith efforts to ensure that Skeen continues to serve as a member of the Company's Board of Directors. 3. Terms of Employment: Skeen's term of employment under this Agreement shall commence on the Effective Date and shall terminate on the last day of the calendar month which is thirty-six (36) calendar months after the Effective Date, unless further extended as hereinafter set forth. Commencing on each successive anniversary of the Effective Date, the Agreement shall automatically be extended for an additional twelve (12) months without further action by either party unless one party provides the other sixty (60) days' written notice that such party does not wish to extend the term of this Agreement. 4. Extent of Service: Skeen shall devote such time and attention as is required to perform his obligations under this Agreement and will at all times faithfully and industriously, consistent with his ability, experience and talent, perform his duties hereunder. 5. Compensation: During the term of this Agreement, Company agrees to pay to Skeen, and Skeen agrees to accept from Company, in full payment for services rendered by Skeen and work to be performed by him under the terms of this Agreement, the following: A. An annual base salary of Two-Hundred Ninety Five Thousand Dollars ($295,000) shall be paid to Skeen. Commencing October 1, 1998 and each October 1 thereafter, the amount of Skeen's base salary shall be increased as determined by the Compensation Committee of the Board of Directors of the Company; provided, however, that in no event shall Skeen's annual base salary be less than the previous year's annual base salary. Skeen's base salary for each year shall be payable to him in accordance with the reasonable payroll practices of the Company as from time to time in effect for executive employees (but in no event less often than monthly). B. Skeen shall participate in the Company's Management Incentive Program, or any successor bonus plan or program for management employees. In addition, if the Company maintains an additional executive/management bonus plan, then Skeen's bonus arrangement shall be at least consistent with the provisions of such bonus plan. C. Skeen shall be eligible for an additional annual bonus under an executive performance bonus plan currently known as Senior Management Incentive Plan for so long as the Board of Directors determines to maintain such plan. Under such plan, each calendar year, Skeen shall be entitled to receive a bonus equal to specified percentage of base salary upon the attainment of certain pre-established goals. The maximum bonus under this plan assuming all goals are met will not be less than 100% of base salary. Such goals and percentage of salary shall be determined by the Compensation Committee of the Board of Directors of the Company prior to the commencement of each plan year. The bonus amount each year shall be paid in a single cash lump sum paid at the time period provided under such plan, at the same time as paid to other eligible employees, and generally no later than 90 days after the end of the plan period. D. Skeen will be entitled to deferred compensation ("Deferred Compensation") as described in this section. The Company will make Deferred Compensation contributions at the rate of fifty percent (50%) of Skeen's annual base salary. Deferred Compensation will be based on Skeen's annual base salary in effect on October 1 in each year beginning 1998, and will be payable as of October 1 in each year beginning 1998. Such contributions will be applied toward funding such deferred compensation program as the Company and Skeen may agree to from time to time, consistent with the funding and vesting provisions of this Agreement. The method of funding of Deferred Compensation, and the timing of the actual payment of contributions, shall be agreed between the Company and Skeen from time to time. As of the date hereof, the Deferred Compensation program is provided under a split dollar life insurance arrangement with Phoenix Home Life Mutual - (the "Split Dollar Agreement". The Company may implement a substitute Deferred Compensation plan not tied to a Split Dollar Agreement so long as (1) the amount contributed by the Company on Skeen's behalf equals the amount set forth herein, and (2) the vesting schedule, credit for Years of Service, and terms of distribution are all at least as favorable to Skeen as set forth herein. The Company shall continue to abide by the terms of the Split Dollar Agreement with Skeen previously executed the 29th day of December, 1995, which shall provide for a split dollar plan for a policy of insurance upon the life of Skeen in a face amount to be mutually agreed upon between Skeen and the Company. For so long as the Split Dollar Agreement shall serve as the deferred compensation program under this Agreement, the following terms shall apply: (i) Skeen shall be the owner of the policy under the Split Dollar Agreement and will have the right to designate his beneficiary with respect to proceeds of the policy payable upon his death; provided, however, that notwithstanding the foregoing, the Company shall have a collateral assignment of the policy as security for the repayment of the amounts contributed by the Company toward the payment of premiums for the policy. (ii) The Company shall, except as provided in Paragraph 5D(iii) below, each year as required under the Split Dollar Agreement and the related policy, pay, on or before the due date(s) under the terms of the policy, the entire amount of the annual premium due on the policy acquired pursuant to the terms of the Split Dollar Agreement. The annual premium due on the policy will be the amount of the Company's contribution to deferred compensation calculated as described above. (iii) The "Deferred Compensation Ending Date" shall mean the date of termination of Skeen's employment if Skeen's employment with the Company is terminated at any time under circumstances that do not entitle him to Severance Compensation pursuant to Section 10 of this Agreement, or shall mean the last day of the Severance Period (as defined in Section 10) if Skeen is entitled to Severance Compensation. During a Severance Period, Deferred Compensation shall continue pursuant to the terms of 10.E.(iii) hereof. Upon the Deferred Compensation Ending Date, the following shall occur: (a) The applicable vested percentage of Skeen's interest in Deferred Compensation shall be calculated as provided herein. Skeen will be entitled to receive the deferred compensation benefit provided under such deferred compensation program only to the extent he is vested in the Company's contributions. Vesting will be based upon "Years of Service", with Skeen to be credited with one Year of Service for completion of each twelve (12) consecutive month period of employment with the Company beginning January 1, 1996 and ending on the Deferred Compensation Ending Date. (That is, Skeen will be credited with Years of Service for any applicable Severance Period, as further provided in Section 10.E.(iv) hereof.) Skeen will become vested in the deferred compensation based on the following schedule: YEARS OF SERVICE PERCENTAGE VESTED Less than 4 0% At least 4 but less than 5 25% At least 5 but less than 6 35% At least 6 but less than 7 50% At least 7 but less than 8 65% At least 8 but less than 9 80% At least 9 100% In the event of a Change in Control (as defined in Paragraph 8.C. of this Agreement) of the Company, Skeen shall become immediately 100% vested in his Deferred Compensation amount notwithstanding the above vesting schedule. (b) The Split Dollar Agreement shall continue in full force and effect and survive separate and apart from this Agreement; provided, however, that the Company shall, at its election, have no further obligation to pay any premium on the policy under the Split Dollar Agreement which has a due date after the Deferred Compensation Ending Date and such obligation shall be transferred to Skeen. (c) The Company shall pay to Skeen whatever "Deferred Compensation" amount is equal to the applicable vested percentage of the total policy premiums paid by the Company pursuant to the Split Dollar Agreement. The Company shall make this payment within thirty (30) days following the Deferred Compensation Ending Date by releasing its interest in the policy, or a portion thereof, on Skeen's life acquired pursuant to the terms of the Split Dollar Agreement, or any or all of the paid up additions standing to the credit of such policy, if any, such that such released interest equals the Deferred Compensation amount paid to Skeen pursuant to this Paragraph 5D. The Company agrees that the amount of any such release of interest by the Company shall reduce the amount of "Liabilities" (as such term is defined in the Agreement of Assignment of Life Insurance Death Benefit As Collateral entered into between Skeen and the Company in connection with the Split Dollar Agreement) owed to the Company in connection with the Split Dollar Agreement and related Collateral Assignment Agreement. Accordingly, the Company also agrees to reduce to such extent its collateral assignment of the policy pursuant to the Split Dollar Agreement and related Collateral Assignment Agreement. E. The Company may pay Skeen discretionary compensation, bonuses and benefits in addition to those provided for herein in such amounts and at such times as the Compensation Committee of the Board of Directors of the Company shall determine. 6. Benefits: A. The Company shall pay for or provide Skeen such vacation time and benefits, including but not limited to, coverage under Company's major medical, accident, health, dental, disability and life insurance plans, as are made available to other executive employees of Company generally (and, to the extent provided by such policies, to Skeen's dependents). B. The Company agrees to promptly reimburse Skeen for any otherwise unreimbursed premiums and/or uncovered medical expenses up to $10,000 per calendar year under a written medical reimbursement plan maintained for Skeen and other key executive employees. If such payments are taxable to Skeen, the Company shall pay Skeen a gross- up equal to the estimated income, FICA and Medicare taxes due with respect to such reimbursement, with federal and state income taxes being estimated at the highest marginal rates. C. Skeen shall be eligible to participate in any profit sharing plan, employee stock ownership plan or other qualified retirement plan adopted by Company to the same extent as other executive employees of Company. Skeen shall also be eligible to participate in any stock option, stock appreciation rights or stock purchase plans or programs or nonqualified deferred compensation arrangements of Company, which participation shall be at levels at least equal in value to such benefits provided by Company to other key executive employees of Company. 7. Reimbursement of Expenses: The Company agrees to promptly reimburse Skeen, within fifteen (15) days after presentation of receipts and other appropriate documentation, for all reasonable, ordinary and necessary travel costs and other necessary expenses incurred by Skeen in performing his duties pursuant to this Agreement. 8. Stock Options: A. Company agrees to continue in force a stock option plan or one which is substantially similar to the existing plan ("Stock Option Plan"), which has been approved by the shareholders of the Company and, on the first business day in each January commencing in January, 1999, and (subject to the provisions of Paragraph 10.A.(vii)) continuing so long as Skeen is employed by the Company to grant Skeen options under the Stock Option Plan to purchase not less than 100,000 shares of the common stock of ACAH at the price per share at the closing of the trading market on the last business date prior to such grant. The Company also agrees to approve the issuance of such additional shares as are necessary to enable Skeen to exercise such options. The Company will not be required to reserve shares from existing plans to cover future obligations under this paragraph, but will use reasonable efforts to obtain shareholder approval as necessary from time to time to make a sufficient number of additional shares available on a timely basis, and will provide Skeen with equivalent alternative compensation should approval not be obtained. The terms of the grant of such options granted after January 1, 1998 shall provide that (a) Skeen's right to exercise such options shall vest and become exercisable over the five- year period beginning on the date of each grant at the rate of one-fifth per year (i.e., one-fifth shall vest and become exercisable on the first anniversary of the grant) so long as Skeen is employed by the Company, (b) Skeen's right to exercise such options to purchase the entire number of shares covered thereby shall become immediately 100% vested in the event there is a Change in Control (as hereinafter defined) or in the event Company shall otherwise become obligated to provide Skeen with Severance Compensation as provided in Paragraph 10.e. herein, (c) such options shall be exercisable for ten (10) years after the date of the grant so long as Skeen is employed by the Company and (d) Skeen shall have the right to exercise such vested options within ninety (90) days following any termination of Skeen's employment except that in the case of termination of employment for which Skeen is entitled to "Severance Compensation" as provided herein, in which case the terms of Paragraph 10.E.(iii) shall apply. B. In addition to the foregoing, if the Company in the exercise of its discretion, shall grant Skeen any additional stock options, such options shall contain terms and conditions which are at least as favorable to Skeen as those set forth in this Paragraph 8. All outstanding options previously issued to Skeen prior to the Effective Date of this Amended and Restated Severance Agreement shall also be subject to the foregoing terms, except that options granted on or before December 31, 1997 shall vest over three years at the rate of one-third per year and except that no such terms shall be applicable to options intended to qualify as Incentive Stock Options if and to the extent such terms would be deemed to result in a "material modification" of such options (for example, Skeen will not be entitled to more than 90 days to exercise such options following any termination of employment other than on account of death or disability, in which case he will be entitled to one year to exercise such options). C. For purposes of this Agreement, a "Change in Control" shall be deemed to occur on the earliest of (a) an acquisition (other than directly from Company) of any securities of Company entitled to vote for the election of Directors (the "Voting Securities") by any "person or group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) other than an employee benefit plan of Company, immediately after which such person has "Beneficial Ownership" (within the meaning of Rule 13d-3 under the Exchange Act) of more than thirty percent (30%) of the combined voting power of Company's then outstanding Voting Securities; (b) announcement by any "person or group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) of its acceptance for payment of securities tendered pursuant to a tender offer or exchange offer initiated by such person owning or representing securities constituting more than twenty percent (20%) of the combined voting power of Company's then outstanding Voting Securities; (c) the approval by the Company's stockholders of (1) a merger, consolidation or reorganization involving Company or a transfer of substantially all of the assets of Company (other than to an entity or entities owned by Company), unless the company resulting from such merger, consolidation or reorganization or the company to which such assets are transferred (the "Surviving Corporation") shall adopt or assume this Agreement and the stockholders of Company immediately before such merger, consolidation or reorganization own, directly or indirectly immediately following such merger, consolidation or reorganization, at least eighty percent (80%) of the combined voting power of the Surviving Corporation in substantially the same proportion as their ownership immediately before such merger, consolidation or reorganization, or (2) a complete liquidation or dissolution of Company; or (d) persons who on the date of this Agreement are directors of Company, together with people nominated by a majority of them or by persons who were nominated by them, cease for any reason to constitute a majority of Company's Board of Directors. 9. Deductions: Deductions shall be made from Skeen's compensation for social security, Medicare, federal, state and local withholding taxes, and any other such taxes as may from time to time be required by any governmental authority. 10. Termination: Skeen's employment with the Company shall be terminated only in accordance with the following provisions: A. Disability. (i) In the event Skeen shall become mentally or physically disabled so as to have been unable to perform his duties hereunder for twelve (12) consecutive months, subject to Skeen's right to return to work as provided below, Company shall have the right to terminate Skeen's employment with Company upon the expiration of such twelve (12) month period; provided, however, that upon any such termination Company shall be obligated to provide Skeen with Severance Compensation as provided in Paragraph 10.E. herein. Such twelve-month period shall be deemed to have commenced on the date when Skeen is first unable to perform his duties on a substantially full-time basis because of mental or physical disability and shall end on the date on which Skeen shall return to the substantial full-time performance of his duties. If at the expiration of such twelve (12) month period, the Company shall desire to terminate Skeen on the basis of disability, it shall give written notice to him. Skeen's employment shall thereafter be terminated if he does not return to substantial full-time performance of his duties within ten (10) calendar days after such notice is given. (ii) Nothing contained herein shall be construed to affect Skeen's rights under any disability insurance or similar policy, whether maintained by the Company, Skeen or another party. The Company may utilize a disability policy to fund, in whole or in part, the compensation that would be due to Skeen during the term of or in the event of a disability, in which case the proceeds of the policy would not be in addition to any compensation otherwise payable to Skeen. (iii) For purposes of this Agreement, Skeen shall be deemed to be disabled when he shall have been absent from his duties because of sickness, illness, injury or other physical or mental infirmity on a substantially full-time basis. In the event of a dispute as to whether Skeen is disabled, the issue of the determination of disability shall be submitted to a Board of Arbiters for a binding decision under the procedures set forth in Paragraph 10.A.(v) below. (iv)At the end of any disability (other than a disability that results in the termination of Skeen's employment with the Company), Skeen shall return to work and this Agreement shall continue as though such disability had not occurred. (v) If there is a dispute as to whether Skeen is subject to any disability, the issue shall be submitted to a Board of Arbiters (whose decision shall be binding on the Company and Skeen) consisting of three persons: one physician who specializes in the physical or mental disability in dispute (hereinafter referred to as a "Specialist") shall be appointed on behalf of Company by the Board of Directors of Company (with Skeen having no vote on this question); a second Specialist shall be appointed by Skeen and a third Specialist shall be appointed by the two Specialists so appointed. The decision of a majority of such Specialists shall be binding upon the parties hereto. If a majority of the Specialists determines that Skeen is not subject to any disability for purposes of this Agreement, Skeen shall return to work under the provisions hereof. Such Specialists may physically examine Skeen, who hereby consents to such examination and to make available any pertinent medical records. The cost of such Specialists shall be paid by Company. (vi) If it is determined that Skeen can return to work hereunder on a part-time basis, the parties agree to use good faith efforts to negotiate the terms of Skeen's return to work. (vii) During any period in which Skeen is disabled but his employment shall not have been terminated, Skeen shall continue to receive his base salary and any applicable bonus, and shall continue to receive all benefits as an employee and as provided herein generally. Any options previously granted shall continue to vest, but no new options shall be issued to Skeen. (viii) During any period in which Skeen is disabled but his employment shall not have been terminated, Skeen shall continue to be credited with Years of Service for purposes of vesting of Deferred Compensation as set forth in Paragraph 5.D. B. Death. (i) Skeen's employment with Company shall terminate immediately upon Skeen's death; provided, however, that Company shall be obligated to provide the Severance Compensation as specified in Paragraph 10.E. herein to Skeen's estate, heirs or beneficiaries. (ii) Nothing contained herein shall be construed to affect Skeen's rights under any life insurance or similar policy, whether maintained by Company, Skeen or another party. The Company may utilize a life insurance policy to fund, in whole or in part, the Severance Compensation that would be payable in the event of Skeen's death, in which case the proceeds of any such policy other than the Split Dollar Agreement would not be in addition to any Severance Compensation otherwise payable under this Paragraph 10.B. C. Termination by Skeen. (i) Without Good Reason. Skeen may, without "Good Reason" (as hereinafter defined), terminate his employment by giving to Company sixty (60) days' written notice by Certified Mail, Return Receipt Requested, at the office of Company, and such termination shall be effective on the sixtieth (60th) day following the date of such notice (the "Termination Date"). In such event, Skeen (i) shall continue to render his services up to the Termination Date if so requested by Company and (ii) shall be paid his regular base salary and shall receive all benefits up to the Termination Date. Skeen will be entitled to payment of any bonus due but not yet paid for prior bonus periods, and for a pro-rata bonus amount for the bonus period in which the termination occurs pursuant to this Paragraph 10.C.(i) but will not be entitled to Severance Compensation or to any other compensation, bonus or fringe benefits accrued after the Termination Date. The bonus payable to Skeen will be paid at the same time it would have been paid had Skeen's employment not been terminated, will be based on the achievement of targets for the entire bonus period without regard to interim results as of the termination date, and will be paid pro-rata based on the number of full months Skeen was employed within the bonus period divided by the total number of months in the bonus period. (ii) With Good Reason. Skeen may terminate his employment with Company immediately for Good Reason. In the event Skeen's employment with Company is terminated by Skeen for Good Reason, Company shall be obligated to provide Skeen with Severance Compensation as provided in Paragraph 10.E. herein". Good Reason" shall mean any of the following (without Skeen's express prior written consent): (a) The assignment to Skeen by Company of duties inconsistent with Skeen's positions, duties, responsibility and status with Company, or any removal of Skeen from or any failure to re-elect Skeen to his positions, including his position as a member of the Company's Board of Directors (except in connection with the termination of his employment for disability, death or for cause as provided herein), unless cured within fifteen (15) days of Skeen giving written notice thereof to the Company. (b) Any material adverse change in any benefit plan or arrangement in which Skeen is participating and which is not applicable generally to other key executive employees of Company who participate in such plan or arrangement), unless cured within fifteen (15) days of Skeen giving written notice thereof to the Company. (c) Skeen's relocation outside of the Washington D.C./ Northern Virginia region without his consent, except for required travel by Skeen on Company business; provided, however, that if the Board of Directors of Company determines to relocate Company's principal executive offices, Company shall pay all of Skeen's reasonable moving and other relocation expenses, the Board of Directors shall make such adjustments in Skeen's salary as it reasonably deem necessary to reflect the increased costs of living in the new location, and Skeen shall be obligated to perform his services generally at such new location and such relocation shall not constitute "Good Reason" hereunder. (d) Any material breach by Company of any provisions of this Agreement which is not cured by Company within fifteen (15) days of Skeen giving written notice thereof to the Company. (e) Except in the case of disability or death, any purported termination of Skeen's employment by the Company which is not effected pursuant to sixty (60) days' prior written notice of termination. (f) Any termination by Skeen of his employment with the Company which is effected as a result of, in connection with or within twelve (12) months following a "Change in Control" as defined and determined under Paragraph 8.C. of this Agreement. D. Termination by Company. (i) Without Cause. Company may, without cause, terminate Skeen's employment under this Agreement at any time by giving Skeen sixty (60) days' written notice thereof, and such termination shall be effective on the sixtieth (60th) day following the date such notice is given (said 60th day, the "Termination Date"). Company shall be obligated to provide Skeen with Severance Compensation as provided in Paragraph 10.E. herein. At the option of Company, Skeen's employment shall be immediately terminated upon the Company giving such notice, in which case Skeen shall continue to receive his full base salary and related fringe benefits through the Termination Date. Notwithstanding any provision of this Agreement to the contrary, any termination of Skeen's employment by the Company, for any reason or no reason, within one year following a "Change in Control", as defined and determined under Paragraph 8.C. of this Agreement, shall automatically be deemed to be a termination without cause. (ii) For Cause. Company may terminate Skeen's employment under this Agreement immediately for "cause." In such event, Skeen will be entitled to payment of a pro-rata bonus amount to the date of termination of employment, but will not be entitled to Severance Compensation or to any other compensation, bonus or fringe benefits accrued after the date of termination of employment. The bonus amount payable to Skeen will be calculated in the same fashion as in the case of termination by Skeen without good reason, as set forth in Paragraph 10.C.(i) above. Cause shall be defined as any of the following: (i) willful unauthorized misconduct in the material performance of Skeen's duties hereunder, (ii) commission of an act of theft, fraud or dishonesty by Skeen, which act is materially harmful to Company, (iii) material breach of any provision of this Agreement if such breach has not been cured by Skeen (or if Skeen has not compensated the Company for such breach by payment of an amount deemed reasonable by the Company if the breach cannot be cured) within fifteen (15) days after the Company gives Skeen written notice of such breach. Any termination under this Paragraph 10.D.(ii) shall take effect immediately upon the Company giving Skeen written notice thereof. E. Severance Compensation. "Severance Compensation" is defined as all of the compensation and benefits described in this Paragraph 10.E. It will be provided to Skeen upon the occurrence of any of the events described elsewhere in this Agreement as providing for Skeen's receipt of Severance Compensation, but not in any other circumstances except to the extent that individual components of Severance Compensation may be separately provided pursuant to the terms of this Agreement. "Termination Date" is defined as the last day of Skeen's employment with the Company. "Severance Period" is defined as the period beginning on the day following the Termination Date and ending on the day which is three years following the Termination Date. The compensation and benefits to be provided as Severance Compensation are as follows: (i) Severance Pay. Throughout the Severance Period, Skeen will receive severance pay at the rate of 100% of his annual base salary in effect at the time of his termination, to be paid on the Company's regular payroll payment dates at the same time and in the same fashion as the Company's regular payroll payments. (ii) Bonus. The Company shall pay to Skeen a one-time bonus equal to three times the highest annual bonus received by Skeen during any one of the five years immediately preceding the year in which the Termination Date occurs. This bonus will be paid within thirty days following the Termination Date. It shall be considered to be full compensation for all amounts due to Skeen for bonus plans in which he was participating as of the Termination Date, and he shall not be entitled to any further payments under any of said plans during the Severance Period or thereafter. Notwithstanding the above, any bonus due to Skeen for years (or other applicable bonus period) completed prior to the Termination Date but not yet paid shall be paid in addition to the bonus described herein. (iii) Stock Options. All options to purchase shares of ACAH stock that have been granted to Skeen shall become 100% vested as of the Termination Date. All options that would have been granted to Skeen in the future pursuant to Paragraph 8.A. hereof shall not be granted if the date on which they would have been granted occurs after the Termination Date, even though said date may occur during the Severance Period. Skeen (or, in the case of death, his estate or his beneficiaries) shall have the right to exercise such vested options until the earlier of the original expiration date of said option, or a date determined as follows: (a) for options not intended to qualify as Incentive Stock Options, Skeen shall have the right to exercise vested options any time prior to the end of the Severance Period; (b) for options intended to qualify as Incentive Stock Options where termination is caused by reasons other than his death or disability, Skeen shall have the right to exercise within 90 days following termination of his employment; (c) for options intended to qualify as Incentive Stock Options where termination is caused by his death or disability, Skeen (or his estate or his beneficiaries) shall have the right to exercise within one year following termination of his employment. (iv) Deferred Compensation. The Deferred Compensation program will continue throughout the Severance Period, including Skeen's accumulation of Years of Service for vesting purposes, and including the Company's continuation of contributions. The Split Dollar Agreement shall continue in full force and effect through the Severance Period and shall survive separate and apart from this Agreement, and the Company's obligation to pay all premiums pursuant to this Agreement shall continue in accordance with the terms of the Split Dollar Agreement for the Severance Period. At the end of the Severance Period, Skeen shall receive his vested interest and any obligation to pay premiums shall be transferred to Skeen. Alternatively, the Company may elect to pay such amounts to Skeen as would be payable during the Severance Period by the Company under the Deferred Compensation program in a single lump sum payment within fifteen (15) days after the Termination Date. (v) Insurance Programs. Coverage under the Company's major medical, accident, health, dental, disability and life insurance plans as from time to time provided to other executive employees of the Company (and, to the extent provided by such policies, to Skeen's dependents) shall continue to be paid for by the Company during the Severance Period, or, in the event of Skeen's termination following a Change of Control of the Company as defined in Paragraph 8.C., for the longer of the Severance Period or the remainder of Skeen's life. Provided, however, if such coverage cannot be continued during the Severance Period or until Skeen's death, as the case may be, under the terms of such policies or plans, the Company shall reimburse Skeen for the cost of comparable coverage under individually obtained policies or for COBRA coverage, or shall make other arrangements to assure that Skeen has comparable coverage. (vi) Vacation. Vacation shall not continue to accrue after the Termination Date under any circumstances. (vii) Executive Medical Reimbursement Plan. Throughout the Severance Period, the Company will continue to promptly reimburse Skeen for any otherwise unreimbursed premiums and/or uncovered medical expenses up to $10,000 per calendar year under a written medical reimbursement plan maintained for the Company's key executive employees, including the tax gross-up, if applicable. (viii) Travel Benefits. Skeen and his wife shall be provided with free travel on the Company's planes or on the planes of any successor in interest to the Company on a positive space basis. These travel benefits will be provided throughout the Severance Period, or, in the event of a Change of Control of the Company as defined in Paragraph 8.C., for the longer of the Severance Period or the remainder of Skeen's life. Skeen shall not be entitled to travel benefits on any other airline. (ix) Deductions for Taxes. Any compensation due to Skeen hereunder will be subject to deductions for social security, federal and state withholding taxes, and any other such taxes as may from time to time be required by governmental authority. (x) Notwithstanding any provision to the contrary in this Agreement, if any part of the payments provided for under or pursuant to this Agreement (the "Agreement Payments"), together with all payments in the nature of compensation to or for the benefit of Skeen under any other arrangement, would if paid constitute a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the amount payable to Skeen under or pursuant to this Agreement in such circumstances shall be subject to the following sentence of this Paragraph 10.E(x). If (i) the value of the Agreement Payments plus the value of all other payments to or for the benefit of Skeen that constitute "parachute payments," minus the amount of any excise taxes payable under Code Section 4999 with respect to such payments and the amount of any similar or comparable taxes payable only in connection with a change in control, is greater than (ii) the greatest value of payments in the nature of compensation contingent upon a change in control that could be paid at such time to or for the benefit of Skeen and not constitute a "parachute payment" (the "Alternative Payment"), then the Agreement Payments shall be payable to Skeen; otherwise, only the Alternative Payment shall be payable to Skeen. 11. Assignment: This Agreement, as it relates to the employment of Skeen, is a personal contract and the rights and interests of Skeen hereunder may not be sold, transferred, assigned, pledged or hypothecated. However, this Agreement shall inure to the benefit of and be binding upon Company and its successors and assigns including, without limitation, any corporation or other entity into which Company is merged or which acquires all or substantially all of the outstanding common stock or assets of Company. At any time prior to a Change in Control, Company may provide, without the prior written consent of Skeen, that Skeen shall be employed pursuant to this Agreement by any of its affiliates instead of or in addition to Company, and in such case all references herein to the "Company" shall be deemed to include any such entity, provided that (i) such action shall not relieve Company of its obligation to make or cause an affiliate to make or provide for any payment to or on behalf of Skeen pursuant to this Agreement, and (ii) Skeen's duties and responsibilities shall not be significantly diminished as a result thereof. Unless otherwise agreed to by Skeen, Company shall provide that Skeen shall be employed pursuant to this Agreement by any other entities to which ACAH or ACA may after the date of this Agreement transfer or assign any of the operations or businesses operated by either of them as of the date of this Agreement, and in such case all references herein to the "Company" shall be deemed to include any such entities, provided that such action shall not relieve Company of its obligation to make or cause an affiliate to make or provide for any payment to or on behalf of Skeen pursuant to this Agreement. The Board of Directors may assign any or all of its responsibilities hereunder to any committee of the Board, in which case references to the Board of Directors shall be deemed to refer to such committee. 12. Invalid Provisions: The invalidity of any one or more of the paragraphs or provisions of this Agreement shall not affect the reasonable enforceability of the remaining paragraphs or provisions of this Agreement, all of which are inserted herein conditionally upon being valid in law; and in the event one or more of the paragraphs or provisions contained herein shall be invalid, this instrument shall be construed as if such invalid paragraphs or provisions had not been inserted or, alternatively, said paragraphs or provisions shall be reasonably limited to the extent that the applicable court interpreting the provisions of this Agreement considered to be reasonable. 13. Specific Performance: The parties hereby agree that any violation by Skeen of the covenants and agreements contained herein shall cause irreparable damage to Company, and Company may, as a matter of course, enjoin and restrain said violation by Skeen by process issued out of a court of competent jurisdiction, in addition to any other remedies that said court may see fit to award. 14. Binding Effect: All the terms of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. 15. Attorneys' Fees: Company shall pay all legal fees incurred by Skeen in connection with the preparation of this Agreement promptly after submission of a bill therefor. In the event an action is taken by either party to enforce this Agreement or resolve a dispute in connection herewith, the prevailing party shall be entitled to recover the costs incurred with the prosecution and defense of such action, including reasonable attorney's fees. 16. Waiver of Breach or Violation Not Deemed Continuing: The waiver by either party of any provision of this Agreement shall not operate as, or be construed to be, a waiver of any subsequent breach hereof. 17. Entire Agreement; Law Governing: This Agreement supersedes in its entirety any and all other agreements (specifically including any earlier versions of this Severance Agreement), either oral or in writing, between the parties hereto with respect to the subject matter hereof, by and between Company and Skeen, and contains all the covenants and agreements among the parties with respect to such subject matter. This Agreement shall be construed in accordance with the laws of the Commonwealth of Virginia. Skeen hereby acknowledges that he was represented by counsel of his choosing in the drafting and negotiation of this Agreement and that he reviewed this Agreement with and was advised as to each of the terms thereof by such counsel. In interpreting this Agreement, a court shall not treat either party as the draftsman of the Agreement. 18. Paragraph Headings: The Paragraph headings contained in this Agreement are for convenience only and shall in no manner be construed as a part of this Agreement. 19. Release by Skeen. In the event of a termination of employment by Skeen that results in the payment of Severance Compensation to him pursuant to the terms of this Agreement, in consideration for such Severance Compensation, Skeen hereby agrees to execute a full and complete release to the Company releasing any and all claims that he may have against the Company including any claims relating to his termination of employment. 20. Notices. All notices permitted or required to be given pursuant to this Agreement shall be in writing and shall be deemed to have been sufficiently given, subject to the further provisions of this Section 20, for all purposes when presented personally to such party (which in the case of notice to the Company, shall be presented to the person holding the office or offices identified below) or sent by facsimile transmission, any national overnight delivery service, or certified or registered mail, to such party at its address set forth below: If to Skeen, to the most recent address indicated for Skeen's residence in the personnel records of Company, unless Skeen gives written notice that such notices are to be delivered to another address. If to ACA or the Company: Atlantic Coast Airlines Holdings, Inc. Atlantic Coast Airlines 515A Shaw Road Dulles, VA 20166 Attention: General Counsel or Corporate Secretary Fax No. (703) 925-6294 Such notice shall be deemed to be given and received when delivered if delivered personally, upon electronic or other confirmation of receipt if delivered by facsimile transmission, the next business day after the date sent if sent by a national overnight delivery service, or five (5) business days after the date mailed if mailed in the continental United States by certified or registered mail. Any notice of any change in such address shall also be given in the manner set forth above. Whenever the giving of notice is required, the giving of such notice may be waived in writing by the party entitled to receive such notice. A copy of any notice given to Skeen shall be sent to: Robert E. Madden Carr Goodson Lee & Warner 1301 K Street, NW Suite 400, East Tower Washington, DC 20005-3300 Fax No. (202) 310-5555 IN WITNESS WHEREOF, the Company has hereunto caused this Agreement to be executed by a duly authorized officer and Skeen has hereunto set his hand as of the day and year first above written. WITNESS: ________________________________ _____________________________ Kerry B. Skeen COMPANY: ATTEST: ATLANTIC COAST AIRLINES _______________________________ BY: _________________________ Richard J. Kennedy, C. Edward Acker, Secretary Chairman of the Board ATTEST: ATLANTIC COAST AIRLINES HOLDINGS, INC. _______________________________ BY: _________________________ Richard J. Kennedy, C. Edward Acker, Secretary Chairman of the Board EX-10 5 Exhibit 10.12 (c) SEVERANCE AGREEMENT This Amended And Restated Severance Agreement (the "Agreement") is made and entered into as of this 20th day of January, 1999 (the "Effective Date"), by and between ATLANTIC COAST AIRLINES HOLDINGS, INC., a Delaware corporation ("ACAH"), ATLANTIC COAST AIRLINES, a California corporation ("ACA") (ACAH and ACA are herein collectively referred to as the "Company") and THOMAS J. MOORE ("Moore"). Witnesseth That: Whereas, Moore is currently employed by the Company as Chief Operating Officer and Executive Vice President, and in connection with such employment entered into a Severance Agreement (dated as of January 1, 1997) with the Company; and Whereas, the Company wishes to assure itself of the continued services of Moore; and Whereas, the Board of Directors of the Company has determined that the best interests of the Company would be served by entering into this amended and restated Agreement with Moore; Now, Therefore, the parties, for and in consideration of the mutual and reciprocal covenants and agreements hereinafter contained, and intending to be legally bound hereby, do contract and agree as follows: 1. Employment Company hereby employs Moore and Moore hereby accepts employment by Company and agrees to perform his duties and responsibilities hereunder upon all of the terms and conditions as are hereinafter set forth. 2. Duties Moore shall serve the Company in the capacities of Chief Operating Officer and Executive Vice President. Moore shall be responsible for supervising and directing all operations of the Company and of any other entity(ies) to which the Company's obligations under this Agreement shall be assigned pursuant to Paragraph 12. Moore shall otherwise be responsible for carrying out all such other duties and services for the Company commensurate with Moore's position, as may be designed from time to time by the Chief Executive Officer of the Company (the "CEO"). 3. Term of Employment Moore's term of employment under this Restated Agreement shall commence on the Effective Date and shall terminate on the last day of the calendar month which is twelve (12) calendar months after the Effective Date, unless further extended as hereinafter set forth. Commencing on each successive anniversary of the Effective Date, the Agreement shall automatically be extended for an additional twelve (12) months without further action by either party unless Moore's employment has previously been terminated or unless Moore or the Company has provided notice of intention to terminate Moore's employment pursuant to the terms of Paragraph 10 below, in which case Moore's term of employment under this Agreement will be extended to the pending Termination Date. 4. Extent of Service Moore shall devote such time and attention as is required to perform his obligations under this Agreement and will at all times faithfully and industriously, consistent with his ability, experience and talent, perform his duties hereunder under the direction of the CEO. 5. Compensation During the term of this Agreement, Company agrees to pay to Moore, and Moore agrees to accept from Company, in full payment for services rendered by Moore and work to be performed by him under the terms of this Agreement, the following: A. An annual base salary of Two-Hundred Thousand Dollars ($200,000) shall be paid to Moore. Commencing on May 1, 1999 and on each May 1 thereafter, the amount of Moore's base salary shall be increased as determined by the Compensation Committee of the Board of Directors of the Company. Moore acknowledges that his salary increase effective May 1, 1999 pursuant to this paragraph has already been provided to him in the form of certain stock options. Moore's base salary for each year shall be payable to him in accordance with the reasonable payroll practices of the Company as from time to time in effect for executive employees (but in no event less often than monthly). B. Moore shall participate in the Company's Management Incentive Program, or any successor bonus plan or program for management employees. C. Moore shall be eligible for an additional annual bonus under an executive performance bonus plan currently known as Senior Management Incentive Plan for so long as the Board of Directors determines to maintain such plan. Under such plan, each calendar year, Moore shall be entitled to receive a bonus equal to specified percentage of base salary upon the attainment of certain pre- established goals. Such goals and percentage of salary shall be determined by the Compensation Committee of the Board of Directors of the Company prior to the commencement of each plan year. The bonus amount each year shall be paid in a single cash lump sum paid at the time period provided under such plan, at the same time as paid to other eligible employees, and generally no later than 90 days after the end of the plan period. D. Moore will be entitled to deferred compensation ("Deferred Compensation") as described in this section. The Company will make Deferred Compensation contributions at the rate of thirty percent (30%) of Moore's annual base salary. Deferred Compensation will be based on Moore's annual base salary in effect on May 1 in each year beginning 1998, and will be payable as of May 1 in each year beginning 1998. Such contributions will be applied toward funding such deferred compensation program as the Company and Moore may agree to from time to time, consistent with the funding and vesting provisions of this Agreement. The method of funding of Deferred Compensation, and the timing of the actual payment of contributions, shall be agreed between the Company and Moore from time to time. As of the date hereof, the Deferred Compensation program is provided under a split dollar life insurance arrangement with Phoenix Home Life Mutual - (the "Split Dollar Agreement"). The Company may implement a substitute Deferred Compensation plan not tied to a Split Dollar Agreement so long as (1) the amount contributed by the Company on Moore's behalf equals the amount set forth herein, and (2) the vesting schedule, credit for Years of Service, and terms of distribution are all at least as favorable to Moore as set forth herein. The Company shall continue to abide by the terms of the Split Dollar Agreement with Moore previously executed as of July 1, 1996, which shall provide for a split dollar plan for a policy of insurance upon the life of Moore in a face amount to be mutually agreed upon between Moore and the Company. For so long as the Split Dollar Agreement shall serve as the deferred compensation program under this Agreement, the following terms shall apply: (i) Moore shall be the owner of the policy under the Split Dollar Agreement and will have the right to designate his beneficiary with respect to proceeds of the policy payable upon his death; provided, however, that notwithstanding the foregoing, the Company shall have a collateral assignment of the policy as security for the repayment of the amounts contributed by the Company toward the payment of premiums for the policy. (ii) The Company shall, except as provided in Paragraph 5D(iii) below, each year as required under the Split Dollar Agreement and the related policy, pay, on or before the due date(s) under the terms of the policy, the entire amount of the annual premium due on the policy acquired pursuant to the terms of the Split Dollar Agreement. The annual premium due on the policy will be the amount of the Company's contribution to deferred compensation calculated as described above. (iii) The "Deferred Compensation Ending Date" shall mean the date of termination of Moore's employment if Moore's employment with the Company is terminated at any time under circumstances that do not entitle him to Severance Compensation pursuant to Section 10 of this Agreement, or shall mean the last day of the Severance Period (as defined in Section 10) if Moore is entitled to Severance Compensation. During a Severance Period, Deferred Compensation shall continue pursuant to the terms of 10.E.(iv) hereof. Upon the Deferred Compensation Ending Date, the following shall occur: (a) The applicable vested percentage of Moore's interest in Deferred Compensation shall be calculated as provided herein. Moore will be entitled to receive the deferred compensation benefit provided under such deferred compensation program only to the extent he is vested in the Company's contributions. Vesting will be based upon "Years of Service", with Moore to be credited with one Year of Service for completion of each twelve (12) consecutive month period of employment with the Company beginning January 1, 1997 and ending on the Deferred Compensation Ending Date. (That is, Moore will be credited with Years of Service for any applicable Severance Period, as further provided in Section 10.E.(iv) hereof.) Moore will become vested in the deferred compensation based on the following schedule: Years of Service Percentage Vested Less than 4 0% At least 4 but less than 5 25% At least 5 but less than 6 35% At least 6 but less than 7 50% At least 7 but less than 8 65% At least 8 but less than 9 80% At least 9 100% In the event of a Change in Control (as defined in Paragraph 8.C. of this Agreement) of the Company, Moore shall become immediately 100% vested in his Deferred Compensation amount notwithstanding the above vesting schedule. (b) The Split Dollar Agreement shall continue in full force and effect and survive separate and apart from this Agreement; provided, however, that the Company shall, at its election, have no further obligation to pay any premium on the policy under the Split Dollar Agreement which has a due date after the Deferred Compensation Ending Date and such obligation shall be transferred to Moore. (c) The Company shall pay to Moore whatever "Deferred Compensation" amount is equal to the applicable vested percentage of the total policy premiums paid by the Company pursuant to the Split Dollar Agreement. The Company shall make this payment within thirty (30) days following the Deferred Compensation Ending Date by releasing its interest in the policy, or a portion thereof, on Moore's life acquired pursuant to the terms of the Split Dollar Agreement, or any or all of the paid up additions standing to the credit of such policy, if any, such that such released interest equals the Deferred Compensation amount paid to Moore pursuant to this Paragraph 5D. The Company agrees that the amount of any such release of interest by the Company shall reduce the amount of "Liabilities" (as such term is defined in the Agreement of Assignment of Life Insurance Death Benefit As Collateral entered into between Moore and the Company in connection with the Split Dollar Agreement) owed to the Company in connection with the Split Dollar Agreement and related Collateral Assignment Agreement. Accordingly, the Company also agrees to reduce to such extent its collateral assignment of the policy pursuant to the Split Dollar Agreement and related Collateral Assignment Agreement. E. The Company may pay Moore discretionary compensation, bonuses and benefits in addition to those provided for herein in such amounts and at such times as the Compensation Committee of the Board of Directors of the Company shall determine. 6. Benefits A. The Company shall pay for or provide Moore such vacation time and benefits, including but not limited to, coverage under Company's major medical, accident, health, dental, disability and life insurance plans, as are made available to other executive employees of Company generally (and, to the extent provided by such policies, to Moore's dependents). B. The Company agrees to promptly reimburse Moore for any otherwise unreimbursed premiums and/or uncovered medical expenses up to $10,000 per calendar year under a written medical reimbursement plan maintained for Moore and other key executive employees. If such payments are taxable to Moore, the Company shall pay Moore a gross-up equal to the estimated income, FICA and Medicare taxes due with respect to such reimbursement, with federal and state income taxes being estimated at the highest marginal rates. C. Moore shall be eligible to participate in any profit sharing plan, employee stock ownership plan or other qualified retirement plan adopted by Company to the same extent as other executive employees of Company. Moore shall also be eligible to participate in any stock option, stock appreciation rights or stock purchase plans or programs or nonqualified deferred compensation arrangements of Company, which participation shall be at levels as may be determined appropriate by the Compensation Committee of the Board of Directors. 7. Reimbursement of Expenses The Company agrees to promptly reimburse Moore, within fifteen (15) days after presentation of receipts and other appropriate documentation, for all reasonable, ordinary and necessary travel costs and other necessary expenses incurred by Moore in performing his duties pursuant to this Agreement. 8. Stock Options A. Mandatory Stock Options. Company agrees to continue in force a stock option plan or one which is substantially similar to the existing plan ("Stock Option Plan"), which has been approved by the shareholders of the Company and, on the first business day in each May commencing in May, 1999, and (subject to the provisions of Paragraph 10.A.(vii)) continuing so long as Moore is employed by the Company to grant Moore options under the Stock Option Plan to purchase not less than 35,000 shares of the common stock of ACAH at the price per share at the closing of the trading market on the last business date prior to such grant. The Company also agrees to approve the issuance of such additional shares as are necessary to enable Moore to exercise such options. The Company will not be required to reserve shares from existing plans to cover future obligations under this Paragraph, but will use reasonable efforts to obtain shareholder approval as necessary from time to time to make a sufficient number of additional shares available on a timely basis, and will provide Moore with equivalent alternative compensation should approval not be obtained. The terms of the grant of such options shall be consistent with the terms of options granted as of the time of the grant to other senior executive officers at or below Moore's position with the Company. B. Acceleration of Stock Options upon a Change in Control. If the Company experiences a Corporate Change, the exercisability and vesting of all Stock Options held by Moore as of the date of the Corporate Change shall accelerate as of the date of such Corporate Change. The Compensation Committee of the Company's Board of Directors (the "Committee") shall provide that if a Corporate Change occurs, then effective as of a date selected by the Committee, the Committee (which for purposes of the Corporate Changes described in clauses (iii) and (v) of the definition of Corporate Change below shall be the Committee as constituted prior to the occurrence of such Corporate Change) acting in its sole discretion without the consent or approval of Moore, will effect one or more of the following alternatives or combination of alternatives with respect to all outstanding Stock Options (which alternatives may be conditional on the occurrence of such of the Corporate Change specified in clause (i) through (v) of the definition of Corporate Change below which gives rise to the Corporate Change: (1) in the case of a Corporate Change specified in clauses (i), (ii) or (iv) of the definition thereof, provide that exercisable options (including any options exercisable pursuant to the first sentence of this Paragraph 8.B.) then outstanding may be exercised in full for a limited period of time on or before a specified date (which will permit Moore to participate with the Common Stock received upon exercise of such option in the event of a Corporate Change specified in clauses (i), (ii) or (iv) of the definition of Corporate Change below, as the case may be) fixed by the Committee, after which specified date all unexercised options and all rights of Moore thereunder shall terminate, (2) provide that exercisable options (including any options exercisable pursuant to the first sentence of this Paragraph 8.B.) then outstanding may be exercised so that such options may be exercised in full for their then remaining term, or (3) require the mandatory surrender to the Company of outstanding options held by Moore (including any options exercisable pursuant to the first sentence of this Paragraph 8.B.) as of a date, before or not later than sixty days after such Corporate Change, specified by the Committee, and in such event the Committee shall thereupon cancel such options and the Company shall pay to Moore an amount of cash equal to the excess of the fair market value of the aggregate shares subject to such option over the aggregate option price of such shares; provided, however, the Committee shall not select an alternative (unless consented to by Moore) that, if Moore exercised his accelerated options pursuant to alternative 1 or 2 and participated in the transaction specified in clause (i), (ii) or (iv) of the definition of Corporate Change below or received cash pursuant to alternative 3, would result in Moore's owing any money by virtue of operation of Section 16(b) of the Exchange Act. If all such alternatives have such a result, the Committee shall take such action, which is hereby authorized, to put Moore in as close to the same position as Moore would have been in had alternative 1, 2 or 3 been selected but without resulting in any payment by Moore pursuant to Section 16(b) of the Exchange Act. Notwithstanding the foregoing, with the consent of Moore, the Committee may in lieu of the foregoing make such provision with respect of any Corporate Change as it deems appropriate. C. Definitions. For purposes of this Agreement: (i) "Stock Options" shall mean any grant to Moore by the Company, pursuant to a Stock Option Plan, of the right and option to purchase from the Company a specified number of shares of Atlantic Coast Airlines Holdings, Inc. common stock under certain terms and conditions. (ii) "Change in Control" and "Corporate Change" shall each mean (i) any merger or consolidation in which the Company shall not be the surviving entity (or survives only as a subsidiary of another entity, unless the stockholders of Company immediately before such merger or consolidation own, directly or indirectly immediately following such merger or consolidation, substantially all of the combined voting power of the surviving entity in substantially the same proportion as their ownership immediately before such merger or consolidation, (ii) the sale of all or substantially all of the Company's assets to any other person or entity (other than a wholly-owned subsidiary), (iii) the acquisition of beneficial ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock by any person or entity (including a "group" as defined by or under Section 13(d)(3) of the Exchange Act), (iv) the dissolution or liquidation of the Company, (v) a contested election of directors, as a result of which or in connection with which the persons who were directors of the Company before such election or their nominees cease to constitute a majority of the Board, or (vi) any other event specified by the Committee, regardless of whether at the time an Option is granted or thereafter. D. Amendment to Existing Option Agreements. The provisions of this Paragraph 18 shall apply to all Stock Options or restricted stock previously granted to Employee, and this Amendment Number One shall be deemed to be an amendment to all Stock Option or Restricted Stock Agreements presently in existence between the Company and Employee, and will supersede any language to the contrary contained in said agreements. These terms will also apply to mandatory Stock Options granted as provided in subparagraph A above. The Compensation Committee of the Board of Directors retains full discretion of whether to grant any additional Stock Options in the future, and if so whether the terms provided herein will apply to said Stock Options. 9. Deductions Deductions shall be made from Moore's compensation for social security, Medicare, federal, state and local withholding taxes, and any other such taxes as may from time to time be required by any governmental authority. 10. Termination Moore's employment with the Company shall be terminated only in accordance with the following provisions: A. Disability. (i) In the event Moore shall become mentally or physically disabled so as to have been unable to perform his duties hereunder for six (6) consecutive months, subject to Moore's right to return to work as provided below, Company shall have the right to terminate Moore's employment with Company upon the expiration of such six month period; provided, however, that upon any such termination Company shall be obligated to provide Moore with Severance Compensation as provided in Paragraph 10.E. herein. Such six-month period shall be deemed to have commenced on the date when Moore is first unable to perform his duties on a substantially full-time basis because of mental or physical disability and shall end on the date on which Moore shall return to the substantial full-time performance of his duties. If at the expiration of such six month period, the Company shall desire to terminate Moore on the basis of disability, it shall give written notice to him. Moore's employment shall thereafter be terminated if he does not return to substantial full-time performance of his duties within ten (10) calendar days after such notice is given. (ii) Nothing contained herein shall be construed to affect Moore's rights under any disability insurance or similar policy, whether maintained by the Company, Moore or another party. The Company may utilize a disability policy to fund, in whole or in part, the compensation that would be due to Moore during the term of or in the event of a disability, in which case the proceeds of the policy would not be in addition to any compensation otherwise payable to Moore. (iii) For purposes of this Agreement, Moore shall be deemed to be disabled when he shall have been absent from his duties because of sickness, illness, injury or other physical or mental infirmity on a substantially full-time basis. In the event of a dispute as to whether Moore is disabled, the issue of the determination of disability shall be submitted to a Board of Arbiters for a binding decision under the procedures set forth in Paragraph 10.A.(v) below. (iv) At the end of any disability (other than a disability that results in the termination of Moore's employment with the Company), Moore shall return to work and this Agreement shall continue as though such disability had not occurred. (v) If there is a dispute as to whether Moore is subject to any disability, the issue shall be submitted to a Board of Arbiters (whose decision shall be binding on the Company and Moore) consisting of three persons: one physician who specializes in the physical or mental disability in dispute (hereinafter referred to as a "Specialist") shall be appointed on behalf of Company by the President, Chairman of the Board, or by the Compensation Committee of the Board of Directors of Company; a second Specialist shall be appointed by Moore and a third Specialist shall be appointed by the two Specialists so appointed. The decision of a majority of such Specialists shall be binding upon the parties hereto. If a majority of the Specialists determines that Moore is not subject to any disability for purposes of this Agreement, Moore shall return to work under the provisions hereof. Such Specialists may physically examine Moore, who hereby consents to such examination and to make available any pertinent medical records. The cost of such Specialists shall be paid by Company. (vi) If it is determined that Moore can return to work hereunder on a part-time basis, the parties agree to use good faith efforts to negotiate the terms of Moore's return to work. (vii) During any period in which Moore is disabled but his employment shall not have been terminated, Moore shall continue to receive his base salary and any applicable bonus, and shall continue to receive all benefits as an employee and as provided herein generally. Any options previously granted shall continue to vest, but no new options shall be issued to Moore. Any mandatory option grants as provided herein shall be deferred until such time as the disability period ends. (viii) During any period in which Moore is disabled but his employment shall not have been terminated, Moore shall continue to be credited with Years of Service for purposes of vesting of Deferred Compensation as set forth in Paragraph 5.D. B. Death. (i) Moore's employment with Company shall terminate immediately upon Moore's death; provided, however, that Company shall be obligated to provide the Severance Compensation as specified in Paragraph 10.E. herein to Moore's estate, heirs or beneficiaries. (ii) Nothing contained herein shall be construed to affect Moore's rights under any life insurance or similar policy, whether maintained by Company, Moore or another party. The Company may utilize a life insurance policy to fund, in whole or in part, the Severance Compensation that would be payable in the event of Moore's death, in which case the proceeds of any such policy other than the Split Dollar Agreement would not be in addition to any Severance Compensation otherwise payable under this Paragraph 10.B. C. Termination by Moore. (i) Other than Following a Change in Control. Moore may terminate his employment by delivering to Company sixty (60) days' written notice, and such termination shall be effective on the sixtieth (60th) day following the date of receipt of such notice (the "Termination Date"). In such event, Moore (i) shall continue to render his services up to the Termination Date if so requested by Company and (ii) shall be paid his regular base salary and shall receive all benefits up to the Termination Date. Moore will be entitled to payment of any bonus due but not yet paid for prior bonus periods (paid at the same time it would have been paid had Moore's employment not been terminated), but will not be entitled to Severance Compensation, to any bonus for the current bonus period, or to any other compensation, bonus or fringe benefits accrued after the Termination Date. (ii) Following a Change in Control. Notwithstanding the above, in the event of any termination by Moore of his employment with the Company which is effected within twelve (12) months following a "Change in Control" as defined and determined under Paragraph 8.C. of this Agreement, Company shall be obligated to provide Moore with Severance Compensation as provided in Paragraph 10.E. herein. The twelve month period will be deemed to mean any notice given within twelve months following a Change in Control where an actual termination occurs within sixty days following said notice. D. Termination by Company. (i) Without Cause. Company may, without cause, terminate Moore's employment under this Agreement at any time by giving Moore fifteen (15) days' written notice thereof, and such termination shall be effective on the fifteenth day following the date such notice is given (said 15th day, the "Termination Date"). Company shall be obligated to provide Moore with Severance Compensation as provided in Paragraph 10.E. herein. At the option of Company, Moore's employment shall be immediately terminated upon the Company giving such notice, in which case Moore shall continue to receive his full base salary and related fringe benefits through the Termination Date. Notwithstanding any provision of this Agreement to the contrary, any termination of Moore's employment by the Company, for any reason or no reason, effected as a result of, in connection with or within twelve (12) months following a "Change in Control", as defined and determined under Paragraph 8.C. of this Agreement, shall automatically be deemed to be a termination without cause. The twelve month period will be deemed to mean any notice given within twelve months following a Change in Control regardless of when actual termination occurs following said notice. (ii) For Cause. Company may terminate Moore's employment under this Agreement immediately for "cause". In such event, the Company shall not be liable to Moore for any compensation, bonus or benefits after the date of termination of employment. Cause shall be defined as any of the following: (i) willful unauthorized misconduct in the material performance of Moore's duties hereunder, (ii) commission of an act of theft, fraud, dishonesty or personal misconduct by Moore, which act is harmful to Company, (iii) breach of any provision of this Agreement if such breach has not been cured by Moore (or if Moore has not compensated the Company for such breach by payment of an amount deemed reasonable by the Company if the breach cannot be cured) within fifteen (15) days after the Company gives Moore written notice of such breach. Any termination under this Paragraph 10.D.(ii) shall take effect immediately upon the Company giving Moore written notice thereof. E. Severance Compensation. "Severance Compensation" is defined as all of the compensation and benefits described in this Paragraph 10.E. It will be provided to Moore upon the occurrence of any of the events described elsewhere in this Agreement as providing for Moore's receipt of Severance Compensation, but not in any other circumstances except to the extent that individual components of Severance Compensation may be separately provided pursuant to the terms of this Agreement. "Termination Date" is defined as the last day of Moore's employment with the Company. "Severance Period" is defined as the period beginning on the day following the Termination Date and ending on the day which is two years following the Termination Date. The compensation and benefits to be provided as Severance Compensation are as follows: (i) Severance Pay. Throughout the Severance Period, Moore will receive severance pay at the rate of 100% of his annual base salary in effect at the time of his termination, to be paid on the Company's regular payroll payment dates at the same time and in the same fashion as the Company's regular payroll payments. (ii) Bonus. The Company shall pay to Moore a one-time bonus equal to two times the highest annual bonus received by Moore during any one of the five years immediately preceding the year in which the Termination Date occurs. This bonus will be paid within thirty days following the Termination Date. It shall be considered to be full compensation for all amounts due to Moore for bonus plans in which he was participating as of the Termination Date, and he shall not be entitled to any further payments under any of said plans during the Severance Period or thereafter. Notwithstanding the above, any bonus due to Moore for years (or other applicable bonus period) completed prior to the Termination Date but not yet paid shall be paid in addition to the bonus described herein. (iii) Stock Options. All options to purchase shares of ACAH stock that have been granted to Moore and that are not exercisable as of the Termination Date shall terminate as of said date. For all options that are exercisable as of said date (including options that are accelerated following a Change in Control pursuant to Paragraph 8 above), the terms of exercise, payment, and expiration, shall be as provided in each option agreement. All options that would have been granted to Moore in the future pursuant to Paragraph 8.A. hereof shall not be granted if the date on which they would have been granted occurs after the Termination Date, even though said date may occur during the Severance Period. (iv) Deferred Compensation. The Deferred Compensation program will continue throughout the Severance Period, including Moore's accumulation of Years of Service for vesting purposes, and including the Company's continuation of contributions. The Split Dollar Agreement shall continue in full force and effect through the Severance Period and shall survive separate and apart from this Agreement, and the Company's obligation to pay all premiums pursuant to this Agreement shall continue in accordance with the terms of the Split Dollar Agreement for the Severance Period. At the end of the Severance Period, Moore shall receive his vested interest and any obligation to pay premiums shall be transferred to Moore. Alternatively, the Company may elect to pay such amounts to Moore as would be payable during the Severance Period by the Company under the Deferred Compensation program in a single lump sum payment within fifteen (15) days after the Termination Date. (v) Insurance Programs. Coverage under the Company's major medical, accident, health, dental, disability and life insurance plans as from time to time provided to other executive employees of the Company (and, to the extent provided by such policies, to Moore's dependents) shall continue to be paid for by the Company during the Severance Period. Provided, however, if such coverage cannot be continued during the Severance Period or until Moore's death, as the case may be, under the terms of such policies or plans, the Company shall reimburse Moore for the cost of comparable coverage under individually obtained policies or for COBRA coverage, or shall make other arrangements to assure that Moore has comparable coverage. (vi) Vacation. Vacation shall not continue to accrue after the Termination Date under any circumstances. (vii) Executive Medical Reimbursement Plan. Throughout the Severance Period, the Company will continue to promptly reimburse Moore for any otherwise unreimbursed premiums and/or uncovered medical expenses up to $10,000 per calendar year under a written medical reimbursement plan maintained for the Company's key executive employees, including the tax gross-up, if applicable. (viii) Travel Benefits. The Atlantic Coast Airlines, Inc. flight pass privileges currently granted to Moore will continue for the Severance Period. Moore and his wife shall be provided with free travel on the Company's planes or on the planes of any successor in interest to the Company on a positive space basis, and his children shall be provided free travel on a space available basis. Moore shall not be entitled to travel benefits on any other airline. (ix) Deductions for Taxes. Any compensation due to Moore hereunder will be subject to deductions for social security, federal and state withholding taxes, and any other such taxes as may from time to time be required by governmental authority. (x) Certain Adjustments. Notwithstanding any provision to the contrary in this Agreement, if any part of the payments provided for under or pursuant to this Agreement (the "Agreement Payments"), together with all payments in the nature of compensation to or for the benefit of Moore under any other arrangement, would if paid constitute a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the amount payable to Moore under or pursuant to this Agreement in such circumstances shall be subject to the following sentence of this Paragraph 10.E(x). If (i) the value of the Agreement Payments plus the value of all other payments to or for the benefit of Moore that constitute "parachute payments", minus the amount of any excise taxes payable under Code Section 4999 with respect to such payments and the amount of any similar or comparable taxes payable only in connection with a change in control, is greater than (ii) the greatest value of payments in the nature of compensation contingent upon a change in control that could be paid at such time to or for the benefit of Moore and not constitute a "parachute payment" (the "Alternative Payment"), then the Agreement Payments shall be payable to Moore; otherwise, only the Alternative Payment shall be payable to Moore. 11. Nonsolicitation, Non-Competition, and Confidentiality A. Nonsolicitation and Non-Competition. For so long as Moore is an employee of the Company, and continuing thereafter for twelve months following any termination of Moore's employment, or with respect to the provisions of (i), below, for the longer of such twelve month period or for such period as Moore is receiving Severance Compensation, Moore shall not, without the prior written consent of the Company, directly or indirectly, as a sole proprietor, member of a partnership, stockholder or investor, officer or director of a corporation, or as an employee, associate, consultant or agent of any person, partnership, corporation or other business organization or entity other than the Company: (i) solicit or endeavor to entice away from the Company or any of its subsidiaries any person or entity who is, or, during the then most recent 12 month period, was employed by, or had served as an agent of, the Company or any of its subsidiaries; or (ii) engage in or contract with others to engage in any business enterprise, line of work consulting contract, joint venture or other arrangement which conducts a business or businesses substantially similar to the business conducted by Company in any area in which Company or any of its affiliates or subsidiaries provides or plans to provide air transportation to the public. Moore acknowledges that the geographic area covered hereby, and the period and nature of the agreed restrictions are reasonable and necessary for the protection of the business of the Company. All provisions of this Paragraph concerning non-competition are severable; and while it is the intention of the parties that all of said provisions shall be enforceable, if any one of the same shall be held to be unenforceable in whole or in part, the remainder shall continue to be in full force and effect. The terms of this Paragraph 11.A will not apply following any termination of Moore's employment that was effected as a result of, in connection with or within twelve (12) months following a Change in Control. The twelve month period will be deemed to mean any notice given within twelve months following a Change in Control regardless of when actual termination occurs following said notice. In the event Moore is receiving Severance Compensation following B. Confidentiality. Moore covenants and agrees with the Company that he will not at any time, except in performance of his obligations to the Company hereunder or with the prior written consent of the Company, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company or any of its subsidiaries and affiliates. The term "confidential information" includes information not previously disclosed to the public or to the trade by the Company's management, or otherwise in the public domain, with respect to the Company's or any of its affiliates' or subsidiaries', products, facilities, applications and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, price lists, customer lists, technical information, financial information (including the revenues, costs or profits associated with the Company), business plans, prospects or opportunities, but shall exclude any information which (i) is or becomes available to the public or is generally known in the industry or industries in which the Company operates other than as a result of disclosure by Moore in violation of his agreements under this Paragraph 11B or (ii) Moore is required to disclose under any applicable laws, regulations or directives of any government agency, tribunal or authority having jurisdiction in the matter or under subpoena or other process of law. C. Exclusive Property. Moore confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by Moore relating to the business of the Company shall be and remain the property of the Company, except for such papers customarily deemed to be the personal copies of Moore. D. Injunctive Relief. Without intending to limit the remedies available to the Company, Moore acknowledges that a breach of any of the covenants contain in this Paragraph 11 may result in material and irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to seek a temporary restraining order and/or a preliminary or permanent injunction restraining Moore from engaging in activities prohibited by this Paragraph 11 or such other relief as may be required specifically to enforce any of the covenants in this Paragraph 11. If for any reason, it is held that the restrictions under this Paragraph 11 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted or modified to include as much of the duration and scope identified in this Paragraph 11 as will render such restrictions valid and enforceable. 12. Assignment This Agreement, as it relates to the employment of Moore, is a personal contract and the rights and interests of Moore hereunder may not be sold, transferred, assigned, pledged or hypothecated. However, this Agreement shall inure to the benefit of and be binding upon Company and its successors and assigns including, without limitation, any corporation or other entity into which Company is merged or which acquires all or substantially all of the outstanding common stock or assets of Company. At any time prior to a Change in Control, Company may provide, without the prior written consent of Moore, that Moore shall be employed pursuant to this Agreement by any of its affiliates instead of or in addition to Company, and in such case all references herein to the "Company" shall be deemed to include any such entity, provided that such action shall not relieve Company of its obligation to make or cause an affiliate to make or provide for any payment to or on behalf of Moore pursuant to this Agreement. 13. Invalid Provisions The invalidity of any one or more of the paragraphs or provisions of this Agreement shall not affect the reasonable enforceability of the remaining paragraphs or provisions of this Agreement, all of which are inserted herein conditionally upon being valid in law; and in the event one or more of the paragraphs or provisions contained herein shall be invalid, this instrument shall be construed as if such invalid paragraphs or provisions had not been inserted or, alternatively, said paragraphs or provisions shall be reasonably limited to the extent that the applicable court interpreting the provisions of this Agreement considers to be reasonable. 14. Specific Performance The parties hereby agree that any violation by Moore of the covenants and agreements contained herein shall cause irreparable damage to the Company, and the Company may, as a matter of course, enjoin and restrain said violation by Moore by process issued out of a court of competent jurisdiction, in addition to any other remedies that said court may see fit to award. 15. Binding Effect All the terms of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. 16. Waiver of Breach or Violation Not Deemed Continuing The waiver by the Company of any provision of this Agreement may be effected only by a written waiver duly executed on behalf of the Company and except to the extent specifically provided in such waiver shall not operate as, or be construed to be, a waiver of any subsequent breach hereof. 17. Entire Agreement; Law Governing This Agreement supersedes in its entirety any and all other agreements (specifically including any earlier versions of this Severance Agreement), either oral or in writing, between the parties hereto with respect to the subject matter hereof, by and between the Company and Moore, and contains all the covenants and agreements among the parties with respect to such subject matter. This Agreement shall be construed in accordance with the laws of the Commonwealth of Virginia. Moore hereby acknowledges that he was given the opportunity to be represented by counsel of his choosing in the drafting and negotiation of this Agreement and that he reviewed this Agreement. In interpreting this Agreement, a court shall not treat either party as the draftsman of the Agreement. 18. Paragraph Headings The Paragraph headings contained in this Agreement are for convenience only and shall in no manner be construed as a part of this Agreement. 19. Release by Moore In the event of a termination of employment by Moore that results in the payment of Severance Compensation to him pursuant to the terms of this Agreement, in consideration for such Severance Compensation and as a condition precedent to the payment thereof, Moore hereby agrees to execute a full and complete release to the Company releasing any and all claims that he may have against the Company including any claims relating to his termination of employment. 20. Notices All notices permitted or required to be given pursuant to this Agreement shall be in writing and shall be deemed to have been sufficiently given, subject to the further provisions of this Section 20, for all purposes when presented personally to such party (which in the case of notice to the Company, shall be presented to the person holding the office or offices identified below) or sent by facsimile transmission, any national overnight delivery service, or certified or registered mail, to such party at its address set forth below: If to Moore, to the most recent address indicated for Moore's residence in the personnel records of Company, unless Moore gives written notice that such notices are to be delivered to another address. If to ACA or the Company: Atlantic Coast Airlines Holdings, Inc. Atlantic Coast Airlines 515A Shaw Road Dulles, VA 20166 Attention: General Counsel or Corporate Secretary Fax No. (703) 925-6294 Such notice shall be deemed to be given and received when delivered if delivered personally, upon electronic or other confirmation of receipt if delivered by facsimile transmission, the next business day after the date sent if sent by a national overnight delivery service, or five (5) business days after the date mailed if mailed in the continental United States by certified or registered mail. Any notice of any change in such address shall also be given in the manner set forth above. Whenever the giving of notice is required, the giving of such notice may be waived in writing by the party entitled to receive such notice. In Witness Whereof, the Company has hereunto caused this Agreement to be executed by a duly authorized officer and Moore has hereunto set his hand as of the day and year first above written. WITNESS: _______________________________ ________________________ Thomas J. Moore COMPANY: ATTEST: ATLANTIC COAST AIRLINES _______________________________ BY: ________________________ Richard J. Kennedy, Kerry B. Skeen, Secretary President & Chief Executive Officer ATTEST: ATLANTIC COAST AIRLINES HOLDINGS, INC. _______________________________ BY: _________________________ Richard J. Kennedy, Kerry B. Skeen, Secretary President & Chief Executive Officer EX-10 6 Exhibit 10.12(h) SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (the "Agreement") is made and entered into as of this ____ day of ___________, 199__ (the "Effective Date"), by and between ATLANTIC COAST AIRLINES, INC., a Delaware corporation (the "Company") and ______________ ("Employee"). W I T N E S S E T H T H A T: WHEREAS, Employee is currently employed by the Company and the Company desires to continue to employ Employee; and Employee desires to continue to be employed by the Company, upon the terms and conditions hereinafter set forth; and WHEREAS, the Company and Employee desire to expressly set forth in this Agreement the terms of Employee's employment with the Company; and WHEREAS, the Company has determined that the best interests of the Company would be served by entering into this Agreement with Employee; and WHEREAS, the Company and Employee are both legally able, and not restricted by prior agreements with other parties, to enter into this Agreement; and NOW, THEREFORE, the parties, for and in consideration of the mutual and reciprocal covenants and agreements hereinafter contained, and intending to be legally bound hereby, do contract and agree as follows: 1. Employment: The Company hereby employs Employee and Employee hereby accepts employment by the Company and agrees to perform his duties and responsibilities hereunder upon all of the terms and conditions as are hereinafter set forth. 2. Duties: Employee shall serve the Company in the capacities of ___________________________________. Employee shall be responsible for supervising and directing all operations of the Company. Employee shall otherwise be responsible for carrying out such other duties and services for the Company commensurate with Employee's position, as may be designated from time to time by __________________. 3. Term of Employment: Employee's term of employment under this Agreement shall commence on the Effective Date and shall terminate on the last day of the calendar month which is twelve (12) calendar months after the Effective Date, unless further extended as hereinafter set forth. Commencing on each successive anniversary of the Effective Date, the Agreement shall automatically be extended for an additional twelve (12) months without further action by either party unless one party provides the other fifteen (15) days' written notice that such party does not wish to extend the term of this Agreement. The fifteenth (15th) day following the date of such notice shall be deemed to be a "Termination Date" for purposes of this Agreement. 4. Extent of Service: Employee shall devote such time and attention as is required to perform his obligations under this Agreement and will at all times faithfully and industriously, consistent with his ability, experience and talent, perform his duties hereunder under the direction of the CEO. 5. Compensation: During the term of this Agreement, the Company agrees to pay to Employee, and Employee agrees to accept from the Company, in full payment for services rendered by Employee and work to be performed by him under the terms of this Agreement, the following: A. During the first year under this Agreement, an annual base salary of _____________________ ($___________). Thereafter, the amount of Employee's base salary shall be adjusted as determined by the Compensation Committee of the Board of Directors of the Company. Employee's base salary for each year shall be payable to him in accordance with the reasonable payroll practices of the Company, as from time to time, in effect for executive personnel (but in no event less often than monthly). B. Employee shall participate in the Company's Senior Management Incentive Plan, or any successor bonus plan or program for key executives. C. The Company has entered into a Split Dollar Agreement with Employee effective _______________, which provides for a split dollar plan for a policy of insurance upon the life of Employee in a face amount of _______________ dollars ($__________). (i) Employee is the owner of the policy under the Split Dollar Agreement and has the right to designate his beneficiary with respect to proceeds of the policy payable upon his death; provided, however, that notwithstanding the foregoing, the Company has a collateral assignment of the policy as security for the repayment of the amounts contributed by the Company toward the payment of premiums for the policy. (ii) The Company shall, each year as required under the Split Dollar Agreement and the related policy, pay, on or before the due date(s) under the terms of the policy, the entire amount of the annual premium due on the policy acquired pursuant to the terms of the Split Dollar Agreement. Effective _______________, the annual premium due on the policy will be determined by multiplying Employee's annual base salary for the next twelve month period by a percentage equal to twenty percent (20%) of said base salary. The initial face amount of the policy will be not less than ________________dollars ($_________). (iii) Effective __________, in the event that Employee's employment with the Company is terminated by the Company for other than "for cause" (as hereinafter defined) or should Employee elect to resign his employment with the Company for any reason or no reason, the Company shall pay to Employee a "Deferred Compensation" amount equal to the applicable vested percentage of the total policy premiums paid by the Company pursuant to the Split Dollar Agreement. The applicable vested percentage shall be determined as follows: Years of Service Percentage Vested 1-4 0% 5 25% 6 35% 7 50% 8 65% 9 80% 10 100% For purposes of determining Years of Service, Employee will be credited with a "Year of Service" for completion of each twelve (12) consecutive month period of employment with the Company, beginning ___________. Said Deferred Compensation amount shall be paid in a single lump sum payment within fifteen (15) days after the termination date as specified in this Paragraph D. Notwithstanding the foregoing, in the event of a change in control (as defined in Item 8 of this Agreement) of the Company, Employee shall become immediately 100% vested in his Deferred Compensation amount. The Company shall release its interest in the policy, or a portion thereof, on Employee's life acquired pursuant to the terms of the Split Dollar Agreement, or any or all of the paid up additions standing to the credit of such policy, if any, such that such released interest equals the Deferred Compensation amount paid to Employee pursuant to this Paragraph D. The Company agrees that the amount of any such release of interest by the Company shall reduce the amount of "Liabilities" (as such term is defined in the Agreement of Assignment of Life Insurance Death Benefit As Collateral entered into between Employee and the Company in connection with the Split Dollar Agreement) owed to the Company in connection with the Split Dollar Agreement and related Collateral Assignment Agreement. Accordingly, the Company also agrees to reduce its collateral assignment of the policy pursuant to the Split Dollar Agreement and related Collateral Assignment Agreement. D. Discretionary compensation, bonuses and benefits in addition to those provided for herein in such amounts and at such times as the Compensation Committee of the Board of Directors of the Company shall determine. 6. Benefits: The Company shall pay for or provide Employee such vacation time and benefits, including but not limited to coverage under the Company's major medical, accident, health, dental, disability and life insurance plans available to other employees of the Company (and, to the extent provided by such policies, Employee's dependents). The Company shall provide Employee with an executive medical reimbursement plan under which the Company agrees to promptly reimburse Employee for any otherwise unreimbursed premium and/or covered medical expenses, up to $10,000 per calendar year. 7. Reimbursement of Expenses: The Company agrees to promptly reimburse Employee, within fifteen (15) days after presentation of receipts and other appropriate documentation, for all reasonable, ordinary and necessary travel costs and other necessary expenses incurred by Employee in performing his duties pursuant to this Agreement. 8. Deductions: Deductions shall be made from Employee's compensation for social security, federal and state withholding taxes, and any other such taxes as may, from time to time, be required by governmental authority. 9. Termination: Employee's employment with the Company shall be terminated as hereinafter provided: A. Disability. (i) In the event Employee shall become mentally or physically disabled so as to be unable to perform his duties hereunder (such determination to be made solely by the Company) for six (6) consecutive months, the Company shall have the right to terminate Employee's employment with the Company upon the expiration of such six (6) month period; provided, however, that the Company shall be obligated to provide Employee with the such severance compensation and benefits as hereinafter provided. (ii) In the event Employee's employment is terminated by the Company due to a disability as provided herein, the Company shall continue to provide Employee with the basic major medical insurance benefits maintained by the Company and shall pay Employee such severance compensation as hereinafter provided for a period (the "Severance Period") which shall be twelve (12) months from the date of Employee's termination. Employee's severance compensation ("Severance Compensation") shall be determined as follows: during the Severance Period Employee shall receive an amount equal to one hundred percent (100%) of his annual base salary in effect at the commencement of his disability. In addition, the Company shall pay Employee a prorated portion of any annual bonus amount accrued through the Termination Date, provided, however, that such bonus amount will be paid at the time that such bonus amounts are normally paid by the Company. The Atlantic Coast Airlines, Inc. flight pass privileges currently granted to Employee will continue for the Severance Period. However, such flight pass privileges will be limited to flights on Atlantic Coast Airlines only. (iii) Nothing contained herein shall be construed to affect Employee's rights under any disability insurance or similar policy, whether maintained by the Company, Employee or another party. (iv) For purposes of this Agreement, Employee shall be deemed to be disabled when he shall have been absent from his duties on a full time basis for six (6) consecutive months. (v) At the end of any disability (other than a disability that results in the involuntary termination of Employee's employment with the Company), Employee shall return to work and this Agreement shall continue as though such disability had not occurred. (vi) If Employee desires to return to work at the end of any disability, but there is a dispute as to whether he is able to perform his duties hereunder, the Company shall have sole discretion in determining whether Employee is able to perform his duties hereunder on a full-time basis. B. Death. (i) Employee's employment with the Company shall terminate immediately upon Employee's death; provided, however, that the Company shall be obligated to provide Employee with such severance compensation and benefits as hereinafter provided. (ii) In the event Employee's employment with the Company is terminated due to his death, the Company shall continue to provide Employee's dependents with the basic major medical insurance benefits maintained by the Company (provided that such dependents were covered under the applicable Company benefit plan at the time of Employee's death) and shall pay Employee's estate Employee's "Severance Compensation" for the "Severance Period." For purposes of this Paragraph 9B, the Severance Period shall be twelve (12) months from the date of Employee's death. The amount of Employee's Severance Compensation shall be determined as follows: during the Severance Period, an amount equal to one hundred percent (100%) of Employee's annual base salary in effect at the time of his death. In addition, the Company shall pay Employee a prorated portion of any annual bonus amount accrued through the Termination Date, provided however, that such bonus amount will be paid at the time that such bonus amounts are normally paid by the Company. (iii) Nothing contained herein shall be construed to affect Employee's rights under any life insurance or similar policy, whether maintained by the Company, Employee or another party. C. Termination by Employee. Employee may terminate his employment with the Company as provided in Paragraph 3. In such event, the Company shall not be liable to Employee for any compensation, bonus or fringe benefits after the date of termination of employment. D. Termination by the Company. (i) Without Cause. The Company may, without cause, terminate this Agreement at any time by giving to Employee fifteen (15) days' written notice by Certified Mail, Return Receipt Requested, at the last known residence of Employee, and such termination shall be effective on the fifteenth (15th) day following the date of such notice (the "Termination Date"). At the option of the Company, Employee's employment shall be immediately terminated upon receipt of the notice, in which case Employee shall continue to receive his full base salary and related benefits through the Termination Date. In addition, the Company shall continue to provide Employee with the basic major medical insurance benefits maintained by the Company and shall pay Employee "Severance Compensation" for the "Severance Period." For purposes of this Paragraph D1, the Severance Period shall be twelve (12) months from the Termination Date. The amount of Employee's Severance Compensation shall be determined as follows: during the Severance Period, an amount equal to one hundred percent (100%) of Employee's annual base salary in effect at the Termination Date. In addition, the Company shall pay Employee a prorated portion of any annual bonus amount accrued through the Termination Date, provided however, that such bonus amount will be paid at the time that such bonus amounts are normally paid by the Company. In the discretion of the Company, the Severance Compensation may be paid, in a single lump sum payment or periodic payments in accordance with the reasonable payroll practices of the Company as from time to time in effect for executive personnel (but in no event less often than monthly). The Atlantic Coast Airlines, Inc. flight pass privileges currently granted to Employee will continue for the Severance Period. However, such flight pass privileges will be limited to flights on Atlantic Coast Airlines only. (ii) For "cause." Company may terminate Employee's employment under this Agreement immediately for "cause." In such event, the Company shall not be liable to Employee for any compensation, bonus or benefits after the date of termination of employment. Cause shall be defined as any of the following: (i) unauthorized misconduct in the performance of Employee's duties hereunder, (ii) commission of an act of dishonesty by Employee or personal misconduct, which act is harmful to the Company, (iii) breach of any provision of this Agreement. Any termination under this Paragraph D2 shall take effect immediately upon Employee's receipt of written notice from the Company to Employee. 10. Nonsolicitation and Confidentiality. A. Nonsolicitation. For so long as Employee is an employee of the Company and continuing for one (1) year thereafter, Employee shall not, without the prior written consent of the Company, directly or indirectly, as a sole proprietor, member of a partnership, stockholder or investor, officer or director of a corporation, or as an employee, associate, consultant or agent of any person, partnership, corporation or other business organization or entity other than the Company: (i) solicit or endeavor to entice away from the Company or any of its subsidiaries any person or entity who is, or, during the then most recent 12- month period, was employed by, or had served as an agent of, the Company or any of its subsidiaries; or (ii) solicit or endeavor to entice away from the Company or any of its subsidiaries any person or entity who is, or was within the then most recent 12-month period, a customer or client (or reasonably anticipated (to the general knowledge of Employee or the public) to become a customer or client) of the Company or any of its subsidiaries. B. Confidentiality. Employee covenants and agrees with the Company that he will not at any time, except in performance of his obligations to the Company hereunder or with the prior written consent of the Company, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company or any of its subsidiaries and affiliates. The term "confidential information" includes information not previously disclosed to the public or to the trade by the Company's management, or otherwise in the public domain, with respect to the Company's or any of its affiliates' or subsidiaries', products, facilities, applications and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, price lists, customer lists, technical information, financial information (including the revenues, costs or profits associated with the Company), business plans, prospects or opportunities, but shall exclude any information which (i) is or becomes available to the public or is generally known in the industry or industries in which the Company operates other than as a result of disclosure by Employee in violation of his agreements under this Paragraph 10B or (ii) Employee is required to disclose under any applicable laws, regulations or directives of any government agency, tribunal or authority having jurisdiction in the matter or under subpoena or other process of law. C. Exclusive Property. Employee confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by Employee relating to the business of the Company shall be and remain the property of the Company, except for such papers customarily deemed to be the personal copies of Employee. D. Injunctive Relief. Without intending to limit the remedies available to the Company, Employee acknowledges that a breach of any of the covenants contained in this Section 10 may result in material and irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to seek a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Section 10 or such other relief as may be required specifically to enforce any of the covenants in this Section 10. If for any reason, it is held that the restrictions under this Section 10 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted or modified to include as much of the duration and scope identified in this Section 10 as will render such restrictions valid and enforceable. 11. Assignment: This Agreement, as it relates to the employment of Employee, is a personal contract and the rights and interests of Employee hereunder may not be sold, transferred, assigned, pledged or hypothecated. However, this Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns including, without limitation, any corporation or other entity into which the Company is merged or which acquires all or substantially all of the outstanding common stock or assets of the Company. 12. Invalid Provisions: The invalidity of any one or more of the clauses or words contained in this Agreement shall not affect the reasonable enforceability of the remaining provisions of this Agreement, all of which are inserted herein conditionally upon being valid in law; and in the event one or more of the words or clauses contained herein shall be invalid, this instrument shall be construed as if such invalid words or clauses had not been inserted or, alternatively, said words or clauses shall be reasonably limited to the extent that the applicable court interpreting the provisions of this Agreement considers to be reasonable. 13. Specific Performance: The parties hereby agree that any violation by Employee of the covenants and agreements contained herein shall cause irreparable damage to the Company, and the Company may, as a matter of course, enjoin and restrain said violation by Employee by process issued out of a court of competent jurisdiction, in addition to any other remedies that said court may see fit to award. 14. Binding Effect: All the terms of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. 15. Waiver of Breach or Violation Not Deemed Continuing: The waiver by the Company of any provision of this Agreement shall not operate as, or be construed to be, a waiver of any subsequent breach hereof. 16. Entire Agreement; Law Governing: This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof, by and between the Company and Employee, and contains all the covenants and agreements among the parties with respect to such subject matter. This Agreement shall be construed in accordance with the laws of the Commonwealth of Virginia. 17. Paragraph Headings: The Paragraph headings contained in this Agreement are for convenience only and shall in no manner be construed as a part of this Agreement. 18. Stock Options: A. Acceleration of Stock Options upon a Change in Control. If the Company experiences a Corporate Change, the exercisability and vesting of all Stock Options granted to Employee before November 13, 1998 and held by Employee as of the date of the Corporate Change shall accelerate as of the date of such Corporate Change. The Compensation Committee of the Company's Board of Directors (the "Committee") shall provide that if a Corporate Change occurs, then effective as of a date selected by the Committee, the Committee (which for purposes of the Corporate Changes described in clauses (iii) and (v) of the definition of Corporate Change below shall be the Committee as constituted prior to the occurrence of such Corporate Change) acting in its sole discretion without the consent or approval of Employee, will effect one or more of the following alternatives or combination of alternatives with respect to all outstanding Stock Options (which alternatives may be conditional on the occurrence of such of the Corporate Change specified in clause (i) through (v) of the definition of Corporate Change below which gives rise to the Corporate Change: (1) in the case of a Corporate Change specified in clauses (i), (ii) or (iv) of the definition thereof, provide that exercisable options (including any options exercisable pursuant to the first sentence of this Paragraph 18.A.) then outstanding may be exercised in full for a limited period of time on or before a specified date (which will permit Employee to participate with the Common Stock received upon exercise of such option in the event of a Corporate Change specified in clauses (i), (ii) or (iv) of the definition of Corporate Change below, as the case may be) fixed by the Committee, after which specified date all unexercised options and all rights of Employee thereunder shall terminate, (2) provide that exercisable options (including any options exercisable pursuant to the first sentence of this Paragraph 18.A.) then outstanding may be exercised so that such options may be exercised in full for their then remaining term, or (3) require the mandatory surrender to the Company of outstanding options held by Employee (including any options exercisable pursuant to the first sentence of this Paragraph 18.A.) as of a date, before or not later than sixty days after such Corporate Change, specified by the Committee, and in such event the Committee shall thereupon cancel such options and the Company shall pay to Employee an amount of cash equal to the excess of the fair market value of the aggregate shares subject to such option over the aggregate option price of such shares; provided, however, the Committee shall not select an alternative (unless consented to by Employee) that, if Employee exercised his accelerated options pursuant to alternative 1 or 2 and participated in the transaction specified in clause (i), (ii) or (iv) of the definition of Corporate Change below or received cash pursuant to alternative 3, would result in Employee's owing any money by virtue of operation of Section 16(b) of the Exchange Act. If all such alternatives have such a result, the Committee shall take such action, which is hereby authorized, to put Employee in as close to the same position as Employee would have been in had alternative 1, 2 or 3 been selected but without resulting in any payment by Employee pursuant to Section 16(b) of the Exchange Act. Notwithstanding the foregoing, with the consent of Employee, the Committee may in lieu of the foregoing make such provision with respect of any Corporate Change as it deems appropriate. B. Definitions. For purposes of this Agreement: (i) "Stock Options" shall mean any grant to Employee by the Company, pursuant to the Company's 1992 or 1995 Stock Option Plan, of the right and option to acquire from the Company a specified number of shares of Atlantic Coast Airlines Holdings, Inc. common stock under certain terms and conditions. (ii) "Change in Control" and "Corporate Change" shall each mean (i) any merger or consolidation in which the Company shall not be the surviving entity (or survives only as a subsidiary of another entity, unless the stockholders of Company immediately before such merger or consolidation own, directly or indirectly immediately following such merger or consolidation, substantially all of the combined voting power of the surviving entity in substantially the same proportion as their ownership immediately before such merger or consolidation, (ii) the sale of all or substantially all of the Company's assets to any other person or entity (other than a wholly-owned subsidiary), (iii) the acquisition of beneficial ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock by any person or entity (including a "group" as defined by or under Section 13(d)(3) of the Exchange Act), (iv) the dissolution or liquidation of the Company, (v) a contested election of directors, as a result of which or in connection with which the persons who were directors of the Company before such election or their nominees cease to constitute a majority of the Board, or (vi) any other event specified by the Committee, regardless of whether at the time an Option is granted or thereafter. C. Amendment to Existing Option Agreements. The provisions of this Paragraph 18 shall apply to all Stock Options or restricted stock previously granted to Employee, and this Amendment Number One shall be deemed to be an amendment to all Stock Option Agreements and the Restricted Stock Agreement presently in existence between the Company and Employee, and will supersede any language to the contrary contained in said agreements. The Compensation Committee of the Board of Directors retains full discretion of whether to grant any additional Stock Options in the future, and if so whether the terms provided herein will apply to said Stock Options. IN WITNESS WHEREOF, the Company has hereunto caused this Agreement to be executed by a duly authorized officer and Employee has hereunto set his hand as of the day and year first above written. _______________________________ COMPANY: ATLANTIC COAST AIRLINES, INC. By:_____________________________ (CORPORATE SEAL) ATTEST: ______________________ EX-10 7 Exhibit 10.23 AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT _________________________________________ ATLANTIC COAST AIRLINES HOLDINGS, INC. ATLANTIC COAST AIRLINES _________________________________________ __________________________________________ __________________________________________ AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT Date: February 8,1999 $50,000,000 __________________________________________ __________________________________________ __________________________________________ FLEET CAPITAL CORPORATION, as Lender __________________________________________ TABLE OF CONTENTS Page SECTION 1. CREDIT FACILITIES -1- 1.1 Revolver Loans. -1- 1.2 Bridge Loan. -2- 1.3 Letters of Credit; Letter of Credit Guaranties -2- 1.4 Use of Proceeds of Loans -4- SECTION 2. INTEREST, FEES AND CHARGES -4- 2.1 Interest -4- 2.2 Fees -7- 2.3 Computation of Interest and Fees -8- 2.4 Reimbursement of Expenses -8- 2.5 Bank Charges -9- 2.6 Illegality. -9- 2.7 Increased Costs -10- 2.8 Capital Adequacy -11- 2.9 Funding Losses -11- 2.10 Maximum Interest. -12- 2.11 Limitation on Borrower's Payments -13- SECTION 3. LOAN ADMINISTRATION. -13- 3.1 Manner of Borrowing and Funding Revolver Loans -13- 3.2 Special Provisions Governing LIBOR Rate Loans -14- SECTION 4. PAYMENTS -15- 4.1 General Payment Provisions. -15- 4.2 Payment of Principal of Loans -15- 4.3 Payment of Interest -17- 4.4 Payment of Other Obligations. -17- 4.5 Mandatory Prepayments of Bridge Loan. -17- 4.6 Optional Prepayments of Loans. -17- 4.7 Application of Payments and Collateral Proceeds. -18- 4.8 Marshalling; Payments Set Aside. -18- 4.9 All Loans to Constitute One Obligation. -18- 4.10 Loan Account -18- 4.11 Statements of Account -19- SECTION 5. TERM AND TERMINATION OF AGREEMENT -19- 5.1 Term of Agreement. -19- 5.2 Termination of Agreement -19- SECTION 6. SECURITY INTERESTS -21- 6.1 Security Interest in Collateral. -21- 6.2 Other Collateral. -21- 6.3 Lien Perfection; Further Assurances. -22- 6.4 Lien on Leasehold Estate. -22- 6.5 Exclusion From Collateral. -22- 6.6 Release of Lien in Rotable Spare Parts. -22- SECTION 7. COLLATERAL ADMINISTRATION -23- 7.1 General Provisions -23- 7.2. Administration of Accounts -24- 7.3 Administration of Rotable Spare Parts -26- 7.4 Payment of Charges -26- SECTION 8. REPRESENTATIONS AND WARRANTIES -26- 8.1. General Representations and Warranties. -26- 8.2.Continuous Nature of Representations and Warranties. -32- 8.3. Survival of Representations and Warranties. -32- SECTION 9. COVENANTS AND CONTINUING AGREEMENTS -32- 9.1 Affirmative Covenants -32- 9.2 Negative Covenants -36- 9.3 Specific Financial Covenants -38- SECTION 10. CONDITIONS PRECEDENT -38- 10.1Conditions Precedent to Initial Revolver Loan on Closing Date-38- 10.2Conditions Precedent to All Loans and Letters of Credit and Letter of Credit Guaranties -41- 10.3 Waiver of Conditions Precedent -42- SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT -42- 11.1 Events of Default -42- 11.2 Acceleration of the Obligations -45- 11.3 Other Remedies -45- 11.4 Remedies Cumulative; No Waiver. -46- SECTION 12 MISCELLANEOUS -47- 12.1 Power of Attorney -47- 12.2 Indemnity -48- 12.3 Survival of Indemnities -48- 12.4 Modification of Agreement -48- 12.5 Severability -49- 12.6 Successors and Assigns. -49- 12.7 Cumulative Effect; Conflict of Terms -49- 12.8 Execution in Counterparts -49- 12.9 Required Lender's Consent -49- 12.10 Notice -49- 12.11 Credit Inquiries. -50- 12.12 Time of Essence -50- 12.13 Entire Agreement -51- 12.14 Interpretation -51- 12.15 GOVERNING LAW; CONSENT TO FORUM -51- 12.16 WAIVERS -51- AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement") is made this 8th day of February, 1999, by and among ATLANTIC COAST AIRLINES ("Borrower"), a California corporation with its chief executive office and principal place of business at 515-A Shaw Road Sterling, Virginia 20166; and ATLANTIC COAST AIRLINES HOLDINGS, INC. ("Parent"; Borrower and Parent being herein collectively called the "Loan Parties" and, individually, a "Loan Party"), a Delaware corporation with its chief executive office and principal place of business at 515-A Shaw Road Sterling, Virginia 20166; and FLEET CAPITAL CORPORATION, a Rhode Island corporation with an office at 6100 Fairview Road Suite 200 Charlotte, North Carolina 28210 ("Lender"). Capitalized terms used in this Agreement have the meanings assigned to them in Appendix A, General Definitions. BACKGROUND STATEMENT The Loan Parties and Lender are parties to that certain Loan and Security Agreement, dated October 12, 1995, as amended by First Amendment thereto, dated June 1, 1997 (the "Existing Loan Agreement"), by which Lender has agreed to extend credit to Borrower. The Loan Parties have requested that Lender enter into certain amendments to the Existing Loan Agreement and Lender has agreed to such amendments, subject to all of the terms, conditions and provisions hereof. Effective on the date on which all of the conditions set forth in Section 10 hereof are satisfied and Lender makes the initial Loan hereunder (such date being herein called the "Closing Date"), this Agreement shall amend and restate in its entirety the Existing Loan Agreement, and shall represent the entire agreement between the Loan Parties and Lender with respect to the terms and conditions upon which Lender is to extend credit to Borrower from and after the Closing Date. Amounts in respect of interest, fees, and other amounts payable to or for the account of Lender shall be calculated (i) in accordance with the provisions of the Existing Loan Agreement with respect to any period (or a portion of any period) ending prior to the Closing Date, and (ii) in accordance with the provisions of this Agreement with respect to any period (or a portion of any period) commencing on or after the Closing Date. On the Closing Date, all Loans outstanding under the Existing Loan Agreement shall be deemed Loans outstanding under this Agreement. SECTION 1.CREDIT FACILITIESSECTION 1. CREDIT FACILITIES Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lender agrees to make a total credit facility of $50,000,000 available upon Borrower's request therefor as follows: 1.1 Revolver Loans. 1.1 Revolver Loans. Lender agrees, for so long as no Default or Event of Default exists and subject to the provisions of Section 10 below, to make Revolver Loans to Borrower from time to time, as requested by Borrower in the manner set forth in Section 3.1 hereof, up to a maximum principal amount at any time outstanding equal to the lesser of the Revolver Facility Amount or the Borrowing Base at such time. The Revolver Loans may be repaid and reborrowed in accordance with the provisions of this Agreement. Each Revolver Loan shall, at the option of Borrower, be made or continued as, or converted into, a Base Rate Loan, a Daily LIBOR Loan or a LIBOR Loan upon the terms set forth herein. Upon the Closing Date, all Revolver Loans outstanding under the Existing Loan Agreement shall, without the necessity of any further action by Borrower or Lender, be deemed Revolver Loans outstanding under this Agreement. 1.2 Bridge Loan. 1.2 Bridge Loan. Lender agrees, provided no Default or Event of Default exists and subject to the provisions of Section 10 below, to make Bridge Loan Advances under the Bridge Loan to Borrower, as requested by Borrower in the manner set forth in Section 3.1 hereof, up to a maximum amount of Bridge Loan Advances made in the amount of $15,000,000, which shall be repayable in accordance with the terms of Section 4.2.2 of this Agreement and the Bridge Note and shall be secured by all of the Collateral. Borrower shall not be entitled to reborrow any amounts repaid with respect to the Bridge Loan. Each Bridge Loan Advance shall, at the option of Borrower, be made or continued as, or converted into, a Base Rate Loan, a Daily LIBOR Loan or a LIBOR Loan, upon the terms set forth herein. 1.3 Letters of Credit; Letter of Credit Guaranties1.3 Letters of Credit; Letter of Credit Guaranties. 1.3.1 Issuance of Letters of Credit and Letter of Credit Guaranties. Lender agrees, for so long as no Default or Event of Default exists and subject to the provisions of Section 10 below, to issue its, or cause to be issued its Affiliate's Letters of Credit and Letter of Credit Guaranties, as requested by Borrower, provided that the Letter of Credit Amount at any time shall not exceed $15,000,000 and no Letter of Credit or Letter of Credit Guaranty may have an expiration date that is after the last day of the Original Term or the then applicable Renewal Term. Upon the Closing Date, all Letters of Credit and Letter of Credit Guaranties outstanding under the Existing Loan Agreement, including, without limitation, the Bond Letter of Credit and the Bond Letter of Credit Guaranty, shall, without the necessity of any further action by Borrower, Lender or Lender's Affiliates, be deemed Letter of Credit and Letter of Credit Guaranties outstanding under this Agreement. 1.3.2 Reimbursement Obligations. All indebtedness, liabilities or obligations whatsoever arising or incurred in connection with any Letters of Credit or Letter of Credit Guaranties shall be incurred solely as an accommodation to Borrower and for Borrower's account. Borrower hereby unconditionally agrees to reimburse Lender for the total amount of all sums paid by Lender on Borrower's behalf under the terms of any Letter of Credit or Letter of Credit Guaranty, any drawing or demand under any Letter of Credit or Letter of Credit Guaranty or any additional or further liability which may accrue against Lender in connection with the same, immediately upon the date of payment by Lender. Any such sum paid or liability incurred by Lender in connection with any Letter of Credit or Letter of Credit Guaranty shall, at Lender's option, if not reimbursed by Borrower on the date paid or incurred by Lender, be treated for all purposes and shall have the same force and effect as if such amount had been loaned by Lender to Borrower as a Revolver Loan, shall be secured by all of the Collateral and shall bear interest and be payable at the same rate and in the same manner as Revolver Loans that are Base Rate Loans. 1.3.3 Rights and Remedies. In the event that, coincident with or subsequent to the occurrence of, and during the continuance of, a Default or an Event of Default, Lender becomes aware of the possibility of a draw, or enforcement of Lender's obligations, under a Letter of Credit or Letter of Credit Guaranty, Lender, at its option, may, but shall not be required to, pay Borrower's obligations to the beneficiary or holder of such Letter of Credit or Letter of Credit Guaranty directly to such beneficiary or holder, and, in such event, the amount of any such payment made by Lender shall be treated for all purposes and shall have the same force and effect as if such amount had been loaned by Lender to Borrower as a Revolver Loan, shall be secured by all of the Collateral and shall bear interest and be payable at the same rate and in the same manner as Revolver Loans that are Base Rate Loans. Additionally, in the event of Borrower's failure to reimburse Lender for the total amount of all sums paid by Lender on Borrower's behalf under the terms of any Letter of Credit or Letter of Credit Guaranty, any drawing or demand under any Letter of Credit or Letter of Credit Guaranty or any additional or further liability which may accrue against Lender in connection therewith, Lender, in addition to its rights under the Code and under this Agreement, shall be fully subrogated to the rights and remedies of the issuer of the Letter of Credit under any agreement made with Borrower relating to the issuance of such Letter of Credit, each such agreement being incorporated herein by reference, and Lender shall be entitled to exercise all such rights and remedies thereunder and under law in such regard as fully as if it were the issuer of the Letter of Credit. If any Letter of Credit is drawn upon to discharge any obligation of Borrower to the beneficiary of such Letter of Credit, in whole or in part, Lender shall be fully subrogated to the rights of such beneficiary with respect to the obligation of Borrower to such beneficiary discharged with the proceeds of such Letter of Credit. 1.3.4 Indemnification. Borrower hereby unconditionally agrees to indemnify Lender and hold Lender harmless from any and all losses, claims or liabilities arising from any transactions or occurrences relating to Letters of Credit or Letter of Credit Guaranties issued, established, opened or accepted for Borrower's account, and any drafts or acceptances thereunder, and all Letter of Credit Obligations incurred in connection therewith; provided, however, the foregoing shall not apply to losses, claims or liabilities arising out of Lender's gross negligence or willful misconduct. This indemnity shall survive the payment in full of all amounts payable to Lender hereunder and the termination of this Agreement. 1.3.5 Termination. In the event that this Agreement is terminated for any reason by either party as herein provided, in addition to Lender's other rights under this Agreement, unless all outstanding Letters of Credit and Letter of Credit Guaranties are terminated or canceled and Lender and its Affiliates released from all liability thereunder, Lender shall be entitled to pay and discharge all Letter of Credit Obligations with respect to all outstanding Letters of Credit and Letter of Credit Guaranties which are not terminated or canceled, whether such Letter of Credit Obligations are absolute or contingent, and all sums paid by Lender in connection therewith shall be deemed to have been loaned by Lender to Borrower as a Revolver Loan, shall be secured by all of the Collateral and shall bear interest and be payable at the same rate and in the same manner as Revolver Loans that are Base Rate Loans. 1.4 Use of Proceeds of Loans. 1.4 Use of Proceeds of Loans. The Borrower shall use the proceeds of the Loans as follows: (i) On the Closing Date, the proceeds of the initial Revolver Loan, together with other funds then available to Borrower, shall be used solely for the purposes of (i) refinancing all of the Indebtedness for Money Borrowed owed by Borrower to Fleet under the Existing Loan Agreement, and (ii) to the extent of the balance, paying the costs of the transactions contemplated by this Agreement; (ii) All Revolver Loans made after the Closing Date shall be used solely for Borrower's general working capital needs in a manner consistent with the provisions of this Agreement and Applicable Law and for any other purposes not inconsistent with this Agreement; and (iii) The Bridge Loan Advances shall be used solely by Borrower to finance, or to reimburse the Authority for the financing of, the costs of the development, construction and related construction expenses of a terminal facility located at the Dulles International Airport on land owned by the Authority. SECTION 2. INTEREST, FEES AND CHARGESSECTION 2. INTEREST, FEES AND CHARGES 2.1 Interest2.1 Interest. 2.1.1 Rates of Interest - Loans. Subject to the provisions of Section 2.1.6 of this Agreement, Borrower agrees to pay interest on the unpaid principal amount of the Loans outstanding from the respective dates such principal amounts are advanced until paid (whether at stated maturity, on acceleration, or otherwise) at a variable rate per annum equal to the applicable rate indicated below: (i) For Loans made or outstanding as Base Rate Loans, the Base Rate in effect from time to time plus the Applicable Percentage; (ii) For Loans made or outstanding as Daily LIBOR Loans, the Daily LIBOR Rate in effect from time to time plus the Applicable Percentage; or (iii) For Loans made or outstanding as LIBOR Rate Loans, the relevant Adjusted LIBOR Rate for the applicable Interest Period selected by Borrower in conformity with this Agreement plus the Applicable Percentage. 2.1.2 Computation of Interest. Upon determining the Adjusted LIBOR Rate for any Interest Period requested by Borrower, Lender shall promptly notify Borrower thereof by telephone or in writing, and such Adjusted LIBOR Rate shall remain in effect throughout the applicable Interest Period. Such determination shall, absent manifest error, be final, conclusive and binding on all parties and for all purposes. The applicable rates of interest with respect to all Base Rate Loans shall be increased or decreased, as the case may be, by an amount equal to any increase or decrease in the Base Rate, with such adjustments to be effective as of the opening of business on the day that any such change in the Base Rate becomes effective. Interest on each Loan shall accrue from and including the date of such Loan to but excluding the date of any repayment thereof; provided, however, that if a Loan is repaid on the same day made, one day's interest shall be paid on such Loan. 2.1.3 Conversions and Continuations. (i) Borrower may on any Business Day, subject to the giving of a proper Notice of Conversion/Continuation, elect to (a) continue all or any part of the principal amount of a LIBOR Rate Loan by selecting a new Interest Period therefor, to commence on the last day of the Interest Period immediately preceding such new Interest Period, or (b) convert all or any part of a Loan of one Type into a Loan of another Type; provided, however, that no outstanding Loans may be converted into or continued as LIBOR Rate Loans when any Default or Event of Default has occurred and is continuing, and no conversion of any LIBOR Rate Loans into Base Rate Loans or Daily Rate Loans shall be made except on the last day of the Interest Period for such LIBOR Rate Loans. (ii) Whenever Borrower desires to convert or to continue Loans under Section 2.1.4(i) hereof, Borrower shall give Lender written notice (or telephonic notice promptly confirmed in writing), substantially in the form of Exhibit B attached hereto (a "Notice of Conversion/Continuation"), signed by an authorized officer of Borrower, at least two (2) Business Days before the requested conversion or continuation date. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify the aggregate principal amount of the Loans to be converted or continued, the date of such conversion or continuation (which shall be a Business Day), and whether the Loans are being converted into or continued as LIBOR Rate Loans (and, if so, the duration of the Interest Period to be applicable thereto), Daily LIBOR Loans or Base Rate Loans. If, upon the expiration of any Interest Period in respect of any LIBOR Rate Loans, Borrower shall have failed to deliver a Notice of Conversion/Continuation, Borrower shall be deemed to have elected to convert such LIBOR Rate Loans to Base Rate Loans. 2.1.4 Interest Periods. In connection with the making or continuation of, or conversion into, each Borrowing of LIBOR Rate Loans, Borrower shall select an interest period (each an "Interest Period") to be applicable to such LIBOR Rate Loan, which interest period shall commence on the date such LIBOR Rate Loan is made and shall end 30, 60, 90 or 180 days thereafter; provided, however, that: (i) The initial Interest Period for a LIBOR Rate Loan shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing consisting of LIBOR Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the date on which the next preceding Interest Period expires; (ii) If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; (iii) No Interest Period shall extend beyond the last day of the Original Term or the last day of any Renewal Term; and (iv) No Interest Period with respect to any portion of principal of a Loan shall extend beyond a date on which Borrower is required to make a scheduled payment of such portion of principal. 2.1.5 Interest Rate Not Ascertainable. If Lender shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) that on any date for determining the Adjusted LIBOR Rate for any Interest Period, by reason of any changes affecting the London interbank market or Lender's or Bank's position in such market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Adjusted LIBOR Rate, then, and in any such event, Lender shall forthwith give notice (by telephone confirmed in writing) to Borrower of such determination. Until Lender notifies Borrower that the circumstances giving rise to the suspension described herein no longer exist, the obligation of Lender to make LIBOR Rate Loans shall be suspended, and such affected Loans then outstanding shall, at the end of the then applicable Interest Period or at such earlier time as may be required by Applicable Law, bear the same interest as Base Rate Loans. 2.1.6 Default Rate of Interest. During the existence of an Event of Default, the principal amount of all Loans (and, to the extent permitted by Applicable Law, all accrued interest that is past due) shall bear interest at a rate per annum equal to two percent (2%) above the interest rate otherwise applicable thereto (the "Default Rate"). 2.1.7 Daily LIBOR Loans. Notwithstanding any provision to the contrary in this Agreement, the principal amount of Loans outstanding on any date shall be deemed to be Daily LIBOR Loans and shall bear interest at the rate otherwise provided herein with respect to Daily LIBOR Loans, if and to the extent that (i) Borrower shall request any such Loans to be Daily LIBOR Loans in a Notice of Borrowing, (ii) Borrower shall have converted an outstanding Base Rate Loan or LIBOR Rate Loan to a Daily LIBOR Loan pursuant to a Notice of Conversion/Continuation, or (iii) Borrower shall have failed to continue a LIBOR Rate Loan upon the expiration of an applicable Interest Period for a new Interest Period and shall not have elected to convert such LIBOR Rate Loan to a Base Rate Loan, in either case pursuant to a Notice of Conversion/Continuation. Lender shall have no obligation to notify Borrower on any date of the Daily LIBOR Rate effective for such date, unless requested to do so in writing by Borrower for a specific date (but in no event shall Lender be obligated to advise Borrower of the Daily LIBOR Rate more than once each week). Each determination of the Daily LIBOR Rate shall, absent manifest error, be final, conclusive and binding on all parties and for all purposes. The applicable rate of interest for all Loans bearing interest based upon the Daily LIBOR Rate shall be increased or decreased, as the case may be, by an amount equal to any increase or decrease in the Daily LIBOR Rate, with such adjustments to be effective as of the opening of business on the day that any such change in the Daily LIBOR Rate becomes effective. The provisions of Section 2.1.5, 2.6 and 2.7 with respect to LIBOR Rate Loans (but specifically omitting Section 2.9) shall apply to and govern the making and administration of Daily LIBOR Loans. 2.2 Fees2.2 Fees. 2.2.1 Closing Fee. Borrower shall pay to Lender a closing fee of $100,000 which shall be fully earned and non- refundable on the Closing Date and shall be paid concurrently with and from the proceeds of the initial Loan hereunder. 2.2.2 Unused Line Fee. Borrower shall pay to Lender an unused line fee equal to the Applicable Percentage of the amount by which seventy-five percent (75%) of the aggregate of the Revolver Facility Amount exceeds the Average Monthly Revolver Loan and Letter of Credit Balance. The unused line fee shall begin to accrue on the Closing Date and shall be payable monthly in arrears on the first day of each calendar month after the Closing Date and upon the termination of this Agreement. The Revolver Facility Amount in effect on the Closing Date and on the first day of each month thereafter shall be used in the calculation of the unused line fee payable for the month in which the Closing Date occurs and each month thereafter. 2.2.3 Letter of Credit and Letter of Credit Guaranty Fees. Borrower shall pay the following fees for all Letters of Credit and Letter of Credit Guaranties issued by Lender and its Affiliates pursuant to Section 1.3.1 hereof: (i) Fees to Bank in the amounts and on the dates as set forth in Section 2.03 of the Reimbursement Agreement; and (ii) Upon issuance of each other Letter of Credit and Letter of Credit Guaranty: (a) an issuance fee to Lender for the account of both Lender and its Affiliate that issues such other Letter of Credit equal to the greater of (1) $500 or (2) the Applicable Percentage of the undrawn amount of such Letter of Credit, payable in advance upon the issuance of each other Letter of Credit and Letter of Credit Guaranty and on each extension of the stated termination date thereof for so long as such other Letter of Credit and Letter of Credit Guaranty is outstanding; and (b) the reasonable and customary charges from time to time of the issuer of such other Letter of Credit with respect to the issuance, notification, amendment, transfer, administration, cancellation and conversion of, and drawings under, such other Letter of Credit, all of which shall be payable to Lender for the account of such issuer. All fees in connection with each Letter of Credit and Letter of Credit Guaranty as set forth in Sections 2.2.3(i) and (ii)(a) hereof shall be deemed fully earned upon the issuance of the Letter of Credit and Letter of Credit Guaranty and shall not be subject to rebate or proration upon the termination of this Agreement for any reason. 2.2.4 Agency Fee. In the event that Lender sells any portion of the Loans and the Loan Documents to a Participating Lender, then on the date that Borrower receives notice of such sale from Lender and on each anniversary of such date, Borrower shall pay to Lender an annual agency fee of $10,000 per year, which fee shall not be subject to rebate or proration upon the termination of this Agreement for any reason. 2.2.5 Interest on Unpaid Fees. Any amount of fees payable by Borrower to Lender that is not paid when due shall bear interest, from the date such amount of fees was due until the date of payment in full, at the rate applicable to the Revolver Loans that are Base Rate Loans, payable upon demand and on the date of payment in full. 2.2.6 Audit and Appraisal Fees. Borrower shall reimburse Lender for all reasonable out-of-pocket costs and expenses from time to time incurred by Lender in connection with all audits and appraisals of Borrower's books and records and of the Collateral and such other matters related thereto as Lender shall deem appropriate; provided, however, for so long as no Default or Event of Default exists, the maximum amount of such audit and appraisal expenses for which Borrower shall be obligated to pay Lender for any Loan Year shall not exceed $8,000. 2.3 Computation of Interest and Fees2.3 Computation of Interest and Fees. All interest, fees and other charges provided for in this Agreement shall be calculated daily and shall be computed on the actual number of days elapsed over a year of 360 days. For the purpose of computing interest hereunder, all items of payment received by Lender shall be deemed applied by Lender on account of the Obligations (subject to final payment of such items) on the Business Day of receipt by Lender of such items in immediately available funds, and Lender shall be deemed to have received such item of payment on the date specified in Section 4.1 hereof. 2.4 Reimbursement of Expenses2.4 Reimbursement of Expenses. If, at any time or times regardless of whether or not an Event of Default then exists, Lender incurs legal or accounting expenses or any other costs or out-of-pocket expenses in connection with (i) the negotiation and preparation of this Agreement or any of the other Loan Documents, or any amendment of or modification of this Agreement or any of the other Loan Documents, or any sale or attempted sale of any interest herein to a Participating Lender; (ii) reasonable charges for Persons whom Lender may engage from time to time during the existence of an Event of Default to render opinions concerning the books, records and financial condition of Borrower and its Subsidiaries and the condition and value of the Collateral; (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents; provided, however, Borrower shall not be obligated for the expenses and costs of Lender set forth in this Section 2.4(iii) in connection with any litigation, contest, dispute, suit, proceeding or action initiated by Lender or Borrower in which Borrower is ultimately the prevailing party; (iv) the enforcement of the rights of Lender against Borrower or any other Person which may be obligated to Lender by virtue of this Agreement or any of the other Loan Documents, including, without limitation, the Account Debtors; (v) any attempt by Lender to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral after the occurrence and during the continuance of an Event of Default; (vi) the filing and recording of the Deed of Trust and the financing statements and all other documents required by Lender to perfect Lender's Lien in the Collateral, and the conducting of searches in all filing offices at such intervals as Lender may reasonably determine to confirm the priority of Lender's Lien in the Collateral; and (vii) any documentary stamp tax or any other taxes incurred by Lender because of the filing or recording of the Deed of Trust or the financing statements or the other documents required by Lender to perfect Lender's Lien in the Collateral; then all such legal and accounting expenses, other costs and out of pocket expenses of Lender shall be charged to, and paid by, Borrower. Borrower shall also reimburse Lender for expenses incurred by Lender in its administration of the Collateral to the extent and in the manner provided in Section 7 hereof or in any of the Loan Documents. 2.5 Bank Charges2.5 Bank Charges. Borrower shall pay to Lender, on demand, any and all fees, costs or expenses which Lender pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower by Lender of proceeds of Loans made by Lender to Borrower pursuant to this Agreement, (ii) the depositing for collection, by Lender of any Payment Item received or delivered to Lender on account of the Obligations, and (iii) the forwarding by Lender to any Participating Lender of any payments on the Obligations received by Lender. Borrower acknowledges and agrees that Lender may charge such costs, fees and expenses to Borrower based upon Lender's good faith estimate of such costs, fees and expenses as they are incurred by Lender. 2.6 Illegality.2.6 Illegality. Notwithstanding anything to the contrary contained elsewhere in this Agreement, if (i) any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration thereof shall make it unlawful for Lender or any Participating Lender to make or maintain a LIBOR Rate Loan or to give effect to its obligations as contemplated hereby with respect to a LIBOR Rate Loan or (ii) at any time Lender or any Participating Lender reasonably determines that the making or continuance of any LIBOR Rate Loan has become impracticable as a result of a contingency occurring after the date hereof which materially and adversely affects the London interbank market or the position of Lender in such market, then, by written notice to Borrower, Lender may (a) declare that LIBOR Rate Loans will not thereafter be made by Lender, whereupon any request by Borrower for a LIBOR Rate Loan shall be deemed a request for a Base Rate Loan unless Lender's or such Participating Lender's declaration shall be subsequently withdrawn; and (b) require that all outstanding LIBOR Rate Loans made by Lender be converted to Base Rate Loans, in which event all such LIBOR Rate Loans shall be automatically converted to Base Rate Loans as of the date of Borrower's receipt of the aforesaid notice from Lender. 2.7 Increased Costs2.7 Increased Costs. If, by reason of (i) after the date hereof, the introduction of or any change (including, without limitation, any change by way of imposition or increase of Statutory Reserves or other reserve requirements) in or in the interpretation of any Applicable Law, or (ii) the compliance with any guideline or request from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (a) Lender shall be subject to any Tax, duty or other charge with respect to any LIBOR Rate Loan or its obligation to make LIBOR Rate Loans, or shall change the basis of taxation of payment to Lender of the principal of or interest on its LIBOR Rate Loans or its obligation to make LIBOR Rate Loans (except for changes in the rate of Tax on the overall net income of Lender); or (b) any reserve (including, without limitation, any imposed by the Board of Governors), special deposits or similar requirement against assets of, deposits with or for the account of, or credit extended by, Lender shall be imposed or deemed applicable or any other condition affecting its LIBOR Rate Loans or its obligation to make LIBOR Rate Loans shall be imposed on Lender or the London interbank market; and as a result thereof there shall be any increase in the actual cost to Lender of agreeing to make or making, funding or maintaining LIBOR Rate Loans (except to the extent already included in the determination of the applicable Adjusted LIBOR Rate for LIBOR Rate Loans), or there shall be a reduction in the amount received or receivable by Lender, then Borrower shall from time to time, upon written notice from and demand by Lender, pay to Lender within ten (10) Business Days after the date specified in such notice and demand, an additional amount sufficient to indemnify Lender against such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower by Lender, shall be conclusive in the absence of manifest error. Such certificate will set forth the nature of the occurrence giving rise to such compensation, the additional amount of amounts to be paid to Lender, and the method by which such amounts were determined. In determining such amount, Lender may use any reasonable averaging and attribution method. For purposes of this Section 2.7, all references to Lender shall be deemed to include any Participating Lender and bank holding company or bank parent of Lender or any Participating Lender. 2.8 Capital Adequacy2.8 Capital Adequacy. If after the date hereof Lender reasonably determines that (i) the adoption of any Applicable Law, rule, or regulation regarding capital requirements for banks or bank holding companies or the subsidiaries thereof, (ii) any change in the interpretation or administration of any such law, rule or regulation by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or (iii) compliance by Lender or its respective holding company with any request or directive of any such governmental authority, central bank or comparable agency regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on Lender's capital to a level below that which Lender could have achieved (taking into consideration Lender's and its respective holding company's policies with respect to capital adequacy immediately before such adoption, change or compliance and assuming that Lender's capital was fully utilized prior to such adoption, change or compliance) but for such adoption, change or compliance as a consequence of Lender's commitment to make the Loans pursuant hereto by any amount deemed by Lender to be material: (a) Lender shall promptly, after Lender's determination of such occurrence, give notice thereof to Borrower; and (b) Borrower shall pay to Lender, as an additional fee from time to time, within ten (10) Business Days after Lender's demand therefor, such amount as Lender certifies to be the amount that will compensate Lender for such reduction. A certificate of Lender claiming entitlement to compensation as set forth above will be conclusive in the absence of manifest error. Such certificate will set forth the nature of the occurrence giving rise to such compensation, the additional amount or amounts to be paid to Lender, and the method by which such amounts were determined. In determining such amount, Lender may use any reasonable averaging and attribution method. For purposes of this Section 2.8, all references to Lender shall be deemed to include any Participating Lender and bank holding company or bank parent of Lender or any Participating Lender. 2.9 Funding Losses.9 Funding Losses. Borrower shall reimburse Lender for any loss, cost, expense or liability (including, without limitation, any interest paid by Lender to lenders of funds borrowed by Lender to make or carry the LIBOR Rate Loans to the extent not recovered by Lender in connection with the re-employment of such funds) sustained or incurred by Lender if for any reason (other than a default by Lender): (i) a Borrowing of, or conversion to or continuation of, a LIBOR Rate Loan does not occur on the date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn); (ii) any repayment (including any conversions pursuant to Section 2.1.3 hereof) of any LIBOR Rate Loans occurs on a date that is not the last day of an Interest Period applicable thereto; or (iii) Borrower defaults in its obligation to repay LIBOR Rate Loans when required by the terms of this Agreement. Borrower shall pay such amount within five (5) Business Days after presentation by Lender of a statement setting forth the amount and Lender's calculation thereof pursuant hereto, which statement shall, except for manifest error, be final, conclusive and binding. For purposes of this Section 2.9, all references to Lender shall be deemed to include any Participating Lender and bank holding company or bank parent of Lender or any Participating Lender. 2.10 Maximum Interest..10 Maximum Interest. Regardless of any provision contained in this Agreement or any of the other Loan Documents, in no contingency or event whatsoever shall the aggregate of all amounts that are contracted for, charged or collected pursuant to the terms of this Agreement or any of the other Loan Documents and that are deemed interest under Applicable Law exceed the highest rate permissible under any Applicable Law. No agreements, conditions, provisions or stipulations contained in this Agreement or any of the other Loan Documents, or the exercise by Lender of the right to accelerate the payment or the maturity of all or any portion of the Obligations, or the exercise of any option whatsoever contained in any of the Loan Documents, or the prepayment by Borrower of any of the Obligations, or the occurrence of any contingency whatsoever, shall entitle Lender to charge or receive in any event, interest or any charges, amounts, premiums or fees deemed interest by Applicable Law (such interest, charges, amounts, premiums and fees referred to herein collectively as "Interest") in excess of the Maximum Rate and in no event shall Borrower be obligated to pay Interest exceeding such Maximum Rate, and all agreements, conditions or stipulations, if any, which may in any event or contingency whatsoever operate to bind, obligate or compel Borrower to pay Interest exceeding the Maximum Rate shall be without binding force or effect, at law or in equity, to the extent only of the excess of Interest over such Maximum Rate. If any Interest is charged or received in excess of the Maximum Rate ("Excess"), Borrower acknowledges and stipulates that any such charge or receipt shall be the result of an accident and bona fide error, and such Excess, to the extent received, shall be applied first to reduce the principal Obligations and the balance, if any, returned to Borrower, it being the intent of the parties hereto not to enter into a usurious or otherwise illegal relationship. The right to accelerate the maturity of any of the Obligations does not include the right to accelerate any interest that has not otherwise accrued on the date of such acceleration, and Lender does not intend to collect any unearned interest in the event of any such acceleration. Borrower recognizes that, with fluctuations in the rates of interest set forth in Section 2.1.1 of this Agreement, and in the Maximum Rate, such an unintentional result could inadvertently occur. All monies paid to Lender hereunder or under any of the other Loan Documents, whether at maturity or by prepayment, shall be subject to any rebate of unearned interest as and to the extent required by Applicable Law. By the execution of this Agreement, Borrower covenants that (i) the credit or return of any Excess shall constitute the acceptance by Borrower of such Excess, and (ii) Borrower shall not seek or pursue any other remedy, legal or equitable, against Lender, based in whole or in part upon contracting for, charging or receiving any Interest in excess of the Maximum Rate. For the purpose of determining whether or not any Excess has been contracted for, charged or received by Lender, all interest at any time contracted for, charged or received from Borrower in connection with any of the Loan Documents shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Obligations. Borrower and Lender shall, to the maximum extent permitted under Applicable Law, (i) characterize any non-principal payment as an expense, fee or premium rather than as Interest and (ii) exclude voluntary prepayments and the effects thereof. The provisions of this subsection shall be deemed to be incorporated into every Loan Document (whether or not any provision of this Section is referred to therein). All such Loan Documents and communications relating to any Interest owed by Borrower and all figures set forth therein shall, for the sole purpose of computing the extent of Obligations, be automatically recomputed by Borrower, and by any court considering the same, to give effect to the adjustments or credits required by this Section. 2.11 Limitation on Borrower's Payments.11 Limitation on Borrower's Payments. Notwithstanding anything contained in this Agreement to the contrary, Borrower shall not have any obligation to pay to Lender amounts owing under Sections 2.7 or 2.8 hereof if such amounts relate to any period which is more than ninety (90) days prior to the date upon which the request for payment therefor is delivered to Borrower. SECTION 3. LOAN ADMINISTRATION.SECTION 3. LOAN ADMINISTRATION. 3.1 Manner of Borrowing and Funding Revolver Loans3.1 Manner of Borrowing and Funding Revolver Loans. Borrowings pursuant to Section 1.1 hereof shall be made and funded as follows: 3.1.1. Notice of Borrowing. (i) Whenever Borrower desires to make a Borrowing under Section 1.1 or 1.2 of this Agreement (other than a Borrowing resulting from a conversion or continuation pursuant to Section 2.1.4), Borrower shall give Lender prior written notice (or telephonic notice promptly confirmed in writing) of such Borrowing request (a "Notice of Borrowing"), which shall be in the form of Exhibit C attached hereto and signed by an authorized officer of Borrower. Such Notice of Borrowing shall be given by Borrower no later than 11:00 a.m., Charlotte, North Carolina time, at the office of Lender designated by Lender from time to time (a) on the Business Day of the requested funding date of such Borrowing, in the case of all Base Rate Loans and Daily LIBOR Loans, and (b) at least two (2) Business Days prior to the requested funding date of such Borrowing in the case of LIBOR Rate Loans. Notices received after 11:00 a.m., Charlotte, North Carolina time, shall be deemed received on the next Business Day. All Loans made on the Closing Date shall be made as Daily LIBOR Loans and thereafter may be made or continued as or converted into Base Rate Loans, Daily LIBOR Loans or LIBOR Rate Loans. Each Notice of Borrowing (or telephonic notice thereof) shall be irrevocable and shall specify (a) the principal amount of the Borrowing, which, in the case of a Bridge Loan Advance, shall be in a minimum amount of at least $500,000, (b) the date of Borrowing (which shall be a Business Day), (c) whether the Borrowing is to consist of Base Rate Loans, Daily LIBOR Loans or LIBOR Rate Loans, and the amount of each such Loan, and (d) in the case of LIBOR Rate Loans, the duration of the Interest Period to be applicable thereto. Borrower may not request any LIBOR Rate Loans or Daily LIBOR Loans if a Default or Event of Default exists. (ii) Unless payment is otherwise timely made by Borrower, the becoming due of any amount required to be paid under this Agreement or any of the other Loan Documents, or under the Reimbursement Agreement, whether as principal, accrued interest, fees, expenses or other charges, including, without limitation, payments required to be made pursuant to Section 1.3.2 hereof and payments required to be made to Bank pursuant to Section 2.03 of the Reimbursement Agreement, shall be deemed irrevocably to be a request by Borrower for a Revolver Loan on the due date of, and in an aggregate amount required to pay, such principal, accrued interest, fees, expenses or other charges, and the proceeds of each such Revolver Loan may be disbursed by Lender by way of direct payment of the relevant Obligation. Within a reasonable time after the payment by Lender of any expenses or other charges that are not of a routine or administrative nature, Lender shall give Borrower notice thereof and send to Borrower (if available to Lender) any invoice or other supporting documentation for such fee or other charge. (iii) As an accommodation to Borrower, Lender may permit telephonic requests for Borrowings and electronic transmittal of instructions, authorizations, agreements or reports to Lender by Borrower; provided, however, that Borrower shall confirm each such telephonic request for a Borrowing of LIBOR Loans by delivery of the required Notice of Borrowing to Lender by facsimile transmission promptly, but in no event later than 5:00 p.m., Charlotte, North Carolina time, on the same day. Unless Borrower specifically directs Lender in writing not to accept or act upon telephonic or electronic communications from Borrower, Lender shall have no liability to Borrower for any loss or damage suffered by such Borrower as a result of Lender's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to Lender by Borrower and Lender shall have no duty to verify the origin of any such communication or the identity or authority of the Person sending it. 3.1.2. Disbursement Authorization. Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolver Loan requested, or deemed to be requested pursuant to Section 3.1.1, as follows: (i) the proceeds of each Revolver Loan requested under Section 3.1.1(i) shall be disbursed by Lender in lawful money of the United States of America in immediately available funds in accordance with the terms of the written disbursement letter from Borrower in the case of the initial Borrowing, and, in the case of each subsequent Borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to a written direction from Borrower; and (ii) the proceeds of each Revolver Loan requested under Section 3.1.1(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. 3.2 Special Provisions Governing LIBOR Rate Loans3.2 Special Provisions Governing LIBOR Rate Loans. 3.2.1 Number of LIBOR Rate Loans. In no event may the number of LIBOR Rate Loans outstanding in respect of the Loans at any time exceed six (6). 3.2.2 Minimum Amount of each LIBOR Rate Loan. Each election of a LIBOR Rate Loan pursuant to Section 3.1.1(i), and each continuation of or conversion into a LIBOR Rate Loan pursuant to Section 2.1.4 hereof, shall be in a minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount. 3.2.3 LIBOR Lending Office. Lender's initial LIBOR Lending Office is set forth opposite its name on the signature pages hereof. Lender shall have the right at any time and from time to time to designate a different office of itself or any Affiliate as Lender's LIBOR Lending Office, and to transfer any outstanding LIBOR Loans to such LIBOR Lending Office. No such designation or transfer shall result in any liability on the part of Borrower for increased costs or expenses resulting solely from such designation or transfer (except any such transfer that is made by Lender pursuant to Sections 2.6 or 2.7 hereof, or otherwise for the purpose of complying with Applicable Law). Increased costs for expenses resulting from a change in Applicable Law occurring subsequent to any such designation or transfer shall be deemed not to result solely from such designation or transfer. SECTION 4. PAYMENTSSECTION 4. PAYMENTS 4.1 General Payment Provisions. 4.1 General Payment Provisions. All payments (including all prepayments) of the principal of, and interest on, the Loans and all of the other Obligations that are payable to Lender shall be made to Lender in Dollars without any offset or counterclaim and free and clear of (and without deduction for) any present or future Taxes. All payments received by Lender in immediately available funds on a Business Day for which Borrower shall have given Lender notice of its intent to make such payment no later than 12:00 o'clock noon, Charlotte, North Carolina, on such Business Day, shall be deemed to be made on the Business Day of receipt. If payment is received by Lender after such time, or if notice of Borrower's intent to make such payment is not given by Borrower or, if given, is given later than 12:00 o'clock noon, Charlotte, North Carolina time, then such payment shall be deemed to have been made on the next succeeding Business Day. If any payment under this Agreement or the other Loan Documents shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day, and such extension of time shall in such case be included in computing interest and fees, if any, in connection with such payment. 4.2 Payment of Principal of Loans4.2 Payment of Principal of Loans. 4.2.1 Payment of Principal of Revolver Loans. The outstanding principal amounts of the Revolver Loans shall be due and payable as follows: (i) Any portion of the Revolver Loans consisting of the principal amount of Base Rate Loans or Daily LIBOR Loans shall be paid by Borrower to Lender unless converted to a LIBOR Rate Loan in accordance with this Agreement, immediately upon the earlier of (a) the receipt by Lender or Borrower of any proceeds of any of the Collateral, to the extent of such proceeds, or (b) the termination of this Agreement by Borrower or Lender pursuant to Section 5 hereof. (ii) Any portion of the Revolver Loans consisting of the principal amount of LIBOR Rate Loans shall be paid by Borrower to Lender, unless converted to a Base Rate Loan or Daily LIBOR Loan or continued as a LIBOR Rate Loan in accordance with the terms of this Agreement, upon the earlier of (a) the last day of the Interest Period applicable thereto or (b) the termination of this Agreement by Borrower or Lender pursuant to Section 5 hereof. In no event shall Borrower be authorized to pay any LIBOR Rate Loan prior to the last day of the Interest Period applicable thereto unless otherwise agreed in writing by Lender or Borrower is otherwise expressly authorized or required by any other provision of this Agreement to pay any LIBOR Rate Loan outstanding on a date other than the last day of the Interest Period applicable thereto, and Borrower pays to Lender concurrently with any prepayment of a LIBOR Rate Loan the amount due Lender under Section 2.9 hereof as a result of such prepayment. (iii) Notwithstanding anything to the contrary contained elsewhere in this Agreement, if an Overadvance Condition shall exist, Borrower shall, without the necessity of a demand, repay the outstanding Revolver Loans that are Base Rate Loans or Daily LIBOR Loans in an amount sufficient to reduce the aggregate unpaid principal amount of all such Revolver Loans by an amount equal to such excess; and, if such payment of Base Rate Loans or Daily LIBOR Loans is not sufficient to cure the Overadvance Condition, then Borrower shall immediately either (a) deposit with Lender, for application to any outstanding Revolver Loans bearing interest as LIBOR Rate Loans as the same become due and payable at the end of the applicable Interest Periods, cash in an amount sufficient to cure such Overadvance Condition to be held by Lender in the Cash Collateral Account, pending disbursement of same to Lender, but subject to Lender's Lien therein and rights of offset with respect thereto, or (b) pay the Revolver Loans that are LIBOR Rate Loans to the extent necessary to cure such Overadvance Condition and also pay to Lender any and all amounts required by Section 2.9 hereof to be paid by reason of the prepayment of a LIBOR Rate Loan prior to the last day of the Interest Period applicable thereto. 4.2.2 Payment of Principal of Bridge Loan. Borrower shall repay the principal balance of the Bridge Loan in full on or before the Bridge Loan Maturity Date. 4.2.3 Cash Collateral Account. If at any time Availability, when added to the amount of funds then on deposit in the Cash Collateral Account, is less than the amount of the Availability Reserve, then Borrower shall immediately pay to Lender, on Lender's demand, an amount equal to the difference to be held by Lender in the Cash Collateral Account as security for the Obligations. If on any date the amount of funds on deposit in the Cash Collateral Account, when added to Availability at such time, is more than the Availability Reserve, then Lender shall release to Borrower on such date that portion of the funds then on deposit in the Cash Collateral Account equal to such excess, if, and only to the extent that, immediately before and after giving effect to such release, no Default, Event of Default or Overadvance Condition has occurred and continues to exist. 4.3 Payment of Interest4.3 Payment of Interest. Interest accrued on all of the Loans shall be paid upon the earlier of (i) the first calendar day of each month for the immediately preceding month, computed through the last calendar day of the preceding month, or (ii) the termination of this Agreement by Borrower or Lender pursuant to Section 5 hereof. 4.4 Payment of Other Obligations.4.4 Payment of Other Obligations. Borrower shall pay all costs, fees and charges pursuant to this Agreement as and when provided in Section 2.2 hereof, to Lender, or to any other Person designated by Lender in writing. The balance of the Obligations requiring the payment of money shall be payable by Borrower to Lender as and when provided in this Agreement, the Other Agreements or the Security Documents, or, if no date of payment is otherwise specified in the Loan Documents, on demand. 4.5 Mandatory Prepayments of Bridge Loan.4.5 Mandatory Prepayments of Bridge Loan. In addition to the payment in full of the Bridge Loan on the Bridge Loan Maturity Loan as set forth in Section 4.2.2 hereof and in the Bridge Note, Borrower shall make mandatory payments of principal on the Bridge Loan as follows: (i) Upon the termination of this Agreement for any reason, Borrower shall prepay the Bridge Loan in full; and (ii) If, at any time and for any reason, the amount of the Escrow Funds pledged to Lender as security for the Bridge Loan Obligations is less than the principal balance of the Bridge Loan, Borrower shall pay to Lender the amount of such deficiency. Each mandatory prepayment applied to the Bridge Loan pursuant to this Section 4.5 shall be applied first to Base Rate Loans and Daily LIBOR Loans to the full extent thereof before application to any LIBOR Rate Loans; provided, however, that, so long as no Default or Event of Default has occurred and is continuing, in lieu of application of such prepayment to LIBOR Rate Loans prior to the expiration of the respective Interest Periods with respect thereto and the resulting requirement to pay the charges provided for in Section 2.9 hereof, Borrower may, at its option, deposit with Lender cash funds equal to such prepayment to be held by Lender in the Cash Collateral Account for disbursement to Lender and application to the Bridge Loan on the sooner to occur of the expiration of the Interest Period applicable thereto or the termination of this Agreement by Borrower or Lender pursuant to Section 5 hereof. 4.6 Optional Prepayments of Loans. .6 Optional Prepayments of Loans. Borrower may, at its option, prepay the principal owing on any Loan at any time in whole and from time to time in part, but (i) any such prepayment in connection with a termination of this Agreement shall be subject to the payment of any applicable termination charge pursuant to Section 5.2.4 hereof, (ii) any partial prepayment of the Bridge Loan shall be in amounts aggregating $500,000 or any greater multiple of $100,000, and (iii) if such prepayment is made of a LIBOR Rate Loan and on a date other than the last day of any applicable Interest Period, by paying any charges required by Section 2.9 hereof. Borrower shall give written notice (or telephonic notice confirmed in writing) to Lender of any intended prepayment not less than one (1) Business Day prior to any prepayment of Daily LIBOR Loans or Base Rate Loans and not less than two (2) Business Days prior to any prepayment of LIBOR Rate Loans. Such notice, once given, shall be irrevocable. 4.7. Application of Payments and Collateral Proceeds. .7. Application of Payments and Collateral Proceeds. Except to the extent that the manner of application to the Obligations of payments or proceeds of Collateral is expressly governed by other provisions of this Agreement, Borrower irrevocably waives the right to direct the application of any and all payments and Collateral proceeds at any time or times hereafter received by Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and Collateral proceeds received at any time or times hereafter by Lender or its agent against the Obligations, in such manner as Lender may deem advisable, notwithstanding any entry by Lender upon any of its books and records, provided such application of payments and collections is made in a manner consistent with this Agreement and the other Loan Documents. If as the result of the clearance and collections of all Accounts of Borrower through the ACH and the direct payment of all funds credited to Borrower's Clearing Bank Account to Lender for application to the Obligations, all as provided in Sections 7.2.5 and 7.2.6 hereof, a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower at any time or times for so long as no Default or Event of Default exists. 4.8 Marshalling; Payments Set Aside..8 Marshalling; Payments Set Aside. Lender shall be under no obligation to marshall any assets in favor of Borrower or any other Person or against or in payment of any or all of the Obligations. To the extent that Borrower makes a payment or payments to Lender or Lender receives payment from the proceeds of any Collateral or exercises its right of setoff, and such payment or payments or the proceeds of such setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. The provisions of the immediately preceding sentence of this Section 4.8 shall survive any termination of this Agreement and payment in full of the Obligations. 4.9 All Loans to Constitute One Obligation. .9 All Loans to Constitute One Obligation. The Loans shall constitute one general Obligation of Borrower and shall be secured by Lender's Lien in all of the Collateral. 4.10 Loan Account.10 Loan Account. Lender shall enter all Revolver Loans as debits to Borrower's Loan Account and shall also record in the Loan Account all payments made by Borrower on the Revolver Loans and all proceeds of Collateral which are finally paid to Lender, and may record therein other debits and credits, including interest and all charges and expenses, properly chargeable to Borrower under this Agreement and the other Loan Documents. 4.11 Statements of Account.11 Statements of Account. Lender will account to Borrower monthly with a statement of Loans, charges and payments made pursuant to this Agreement, and such account rendered by Lender shall be deemed final, binding and conclusive upon Borrower unless Lender is notified by Borrower in writing to the contrary within thirty (30) days after the date on which such accounting is deemed to have been sent pursuant to Section 12.10 hereof. Such notice shall only be deemed an objection to those items specifically objected to therein. SECTION 5. TERM AND TERMINATION OF AGREEMENTSECTION 5. TERM AND TERMINATION OF AGREEMENT 5.1 Term of Agreement. 5.1 Term of Agreement. Subject to Lender's right to cease making Loans to Borrower during the existence of any Default or Event of Default, this Agreement shall be in effect from the date hereof through and including September 30, 2000 (the "Original Term"), and this Agreement shall automatically renew itself for one (1) year periods thereafter (each a "Renewal Term"), unless terminated as provided in Section 5.2 hereof. 5.2 Termination of Agreement.2 Termination of Agreement 5.2.1 Termination by Lender. Upon at least ninety (90) days prior written notice to Borrower, Lender may terminate this Agreement as of the last day of the Original Term or the then current Renewal Term and Lender may terminate this Agreement without notice during the existence of an Event of Default. 5.2.2 Termination by Borrower. Upon at least ninety (90) days prior written notice to Lender, Borrower may, at its option, terminate this Agreement; provided, however, no such termination by Borrower shall be effective until Borrower has satisfied all of the Obligations. For purposes hereof, the Obligations shall not be deemed to have been satisfied until all Obligations for the payment of money have been paid to Lender in same day funds and all Obligations that are at the time in question contingent have been fully cash securitized in favor and to the satisfaction of Lender or Lender has received as beneficiary a direct pay letter of credit in form and from an issuing bank reasonably acceptable to Lender and providing for direct payment to Lender of all such contingent Obligations at the time they become fixed. Any notice of termination given by Borrower shall be irrevocable unless Lender otherwise agrees in writing. Borrower may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated by Borrower singly. 5.2.3 Termination Upon Expiration of United Express Operating Agreement. This Agreement shall, at Lender's option, automatically terminate three (3) months before the United Express Termination Date. 5.2.4 Termination Charges. On the effective date of termination of this Agreement for any reason, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other charges owing under the terms of this Agreement and any of the other Loan Documents) as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to the product obtained by multiplying the highest of the Average Monthly Loan and Letter of Credit Balance for any month during the immediately preceding 12-month period ending with the month immediately preceding the date of such termination (or shorter period of time this Agreement is in effect), times one-half percent (0.50%); provided however, in the event that the credit rating of Bank as established by Standard and Poor's, Inc. shall at any time while the Bond Letter of Credit is outstanding fall below an "A" rating, and, as a result of such reduced credit rating, the variable interest rate on the Bonds thereafter remarketed by the Remarketing Agent shall be increased, as confirmed by the written certification of the Remarketing Agent delivered to Lender, Borrower may, within one hundred twenty (120) days after the increase of the interest rate on the Bonds remarketed by the Remarketing Agent, terminate this Agreement and the foregoing termination charge shall be one-half of one percent (0.50%) of the highest of the Average Monthly Revolver Loan Balance during the immediately preceding 12-month period ending with the month immediately preceding the date of such termination. If termination occurs on the last day of the Original Term or any Renewal Term, no termination charge shall be payable. 5.2.5 Effect of Termination. On the effective date of termination of this Agreement, all of the Obligations shall be immediately due and payable and Lender shall have no obligation to make any Loans. All undertakings, agreements, covenants, warranties and representations of Borrower contained in the Loan Documents shall survive any such termination and Lender shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrower has satisfied the Obligations to Lender, in full, in immediately available funds, together with the applicable termination charge, if any. Notwithstanding the payment in full of the Obligations, Lender shall not be required to terminate its Liens in the Collateral unless, with respect to any loss or damage Lender may incur as a result of dishonored checks or other items of payment constituting uncollected funds received by Lender from Borrower or any Account Debtor and applied to the Obligations before final collection, Lender shall, at its option, (i) have received a written agreement, executed by Borrower and by any Person whose loans or other advances to Borrower are used in whole or in part to satisfy the Obligations, indemnifying Lender from any such loss or damage, or (ii) such monetary reserves and Liens on the Collateral for such period of time as Lender, in its reasonable discretion, may deem reasonably necessary to protect Lender from any such loss or damage. All obligations of Borrower to indemnify Lender pursuant to this Agreement shall survive any termination of this Agreement. Subject to the provisions of this Section 5.2.5, the termination of this Agreement shall constitute a termination of all Loan Documents; provided, however, that any and all provisions of such Loan Documents that are intended to survive payment in full of the Obligations shall survive such termination as and to the extent provided in such Loan Documents. SECTION 6. SECURITY INTERESTSSECTION 6. SECURITY INTERESTS 6.1 Security Interest in Collateral.6.1 Security Interest in Collateral. To secure the prompt payment and performance to Lender of the Obligations, Borrower hereby grants to Lender a continuing Lien upon all of the following Property and interests in Property of Borrower, whether now owned or existing or hereafter created, acquired or arising and wheresoever located: (i) All Accounts; (ii) All Rotable Spare Parts; (iii) All General Intangibles; (iv) All Documents; (v) All Instruments; (vi) All Chattel Paper; (vii) All tickets, exchange orders and other billing documents for the air transportation of passengers and property, whether processed or unprocessed; (viii) All right, title and interest of Borrower in and to the settlement accounts maintained with the Clearing Bank and all sums now or hereafter in, payable to or withdrawable from such accounts; (ix) All monies and other Property of any kind now or at any time or times hereafter in the possession or under the control of Lender or a bailee or Affiliate of Lender; (x) All accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (i) through (ix) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral; and (xi) All books and records (including, without limitation, customer lists, credit files, computer programs, print-outs, and other computer materials and records) of Borrower pertaining to any of (i) through (x) above. 6.2 Other Collateral.6.2 Other Collateral. In addition to the items of Property referred to in Section 6.1 above, (a) the Bridge Loan Obligations shall be secured by the Escrow Funds to the extent provided in the Escrow Agreement, and (b) all of the Obligations shall also be secured by the Cash Collateral to the extent provided herein and all of the other items of Property from time to time described in any of the Security Documents as security for any of the Obligations. 6.3 Lien Perfection; Further Assurances.6.3 Lien Perfection; Further Assurances. At Lender's request, Borrower shall execute, and shall cause each of its Subsidiaries to execute, such UCC-1 financing statements as are required by the Code and such other instruments, assignments or documents as are necessary to perfect Lender's Lien upon any of the Collateral and, at Lender's request, shall take such other action as may be directed by Lender to perfect or to continue the perfection of Lender's Lien upon the Collateral. Unless prohibited by Applicable Law, Borrower hereby authorizes Lender to execute and file any such financing statement on Borrower's behalf. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. At Lender's request, Borrower shall also promptly execute or cause to be executed and shall deliver to Lender any and all documents, instruments and agreements deemed necessary by Lender to give effect to or carry out the terms or intent of the Loan Documents. 6.4 Lien on Leasehold Estate.6.4 Lien on Leasehold Estate. The due and punctual payment and performance of up to $9,579,932 of the Obligations shall also be secured by the Lien created by the Deed of Trust upon Borrower's leasehold estate in the Realty leased by Borrower from the Authority pursuant to the Lease. The Deed of Trust shall be executed by Borrower in favor of Lender and shall be duly recorded, at Borrower's expense, in each office where such recording is required to constitute a fully perfected Lien on the Property encumbered thereby. Borrower shall deliver to Lender, at Borrower's expense, mortgagee title insurance policies issued by a title insurance company satisfactory to Lender, which policies shall be in form and substance satisfactory to Lender and shall insure a valid first Lien in favor of Lender on Borrower's leasehold estate in the Realty, subject only to those exceptions acceptable to Lender and its counsel. 6.5 Exclusion From Collateral. .5 Exclusion From Collateral. The Collateral in which Lender is granted a Lien pursuant to Section 6.1 of this Agreement shall not include any licenses, permits, contracts or other agreements to the extent that the grant of a Lien therein or assignment thereof is prohibited under, or would result in a breach of the terms of, any such license, permit, contract or other agreement, or is prohibited by Applicable Law; provided, however, the foregoing exclusion shall in no way be construed (i) to apply if any such prohibition is unenforceable under Section 9-318 of the Uniform Commercial Code or other Applicable Law or (ii) so as to limit, impair or otherwise affect Lender's unconditional continuing Liens in any rights or interests of Borrower in or to monies due or to become due under any such license, permit, contract or other agreement (including any Accounts). 6.6 Release of Lien in Rotable Spare Parts. .6 Release of Lien in Rotable Spare Parts. Upon Borrower's written request, Lender shall release its Lien in all Rotable Spare Parts, and, at Borrower's expense, execute, deliver and record such termination statements, instruments, documents and other agreements as Borrower may reasonably request to release Lender's Lien in the Rotable Spare Parts, provided that each of the following conditions shall have first been satisfied: (i) concurrently with such release, Borrower, Parent and Lender shall have executed and delivered an amendment to this Agreement, in form and substance reasonably satisfactory to Lender and its counsel, modifying the definition of the Borrowing Base to eliminate as one of the components thereof the Rotable Spare Parts Borrowing Base, and (ii) immediately before, and after giving pro forma effect to, such elimination of the Rotable Spare Parts Borrowing Base, no Default, Event of Default or Overadvance Condition shall exist. SECTION 7. COLLATERAL ADMINISTRATIONSECTION 7. COLLATERAL ADMINISTRATION 7.1 General Provisions7.1 General Provisions 7.1.1 Location of Rotable Spare Parts. All of the Rotable Spare Parts shall at all times be kept by Borrower at one or more of the business locations set forth in Schedule 7.1.1 hereto and shall not, without the prior written approval of Lender, be moved therefrom except, prior to an Event of Default, for (i) the location of Rotable Spare Parts at locations within the continental United States other than those shown in Schedule 7.1.1 hereto if, (a) Borrower gives Lender written notice of such a location at least thirty (30) days prior to moving or locating any Rotable Spare Parts to such location, (b) Lender's Lien in such Rotable Spare Parts is and continues to be a duly perfected Lien thereon (and Borrower shall have taken such action as may be required pursuant to Section 6.3 hereof to perfect Lender's Lien thereon, including, without limitation, the execution and recordation in the registry of the FAA of an amendment or supplement to the Rotable Spare Parts Security Agreement designating such new location) subject to no other Lien thereon except for Permitted Liens, and (c) neither Borrower's nor Lender's right of entry upon the premises where the Rotable Spare Parts are stored, or its right to remove the Rotable Spare Parts therefrom, is restricted in any material respect; and (ii) temporary transfers (for a period not to exceed three (3) months in any event) of Rotable Spare Parts from any location set forth in Schedule 7.1.1 hereto to another location if done for the limited purpose of repairing, refurbishing or overhauling such Rotable Spare Parts in the ordinary course of Borrower's business, and, while such Rotable Spare Parts are away from any location set forth in Schedule 7.1.1 hereto, they are excluded from the Rotable Spare Parts Borrowing Base even if they satisfy all other criteria set forth in the definition thereof. 7.1.2 Insurance. Borrower shall maintain and pay for insurance upon all of the Rotable Spare Parts wherever located and with respect to Borrower's business, covering casualty, hazard, public liability and such other risks in such amounts, with such deductibles and with such insurance companies as are reasonably satisfactory to Lender. Borrower shall deliver the originals or copies (which copies shall be certified if requested by Lender) of such policies to Lender with satisfactory lender's loss payable endorsements naming Lender as sole loss payee, assignee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than thirty (30) days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interest of Lender shall not be impaired or invalidated by any act or neglect of Borrower or the owner of the Property or by the occupation of the premises for purposes more hazardous than are permitted by said policy. If Borrower fails to provide and pay for such insurance, Lender may, at its option, but shall not be required to, procure the same and charge Borrower therefor. Borrower agrees to deliver to Lender, promptly, if requested by Lender, true copies of all reports made in any reporting forms to insurance companies. In addition to the insurance required herein with respect to the Collateral, Borrower shall maintain, with financially sound and reputable insurers, insurance with respect to its Properties and business against such casualties and contingencies of such type and in such amounts as is customary in the business of Borrower, or as otherwise may be reasonably required by Lender. All proceeds of insurance received by Borrower or Lender on account of any casualty to the Collateral shall be applied as follows: (i) if an Event of Default exists, all such insurance proceeds shall, at Lender's option, be deemed Net Proceeds and paid to Lender and applied first, as a mandatory prepayment of the Revolver Loans outstanding and added to the Availability Reserve, and, after the Revolver Loans are paid in full, to the other Obligations in such order and against such particular Obligations as Lender shall determine; and (ii) if no Event of Default exists, all such insurance proceeds of any claim of less than $500,000 shall be released to Borrower for the purpose of Borrower's repairing, replacing or restoring the damaged or destroyed Collateral (and, if replaced, the replacement Collateral shall be subject to Lender's duly perfected first priority Lien therein subject to no other Lien other than Permitted Liens), and all such insurance proceeds of any claim of more than $500,000 shall be remitted to Lender and applied first, as a mandatory prepayment of the Revolver Loans outstanding and added to the Availability Reserve, and, after the Revolver Loans are paid in full, added to the Cash Collateral Account, and thereafter released from the Availability Reserve and the Cash Collateral Account to Borrower from time to time, but not more often than monthly, against such evidence of repair, replacement or restoration as Lender may reasonably require (subject, as aforesaid, in the case of replacement Collateral). 7.1.3 Protection of Collateral. All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping the Collateral, all Taxes imposed by any Applicable Law on any of the Collateral or in respect of the sale thereof, and all other payments required to be made by Lender to any Person to realize upon the Collateral, shall be borne and paid by Borrower. If Borrower fails to promptly pay any portion thereof when due, Lender may, at its option, but shall not be required to, pay the same and charge Borrower therefor. Lender shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto (except for reasonable care in the custody thereof while any Collateral is in Lender's actual possession) or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, or other person whomsoever, but the same shall be at Borrower's sole risk. 7.2. Administration of Accounts7.2. Administration of Accounts. 7.2.1 Records, Schedules and Assignments of Accounts. Borrower shall keep accurate and complete records in accordance with standard air carrier industry practice of its Accounts and all payments and collections thereon and shall submit to Lender: (i) On such periodic basis as Lender shall request, but no less frequently than weekly, a Borrowing Base Certificate; (ii) Copies of each recap sheet submitted to the ACH under the ACH Procedure Manual concurrently with the sending thereof to ACH; (iii) Copies of each monthly settlement sheet received from ACH pursuant to the ACH Procedure Manual, no later than the third (3rd) Business Day after the receipt thereof; and (iv) Upon Lender's request therefor, copies of all interline invoices submitted to, or received from, ACH under the ACH Procedure Manual, and such other matters and information relating to the Accounts of Borrower included on any Borrowing Base Certificate as Lender shall from time to time reasonably request. In addition, if Accounts owing by any Account Debtor to Borrower in an aggregate amount in excess of $25,000 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Accounts or otherwise established by Lender, Borrower shall notify Lender of such occurrence no later than the second (2d) Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. 7.2.2 Discounts, Allowances, Disputes. If Borrower grants any discounts or allowances that are not reflected in the calculation of the face value of each Account involved, Borrower shall report such discounts or allowances to Lender as part of the next required Borrowing Base Certificate. In the event any amounts due and owing in excess of $25,000 are in dispute between Borrower and any Account Debtor, Borrower shall provide Lender with written notice thereof at the time of submission of the next Borrowing Base Certificate, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. 7.2.3 Taxes. If an Account of Borrower includes a charge for any Tax, Lender is authorized, in its sole discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower and to charge Borrower therefor, provided, however, that neither Lender nor any Lender shall be liable for any Taxes that may be due by Borrower. 7.2.4 Account Verification. Whether or not a Default or an Event of Default has occurred, any of Lender's officers, employees or agents shall have the right, at any time or times hereafter, in the name of Lender, any designee of Lender or Borrower, to take reasonable steps to verify the validity, amount or any other matter relating to any Accounts of Borrower by verbal or written communications. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude any such verification process. 7.2.5 Transmission of Funds. Borrower shall cause all funds credited to its Clearing Bank Account to be sent by federal funds wire transfer to the Payment Account. 7.2.6 Collection of Accounts and Other Proceeds of Collateral. All Eligible Accounts of Borrower shall be cleared and collected for payment by ACH pursuant to the ACH Procedure Manual. After the occurrence of an Event of Default, all Payment Items received by Borrower on account of, or with respect to, its Accounts or the proceeds of any other Collateral shall be held as Lender's property by Borrower as trustee of an express trust for Lender's benefit and, no later than the first (1st) Business Day after receipt, Borrower shall immediately forward the same in kind to Lender for application to the Obligations. Borrower shall obtain the agreement by the Clearing Bank in favor of Lender to waive any offset rights the Clearing Bank may otherwise have against the funds credited to the Clearing Bank Account. Lender assumes no responsibility for the Clearing Bank Account or its maintenance or operation, including, without limitation, any claim of accord and satisfaction or release with respect to deposits made by the Clearing Bank thereto. 7.3 Administration of Rotable Spare Parts7.3 Administration of Rotable Spare Parts. 7.3.1 Records and Reports of Rotable Spare Parts. Borrower shall keep accurate and complete records of its Rotable Spare Parts. Borrower shall furnish to Lender reports of its Rotable Spare Parts in form and detail satisfactory to Lender at such times as Lender may request, but at least once each month, not later than the twentieth (20th) day of such month for Rotable Spare Parts of Borrower as of the end of the preceding month. Borrower shall conduct a physical inventory of its Rotable Spare Parts no less frequently than annually and shall provide to Lender a report based on each such physical inventory promptly thereafter, together with such supporting information as Lender shall request. 7.4 Payment of Charges7.4 Payment of Charges. All amounts chargeable to Borrower under Section 7 hereof shall be Obligations secured by all of the Collateral, shall be payable on demand and shall bear interest from the date such advance was made until paid in full at the rate applicable to Revolver Loans from time to time. SECTION 8. REPRESENTATIONS AND WARRANTIESSECTION 8. REPRESENTATIONS AND WARRANTIES 8.1.General Representations and Warranties. .1. General Representations and Warranties. To induce Lender to enter into this Agreement and to make Loans and extend credit hereunder, each Loan Party warrants and represents to Lender that: 8.1.1 Organization and Qualification. Each Loan Party is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each Loan Party is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each state or jurisdiction listed on Schedule 8.1.1 hereto and in all other states and jurisdictions where the character of its Properties or the nature of its activities make such qualification necessary except where the failure of such Loan Party or its respective Subsidiaries to be so qualified cannot reasonably be expected to have a Material Adverse Effect. Borrower is an air carrier holding a certificate issued by the FAA under 49 U.S.C. 44705. 8.1.2 Corporate Power and Authority. Each Loan Party is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents by each Loan Party have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the shareholders of such Loan Party; (ii) contravene such Loan Party's charter, articles or certificate of incorporation or by-laws; (iii) violate, or cause such Loan Party to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to such Loan Party; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which such Loan Party is a party or by which it or its Properties may be bound or affected that may reasonably be expected to have a Material Adverse Effect; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by such Loan Party. 8.1.3 Legally Enforceable Agreement. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of each Loan Party enforceable against it in accor dance with its respective terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or in law. 8.1.4 Capital Structure. Schedule 8.1.4 hereto states (i) the name of each corporate or joint venture Affiliates of each Loan Party and the nature of the affiliation, (ii) the number and nature of all outstanding Securities of each Loan Party, and (iii) the number of authorized, issued and treasury shares of each Loan Party. Each Loan Party has good title to all of the shares it purports to own of the stock of each of its Subsidiaries, free and clear in each case of any Lien other than Permitted Liens. All such shares have been duly issued and are fully paid and non-assessable. There are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell, or any Securities or obligations convertible into, or any powers of attorney relating to, shares of the capital stock of any Loan Party or any its respective Subsidiaries, except as listed on Schedule 8.1.4. There are no outstanding agreements or instruments binding upon any Loan Party's shareholders relating to the ownership of its shares of capital. Borrower is a wholly-owned Subsidiary of Parent and is the only Subsidiary of Parent. Borrower has no Subsidiaries other than Atlantic Coast Airlines, Inc. and Atlantic Coast Management, Inc., each a Delaware corporation which, as of the Closing Date, is not conducting any activities and has no material assets. 8.1.5 Corporate Names. No Loan Party has been known as or used any corporate, fictitious or trade (other than substantially similar variations of its respective corporate name) names except those listed on Schedule 8.1.5 hereto. Except as set forth on Schedule 8.1.5, no Loan Party has been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person. 8.1.6 Chief Executive Office. Each Loan Party's chief executive office is as listed on Schedule 7.1.1 hereto. 8.1.7 Title to Properties; Priority of Liens. Each Loan Party has good, indefeasible and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of its real Property, and good title to all of the Collateral and all of its other Property, and, in the case of the Collateral, free and clear of all Liens except Permitted Liens. Each Loan Party has paid or discharged all lawful claims which, if unpaid, might become a Lien against any of such Loan Party's Properties that is not a Permitted Lien. The Liens granted to Lender under Section 6 hereof are first priority Liens, subject only to those Permitted Liens that are expressly stated to have priority over the Liens of Lender. 8.1.8 Accounts. Lender may rely, in determining which Accounts of Borrower are Eligible Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Account listed on a Borrowing Base Certificate: (i) It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment, Instrument, Document or Chattel paper; (ii) It arises out of a completed, bona fide rendition of air transportation services by Borrower in the ordinary course of its business and in accordance with the terms and conditions of all contracts or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (iii) It is for a liquidated amount maturing as stated in the duplicate invoice covering such service, a copy of which has been furnished or is available to Lender; (iv) To the best knowledge of Borrower, such Account, and Lender's Lien therein, is not, and will not (by voluntary act or omission of Borrower) be in the future, subject to any offset, deduction, defense, dispute, counterclaim or any other adverse condition except for, in the case of Accounts owing by United, United's right of setoff for current amounts owing under the United Express Agreements, and in the case of all other Accounts, offsets arising in the ordinary course of business for settlement through the ACH under the ACH Agreement in accordance with the ACH Procedure Manual, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (v) Borrower has made no agreement with any Account Debtor thereunder for any extension, compromise, settlement or modification of any such Account or any deduction therefrom, except for, in the case of Accounts owing by United, United's right of setoff for amounts owing under the United Express Agreements, and except for discounts or allowances reported to Lender pursuant to Section 7.2.1 hereof; (vi) To the best knowledge of Borrower, there are no facts, events or occurrences which in any way impair the validity or enforceability of such Account; (vii) To the best knowledge of Borrower, the Account Debtor thereunder (1) had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (2) such Account Debtor is Solvent; and (viii) To the best knowledge of Borrower, there are no proceedings or actions which are threatened or pending against any Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account. 8.1.9 Financial Statements; Fiscal Year. (i) The Consolidated balance sheets of the Loan Parties and such other Persons described therein (including the accounts of all Subsidiaries of each Loan Party for the respective periods during which a Subsidiary relationship existed) as of December 31, 1997 and November 30, 1998, and the related statements of income, changes in stockholder's equity, and changes in financial position for the periods ended on such dates, have been prepared in accordance with GAAP, and present fairly the financial position of the Loan Parties and such Persons as of such dates and the results of the Loan Parties' operations for such periods. Since September 30, 1998, there has been no material change in the condition, financial or otherwise, of any Loan Party and such other Persons as shown on the Consolidated balance sheet as of such date; (ii) The Consolidated balances sheets of the Loan Parties and such other Persons described therein, and the related statements of income, changes in stockholder's equity, and changes in financial position, which are from time to time delivered to Lender pursuant to Section 9.1.3 of this Agreement fairly present the financial position of the Loan Parties and such Persons at such dates and the results of the operations of the Loan Parties and such Persons for the periods set forth therein; and (iii) The fiscal year of each Loan Party ends on December 31 of each year. 8.1.10 Full Disclosure. The financial statements referred to in subsection 8.1.9 hereof do not, nor does this Agreement or any other written statement of any Loan Party or its respective Subsidiaries to Lender, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. To the best of each Loan Party's knowledge, there is no fact (other than matters of a general economic nature) which a Loan Party has failed to disclose to Lender in writing which such Loan Party reasonably expects may materially affect adversely the Properties, business, prospects, profits or condition (financial or otherwise) of a Loan Party or the ability of a Loan Party to perform this Agreement or the other Loan Documents. 8.1.11 Solvent Financial Condition. The Loan Parties are now and, after giving effect to the Loans to be made hereunder, at all times will be, Solvent on a Consolidated basis. 8.1.12 Surety Obligations. Except for those obligations of Borrower to the Authority with respect to the Bridge Loan, no Loan Party is obligated as surety or indemnitor under any surety or similar bond or other contract issued or entered into any agreement to assure payment, performance or completion of performance of any undertaking or obligation of any Person other than the other Loan Party. 8.1.13 Taxes. The federal tax identification number of each Loan Party is shown on Schedule 8.1.13 hereto. Each Loan Party has filed all federal, state and local tax returns and other reports it is required by law to file and has paid, or made provision for the payment of, all Taxes upon it, its income and Properties as and when such Taxes are due and payable, except to the extent being Properly Contested. The provision for Taxes on the books of each Loan Party is adequate for all years not closed by applicable statutes, and for its current fiscal year. 8.1.14 Brokers. There are no claims for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement. 8.1.15 Patents, Trademarks, Copyrights and Licenses. Each Loan Party owns or possesses all the patents, trademarks, service marks, trade names, copyrights and licenses necessary for the present and planned future conduct of its business, without any known conflict with the rights of others. All such patents, trademarks, service marks, tradenames, copyrights, licenses and other similar rights of a material nature are listed on Schedule 8.1.15 hereto. 8.1.16 Governmental Consents. Each Loan Party has, and is in good standing with respect to, all governmental con sents, approvals, licenses, authorizations, permits, certifi cates, inspections and franchises necessary to continue to conduct its business as heretofore or proposed to be conducted by it and to own or lease and operate its Properties as now owned or leased by it. 8.1.17 Compliance with Laws. Each Loan Party has duly complied with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all Applicable Law and there have been no citations, notices or orders of noncompliance issued to any Loan Party or any of its respective Subsidiaries under any such law, rule or regulation where such non-compliance could reasonably be expected to have a Material Adverse Effect. Each Loan Party and its respective Subsidiaries has established and maintains an adequate monitoring system to insure that it remains in compliance with all federal, state and local laws, rules and regulations applicable to it. 8.1.18 Restrictions. No Loan Party is a party or subject to any contract, agreement, or charter or other corporate restriction, which materially and adversely affects its business or the use or ownership of any of its Properties. No Loan Party is a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Schedule 8.1.18 hereto, none of which prohibit the execution of or compliance with this Agreement or the other Loan Documents by any Loan Party or any of its respective Subsidiaries, as applicable. 8.1.19 Litigation. Except as set forth on Schedule 8.1.19 hereto, there are no actions, suits, proceedings or investigations pending on the date hereof or, to the knowledge of the Loan Parties, threatened against or affecting any Loan Party, or the business, operations, Properties, prospects, profits or condition of any Loan Party, and no such action, suit or proceeding will, if decided adversely, have a Material Adverse Effect. No Loan Party is in default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal which is reasonably expected to have a Material Adverse Effect. 8.1.20 No Defaults. No event has occurred and no condition exists which would, upon or after the execution and delivery of this Agreement or any Loan Party's performance hereunder, constitute a Default or an Event of Default. No Loan Party is in default, and no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both would constitute, a default in the payment of any Indebtedness to any Person for Money Borrowed in excess of $500,000. 8.1.21 Leases. Each Loan Party is in compliance in all material respects with all of the terms of each of its respective capitalized and operating leases. 8.1.22 Pension Plans. Except as disclosed on Schedule 8.1.22 hereto, no Loan Party has any Plan on the date hereof. Each Loan Party is in full compliance with the requirements of ERISA and the regulations promulgated thereunder with respect to each Plan. No fact or situation that could result in a Material Adverse Effect exists in connection with any Plan. No Loan Party has any withdrawal liability in connection with a Multiemployer Plan. 8.1.23 Trade Relations. There exists no actual or threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between any Loan Party and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of any Loan Party, or with any material supplier (unless such supplier can be readily replaced on terms which cannot reasonably be expected to have a Material Adverse Effect), and, the best of each Loan Party's knowledge, there exists no present condition or state of facts or circumstances which would materially affect adversely any Loan Party or prevent any Loan Party from conducting such business after the consummation of the transactions contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 8.1.24 Labor Relations. Except as described on Schedule 8.1.24 hereto, no Loan Party is a party to any collective bargaining agreement on the date hereof. There are no material grievances, disputes or controversies with any union or any other organization of any Loan Party's or any of its respective Subsidiaries' employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization. 8.1.25 Loans Outstanding Under Existing Loan Agreement. All Loans and reimbursement obligations owing to Lender under the Existing Loan Agreement which, upon the Closing Date, shall be deemed Loans and reimbursement obligations owing to Lender under this Agreement, are owing to Lender without any defenses, offsets or claims of any nature. 8.2. Continuous Nature of Representations and Warranties. .2. Continuous Nature of Representations and Warranties. The representations and warranties made by Borrower in this Agreement and the other Loan Documents shall be true and correct in all material respects on the Closing Date and on the date of each Borrowing under this Agreement except for any representation and warranty relating to a specific period before the date of such Borrowing. Each request for a Revolver Loan made by Borrower pursuant to this Agreement shall constitute (i) an automatic representation and warranty by Borrower to Lender that there does not then exist any Default or Event of Default and (ii) a reaffirmation as of the date of such request that all of the representations and warranties of the Loan Parties contained in this Agreement and the other Loan Documents are true in all material respects, except for any representations and warranties relating to a specific period before the date of such request and except for any changes in the nature of the business or operations of the Loan Parties and their respective Subsidiaries that would render the information contained in any Schedule or Exhibit attached hereto either inaccurate or incomplete, so long as Lender has consented to such changes or such changes are not prohibited by this Agreement. 8.3. Survival of Representations and Warranties. .3. Survival of Representations and Warranties. All representations and warranties of each Loan Party contained in this Agreement or any of the other Loan Documents shall be true at the time of the execution of this Agreement and the other Loan Documents, and shall survive the execution, delivery and acceptance thereof by Lender and the parties thereto and the closing of the transactions described therein or related thereto. SECTION 9. COVENANTS AND CONTINUING AGREEMENTSSECTION 9. COVENANTS AND CONTINUING AGREEMENTS 9.1 Affirmative Covenants9.1 Affirmative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, each Loan Party covenants that, unless otherwise consented to by Lender in writing, it shall: 9.1.1 Visits and Inspections. Permit representatives of Lender, from time to time, as often as may be reasonably requested, but only during normal business hours upon reasonable advance notice, to visit and inspect the Properties of each Loan Party, inspect, audit and make extracts from its books and records, and discuss with its officers, its employees and its independent accountants, each Loan Party's business, assets, liabilities, financial condition, business prospects and results of operations. 9.1.2. Notices. Notify Lender in writing (i) of the occurrence of any event or the existence of any fact which renders any representation or warranty in this Agreement or any of the other Loan Documents inaccurate, incomplete or misleading in any material respect; (ii) promptly after a Loan Party's learning thereof, of the commencement of any litigation affecting any Loan Party or any of its Properties, whether or not the claim is considered by such Loan Party to be covered by insurance, and of the institution of any administrative proceeding which, in either case, if decided adversely could reasonably be expected to have a Material Adverse Effect; (iii) promptly after the execution of any amendment or modification to the United Express Operating Agreement that would extend the United Express Termination Date and send to Lender a copy thereof; (iv) promptly after a Loan Party's learning thereof, of any organized labor dispute of a material nature to which a Loan Party may become a party, any strikes or walkouts by organized labor relating to any of its facilities, and the final expiration of any collective bargaining agreement to which it is a party or by which it is bound; (v) promptly after a Loan Party's learning thereof, of any material default by any Loan Party under any note, indenture, loan agreement, mortgage, lease, deed, guaranty or other similar agreement relating to any Indebtedness of such Loan Party exceeding $500,000; (vi) promptly after the occurrence thereof, of any Default or Event of Default; (vii) promptly after the occurrence thereof, of any default or event of default by Borrower or United under any of the United Express Agreements; (viii) promptly after the rendition thereof, of any judgment rendered against a Loan Party in an amount exceeding $500,000 which is not fully covered by insurance; (ix) of the ordering of any services from United under the United Express Emergency Response Agreement, and give Lender full particulars of the estimated costs thereof, to the extent not covered by insurance; and (x) promptly upon any change of the fiscal year of the Loan Parties. 9.1.3 Financial Statements . Keep, and cause each Subsidiary to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions; and cause to be prepared and furnished to Lender the following (all to be prepared in accordance with GAAP applied on a consistent basis, unless Borrower's certified public accountants concur in any change therein and such change is disclosed to Lender and is consistent with GAAP): (i) not later than ninety-one (91) days after the close of each fiscal year of the Loan Parties, audited financial statements of the Loan Parties as of the end of such year, on a Consolidated basis, certified by one of the big five national accounting firms or other firm of independent certified public accountants of recognized standing selected by the Loan Parties but reasonably acceptable to Lender; (ii) not later than sixty (60) days after the end of the months of January, February and December in each fiscal year of the Loan Parties, and thirty (30) days after the end of each other month in each fiscal year of the Loan Parties, unaudited interim financial statements of the Loan Parties as of the end of such month and of the portion of the Loan Parties' fiscal year then elapsed, on a Consolidated basis, certified by a financial officer of the Loan Parties as prepared in accordance with GAAP and fairly presenting the Consolidated financial position and results of operations of the Loan Parties for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; (iii) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which each Loan Party has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which each Loan Party files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (iv) promptly after the filing thereof, copies of any annual report to be filed with ERISA in connection with each Plan; and (v) such other data and information (financial and otherwise) maintained by the Loan Parties as Lender, from time to time, may reasonably request, bearing upon or related to the Collateral or each Loan Party's financial condition or results of operations. Concurrently with the delivery of the financial statements described in clause (i) of this Section 9.1.3, the Loan Parties shall cause to be prepared and shall furnish to Lender a certificate of the aforesaid certified public accountants certifying to Lender that, based upon their examination of the financial statements of the Loan Parties performed in connection with their examination of said financial statements, they are not aware of any Default or Event of Default, or, if they are aware of such Default or Event of Default, specifying the nature thereof, and acknowledging, in a manner satisfactory to Lender, that they are aware that Lender is relying on such financial statements in making its decisions with respect to the Loans. No later than ten days after receipt of the accountants' letter to the management of the Loan Parties that is prepared in connection with the financial statements described in clause (i) of this Section 9.1.3, but in no event later than 150 days after the end of each fiscal year, the Loan Parties shall forward to Lender a copy of such accountants' letter. Concurrently with the delivery of the financial statements described in clause (i) of this Section 9.1.3 and those financial statements described in clause (ii) of this Section 9.1.3 which are for the last month in a fiscal quarter of the Loan Parties, the Loan Parties shall cause to be prepared and furnished to Lender a Compliance Certificate in the form of Exhibit D hereto executed by a financial officer of the Loan Parties. 9.1.4 Projections. No later than 45 days after the end of each fiscal year of the Loan Parties, deliver to Lender Projections of each Loan Party for the forthcoming fiscal year, month by month. 9.1.5 Taxes and Liens. Pay and discharge, and cause each Subsidiary to pay and discharge, all Taxes prior to the date on which such Taxes become delinquent or penalties attach thereto, except and only to the extent that such Taxes are being Properly Contested. Each Loan Party shall also pay, discharge or provide a bond with respect to, any lawful claims which, if unpaid or unbonded, might become a Lien against any of a Loan Party's Property except for Permitted Liens. 9.1.6 Tax Returns. File, and cause each Subsidiary to file, all federal, state and local tax returns and other reports any Loan Party is required by law to file and maintain adequate reserves for the payment of all Taxes imposed upon it, its income or its profits, or upon any Property belonging to it. 9.1.7 Compliance with Applicable Laws. Comply with all Applicable Laws, and obtain and keep in force any and all licenses, permits, franchises or other governmental authorizations necessary to the ownership of its Property or to the conduct of its business, which violation or failure to obtain might have a Material Adverse Effect. 9.1.8 Environmental Events. Notify Lender in writing promptly after learning thereof (i) of any violation of any Environmental Law, (ii) of any inquiry, proceeding, investigation or other action, involving a request for information or a notice of potential environmental liability from any foreign, federal, state or local environmental agency or board, or (iii) of the discovery of the release of any Hazardous Material at, on, under or from any real Property owned or leased by any Loan Party or any facility or equipment thereat in excess of reportable or reliable standards or levels under any Environmental Law, or in a manner and/or amount which could reasonably be expected to result in liability under any Environmental Law, in each case which would have a Material Adverse Effect. In the event of the presence of any Hazardous Materials on any real Property owned or leased by any Loan Party which is in violation of, or which could reasonably be expected to result in liability under, any Environmental Law, in each case which would have a Material Adverse Effect, such Loan Party upon discovery thereof, shall take all necessary steps to initiate and expeditiously complete all remedial, corrective and other action to mitigate and eliminate any such adverse effect, and shall keep Lender informed of their actions and the results. 9.1.9 Computer Software. Establish an action plan, and cause such action plan to be implemented by no later than June 30, 1999, to reasonably assure that the essential items of the computer software of each Loan Party is able to be used and operated before, during and after calendar year 2000 A.D. without error functions of a material nature relating to date data, specifically including any error of a material nature relating to, or the conduct of, date data which represents or references different centuries or more than one century, and provide Lender with assurances reasonably satisfactory to Lender that after June 30, 1999 the essential items of the computer software of the Loan Parties will be able to recognize and perform without error functions relating to date data before, during and after calender year 2000 A.D. 9.2 Negative Covenants9.2 Negative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, each Loan Party covenants that, unless Lender has first consented thereto in writing, it will not: 9.2.1 Fundamental Changes. Merge or consolidate with any Person or acquire all or any substantial part of the Properties of any Person; provided, however, the foregoing restriction shall not apply to (i) a merger by Parent with and into Borrower with Borrower as the surviving corporation or (ii) a merger by Borrower with and into Parent or with a Subsidiary of Borrower, with Parent or such Subsidiary as the surviving corporation, provided, in the case of a merger pursuant to clause (ii) hereof, the following conditions are first satisfied by the Loan Parties: (a) Borrower shall have given Lender not less than fifteen (15) days prior written notice of the effective date of such merger, (b) Lender shall have received, in form and substance satisfactory to Lender and its counsel, an assumption agreement as of the effective date of the merger, duly executed by Parent or such Subsidiary into which Borrower proposes to merge, pursuant to which Parent or such Subsidiary, as the case may be, shall assume, adopt, ratify and confirm all of the Obligations of Borrower under this Agreement and the other Loan Documents, together with such other documents as Lender or its counsel may reasonably require, (c) Lender shall have received copies of all agreements, documents and instruments relating to the merger as executed by the parties thereto, including the certificates of merger as issued and certified by the Secretary of States of the jurisdictions of incorporation of each Loan Party, (d) Lender's Lien in the Collateral is and continues to be a duly perfected Lien thereon (and each Loan Party shall have taken such action as may be required pursuant to Section 6.3 and any other provision of this Agreement or any other Loan Document to perfect Lender's Lien thereon) subject to no other Lien thereon except for Permitted Liens, and (e) no Default, Event of Default or Overadvance Condition shall exist immediately before or after giving effect to such merger. 9.2.2 Loans. Make any loans or other advances of money to any Person, except: (i) salary or other employment related benefit, travel advances, advances against commissions and other similar advances in the ordinary course of business, including loans to pilots and other employees for the payment of training courses; (ii) loans or advances from one Loan Party to the other Loan Party; and (iii) other loans and advances not in excess of $200,000 outstanding in the aggregate at any one time. 9.2.3 Affiliate Transactions. Enter into, or be a party to, any transaction with any Affiliate of a Loan Party (other than the other Loan Party) or stockholder, except in the ordinary course of and pursuant to the reasonable requirements of such Loan Party's business and upon fair and reasonable terms which are fully disclosed to Lender and are no less favorable to such Loan Party than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of such Loan Party. 9.2.4 Limitation on Liens. Create or suffer to exist any Lien upon any of the Collateral, whether now owned or hereafter acquired, except: (i) Liens at any time granted in favor of Lender; (ii) Liens for taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due or that are being Properly Contested; (iii) statutory Liens arising in the ordinary course of such Loan Party's business by operation of law or regulation, but only if payment in respect of any such Lien is not at the time required or such Liens are being Properly Contested and do not, in the aggregate, materially detract from the value of the Collateral or materially impair the use thereof in the operation of such Loan Party's business; and (iv) Purchase Money Liens in Rotable Spare Parts, provided such Purchase Money Liens are limited by their express terms to readily identifiable Rotable Spare Parts and such Rotable Spare Parts are segregated by Borrower from all of its other Rotable Spare Parts. 9.2.5 Distributions. Declare or make any Distributions. 9.2.6 Disposition of Collateral. Sell, lease or otherwise dispose of any of the Collateral except for dispositions of the Rotable Spare Parts for so long as no Default, Event of Default or Overadvance Condition then exists, or, after giving effect to such disposition, will exist. 9.2.7 Restricted Investment. Make or have any Restricted Investment. 9.2.8 Tax Consolidation. File or consent to the filing of any consolidated income tax return with any Person other than a Subsidiary of a Loan Party. 9.2.9 Guaranties. Become liable upon the obligations of any Person (other than the other Loan Party), by assumption, endorsement or guaranty thereto or otherwise (other than to Lender), except the endorsement of checks in the ordinary course of business and the issuance of guaranties in the ordinary course of business of loans to pilots and other employees of a Loan Party for the payment of training courses 9.2.10 United Express Agreements. Enter into, or agree to, any amendment, modification, supplement or termination of any United Express Agreement subsequent to the date of this Agreement if the effect of such amendment, modification, supplement or termination would (i) shorten the period during which the United Express Operating Agreement is in effect or (ii) increase, or could reasonably be expected to increase, in any material way the structure or the basis of payment of the fees, charges or other Indebtedness owing by Borrower to United which, pursuant to the United Non-Offset Agreement, United is permitted to offset against the Accounts of Borrower owing by United. 9.2.11 ACH Membership. Withdraw from being an associate member of the ACH. 9.2.12 Subsidiaries. Hereafter divest itself of any material assets by transferring them to any Subsidiary. 9.2.13 Subordinated Debt. Prepay or redeem any of the Subordinated Debt before its scheduled maturity date or pay any of the Subordinated Debt except in accordance with the terms of the instrument under which such Subordinated Debt has been subordinated to the payment of the Obligations. 9.3 Specific Financial Covenants9.3 Specific Financial Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, each Loan Party covenants that, unless Lender has first consented thereto in writing, it shall comply with the following financial covenants: 9.3.1 Consolidated Fixed Charge Coverage Ratio. The Loan Parties and their respective Subsidiaries shall maintain a Consolidated Fixed Charge Coverage Ratio as of the end of each Testing Period, beginning with the Testing Period ending December 31, 1998, of not less than 1.6 to 1.0. 9.3.2 Consolidated Leverage Ratio. The Loan Parties and their respective Subsidiaries shall maintain at all times a Consolidated Leverage Ratio of no greater than 1.5 to 1.0. 9.3.3 Consolidated Senior Indebtedness/Consolidated EBITDA Ratio. The Loan Parties and their respective Subsidiaries shall maintain a Consolidated Senior Indebtedness/Consolidated EBITDA Ratio as of the end of each Testing Period, beginning with the Testing Period ending December 31, 1998, of no greater than 3.0 to 1.0. SECTION 10. CONDITIONS PRECEDENT10. CONDITIONS PRECEDENT 10.1 Conditions Precedent to Initial Revolver Loan on Closing Date10.1 Conditions Precedent to Initial Revolver Loan on Closing Date. Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Lender under the other sections of this Agreement, it is understood and agreed that Lender will have no obligation to make the initial Revolver Loan under Section 1 of this Agreement on the Closing Date unless and until, in addition to each of the conditions set forth in Section 10.2 hereof, each of the following conditions has been satisfied: 10.1.1 Documentation. Lender shall have received the following documents, each to be in form and substance satisfactory to Lender and its counsel: (i) Certified copies of casualty insurance policies of Borrower, together with loss payable endorsements on Lender's standard form of Loss Payee Endorsement naming Lender as loss payee as its interests may appear, and certified copies of the liability insurance policies of Borrower, together with endorsements naming Lender as a coinsured; (ii) Copies of all filing receipts or acknowledgments issued by any governmental authority (including, without limitation, the FAA) to evidence any filing or recordation necessary to perfect the Liens of Lender in the Collateral and evidence in a form acceptable to Lender that such Liens constitute valid and perfected first priority security interests and Liens, subject only to those Permitted Liens which are expressly stated to have priority over the Liens of Lender; (iii) Copies of the Articles or Certificate of Incorporation of each Loan Party and all amendments thereto, certified by the Secretary of State or other appropriate official of its respective jurisdiction of incorporation; (iv) Good standing certificates for each Loan Party issued by the Secretary of State or other appropriate official of such Loan Party's respective jurisdiction of incorporation and each jurisdiction where the conduct of such Loan Party's business activities necessitates qualification and in which the failure of such Loan Party to be so qualified would have a Material Adverse Effect; (v) A closing certificate signed by the chief executive or financial officer of each Loan Party, dated as of the Closing Date, stating that (a) the representations and warranties set forth in Section 8 hereof are true and correct in all material respects on and as of such date, (b) such Loan Party is on such date in compliance in all material respects with all the terms and provisions set forth in this Agreement and the other Loan Documents and (c) on such date no Default or Event of Default has occurred and is continuing; (vi) The Security Documents duly executed, accepted and acknowledged by or on behalf of each of the signatories thereto; (vii) The Other Agreements duly executed and delivered by each Loan Party; (viii) The favorable, written opinion of counsel to the Loan Parties as to the transactions contemplated by this Agreement and the other Loan Documents; (ix) Written instructions from the Loan Parties directing the application of proceeds of the Bridge Loan and the initial Revolver Loan made to the Loan Parties pursuant to this Agreement on the Closing Date; (x) Certificates of the Secretary or an Assistant Secretary of each Loan Party certifying (a) that attached thereto is a true and complete copy of the Bylaws of such Loan Party, as in effect on the date of such certification, (b) that attached thereto is a true and complete copy of the resolutions adopted by the Board of Directors of such Loan Party, authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which such Loan Party is a party and the consummation of the transactions contemplated hereby and thereby, and (c) as to the incumbency and genuineness of the signature of each officer of such Loan Party executing this Agreement or any of the Loan Documents; (xi) An amendment to the Reimbursement Agreement, duly executed by Borrower and Bank, conforming the definition of the "Applicable Percentage" to the definition of that term as set forth in this Agreement; (xii) Certificate of the Secretary of the Authority certifying (a) that attached thereto is a true and complete copy of the resolutions adopted by the Authority, authorizing the execution, delivery and performance of the Escrow Agreement and the consummation of the transactions contemplated thereby, and (b) as to the incumbency and genuineness of the signature of each officer of the Authority executing the Escrow Agreement; (xiii) The favorable, written opinion of counsel to the Authority as to the transactions contemplated by the Escrow Agreement; (xiv) an opinion from Lender's special FAA counsel, certifying to Lender that Lender has a first priority Lien in the Rotable Spare Parts of Borrower; (xv) an amendment to the Deed of Trust, duly executed by Borrower, the trustee under the Deed of Trust and Lender, with all fees and taxes, if any, paid thereon, reflecting the amendments to the Existing Loan Agreement made by this Agreement; (xvi) an endorsement to the policy of title insurance currently insuring the lien of the Deed of Trust, updating the effective date of such policy to the recordation date of the amendment to the Deed of Trust insured thereby executed pursuant to this Agreement, with all premiums thereon paid, and (xvii) Such other documents, instruments and agreements as Lender shall reasonably request in connection with the foregoing matters. 10.1.2 No Injunction, etc. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the Loan Documents or the consummation of the transactions contemplated hereby or which, in Lender's reasonable judgment, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents. 10.1.3 Consents. All approvals, licenses, consents and filings necessary to permit the transactions contemplated by this Agreement shall have been obtained and made. 10.1.4 Material Adverse Change. There shall not have occurred any material adverse change in the financial condition, results of operations or business of Borrower and its Subsidiaries or the value of the Collateral from November 30, 1998 to the Closing Date, or any event, condition or state of facts which would reasonably be expected to have a Material Adverse Effect, as reasonably determined by Lender. 10.1.5 No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing. 10.1.6 Liens. Lender shall be satisfied that this Agreement and the other Loan Documents create or will create, as security for the Obligations, a valid and enforceable perfected first priority security interest in and Lien upon all of the Collateral in favor of Lender, subject to no other Liens other than Permitted Liens which are expressly stated to have priority over the Liens of Lender. 10.1.7 Escrow Funds. Lender shall have received evidence that the Escrow Funds have been received by the Escrow Agent to be held pursuant to the Escrow Agreement. 10.2 Conditions Precedent to All Loans and Letters of Credit and Letter of Credit Guaranties10.2 Conditions Precedent to All Loans and Letters of Credit and Letter of Credit Guaranties. Notwithstanding any of the provisions of this Agreement or the other Loan Documents, and without affecting in any manner the rights of Lender under the other sections of this Agreement, it is understood and agreed that Lender will have no obligation to make any Loan (including the Bridge Loan Advances and the initial Revolver Loan) and Lender will have no obligation to issue any Letter of Credit or Letter of Credit Guaranty unless and until, in addition to the conditions set forth in Section 10.1, each of the following conditions has been and continues to be satisfied: 10.2.1 Events of Default. No Default, Event of Default or Overadvance Condition shall exist. 10.2.2 Delivery of Documents. Lender shall have received copies of all documents, reports and information required to be delivered to Lender hereunder. 10.2.3 Representations and Warranties. The representations and warranties contained in Section 8 of this Agreement and in the Loan Documents shall be true and correct in all material respects except for changes in the nature of a Loan Party's business or operations that would render the information contained in any Exhibit or Schedule attached hereto either inaccurate, incomplete or misleading, except for any changes in the nature of the business or operations of the Loan Parties and their respective Subsidiaries that would render the information contained in any Schedule or Exhibit attached hereto either inaccurate or incomplete, so long as Lender has consented to such changes or such changes are not prohibited by this Agreement. 10.2.4 Subordinated Debt. The Loan, if made, would enjoy the benefits and privileges of being senior in right of payment to all Subordinated Debt then outstanding. 10.3 Waiver of Conditions Precedent10.3 Waiver of Conditions Precedent. If Lender makes any Loan or issues any Letter of Credit or Letter of Credit Guaranty prior to the fulfillment of any of the conditions precedent set forth in Sections 10.1 and 10.2 hereof, the making of such Loan or the issuance of such Letter of Credit or Letter of Credit Guaranty shall constitute only an extension of time for the fulfillment of such condition and not a waiver thereof, and each Loan Party shall thereafter use its best efforts to fulfill such condition promptly. SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULTSECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 11.1 Events of Default11.1 Events of Default. The occurrence of one or more of the following events shall constitute an "Event of Default": 11.1.1 Payment of Loans and Amounts for Cash Collateral Account. Borrower shall fail to make any payment of principal, interest or premium, if any, owing on the Loans, or any amounts to be paid into the Cash Collateral Account pursuant to Section 4.2.3 hereof, within two (2) Business Days of the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise)." 11.1.2 Payment of Other Obligations. Borrower shall fail to pay any of the other Obligations (other than those dealt with specifically in Section 11.1.1 hereof) on the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise) and such failure shall continue for a period of three (3) Business Days after Lender's giving Borrower written notice thereof. 11.1.3 Misrepresentations. Any representation, warranty or other statement made or furnished to Lender by or on behalf of any Loan Party or in this Agreement, any of the other Loan Documents or any instrument, certificate or financial statement furnished in compliance with or in reference thereto proves to have been false or misleading in any material respect when made or furnished or when reaffirmed pursuant to Section 8.2 hereof. 11.1.4 Breach of Specific Covenants. Any Loan Party shall fail or neglect to perform, keep or observe any covenant contained in Sections 6.3, 7.1.1, 7.2.5, 7.2.6, 9.1.1, 9.1.3, 9.2 or 9.3 hereof on the date that such Loan Party is required to perform, keep or observe such covenant. 11.1.5 Breach of Loan Documents. Any Loan Party shall fail or neglect to perform, keep or observe any covenant contained in this Agreement (other than a covenant which is dealt with specifically elsewhere in Section 11.1 hereof) or the other Loan Documents and the breach of such other covenant or the other Loan Documents is not cured within fifteen (15) days after the sooner to occur of such Loan Party's receipt of notice of such breach from Lender or the date on which such failure or neglect first becomes known to any officer of such Loan Party. 11.1.6 Other Defaults. There shall occur any default or event of default on the part of any Loan Party under any agreement, document or instrument to which Borrower is a party or by which a Loan Party or any of its Property is bound, creating or relating to any Indebtedness for Money Borrowed in excess of $200,000 in the aggregate (other than the Obligations) and such default or event of default remains uncured beyond the applicable notice and grace period, if any, with respect thereto. 11.1.7 Insolvency and Related Proceedings. Any Loan Party shall cease to be Solvent; or United or any Loan Party shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against any Loan Party or United under the Bankruptcy Code (if against a Loan Party or United, the continuation of such proceeding for more than 60 days); or any Loan Party shall make any offer of settlement, extension or composition to their respective unsecured creditors generally. 11.1.8 Business Disruption. Any Loan Party shall suffer the loss or revocation of any license or permit now held or hereafter acquired by any Loan Party which is necessary to the continued or lawful operation of a material part of its business; or any Loan Party shall be enjoined, restrained, or otherwise permanently prevented by court, governmental or administrative order from conducting all or any material part of its business affairs; or any material lease or agreement pursuant to which any Loan Party leases, uses or occupies any Property shall be canceled or terminated prior to the expiration of its stated term; or any Loan Party or United ceases scheduled air transportation services other than on a temporary basis. 11.1.9 Change of Ownership. Parent shall cease to own and control, beneficially and of record, all of the issued and outstanding stock of Borrower other than pursuant to a transaction permitted by Section 9.2.1(i) or (ii) hereof. 11.1.10 Challenge to Agreement. Any Loan Party or any Affiliate of any of them, shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender. Nothing set forth herein shall preclude a Loan Party from enforcing its rights, and Lender's duties and obligations, under this Agreement and the other Loan Documents. 11.1.11 Criminal Forfeiture. Any Loan Party or any Subsidiary of any Loan Party shall be criminally indicted or convicted under any law that could lead to a forfeiture of any Property of any Loan Party or any Subsidiary of any Loan Party which can reasonably be expected to have a Material Adverse Effect. 11.1.12 Judgments. One or more money judgments, writs of attachment or similar process is filed against any Loan Party or any Subsidiary of any Loan Party or any of their respective Property involving liability of $200,000 or more in the aggregate (to the extent not paid or fully covered by insurance provided by a carrier who has acknowledged coverage), and the same is not released, stayed, discharged or bonded within thirty (30) days after the entry thereof. 11.1.13 Repudiation of or Default Under Guaranty Agreement. Any Guarantor shall revoke or attempt to revoke the Guaranty Agreement signed by such Guarantor, or shall repudiate such Guarantor's liability thereunder or shall be in default under the terms thereof. 11.1.14 ACH Procedure Manual. Borrower shall cease scheduled air transportation services other than on a temporary basis for a work stoppage and, in consequence thereof, ACH shall have directed the Clearing Bank to withhold twenty-five percent (25%) of the net funds due Borrower in any subsequent settlement in which Borrower is a net creditor, pursuant to paragraph 8 of the settlement regulations set forth in Section B of the ACH Procedure Manual. 11.1.15 Withdrawal as Member. Borrower shall give notice of withdrawal from the ACH Agreement. 11.1.16 Termination or Breach of the United Express Operating Agreement or the United Express Agreements. The termination for any reason of the United Express Operating Agreement by Borrower without the prior written consent of Lender as required by Section 9.2.11 hereof or by United; or Borrower shall default in the payment (beyond the applicable grace period with respect thereto, if any) with respect to any Indebtedness owing under any of the United Express Agreements or fail to perform or observe any term, covenant or agreement on its part to be performed or observed pursuant to any of the United Express Agreements, the effect of which failure is to cause, or permit, United to terminate any of the United Express Agreements. 11.1.17 Default Under Reimbursement Agreement. There shall occur any "Event of Default" under the Reimbursement Agreement as such term is defined in Section 6.01 thereof. 11.2 Acceleration of the Obligations.2 Acceleration of the Obligations. Without in any way limiting the right of Lender to demand payment of any portion of the Obligations payable on demand in accordance with Section 3.2 hereof, upon or at any time after the occurrence of an Event of Default, all or any portion of the Obligations shall, at the option of Lender and without presentment, demand, protest or further notice by Lender, become at once due and payable and Borrower shall forthwith pay to Lender the full amount of such Obligations, provided, that upon the occurrence of an Event of Default specified in subsection 11.1.7 hereof, all of the Obligations shall become automatically due and payable without declaration, notice or demand by Lender. 11.3 Other Remedies.3 Other Remedies. During the existence of an Event of Default, Lender may exercise from time to time the following rights and remedies: 11.3.1. All of the rights and remedies of a secured party under the Code or under other Applicable Law, and all other legal and equitable rights to which Lender may be entitled, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive. 11.3.2. The right to terminate this Agreement as provided in Section 5.2.1 hereof. 11.3.3. The right to notify Account Debtors to make remittance to Lender of all sums due on Accounts of Borrower, collect such Accounts directly from the Account Debtors, and take such other and further action with respect thereto as set forth in Section 12.1.2 hereof. 11.3.4. The right to take immediate possession of the Collateral, and to (i) require Borrower to assemble the Collateral, at Borrower's expense, and make it available to Lender at a place designated by Lender which is reasonably convenient to both parties, and (ii) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said premises until sold (and if said premises be the Property of Borrower, Borrower agrees not to charge Lender for storage thereof). 11.3.5. The right to sell or otherwise dispose of all or any Collateral in a commercially reasonable manner, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Lender, in its sole discretion, may deem advisable. Borrower agrees that 10 days written notice to Borrower of any public or private sale or other disposition of Collateral shall be reasonable notice thereof, and such sale shall be at such locations as Lender may designate in said notice. Lender shall have the right to conduct such sales on Borrower's premises, without charge therefor, and such sales may be adjourned from time to time in accordance with applicable law. Lender shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The proceeds realized from the sale of any Collateral may be applied, after allowing 2 Business Days for collection, first to the reasonable costs, expenses and attorneys' fees incurred by Lender in collecting the Obligations, in enforcing the rights of Lender under the Loan Documents and in collecting, retaking, completing, protecting, removing, storing, advertising for sale, selling and delivering any Collateral, second to the interest due upon any of the Obligations; and third, to the principal of the Obligations. If any deficiency shall arise, Borrower shall remain liable to Lender therefor. If there shall be any surplus, Lender shall remit such surplus to Borrower or other Person entitled thereto. 11.3.6 With respect to the face amount of all Letters of Credit and Letter of Credit Guaranties then outstanding, Lender may, at its option, require the Loan Parties to deposit with Lender funds equal to such undrawn face amount, and if the Loan Parties fail promptly to make such deposit, Lender may advance such amount as a Revolver Loan. Any such deposit or advance shall be held by Lender in the Cash Collateral Account as a reserve to fund future payments on such Letters of Credit or Letter of Credit Guaranties. At such time as all Letters of Credit and Letter of Credit Guaranties have expired or have been canceled or terminated and Lender and its Affiliates released from all liability thereunder, any amounts remaining in such reserves shall be applied against any outstanding Obligations, or, to the extent all Obligations have been indefeasibly paid and satisfied in full, returned to the Loan Parties. 11.3.7 With respect to the Escrow Funds, the right to notify the Escrow Agent of the existence of an Event of Default and to demand that, pursuant to the terms of the Escrow Agreement, so much of the Escrow Funds be remitted to Lender for application to the Bridge Loan Obligations. 11.4 Remedies Cumulative; No Waiver. .4 Remedies Cumulative; No Waiver. All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of any Loan Party contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule or contained in any other agreement between Lender and any Loan Party, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements herein contained. The failure or delay of Lender to require strict performance by any Loan Party of any provision of this Agreement or to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such performance, Liens, rights, powers and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrower to Lender shall have been fully satisfied. None of the undertakings, agreements, warranties, covenants and representations of any Loan Party contained in this Agreement or any of the other Loan Documents and no Event of Default by any Loan Party under this Agreement or any other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Lender and directed to the Loan Parties. SECTION 12 MISCELLANEOUSSECTION 12 MISCELLANEOUS 12.1 Power of Attorney.1 Power of Attorney. Borrower hereby irrevocably designates, makes, constitutes and appoints Lender (and all Persons designated by Lender) as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's agent, may, without notice to Borrower and in either Borrower's or Lender's name, but at the cost and expense of Borrower: 12.1.1. At such time or times as Lender or said agent, in its sole discretion, may determine, endorse Borrower's name on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Lender or under Lender's control for application to the Obligations in accordance with this Agreement. 12.1.2. At such time or times during the existence of an Event of Default, and during the continuance thereof, as Lender or its agent in its sole discretion may determine: (i) demand payment of the Accounts of Borrower from the Account Debtors, enforce payment of such Accounts of Borrower by legal proceedings or otherwise, and generally exercise all of Borrower's rights and remedies with respect to the collection of its Accounts; (ii) in a commercially reasonable manner settle, adjust, compromise, discharge or release any of the Accounts of Borrower or other Collateral or any legal proceedings brought to collect any of the Accounts of Borrower or other Collateral; (iii) sell or assign any of the Accounts of Borrower and other Collateral upon and for such commercially reasonable terms, for such amounts and at such time or times as Lender deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vi) receive, open and dispose of all mail addressed to Borrower and notify postal authorities to change the address for delivery thereof to such address as Lender may designate; (vii) endorse the name of Borrower upon any of the Payment Items or proceeds relating to any Collateral and deposit the same to the account of Lender on account of the Obligations; (viii) endorse the name of such Borrower upon any Chattel Paper, Document, Instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts or Rotable Spare Parts of the Borrower and any other Collateral; (ix) use Borrower's stationery for the purpose of and sign the name of Borrower to verifications of its Accounts and notices thereof to Account Debtors; (x) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts and Rotable Spare Parts of Borrower and any other Collateral; (xi) make and adjust claims under policies of insurance; and (xii) do all other acts and things necessary, in Lender's determination, to fulfill Borrower's obligations under this Agreement. 12.1.3. The power of attorney granted pursuant to this Section 14.1, being coupled with an interest, shall be irrevocable by Borrower until all of the Obligations are paid and satisfied in full. 12.2 Indemnity.2 Indemnity. 12.2.1 Indemnity by Borrower. Borrower hereby agrees to indemnify the Lender and to hold the Lender harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by the Lender (including reasonable attorneys fees and reasonable legal expenses) arising out of or related to this Agreement or any of the other Loan Documents, the performance by Lender of its duties or the exercise of any of its rights and remedies hereunder, on account of, or as the result of, a claim made, asserted or initiated by any Person other than a Loan Party that any Loan Party has failed to observe, perform or discharge such Loan Party's duties hereunder or under any of the Loan Documents. In addition, Borrower shall also indemnify and defend the Lender against and save the Lender harmless from all Claims of any Person with respect to the Collateral. Additionally, if any Taxes (excluding Taxes imposed upon or measured by the net income of the Lender, but including, without limitation, any intangibles tax, stamp tax, recording tax or franchise tax) shall be payable by Lender or by any Loan Party or any of its Subsidiaries on account of the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any of the other Loan Documents, or the creation of any of the Obligations, by reason of any existing or hereafter enacted federal, state, foreign or local statute, rule or regulation, Borrower will pay (or will promptly reimburse Lender for the payment of) all such Taxes, including, without limitation, any interest and penalties thereon, and will indemnify and hold Lender harmless from and against all liability in connection therewith. The foregoing indemnities shall not apply to protect Lender for the consequences of its gross negligence or willful misconduct. 12.2.2 Indemnity by Lender. Lender hereby agrees to indemnify Borrower against any liability, loss, damage or expense which Borrower may suffer or occur as a result of Lender's breach of any of its warranties and representations set forth in Section 4.02 of the Reimbursement Agreement or Lender's failure to comply with any of the covenants set forth in Section 5.03 of the Reimbursement Agreement and Bank's exercise of its rights under Section 6.02 of the Reimbursement Agreement as a result thereof. 12.3 Survival of Indemnities.3 Survival of Indemnities. Notwithstanding any contrary provision in this Agreement or the other Loan Documents, the obligation of the Loan Parties and Lender with respect to each indemnity given by it in this Agreement or any of the other Loan Documents shall survive the payment in full of the Obligations and the termination of this Agreement. 12.4 Modification of Agreement.4 Modification of Agreement. This Agreement may not be modified, altered or amended, except by an agreement in writing signed by each Loan Party and Lender. No Loan Party may sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including, without limitation, such Loan Party's rights, title, interests, remedies, powers, and duties hereunder or thereunder. Each Loan Party hereby consents to Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement and any of the other Loan Documents, or of any portion hereof or thereof, including, without limitation, Lender's rights, title, interests, remedies, powers, and duties hereunder or thereunder; provided, however, no such sale, assignment, participation, transfer or other disposition by Lender will result in any diminution of the rights and obligations of the Loan Parties under this Agreement and the other Loan Documents. In the case of an assignment, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were "Lender" hereunder and Lender shall be relieved of all obligations hereunder upon any such assignments. Each Loan Party agrees that it will use its best efforts to assist and cooperate with Lender in any manner reasonably requested by Lender to effect the sale of participations in or assignments of any of the Loan Documents or any portion thereof or interest therein, including, without limitation, assisting in the preparation of appropriate disclosure documents. Each Loan Party further agrees that Lender may disclose credit information regarding such Loan Party and its Subsidiaries to any potential participant or assignee. 12.5 Severability.5 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12.6 Successors and Assigns. .6 Successors and Assigns. This Agreement, the Other Agreements and the Security Documents shall be binding upon and inure to the benefit of the successors and assigns of Borrower and Lender. 12.7 Cumulative Effect; Conflict of Terms.7 Cumulative Effect; Conflict of Terms. The provisions of the Other Agreements and the Security Documents are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 12.8 Execution in Counterparts.8 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 12.9 Required Lender's Consent.9 Required Lender's Consent. Whenever Lender's consent is required to be obtained under this Agreement or any of the other Loan Documents as a condition to any action, inaction, condition or event, Lender shall be authorized to give or withhold its consent in its sole and absolute discretion and to condition its consent upon the giving of additional collateral security for the Obligations, the payment of money or any other matter. 12.10Notice.10 Notice. All notices, requests and demands to or upon a party hereto, to be effective, shall be in writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile transmission and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given or delivered immediately when delivered against receipt, three (3) Business Days after deposit in the mail, postage prepaid, or, in the case of facsimile transmission, when received (if on a Business Day and, if not received on a Business Day, then on the next Business Day after receipt), or one (1) Business Day after deposit with an overnight courier, addressed as follows: If to Borrower: Atlantic Coast Airlines 515-A Shaw Road Sterling, Virginia 20166 Attention: Director of Treasury Management Facsimile: 703-925-6299 If to Parent: Atlantic Coast Airlines, Inc. 515-A Shaw Road Sterling, Virginia 20166 Attention: Chief Financial Officer Facsimile: 703-925-6299 If to Lender: Fleet Capital Corporation 6100 Fairview Road Suite 200 Charlotte, North Carolina 28210 Attention: Southeast Loan Administration Facsimile No.: 704-553-6738 With a copy to: Carruthers & Roth, P.A. 235 N. Edgeworth Street Greensboro, North Carolina 27401 Attention: Kenneth M. Greene, Esq. Facsimile No.: 336-273-7885 or to such other address as each party may designate for itself by notice given in accordance with this Section 12.10; provided, however, that any notice, request or demand to or upon Lender pursuant to subsection 3.1.1 or 5.2.2 hereof shall not be effective until received by Lender. Any written notice or demand that is not sent in conformity with the provisions hereof shall nevertheless be effective on the date that such notice is actually received by the noticed party. 12.11Credit Inquiries. .11 Credit Inquiries. Each Loan Party hereby authorizes and permits Lender, at its discretion and without any obligation to do so, to respond to credit inquiries from third parties concerning a Loan Party or any of its Subsidiaries. 12.12Time of Essence.12 Time of Essence. Time is of the essence of this Agreement, the Other Agreements and the Security Documents. 12.13Entire Agreement.13 Entire Agreement; Appendix A and Exhibits and Schedules. This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. Appendix A and each of the exhibits and schedules attached hereto are incorporated into this Agreement and by this reference made a part hereof. 12.14Interpretation.14 Interpretation. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 12.15GOVERNING LAW; CONSENT TO FORUM.15 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NORTH CAROLINA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NORTH CAROLINA. EACH OF THE PARTIES HERETO HEREBY CONSENTS AND AGREES THAT ANY STATE OR FEDERAL COURT IN MECKLENBURG COUNTY, NORTH CAROLINA SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG THE LOAN PARTIES AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. EACH PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PARTY HEREBY WAIVES ANY OBJECTION WHICH ANY PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. 12.16WAIVERS.16 WAIVERS. EACH LOAN PARTY WAIVES (i) TO THE FULLEST EXTENT PROVIDED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH THE LOAN PARTIES MAY IN ANY WAY BE LIABLE; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. EACH LOAN PARTY ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH THE LOAN PARTIES. EACH LOAN PARTY WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year specified at the beginning of this Agreement. ATTEST: ATLANTIC COAST AIRLINES ("Borrower") __________________________________ By:____________________________ Richard J. Kennedy. Secretary Thomas J. Moore, Executive Vice President and Chief Operating Officer [CORPORATE SEAL] ATTEST: ATLANTIC COAST AIRLINES HOLDINGS, INC. ("Parent") __________________________________ By:___________________________ Richard J. Kennedy. Secretary Thomas J. Moore, Executive Vice President and Chief Operating Officer [CORPORATE SEAL] Accepted in Charlotte, North Carolina FLEET CAPITAL CORPORATION ("Lender") By:_______________________________________ Title:___________________________________ LIBOR Lending Office: 6100 Fairview Road Suite 200 Charlotte, North Carolina 28210 Attention: Southeast Loan Administration Facsimile No.: 704-553-6738 APPENDIX A GENERAL DEFINITIONS When used in the Amended and Restated Loan and Security Agreement, dated of even date herewith, by and among ATLANTIC COAST AIRLINES ("Borrower"), and ATLANTIC COAST AIRLINES HOLDINGS, INC. ("Parent"; Borrower and Parent being herein collectively called the "Loan Parties" and, individually, a "Loan Party"), and FLEET CAPITAL CORPORATION ("Lender"), the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): ACH - Airline Clearing House, Inc., a Delaware corporation. ACH Agreement - the Associate Membership Agreement, dated January 3, 1992, which incorporates by reference the Agreement Relating to the Settlement of Interline Accounts through Airlines Clearing House, Inc. dated as of February 1, 1948, as amended from time to time, each among ACH, certain air carriers that are and may become party thereto, and Borrower. ACH Procedure Manual - the Manual of Procedure for the clearing and settlement functions of ACH as in effect from time to time. ACH Settlement Date - in the case of ACH transactions between Borrower and an Account Debtor, the twenty-eighth (28th) calendar day of the month following the month in which the air transportation services are rendered and revenues earned, and, in the case of IATA transactions between Borrower and an Account Debtor, the fifteenth (15th) calendar day of the second month following the month in which the air transportation services are rendered and revenues earned, and, if such calendar day falls on a Saturday, Sunday or legal holiday observed by the Clearing Bank, the ACH Settlement Date shall be the next working day. Account - shall have the meaning ascribed to the term "account" under the Code, and shall include, without limitation, any right to payment for goods sold or leased or for services rendered which is not evidenced by an Instrument, Document or Chattel Paper, whether secured or unsecured, and whether or not earned by performance. Account Debtor - any Person who is or may become obligated under or on account of an Account. Accounts Borrowing Base - at any date of determination thereof, an amount equal to seventy-five percent (75%) of the net amount of Eligible Accounts outstanding at such date. For the purposes of calculating the Accounts Borrowing Base, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, at Lender's option, be calculated on shortest terms), sales taxes, credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time (including current amounts owing by Borrower to United under the United Express Agreements). Adjusted LIBOR Rate - with respect to each Interest Period for a LIBOR Rate Loan, an interest rate per annum (rounded to the nearest ten thousandth of 1%) equal to the quotient of (i) the LIBOR Rate in effect for such Interest Period divided by (ii) a percentage (expressed as a decimal) equal to 100% minus Statutory Reserves. Affiliate - as to any Person, any other Person (other than a Subsidiary): (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person; (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock of such Person; or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by such Person or a Subsidiary of such Person. For the purposes of the Agreement, United shall not be deemed an Affiliate of a Loan Party. Agreement - the Loan and Security Agreement referred to in the first sentence of this Appendix A, as the same may hereafter be amended, modified, supplemented or restated from time to time, all exhibits hereto and this Appendix A. Appliance - an instrument, equipment, apparatus, a part, an appurtenance, or an accessory used, capable of being used, or intended to be used, in operating or controlling aircraft in flight, including a parachute, communication equipment, and another mechanism installed in or attached to aircraft during flight, and not a part of an aircraft, aircraft engine, or propeller. Applicable Law - all laws, rules and regulations applicable to the Person, conduct, transaction, covenant or Loan Documents in question, including, but not limited to, all applicable common law and equitable principles; all provisions of all applicable state and federal constitutions, statutes, rules, regulations and orders of governmental bodies; orders, judgments and decrees of all courts and arbitrators and all Environmental Laws. Applicable Percentage - for any day, the rate per annum set forth below opposite the applicable Level then in effect, it being understood that the Applicable Percentage for (i) the Revolver Loans that are LIBOR Rate Loans or Daily LIBOR Loans shall be the percentage set forth in Table I under the column Applicable Percentage for LIBOR Loans, (ii) the Revolver Loans that are Base Rate Loans shall be the percentage set forth in Table I under the column Applicable Percentage for Base Rate Loan, (iii) the portion of the Bridge Loan that are LIBOR Rate Loans or Daily LIBOR Loans shall be the percentage set forth in Table II under the column Applicable Percentage for LIBOR Loans, (iv) the portion of the Bridge Loan that are Base Rate Loans shall be the percentage set forth in Table II under the column Applicable Percentage for Base Rate Loans, (v) the unused line fee shall be the percentage set forth in Table I under the column Applicable Percentage for Unused Line Fee; and (vi) the letter of credit fee shall be the percentage set forth in Table I under the column Applicable Percentage for Letter of Credit Fee: Table I Revolver Loans; Unused Line Fee; Letter of Credit Fee Applicable Applicable ApplicableApplicable Percentage for Percentage for Percentage for Percentage for Level LIBOR Loan Base Rate Loan Unused Line Fee Letter of Credit Fee Level I .75% 0% .25% .75% Level II 1.00% 0% .375% 1.0% Level III 1.25% 0% .375% 1.0% Level IV 1.50% .25% .375% 1.0% Level V 1.75% .25% .375% 1.25% Table II Bridge Loan Applicable Applicable Percentage for Percentage for Level LIBOR Loan Base Rate Loan Level I .25% 0% Level II .50% 0% Level III 0.75% 0% Level IV 1.0% .25% Level V 1.25% .25% The Applicable Percentage shall, in each case, be determined after receipt by Lender of the financial statements as of the end of each fiscal quarter and for that portion of the fiscal year of the Loan Parties then ended which are required to be delivered to Lender in accordance with the provisions of Section 9.1.3(ii) of the Agreement, commencing with the fiscal quarter ending March 31, 1999, and shall be adjusted effective on the first day of the month following the receipt by Lender of such financial statements (each, an "Adjustment Date"). Such Applicable Percentage shall be effective from such Adjustment Date until the next such Adjustment Date. The initial Applicable Percentages shall be based on Level IV until the first Adjustment Date occurring after March 31, 1999. Authority - the Metropolitan Washington Airports Authority. Availability - the amount of money which Borrower is entitled to borrow from time to time as Revolver Loans, such amount being the difference derived when the sum of the principal amount of Revolver Loans then outstanding (including any amounts which Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and which have not been reimbursed by Borrower) is subtracted from the Borrowing Base. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is zero (0). Availability Reserve - On any date of determination thereof, an amount equal to the sum of (i) any amounts of past due rent or other charges (other than project rental as specified in the Lease) owing at such time by Borrower to the Authority under the Lease; (ii) any amounts which Borrower is obligated to pay pursuant to the provisions of the Loan Documents but does not pay when due and which Lender elects to pay pursuant to any of the Loan Documents for the account of Borrower; (iii) the estimated cost of services ordered by Borrower from United under the United Express Emergency Response Agreement; (iv) the amount of all Letter of Credit Obligations outstanding at such date except for those with respect to the Bond Letter of Credit and the Bond Letter of Credit Guaranty; and (v) such reserves established by Lender in such amounts, and with respect to such matters, events, conditions or contingencies as to which Lender, in its credit judgment based upon its usual and customary credit and collateral considerations, determines reserves should be established from time to time, including, without limitation, with respect to (1) improper billings, other billing and settlement errors which occur from time to time under the ACH Procedures Manual, (2) any diminution in the value of any of the Rotable Spare Parts, to the extent not otherwise taken into account in the calculation of the Rotable Spare Parts Borrowing Base, and (3) other sums chargeable against Borrower's Loan Account as Revolver Loans under any section of the Agreement. Average Monthly Revolver Loan and Letter of Credit Balance - the amount obtained by adding the aggregate unpaid balance of all Revolver Loans and Letter of Credit Obligations outstanding at the end of each day during the month in question and by dividing that sum by the number of days in such month. Average Monthly Revolver Loan Balance - the amount obtained by adding the aggregate unpaid balance of all Revolver Loans and all Letter of Credit Obligations except for the Letter of Credit Obligations arising under the Bond Letter of Credit Guaranty, in each case which are outstanding at the end of each day during the month in question and by dividing that sum by the number of days in such month. Bank - Fleet National Bank, and its successors and assigns. Base Rate - the rate of interest announced or quoted by Bank from time to time as its base rate for commercial loans, whether or not such rate is the lowest rate charged by Bank to its most preferred borrowers; and, if such base rate for commercial loans is discontinued by Bank as a standard, a comparable reference rate designated by Bank as a substitute therefor shall be the Base Rate. Base Rate Loan - a Loan, or portion thereof, during any period in which it bears interest at a rate based upon the Base Rate. Board of Governors - the Board of Governors of the Federal Reserve System of the United States. Bond Documents - collectively, the Bond Loan Agreement, the Bonds, the Indenture, the Reimbursement Agreement, and all guaranties, agreements, opinions, certificates or assurances executed in connection therewith. Bond Letter of Credit - Bank's irrevocable, transferable direct-pay letter of credit in substantially the form of Exhibit A to the Reimbursement Agreement in the original undrawn amount of $9,579,932. Bond Letter of Credit Guaranty - the guaranty by Lender of the reimbursement and other obligations owing by Borrower to Bank in respect of the Bond Letter of Credit as set forth in the Reimbursement Agreement Bond Loan Agreement - that certain Financing Agreement dated June 1, 1997 between the Issuer and the Borrower, pursuant to which the proceeds of the sale of the Bonds will be used by the Borrower for the purpose of financing the cost of construction of a maintenance facility and associated access roadway, vehicle parking and maneuvering areas and aircraft paving aprons on land controlled by the Authority. Bond Trustee - FMB Trust Company, National Association. Bonds - Issuer's Variable Rate Demand/Fixed Rate Revenue Bonds (Atlantic Coast Airlines Project) Series 1997 in the aggregate principal amount of $9,425,000. Borrowing - a borrowing of one or more Loans, including Bridge Loan Advances, made on the same day by Lender. . Borrowing Base - as at any date of determination thereof, an amount equal to the sum of: (i) the Accounts Borrowing Base at such date; PLUS (ii) subject to the provisions of Section 6.6 of the Agreement, the Rotable Spare Parts Borrowing Base at such date; MINUS (iii) the Availability Reserve. Borrowing Base Certificate - A certificate of an officer of Borrower certifying to Lender the amount and value of all of Borrower's Eligible Accounts and Eligible Rotable Spare Parts, and other information about the Collateral reasonably requested by Lender, as of a specific date, such certificate to be in form and detail reasonably satisfactory to Lender. Bridge Loan - the Loan to Borrower by Lender as provided in Section 1.2 of the Agreement. Bridge Loan Advance - the principal amount of loans, advances and disbursements made by Lender to Borrower pursuant to Section 1.2 of the Agreement with respect to the Bridge Loan. Bridge Note - the Bridge Note to be executed by Borrower in favor of Lender on or about the Closing Date in the form of Exhibit A hereto. Bridge Loan Maturity Date - the date that is the earlier to occur of (a) September 30, 2000 or (b) the date on which the Obligations have been declared or have automatically become due and payable pursuant to Section 11.2 of the Agreement. Bridge Loan Obligations - that portion of the Obligations consisting of the principal of, and interest on, the Bridge Loan, and all expenses, fees, attorneys' fees and any other amounts chargeable to, or to be paid by, Borrower or any Guarantor under any of the Loan Documents, in connection with the enforcement by Lender of its rights to collect the Bridge Loan from Borrower or any Guarantor in accordance with the terms of the Loan Documents or to collect the Escrow Funds from the Escrow Agent or otherwise realize upon the Escrow Funds. Business Day - any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of North Carolina or is a day on which banking institutions located in such states are closed, provided, however, that when used with reference to a LIBOR Rate Loan (including the making, continuing, prepaying or repaying of any LIBOR Rate Loan for an Interest Period), the term "Business Day" shall also exclude any day on which banks are not opened for dealings in dollar deposits on the London interbank market. Cash Collateral - cash deposited with Lender in accordance with the Agreement as security for the Obligations to the extent provided in the Agreement. Cash Collateral Account - an interest-bearing account established by Lender on its books and to which Lender shall credit all Cash Collateral deposited with Lender in accordance with the Agreement. Capital Expenditures - expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life of more than one year, including the total principal portion of Capitalized Lease Obligations. Capitalized Lease Obligation - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. Cash Equivalents - (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government and backed by the full faith and credit of the United States Government having maturities of not more than twelve (12) months from the date of acquisition; (ii) certificates of deposit and time deposits (including eurodollar time deposits) having maturities of not more than twelve (12) months from the date of acquisition, and banker's acceptances having maturities of not more than twelve (12) months from the date of acquisition and overnight bank deposits, which in each case (unless issued by Lender) are not subject to offset rights in favor of such bank arising from any banking relationship with such bank; (iii) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clauses (i) and (ii); (iv) commercial paper having a maturity within nine (9) months after the date of acquisition thereof; (v) money market mutual funds; (vi) municipal auction rate preferred instruments; (vii) corporate auction rate preferred instruments; (viii) municipal auction rate bonds; and (ix) variable rate demand notes. Chattel Paper - shall have the meaning ascribed to "chattel paper" under the Code. Claim - any and all claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including reasonable attorneys' fees and expenses), whether arising under or in connection with the Loan Documents, under any Applicable Law (including any Environmental Law) or otherwise. Clearing Bank - The Chase Manhattan Bank, and any successor clearing bank under the ACH Procedure Manual. Clearing Bank Account - the account maintained by Borrower at the Clearing Bank in which, pursuant to the ACH Procedure Manual, all funds due and payable to Borrower are credited. Closing Date - the date on which all of the conditions precedent in Section 10 of the Agreement are satisfied and the initial Loan is made under the Agreement. Code - the Uniform Commercial Code as adopted and in force in the State of North Carolina, as from time to time in effect. Collateral - all of the Property and interests in Property of Borrower described in Section 6 of the Agreement, and all other Property and interests in Property of Borrower or any other Person that now or hereafter secure the payment and performance of any of the Obligations. Consolidated - the consolidation in accordance with GAAP of the accounts or other items as to which such term applies. Consolidated Adjusted Net Earnings From Operations - with respect to any Person for any fiscal period, means the net earnings (or loss) after provision for income taxes for such fiscal period of such Person as reflected on the financial statements of such Person supplied to Lender pursuant to Section 9.1.3 of the Agreement, but excluding: (i) any gain or loss arising from the sale of capital assets; (ii) any gain arising from any write-up of assets; (iii) earnings of any Subsidiary of such Person accrued prior to the date it became a Subsidiary of such Person; (iv) earnings of any corporation, substantially all the assets of which have been acquired in any manner by such Person, realized by such corporation prior to the date of such acquisition; (v) any portion of the net earnings of any Subsidiary of such Person which for any reason is unavailable for payment of dividends to such Person; (vii) the earnings of any Person to which any assets of such Person shall have been sold, transferred or disposed of, or into which such Person shall have merged, or been a party to any consolidation or other form of reorganization, prior to the date of such transaction; (viii) any gain or loss arising from the acquisition of any Securities of such Person; and (ix) any gain or loss arising from extraordinary or non-recurring items. Consolidated Cash Flow -with respect to any Person for any fiscal period, the sum of (i) Consolidated Adjusted Net Earnings From Operations of such Person for such fiscal period, plus (ii) depreciation and amortization expense of such Person for such fiscal period which were subtracted from earnings in calculating Consolidated Adjusted Earnings From Operations of such Person for such fiscal period, minus (iii) Capital Expenditures not financed by Purchase Money Indebtedness which are incurred by such Person during such fiscal period, minus (iv) Distributions paid by such Person during such fiscal period. Consolidated Current Assets - with respect to any Person at any date, the amount at which all of the Consolidated current assets of such Person would be properly classified as Consolidated current assets shown on a Consolidated balance sheet of such Person at such date in accordance with GAAP except that amounts due from Affiliates and investments in Affiliates shall be excluded therefrom. Consolidated Current Liabilities - with respect to any Person at any date, the amount at which all of the Consolidated current liabilities of such Person would be properly classified as Consolidated current liabilities on a Consolidated balance sheet of such Person at such date in accordance with GAAP. Consolidated EBITDA - with respect to any Person for any fiscal period, the sum of (i) Consolidated Adjusted Net Earnings From Operations of such Person for such fiscal period, plus (ii) interest, taxes, depreciation and amortization expenses of such Person for such fiscal period which were subtracted from earnings in calculating Consolidated Adjusted Net Earnings From Operations of such Person for such fiscal period. Consolidated EBITDA - with respect to any Person for any fiscal period, the sum of (i) Consolidated EBITDA of such Person for such fiscal period, plus (ii) rental expenses of such Person for such fiscal period which were subtracted from earnings in calculating Consolidated Adjusted Net Earnings From Operations of such Person for such fiscal period. Consolidated Fixed Charges - with respect to any Person for any period, the sum of (i) interest expense of such Person for such period in respect of all of its Indebtedness for Money Borrowed, plus (ii) regularly scheduled payments of principal on Indebtedness for Money Borrowed required to be paid by such Person during such period, plus (iii) rentals for aircraft, engines and propellers required to be paid by such Person during such period. Consolidated Fixed Charges Coverage Ratio - on the determination thereof with respect to any Person at the end of each Testing Period, the ratio of (i) Consolidated EBITDA of such Person for such Testing Period to (ii) Consolidated Fixed Charges required to be paid by such Person during such Testing Period. Consolidated Leverage Ratio - with respect to any Person at any date, means the ratio of (i) Indebtedness of such Person and its Subsidiaries at such date to (ii) Consolidated Net Worth of such Person and its Subsidiaries at such date. Consolidated Net Worth - with respect to any Person at any date, the total stockholders' equity of such Person and its Subsidiaries shown on its Consolidated balance sheet at such date in accordance with GAAP. Consolidated Senior Indebtedness/Consolidated EBITDA Ratio - on the determination thereof with respect to any Person at the end of each Testing Period, the ratio of (i) the aggregate principal balance of all Senior Indebtedness for Money Borrowed of such Person outstanding at the end of such Testing Period to (ii) Consolidated EBITDA of such Person for the Testing Period then ended. Convertible Subordinated Notes - the 7% Event Convertible Subordinated Notes issued by Parent pursuant to an Indenture dated July 2, 1997 between Parent and First Union National Bank of Virginia which have a scheduled maturity date of July 1, 2004, as outstanding on the Closing Date. Daily LIBOR Loan - a Loan, or any portion thereof, during any period in which it bears interest at a rate based upon the Daily LIBOR Rate. Daily LIBOR Rate - for each day that such rate is in effect under the Agreement, an interest rate per annum equal to the quotient of (a) the Fleet Bank Posted LIBOR Rate in effect for such day divided by (b) a percentage (expressed as a decimal) equal to 100% minus Statutory Reserves. Deed of Trust - the Credit Line Leasehold Deed of Trust and Security Agreement executed by Borrower on or about June 1, 1997 in favor of the trustees named therein for the benefit of Lender, as it may be amended, modified, supplemented or restated from time to time, by which Borrower has granted and conveyed to the trustees for the benefit of Lender, as security for $9,579,932 of the Obligations, Liens upon Borrower's leasehold estate in the Realty leased by Borrower from the Authority pursuant to the Lease. Default - an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. Default Rate - a rate per annum equal to two percent (2%) in excess of the interest rates otherwise applicable to the Loans. Distribution - in respect of any corporation means and includes: (i) the payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock) and (ii) the redemption or acquisition of Securities (or any warrant or option for the purchase of any such Securities) unless made contemporaneously from the net proceeds of the sale of Securities. Document - shall have the meaning ascribed to the term "document" under the Code. Dollars - and the sign $ shall refer to currency of the United States of America. Eligible Account - an inter-airline Account of Borrower arising and created in the ordinary course of Borrower's business from the rendition of air transportation and related services which Lender, in its sole credit judgment, based upon its usual and customary credit and collateral considerations, deems to be an Eligible Account. To be an Eligible Account, such Account must be subject to Lender's perfected Lien and no other Lien other than a Permitted Lien, must be cleared and collected through the Clearing Bank pursuant to the ACH Procedure Manual, and must be billed monthly by a recap sheet submitted to ACH, no later than the nineteenth (19th) day of each month, for all air transportation and related services rendered and revenues earned during the preceding month. Without limiting the generality of the foregoing, no Account of Borrower shall be an Eligible Account if: (i) it arises out of air transportation and related services rendered by Borrower to a Subsidiary, or an Affiliate of Borrower, or to a Person controlled by an Affiliate of Borrower; or (ii) payment of such Account is not received from the ACH within fifteen (15) days after the ACH Settlement Date for such Account; or (iii) any covenant, representation or warranty contained in the Agreement with respect to such Account has been breached; or (iv) in the case of Accounts owing by United, are subject to any right of offset other than United's right of setoff for amounts owing under the United Express Agreements, and, in the case of all other Accounts, the Account Debtor is also Borrower's creditor or supplier, or the Account Debtor has disputed liability with respect to such Account, or the Account Debtor has made any claim with respect to any other Account due from such Account Debtor to Borrower, or the Account otherwise is subject to any right of setoff by the Account Debtor; or (v) the Account Debtor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in the premises in respect of the Account Debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other petition or other application for relief under the federal bankruptcy laws has been filed against the Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or (vi) the Account is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to judgment; or (vii) the Account is contingent in any respect or for any reason; or (viii) the Account Debtor is the United States of America or any department, agency or instrumentality thereof, unless Borrower assigns its right to payment of such Account to Lender, in a manner satisfactory to Lender, so as to comply with the Assignment of Claims Act of 1940 (31 U.S.C. 203 et seq., as amended); or (ix) the Account is subject to a Lien other than a Permitted Lien; or (x) the air transportation and related services giving rise to such Account have not been performed by Borrower or the Account otherwise does not represent a final sale; or (xi) Borrower has made any agreement with the Account Debtor for any deduction therefrom, except, in the case of Accounts owing by United, United's right of setoff for amounts owing under the United Express Agreements; or (xii) Borrower has made an agreement with the Account Debtor to extend the time of payment thereof; or (xiii) Borrower has failed to comply with the provisions of Section 7.2.1 with respect to such Account and the Account Debtor obligated thereon; or (xiv) It is not based upon or evidenced by passenger tickets, exchange orders or other passenger billing documents which have been separated and put into batches in accordance with the requirements of the ACH Procedure Manual. Eligible Rotable Spare Parts - such Rotable Spare Parts of Borrower which Lender, in its sole credit judgment, based upon its usual and customary credit and collateral considerations, deems to be Eligible Rotable Spare Parts. Without limiting the generality of the foregoing, no Rotable Spare Parts shall be Eligible Rotable Spare Parts unless: (i) it is in airworthy condition in accordance with all Applicable Laws, including all applicable FAA rules and regulations, and is not obsolete; (ii) it meets all standards imposed by any applicable governmental agency or authority; (iii) it conforms in all respects to the warranties and representations set forth in the Agreement; (iv) Lender shall have (and shall have received reasonably satisfactory evidence of) a first priority perfected Lien in such Rotable Spare Parts and such Rotable Spare Parts shall not be subject to any other Lien except a Permitted Lien that is not a Purchase Money Lien; (v) it is situated at a location in compliance with the Agreement; and (vi) it is owned outright by Borrower and not held by Borrower on consignment or other sale or return basis. Environmental Laws - all federal, state and local laws, rules, regulations, ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety and environmental matters. ERISA - the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations from time to time promulgated thereunder. Escrow Agent - FMB Trust, N.A., a national banking association. Escrow Funds - cash in the amount of $15,000,000 deposited by the Authority with the Escrow Agent pursuant to the terms of the Escrow Agreement as security for the Bridge Loan Obligations. Escrow Agreement - the Escrow Agreement dated on or about the Closing Date among Borrower, the Authority and the Escrow Agent, in form and substance satisfactory to Lender, by which the Authority deposits with the Escrow Agent the Escrow Funds to be held by the Escrow Agent as security for the Bridge Loan Obligations and disbursed in the manner set forth therein. Eurocurrency Liabilities - shall have the meaning ascribed thereto in Regulation D issued by the Board of Governors. Event of Default - as defined in Section 11.1 of the Agreement. FAA - the Federal Aviation Administration, an agency of the United States of America. Existing Loan Agreement - the Loan and Security Agreement, dated October 12, 1995, between Lender and the Loan Parties, as in effect on the Closing Date. GAAP - generally accepted accounting principles in the United States of America in effect from time to time. General Intangibles - with respect to any Person, all general intangibles of such Person, including, without limitation, all choses in action, causes of action, corporate or other business records, deposit accounts, inventions, blueprints, designs, patents, patent applications, trademarks, trademark applications, trade names, trade secrets, service marks, goodwill, brand names, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, computer programs, operational manuals, all claims under guaranties, security interests or other security held by or granted to such Person to secure payment of any of the Accounts by an Account Debtor, all rights to indemnification and all other intangible property of every kind and nature (other than Accounts). General Intangibles shall not include any landing slots of Borrower at any airport. Guarantor - Parent and any other Person who may hereafter guarantee payment or performance of the whole or any part of the Obligations. Guaranty Agreement - the Guaranty Agreement executed by each Guarantor in form and substance satisfactory to Lender. Hazardous Material - any pollutants, contaminants, chemicals, toxic or hazardous substance or material defined as such in (or for purposes of) the Environmental Laws, including without limitation, any waste constituents coming within the definition or list of hazardous substances in 40 C.F.R. 261.1 through 261.33. Hedging Obligations - with respect to any Person, all liabilities of such Person under interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, foreign exchange contracts, currency swap agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. IATA - International Air Transport Association. Improvements - the construction of a maintenance facility and associated access roadway, vehicle parking and maneuvering areas and aircraft paving aprons on the Realty. Indebtedness - as applied to a Person means, without duplication: (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations, (ii) all obligations of other Persons which such Person has guaranteed, (iii) in the case of Borrower (without duplication), the Obligations. Indenture - that certain Indenture of Trust, dated June 1, 1997, between the Issuer and the Bond Trustee pursuant to which Issuer has issued the Bonds. Instrument - shall have the meaning ascribed to the term "instrument" under the Code. Interest Period - as defined in Section 2.1.4 of the Agreement. Internal Revenue Code - the Internal Revenue Code of 1986, as amended from time to time. Issuer - the Industrial Development Authority of Loudoun County, Virginia. Lease - that certain Ground Lease Agreement, dated June 23, 1997 between the Authority and the Borrower. Letter of Credit - any letter of credit issued by Lender or any of Lender's Affiliates for the account of Borrower pursuant to the Agreement. Letter of Credit Amount - at any time, the aggregate undrawn face amount of all Letters of Credit and Letter of Credit Guaranties then outstanding. Letter of Credit Guaranty - any guaranty issued by Lender pursuant to which Lender shall guarantee the payment or performance by Borrower of its reimbursement obligations under a Letter of Credit. Letter of Credit Obligations - that portion of the Obligations constituting Borrower's obligation to reimburse Lender for all amounts paid by Lender under or with respect to a Letter of Credit Guaranty. Level - as at the determination thereof at the end of each Testing Period, the level set forth below corresponding to the Consolidated Fixed Charges Coverage Ratio as of the end of such Testing Period: Level Ratio Level I >2.5 Level II >2.2 but 2.5 Level III >2.0 but 2.2 Level IV >1.7 but 2.0 Level V 1.7 LIBOR Lending Office - with respect to Lender, the office designated as the LIBOR Lending Office for Lender on the signature pages of the Agreement (or on any Assignment and Acceptance, in the case of an assignee) and such other office of Lender or any of its Affiliates that is hereafter designated by notice to Lender. LIBOR Rate - with respect to an Interest Period, the rate per annum determined by Lender at which deposits of Dollars of amounts equal to or comparable to the amount of the LIBOR Rate Loan to which such Interest Period relates and for a term comparable to such Interest Period are offered to Bank by prime banks in the London interbank foreign currency deposits market at approximately 11:00 o'clock a.m., London time, two (2) Business Days prior to the first day of such Interest Period. Each determination by Lender of any LIBOR Rate shall, in the absence of manifest error, be conclusive. LIBOR Rate Loan - a Loan, or portion thereof, during any period in which it bears interest at a rate based upon the applicable Adjusted LIBOR Rate. Lien - any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of this Agreement, Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. Loan - the Bridge Loan and the Bridge Loan Advances made thereunder, a Revolver Loan or all or any of them as the context may require. Loan Account - the loan account established on the books of Lender pursuant to Section 4.10 of the Agreement. Loan Documents - the Agreement, the Other Agreements and the Security Documents. Margin Stock - shall have the meaning ascribed to it in Regulation U of the Board of Governors. Material Adverse Effect - the effect of any event or condition which, alone or when taken together with other events or conditions occurring or existing concurrently therewith, (i) has or may be reasonably expected to have a material adverse effect upon the business, operations, Properties, condition (financial or otherwise) of the Loan Parties and their respective Subsidiaries taken as a whole; (ii) has or may be reasonably expected to have any material adverse effect whatsoever upon the validity or enforceability of the Agreement or any of the other Loan Documents; (iii) has or may be reasonably expected to have any material adverse effect upon the Collateral, the Liens of Lender with respect to the Collateral or the priority of such Liens; or (iv) materially impairs the ability of the Loan Parties and their respective Subsidiaries or any Guarantor to perform their respective obligations under the Agreement, any Guaranty Agreement or any of the other Loan Documents or of Lender to enforce or collect the Obligations or realize upon any of the Collateral in accordance with the Loan Documents and Applicable Law. Maximum Rate - the maximum non-usurious rate of interest permitted by Applicable Law that at any time, or from time to time, may be contracted for, taken, reserved, charged or received on the Indebtedness in question or, to the extent permitted by Applicable Law, under such Applicable Law that may hereafter be in effect and which allow a higher maximum non-usurious interest rate than Applicable Law now allows. Notwithstanding any other provision hereof, the Maximum Rate shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 365 or 366 days, as the case may be). Money Borrowed - with respect to any Person, (i) Indebtedness arising from the lending of money by any other Person to such Person; (ii) Indebtedness, whether or not in any such case arising from the lending by any other Person of money to such Person, (a) which is represented by notes payable or drafts accepted that evidence extensions of credit, (b) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (c) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) Indebtedness of such Person under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by such Person. Moody's - Moody's Investors Service, Inc., or any successor thereto. Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of ERISA. Notice of Borrowing - as defined in Section 3.1.1(i) of the Agreement. Notice of Conversion/Continuation - as defined in Section 2.1.4(ii) of the Agreement. Obligations - collectively, (i) the Loans and all other sums loaned or advanced by Lender to or on behalf of Borrower pursuant to the Agreement or the other Loan Documents, (ii) all liabilities, indebtedness and obligations now or any time hereafter owing by Borrower or any Guarantor to Lender under the Agreement or any of the other Loan Documents, (iii) Hedging Obligations in respect of the Loans owing to Lender or an Affiliate thereof (unless the Lender or such Affiliate otherwise agrees in writing), (iv) the Bridge Loan Obligations, and (iv) all other liabilities, indebtedness and obligations of any and every kind now or hereafter owing or to become due from Borrower or any Guarantor in respect of the Loans. The term includes, without limitation, all principal, interest, charges, expenses, fees, attorneys' fees and any other sums chargeable to, or to be paid by, Borrower or any Guarantor under any of the Loan Documents. Original Closing Date - October 12, 1995. Original Term - as defined in Section 5.1 of the Agreement. Other Agreements - any and all agreements, instruments and documents (other than the Agreement and the Security Documents), heretofore, now or hereafter executed by a Loan Party, any Subsidiary of a Loan Party, or any other third party and delivered to Lender in respect of the transactions contemplated by the Agreement. Overadvance - a Revolver Loan made by Lender when an Overadvance Condition exists or would result from the making of such Revolver Loan. Overadvance Condition - at any date, a condition such that the principal amount of the Revolver Loans outstanding to Borrower on such date exceeds the lesser of the Borrowing Base or the Revolver Facility Amount on such date. Participating Lender - any Person who shall be granted the right by Lender to participate in any of the Loans described in the Agreement and who shall have entered into a participation agreement in form and substance satisfactory to Lender. Payment Account - an account maintained by Lender to which all monies from time to time deposited to a Dominion Account shall be transferred and all other payments shall be sent in immediately available federal funds. Payment Item - all checks, drafts or other items of payment payable to Borrower, including proceeds of any of the Collateral. Permitted Liens - any Lien of a kind specified in Section 9.2.4 of the Agreement. Person - an individual, partnership, corporation, limited liability company, joint stock company, land trust, business trust, unincorporated organization, or a government or agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for employees of a Loan Party that is covered by Title IV of ERISA. Projections - the Loan Parties' forecasted Consolidated (i) balance sheets, (ii) profit and loss statements, and (iii) cash flow statements, all prepared on a consistent basis with the Loan Parties' historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. Properly Contested -in the case of any Indebtedness of any Loan Party or any of its Subsidiaries (including, but not limited to, any Taxes) that is not paid as and when due or payable by reason of such Loan Party's or any Subsidiary's bona fide dispute concerning its liability to pay same or concerning the amount thereof, that (i) such Indebtedness is being properly contested in good faith by appropriate proceedings promptly instituted and diligently conducted, (ii) such Loan Party has estab lished appropriate reserves as shall be required in conformity with GAAP, (iii) the non-payment of such Indebtedness will not have a Material Adverse Effect; (iv) no Lien is imposed upon such Loan Party's or any Subsidiary's Property with respect to such Indebtedness unless such Lien is at all times junior and subordinate in priority to the Liens in favor of Lender (except only with respect to Taxes that have priority as a matter of any state's Applicable Laws); and (v) if such contest is abandoned, settled or determined adversely to such Loan Party or any of its Subsidiaries, such Loan Party forthwith pays such Indebtedness and all penalties and interest in connection therewith. Property - any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Purchase Money Indebtedness - means and includes (i) Indebtedness (other than the Obligations) for the payment of all or any part of the purchase price of any Property, (ii) any Indebtedness (other than the Obligations) incurred at the time of or within ten (10) days prior to or after the acquisition of any Property for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof. Purchase Money Lien - a Lien upon Rotable Spare Parts which secures Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the Rotable Spare Parts the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien and shall not extend to any other Property of Borrower. Realty - the tract or parcels of real property leased by Borrower from the Authority pursuant to the Lease, together with the Improvements and the fixtures attached thereto. Regulation D - Regulation D of the Board of Governors. Reimbursement Agreement - that certain Letter of Credit and Reimbursement Agreement, dated June 1, 1997, among the Bank, Lender and Borrower, pursuant to which Bank issued the Bond Letter of Credit, as amended, modified, supplemented or restated from time to time. Related United Express Agreements - those agreements between United and Borrower described on Schedule A attached hereto, as the same may be amended, modified, supplemented or restated from time to time. Remarketing Agent - shall have the meaning ascribed to such term in the Indenture. Renewal Term - as defined in Section 5.1 of the Agreement. Reportable Event - any of the events set forth in Section 4043(b) of ERISA. Restricted Investment - any investment made in cash or by delivery of Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance, deposit, capital contribution or otherwise, or in any Property except the following: (i) investments in one or more Subsidiaries of a Loan Party to the extent existing on the Closing Date; (ii) Property to be used in the ordinary course of business; (iii) Consolidated Current Assets arising from the sale of goods and services in the ordinary course of business of a Loan Party and its Subsidiaries; (iv) cash and Cash Equivalents; and (v) investments in certificates of deposit (a) which issues a letter of credit for the account of a Loan Party, (b) securing the reimbursement obligations of a Loan Party with respect to such letter of credit, and (c) maturing on a date corresponding to the expiration date of such letter of credit. Revolver Facility Amount - at any date of the determination thereof, the sum of (i) Thirty Five Million Dollars ($35,000,000), less (ii) the Letter of Credit Amount at such date. Revolver Loan - a Loan made by Lender to Borrower as provided in Section 1.1 of the Agreement. Rotable Spare Parts - those Spare Parts which can be economically restored to a serviceable condition and, in the normal course of operations, can be repeatedly rehabilitated to a fully serviceable condition over a period approximating the life of the flight equipment to which it is related. Rotable Spare Parts Borrowing Base - at any date of determination thereof, the lesser of (a) $8,000,000 or (b) sixty percent (60%) of the aggregate value of Borrower's Eligible Rotable Spare Parts at such date, in each case calculated on the basis of lower of book value or market value, with book value calculated on the basis of original cost less accumulated depreciation in accordance with GAAP. Rotable Spare Parts Security Agreement - the Rotable Spare Parts Security Agreement to be executed by Borrower on or about the Closing Date, in form and substance satisfactory to Lender, by which Borrower shall grant Lender Liens in all of its Rotable Spare Parts, whether now owned or hereafter acquired, as security for the Obligations. Security - shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. Security Documents - the Rotable Spare Parts Security Agreement, the Escrow Agreement, the Deed of Trust, each Guaranty Agreement, and all other instruments and agreements now or at any time hereafter securing the whole or any part of the Obligations. Senior Indebtedness for Money Borrowed - with respect to any Person, all of such Person's Indebtedness for Money Borrowed except for Subordinated Debt. Solvent - as to any Person, such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is generally able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. Spare Parts - (a) an accessory, appurtenance or part of (i) an aircraft (except an aircraft engine or propeller), (ii) aircraft engine (except a propeller), or (iii) propeller, or (b) an Appliance, that is to be installed at a later time in an aircraft, aircraft engine, propeller or Appliance. Spare Parts shall not include any aircraft engines, propellers or quick engine change kits now owned or hereafter acquired by Borrower. Statutory Reserves - on any date, the percentage (expressed as a decimal) established by the Board of Governors which is the then stated maximum rate for all reserves (including, but not limited to, any emergency, supplemental or other marginal reserve requirements) applicable to any member bank of the Federal Reserve System in respect to Eurocurrency Liabilities (or any successor category of liabilities under Regulation D). Such reserve percentage shall include, without limitation, those imposed pursuant to said Regulation D. The Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in such percentage. Subordinated Debt - the Convertible Subordinated Notes and any other Indebtedness of a Loan Party that is subordinated to the Obligations in a manner and upon terms satisfactory to Lender. Subsidiary - any corporation of which a Person owns, directly or indirectly through one or more intermediaries, more than 50% of the Voting Stock at the time of determination. Taxes - any present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other charges of whatever nature, including income, receipts, excise, property, sales, use, transfer, license, payroll, withholding, social security and franchise taxes now or hereafter imposed or levied by the United States, or any state, local or foreign government or by any department, agency or other political subdivision or taxing authority thereof or therein and all interest, penalties, additions to tax and similar liabilities with respect thereto, but excluding, in the case of Lender, taxes imposed on or measured by the net income or overall gross receipts of Lender. Testing Period - each period of four (4) consecutive fiscal quarters. Type - the type of Loan, which shall either be a LIBOR Rate Loan or a Base Rate Loan. United -United Airlines, Inc., a Delaware corporation. United Express Agreements -the United Express Operating Agreement and the Related United Express Agreements or any one or more of them as the context may require. United Express Emergency Response Agreement - the Emergency Response Services Agreement between United and Borrower dated June 23, 1995, which constitutes one of the United Express Related Agreements. United Express Operating Agreement - the United Express Agreement between United and Borrower, dated October 1, 1991, as the same is amended, modified, supplemented or restated from time to time, pursuant to which, among other things, Borrower has acquired a non- exclusive license to use trademarks, service marks, trade names, and logos and related intellectual property rights in the operations of Borrower's business. United Express Termination Date - the termination date of the United Express Operating Agreement as that date may be modified pursuant to the terms of the United Express Operating Agreement and as may be permitted by the terms of the Agreement. United Non-Offset Agreement - the non-offset agreement, dated October 12, 1995, executed by Lender and United pursuant to which United agreed to limit its right of setoff against Borrower to current amounts owing by Borrower to United under the United Express Agreements, as amended by amendment thereto dated on or about the Closing Date. Voting Stock - Securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). Other Terms. All other terms contained in the Agreement shall have, when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein. Accounting terms not otherwise specifically defined herein shall be construed in accordance with GAAP consistently applied. Certain Matters of Construction. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole and not to any particular section, paragraph or subdivision. Whenever in the Agreement the word "including" is used, it is understood to mean "including, without limitation". Any pronoun used shall be deemed to cover all genders. The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of the Agreement. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any of the Loan Documents shall include any and all modifications thereto and any and all extensions or renewals thereof. All references to any Person shall mean and include successors and permitted assigns of such Person. All references to "including" and "include" shall be understood to mean "including, without limitation". IN WITNESS WHEREOF, the parties have caused this Appendix to be duly executed by their duly authorized officers on February 8, 1999. ATTEST: ATLANTIC COAST AIRLINES ("Borrower") __________________________ By:___________________________________ Richard J. Kennedy. Secretary Thomas J. Moore, Executive Vice President and Chief Operating Officer [CORPORATE SEAL] ATTEST: ATLANTIC COAST AIRLINES HOLDINGS, INC. ("Parent") _________________________ By:______________________________ Richard J. Kennedy. Secretary Thomas J. Moore, Executive Vice President and Chief Operating Officer [CORPORATE SEAL] FLEET CAPITAL CORPORATION ("Lender") By:_______________________________________ Title:___________________________________ EX-10 8 EXHIBIT 10.24 ATLANTIC COAST AIRLINES HOLDINGS, INC. 1995 STOCK INCENTIVE PLAN (AS AMENDED AS OF MAY 5, 1998, AND ADJUSTED TO REFLECT MAY 15, 1998 STOCK SPLIT) SECTION 1. Purpose of the Plan. The purpose of this 1995 Stock Incentive Plan effective October 18, 1995 ("Plan") is to encourage ownership of common stock, $.01 par value ("Common Stock"), of Atlantic Coast Airlines Holdings, Inc., a Delaware corporation (the "Company"), by eligible key employees and directors of the Company and its Affiliates (as defined below) and to provide increased incentive for such employees and directors to render services and to exert maximum effort for the business success of the Company through grants of options and other stock-based awards. In addition, the Company expects that the Plan will further strengthen the identification of employees and directors with the stockholders. Options granted under this Plan may be intended to qualify as Incentive Stock Options ("ISOs") pursuant to Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), or may be options which are not intended to qualify as ISOs ("Nonqualified Options"), either or both as provided in the agreements evidencing the options as provided in Section 6 hereof. As used in this Plan, the term "Affiliates" means any "parent corporation" of the Company and any "subsidiary corporation" of the Company within the meaning of Code Sections 424(e) and (f), respectively. SECTION 2. Administration of the Plan. (a) Composition of Committee. The Plan shall be administered by one or more committees of the Board (any such committee, the "Committee"). If no persons are designated by the Board to serve on the Committee, the Plan shall be administered by the Board and all references herein to the Committee shall refer to the Board. The Board shall have the discretion to appoint, add, remove or replace members of the Committee, and shall have the sole authority to fill vacancies on the Committee. Unless otherwise provided by the Board: (i) with respect to any Award (as defined in Section 7) for which such is necessary and desired for such Award to be exempted by Rule 16b-3 of the Exchange Act, the Committee shall consist of two or more directors, each of whom is a "disinterested person" (as such term is defined in Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time), (ii) with respect to any Award that is intended to qualify as "performance based compensation" under Section 162(m) of the Code, the Committee shall consist of two or more directors, each of whom is an "outside director" (as such term is defined under Section 162(m) of the Code), and (iii) with respect to any other Award, the Committee shall consist of one or more directors (any of whom also may be a Participant (as defined in Section 4) who has been granted or is eligible to be granted Awards under the Plan). (b) Committee Action. The Committee shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum, and all determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be fully as effective as if it had been made by a majority vote of its members at a meeting duly called and held. The Committee may designate the Secretary of the Company or other Company employees to assist the Committee in the administration of the Plan, and may grant authority to such persons to execute Award agreements or other documents on behalf of the Committee and the Company. (c) Committee Expenses. All expenses and liabilities incurred by the Committee in the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons. (d) Powers of the Committee. Subject to the express provisions of this Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of this Plan with respect to the Awards over which such Committee has authority, including, without limitation, the following: (i) prescribe, amend and rescind rules and regulations relating to this Plan; (ii) determine which persons are Participants and to which of such Participants, if any, and when options and/or other Awards shall be granted hereunder; (iii) to prescribe and amend the terms of the Award agreements (which need not be identical); (iv) to make all other determinations deemed necessary or advisable for the administration of the Plan; (v) determine whether, and the extent to which adjustments are required pursuant to Section 7(e) hereof; and (vi) interpret and construe this Plan, any rules and regulations under the Plan and the terms and conditions of any Award granted hereunder. SECTION 3. Stock Reserved for the Plan. Subject to adjustment as provided in Section 7(e) hereof, the aggregate number of shares of Common Stock that may be issued and issuable pursuant to all Awards (including Incentive Stock Options) granted under the Plan is 2,500,000 and such number of shares shall be and is hereby reserved for sale for such purpose. The aggregate number of Shares subject to Awards granted during any calendar year to any one Participant (including the number of shares involved in Awards having a value derived from the value of Shares) shall not exceed 750,000. The shares subject to the Plan shall consist of authorized but unissued shares of Common Stock or previously issued and reacquired shares of Common Stock. Any of such shares which may remain unsold and which are not subject to outstanding options at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan or the termination of the last of the options granted under the Plan, whichever last occurs, the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. The aggregate number of Shares issued under this Plan at any time shall equal only the number of shares actually issued upon exercise or settlement of an Award and not returned to the Company upon forfeiture of an Award or in payment or satisfaction of the purchase price, exercise price or tax withholding obligation of an Award. SECTION 4. Eligibility. The persons eligible to participate in the Plan as a recipient of Awards ("Participant") shall include only key employees and directors of the Company or its Affiliates at the time the Award is granted; provided, however, the members of the Committee shall not be eligible to be granted Awards if the Company is governed by Rule 16b-3 as in effect on April 31, 1994. An employee who has been granted an option hereunder may be granted an additional option or options, if the Committee shall so determine. SECTION 5. Grant of Options. (a) Committee Discretion. The Committee shall have sole and absolute discretionary authority (i) to determine, authorize, and designate those key employees and directors of the Company or its Affiliates who are to receive options under the Plan (each, an "Optionee"), (ii) to determine the number of shares of Common Stock to be covered by such options and the terms thereof, and (iii) to determine the type of option granted: ISO, Nonqualified Option or a combination of ISO and Nonqualified Options; provided that a non-employee director may not receive any ISOs. The Committee shall thereupon grant options in accordance with such determinations as evidenced by a written option agreement. (b) Limitation on Incentive Stock Options. Except as described in Section 6(i), the aggregate fair market value (determined in accordance with Section 6(b) of this Plan at the time the option is granted) of the Common Stock with respect to which options intended to qualify as ISOs may be exercisable for the first time by any Optionee during any calendar year under all such plans of the Company and its Affiliates shall not exceed $100,000. SECTION 6. Terms and Conditions. Each option granted under the Plan shall be evidenced by an agreement, in a form approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions as the Committee may deem appropriate. (a) Option Period. The Committee shall promptly notify the Optionee of the option grant and a written agreement shall promptly be executed and delivered by and on behalf of the Company and the Optionee, provided that the option grant shall expire if a written agreement is not signed by said Optionee (or his agent or attorney) and returned to the Company within 60 days from date of receipt by the Optionee of such agreement. Each option agreement shall specify the period for which the option thereunder is granted (which in no event shall exceed ten years from the date of grant) and shall provide that the option shall expire at the end of such period. If the original term of an option is less than ten years from the date of grant, the option may be amended prior to its expiration, with the approval of the Committee and the Optionee, to extend the term so that the term as amended is not more than ten years from the date of grant. However, in the case of an ISO granted to an individual who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or its Affiliate ("Ten Percent Stockholder"), such period shall not exceed five years from the date of grant. (b) Option Price. The purchase price of each share of Common stock subject to each option granted pursuant to the Plan shall be determined by the Committee at the time the option is granted and, in the case of options intended to qualify as ISOs or as "performance based compensation" for purposes of Section 162(m) of the Code, shall not be less than 100% of the fair market value of a share of Common Stock on the date the option is granted, as determined by the Committee. In the case of an ISO granted to a Ten Percent Stockholder, the option price shall not be less than 110% of the fair market value of a share of Common Stock on the date the option is granted. The purchase price of each share of Common Stock subject to a Nonqualified Option under this Plan shall be determined by the Committee prior to granting the option. The Committee shall set the purchase price for each share subject to a Nonqualified Option at either the fair market value of each share on the date the option is granted, or at such other price as the Committee in its sole discretion shall determine. For all purposes under the Plan, the fair market value of a share of Common Stock on a particular date shall be determined by such manner as shall be approved by the Committee. In the event the Common Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of its fair market value shall be made by the Committee in such manner as it deems appropriate. (c) Exercise Period. The Committee may provide in the option agreement that an option may be exercised in whole, immediately, or is to be exercisable in increments. However, no portion of any option may be exercisable by an Optionee prior to the approval of the Plan by the stockholders of the Company. (d) Procedure for Exercise. Options shall be exercised by the delivery of written notice to the Secretary of the Company setting forth the number of shares with respect to which the option is being exercised. Such notice shall be accompanied by payment of the exercise price for such number of shares, which may be paid in the form of cash, previously owned shares of capital stock of the Company, other property deemed acceptable by the Committee, a reduction in the amount of Common Stock or other property otherwise issuable pursuant to such option, or a promissory note of the Optionee or of a third party, the terms and conditions of which shall be determined by the Committee. The notice shall specify the address to which the certificates for such shares are to be sent. Subject to satisfaction of any tax obligations pursuant to Section 11, an Optionee shall be deemed to be a stockholder with respect to shares covered by an option on the date the Company receives such written notice and such option payment. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver to the Optionee certificates for the number of shares with respect to which such option has been so exercised; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to the Optionee at the address specified pursuant to this Section 6(d). (e) Termination of Employment. In the event an employee to whom an option is granted ceases to be employed by the Company for any reason other than death or disability or if a director to whom an option is granted ceases to serve on the Board for any reason other than death or disability, any option previously granted to him may be exercised (to the extent he would have been entitled to do so at the date the employee ceases to be employed by the Company or a director ceases to serve on the Board) at any time and from time to time, within a thirty (30) day period after such date the employee ceases employment with the Company or the director ceases to serve on the Board; provided, however, the Committee, in its sole discretion, may (i) allow a longer period for exercise than thirty (30) days as stated in this paragraph or (ii) allow for the exercise of all or a part of those options not exercisable by the employee on account of his termination of employment or by the director on account of his cessation from service on the Board. (f) Disability or Death of Optionee. In the event of the determination of disability or the death of an Optionee under the Plan while he is employed by the Company or while he serves on the Board, the options previously granted to him may be exercised (to the extent he would have been entitled to do so at the date of the determination of disability or of death) at any time and from time to time, within a one year period after such determination of disability or death, by the former employee or director, the guardian of his estate, the executor or administrator of his estate or by the person or persons to whom his rights under the option shall pass by will or the laws of descent and distribution, but in no event may the option be exercised after its expiration under the terms of the option agreement. An Optionee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he is incapable of performing services for the Company of the kind he was performing at the time the disability occurred by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. The date of determination of disability for purposes hereof shall be the date of such determination by such physician. The Committee, in its sole discretion, may (i) allow a longer period for exercise than the one year period as stated in this paragraph or (ii) allow for the exercise of all or a part of those options not exercisable by the employee on account of his death or disability. (g) Incentive Stock Options. Each option agreement may contain such terms and provisions as the Committee may determine to be necessary or desirable in order to qualify an option designated as an ISO. (h) No Rights as Stockholder. No Optionee shall have any rights as a stockholder with respect to shares covered by an option until the option is exercised by the written notice, accompanied by payment as provided in clause (d) above, and any tax obligations are satisfied pursuant to Section 11. (i) Extraordinary Corporate Transactions. If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each of the foregoing a "Fundamental Change"), then thereafter upon any exercise of an option theretofore granted, the Optionee shall be entitled to purchase under such option, in lieu of the number of shares of Common Stock as to which such option shall then be exercisable, the number and class of shares of stock and securities to which the Optionee would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Optionee had been the holder of record of the number of shares of Common Stock as to which such option is then exercisable. For purposes of the Plan and Options granted under the Plan, the term "Corporate Change" shall mean (i) any merger or consolidation in which the Company shall not be the surviving entity (or survives only as a subsidiary of another entity whose shareholders did not own all or substantially all of the Company's Common Stock immediately prior to such transaction), (ii) the sale of all or substantially all of the Company's assets to any other person or entity (other than a wholly-owned subsidiary), (iii) the acquisition of beneficial ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock by any person or entity (including a "group" as defined by or under Section 13(d)(3) of the Exchange Act), (iv) the dissolution or liquidation of the Company, (v) a contested election of directors, as a result of which or in connection with which the persons who were directors of the Company before such election or their nominees cease to constitute a majority of the Board, or (vi) any other event specified by the Committee, regardless of whether at the time an Option is granted or thereafter. The Committee may provide, either at the time an Option is granted or thereafter, that a Corporate Change shall have such effect as specified by the Committee, or no effect, as the Committee in its sole discretion may provide. Without limiting the foregoing, the Committee may but need not provide, either at the time an Option is granted or thereafter, that if a Corporate Change occurs, then effective as of a date selected by the Committee, the Committee (which for purposes of the Corporate Changes described in (iii) and (v) above shall be the Committee as constituted prior to the occurrence of such Corporate Change) acting in its sole discretion without the consent or approval of any Optionee, will effect one or more of the following alternatives or combination of alternatives with respect to all outstanding options (which alternatives may be conditional on the occurrence of such of the Corporate Change specified in clause (i) through (v) above which gives rise to the Corporate Change and which may vary among individual Optionees): (1) in the case of a Corporate Change specified in clauses (i), (ii) or (iv), accelerate the time at which options then outstanding may be exercised in full for a limited period of time on or before a specified date (which will permit the Optionee to participate with the Common Stock received upon exercise of such option in the event of a Corporate Change specified in clauses (i), (ii) or (iv), as the case may be) fixed by the Committee, after which specified date all unexercised options and all rights of Optionees thereunder shall terminate, (2) accelerate the time at which options then outstanding may be exercised so that such options may be exercised in full for their then remaining term, or (3) require the mandatory surrender to the Company of outstanding options held by such Optionee (irrespective of whether such options are then exercisable under the provisions of the Plan) as of a date, before or not later than sixty days after such Corporate Change, specified by the Committee, and in such event the Committee shall thereupon cancel such options and the Company shall pay to each Optionee an amount of cash equal to the excess of the fair market value of the aggregate shares subject to such option over the aggregate option price of such shares; provided, however, the Committee shall not select an alternative (unless consented to by the Optionee) that, if the Optionee exercised his accelerated options pursuant to alternative 1 or 2 and participated in the transaction specified in clause (i), (ii) or (iv) or received cash pursuant to alternative 3, would result in the Optionee's owing any money by virtue of operation of Section 16(b) of the Exchange Act. If all such alternatives have such a result, the Committee shall take such action, which is hereby authorized, to put such Optionee in as close to the same position as such Optionee would have been in had alternative 1, 2 or 3 been selected but without resulting in any payment by such Optionee pursuant to Section 16(b) of the Exchange Act. Notwithstanding the foregoing, with the consent of the Optionee, the Committee may in lieu of the foregoing make such provision with respect of any Corporate Change as it deems appropriate. (j) Acceleration of Options. Except as herein expressly provided, (i) the issuance by the Company of shares of stock of any class of securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than Common Stock, or (iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to options theretofore granted or the purchase price per share, unless the Committee shall determine in its sole discretion that an adjustment is necessary to provide equitable treatment to Optionee. Notwithstanding anything to the contrary contained in this Plan, the Committee may in its sole discretion accelerate the time at which any option may be exercised, including, but not limited to, upon the occurrence of the events specified in this Section 6, and is authorized at any time (with the consent of the Optionee) to purchase options from an Optionee. (k) Stockholders Agreement. The Committee shall provide in the option agreement that prior to receiving any shares of Common Stock or other securities on the exercise of the option, the Optionee (or the Optionee's representative upon the Optionee's death) shall be required to execute the Company's Stockholders Agreement. SECTION 7. Other Provisions of Options and Other Awards. (a) Awards. The terms upon which an award under this Plan (an "Award") is granted shall be evidenced by a written agreement executed by the Company and the Participant to whom such Award is granted. Awards that are granted under this Plan are not restricted to any specified form or structure and may include, without limitation, stock options as provided in Sections 5 and 6, sales or bonuses of stock, restricted stock, reload stock options, stock purchase warrants, other rights to acquire stock, securities convertible into or redeemable for stock, stock appreciation rights, limited stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares, or any other arrangement that involves or might involve the issuance of Common Stock or a right or interest with a value based on the value of the Common Stock, and an Award may consist of one such security or benefit, or consist of or be amended to include two or more of them in tandem or in the alternative. (b) Powers of the Committee. Subject to the provisions of this Plan, the Committee shall have sole and absolute discretionary authority (i) to determine, authorize and designate those Participants who are to receive Awards under the Plan, (ii) to determine the number of shares of Common Stock subject to any such Award, and (iii) at any time to cancel an Award with the consent of the holder and grant a new Award to such holder in lieu thereof, which new Award may be for a greater or lesser number of Shares and may have a higher or lower exercise or settlement price. (c) Terms of Awards. Subject to the provisions of this Plan, the Committee, in its sole and absolute discretion, shall determine all of the terms and conditions of each Award granted under this Plan, which terms and conditions may include, among other things: (i) provisions permitting the Committee to allow or require the recipient of such Award, or permitting any such recipient the right, to pay the purchase price of the shares or other property issuable pursuant to such Award, in whole or in part, by any one or more of the means permitted for the payment of the exercise price of options under Section 6(d); (ii) provisions specifying the purchase, exercise or settlement price for any Award, or specifying the method by which such price is determined, provided that the exercise or settlement price of any stock appreciation right or similar Award that is intended to qualify as "performance based compensation" for purposes of Section 162(m) of the Code shall be not less than the fair market value of a share of Common Stock on the date such Award is granted; (iii) provisions relating to the exercisability and/or vesting of Awards, lapse and non-lapse restrictions upon the shares obtained or obtainable under Awards or under the Plan and the termination, expiration and/or forfeiture of Awards, which provisions may but need not be conditioned upon the passage of time, continued employment or service on the Board, the satisfaction of performance criteria, the occurrence of certain events (including events which the Board or the Committee determine constitute a change of control), or other factors; and/or (iv) provisions conditioning or accelerating the grant of an Award or the receipt of benefits pursuant to such Award, either automatically or in the discretion of the Committee, upon the occurrence of specified events, including, without limitation, the achievement of performance goals, the exercise or settlement of a previous Award, the satisfaction of an event or condition within the control of the recipient of the Award or within the control of others, a change of control of the Company, an acquisition of a specified percentage of the voting power of the Company, the dissolution or liquidation of the Company, a sale of substantially all of the property and assets of the Company or an event of the type described in Section 6(i) hereof. (d) Assignability. Unless otherwise provided by the Committee, (i) an Award (including an option) shall not be assignable or otherwise transferable except by will or by the laws of descent and distribution or pursuant to a domestic relations order, and (ii) during the lifetime of a Participant, an Award (including an option) shall be exercisable only by him. (e) Changes in Company's Capital Structure. The existence of outstanding Awards (including any options) shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges, or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of Common Stock or other securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. However, if the outstanding shares of Common Stock or other securities of the Company, or both, for which the Award is then exercisable or as to which the Award is to be settled shall at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares, recapitalization, or reorganization, the number and kind of shares of Common Stock or other securities which are subject to the Plan or subject to any Awards theretofore granted, and the exercise or settlement prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of shares or other securities without changing the aggregate exercise or settlement price, provided, however, that such adjustment shall be made only to the extent that such will not affect the status of any Award intended to qualify as an ISO or as "performance based compensation" under Section 162(m) of the Code. SECTION 8. Amendments or Termination. The Board may amend, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any Award holder, without his consent, under any Award theretofore granted. Notwithstanding the foregoing, if an amendment to the Plan would affect the ability of Awards granted under the Plan to comply with Rule 16b-3 under the Exchange Act or Section 422 or 162(m) or other applicable provisions of the Code, the amendment shall be approved by the Company's stockholders to the extent required to comply with Rule 16b-3 under the Exchange Act, Section 422 or Section 162(m) of the Code, or other applicable provisions of or rules under the Code. SECTION 9. Compliance With Other Laws and Regulations. The Plan, the grant and exercise of Awards thereunder, and the obligation of the Company to sell, issue or deliver shares under such Awards, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. Any adjustments provided for in Section 6(i), Section (6)(j) and Section 7(e) shall be subject to any shareholder action required by Delaware corporate law. This Plan is intended to constitute an unfunded arrangement for a select group of management or other key employees. SECTION 10. Purchase for Investment. Unless the Awards and shares of Common Stock covered by this Plan have been registered under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person exercising an option or other Award or receiving Common Stock pursuant to any Award under this Plan may be required by the Company to give a representation in writing that he is acquiring such shares for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. SECTION 11. Taxes. (a) The Company may make such provisions or impose such conditions as it may deem appropriate for the withholding or payment by the Participant of any taxes which it determines are required in connection with any Awards granted under this Plan. (b) Notwithstanding the terms of Paragraph 11(a), any Optionee or other Participant may pay all or any portion of the taxes required to be withheld by the Company or paid by him in connection with the exercise of a Nonqualified Option or the exercise, vesting or settlement of any other Award by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a fair market value, determined in accordance with Paragraph 6(b), equal to the amount required to be withheld or paid. Any such elections are subject to such conditions or procedures as may be established by the Committee and may be subject to disapproval by the Committee. SECTION 12. Replacement of Options. The Committee from time to time may permit an Optionee under the Plan to surrender for cancellation any unexercised outstanding option and receive from the Company in exchange an option for such number of shares of Common Stock as may be designated by the Committee. The Committee may, with the consent of the person entitled to exercise any outstanding option, amend such option, including reducing the exercise price of any option to not less than the fair market value of the Common Stock at the time of the amendment and extending the term thereof. SECTION 13. No Right to Company Employment. Nothing in this Plan or as a result of any Award granted pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment at any time. The Award agreements may contain such provisions as the Committee may approve with reference to the effect of approved leaves of absence. SECTION 14. Liability of Company. The Company and any Affiliate which is in existence or hereafter comes into existence shall not be liable to a Participant, an Optionee or other persons as to: (a) The Non-Issuance of Shares. The non-issuance or sale of shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder; and (b) Tax Consequences. Any tax consequence expected, but not realized, by any Participant, Optionee or other person due to the receipt, exercise or settlement of any option or other Award granted hereunder. SECTION 15. Effectiveness and Expiration of Plan. The Plan shall be effective on the date the Board adopts the Plan. All Awards, including any options, granted under this Plan are subject to, and may not be exercised before, the approval of this Plan by the stockholders prior to the first anniversary date of the effective date of the Plan, by the affirmative vote of the holders of a majority of the outstanding shares of the Company present, or represented by proxy, and entitled to vote thereat or by written consent in accordance with the laws of the State of Delaware; provided that if such approval by the stockholders of the Company is not forthcoming, all options or other Awards previously granted under this Plan shall be void. If the stockholders of the Company fail to approve the Plan within twelve months of the date the Board approved the Plan, the Plan shall terminate and all options and other Awards previously granted under the Plan shall become void and of no effect. No option or other Award granted under this Plan shall have a term of more than ten years from the date it is granted. The Plan shall expire ten years after the effective date of the Plan and thereafter no Awards shall be granted pursuant to the Plan. SECTION 16. Non-Exclusivity of the Plan. Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. SECTION l7. Governing Law. This Plan and any agreements hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. EX-10 9 Exhibit 10.25(a) ATLANTIC COAST AIRLINES HOLDINGS, INC. INCENTIVE STOCK OPTION AGREEMENT This Incentive Stock Option Agreement ("Option Agreement") is between Atlantic Coast Airlines Holdings, Inc., a Delaware Corporation (the "Company"), and the employee named in Section 1 below (the "Optionee"). W I T N E S S E T H: WHEREAS, the Company has adopted the Atlantic Coast Airlines Holdings, Inc. 1995 Stock Incentive Plan, as amended (the "Plan") for the purpose of encouraging ownership of common stock, $.02 par value ("Common Stock"), of the Company by eligible key employees and directors of the Company, of providing increased incentive for such employees and directors to render services and to exert maximum effort for the business success of the Company, and of further strengthening the identification of employees and directors with the stockholders; and WHEREAS, Section 422 of the Internal Revenue Code provides that an employee shall not be taxed upon exercise of an option that qualifies as an incentive stock option, provided that the employee does not dispose of the shares acquired upon exercise of such option until two years after the option is granted to the employee and one year after the option is exercised; and WHEREAS, the Company, acting through the Compensation Committee of its Board of Directors (the "Committee"), has determined that its interests will be advanced by the issuance to Optionee of an incentive stock option under the Plan. NOW, THEREFORE, for and in consideration of these premises it is agreed as follows: 1. Identifying Provisions: As used in this Option Agreement, the following terms shall have the following respective meanings: (a) Optionee: ____________________ (b) Date of Grant: ___________ (c) Effective Date: ___________ (d) Number of shares subject to Option Agreement: ______ (e) Exercise Price per share: $ _________ (f) Expiration Date: _________ 2. Option. Subject to the terms and conditions contained herein, the Company hereby grants to Optionee the right and option ("Option") to purchase from the Company up to that number of shares of Common Stock specified in Section 1(d) of this Option Agreement, at a price per share equal to the Exercise Price specified in Section 1(e) of this Option Agreement. This Option is intended to qualify to the maximum extent possible as an incentive stock option under Section 422 of the Internal Revenue Code (the "Code"), and therefore meets the following requirements: (i) the Exercise Price is not less than the fair market value of the Common Stock on the date when the Company completed the corporate action constituting an offer of stock for sale to the Optionee; (ii) the Option is not exercisable more than one year after the employee ceases to be employed because of death or a disability (as defined in Section 22(e)(3) of the Code) or three months after the Optionee otherwise ceases to be an employee of the Company or its parent or a subsidiary, (iii) the Optionee is not a greater than ten percent shareholder (or, if Optionee is, such further conditions required under Code Section 422 have been satisfied), and (iv) such option shall not be exercisable more than ten years after the date on which such option is granted. The Code further provides that option shares do not qualify for incentive stock option treatment if and to the extent that (i) the aggregate Exercise Price for shares that could be purchased under the Option in the year the Option first became exercisable as to such shares, plus (ii) the aggregate exercise price for shares under any of the Optionee's other concurrently or previously granted incentive stock options that first became exercisable in that same calendar year, exceeds $100,000. Therefore, notwithstanding anything to the contrary herein, if and to the extent that any shares are issued under a portion of this Option that exceeds the forgoing $100,000 limitation, such shares shall not be treated as issued under an incentive stock option. 3. Option Period. The Option herein granted may not be exercised or exercisable after the Expiration Date specified in Section 1(f) of this Option Agreement. This Option shall not be exercisable on the Date of Grant, but, subject to such further terms and limitations set forth herein, on each anniversary of the Date of Grant this Option shall become exercisable to purchase, and shall vest with respect to, a number of shares of Common Stock (rounded to the nearest whole share) such that the aggregate number of shares of Common Stock as to which this Option has become exercisable shall equal the total number of shares subject to this Option Agreement (as specified in Section 1(d)), multiplied by the percentage set forth below with respect to the specified anniversary of the Date of Grant: Date Percentage of Option Exercisable On the first anniversary of the Date of Grant: 20% On the second anniversary of the Date of Grant: 40% On the third anniversary of the Date of Grant: 60% On the fourth anniversary of the Date of the 80% Grant: On the fifth anniversary of the Date of the 100% Grant: 4. Procedure for Exercise. The Option herein granted may be exercised by written notice by Optionee to the Secretary of the Company setting forth the number of shares of Common Stock with respect to which the Option is to be exercised, and specifying such further information regarding delivery of such shares as the Secretary of the Company may reasonably request. Payment shall be by means of cash, or a cashier's check or bank draft, payable to the order of the Company, by a commitment from a brokerage firm acceptable to the Secretary of the Company to pay the aggregate Exercise Price from proceeds of a sale of shares issuable on exercise of the Option, or at the option of the Optionee, in Common Stock theretofore owned by such Optionee for at least six months (or a combination of cash and Common Stock). As promptly as practicable after exercise of this Option, the Company shall issue to Optionee the number of shares of Common Stock with respect to which such Option has been so exercised. 5. Termination of Employment. If Optionee's employment with the Company is terminated prior to the Expiration Date for any reason other than death or disability, the Option shall immediately terminate to the extent it is not exercisable on the date of Optionee's termination of employment. To the extent that the Option is exercisable on the date of Optionee's termination of employment for any reason other than death or disability, the Option may be exercised at any time on or before the earlier of (i) the close of business on the thirtieth (30th) day after such date of termination of employment, and (ii) the Expiration Date. 6. Disability or Death. If Optionee's employment with the Company is terminated by Optionee's disability or death, the Option shall immediately terminate to the extent it is not exercisable on such date. To the extent that the Option is exercisable on the date of Optionee's termination of employment on account of disability or death, the Option may be exercised by Optionee, his executor or administrator, or the person or persons to whom his rights under this Option Agreement shall pass by will or by the laws of descent and distribution, as the case may be, at any time on or before the earlier of (i) the date that is one (1) year from the date of Optionee's death or the date of the determination of Optionee's disability, and (ii) the Expiration Date. Optionee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he is incapable of performing services for the Company by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. 7. Transferability. This Option shall not be transferable by Optionee otherwise than by Optionee's will or by the laws of descent and distribution. During the lifetime of Optionee, the Option shall be exercisable only by him. Any heir or legatee of Optionee shall take rights under this Option subject to the terms and conditions of this Option Agreement. No such transfer of this Option Agreement to heirs or legatees of Optionee shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance and assumption by the transferee or transferees of the obligations of the Optionee and of the other terms and conditions hereof. 8. No Rights as Stockholder. Optionee shall have no rights as a stockholder with respect to any shares of Common Stock covered by this Option Agreement until the date of issuance of shares of Common Stock purchased pursuant to this Option Agreement. Until such time, Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. Except as provided in paragraph 10 hereof, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or securities or other property) paid or distributions or other rights granted in respect of any share of Common Stock for which the record date for such payment, distribution or grant is prior to the date upon which the Optionee shall have been issued share certificates, as provided hereinabove. 9. Extraordinary Corporate Transactions. If the Company experiences a "Fundamental Change" that is not a "Corporate Change" (as those terms are defined in Section 6(i) of the Plan), the Committee shall make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Option; provided, however, that any such adjustments in the Option shall be made without changing the aggregate Exercise Price for the then unexercised portion of the Option. If the Company experiences a "Fundamental Change" that is a "Corporate Change," the Option granted hereunder shall be treated as specified by the Committee in its sole discretion on or prior to the date that the Corporate Change occurs, which treatment Optionee hereby consents to as a condition to receipt of this Option, pursuant to Section 6(i) of the Plan or, if the Committee has not otherwise provided on or prior to the date that the Corporate Change occurs, the Option granted hereunder shall become 100% exercisable as of the date of such Corporate Change as provided in clause (1) of Section 6(i) of the Plan. 10. Compliance With Securities Laws. Upon the acquisition of any shares pursuant to the exercise of the Option herein granted, Optionee (or any person acting under paragraph 7 of this Agreement) shall enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Option Agreement. 11. Compliance With Laws. Notwithstanding any of the other provisions hereof, Optionee agrees that he will not exercise the Option granted hereby, and that the Company will not be obligated to issue any shares pursuant to this Option Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority. The certificates representing the shares of Common Stock purchased by exercise of an Option will be stamped or otherwise imprinted with legends in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer and the stock transfer records of the Company will reflect stop-transfer instructions with respect to such shares. 12. Withholding of Tax. If the Company becomes obligated to withhold an amount on account of any tax imposed as a result of the exercise of the Option or the disposition of shares of Common Stock acquired by exercise of this Option, including, without limitation, any federal, state, local or other income tax, or any F.I.C.A., Medicare, state disability insurance tax or other employment tax, the Optionee shall be obligated, as of the first date on which the Company is so obligated, to pay such amounts to the Company in cash or check, or other property acceptable to the Secretary of the Company in his sole discretion; and, if the Optionee fails to make such payment, the Company is authorized by the Optionee to withhold from any payments then or thereafter payable to the Optionee, any such amounts or the Company may otherwise refuse to issue or transfer any shares otherwise required to be issued or transferred pursuant to the terms hereof. The Committee may, in its sole discretion, allow the Optionee to pay any such amounts through the surrender of whole shares of Common Stock or by having the Company withhold whole shares of Common Stock otherwise issuable upon the exercise of this Option. Any such shares surrendered or withheld shall be valued at their market value, determined by such method as the Secretary of the Company in his sole discretion shall determine, equal to the sums required to be withheld as of the date on which the amount of tax to be withheld is determined. 13. Resolution of Disputes. As a condition of the grant of the Option hereby and of the ability to exercise the Option, the Optionee and his heirs, successors and personal representatives agree that any dispute or disagreement which may arise hereunder shall be determined by the Committee in its sole discretion and judgment, and that any such determination and any interpretation by the Committee of the terms of this Option Agreement shall be final and shall be binding and conclusive, for all purposes, upon the Company, Optionee, his heirs, successors and personal representatives. 14. Notices. Every notice hereunder shall be in writing and shall conclusively be deemed to be given only if given by registered or certified mail. All notices of the exercise of any Option hereunder shall be directed to Atlantic Coast Airlines Holdings, Inc., 515-A Shaw Road, Dulles, Virginia 20166, Attention: Secretary. Any notice given by the Company to Optionee directed to him at his address on file with the Company shall be effective to bind him and any other person who shall have acquired rights hereunder. The Company shall be under no obligation whatsoever to advise Optionee of the existence, maturity or termination of any of Optionee's rights hereunder and Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of Optionee's rights or privileges hereunder. 15. Construction and Interpretation. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of paragraph 7 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. This Option Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware. 16. Agreement Subject to Plan. This Option Agreement is subject to the Plan (including any subsequent amendments thereto). In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Option Agreement. 17. Employment Relationship. For purposes of this Option Agreement, an employee shall be considered to be in the employment of the Company as long as he remains an employee of the Company or an Affiliate (as defined in the Plan) or remains a director of the Company or of such an Affiliate. Any questions as to whether and when there has been a termination of such employment and the cause of such termination shall be determined by the Committee, and its determination shall be final. Nothing contained herein shall be construed as conferring upon the Optionee the right to continue in the employ of the Company, nor shall anything contained herein be construed or interpreted to limit the "employment at will" relationship between the Optionee and the Company. 18. Binding Effect. This Option Agreement shall be binding upon and inure to the benefit of any successors to the Company. IN WITNESS WHEREOF, the Option Agreement has been executed as of the ____ day of ____________, _____. Atlantic Coast Airlines Holdings, Inc. By:___________________________ ____ Optionee ______________________________ ____ Name EX-10 10 Exhibit 10.25(b) ATLANTIC COAST AIRLINES HOLDINGS, INC. INCENTIVE STOCK OPTION AGREEMENT This Incentive Stock Option Agreement ("Option Agreement") is between Atlantic Coast Airlines Holdings, Inc., a Delaware Corporation (the "Company"), and the employee named in Section 1 below (the "Optionee"). W I T N E S S E T H: WHEREAS, the Company has adopted the Atlantic Coast Airlines Holdings, Inc. 1995 Stock Incentive Plan, as amended (the "Plan") for the purpose of encouraging ownership of common stock, $.02 par value ("Common Stock"), of the Company by eligible key employees and directors of the Company, of providing increased incentive for such employees and directors to render services and to exert maximum effort for the business success of the Company, and of further strengthening the identification of employees and directors with the stockholders; and WHEREAS, Section 422 of the Internal Revenue Code provides that an employee shall not be taxed upon exercise of an option that qualifies as an incentive stock option, provided that the employee does not dispose of the shares acquired upon exercise of such option until two years after the option is granted to the employee and one year after the option is exercised; and WHEREAS, the Company, acting through the Compensation Committee of its Board of Directors (the "Committee"), has determined that its interests will be advanced by the issuance to Optionee of an incentive stock option under the Plan. NOW, THEREFORE, for and in consideration of these premises it is agreed as follows: 1. Identifying Provisions: As used in this Option Agreement, the following terms shall have the following respective meanings: (a) Optionee: ____________________ (b) Date of Grant: ___________ (c) Effective Date: ___________ (d) Number of shares subject to Option Agreement: ______ (e) Exercise Price per share: $ _________ (f) Expiration Date: _________ 2. Option. Subject to the terms and conditions contained herein, the Company hereby grants to Optionee the right and option ("Option") to purchase from the Company up to that number of shares of Common Stock specified in Section 1(d) of this Option Agreement, at a price per share equal to the Exercise Price specified in Section 1(e) of this Option Agreement. This Option is intended to qualify to the maximum extent possible as an incentive stock option under Section 422 of the Internal Revenue Code (the "Code"), and therefore meets the following requirements: (i) the Exercise Price is not less than the fair market value of the Common Stock on the date when the Company completed the corporate action constituting an offer of stock for sale to the Optionee; (ii) the Option is not exercisable more than one year after the employee ceases to be employed because of death or a disability (as defined in Section 22(e)(3) of the Code) or three months after the Optionee otherwise ceases to be an employee of the Company or its parent or a subsidiary, (iii) the Optionee is not a greater than ten percent shareholder (or, if Optionee is, such further conditions required under Code Section 422 have been satisfied), and (iv) such option shall not be exercisable more than ten years after the date on which such option is granted. The Code further provides that option shares do not qualify for incentive stock option treatment if and to the extent that (i) the aggregate Exercise Price for shares that could be purchased under the Option in the year the Option first became exercisable as to such shares, plus (ii) the aggregate exercise price for shares under any of the Optionee's other concurrently or previously granted incentive stock options that first became exercisable in that same calendar year, exceeds $100,000. Therefore, notwithstanding anything to the contrary herein, if and to the extent that any shares are issued under a portion of this Option that exceeds the forgoing $100,000 limitation, such shares shall not be treated as issued under an incentive stock option. 3. Option Period. The Option herein granted may not be exercised or exercisable after the Expiration Date specified in Section 1(f) of this Option Agreement. This Option shall not be exercisable on the Date of Grant, but, subject to such further terms and limitations set forth herein, on each anniversary of the Date of Grant this Option shall become exercisable to purchase, and shall vest with respect to, a number of shares of Common Stock (rounded to the nearest whole share) such that the aggregate number of shares of Common Stock as to which this Option has become exercisable shall equal the total number of shares subject to this Option Agreement (as specified in Section 1(d)), multiplied by the percentage set forth below with respect to the specified anniversary of the Date of Grant: Date Percentage of Option Exercisable On the first anniversary of the Date of Grant: 20% On the second anniversary of the Date of Grant: 40% On the third anniversary of the Date of Grant: 60% On the fourth anniversary of the Date of the 80% Grant: On the fifth anniversary of the Date of the 100% Grant: 4. Procedure for Exercise. The Option herein granted may be exercised by written notice by Optionee to the Secretary of the Company setting forth the number of shares of Common Stock with respect to which the Option is to be exercised, and specifying such further information regarding delivery of such shares as the Secretary of the Company may reasonably request. Payment shall be by means of cash, or a cashier's check or bank draft, payable to the order of the Company, by a commitment from a brokerage firm acceptable to the Secretary of the Company to pay the aggregate Exercise Price from proceeds of a sale of shares issuable on exercise of the Option, or at the option of the Optionee, in Common Stock theretofore owned by such Optionee for at least six months (or a combination of cash and Common Stock). As promptly as practicable after exercise of this Option, the Company shall issue to Optionee the number of shares of Common Stock with respect to which such Option has been so exercised. 5. Termination of Employment. If Optionee's employment with the Company is terminated prior to the Expiration Date for any reason other than death or disability, the Option shall immediately terminate to the extent it is not exercisable on the date of Optionee's termination of employment. To the extent that the Option is exercisable on the date of Optionee's termination of employment for any reason other than death or disability, the Option may be exercised at any time on or before the earlier of (i) the close of business on the thirtieth (30th) day after such date of termination of employment, and (ii) the Expiration Date. 6. Disability or Death. If Optionee's employment with the Company is terminated by Optionee's disability or death, the Option shall immediately terminate to the extent it is not exercisable on such date. To the extent that the Option is exercisable on the date of Optionee's termination of employment on account of disability or death, the Option may be exercised by Optionee, his executor or administrator, or the person or persons to whom his rights under this Option Agreement shall pass by will or by the laws of descent and distribution, as the case may be, at any time on or before the earlier of (i) the date that is one (1) year from the date of Optionee's death or the date of the determination of Optionee's disability, and (ii) the Expiration Date. Optionee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he is incapable of performing services for the Company by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. 7. Transferability. This Option shall not be transferable by Optionee otherwise than by Optionee's will or by the laws of descent and distribution. During the lifetime of Optionee, the Option shall be exercisable only by him. Any heir or legatee of Optionee shall take rights under this Option subject to the terms and conditions of this Option Agreement. No such transfer of this Option Agreement to heirs or legatees of Optionee shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance and assumption by the transferee or transferees of the obligations of the Optionee and of the other terms and conditions hereof. 8. No Rights as Stockholder. Optionee shall have no rights as a stockholder with respect to any shares of Common Stock covered by this Option Agreement until the date of issuance of shares of Common Stock purchased pursuant to this Option Agreement. Until such time, Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. Except as provided in paragraph 10 hereof, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or securities or other property) paid or distributions or other rights granted in respect of any share of Common Stock for which the record date for such payment, distribution or grant is prior to the date upon which the Optionee shall have been issued share certificates, as provided hereinabove. 9. Extraordinary Corporate Transactions. A. If the Company experiences a "Fundamental Change" (as that term is defined in Section 6(i) of the Plan), the Committee may make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Option; provided, however, that any such adjustments in the Option shall be made without changing the aggregate Exercise Price for the then unexercised portion of the Option. B. Acceleration of Option upon a Change in Control. If the Company experiences a Corporate Change, the exercisability and vesting of this Option shall accelerate as of the date of such Corporate Change. The Compensation Committee of the Company's Board of Directors (the "Committee") shall provide that if a Corporate Change occurs, then effective as of a date selected by the Committee, the Committee (which for purposes of the Corporate Changes described in clauses (iii) and (v) of the definition of Corporate Change below shall be the Committee as constituted prior to the occurrence of such Corporate Change) acting in its sole discretion without the consent or approval of Optionee, will effect one or more of the following alternatives or combination of alternatives with respect to this Option (which alternatives may be conditional on the occurrence of such of the Corporate Change specified in clause (i) through (v) of the definition of Corporate Change below which gives rise to the Corporate Change): (1) in the case of a Corporate Change specified in clauses (i), (ii) or (iv) of the definition thereof, provide that the Option (including any portion exercisable pursuant to the first sentence of this Paragraph 9.A.) may be exercised in full for a limited period of time on or before a specified date (which will permit Optionee to participate with the Common Stock received upon exercise of such option in the event of a Corporate Change specified in clauses (i), (ii) or (iv) of the definition of Corporate Change below, as the case may be) fixed by the Committee, after which specified date the Option and all rights of Optionee hereunder shall terminate, (2) provide that the Option (including any portion exercisable pursuant to the first sentence of this Paragraph 9.A.) may be exercised for the Options then remaining term, or (3) require the mandatory surrender to the Company of this Option (including any portion exercisable pursuant to the first sentence of this Paragraph 9.A.) as of a date, before or not later than sixty days after such Corporate Change, specified by the Committee, and in such event the Committee shall thereupon cancel such Options and the Company shall pay to Optionee an amount of cash equal to the excess of the fair market value of the aggregate shares subject to such Option over the aggregate option price of such shares; provided, however, the Committee shall not select an alternative (unless consented to by Optionee) that, if Optionee exercised Optionee's accelerated Options pursuant to alternative 1 or 2 and participated in the transaction specified in clause (i), (ii) or (iv) of the definition of Corporate Change below or received cash pursuant to alternative 3, would result in Optionee's owing any money by virtue of operation of Section 16(b) of the Exchange Act. If all such alternatives have such a result, the Committee shall take such action, which is hereby authorized, to put Optionee in as close to the same position as Optionee would have been in had alternative 1, 2 or 3 been selected but without resulting in any payment by Optionee pursuant to Section 16(b) of the Exchange Act. Notwithstanding the foregoing, with the consent of Optionee, the Committee may in lieu of the foregoing make such provision with respect of any Corporate Change as it deems appropriate. C. Definitions. For purposes of this Agreement "Corporate Change" shall each mean (i) any merger or consolidation in which the Company shall not be the surviving entity (or survives only as a subsidiary of another entity, unless the stockholders of Company immediately before such merger or consolidation own, directly or indirectly immediately following such merger or consolidation, substantially all of the combined voting power of the surviving entity in substantially the same proportion as their ownership immediately before such merger or consolidation, (ii) the sale of all or substantially all of the Company's assets to any other person or entity (other than a wholly-owned subsidiary), (iii) the acquisition of beneficial ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock by any person or entity (including a "group" as defined by or under Section 13(d)(3) of the Exchange Act), (iv) the dissolution or liquidation of the Company, (v) a contested election of directors, as a result of which or in connection with which the persons who were directors of the Company before such election or their nominees cease to constitute a majority of the Board, or (vi) any other event specified by the Committee, regardless of whether at the time an Option is granted or thereafter. 10. Compliance With Securities Laws. Upon the acquisition of any shares pursuant to the exercise of the Option herein granted, Optionee (or any person acting under paragraph 7 of this Agreement) shall enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Option Agreement. 11. Compliance With Laws. Notwithstanding any of the other provisions hereof, Optionee agrees that he will not exercise the Option granted hereby, and that the Company will not be obligated to issue any shares pursuant to this Option Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority. The certificates representing the shares of Common Stock purchased by exercise of an Option will be stamped or otherwise imprinted with legends in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer and the stock transfer records of the Company will reflect stop-transfer instructions with respect to such shares. 12. Withholding of Tax. If the Company becomes obligated to withhold an amount on account of any tax imposed as a result of the exercise of the Option or the disposition of shares of Common Stock acquired by exercise of this Option, including, without limitation, any federal, state, local or other income tax, or any F.I.C.A., Medicare, state disability insurance tax or other employment tax, the Optionee shall be obligated, as of the first date on which the Company is so obligated, to pay such amounts to the Company in cash or check, or other property acceptable to the Secretary of the Company in his sole discretion; and, if the Optionee fails to make such payment, the Company is authorized by the Optionee to withhold from any payments then or thereafter payable to the Optionee, any such amounts or the Company may otherwise refuse to issue or transfer any shares otherwise required to be issued or transferred pursuant to the terms hereof. The Committee may, in its sole discretion, allow the Optionee to pay any such amounts through the surrender of whole shares of Common Stock or by having the Company withhold whole shares of Common Stock otherwise issuable upon the exercise of this Option. Any such shares surrendered or withheld shall be valued at their market value, determined by such method as the Secretary of the Company in his sole discretion shall determine, equal to the sums required to be withheld as of the date on which the amount of tax to be withheld is determined. 13. Resolution of Disputes. As a condition of the grant of the Option hereby and of the ability to exercise the Option, the Optionee and his heirs, successors and personal representatives agree that any dispute or disagreement which may arise hereunder shall be determined by the Committee in its sole discretion and judgment, and that any such determination and any interpretation by the Committee of the terms of this Option Agreement shall be final and shall be binding and conclusive, for all purposes, upon the Company, Optionee, his heirs, successors and personal representatives. 14. Notices. Every notice hereunder shall be in writing and shall conclusively be deemed to be given only if given by registered or certified mail. All notices of the exercise of any Option hereunder shall be directed to Atlantic Coast Airlines Holdings, Inc., 515-A Shaw Road, Dulles, Virginia 20166, Attention: Secretary. Any notice given by the Company to Optionee directed to him at his address on file with the Company shall be effective to bind him and any other person who shall have acquired rights hereunder. The Company shall be under no obligation whatsoever to advise Optionee of the existence, maturity or termination of any of Optionee's rights hereunder and Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of Optionee's rights or privileges hereunder. 15. Construction and Interpretation. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of paragraph 7 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. This Option Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware. 16. Agreement Subject to Plan. This Option Agreement is subject to the Plan (including any subsequent amendments thereto). In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Option Agreement. 17. Employment Relationship. For purposes of this Option Agreement, an employee shall be considered to be in the employment of the Company as long as he remains an employee of the Company or an Affiliate (as defined in the Plan) or remains a director of the Company or of such an Affiliate. Any questions as to whether and when there has been a termination of such employment and the cause of such termination shall be determined by the Committee, and its determination shall be final. Nothing contained herein shall be construed as conferring upon the Optionee the right to continue in the employ of the Company, nor shall anything contained herein be construed or interpreted to limit the "employment at will" relationship between the Optionee and the Company. 18. Binding Effect. This Option Agreement shall be binding upon and inure to the benefit of any successors to the Company. IN WITNESS WHEREOF, the Option Agreement has been executed as of the ____ day of ____________, _____. Atlantic Coast Airlines Holdings, Inc. By:___________________________ ____ Optionee ______________________________ ____ Name EX-10 11 Exhibit 10.25(c) ATLANTIC COAST AIRLINES HOLDINGS, INC. NONQUALIFIED STOCK OPTION AGREEMENT This Nonqualified Stock Option Agreement ("Option Agreement") is between Atlantic Coast Airlines Holdings, Inc., a Delaware Corporation (the "Company"), and the employee named in Section 1 below (the "Optionee"). W I T N E S S E T H: WHEREAS, the Company has adopted the Atlantic Coast Airlines Holdings, Inc. 1995 Stock Incentive Plan, as amended (the "Plan") for the purpose of encouraging ownership of common stock, $.02 par value ("Common Stock"), of the Company by eligible key employees and directors of the Company, of providing increased incentive for such employees and directors to render services and to exert maximum effort for the business success of the Company, and of further strengthening the identification of employees and directors with the stockholders; and WHEREAS, the Company, acting through the Compensation Committee of its Board of Directors (the "Committee"), has determined that its interests will be advanced by the issuance to Optionee of a nonqualified stock option under the Plan. NOW, THEREFORE, for and in consideration of these premises it is agreed as follows: 1. Identifying Provisions: As used in this Option Agreement, the following terms shall have the following respective meanings: (a) Optionee: ______________ (b) Date of Grant: ___________ (c) Effective Date: ____________ (d) Number of shares subject to Option Agreement: ______ (e) Exercise Price per share: $ _____ (f) Expiration Date: ___________ 2. Option. Subject to the terms and conditions contained herein, the Company hereby grants to Optionee the right and option ("Option") to purchase from the Company up to that number of shares of Common Stock specified in Section 1(d) of this Option Agreement, at a price per share equal to the Exercise Price specified in Section 1(e) of this Option Agreement. This Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code. 3. Option Period. The Option herein granted may not be exercised or exercisable after the Expiration Date specified in Section 1(f) of this Option Agreement. This Option shall not be exercisable on the Date of Grant, but, subject to such further terms and limitations set forth herein, on each anniversary of the Date of Grant this Option shall become exercisable to purchase, and shall vest with respect to, a number of shares of Common Stock (rounded to the nearest whole share) such that the aggregate number of shares of Common Stock as to which this Option has become exercisable shall equal the total number of shares subject to this Option Agreement (as specified in Section 1(d)), multiplied by the percentage set forth below with respect to the specified anniversary of the Date of Grant: Date Percentage of Option Exercisable On the first anniversary of the Date of Grant: 20% On the second anniversary of the Date of Grant: 40% On the third anniversary of the Date of Grant: 60% On the fourth anniversary of the Date of the 80% Grant: On the fifth anniversary of the Date of the 100% Grant: 4. Procedure for Exercise. The Option herein granted may be exercised by written notice by Optionee to the Secretary of the Company setting forth the number of shares of Common Stock with respect to which the Option is to be exercised, and specifying such further information regarding delivery of such shares as the Secretary of the Company may reasonably request. Payment shall be by means of cash, or a cashier's check or bank draft, payable to the order of the Company, by a commitment from a brokerage firm acceptable to the Secretary of the Company to pay the aggregate Exercise Price from proceeds of a sale of shares issuable on exercise of the Option, or at the option of the Optionee, in Common Stock theretofore owned by such Optionee for at least six months (or a combination of cash and Common Stock). As promptly as practicable after exercise of this Option, the Company shall issue to Optionee the number of shares of Common Stock with respect to which such Option has been so exercised. 5. Termination of Employment. If Optionee's employment with the Company is terminated prior to the Expiration Date for any reason other than death or disability, the Option shall immediately terminate to the extent it is not exercisable on the date of Optionee's termination of employment. To the extent that the Option is exercisable on the date of Optionee's termination of employment for any reason other than death or disability, the Option may be exercised at any time on or before the earlier of (i) the close of business on the thirtieth (30th) day after such date of termination of employment, and (ii) the Expiration Date. 6. Disability or Death. If Optionee's employment with the Company is terminated by Optionee's disability or death, the Option shall immediately terminate to the extent it is not exercisable on such date. To the extent that the Option is exercisable on the date of Optionee's termination of employment on account of disability or death, the Option may be exercised by Optionee, his executor or administrator, or the person or persons to whom his rights under this Option Agreement shall pass by will or by the laws of descent and distribution, as the case may be, at any time on or before the earlier of (i) the date that is one (1) year from the date of Optionee's death or the date of the determination of Optionee's disability, and (ii) the Expiration Date. Optionee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he is incapable of performing services for the Company by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. 7. Transferability. This Option shall not be transferable by Optionee otherwise than by Optionee's will or by the laws of descent and distribution. During the lifetime of Optionee, the Option shall be exercisable only by him. Any heir or legatee of Optionee shall take rights under this Option subject to the terms and conditions of this Option Agreement. No such transfer of this Option Agreement to heirs or legatees of Optionee shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance and assumption by the transferee or transferees of the obligations of the Optionee and of the other terms and conditions hereof. 8. No Rights as Stockholder. Optionee shall have no rights as a stockholder with respect to any shares of Common Stock covered by this Option Agreement until the date of issuance of shares of Common Stock purchased pursuant to this Option Agreement. Until such time, Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. Except as provided in paragraph 10 hereof, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or securities or other property) paid or distributions or other rights granted in respect of any share of Common Stock for which the record date for such payment, distribution or grant is prior to the date upon which the Optionee shall have been issued share certificates, as provided hereinabove. 9. Extraordinary Corporate Transactions. If the Company experiences a "Fundamental Change" that is not a "Corporate Change" (as those terms are defined in Section 6(i) of the Plan), the Committee shall make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Option; provided, however, that any such adjustments in the Option shall be made without changing the aggregate Exercise Price for the then unexercised portion of the Option. If the Company experiences a "Fundamental Change" that is a "Corporate Change," the Option granted hereunder shall be treated as specified by the Committee in its sole discretion on or prior to the date that the Corporate Change occurs, which treatment Optionee hereby consents to as a condition to receipt of this Option, or, if the Committee has not otherwise provided on or prior to the date that the Corporate Change occurs, the Option granted hereunder shall become 100% exercisable as of the date of such Corporate Change as provided in clause (1) of Section 6(i) of the Plan. 10. Compliance With Securities Laws. Upon the acquisition of any shares pursuant to the exercise of the Option herein granted, Optionee (or any person acting under paragraph 7 of this Agreement) shall enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Option Agreement. 11. Compliance With Laws. Notwithstanding any of the other provisions hereof, Optionee agrees that he will not exercise the Option granted hereby, and that the Company will not be obligated to issue any shares pursuant to this Option Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority. The certificates representing the shares of Common Stock purchased by exercise of an Option will be stamped or otherwise imprinted with legends in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer and the stock transfer records of the Company will reflect stop-transfer instructions with respect to such shares. 12. Withholding of Tax. If the Company becomes obligated to withhold an amount on account of any tax imposed as a result of the exercise of the Option, including, without limitation, any federal, state, local or other income tax, or any F.I.C.A., Medicare, state disability insurance tax or other employment tax, the Optionee shall be obligated, as of the first date on which the Company is so obligated, to pay such amounts to the Company in cash or check, or other property acceptable to the Secretary of the Company in his sole discretion; and, if the Optionee fails to make such payment, the Company is authorized by the Optionee to withhold from any payments then or thereafter payable to the Optionee, any such amounts or the Company may otherwise refuse to issue or transfer any shares otherwise required to be issued or transferred pursuant to the terms hereof. The Committee may, in its sole discretion, allow the Optionee to pay any such amounts through the surrender of whole shares of Common Stock or by having the Company withhold whole shares of Common Stock otherwise issuable upon the exercise of this Option. Any such shares surrendered or withheld shall be valued at their market value, determined by such method as the Secretary of the Company in his sole discretion shall determine, equal to the sums required to be withheld as of the date on which the amount of tax to be withheld is determined. 13. Resolution of Disputes. As a condition of the grant of the Option hereby and of the ability to exercise the Option, the Optionee and his heirs, successors and personal representatives agree that any dispute or disagreement which may arise hereunder shall be determined by the Committee in its sole discretion and judgment, and that any such determination and any interpretation by the Committee of the terms of this Option Agreement shall be final and shall be binding and conclusive, for all purposes, upon the Company, Optionee, his heirs, successors and personal representatives. 14. Notices. Every notice hereunder shall be in writing and shall conclusively be deemed to be given only if given by registered or certified mail. All notices of the exercise of any Option hereunder shall be directed to Atlantic Coast Airlines Holdings, Inc., 515-A Shaw Road, Dulles, Virginia 20166, Attention: Secretary. Any notice given by the Company to Optionee directed to him at his address on file with the Company shall be effective to bind him and any other person who shall have acquired rights hereunder. The Company shall be under no obligation whatsoever to advise Optionee of the existence, maturity or termination of any of Optionee's rights hereunder and Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of Optionee's rights or privileges hereunder. 15. Construction and Interpretation. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of paragraph 7 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. This Option Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware. 16. Agreement Subject to Plan. This Option Agreement is subject to the Plan (including any subsequent amendments thereto). In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Option Agreement. 17. Employment Relationship. For purposes of this Option Agreement, an employee shall be considered to be in the employment of the Company as long as he remains an employee of the Company or an Affiliate (as defined in the Plan) or remains a director of the Company or of such an Affiliate. Any questions as to whether and when there has been a termination of such employment and the cause of such termination shall be determined by the Committee, and its determination shall be final. Nothing contained herein shall be construed as conferring upon the Optionee the right to continue in the employ of the Company, nor shall anything contained herein be construed or interpreted to limit the "employment at will" relationship between the Optionee and the Company. 18. Binding Effect. This Option Agreement shall be binding upon and inure to the benefit of any successors to the Company. IN WITNESS WHEREOF, the Option Agreement has been executed as of the ____ day of _________ _____. Atlantic Coast Airlines Holdings, Inc. By:___________________________ ____ Optionee ______________________________ ____ Name EX-10 12 Exhibit 10.25(d) ATLANTIC COAST AIRLINES HOLDINGS, INC. NONQUALIFIED STOCK OPTION AGREEMENT This Nonqualified Stock Option Agreement ("Option Agreement") is between Atlantic Coast Airlines Holdings, Inc., a Delaware Corporation (the "Company"), and the employee named in Section 1 below (the "Optionee"). W I T N E S S E T H: WHEREAS, the Company has adopted the Atlantic Coast Airlines Holdings, Inc. 1995 Stock Incentive Plan, as amended (the "Plan") for the purpose of encouraging ownership of common stock, $.02 par value ("Common Stock"), of the Company by eligible key employees and directors of the Company, of providing increased incentive for such employees and directors to render services and to exert maximum effort for the business success of the Company, and of further strengthening the identification of employees and directors with the stockholders; and WHEREAS, the Company, acting through the Compensation Committee of its Board of Directors (the "Committee"), has determined that its interests will be advanced by the issuance to Optionee of a nonqualified stock option under the Plan. NOW, THEREFORE, for and in consideration of these premises it is agreed as follows: 1. Identifying Provisions: As used in this Option Agreement, the following terms shall have the following respective meanings: (a) Optionee: ______________ (b) Date of Grant: ___________ (c) Effective Date: ____________ (d) Number of shares subject to Option Agreement: ______ (e) Exercise Price per share: $ _____ (f) Expiration Date: ___________ 2. Option. Subject to the terms and conditions contained herein, the Company hereby grants to Optionee the right and option ("Option") to purchase from the Company up to that number of shares of Common Stock specified in Section 1(c) of this Option Agreement, at a price per share equal to the Exercise Price specified in Section 1(d) of this Option Agreement. This Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code. 3. Option Period. The Option herein granted may not be exercised or exercisable after the Expiration Date specified in Section 1(e) of this Option Agreement. This Option shall not be exercisable on the Date of Grant, but, subject to such further terms and limitations set forth herein, on each anniversary of the Date of Grant this Option shall become exercisable to purchase, and shall vest with respect to, a number of shares of Common Stock (rounded to the nearest whole share) such that the aggregate number of shares of Common Stock as to which this Option has become exercisable shall equal the total number of shares subject to this Option Agreement (as specified in Section 1(c)), multiplied by the percentage set forth below with respect to the specified anniversary of the Date of Grant: Date Percentage of Option Exercisable On the first anniversary of the Date of Grant: 20% On the second anniversary of the Date of Grant: 40% On the third anniversary of the Date of Grant: 60% On the fourth anniversary of the Date of the 80% Grant: On the fifth anniversary of the Date of the 100% Grant: 4. Procedure for Exercise. The Option herein granted may be exercised by written notice by Optionee to the Secretary of the Company setting forth the number of shares of Common Stock with respect to which the Option is to be exercised, and specifying such further information regarding delivery of such shares as the Secretary of the Company may reasonably request. Payment shall be by means of cash, or a cashier's check or bank draft, payable to the order of the Company, by a commitment from a brokerage firm acceptable to the Secretary of the Company to pay the aggregate Exercise Price from proceeds of a sale of shares issuable on exercise of the Option, or at the option of the Optionee, in Common Stock theretofore owned by such Optionee for at least six months (or a combination of cash and Common Stock). As promptly as practicable after exercise of this Option, the Company shall issue to Optionee the number of shares of Common Stock with respect to which such Option has been so exercised. 5. Termination of Employment. If Optionee's employment with the Company is terminated prior to the Expiration Date for any reason other than death or disability, the Option shall immediately terminate to the extent it is not exercisable on the date of Optionee's termination of employment. To the extent that the Option is exercisable on the date of Optionee's termination of employment for any reason other than death or disability, the Option may be exercised at any time on or before the earlier of (i) the close of business on the thirtieth (30th) day after such date of termination of employment, and (ii) the Expiration Date. 6. Disability or Death. If Optionee's employment with the Company is terminated by Optionee's disability or death, the Option shall immediately terminate to the extent it is not exercisable on such date. To the extent that the Option is exercisable on the date of Optionee's termination of employment on account of disability or death, the Option may be exercised by Optionee, his executor or administrator, or the person or persons to whom his rights under this Option Agreement shall pass by will or by the laws of descent and distribution, as the case may be, at any time on or before the earlier of (i) the date that is one (1) year from the date of Optionee's death or the date of the determination of Optionee's disability, and (ii) the Expiration Date. Optionee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he is incapable of performing services for the Company by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. 7. Transferability. This Option shall not be transferable by Optionee otherwise than by Optionee's will or by the laws of descent and distribution. During the lifetime of Optionee, the Option shall be exercisable only by him. Any heir or legatee of Optionee shall take rights under this Option subject to the terms and conditions of this Option Agreement. No such transfer of this Option Agreement to heirs or legatees of Optionee shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance and assumption by the transferee or transferees of the obligations of the Optionee and of the other terms and conditions hereof. 8. No Rights as Stockholder. Optionee shall have no rights as a stockholder with respect to any shares of Common Stock covered by this Option Agreement until the date of issuance of shares of Common Stock purchased pursuant to this Option Agreement. Until such time, Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. Except as provided in paragraph 10 hereof, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or securities or other property) paid or distributions or other rights granted in respect of any share of Common Stock for which the record date for such payment, distribution or grant is prior to the date upon which the Optionee shall have been issued share certificates, as provided hereinabove. 9. Extraordinary Corporate Transactions. A. If the Company experiences a "Fundamental Change" (as that term is defined in Section 6(i) of the Plan), the Committee may make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Option; provided, however, that any such adjustments in the Option shall be made without changing the aggregate Exercise Price for the then unexercised portion of the Option. B. Acceleration of Option upon a Change in Control. If the Company experiences a Corporate Change, the exercisability and vesting of this Option shall accelerate as of the date of such Corporate Change. The Compensation Committee of the Company's Board of Directors (the "Committee") shall provide that if a Corporate Change occurs, then effective as of a date selected by the Committee, the Committee (which for purposes of the Corporate Changes described in clauses (iii) and (v) of the definition of Corporate Change below shall be the Committee as constituted prior to the occurrence of such Corporate Change) acting in its sole discretion without the consent or approval of Optionee, will effect one or more of the following alternatives or combination of alternatives with respect to this Option (which alternatives may be conditional on the occurrence of such of the Corporate Change specified in clause (i) through (v) of the definition of Corporate Change below which gives rise to the Corporate Change): (1) in the case of a Corporate Change specified in clauses (i), (ii) or (iv) of the definition thereof, provide that the Option (including any portion exercisable pursuant to the first sentence of this Paragraph 9.A.) may be exercised in full for a limited period of time on or before a specified date (which will permit Optionee to participate with the Common Stock received upon exercise of such option in the event of a Corporate Change specified in clauses (i), (ii) or (iv) of the definition of Corporate Change below, as the case may be) fixed by the Committee, after which specified date the Option and all rights of Optionee hereunder shall terminate, (2) provide that the Option (including any portion exercisable pursuant to the first sentence of this Paragraph 9.A.) may be exercised for the Options then remaining term, or (3) require the mandatory surrender to the Company of this Option (including any portion exercisable pursuant to the first sentence of this Paragraph 9.A.) as of a date, before or not later than sixty days after such Corporate Change, specified by the Committee, and in such event the Committee shall thereupon cancel such Options and the Company shall pay to Optionee an amount of cash equal to the excess of the fair market value of the aggregate shares subject to such Option over the aggregate option price of such shares; provided, however, the Committee shall not select an alternative (unless consented to by Optionee) that, if Optionee exercised Optionee's accelerated Options pursuant to alternative 1 or 2 and participated in the transaction specified in clause (i), (ii) or (iv) of the definition of Corporate Change below or received cash pursuant to alternative 3, would result in Optionee's owing any money by virtue of operation of Section 16(b) of the Exchange Act. If all such alternatives have such a result, the Committee shall take such action, which is hereby authorized, to put Optionee in as close to the same position as Optionee would have been in had alternative 1, 2 or 3 been selected but without resulting in any payment by Optionee pursuant to Section 16(b) of the Exchange Act. Notwithstanding the foregoing, with the consent of Optionee, the Committee may in lieu of the foregoing make such provision with respect of any Corporate Change as it deems appropriate. C. Definitions. For purposes of this Agreement "Corporate Change" shall each mean (i) any merger or consolidation in which the Company shall not be the surviving entity (or survives only as a subsidiary of another entity, unless the stockholders of Company immediately before such merger or consolidation own, directly or indirectly immediately following such merger or consolidation, substantially all of the combined voting power of the surviving entity in substantially the same proportion as their ownership immediately before such merger or consolidation, (ii) the sale of all or substantially all of the Company's assets to any other person or entity (other than a wholly-owned subsidiary), (iii) the acquisition of beneficial ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock by any person or entity (including a "group" as defined by or under Section 13(d)(3) of the Exchange Act), (iv) the dissolution or liquidation of the Company, (v) a contested election of directors, as a result of which or in connection with which the persons who were directors of the Company before such election or their nominees cease to constitute a majority of the Board, or (vi) any other event specified by the Committee, regardless of whether at the time an Option is granted or thereafter. 10. Compliance With Securities Laws. Upon the acquisition of any shares pursuant to the exercise of the Option herein granted, Optionee (or any person acting under paragraph 7 of this Agreement) shall enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Option Agreement. 11. Compliance With Laws. Notwithstanding any of the other provisions hereof, Optionee agrees that he will not exercise the Option granted hereby, and that the Company will not be obligated to issue any shares pursuant to this Option Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority. The certificates representing the shares of Common Stock purchased by exercise of an Option will be stamped or otherwise imprinted with legends in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer and the stock transfer records of the Company will reflect stop-transfer instructions with respect to such shares. 12. Withholding of Tax. If the Company becomes obligated to withhold an amount on account of any tax imposed as a result of the exercise of the Option, including, without limitation, any federal, state, local or other income tax, or any F.I.C.A., Medicare, state disability insurance tax or other employment tax, the Optionee shall be obligated, as of the first date on which the Company is so obligated, to pay such amounts to the Company in cash or check, or other property acceptable to the Secretary of the Company in his sole discretion; and, if the Optionee fails to make such payment, the Company is authorized by the Optionee to withhold from any payments then or thereafter payable to the Optionee, any such amounts or the Company may otherwise refuse to issue or transfer any shares otherwise required to be issued or transferred pursuant to the terms hereof. The Committee may, in its sole discretion, allow the Optionee to pay any such amounts through the surrender of whole shares of Common Stock or by having the Company withhold whole shares of Common Stock otherwise issuable upon the exercise of this Option. Any such shares surrendered or withheld shall be valued at their market value, determined by such method as the Secretary of the Company in his sole discretion shall determine, equal to the sums required to be withheld as of the date on which the amount of tax to be withheld is determined. 13. Resolution of Disputes. As a condition of the grant of the Option hereby and of the ability to exercise the Option, the Optionee and his heirs, successors and personal representatives agree that any dispute or disagreement which may arise hereunder shall be determined by the Committee in its sole discretion and judgment, and that any such determination and any interpretation by the Committee of the terms of this Option Agreement shall be final and shall be binding and conclusive, for all purposes, upon the Company, Optionee, his heirs, successors and personal representatives. 14. Notices. Every notice hereunder shall be in writing and shall conclusively be deemed to be given only if given by registered or certified mail. All notices of the exercise of any Option hereunder shall be directed to Atlantic Coast Airlines Holdings, Inc., 515-A Shaw Road, Dulles, Virginia 20166, Attention: Secretary. Any notice given by the Company to Optionee directed to him at his address on file with the Company shall be effective to bind him and any other person who shall have acquired rights hereunder. The Company shall be under no obligation whatsoever to advise Optionee of the existence, maturity or termination of any of Optionee's rights hereunder and Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of Optionee's rights or privileges hereunder. 15. Construction and Interpretation. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of paragraph 7 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. This Option Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware. 16. Agreement Subject to Plan. This Option Agreement is subject to the Plan (including any subsequent amendments thereto). In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Option Agreement. 17. Employment Relationship. For purposes of this Option Agreement, an employee shall be considered to be in the employment of the Company as long as he remains an employee of the Company or an Affiliate (as defined in the Plan) or remains a director of the Company or of such an Affiliate. Any questions as to whether and when there has been a termination of such employment and the cause of such termination shall be determined by the Committee, and its determination shall be final. Nothing contained herein shall be construed as conferring upon the Optionee the right to continue in the employ of the Company, nor shall anything contained herein be construed or interpreted to limit the "employment at will" relationship between the Optionee and the Company. 18. Binding Effect. This Option Agreement shall be binding upon and inure to the benefit of any successors to the Company. IN WITNESS WHEREOF, the Option Agreement has been executed as of the ____ day of _________ _____. Atlantic Coast Airlines Holdings, Inc. By:___________________________ ____ Optionee ______________________________ ____ Name EX-21 13 Exhibit 21.1 Subsidiaries of the Company Atlantic Coast Airlines, a California corporation. This company is a 100% owned subsidiary of Atlantic Coast Airlines Holdings, Inc. Atlantic Coast Airlines, Inc., a Delaware corporation. This company is a 100% owned subsidiary of Atlantic Coast Airlines (a California corporation). EX-23 14 Page Consent of Independent Auditors The Board of Directors Atlantic Coast Airlines Holdings, Inc.: We consent to incorporation by reference in the registration statements (No. 333-66265, 333-15795 and 33- 67492) on Form S-8 of Atlantic Coast Airlines Holdings, Inc. of our report dated January 27, 1999, relating to the consolidated balance sheets of Atlantic Coast Airlines Holdings, Inc. and subsidiary (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended, which report appears in the December 31, 1998, annual report on Form 10-K of the Company. /S/ KPMG LLP Washington, DC March 22, 1999 EX-23 15 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Atlantic Coast Airlines, Inc. We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-15795 and 33- 67492) of our report dated January 24, 1997, except for Note 18, the date of which is May 29, 1997, relating to the consolidated financial statements and schedule of Atlantic Coast Airlines, Inc. appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. BDO Seidman, LLP Washington, D.C. March 19, 1999 EX-27 16
5 1000 12-MOS DEC-31-1998 DEC-31-1998 64,412 63 30,210 0 0 104,506 88,326 0 227,626 36,376 0 0 0 416 109,961 227,626 285,243 289,940 0 237,249 (326) 0 4,207 51,545 21,133 51,545 0 0 0 30,412 1.68 1.42
EX-10 17 Exhibit 10.25(e) ATLANTIC COAST AIRLINES HOLDINGS, INC. RESTRICTED STOCK AGREEMENT This Restricted Stock Restricted Stock Agreement ("Restricted Stock Agreement") is between Atlantic Coast Airlines Holdings, Inc., a Delaware Corporation (the "Company"), and the employee named in Section 1 below (the "Employee"). W I T N E S S E T H: WHEREAS, the Company has adopted the Atlantic Coast Airlines Holdings, Inc. 1995 Stock Incentive Plan, as amended (the "Plan"), for the purpose of encouraging ownership of common stock, $.02 par value ("Common Stock"), of the Company by eligible key employees and directors of the Company, of providing increased incentive for such employees and directors to render services and to exert maximum effort for the business success of the Company, and of further strengthening the identification of employees and directors with the stockholders; and WHEREAS, the Company, acting through the Compensation Committee of its Board of Directors (the "Committee"), has determined that its interests will be advanced by the issuance to Employee of restricted stock under the Plan. NOW, THEREFORE, for and in consideration of these premises it is agreed as follows: 1. Identifying Provisions: As used in this Restricted Stock Agreement, the following terms shall have the following respective meanings: (a) Employee: __________________ (b) Date of Grant: ____________ (c) Effective Date: ___________ (d) Number of shares subject to Restricted Stock Agreement: ________ 2. Grant of Shares. Subject to the terms and conditions contained herein, the Company hereby grants to Employee (the "Grant") the right to receive up to that number of shares of Common Stock specified in Section 1(d) of this Restricted Stock Agreement (the "Shares"). 3. Vesting Period. The Shares shall not be issued on the Date of Grant, and Employee's rights therein shall not be vested and shall be forfeited unless and until otherwise vested pursuant to the terms hereof. Subject to such further terms and limitations set forth herein, on each vesting date as identified below this Grant shall vest with respect to a number of shares of Common Stock (rounded to the nearest whole share) such that the aggregate number of shares of Common Stock as to which this Grant has vested shall equal the total number of shares subject to this Restricted Stock Agreement (as specified in Section 1(d)), multiplied by the percentage set forth below with respect to the specified vesting date: Vesting Date Percentage of Option Exercisable On January 29, 1999: 20% On January 29, 2000: 40% On January 29, 2001: 60% On January 29, 2002: 80% On January 29, 2003: 100% 4. Procedure for Issuance of Shares. As promptly as practicable after each vesting date, the number of Shares of Common Stock that vested on that date shall cease to be forfeitable, and the Company shall issue to Employee a certificate representing such Shares. 5. Termination of Employment. If Employee's employment with the Company is terminated prior to the January 29, 2003 for any reason other than death or disability, the Grant shall immediately terminate and be cancelled to the extent it is not vested on the date of Employee's termination of employment, and any Shares as to which Grant has not then become vested shall be forfeited. 6. Disability or Death. If Employee's employment with the Company is terminated by Employee's disability or death, then the Grant shall terminate and be cancelled on the first anniversary of the date of Employee's termination of employment on account of disability or death, and any Shares as to which the Grant has not then vested shall be forfeited. Employee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he is incapable of performing services for the Company by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. 7. Transferability. This Grant shall not be transferable by Employee. None of the Shares subject to or issuable under this Grant may be sold, pledged, transferred, assigned or hypothecated except the extent that the Grant has vested with respect to such Shares. 8. No Rights as Stockholder. Employee shall have no rights as a stockholder with respect to any Shares of Common Stock covered by this Restricted Stock Agreement except to the extent this Grant has vested with respect to such Shares pursuant to this Restricted Stock Agreement. Until such time, Employee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company with respect to such unvested Shares. Except as provided in paragraph 9 hereof, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or securities or other property) paid or distributions or other rights granted in respect of any share of Common Stock for which the record date for such payment, distribution or grant is prior to the date upon which Shares have vested pursuant to this Restricted Stock Agreement. 9. Extraordinary Corporate Transactions. If the Company experiences a "Fundamental Change" that is not a "Corporate Change" (as those terms are defined in Section 6(i) of the Plan), the Committee may make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be issued pursuant to this Grant. If the Company experiences a "Corporate Change," this Grant shall be vested as of the date that the Corporate Change occurs and all of the Shares subject to this Restricted Stock Agreement shall immediately be issued in the name of Employee. 10. Compliance With Securities Laws. Upon the acquisition of any Shares pursuant to this Grant, Employee shall enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Restricted Stock Agreement. Nothing herein obligates the Company to register or qualify the Shares pursuant any federal or state securities laws. 11. Compliance With Laws. Notwithstanding any of the other provisions hereof, Employee agrees that the Company will not be obligated to issue any Shares pursuant to this Restricted Stock Agreement, if the issuance of such Shares of Common Stock would constitute a violation by the Employee or by the Company of any provision of any law or regulation of any governmental authority. The certificates representing the Shares of Common Stock issued pursuant to this Grant will be stamped or otherwise imprinted with legends in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer and the stock transfer records of the Company will reflect stop-transfer instructions with respect to such Shares. 12. Withholding of Tax. If the Company becomes obligated to withhold an amount on account of any tax imposed as a result of the issuance or vesting of the Shares, including, without limitation, any federal, state, local or other income tax, or any F.I.C.A., Medicare, state disability insurance tax or other employment tax, the Employee shall be obligated, as of the first date on which the Company is so obligated, to pay such amounts to the Company in cash or check, or other property acceptable to the Secretary of the Company in his sole discretion; and, if the Employee fails to make such payment, the Company is authorized by the Employee to withhold from any payments then or thereafter payable to the Employee any such amounts or the Company may otherwise refuse to issue or transfer any Shares otherwise required to be issued or transferred pursuant to the terms hereof. The Committee may, in its sole discretion, allow the Employee to pay any such amounts through the surrender of whole shares of Common Stock or by having the Company withhold whole Shares of Common Stock otherwise issuable pursuant to this Grant. Any such shares surrendered or withheld shall be valued at their market value, determined by such method as the Secretary of the Company in his sole discretion shall determine, equal to the sums required to be withheld as of the date on which the amount of tax to be withheld is determined. 13. Resolution of Disputes. As a condition of this Grant hereby, the Employee, on behalf of himself, his heirs, successors and personal representatives, agrees that any dispute or disagreement which may arise hereunder shall be resolved as determined by the Committee in its sole discretion and judgment, and that any such determination and any interpretation by the Committee of the terms of this Restricted Stock Agreement shall be final and shall be binding and conclusive, for all purposes, upon the Company, Employee, his heirs, successors and personal representatives. 14. Notices. Every notice hereunder shall be in writing and shall conclusively be deemed to be given only if given by registered or certified mail. All notices to the Company shall be directed to Atlantic Coast Airlines Holdings, Inc., 515-A Shaw Road, Dulles, Virginia 20166, Attention: Secretary. Any notice given by the Company to Employee directed to him at his address on file with the Company shall be effective to bind him and any other person who shall have acquired rights hereunder. The Company shall be under no obligation whatsoever to advise Employee of the existence, maturity or termination of any of Employee's rights hereunder and Employee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of Employee's rights or privileges hereunder. 15. Construction and Interpretation. Whenever the term "Employee" is used herein under circumstances applicable to any other person or persons to whom this award may be transferred, the word "Employee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. This Restricted Stock Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware. 16. Agreement Subject to Plan. This Restricted Stock Agreement is subject to the Plan (including any subsequent amendments thereto). In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Restricted Stock Agreement. 17. Employment Relationship. For purposes of this Restricted Stock Agreement, an employee shall be considered to be in the employment of the Company as long as he remains an employee of the Company or an Affiliate (as defined in the Plan) or remains a director of the Company or of such an Affiliate. Any questions as to whether and when there has been a termination of such employment and the cause of such termination shall be determined by the Committee, and its determination shall be final. Nothing contained herein shall be construed as conferring upon the Employee the right to continue in the employ of the Company, nor shall anything contained herein be construed or interpreted to limit the "employment at will" relationship between the Employee and the Company. 18. Binding Effect. This Restricted Stock Agreement shall be binding upon and inure to the benefit of any successors to the Company. IN WITNESS WHEREOF, the Restricted Stock Agreement has been executed as of the _____ day of ___________, _____. Atlantic Coast Airlines Holdings, Inc. By:___________________________ ____ Employee ______________________________ ____ Name EX-10 18 Initials Buyer________ BRAD ______ Exhibit 10.40A CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. PURCHASE AGREEMENT BETWEEN BOMBARDIER, INC. AND ATLANTIC COAST AIRLINES, AS AMENDED BOMBARDIER REGIONAL AIRCRAFT DIVISION PURCHASE AGREEMENT RJ-0350 BETWEEN BOMBARDIER INC. AND ATLANTIC COAST AIRLINES Relating to the Purchase of Thirty-three (33) Canadair Regional Jet aircraft Including related Customer Support Services TABLE OF CONTENTS ARTICLE 1 INTERPRETATION 2 SUBJECT MATTER OF SALE 3 CUSTOMER SUPPORT SERVICES AND WARRANTY 4 PRICE 5 PAYMENT 6 DELIVERY PROGRAM 7 BUYER INFORMATION 8 CERTIFICATION/FOR EXPORT/ 9 ACCEPTANCE PROCEDURE 10 TITLE AND RISK 11 CHANGES 12 BUYER'S REPRESENTATIVES AT MANUFACTURE SITE 13 EXCUSABLE DELAY 14 NON-EXCUSABLE DELAY 15 LOSS OR DAMAGE 16 TERMINATION 17 NOTICES 18 INDEMNITY AGAINST PATENT INFRINGEMENT 19 LIMITATION OF LIABILITY 20 ASSIGNMENT 21 SUCCESSORS 22 APPLICABLE LAWS 23 CONFIDENTIAL NATURE OF AGREEMENT 24 AGREEMENT 25 DISPUTES APPENDIX I ECONOMIC ADJUSTMENT FORMULA II DELIVERY SCHEDULE III SPECIFICATION IV BUYER SELECTED OPTIONAL FEATURES EXHIBIT I CERTIFICATE OF ACCEPTANCE II BILL OF SALE III CERTIFICATE OF RECEIPT OF AIRCRAFT IV CHANGE ORDER ANNEX A CUSTOMER SUPPORT SERVICES ANNEX B WARRANTY AND SERVICE LIFE POLICY LETTER AGREEMENTS B96-7701-RJTL-RJ0350-001A Credit Memorandum B96-7701-RJTL-RJ0350-002 Conditions Precedent B96-7701-RJTL-RJ0350-003 Option Aircraft B96-7701-RJTL-RJ0350-004 Options B96-7701-RJTL-RJ0350-005A FIPP B96-7701-RJTL-RJ0350-006 Operational Restrictions B96-7701-RJTL-RJ0350-007A Financing B96-7701-RJTL-RJ0350-008 Schedule Completion Rate B96-7701-RJTL-RJ0350-009 Airframe Direct Maintenance Cost B96-7701-RJTL-RJ0350-010 Additional Customer Support B96-7701-RJTL-RJ0350-011 Spares B96-7701-RJTL-RJ0350-012 Marketing Support B96-7701-RJTL-RJ0350-013 Spares Credit B96-7701-RJTL-RJ0350-014 Taxes, Duties and Licenses B96-7701-RJTL-RJ0350-015 Airworthiness Directives B96-7701-RJTL-RJ0350-016 Reconciliation B97-7701-AP-RJ0350-017 Spare Parts Price Catalogue B97-7701-AP-RJ0350-018 Exercise of Twelve Option Aircraft B97-7701-AP-RJ0350-019 Transferability of Aircraft Delivery Positions B97-7701-AP-RJ0350-020 United Approval B97-7701-AP-RJ0350-021 Flight Data Recorder B97-7701-AP-RJ0350-022 Cargo Floorboards Letter Agreement No. 023 n/a B98-7701-AP-RJ0350-024 Additional Option Aircraft Letter Agreement No. 025 n/a This Agreement is made on the 8th day of January 1997. BY AND BETWEEN: BOMBARDIER INC., a Canadian Corporation represented by its BOMBARDIER REGIONAL AIRCRAFT DIVISION ("BRAD") having an office at 123 Garratt Boulevard, Downsview, Ontario, Canada. AND: ATLANTIC COAST AIRLINES, a California Company, having offices at 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 ("Buyer") WHEREAS Bombardier Inc. through its Canadair Manufacturing Division, is engaged in the manufacture of the Canadair Regional Jet aircraft products; and BRAD has been created for the purpose of providing marketing, sales and customer support services for the Canadair Regional Jet aircraft and related products; WHEREAS Buyer desires to purchase thirty-three (33) Aircraft (as later defined) and related data, documents, and services under this Agreement (as later defined), and BRAD desires to arrange the sale of such Aircraft, data, documents and services to Buyer, WHEREAS Atlantic Coast Airlines Inc., a Delaware Corporation, the parent of Buyer, is prepared to provide a guarantee of Buyer's obligations hereunder, in a form acceptable to the parties and the financiers. NOW THEREFORE, in consideration of the mutual covenants herein contained, Buyer and BRAD agree as follows: ARTICLE 1. INTERPRETATION 1.1 The recitals above have been inserted for convenience only and do not form part of the agreement. 1.2 The headings in this agreement are included for convenience only and shall not be used in the construction and interpretation of this agreement. 1.3 In this agreement, unless otherwise expressly provided, the singular includes the plural and vice-versa. 1.4 In this agreement the following expressions shall, unless otherwise expressly provided, mean: (a) "Acceptance Period" shall have the meaning attributed to it in Article 9.3; (b) "Acceptance Date" shall have the meaning attributed to it in Article 9.7.(a); (c) "Agreement" means this Agreement, including its Exhibits, Annexes, Appendices and Letter Agreements, if any, attached hereto (each of which is incorporated in the Agreement by this reference), as they may be amended pursuant to the provisions of the Agreement; (d) "Aircraft" shall have the meaning attributed to it in Article 2.1; (e) "Aircraft Purchase Price" shall have the meaning attributed to it in Article 4.2; (f) "Base Price" shall have the meaning attributed to it in Article 4.1; (g) "Bill of Sale" shall have the meaning attributed to it in Article 9.7 (c); (h) "BFE" shall have the meaning attributed to it in Article 11.1; (h.1) "Bombardier Group" shall have the meaning attributed to it in Article 24.3; (h.2) [ * ] (i) "Buyer Selected Optional Features" shall have the meaning attributed to it in Article 2.1; (j) "Delivery Date" shall have the meaning attributed to it in Article 9.7.(c); (k) "Economic Adjustment Formula" shall have the meaning attributed to it in Article 4.2; (l) "Excusable Delay" shall have the meaning attributed to it in Article 13.1; (m) "FAA" shall have the meaning attributed to it in Article 8.1; (m.1) "Grace Period" shall have the meaning attributed to it in Article 14.1; (n) "Non-Excusable Delay" shall have the meaning attributed to it in Article 14.1; (o) "Notice" shall have the meaning attributed to it in Article 17.1; ( p) "Other Patents" shall have the meaning attributed to it in Article 18.1; ( q) "Permitted Change" shall have the meaning attributed to it in Article 11.2; ( r) "Readiness Date" shall have the meaning attributed to it in Article 9.1; ( s) "Regulatory Change" shall have the meaning attributed to it in Article 8.4; ( t) "Scheduled Delivery Dates" shall have the meaning attributed to it in Article 6; ( u) "Specification" shall have the meaning attributed to it in Article 2.1; ( v) "Taxes" shall have the meaning attributed to it in Article 4.3.; ( w) "TC" shall have the meaning attributed to it in Article 8.1; ( x) "Net Aircraft Purchase Price" shall have the meaning attributed to it in Article 5.3.; ( y) [ * ] ( z) "Deposit" shall have the meaning attributed to it in Article 5.2.1.; (z.1) "Technical Data" shall have the meaning attributed to it in Annex A Article 4.1; (z.2) "Total Deposit)" shall have the meaning attributed to it in Article 5.2.1.b); and 1.5 All dollar amounts in this Agreement are in United States Dollars. ARTICLE 2 - SUBJECT MATTER OF SALE 2.1 Subject to the provisions of this Agreement, BRAD will sell and Buyer will purchase thirty-three (33) Canadair Regional Jet aircraft model CL600-2B19 Version 200ER, manufactured pursuant to specification Number RAD-601R-146 Issue NC dated November 18, 1996, attached hereto as Appendix III, as that specification may be modified from time to time in accordance with this Agreement (the "Specification"), as supplemented to reflect the incorporation of the Buyer selected optional features ("Buyer Selected Optional Features") set forth in Appendix IV hereto (collectively the "Aircraft"). ARTICLE 3 - CUSTOMER SUPPORT SERVICES AND WARRANTY 3.1 BRAD shall provide to Buyer the customer support services pursuant to the provisions of Annex A attached hereto. 3.2 BRAD shall provide to Buyer the warranty and the service life policy described in Annex B attached hereto. 3.3 Unless expressly stated otherwise, the services referred to in 3.1 and 3.2 above are incidental to the sale of the Aircraft and are included in the Aircraft Purchase Price. ARTICLE 4 - PRICE 4.1 (a) The base price for each of the Aircraft (excluding the Buyer Selected Optional Features) Ex Works (Incoterms 1990) BRAD's offices or premises in Montreal, Province of Quebec, Canada, is [ * ] expressed in July 1, 1995 dollars. (b) The base price of the Buyer Selected Optional Features, for the first through eighth Aircraft, is [ * ] expressed in July 1, 1995 dollars. (c) The base price of the Buyer Selcted Optional Features, for the ninth and subsequent Aircraft, is [ * ] expressed in July 1, 1995 dollars. The Aircraft base price shall be the base price for the Aircraft as stated in paragraph (a), plus the base price of the Buyer Selected Optional Features as stated in paragraph (b) or (c), as applicable (the "Base Price"). 4.2 The price of the Aircraft (the "Aircraft Purchase Price") shall be the Base Price adjusted to the date of delivery; to reflect economic fluctuations during the period from July 1, 1995 to the respective delivery date of the Aircraft. Such adjustments shall be based on the formula as found in Appendix I ("Economic Adjustment Formula"). [ * ] [ * ] [ * ] [ * ] 4.3 Upon the occurrence of events as described in this paragraph 4.3, there will be adjustments as follows: 4.3.1 In the event that BRAD and Buyer agree to any changes in the Specification or selected optional features, or should changes in the Specification or selected optional features be made pursuant to Article 11.1 or as a result of any Regulatory Changes pursuant to Article 8.4 which are chargeable to Buyer pursuant to Article 8.5, or in the event that BRAD and Buyer agree to any [ * ] 4.3.2 The [ * ] adjustment shall be based on the projected index rate for the agreed delivery month as identified in Attachment 1 to Appendix I. 4.3.3 The Credit Memorandum adjustment shall be in accordance with the terms of Letter Agreement No. 1B. 4.3.4 [ * ] 4.3.5 In the event of a Non-Excusable Delay, the provisions of Article 14.2 shall apply. 4.4 The Aircraft Purchase Price does not include any taxes, fees or duties including, but not limited to, sales, use, value added (including the Canadian Goods and Services Tax), personal property, gross receipts, franchise, excise taxes, assessments or duties ("Taxes") which are or may be imposed by law upon BRAD, any affiliate of BRAD, Buyer or the Aircraft whether or not there is an obligation for BRAD to collect same from Buyer, by any taxing authority or jurisdiction occasioned by, relating to or as a result of the execution of this Agreement or the sale, lease, delivery, storage, use or other consumption of any Aircraft, BFE or any other matter, good or service provided under or in connection with this Agreement. 4.5 If any Taxes (other than income taxes charged on the income of Bombardier Group) are imposed upon Buyer or become due or are to be collected from Bombardier Group by any taxing authority resulting from, relating to or in connection with the execution of this Agreement, the sale, lease, delivery, storage, use or other consumption of any Aircraft, BFE or any other matter, goods or services provided for under this Agreement, BRAD shall notify Buyer and Buyer shall promptly, but no later than ten (10) working days after receiving such notice, pay such Taxes directly to the taxing authority, or reimburse BRAD for such Taxes, as the case may be, including interest and penalties. Buyer shall only reimburse BRAD for interest and penalties if BRAD notifies Buyer in writing of the imposition of these Taxes within ten (10) working days of the member of Bombardier Group receiving written notification of such Taxes. 4.6 Upon BRAD's request, Buyer shall execute and deliver to BRAD any documents that BRAD deems necessary or desirable in connection with any exemption from or reduction of or the contestation of or the defense against any imposition of Taxes. 4.7 Upon Buyer's request, BRAD shall execute and deliver to Buyer any documents that Buyer deems necessary or desirable in connection with any exemption from or reduction of or the contestation of or the defense against any imposition of Taxes. ARTICLE 5 - PAYMENT 5.1 Intentionally left blank. 5.2 Deposit 5.2.1 The deposit for the Aircraft (the "Deposit") will be paid as follows: a) Four Million ($4,000,000 U.S.) United States Dollars on the business day following execution of the Agreement, and b) Eleven Million ($ 11,000,000 U.S.) United States Dollars on or before April 1, 1997. The total sum of Fifteen Million ($15,000,000 U.S.) United States Dollars (the "Total Deposit") will be retained by BRAD [ * ] [ * ] [ * ] 5.2.2 Notwithstanding the provisions of Article 5.2.1 (b) above, should Buyer not be in a position to provide the total Eleven Million ($ 11,000,000 U.S.) United States Dollars referred to in Article 5.2.1 (b) by April 1, 1997, [ * ] any remaining portion of the Deposit then due, up to a sum of Eleven Million ($11,000,000 U.S.) United States Dollars. [ * ] Buyer agrees to pay BRAD the Deposit or the remaining portion thereof, by issuing an assignable promissory note payable on July 15, 1997. The promissory note shall bear interest at an annual interest rate of [ * ] per annum calculated and compounded monthly for any such outstanding balance of the Deposit, from April 1, 1997, and up to and including the day prior to receipt of such payment. 5.3 Payment Terms Buyer shall pay BRAD on or before the Delivery Date either i) the Aircraft Purchase Price of such Aircraft less the amount of the applicable Credit Memorandum as set out in Letter Agreement No. 1, which will be credited by BRAD toward the Aircraft Purchase Price, [ * ] such amount being the "Net Aircraft Purchase Price". 5.4 Subject to the provisions of Article 9.9 hereof, should Buyer fail to make any of the aforementioned Deposit payments on or before the stipulated date and Buyer does not correct the default within a period of thirty (30) days thereafter, this Agreement shall automatically terminate and BRAD shall have no further obligation to Buyer under this Agreement, including the obligation to proceed further with the manufacture of the Aircraft on behalf of Buyer or the sale and/or delivery of the Aircraft to Buyer. BRAD shall have the option (but not the obligation) of waiving such termination should Buyer make arrangements satisfactory to BRAD for such payment and all future payments within ten (10) calendar days of Buyer's default. 5.5 Buyer shall pay BRAD daily interest on late payments, from the date that any payment becomes due up to and including the day prior to receipt of payment, at a rate of two per cent (2 %) per annum over the U.S. prime rate charged by the Chase Manhattan Bank, New York Branch, or its successor,, from time to time, calculated and compounded monthly. BRAD's right to receive such interest is in addition to any other right or remedy BRAD has at law as a result of Buyer's failure to make payments when due. 5.6 If under any terms of the Agreement BRAD is obligated to return the Deposit or make other payments if applicable to Buyer, with or without interest as provided for herein, BRAD shall do so within five (5) working days , and if BRAD fails to do so, BRAD shall pay Buyer daily interest on late payments from the date any payment becomes due up to and including the day prior to receipt of payment, at a rate of two per cent (2 %) per annum over the U.S. prime rate charged from time to time by the Chase Manhattan Bank, New York Branch, or its successor, calculated and compounded monthly. The five (5) days grace period mentioned above shall not apply to return of Deposits coincident with the return of the last six (6) Aircraft. 5.7 Buyer shall make all payments due under this Agreement in immediately available funds by deposit on or before the due date to BRAD's account in the following manner: (a) Transfer to: [ * ] (b) For credit to: [ * ] (c) For further credit to: [ * ] BRAD shall make all payments due under this Agreement in immediately available funds by deposit on or before the due date to Buyer's account as specified below: Account Name: [ * ] Bank Name: [ * ] Account No.: [ * ] Bank ABA: [ * ] 5.8 All other amounts due with respect to each Aircraft shall be paid on or prior to the Delivery Date of the respective Aircraft. 5.9 All payments provided for under this Agreement to either party shall be made so as to be received in immediately available funds on or before the dates stipulated herein. Neither party shall incur interest charges for any delay which occurs after provision of a proof of transfer from that party's bank. 5.10 BRAD, or its affiliate to whom the Aircraft may have been sold, shall remain the exclusive owner of the Aircraft, free and clear of all rights, liens, charges or encumbrances created by or through Buyer, until such time as all payments referred to in this Article 5 have been made. ARTICLE 6 - DELIVERY PROGRAM 6.1 The Aircraft shall be offered for inspection and acceptance to Buyer at BRAD's facility in Montreal, Quebec during the months set forth in Appendix II attached hereto (the "Scheduled Delivery Dates"). ARTICLE 7 - BUYER INFORMATION 7.1 During the manufacture of the Aircraft, Buyer shall provide to BRAD on or before the date required by BRAD, all information as BRAD may reasonably request to manufacture the Aircraft including, without limitation, the selection of furnishings, internal and external colour schemes. On or before January 31, 1997, Buyer will: (a) provide BRAD with an external paint scheme agreed on by the parties; and (b) select interior colours (from BRAD's standard colours). Failure of Buyer to substantially comply with these requirements may result in a reasonable increase in price, as applicable, a delay in delivery of the Aircraft, or both. ARTICLE 8 - CERTIFICATION FOR EXPORT 8.1 BRAD has obtained and will continue to have on each Delivery Date from Transport Canada ("TC"), a valid TC Type Approval (Transport Category) and from the Federal Aviation Administration of the United States ("FAA") an FAA Type Certificate for the type of aircraft purchased under this Agreement. 8.2 BRAD shall provide to Buyer a TC Certificate of Airworthiness (Transport Category) for export, on or before the Delivery Date with respect to each Aircraft. 8.3 The obtaining of any import license or authority required to import or operate the Aircraft into any country outside of Canada shall be the responsibility of Buyer. BRAD will, assist Buyer in obtaining import permits and licenses. BRAD shall, with Buyer's assistance, obtain the issuance of a Canadian export license to enable Buyer to export the Aircraft from Canada, subject to prevailing export control regulations in effect on the Delivery Date. Except as provided in Articles 8.1, 8.2 and 8.3 BRAD shall not be obligated to obtain any other certificates or approvals as part of this Agreement. 8.4 If any addition or change to, or modification or testing of the Aircraft is required or will be required by the passage of time by any law or governmental regulation or requirement or interpretation thereof by any governmental agency having jurisdiction subsequent to the date of this Agreement but prior to the Delivery Date in order to meet the requirements of Article 8.2 (a "Regulatory Change"), such Regulatory Change shall be made to the Aircraft prior to Delivery Date, or at such other time after the Delivery Date as the parties may agree upon taking into account the terminating action deadline. 8.5 The Regulatory Change shall be made without additional charge to Buyer unless such Regulatory Change is: (a) necessary to comply with any requirement of the United States, the country of import, which varies from or is in addition to its regulation, requirement or interpretation in effect on the date hereof for the issuance of a Certificate of Airworthiness in said country of import (unless such requirement has been imposed to correct a defect specific to the Aircraft or to the Canadair Regional Jet fleet of aircraft), in which case Buyer shall pay BRAD's reasonable charges for such Regulatory Change, or (b) required by any governmental law or regulations or interpretation thereof promulgated by TC or the FAA which is effective subsequent to the date of this Agreement but before the Delivery Date and which is applicable to all aircraft in general or to all aircraft of the same category as the Aircraft, in which case Buyer shall pay BRAD's reasonable charges for such Regulatory Change incorporated in any such Aircraft. 8.6 If delivery of the Aircraft is delayed by the incorporation of any Regulatory Change, such delay shall be an Excusable Delay within the meaning of Article 13 subject to the limitations therein. Notwithstanding the provision of Article 13.2(b), should the Regulatory Change be required to correct a defect specific to the Aircraft or to the Canadair Regional Jet fleet of aircraft, [ * ] 8.7 BRAD shall issue a Change Order, reflecting any Regulatory Change required to be made under this Article 8, which shall set forth in detail the particular changes to be made and the effect, if any, of such changes on design, performance, weight, balance, time of delivery, Base Price, the Aircraft Purchase Price, [ * ] all in accordance with this Agreement. Any Change Orders issued pursuant to this Article shall be effective and binding upon the date of BRAD's transmittal of such Change Order, all in accordance with this Agreement. Although Buyer's consent to said Change Order is not required, BRAD agrees to consult with Buyer regarding the change proposed by BRAD to implement such Regulatory Change. 8.8 If the use of any of the certificates identified in this Article 8 are discontinued during the performance of this Agreement, reference to such discontinued certificate shall be deemed a reference to any other certificate or instrument which corresponds to such certificate or, if there should not be any such other certificate or instrument, then BRAD shall be deemed to have obtained such discontinued certificate(s) upon demonstrating that the Aircraft complies substantially with the Specification. ARTICLE 9 - ACCEPTANCE PROCEDURE 9.1 No later than [ * BRAD shall inform Buyer by facsimile or telegraphic communication or other expeditious means, of the projected week of delivery within the delivery month BRAD shall give Buyer at least [ * ] advance notice, by facsimile or telegraphic communication or other expeditious means, of the projected date of readiness of each Aircraft for inspection and delivery. BRAD and Buyer shall then agree on a mutually acceptable targeted delivery schedule within the delivery month. BRAD shall give Buyer at least [ * ] advance notice, by facsimile or telegraphic communication or other expeditious means, of the date on which an Aircraft will be ready for Buyer's inspection, flight test and acceptance (the "Readiness Date"), which Readiness Date shall take into account the targeted delivery schedule mentioned above or such other date as the parties may have agreed upon. 9.2 Within two (2) days following receipt by Buyer of the notice of Readiness Date Buyer shall: (a) provide notice to BRAD as to the source and method of payment of the balance of the Aircraft Purchase Price; (b) identify to BRAD the names of Buyer's representatives who will participate in the inspection, flight test and acceptance; and (c) provide evidence of the authority of the designated persons to execute the Certificate of Acceptance and other delivery documents on behalf of Buyer. 9.3 Buyer shall have three (3) consecutive working days commencing on the Readiness Date in which to complete the inspection and flight test (such three (3) working day period being the "Acceptance Period"). This three (3) day period may be extended in the event of any delay by BRAD in making the Aircraft available for inspection and flight test. 9.4 Up to four (4) representatives of Buyer may participate in Buyer's ground inspection of the Aircraft and two (2) representatives of Buyer may participate in the flight test. BRAD shall, if requested by Buyer, perform an acceptance flight of not less than one (1) and not more than three (3) hours duration. Ground inspection, in accordance with procedures to be mutually agreed to, and flight test shall be conducted in accordance with BRAD's acceptance procedures (a copy of which shall be provided to Buyer at least 30 days prior to the Scheduled Delivery Date of the First Aircraft hereunder), as may be amended by mutual agreement of Buyer and BRAD, and at BRAD's expense. At all times during ground inspection and flight test, BRAD shall retain control over the Aircraft. 9.5 If no Aircraft defect or discrepancy is revealed during the ground inspection or flight test, Buyer shall accept the Aircraft on or before the last day of the Acceptance Period in accordance with the provisions of Article 9.7. 9.6 If any material defect or discrepancy in the Aircraft is revealed by Buyer's ground inspection or flight test, the defect or discrepancy will promptly be corrected by BRAD, at no cost to Buyer, which correction may occur during or after the Acceptance Period depending on the nature of the defect or discrepancy and of the time required for correction. To the extent necessary to verify such correction, BRAD shall perform one (1) or more further acceptance flights or ground inspections as applicable. Notwithstanding the provisions of Article 4.2, should the Delivery Date of an Aircraft occur in the month subsequent to the Scheduled Delivery Date due to the correction of defects or discrepancies, [ * ] 9.7 Upon completion of the ground inspection and acceptance flight of the Aircraft and correction of any defects or discrepancies: (a) Buyer will sign a Certificate of Acceptance (in the form of Exhibit I hereto) for the Aircraft. Execution of the Certificate of Acceptance by or on behalf of Buyer shall be evidence of Buyer having examined the Aircraft and found it in accordance with the provisions of this Agreement. The date of signature of the Certificate of Acceptance shall be the "Acceptance Date"; (b) BRAD will supply a TC Certificate of Airworthiness for Export; and (c) Buyer shall pay BRAD the balance of [ * ] and any other amounts due, at which time BRAD shall issue an FAA bill of sale and a warranty bill of sale in a form acceptable to BRAD and financiers (substantially in accordance with the forms attached as Exhibit II(a) and Exhibit II(b) hereto), passing to Buyer, or approved assignee pursuant to Article 20, good title to the Aircraft free and clear of all liens, claims, charges and encumbrances except for those liens, charges or encumbrances created by or claimed through Buyer (the "Bill of Sale"). The date on which BRAD delivers the Bill of Sale and Buyer takes delivery of the Aircraft shall be the "Delivery Date". Delivery of the Aircraft shall be evidenced by the execution and delivery of the Bill of Sale and of the Certificate of Receipt of Aircraft (in the form of Exhibit III hereto). 9.8 Provided that BRAD has met all of its obligations under this Article 9, should Buyer not accept, pay for (subject to Letter Agreement No. 7) and take delivery of any of the Aircraft within ten (10) calendar days after the end of the Acceptance Period of such Aircraft, Buyer shall be deemed to be in default of the terms of this Agreement [ * ] 9.9 Should the Buyer be in default pursuant to Article 9.8 hereof, Buyer shall promptly, upon demand, reimburse BRAD for all costs and expenses reasonably incurred by BRAD as a result of such Buyer's failure to accept or take delivery of the Aircraft, including but not limited to reasonable amounts for storage, insurance, taxes, preservation or protection of the Aircraft, and provided that BRAD has met all of its obligations under this Article 9, should Buyer not accept, pay for and/or take delivery of any one of the Aircraft within [ * ] following the end of the Acceptance Period, BRAD may, at its option, terminate the present Agreement with respect to any of the undelivered Aircraft. BRAD shall however, have the option (but not the obligation) of waiving such termination should Buyer, within ten (10) calendar days following such termination, make arrangements satisfactory to BRAD to accept delivery and provide payment for all amounts owing or to become due pursuant to this Agreement. ARTICLE 10 - TITLE AND RISK 10.1 Title to the Aircraft and risk of loss of or damage to the Aircraft passes to Buyer when BRAD presents the Bill of Sale to Buyer on the Delivery Date. 10.2 If, after transfer of title on the Delivery Date, the Aircraft remains in or is returned to the care, custody or control of BRAD, Buyer shall retain risk of loss of, or damage to the Aircraft and for itself and on behalf of its insurer(s) hereby waives and renounces to, and releases BRAD and any of BRAD's affiliates from any claim, whether direct, indirect or by way of subrogation, for damages to or loss of the Aircraft arising out of, or related to, or by reason of such care, custody or control [ * ] ARTICLE 11 - CHANGES 11.1 Other than a Permitted Change as described in Article 11.2, or a Regulatory Change as described in Article 8.4, any change to this Agreement (including without limitation the Specification) or any features or Buyer Furnished Equipment ("BFE"), if any, changing the Aircraft from that described in the Specification attached hereto, and as may be mutually agreed upon by the parties hereto, shall be made using a change order ("Change Order") substantially in the format of Exhibit IV hereto. Should Buyer request a change, BRAD shall advise Buyer, to the extent reasonably practical, of the effect, if any, of such change request on: (a) the Scheduled Delivery Date; (b) the price and payment terms applicable to the Change Order; and (c) any other material provisions of this Agreement which will be affected by the Change Order. Such Change Order shall become effective and binding on the parties hereto when signed by a duly authorized representative of each party. 11.2 BRAD, prior to the Delivery Date and without a Change Order or Buyer's consent, may: (a) substitute the kind, type or source of any material, part, accessory or equipment with any other material, part, accessory or equipment of like, equivalent or better kind or type; or (b) make such change or modification to the Specification as it deems appropriate to: 1) improve the Aircraft, its maintainability or appearance, or 2) to prevent delays in manufacture or delivery, or 3) to meet the requirements of Articles 2 and 8, other than for a Regulatory Change to which the provisions of Articles 8.4 and 8.5 shall apply, provided that such substitution, change or modification shall not affect the Aircraft Purchase Price or materially affect the Scheduled Delivery Date, [ * ] Any change made in accordance with the provisions of this Article 11.2 shall be deemed to be a "Permitted Change" and the cost thereof shall be borne by BRAD. ARTICLE 12 - BUYER'S REPRESENTATIVES AT MANUFACTURE SITE 12.1 From time to time, commencing with the date of this Agreement and ending with the Delivery Date of the last Aircraft purchased hereunder, BRAD shall furnish, without charge, office space at BRAD's facility for one (1) representative of Buyer. Buyer shall be responsible for all expenses of its representative and shall notify BRAD at least thirty (30) calendar days prior to the first scheduled visit of such representative and three (3) days for each subsequent visit. 12.2 BRAD's and BRAD's affiliates facilities shall be accessible to Buyer's representative during normal working hours. Buyer's representative shall have the right to periodically observe the work at BRAD's or BRAD's affiliates' facilities where the work is being carried out provided there shall be no disruption in the performance of the work. 12.3 BRAD shall advise Buyer's representative of BRAD's or BRAD's affiliates' rules and regulations applicable at the facilities being visited and Buyer's representative shall conform to such rules and regulations. 12.4 At any time prior to delivery of the Aircraft, Buyer's representative may request, in writing, correction of parts or materials which they reasonably believe are not in accordance with the Specification. BRAD shall provide a written response to any such request. Communication between Buyer's representative and BRAD shall be solely through BRAD's Contract Department or its designate. 12.5 BUYER HEREBY RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS BRAD, ITS ASSIGNEES AND AFFILIATES AND THEIR OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND CONTRACTORS FROM AND AGAINST ALL LIABILITIES, DAMAGES, LOSSES, COSTS AND EXPENSES RESULTING FROM INJURIES TO OR DEATH OF BUYER'S REPRESENTATIVES WHILE AT BRAD'S OR BRAD'S AFFILIATES OR SUBCONTRACTOR'S FACILITIES AND/OR DURING INSPECTION, FLIGHT TEST OR ACCEPTANCE OF THE AIRCRAFT, WHETHER OR NOT CAUSED BY THE ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE OR STRICT PRODUCTS LIABILITY OF BRAD, ITS ASSIGNEES, AFFILIATES OR THEIR OFFICERS, DIRECTORS, AGENTS, EMPLOYEES OR CONTRACTORS [ * ] 12.6 [ * ] ARTICLE 13 - EXCUSABLE DELAY 13.1.1 In the event of a delay on the part of BRAD in the performance of its obligations or responsibilities under the provisions of this Agreement due directly or indirectly to a cause which is beyond the reasonable control or without the fault or negligence of BRAD (an "Excusable Delay"), BRAD shall not be liable for, nor be deemed to be in default under this Agreement on account of such delay in delivery of the Aircraft or other performance hereunder and the time fixed or required for the performance of any obligation or responsibility in this Agreement shall be extended for a period equal to the period during which any such cause or the effect thereof persist. Excusable Delay shall be deemed to include, without limitation, delays occasioned by the following causes: (a) force majeure or acts of God; (b) war, warlike operations, act of the enemy, armed aggression, civil commotion, insurrection, riot or embargo; (c) fire, explosion, earthquake, lightning, flood, draught, windstorm or other action of the elements or other catastrophic or serious accidents; (d) epidemic or quarantine restrictions; (e) any legislation, act, order, directive or regulation of any governmental or other duly constituted authority; (f) strikes, lock-out, walk-out, and/or other labour troubles causing cessation, slow-down or interruption of work; (g) lack or shortage or delay in delivery of supplies, materials, accessories, equipment, tools or parts, [ * ] (h) [ * ] delay or failure of carriers, subcontractors or suppliers for any reason whatsoever; or (i) delay in obtaining any airworthiness approval or certificate, or any equivalent approval or certification, by reason of any law or governmental order, directive or regulation or any change thereto, or interpretation thereof, by a governmental agency, the effective date of which is subsequent to the date of this Agreement, or by reason of any change or addition made by BRAD or its affiliates or requested by a governmental agency to the compliance program of BRAD or of its affiliate, or any part thereof, as same may have been approved by TC, or change to the interpretation thereof to obtain any such airworthiness approval or certificate; or (j) the incorporation of a Regulatory Change as set out in Article 8. 13.1.2 [ * ] 13.2 (a) If BRAD concludes, based on its appraisal of the facts and normal scheduling procedures, that due to Excusable Delay it can be reasonably anticipated that delivery of the Aircraft will be delayed, BRAD shall give prompt written notice to Buyer of such delay. BRAD and Buyer agree to collaborate and to use their reasonable efforts to mitigate the impact of such delays upon the parties. (b) If, as a result of an Excusable Delay, delivery of the Aircraft will be delayed to a date beyond the originally Scheduled Delivery Date or any revised date previously agreed to in writing by the parties, Buyer and BRAD agree, [ * ] (c) In the event of an Excusable Delay [ * ] or an anticipated Excusable Delay [ * ] shall conduct an appraisal of the facts and normal scheduling procedures, and if it concludes that delivery of one or more of the Aircraft will be delayed for [ * ] after the originally Scheduled Delivery Date or any revised date agreed to in writing by the parties, [ * ] may then terminate this Agreement with respect to such delayed Aircraft by giving written notice [ * ] (d) If, due to Excusable Delay [ * ] delivery of any Aircraft is delayed for [ * ] after the Scheduled Delivery Date, either party may terminate this Agreement with respect to such Aircraft by giving written notice to the other within fifteen (15) business days after the expiration of such [ * ]period. 13.3 Termination under Article 13.2 shall discharge all obligations and liabilities of Buyer and BRAD hereunder with respect to such delayed Aircraft and all related undelivered items and services, [ * ] BRAD shall, within [ * ] such termination, repay to Buyer, and BRAD's sole liability and responsibility shall be limited to the repayment to Buyer, of all deposits for such Aircraft received by BRAD less any amount due by Buyer to BRAD. 13.4 The termination rights set forth in Article 13.2 are in substitution for any and all other rights of termination or contract lapse arising by operation of law in connection with Excusable Delays. ARTICLE 14 - NON-EXCUSABLE DELAY 14.1 If delivery of the Aircraft is delayed beyond the end of the Scheduled Delivery Date, by causes not excused under Article 13.1, this shall constitute a non-excusable delay (a "Non- Excusable Delay"). 14.2 If as a result of an Non-Excusable Delay, delivery of the Aircraft will be delayed to a date beyond the originally Scheduled Delivery Date or any revised date previously agreed to in writing by the parties, the Aircraft Purchase Price of the Aircraft at delivery, [ * ] ARTICLE 15 - LOSS OR DAMAGE 15.1 In the event that prior to the Delivery Date of any Aircraft, the Aircraft is lost, destroyed or damaged beyond repair due to any cause, BRAD shall promptly notify Buyer in writing. Such notice shall specify the earliest date reasonably possible, consistent with BRAD's other contractual commitments and production schedule, by which BRAD estimates it would be able to deliver a replacement for the lost, destroyed or damaged Aircraft. This Agreement shall automatically terminate as to such Aircraft unless Buyer gives BRAD written notice, within thirty (30) days of BRAD's notice, that Buyer desires a replacement for such Aircraft. If Buyer gives such notice to BRAD, the parties shall execute an amendment to this Agreement which shall set forth the Delivery Date for such replacement aircraft and corresponding new replacement Aircraft Purchase Price; provided, however, that nothing herein shall obligate BRAD to manufacture and deliver such replacement aircraft if it would require the reactivation or acceleration of its production line for the model of aircraft purchased hereunder. The terms and conditions of this Agreement applicable to the replaced Aircraft shall apply to the replacement aircraft. 15.2 If an Aircraft is lost, destroyed or damaged beyond repair as contemplated under this Article, due to a cause to which reference is made in Article 13.1, and Buyer elects to purchase a replacement Aircraft, then [ * ] ARTICLE 16 - TERMINATION 16.1 This Agreement may be terminated, in whole or in part, with respect to any or all of the Aircraft before the Delivery Date by BRAD or Buyer by notice of termination to the other party upon the occurrence of any of the following events: (a) a party makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts or generally does not pay its debts as they become due; or (b) a receiver or trustee is appointed for a party or for substantially all of such party's assets and, if appointed without such party's consent, such appointment is not discharged or stayed within [ * ] thereafter; or (c) proceedings or action under any law relating to bankruptcy, insolvency or the reorganization or relief of debtors are instituted by or against a party, and, if contested by such party, are not dismissed or stayed within [ * ] thereafter; or (d) any writ of attachment or execution or any similar process is issued or levied against a party or any significant part of its property and is not released, stayed, bonded or vacated within [ * ] after its issue or levy. 16.2 In addition, this Agreement may be terminated, with respect to any or all undelivered Aircraft, in whole or in part, before the Delivery Date (a) as otherwise provided in this Agreement; and (b) by BRAD [ * ] default or breach of any material term or condition of this Agreement and such party does not cure such default or breach within forty-five (45) calendar days after receipt of Notice from BRAD [ * ] specifying such default or breach. 16.3 In case of termination of this Agreement under Articles 5.4, 9.9, 16.1 or 16.2: (a) all rights (including property rights), if any, which Buyer or its assignee may have or may have had in or to (i) this Agreement or portion thereof with respect to the undelivered Aircraft, or (ii) any or all of the undelivered Aircraft, shall become null and void with immediate effect; (b) BRAD may sell, lease or otherwise dispose of such Aircraft to another party free of any claim by Buyer; (c) in the event of termination by BRAD, all amounts paid by Buyer with respect to the applicable undelivered Aircraft shall be retained by BRAD and shall be applied against the costs, expenses, losses and damages incurred by BRAD as a result of Buyer's default and/or the termination of this Agreement, to which BRAD shall be entitled, [ * ] and (d) [ * ] 16.4 Notwithstanding the foregoing, nothing herein contained shall, in the event of termination of this Agreement, limit [ * ] ongoing rights and obligations with respect to Aircraft delivered prior to the termination date, such as the after sale support obligations described in Annex A, the warranty provisions and Service Life Policy of Annex B and the obligation contained in Letters of Agreement where it is expressly provided that said obligations (or part thereof) shall survive termination, subject to any adjustments of said rights or obligations required to reflect the number of Aircraft in service, if applicable. 16.5 [ * ] ARTICLE 17 - NOTICES 17.1 Any notice, request, approval, permission, consent or other communication ("Notice"), to be given or required under this Agreement shall be provided in writing, by registered mail, facsimile, courier, telegraphic or other electronic communication providing reasonable proof of transmission, except that no notice shall be sent by mail if disruption of postal service exists or is threatened either in the country of origin or of destination, by the party giving the Notice and shall be addressed as follows until changed by notice in writing: (a) Notice to BRAD shall be addressed to: Bombardier Inc. Bombardier Regional Aircraft Division 123 Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Attention: Director Contracts Telephone: (416)375-4052 Telex: 06-22128 Facsimile: (416) 375-4533 (b) Notice to Buyer shall be addressed to: ATLANTIC COAST AIRLINES 515A Shaw Road, Dulles, Virginia U.S.A. 20166 Attention: General Counsel Telephone: 703-925-6000 Facsimile: 703-925-6294 17.2 Notice given in accordance with Article 17.1 shall be deemed sufficiently given to and received by the addressees: (a) if delivered by hand, on the day when the same shall have been so delivered; or (b) if mailed or sent by courier on the day indicated on the corresponding acknowledgment of receipt; or (c) if sent by telex or facsimile on the day indicated by the acknowledgment or the answer back of the receiver in provable form. ARTICLE 18 - INDEMNITY AGAINST PATENT INFRINGEMENT 18.1 In the case of any actual or alleged infringement of any Canadian or United States patent or, subject to the conditions and exceptions set forth below, any patent issued under the laws of any other country in which Buyer from time to time may lawfully operate the Aircraft ("Other Patents"), by the Aircraft, or by any system, accessory, equipment or part installed in such Aircraft at the time title to such Aircraft passes to Buyer, BRAD shall indemnify, protect, hold harmless and defend (subject to applicable court procedures) Buyer from and against all claims, suits, actions, liabilities, damages and costs (including reasonable attorney fees [ * ] resulting from the infringement, excluding any incidental or consequential damages (which include without limitation loss of revenue or loss of profit) and BRAD shall and as promptly as possible under the circumstances, at its option and expense: (a) procure for Buyer the right under such patent to use such system, accessory, equipment or part; or (b) replace such system, accessory, equipment or part with one of the similar nature and quality that is non- infringing; or (c) modify such system, accessory, equipment or part to make same non-infringing in a manner such as to keep it otherwise in compliance with the requirements of this Agreement. BRAD's obligation hereunder shall extend to Other Patents only if from the time of design of the Aircraft, system, accessory, equipment or part until the alleged infringement claims are resolved: (d) such other country and the country in which the Aircraft is permanently registered have ratified and adhered to and are at the time of the actual or alleged infringement contracting parties to the Chicago Convention on International Civil Aviation of December 7, 1944 and are fully entitled to all benefits of Article 27 thereof; and (e) such other country and the country of registration shall each have been a party to the International Convention for the Protection of Industrial Property (Paris Convention) or have enacted patent laws which recognize and give adequate protection to inventions made by the nationals of other countries which have ratified, adhered to and are contracting parties to either of the foregoing conventions. 18.2 The foregoing indemnity does not apply to BFE, or to avionics, engines or any system, accessory, equipment or part that was not manufactured to BRAD's detailed design or to any system, accessory, equipment or part manufactured by a third party to BRAD's detailed design without BRAD's authorization. [ * ] 18.3 Buyer's remedy and BRAD's obligation and liability under this Article are conditional upon (i) Buyer giving BRAD written notice within ten (10) days after Buyer receives notice of a suit or action against Buyer alleging infringement or within twenty (20) days after Buyer receives any other written claim of infringement (ii) Buyer uses reasonable efforts in full cooperation with BRAD to reduce or mitigate any such expenses, damages, costs or royalties involved, and (iii) Buyer furnishes promptly to BRAD all data, papers and records in its possession or control necessary or useful to resist and defend against such claim or suit. BRAD may at its option conduct negotiations with any party claiming infringement and may intervene in any suit or action. Whether or not BRAD intervenes, BRAD shall be entitled at any stage of the proceedings to assume or control the defense. Buyer's remedy and BRAD's obligation and liability are further conditional upon BRAD's prior approval of Buyer's payment or assumption of any liabilities, expenses, damages, royalties or costs for which BRAD may be held liable or responsible. 18.4 THE INDEMNITY, OBLIGATIONS AND LIABILITIES OF BRAD AND REMEDIES OF BUYER SET OUT IN THIS ARTICLE ARE EXCLUSIVE AND ACCEPTED BY BUYER TO BE IN LIEU OF AND IN SUBSTITUTION FOR, AND BUYER HEREBY WAIVES, RELEASES AND RENOUNCES, ALL OTHER INDEMNITIES, OBLIGATIONS AND LIABILITIES OF BRAD AND OF ITS AFFILIATES AND ALL OTHER RIGHTS, REMEDIES AND CLAIMS, INCLUDING CLAIMS FOR DAMAGES, DIRECT, INCIDENTAL OR CONSEQUENTIAL, OF BUYER AGAINST BRAD AND ITS AFFILIATES EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY ACTUAL OR ALLEGED PATENT INFRINGEMENT BY THE AIRCRAFT OR ANY INSTALLED SYSTEM, ACCESSORY, EQUIPMENT OR PART. ARTICLE 19 - LIMITATION OF LIABILITY AND INDEMNIFICATION 19.1 ANNEX B, EXCEPT AS OTHERWISE PROVIDED IN LETTERS OF AGREEMENT NO. 6, 8, 9 AND 15 HERETO, EXCLUSIVELY SETS FORTH BRAD'S OBLIGATIONS WITH RESPECT TO ANY NON-CONFORMANCE OF THE AIRCRAFT WITH THE SPECIFICATION OR ANY DEFECT IN THE AIRCRAFT AND THE OBLIGATIONS AND LIABILITIES OF BRAD UNDER THE AFORESAID ARE ACCEPTED BY BUYER TO BE EXCLUSIVE AND IN LIEU OF, AND BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL OTHER REMEDIES, WARRANTIES, GUARANTEES, OBLIGATIONS, REPRESENTATIONS OR LIABILITIES, EXPRESS OR IMPLIED, OF BRAD AND ITS AFFILIATES WITH RESPECT TO DEFECTS IN EACH AIRCRAFT OR PART THEREOF, PRODUCT, DOCUMENT OR SERVICE DELIVERED OR PROVIDED UNDER THIS AGREEMENT, ARISING IN FACT, IN LAW, IN CONTRACT, IN TORT, OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, A. ANY IMPLIED WARRANTY OF CONDITION OR MERCHANTABILITY OR FITNESS; B. ANY IMPLIED WARRANTY OR CONDITION ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; C. ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE OR STRICT PRODUCTS LIABILITY OF BRAD OR ITS AFFILIATES, BY REASON OF THE DESIGN, MANUFACTURE, SALE, REPAIR, LEASE OR USE OF THE AIRCRAFT OR PRODUCT AND SERVICES DELIVERED HEREUNDER; AND D. ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO ANY AIRCRAFT OR PART THEREOF, ANY BRAD PARTS, ANY POWER PLANT PARTS, ANY VENDOR PARTS, ANY SPARE PARTS OR ANY TECHNICAL DATA. 19.2 BUYER HEREBY RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS BRAD, ITS SUBSIDIARIES, AFFILIATES, SUBCONTRACTORS AND LESSORS, AND THEIR RESPECTIVE EMPLOYEES, DIRECTORS, OFFICERS AND AGENTS, AND EACH OF THEM (THE "INDEMNIFIED PARTIES"), FROM AND AGAINST ALL LIABILITIES, CLAIMS, DAMAGES, LOSSES, COSTS AND EXPENSES FOR LOSS OF OR DAMAGE TO PROPERTY INCLUDING ANY AIRCRAFT, AND LOSS OF USE THEREOF, OR INJURIES TO OR DEATH OF ANY AND ALL PERSONS (INCLUDING BUYER'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES BUT EXCLUDING BRAD'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES), ARISING DIRECTLY OR INDIRECTLY OUT OF OR IN CONNECTION WITH ANY SERVICE PROVIDED UNDER ANNEX A WHETHER OR NOT CAUSED BY THE ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE OR STRICT PRODUCTS LIABILITY OF THE INDEMNIFIED PARTIES. THE FOREGOING SHALL NOT APPLY WHERE SUCH LOSSES OR DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTIES. 19.3 NOTHING CONTAINED IN ARTICLE 19.1 OR 19.2 ABOVE SHALL CONSTITUTE A WAIVER OR RELEASE OR RENUNCIATION OF, OR INDEMNITY FOR, ANY LOSSES, DAMAGES OR CLAIMS, BY BUYER AGAINST BRAD FOR CONTRIBUTION TOWARD THIRD-PARTY BODILY INJURY OR PROPERTY DAMAGE CLAIMS BASED ON PRODUCT LIABILITY THEORIES TO THE EXTENT OF BRAD'S RELATIVE PERCENTAGE OF THE TOTAL FAULT OR OTHER LEGAL RESPONSIBILITY OF PERSONS CAUSING SUCH BODILY INJURY OR PROPERTY DAMAGE. 19.4 IN THE EVENT OF ANY LOSSES OR DAMAGES SUFFERED BY ANYONE FOR OR ARISING OUT OF (i) ANY LACK OR LOSS OF USE OF ANY AIRCRAFT, EQUIPMENT, BRAD PARTS, VENDOR PARTS, SPARE PARTS, GROUND SUPPORT EQUIPMENT, TECHNICAL PUBLICATIONS OR DATA OR (ii) ANY SERVICES TO BE PROVIDED HEREUNDER, OR (iii) FOR ANY FAILURE TO PERFORM ANY OBLIGATIONS HEREUNDER, NEITHER PARTY SHALL HAVE ANY OBLIGATION FOR LIABILITY TO THE OTHER (AT LAW OR IN EQUITY), WHETHER ARISING IN CONTRACT (INCLUDING WITHOUT LIMITATION, WARRANTY), IN TORT (INCLUDING THE ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE OR STRICT PRODUCTS LIABILITY OF BRAD OR ITS AFFILIATES), OR OTHERWISE, FOR LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND OR NATURE. ARTICLE 20 - ASSIGNMENT This Agreement may be assigned only as follows: 20.1 Either party may assign, sell, transfer or dispose of (in whole or in part) any of its rights and obligations hereunder to a wholly owned subsidiary or affiliate provided that there is no increase to the liability and/or responsibility of the non-assigning party and that the assigning party remains jointly and severally liable with any assignee for the performance of its obligation under this Agreement. 20.2 With the other party's prior written consent not to be unreasonably withheld, either party may assign, sell, transfer or dispose of (in whole or in part) any of its rights and obligations hereunder to another entity only provided that (i) [ * ] (ii) there is no increase to the liability and/or responsibility of the non assigning party, (iii) assigning party remains jointly and severally liable with any assignee for the performance of its obligation under this Agreement, (iv) the assignment is made only for operational and financial considerations, (v) the assignee shall execute a confidentiality agreement prohibiting the disclosure of confidential information, and (vi) [ * ] 20.3 With BRAD's prior written consent, not to be unreasonably withheld, Buyer may assign, sell, transfer or dispose of (in whole or in part) any of its rights and obligations hereunder to another entity to which Buyer does not hold majority interest provided that (i) there is no increase to the liability and/or responsibility of BRAD, (ii) the Buyer remains jointly and severally liable with any assignee for the performance of its obligation under this Agreement, (iii) the assignment is made only for operational and financial considerations, (iv) the shareholders (other than shareholders purchasing stock through arms length, publicly traded transactions) or owners of assignee, other than Buyer, are not engaged in air transportation, (v) the assignee operates or is to operate its business in a fashion that is generally held out and structured to be perceived by people knowledgeable in the industry to be closely affiliated with Buyer or Buyer's parent, (vi) the assignee shall execute a confidentiality agreement prohibiting the disclosure of confidential information, and (vii) the assignee does not compete with the Bombardier Group with respect to the manufacture of aircraft. 20.4 Except as provided in Articles 20.1, 20.2 and 20.3, Buyer shall not assign, sell, transfer or dispose of (in whole or in part) any of its rights or obligations hereunder without BRAD's prior written consent, such consent not to be unreasonably withheld. In the event of such assignment, sale, transfer or disposition Buyer shall remain jointly and severally liable with any assignee for the performance of all and any of Buyer's obligations under this Agreement and BRAD reserves the right as a condition of its consent to amend one or more of the terms and conditions of this Agreement. 20.5 Notwithstanding Article 20.4 above, Buyer may assign, after transfer of title of the Aircraft, its rights under the Agreement to a third party purchaser of any one of the Aircraft, provided said third party acknowledges in writing to be bound by the applicable terms and conditions of this Agreement, including but not limited to the provisions and limitations as detailed Annex A, Customer Support Services, Annex B, Warranty and Service Life Policy and of the provisions and limitations in Limitation of Liability as defined in Article 19 hereof and Indemnity Against Patent Infringement as defined in Article 18 hereof and any other on-going obligations of Buyer, which shall apply to it to the same extent as if said third party was Buyer hereunder and provided that there is no increase to the liability and/or responsibility of BRAD. 20.6 BRAD may assign any of its rights to receive money hereunder without the prior consent of Buyer. 20.7 Notwithstanding the other provisions of this Article 20, BRAD shall, at Buyer's cost and expense, if so requested in writing by Buyer, take any action reasonably required for the purpose of causing any of the Aircraft to be subjected (i) to, at or after the Delivery Date, an equipment trust, conditional sale or lien, leases and mortgages, or (ii) to another arrangement for the financing of the Aircraft by Buyer, providing, however, there shall be no increase to the liability and/or responsibility of BRAD arising through such financing. ARTICLE 21 - SUCCESSORS 21.1 This Agreement shall inure to the benefit of and be binding upon each of BRAD and Buyer and their respective successors and permitted assignees. 21.2 As used herein, reference to an airworthiness authority such as Transport Canada and the FAA, to a regulation or directive issued by such airworthiness authority or other governmental authority, shall include any successor to such authority then responsible for the duties of such authority and regulation or directive covering the same subject matters. ARTICLE 22 - APPLICABLE LAWS 22.1 THIS AGREEMENT SHALL BE SUBJECT TO AND CONSTRUED IN ACCORDANCE WITH AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY THE DOMESTIC LAWS OF THE STATE OF NEW YORK, U.S.A., EXCLUDING THE CHOICE OF LAW RULES, AND THE PARTIES HAVE AGREED THAT THE APPLICATION OF THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS IS HEREBY EXCLUDED. 22.2 Each of Buyer and BRAD agrees that any legal action or proceeding with respect to this Agreement may be brought in the Federal Courts of the United States of America in the Southern District Courts of New York or in the Supreme Courts of the State of New York in the County of New York and by the execution and delivery of this Agreement irrevocably consents and submits to the nonexclusive jurisdiction of each of the aforesaid court in personam with respect to any such action or proceeding and irrevocably waive any objection either party may have as to venue or any such suit, action or procedure brought in such court or that such court is an inconvenient forum. Nothing in this paragraph shall affect the right of any party hereto or their successors or assigns to bring any action or proceeding against the other party hereto or their property in the courts of other jurisdictions. ARTICLE 23 - CONFIDENTIAL NATURE OF AGREEMENT 23.1 This Agreement is confidential between the parties and shall not, without the prior written consent of the other party, be disclosed by either party in whole or in part to any other person or body except: i) as may be necessary for either party to carry out its obligations under this Agreement or other agreements related to this Agreement to which it is a party, and ii) as may be required by law, and iii) [ * ] 23.2 Except as may be reasonably required for the operation, maintenance, overhaul, modification, storage and repair of the Aircraft by Buyer or any third party, Buyer shall hold confidential all Technical Data and other proprietary information (and so marked by BRAD) supplied by or on behalf of BRAD, and shall not reproduce any such Technical Data or proprietary information or divulge the same to any third party unless such disclosure requires the third party to hold same in confidence and use it only for the purposes stated above. 23.3 Either party may announce the signing of this Agreement by means of a notice to the press provided that the content and date of the notice has been agreed to by the other party. 23.4 BRAD hereby acknowledges that Buyer is sensitive with respect to the public disclosure of its operating data provided to BRAD pursuant to this Agreement. Although BRAD shall have no confidentiality undertaking with respect to such data, BRAD agrees to consider Buyer's sensitivity in its public use of said data. ARTICLE 24 - AGREEMENT 24.1 This Agreement and the matters referred to herein constitute the entire Agreement between BRAD and Buyer and supersede and cancel all prior representations, brochures, alleged warranties, statements, negotiations, undertakings, letters, memoranda of agreement, acceptances, agreements, understandings, contracts and communications, whether oral or written, between BRAD and Buyer or their respective agents, with respect to or in connection with the subject matter of this Agreement and no agreement or understanding varying the terms and conditions hereof shall be binding on either BRAD or Buyer hereto unless an amendment to this Agreement is issued and duly signed by their respective authorized representatives pursuant to the provisions of this Article hereof. In the event of any inconsistencies between any provisions of this Agreement and those of any Letter Agreements, the provisions of the Letter Agreements shall prevail. 24.2 If any of the provisions of this Agreement are for any reason declared by judgment of a court of competent jurisdiction to be unenforceable or ineffective, those provisions shall be deemed severable from the other provisions of this Agreement and the remainder of this Agreement shall remain in full force and effect. 24.3 THE BENEFIT OF THE WAIVER, LIMITATION, RELEASE, RENUNCIATION AND/OR EXCLUSION OF LIABILITY CONTAINED IN THIS AGREEMENT EXTENDS TO THE OTHER DIVISIONS, OTHER SUBSIDIARIES, AND OTHER AFFILIATES OF BOMBARDIER INC., INCLUDING DE HAVILLAND INC. (COLLECTIVELY THE "BOMBARDIER GROUP") AND TO THE OFFICERS, DIRECTORS, EMPLOYEES AND REPRESENTATIVES OF THE BOMBARDIER GROUP, ON WHOSE BEHALF AND FOR WHOSE BENEFIT BRAD IS, FOR PURPOSES OF THIS ARTICLE 24.3, ACTING AS AGENT AND TRUSTEE. [ * ] 24.4 Buyer and BRAD agree that this Agreement has been the subject of discussion and negotiation and is fully understood by the parties hereto and that the price of the Aircraft and the other mutual agreements of the parties set forth herein were arrived at in consideration of the limitation provisions contained in Article 19 and the other similar provisions contained in this Agreement. ARTICLE 25 - DISPUTES 25.1 Any dispute, difference, controversy or claim arising out of or relating to this Agreement, the breach, or non- performance thereof shall first be attempted to be resolved by BRAD and Buyer through mutual negotiations, consultation and discussions. 25.2 Should the parties hereto be unable to settle their differences or disputes which may arise between them with respect to the interpretation or application of this Agreement (a "Dispute"), by mutual agreement as provided in Article 25.1 above, the parties agree to each appoint two (2) representatives to constitute a joint commission (the "Joint Commission") to jointly hear the representations of each party regarding the Dispute. One representative will be appointed as chair of the Joint Commission on an alternate basis. At least one (1) representative of each party shall have knowledge in technical or contractual matters depending on the nature of the Dispute. The Joint Commission shall, following representations by each party, issue non-binding written recommendations to the parties as to how best settle the Dispute. If the representatives do not agree on joint recommendations, the representatives of each party shall issue their own recommendations. 25.3 Either party may request the formation of the Joint Commission if a dispute is not settled within forty-five (45) days following a written notice from either party to the other detailing the nature of the Dispute and the resolution sought. The request for a Joint Commission shall be made in writing and shall contain the names of the representatives appointed by the party requesting its formation. The other party shall then provide the names of its representatives within thirty (30) days following the receipt of the request for a Joint Commission. 25.4 The Joint Commission shall have forty-five (45) days from its formation to agree on the procedure to be followed, including the place of hearing, if any. The Joint Commission shall have sixty (60) days from the completion of the representations by each party to issue its recommendations. 25.5 If, despite the recommendations of the Joint Commission, the parties are unable to resolve the Dispute, either party may, except where the remedies sought include termination of the Agreement in whole or in part or injunctive relief, or other controversy involving an amount claimed in good faith in excess of Five Million United States Dollars ( $5,000,000 U.S.) unless otherwise agreed, request by sixty (60) days prior notice that the Dispute be settled by arbitration in accordance with arbitration rules to be agreed upon before delivery of the first Aircraft. 25.6 Within thirty (30) days of the demand to refer the Dispute to arbitration, each party shall appoint one (1) arbitrator, who in turn will appoint the third arbitrator, within thirty (30) days of their appointments. This third arbitrator shall act as the chairman of the Arbitral Tribunal so constituted. 25.7 The venue of arbitration shall be Toronto, Ontario, New York City, or Washington, DC, U.S.A., as agreed between the parties. 25.8 The arbitrators shall not act as "Amiable Compositeur" and shall decide according to the terms of the agreement and to the laws of New York. 25.9 The award of the arbitration shall be final and shall not be called in question in any court or tribunal. 25.10 It is expressly agreed that any statement, representation or document made or produced to or in connection with, or as a result of the formation of a Joint Commission shall be without prejudice and without admission of liability by either party and shall not be used as such by the other party. 25.11 Each party shall be responsible for its own costs and expenses incurred as a result of, or in connection with the Joint Commission and arbitration including the cost, fees and expenses of its own representatives. In witness whereof this Agreement was signed on the date written hereof: For and on behalf of For an on behalf of Atlantic Coast Airlines: Bombardier Inc.: _______________________ ______________________ James B. Glennon Michel Bourgeois Sr. Vice President and C.F.O. Vice President, Contracts APPENDIX I REGIONAL JET AIRCRAFT ECONOMIC ADJUSTMENT FORMULA Pursuant to the provision of Article 4 of the Agreement, economic adjustment will be calculated using the lesser amount of those generated by the following two calculations: (i) The Economic Adjustment Formula: PP = PO (0.28 LD + 0.35 ED + 0.20 CD + 0.15 MD + 0.02 FD) LO EO CO MO FO [ * ] Where: PP = Aircraft Purchase Price; PO = Base Price; LD = the Canadian labour index based upon the indices for the last full month preceding the month of delivery of the relevant Aircraft; LO = the Canadian labour index which, as at 1 July 1995, is 19.69; ED = the U.S. labour index based upon the indices for the last full month preceding the month of delivery of the relevant Aircraft; EO = the U.S. labor index which, as at 1 July 1995, is 18.07; CD = the Industrial Commodities index based upon the indices for the last full month preceding the month of delivery of the relevant Aircraft; CO = the Industrial Commodities index which, as at 1 July 1995, is 126.6; MD = the material index based upon the indices for the last full month preceding the month of delivery of the relevant Aircraft; MO = the material index which, as at 1 July 1995, is 134.8; FD = the fuel index based on the indices for the last full month preceding the month of delivery of the relevant Aircraft; and FO = the fuel index which, as at 1 July 1995, is 81.0. For the purpose of the Economic Adjustment Formula and the calculation of the economic adjustment: (a) the Canadian labour index shall be the index provided in the Standard Industrial Classification (S.I.C.) Code 321 for Average Hourly Earnings for the Aircraft and Parts Industry (Canada) published by Statistics Canada in "Employment Earnings and Hours" Table 3.1. (b) the U.S. labour index shall be the index provided in the Bureau of Labor Statistics (B.L.S.) Code 372 Gross Hourly Earnings of production and non-supervisory workers in the Aircraft and Aircraft Parts Industry as published by the U.S. Department of Labor, Bureau of Labor Statistics in "Employment and Earnings" Table C-2. (c) the Industrial Commodities index shall be the index provided in the Producer Price Index as Industrial Commodities as published by the U.S. Department of Labor, Bureau of Labor Statistics in "Producer Prices and Price Indexes" Table 6. (d) the material index shall be the index provided in the Producer Price Index for Code 10 Metals and Metals Products as published by the U.S. Department of Labor, Bureau of Labor Statistics in "Producer Prices and Price Indexes" Table 6. (e) the fuel index shall be the index provided in the Bureau of Labor Statistics (B.L.S.) Code 5 "Fuel and Related Products and Power" Table 6 as published by the U.S. Department of Labor. (f) in the event that BRAD shall be prevented from calculating the Aircraft Purchase Price of each Aircraft due to any delay in the publication of the required indices, BRAD shall use the last provisionally published indices, and in the event that provisional indices are not available, BRAD shall extrapolate from the last three (3) months of published indices and where the balance of the Aircraft Purchase Price payable is calculated on the provisionally published indices, and/or extrapolation, BRAD will amend such installment on publication of the final indices and will submit supplementary claims or provide credit notes in respect of any adjustment so caused. Should BRAD be required to submit supplementary claims to Buyer, Buyer and BRAD hereby agree that BRAD will deduct these supplementary claims from the next FIPP Contributions payable, such FIPP Contributions being identified in Letter Agreement No. 5005B. Should the supplementary claims not be fully covered by future FIPP Contributions, Buyer and BRAD agree to meet and arrive at a mutually agreeable method of payment for those services not fully covered by FIPP Contributions. Notwithstanding the foregoing, it is the intention of the parties to finalize the Aircraft Purchase Price within twelve (12) months following the Aircraft delivery date. Accordingly, at the end of each calendar quarter the parties shall review and finalize by mutual agreement the Aircraft Purchase Price of the Aircraft delivered more than twelve months prior to such review, using the best data and information available at that time. (g) the indices used in the Economic Adjustment Formula and the weighting assigned to them, as well as the various indices as of July 1st, 1995 quoted here, are based on the information known to date and represent the projection by BRAD of the manner in which BRAD will incur cost in the production of the Aircraft. In the event there is a change in the indices published or in circumstances which materially affects the indices chosen or the weighting assigned to them, the indices and/or the weighting shall be amended accordingly by mutual agreement of the parties. The change in circumstances referred to above shall include but not be limited to: 1) Any material change in the basis upon which the chosen indices have been calculated or if any of said indices are discontinued or withdrawn from publication, 2) Any change in manufacturing plan involving the letting of a new sub-contract or the termination of an existing sub- contract, and 3) Any change in the escalation or Economic Adjustment Formula used in a Vendor or sub-contractor contract with BRAD; and In the calculation of the Aircraft Purchase Price the following guidelines in respect of decimal places shall apply: (a) All indices in the Economic Adjustment Formula shall be rounded to the second decimal place, (b) The Economic Adjustment Formula shall be calculated and rounded to four decimal places, and (c) The Aircraft Purchase Price resulting from the Economic Adjustment Formula shall be rounded to the nearest dollar. APPENDIX II DELIVERY SCHEDULE First Aircraft [ * ] Second Aircraft [ * ] Third Aircraft [ * ] Fourth Aircraft [ * ] Fifth Aircraft [ * ] Sixth Aircraft [ * ] Seventh Aircraft [ * ] Eighth Aircraft [ * ] Ninth Aircraft [ * ] Tenth Aircraft [ * ] Eleventh Aircraft [ * ] Twelfth Aircraft [ * ] Thirteenth Aircraft [ * ] Fourteenth Aircraft [ * ] Fifteenth Aircraft [ * ] Sixteenth Aircraft [ * ] Seventeenth Aircraft [ * ] Eighteenth Aircraft [ * ] Nineteenth Aircraft [ * ] Twentieth Aircraft [ * ] Twenty-first Aircraft [ * ] Twenty-second Aircraft [ * ] Twenty-third Aircraft [ * ] Twenty-fourth Aircraft [ * ] Twenty-fifth Aircraft [ * ] Twenty-sixth Aircraft [ * ] Twenty-seventh Aircraft [ * ] Twenty-eighth Aircraft [ * ] ** Twenty-ninth Aircraft [ * ] ** Thirtieth Aircraft [ * ] Thirty-first Aircraft [ * ] Thirty-second Aircraft [ * ] APPENDIX II DELIVERY SCHEDULE (CONTINUED) Thirty-third Aircraft [ * ] Thirty-fourth Aircraft [ * ] ** Thirty-fifth Aircraft [ * ] Thirty-sixth Aircraft [ * ] ** Thirty-seventh Aircraft [ * ] ** Thirty-eighth Aircraft [ * ] ** Thirty-ninth Aircraft [ * ] ** Fortieth Aircraft [ * ] ** Forty-first - Aircraft [ * ] ** Forty-second Aircraft [ * ] ** Forty-third Aircraft [ * ] APPENDIX III SPECIFICATION TYPE SPECIFICATION [ * ] [ * ] APPENDIX IV (A) AIRCRAFT ONE THROUGH EIGHT BUYER SELECTED OPTIONAL FEATURES CR No. Description Price (in July, 1995 US$) 00-008 Higher Design Weights (51,000 lbs MTOW) - ER [ * ] 00-009 Centre Wing Fuel Tank [ * ] 00-013 FAA Collins Strapping [ * ] F/A Call Annunciation Lights [ * ] Interior - Universal North American [ * ] Class C Baggage Compartment minus temperature [ * control ] Reduced V2 Vref Speed [ * ] 30-001 Red Anti-Ice Warning Light (FAA) [ * ] Logo Lights (includes Cargo Door Light) [ * ] 30-003 Red Beacon Lights [ * ] 33-027 Altimeter Reset Auto Flash [ * ] 34-031 Single Collins FMS 4100* [ * ] EROS Magic Mask [ * ] 72-002 GE CF34-3B1 Engine - Series 200 [ * ] 00-012 Additional Flap Setting [ * ] 25-077 Exterior Paint Scheme - ACA (1st thru 4th A/C [ * only) ] 25-305 Ext. Paint Scheme [ * [ * ] ] Avicom Announcement and Boarding Music System [ * ] 34-037 Single GPS 4000 (CR 34-037) [ * ] Total Technical Features [ * ] All prices listed above are expressed in July 1, 1995 US dollars, and are subject to economic adjustment as provided in the Agreement. [ * ] [ * ] APPENDIX IV (B) AIRCRAFT NINE AND SUBSEQUENT BUYER SELECTED OPTIONAL FEATURES CR No. Description Price (in July, 1995 US$) 00-008 Higher Design Weights (51,000 lbs MTOW) - ER [ * ] 00-009 Centre Wing Fuel Tank [ * ] 00-013 FAA Collins Strapping [ * ] F/A Call Annunciation Lights [ * ] Interior - Universal North American [ * ] Class C Baggage Compartment minus temperature [ * control ] Reduced V2 Vref Speed [ * ] 30-001 Red Anti-Ice Warning Light (FAA) [ * ] Logo Lights (includes Cargo Door Light) [ * ] 30-003 Red Beacon Lights [ * ] 33-027 Altimeter Reset Auto Flash [ * ] 34-031 Single Collins FMS 4100* [ * ] EROS Magic Mask [ * ] 72-002 GE CF34-3B1 Engine - Series 200 [ * ] 00-012 Additional Flap Setting [ * ] 25-077 Exterior Paint Scheme - ACA (1st thru 4th A/C [ * only) ] 25-305 Ext. Paint Scheme [ * [ * ] ] Avicom Announcement and Boarding Music System [ * ** ] 23-363 *** Passenger Briefing and Music System [ * Provisions(1) ] 34-037 Single GPS 4000 (CR 34-037) [ * ] Total Technical Features [ * ] All prices listed above are expressed in July 1, 1995 US dollars, and are subject to economic adjustment as provided in the Agreement. [ * ] [ * ] (1) Incorporation of Passenger Briefing and Music System Provisions effective on Eighth Aircraft and subsequent. CUSTOMER SUPPORT SERVICES ANNEX A - TECHNICAL SUPPORT, SPARE PARTS, TRAINING AND TECHNICAL DATA The following Customer Support Services are those services to which reference is made in Article 3 of the Agreement. ARTICLE 1 - TECHNICAL SUPPORT 1.1 Factory Service BRAD agrees to maintain or cause to be maintained the capability to respond to Buyer's technical inquiries, to conduct investigations concerning maintenance problems and to issue findings and recommend action thereon. This service shall be provided for as long as ten (10) CL-600-2B19 aircraft remain in commercial air transport service. 1.2 Field Service Representative 1.2.1 Services BRAD shall assign one (1) Field Service Representative ("FSR") to Buyer's main base of operation or other location as may be mutually agreed. 1.2.2 Term Such assignment shall be for [ * ] based on the purchase and delivery of thirty-three (33) Aircraft to Buyer (should Buyer eventually exercise and take delivery of less than thirty-three (33) Aircraft, the term shall be accordingly amended as per Letter Agreement No. 003A Article 3.0), and shall commence approximately one (1) month prior to the Delivery Date of the first Aircraft. The FSR assignment may be extended on terms and conditions to be mutually agreed. 1.2.3 Responsibility The FSR's responsibility shall be to provide technical advice to Buyer for the line maintenance and operation of the Aircraft systems and troubleshooting during scheduled and unscheduled maintenance by Buyer's designated personnel ("FSR Services"). 1.2.4 Travel If requested by Buyer, the FSR may, at Buyer's expense, travel to another location to provide technical advice to Buyer. The FSR must fly on Buyer's airline, if such service is available. 1.2.5 Office Facilities Buyer shall furnish the FSR, at no charge to BRAD, suitable and private office facilities [ * ] and related equipment including desk, file cabinet, access to two telephone lines, facsimile and photocopy equipment conveniently located at Buyer's main base of operation or other location as may be mutually agreed. 1.2.6 Additional Expenses Buyer shall reimburse BRAD (net of any additional taxes on such reimbursement) the amount of any and all taxes (except Canadian taxes on the income of the FSR) and fees of whatever nature, including any customs duties, withholding taxes or fees together with any penalties or interest thereon, paid or incurred by BRAD or the FSR or other BRAD employee as a result of or in connection with the rendering of the services. 1.2.7 Right to Stop Work BRAD shall not be required to commence or continue the FSR Services when: a.) there is a labour dispute or work stoppage in progress at Buyer's facilities; b.) there exist war, risk of war or warlike operations, riots or insurrections; c.) there exist conditions that are dangerous to the safety or health of the FSR or other BRAD employee; or d.) the Government of the country where Buyer's facilities are located or where Buyer desires the FSR to travel refuses the BRAD employee permission to enter said country or Buyer's base of operations. 1.2.8 Work Permits and Clearances Buyer shall assist in arranging for all necessary airport security clearances required for the FSR or other BRAD employee to permit timely accomplishment of the FSR services. 1.3 Maintenance Planning Support 1.3.1 Scheduled Maintenance Task Cards As described in Annex A Attachment A, BRAD shall provide Buyer BRAD's standard format scheduled maintenance task cards that shall conform to the Aircraft at the Delivery Date. At Buyer's request BRAD shall provide a proposal for task cards produced to Buyer's format. 1.3.2 In-Service Maintenance Data Buyer agrees to provide to BRAD in-service maintenance data in order to provide updates to BRAD's recommended maintenance program. Buyer and BRAD shall agree on standards and frequency for communication of such data. 1.4 Additional Services At Buyer's request BRAD shall provide a proposal to provide such additional support services as the parties may agree upon, which may include special investigations, maintenance and repair of the Aircraft. ARTICLE 2 - SPARE PARTS, GSE, TOOLS AND TEST EQUIPMENT 2.1.1 Definitions a. "BRAD Parts": any spare parts, ground support equipment, tools and test equipment which bear an inhouse Cage Code number in the BRAD Provisioning Files (as that expression is defined in ATA Specification 2000). b. "Power Plant Parts": any power plant or power plant part or assembly carrying the power plant manufacturer's part number or any part furnished by the power plant manufacturer for incorporation on the Aircraft. c. "Vendor Parts": any spare parts, ground support equipment, tools and test equipment for the Aircraft which are not BRAD Parts or Power Plant Parts. d. "Spare Parts": all materials, spare parts, assemblies, special tools and items of equipment, including ground support equipment, ordered for the Aircraft by Buyer from BRAD. The term Spare Parts includes BRAD Parts, Power Plant Part and Vendor Parts. e. "Order": any order for Spare Parts issued by Buyer to BRAD; and f. "Technical Data": shall have the meaning attributed to it in Annex A Article 4.1. 2.1 Term and Applicability The term of this Annex A Article 2 shall become effective on the date hereof and shall remain in full force and effect with respect to the purchase and sale of Spare Parts for each Aircraft so long as at least ten (10) of the CL-600-2B19 aircraft remain in commercial air transport service. The provisions of Annex A Articles 2.2, 2.6.5, 2.24 and Annex B Article 5.0 shall survive expiration or termination of this Agreement. 2.2 Order Terms Terms and conditions hereof shall apply to all Orders placed by Buyer with BRAD in lieu of any terms and conditions in Buyer's purchase orders. 2.3 Purchase and Sale of Spare Parts 2.3.1 Agreement to Manufacture and Sell BRAD shall manufacture, or procure, and make available for sale to Buyer suitable Spare Parts in quantities sufficient to meet the reasonably anticipated needs of Buyer for normal maintenance and normal spares inventory replacement for each Aircraft. During the term specified in Annex A Article 2.1 above, BRAD shall also maintain, or cause to be maintained, a shelf stock of certain BRAD Parts selected by BRAD to ensure reasonable re-order lead times and emergency support. BRAD shall maintain, or cause to be maintained, a reasonable quantity of BRAD insurance parts at a U.S. distribution centre. Insurance parts as used herein shall include, but not be limited to, dispatch-essential parts such as major flight control surfaces. 2.4 Agreement to Purchase BRAD Parts 2.4.1 [ * ] 2.4.2 Buyer's Right to Purchase, Redesign or Manufacture [ * ] shall not be construed as a granting of a license by BRAD and shall not obligate BRAD to disclose to anyone Technical Data or other information nor to the payment of any license fee or royalty or create any obligation whatsoever to BRAD and BRAD shall be relieved of any obligation or liability with respect to patent infringement in connection with any such redesigned part. Buyer shall be responsible for obtaining all regulatory authority approvals required by Buyer to repair the Aircraft using redesigned or manufactured BRAD Parts as described in the preceding Article. Any such redesigned part shall be identified with Buyer's part number only. 2.4.3 Notice to BRAD of Redesigned Parts BRAD reserves the right to negotiate with Buyer the access to redesigned parts, drawings and the non-exclusive manufacturing rights of the redesigned part, if Buyer redesigns or has had any BRAD parts redesigned. 2.5 Purchase of Vendor Parts & Power Plant Parts BRAD shall not be obligated to maintain a stock of Power Plant Parts. BRAD maintains a spares stock of selected Vendor Parts at its own discretion to support provisioning and replenishment sales. BRAD agrees to use all reasonable efforts to require its vendors to comply with the terms and conditions of this Annex A Article 2 as they apply to Vendor Parts. Vendor Parts shall be delivered in accordance with the vendor's quoted lead time plus BRAD's internal processing time. 2.6 Spare Parts Pricing 2.6.1 Spare Parts Price Catalogue Prices for commonly used BRAD Parts stocked by BRAD shall be published in the spare parts price catalogue ("Spare Parts Price Catalogue"). BRAD shall hold the published prices firm for catalogue stock class items for a period of twelve (12) months and shall provide at least ninety (90) calendar days notice prior to changing the published price. 2.6.2 BRAD prices for Vendor Parts If Buyer orders Vendor Parts from BRAD, the price shall be as published in the Spare Parts Price Catalogue. 2.6.3 Quotations Price and delivery quotations for items not included in the Spare Parts Price Catalogue shall be provided at Buyer's request by BRAD. Price quotations will be held firm for a period of ninety (90) calendar days or as otherwise specified by BRAD. Responses to quotation requests will be provided within ten (10) calendar days. 2.6.4 Currency and Taxes All Spare Parts Price Catalogue and quotation prices shall be in U.S. dollars and exclusive of transportation, taxes, duties and licenses. Buyer shall pay to BRAD upon demand the amount of any sales, use, value-added, excise or similar taxes imposed by any federal, provincial or local taxing authority within Canada, and the amount of all taxes imposed by any taxing authority outside Canada, required to be paid by BRAD as a result of any sale, use, delivery, storage or transfer of any Spare Parts. If BRAD has reason to believe that any such tax is applicable, BRAD shall separately state the amount of such tax in its invoice. If a claim is made against BRAD for any such tax, BRAD shall promptly notify Buyer. In addition, Buyer shall pay to BRAD on demand the amount of any customs duties required to be paid by BRAD with respect to the importation by Buyer of any Spare Parts. 2.6.5 Vendor Pricing BRAD shall use reasonable efforts to require its major vendors to maintain any published price for their parts for a period of at least twelve (12) months with a ninety (90) calendar day notice period prior to changing a published price. 2.7 Provisioning 2.7.1 Pre-provisioning/Provisioning Conference Pre-provisioning and provisioning conferences shall be convened on dates to be mutually agreed between Buyer and BRAD in order to: (i) discuss the operational parameters to be provided by Buyer to BRAD which BRAD considers necessary for preparing its quantity recommendations for initial provisioning of Spare Parts to be purchased from BRAD or vendors ("Provisioning Items"); (ii) review Buyer's ground support equipment and special tool requirements for the Aircraft; (iii) discuss the format of the provisioning documentation to be provided to Buyer from BRAD for the selection of Provisioning Items; and (iv) arrive at a schedule of events for the initial provisioning process, including the establishment of a date for the initial provisioning conference ("Initial Provisioning Conference") which shall be scheduled where possible at least six (6) months prior to delivery of the first Aircraft. The time and location of the pre-provisioning conference shall be mutually agreed upon between the parties; however, BRAD and Buyer shall use their best efforts to convene such meeting within thirty (30) days after execution of the Agreement. 2.8 Initial Provisioning Documentation Initial provisioning documentation for BRAD Parts and Vendor Parts shall be provided by BRAD as follows: a) BRAD shall provide, as applicable to Buyer, no later than six (6) months prior to the Scheduled Delivery Date of the first Aircraft, or as may be mutually agreed, the initial issue of provisioning files. Revisions to this provisioning data shall be issued by BRAD every ninety (90) calendar days until ninety (90) calendar days following the Delivery Date of the last Aircraft or as may be mutually agreed; and b) the Illustrated Parts Catalogue designed to support provisioning shall be issued concurrently with provisioning data files and revised at ninety (90) calendar day intervals. 2.8.1 Obligation to Substitute Obsolete Spare Parts In the event that, prior to delivery of the first Aircraft, any Spare Part purchased by Buyer from BRAD is rendered obsolete or unusable due to the redesign of the Aircraft or of any accessory, equipment or part thereto (other than a redesign at Buyer's request), BRAD shall deliver to Buyer new and usable Spare Parts in substitution for such obsolete or unusable Spare Parts upon return of such Spare Parts to BRAD by Buyer. BRAD shall credit Buyer's account with the price paid by Buyer for any such obsolete or unusable Spare Part and shall invoice Buyer for the purchase price of any such substitute Spare Part delivered to Buyer. 2.8.2 Delivery of Obsolete Spare Parts and Substitutes Obsolete or unusable Spare Parts returned by Buyer pursuant to Annex A Article 2.8.1. shall be delivered to BRAD at its plant in Ontario or Quebec, or such other destination as BRAD may reasonably designate. Spare Parts substituted for such returned obsolete or unusable Spare Parts shall be delivered to Buyer from BRAD's plant in Ontario or Quebec, or such other BRAD shipping point as BRAD may reasonably designate. BRAD shall pay the freight charges for the shipment from Buyer to BRAD of any such obsolete or unusable Spare Part and for the shipment from BRAD to Buyer of any such substitute Spare Part. 2.8.3 Obligation to Repurchase Surplus Provisioning Items During a period [ * ] receipt of Buyer's written request and subject to the exceptions in Annex A Article 2.8.4, repurchase unused and undamaged Provisioning Items which: (i) were recommended by BRAD as initial provisioning for the Aircraft, (ii) were purchased by Buyer from BRAD or Vendor at BRAD's recommendation, and (iii) are surplus to Buyer's needs. 2.8.4 Exceptions BRAD shall not be obligated under Annex A Article 2.8.3 to repurchase any of the following: (i) quantities of Provisioning Items in excess of those quantities recommended by BRAD in its Recommended Spare Parts List ("RSPL") for the Aircraft, (ii) Power Plant Parts, QEC Kits, standard hardware, bulk and raw materials, ground support equipment and special tools, (iii) Provisioning Items which have become obsolete or have been replaced by other Provisioning Items as a result of Buyer's modification of the Aircraft and (iv) Provisioning Items which become surplus as a result of a change in Buyer's operating parameters provided to BRAD pursuant to Annex A Article 2.7, which were the basis of BRAD's initial provisioning recommendations for the Aircraft. 2.8.5 Notification and Format Buyer shall notify BRAD, in writing, when Buyer desires to return Provisioning Items which Buyer's review indicates are eligible for repurchase by BRAD under the provisions of Annex A Article 2.8.3. Buyer's notification shall include a detailed summary, in part number sequence, of the Provisioning Items Buyer desires to return. Such summary shall be in the form of listings as may be mutually agreed between BRAD and Buyer, and shall include part number, nomenclature, purchase order number, purchase order date and quantity to be returned. Within sixty (60) calendar days after receipt of Buyer's notification and detailed summary BRAD shall complete the review of such summary. 2.8.6 Review and Acceptance by BRAD Upon completion of BRAD's review of any detailed summary submitted by Buyer pursuant to Annex A Article 2.8.5., BRAD shall within sixty calendar days issue to Buyer a Material Return Authorization notice ("MRA") for those Provisioning Items BRAD agrees are eligible for repurchase in accordance with Annex A Article 2.8.3. BRAD will advise Buyer of the reason that any Provisioning Items included in Buyer's detailed summary are not eligible for return. The MRA notice shall state the date by which Provisioning Items listed in the MRA notice must be redelivered to BRAD as agreed between the parties, and Buyer shall arrange for shipment of such Provisioning Items accordingly, to the U.S. distribution centre. 2.8.7 Price and Payment The price of each Provisioning Item repurchased by BRAD pursuant to Annex A Article 2.8.6 will be the original invoice price thereof. BRAD shall pay the repurchase price by issuing a credit memorandum in favour of Buyer which may be applied against amounts due BRAD for the purchase of Spare Parts and services. 2.8.8 Return of Surplus Provisioning Items Provisioning Items repurchased by BRAD pursuant to Annex A Article 2.8.6 shall be delivered to BRAD's [ * ] 2.8.9 Obsolete Spare Parts and Surplus Provisioning Items - Title and Risk of Loss Title to and risk of loss of any obsolete or unusable Spare Parts returned to BRAD pursuant to Annex A Article 2.8.8 shall pass to BRAD upon delivery thereof to BRAD. Title to and risk of loss of any Spare Parts substituted for an obsolete or unusable Spare Part pursuant to Annex A Article 2.8.1 shall pass to Buyer upon delivery thereof to Buyer. Title to and risk of loss of any Provisioning Items repurchased by BRAD pursuant to Annex A Article 2.8.3 shall pass to BRAD upon delivery thereof to BRAD. With respect to the obsolete or unusable Spare Parts which may be returned to BRAD and the Spare Parts substituted therefor, pursuant to Annex A Article 2.8.1, and the Provisioning Items which may be repurchased by BRAD, pursuant to Annex A Article 2.8.3, the party which has the risk of loss of any such Spare Part or Provisioning Item shall have the responsibility of providing any insurance coverage thereon desired by such party. 2.9 Procedure for Ordering Spare Parts Orders for Spare Parts may be placed by Buyer to BRAD by any method of order placement (including but not limited to SITA, ARINC, telecopier, letter, telex, facsimile, telephone or hard copy purchase order). 2.9.1 Requirements Orders shall include at a minimum order number, part number, nomenclature, quantity, delivery schedule requested, shipping instructions and BRAD's price, if available. 2.9.2 Processing of Orders Upon acceptance of any Order, unless otherwise directed by Buyer, BRAD shall, if the Spare Parts are in stock, proceed immediately to prepare the Spare Parts for shipment to Buyer. If BRAD does not have the Spare Parts in stock, BRAD shall proceed immediately to acquire or manufacture the Spare Parts. Purchase order status and actions related to the shipment of Spare Parts shall be generally consistent with the provisions of the World Airline Suppliers Guide, as applicable to Buyer. 2.9.3 Changes BRAD reserves the right, without Buyer's consent, to make any necessary corrections or changes in the design, part number and nomenclature of Spare Parts covered by an Order, to substitute Spare Parts and to adjust prices accordingly, provided that interchangeability is not affected [ * ]unless Buyer's order specifically and reasonably prohibits such substitution. BRAD shall promptly give Buyer written notice of corrections, changes, substitutions and consequent price adjustments. Corrections, changes, substitutions and price adjustments which affect interchangeability or exceed the price limitations set forth above may be made only with Buyer's written consent, which consent shall conclusively be deemed to have been given unless Buyer gives BRAD written notice of objection within thirty (30) calendar days after receipt of BRAD's notice. In case of any objection, the affected Spare Part will be deemed to be deleted from Buyer's Order. 2.10 Packing All Spare Parts ordered shall receive standard commercial packing suitable for export shipment via air freight. Such standard packing will generally be to ATA 300 standards as amended from time to time. All AOG orders will be handled, processed, packed and shipped separately. 2.11 Packing List BRAD shall insert in each shipment a packing list/release note itemized to show: (i) the contents of the shipment, (ii) the approved signature of BRAD's TC authority attesting to the airworthiness of the Spare Parts. (iii) value of the shipment for customs clearance if required. 2.12 Container Marks Upon Buyer's request each container shall be marked with shipping marks as specified on the Order. In addition BRAD shall, upon request, include in the markings: gross weight and cubic measurements. 2.13 Delivery, Title and Risk of Loss 2.13.1 Delivery Point Spare Parts, other than AOG and Critical Orders, shall be delivered to Buyer FOB BRAD's U.S. distribution centre. AOG and Critical Orders shall be delivered FOB point of origin. 2.13.2 Delivery Time BRAD shall use reasonable efforts so that shipment of BRAD Parts to Buyer be as follows: a) AOG Orders Ship AOG Orders within four (4) hours of receipt of Order. Buyer's affected Aircraft factory production number shall be required on AOG Orders; b) Critical Orders (A1) Ship critical Orders within twenty-four (24) hours of order receipt; c) Expedite Orders (A2) Ship expedite Orders within seven (7) calendar days of order receipt; d) Initial Provisioning Orders Prior to the Delivery Date of the first Aircraft or as may be mutually agreed; and e) Other Orders Shipment of stock items shall be approximately thirty (30) calendar days after BRAD's receipt of Buyer's Order. Shipment of non-stock items shall be in accordance with quoted lead times or lead times published in the current Spare Parts Price Catalogue, procurement data, or provisioning data. 2.14 Collect Shipments Where collect shipments are not deemed practicable by BRAD, charges for shipment, insurance, prepaid freight charges and all other costs paid by BRAD shall be paid by Buyer promptly upon presentation to Buyer of invoices covering the same. 2.15 Freight Forwarder If Buyer elects to use the services of a freight forwarder for the onward movement of Spare Parts, Buyer agrees to release BRAD from and indemnify it for any liability for any fines or seizures of Spare Parts imposed under any governmental Goods in Transit regulations. Any such fines levied against BRAD will be invoiced to Buyer and any Spare Parts seized under such regulations will be deemed to be received, inspected, and accepted by Buyer at the time of seizure. 2.16 Intentionally Left Blank 2.17 Title and Risk of Loss Property and title to the Spare Parts will pass to Buyer upon payment for the Spare Parts in full. Until payment in full for Spare Parts, (a) title to them will not pass to Buyer, and (b) BRAD maintains a purchase money security interest in them. Risk of loss of the Spare Parts will pass to the Buyer upon delivery by BRAD. With respect to Spare Parts rejected by Buyer pursuant to Annex A Article 2.19, risk of loss shall remain with Buyer until such Spare Parts are re-delivered to BRAD . BRAD agrees to notify Buyer when material is shipped and shall provide carrier's reference information (i.e., waybill number). 2.18 Inspection and Acceptance All Spare Parts shall be subject to inspection by Buyer at destination. Use of Spare Parts or failure of Buyer to give notice of rejection within forty-five (45) days after receipt shall constitute acceptance. Acceptance shall be final and Buyer waives the right to revoke acceptance for any reason, whether or not known to Buyer at the time of acceptance. Buyer's remedies for defects discovered before acceptance are exclusively provided for in Annex A Article 2.19 herein. 2.19 Rejection Any notice of rejection referred to in Annex A Article 2.18 shall specify the reasons for rejection. If BRAD concurs with a rejection, BRAD shall, at its option, either correct, repair or replace the rejected Spare Parts. Buyer shall, upon receipt of BRAD's written instructions and Material Return Authorization ("MRA") number, which BRAD shall issue in a timely manner, return the rejected Spare Parts to BRAD at its specified plant, or other destination as may be mutually agreeable. The return of the rejected Spare Parts to BRAD and the return or delivery of a corrected or repaired rejected Spare Part or any replacement for any such Spare Part to Buyer shall be at BRAD's expense. Any corrected, repaired or replacement Spare Parts shall be subject to the provisions of this Agreement. 2.20 Payment Except as provided in Annex A Article 2.22 below, payment terms shall be net thirty (30) calendar days of invoice date for established open accounts. Any overdue amount shall bear interest from the due date until actual payment is received by BRAD at an annual rate of interest equal to the U.S. prime interest rate as established from time to time by the Chase Manhattan Bank, New York Branch, or its successor,,, plus two percent (2%) calculated and compounded monthly. 2.21 Payment for Provisioning Items Payment for Provisioning Items purchased by Buyer as contemplated by Paragraph 2.7.1(i) shall be made by Buyer as follows: a) a deposit of 7.5% of the total price of the Provisioning Items as selected by Buyer, upon signature of the spares provisioning document; and b) the balance of the total price of Provisioning Items upon their delivery. 2.22 Modified Terms of Payment BRAD reserves the right to alter the terms of payment without prior notice if Buyer fails to pay when due an amount Buyer owes under any agreement with BRAD, unless such failure relates to a good faith dispute of an invoice. 2.23 Regulations Buyer shall comply with all applicable monetary and exchange control regulations and shall obtain any necessary authority from the governmental agencies administering such regulations to enable Buyer to make payments at the time and place and in the manner specified herein. 2.24 Warranty The warranty applicable to Spare Parts is set forth in Annex B hereto. 2.25 Cancellation of Orders Except as otherwise may apply to initial provisioning, if Buyer cancels an Order, BRAD, at its option, shall be entitled to recover actual damages, but not less than the following cancellation charges or more than the purchase price of the Spare Parts covered by the Order: a) if work accomplished on the Order has been limited to BRAD Spares Department, or the part has been identified as "shelf stock" in the Spare Parts Price Catalogue, no cancellation charges shall be made; b) if production planning has been completed on the Order and shop orders have been written, but no shop time or material charges have been made against the Order, the cancellation charge shall be 10% of the price but not to exceed $100 per unit; c) if shop time or material charges have been made against the Order, the cancellation charge shall be based on the cost of such time and materials, plus overhead; and d) if the Spare Parts covered by the Order can be absorbed into BRAD's inventory without increasing BRAD's normal maximum stock level, no cancellation charges shall be made. 2.26 Lease BRAD shall select and make available certain parts for lease, subject to availability Buyer has the option to negotiate a lease agreement with BRAD separate from this Agreement. 2.27 Additional Terms and Conditions BRAD's conditions of sale are deemed to incorporate the terms and conditions stated herein. Additional terms and conditions applicable at time of receipt of each order from Buyer may be added providing such terms and conditions do not conflict with the terms and conditions provided herein. Such additional terms and conditions shall be provided to Buyer at least ninety (90) calendar days prior to their effective date. ARTICLE 3 - TRAINING 3.1 General Terms 3.1.1 The objective of the training programs (the "Programs"), as described herein, shall be to familiarize and assist Buyer's personnel in the introduction, operation, and maintenance of the Aircraft. BRAD shall offer to the Buyer the Programs in the English language at a BRAD designated facility. [ * ] 3.1.2 Buyer shall be responsible for all travel and living expenses, including local transportation, of Buyer's personnel incurred in connection with the Programs. 3.1.3 The Programs shall be designed to reflect the model and/or configuration of the Aircraft and may include differences training to identify such configuration or model. Manuals which are provided during the Programs exclude revision service. 3.1.4 A training conference shall be held where possible no later than six (6) months prior to the Scheduled Delivery Date of the first Aircraft to the Buyer, or as may be otherwise agreed, to establish the Programs' content and schedule. 3.2 Flight Crew Training 3.2.1 Flight Crew Ground Training At no additional charge, BRAD will provide with each delivered Aircraft, a TC or FAA approved transition training for one (1) of Buyer's crews (two (2) pilots) who meet the minimum entry requirement provided in the applicable training manual. Each course shall consist of up to eighty (80) hours of classroom instruction which may include part task trainer, Computer Based Training (CBT), and/or Flight Training Device (FTD). BRAD shall furnish each of Buyer's licensed pilots attending the course one copy of the Flight Crew Operating Manual. 3.2.2 Pilot Simulator Training At no additional charge, BRAD shall provide access to a TC or FAA approved flight simulator for the crews trained under Annex A Article 3.2.1. BRAD shall provide a simulator and a simulator instructor for up to eight (8) missions for the crews trained on BRAD's designated simulator in Montreal; each mission shall consist of four (4) hours in the simulator and required briefing/debriefing sessions. 3.2.3 In-flight Training Should Buyer require aircraft flight training, such training shall be conducted in Buyer's Aircraft after the Delivery Date for up to a maximum of four (4) of Buyer's pilots. BRAD shall provide an instructor pilot at no additional charge; Buyer shall be responsible for the cost of fuel, oil, landing fees, taxes, insurance, maintenance, and other associated operating expenses required for the Aircraft during such training. 3.2.4 Flight Attendant Course A familiarization course for up to two (2) of Buyer's flight attendant personnel shall be conducted. Each course shall be for a maximum of five (5) working days duration. This course shall present general information on the Aircraft and detailed information on the operation of the passenger safety equipment and emergency equipment. BRAD shall furnish for each participant in this course one (1) copy of the Flight Attendant Training Guide which shall not be revised. Buyer shall assist BRAD in the development of the Flight Attendant Training Guide to incorporate Buyer's specific equipment and procedures. 3.2.5 Flight Dispatcher Course A course for up to two (2) of Buyer's flight dispatch personnel shall be conducted. Each course shall be for a maximum of five (5) working days duration. The course shall consist of classroom instruction covering general Aircraft familiarization, coverage of performance, flight planning, weight and balance and the Minimum Equipment List. BRAD shall furnish for each participant in this course one (1) copy of the Flight Crew Operating Manual which shall not be revised. 3.2.6 Recurrent Pilot Training BRAD shall, upon Buyer's request, provide a proposal for a TC or FAA approved course for type rated pilots, customized in content to meet the recurrent training of Buyer's pilots. 3.2.7 Course Training Material BRAD shall, upon Buyer's request, present a proposal to provide one (1) set of the materials (without revision service) used to conduct the Flight Crew Ground Training course, as follows: i) 35 mm slides; ii) Instructional Narrative and/or Instruction Guides; iii) Overhead Projection Transparencies; iv) Motion picture and/or Video tapes; and v) Audio cassettes tapes. 3.3 Maintenance Training 3.3.1 Airframe and Powerplant Systems Maintenance Course At no additional charge, with each delivered Aircraft, BRAD shall train up to two (2) of Buyer's qualified personnel. This course shall emphasize detailed systems description, operation, and routine line maintenance practices. The course material shall be principally mechanical with electrical and avionics information for overall systems comprehension. The course duration shall be for a maximum of twenty-five (25) working days. 3.3.2 Electrical and Avionics Systems Maintenance Course At no additional charge, with each delivered Aircraft, BRAD shall train up to two (2) of Buyer's qualified personnel. The course shall emphasis detailed systems description, operation and routine line maintenance practices. The course material shall be principally electrical and avionic but shall include mechanical information for overall systems comprehension. The course duration shall be for a maximum of twenty-five (25) working days. 3.3.3 Ground Handling Course BRAD shall, at no additional charge, train up to two (2) of Buyer's qualified personnel. This course shall provide ramp service personnel with training to be able to tow and park Aircraft and perform routine ramp servicing tasks. Such training shall be conducted in class with a practical demonstration on Buyer's Aircraft after acceptance. The course duration shall be a maximum of five (5) working days and the practical demonstration shall not exceed two (2) working days. 3.3.4 General Familiarization Course BRAD shall, at no additional charge, train up to [ * ] of Buyer's personnel. The course shall generally describe the Aircraft, the systems and the maintenance and support requirements. This course is primarily designed for Buyer's facilities planning, parts provisioning and aircraft management personnel. The course duration is for a maximum of five (5) working days. 3.3.5 Engine Run-up Course BRAD shall provide an Engine Run-up course, at no additional charge, for up to [ * ] of Buyer's qualified personnel. This course enables Buyer's personnel to gain proficiency in engine and APU runs, cockpit management procedures , malfunctions and exceedences. A prerequisite for this course is satisfactory completion of the Airframe and Powerplant Systems Maintenance course. The course duration shall be for a maximum of two (2) working days. 3.3.6 Specialist Courses At Buyer's request, BRAD shall make a proposal for specialist courses which will be derived from BRAD's standard courses detailed herein. 3.3.7 Recurrent Training At Buyer's request, BRAD shall make a proposal for a Regulatory Authority approved training plan for maintenance recurrent training. 3.3.8 Vendor Training At Buyer's request, BRAD shall assist Buyer to obtain vendor maintenance training. 3.3.9 Course Training Material BRAD, upon Buyer's request, shall present a proposal to provide one (1) set of the training materials (without revision service) used to conduct BRAD's standard training as detailed herein: i) 35 mm slides; ii) Lesson Guides; iii) Overhead Projection Transparencies; iv) Motion picture and/or Video tapes; and v) Audio cassettes tapes. 3.4 Insurance 3.4.1 Buyer shall at all times during flight training in Buyer's Aircraft secure and maintain in effect, at its own expense, insurance policies covering the Aircraft including without limitation: a) liability insurance covering public liability, passenger, crew, property and cargo damage in amounts [ * ] b) all risk aircraft hull and engine insurance for an amount which is not less than its then fair market value. 3.4.2 The liability policy shall name BRAD (and its affiliates) as additional insured. The hull policy shall contain a waiver of subrogation in favour of BRAD (and its affiliates); [ * ]. All insurance policies shall provide for payments despite any misrepresentations or breach of warranty by any person (other than the assured receiving payments) and shall not be subject to any offset by any other insurance carried by BRAD except that Buyer shall not be required to provide insurance with respect to the manufacturing, repair and maintenance activities of BRAD (and of its affiliates) and the related potential liability (product or otherwise) arising therefrom. ARTICLE 4 - TECHNICAL DATA 4.1 Technical Data Provided BRAD shall furnish to Buyer the Technical Data described in Attachment A hereto (the "Technical Data"). The Technical Data shall be in the English language and shall provide information on items manufactured according to BRAD's detailed design and in those units of measures used in the Specification or as may otherwise be required to reflect Aircraft instrumentation as may be mutually agreed. 4.2 Shipment All Technical Data provided hereunder shall be delivered to Buyer Free Carrier (Incoterms) BRAD's designated facilities and at the time indicated in Attachment A. 4.3 Proprietary Technical Data It is understood and Buyer acknowledges that the Technical Data provided herein is proprietary to BRAD and all rights to copyright belong to BRAD and the Technical Data shall be kept confidential by Buyer. Buyer agrees to use the Technical Data solely to maintain, operate, overhaul or repair the Aircraft or to make installation or alteration thereto allowed by BRAD. Technical Data shall not be disclosed to third parties or used by Buyer or furnished by Buyer for the design or manufacture of any aircraft or Spare Parts including BRAD Parts or items of equipment, except when manufacture or redesign is permitted under the provisions Article 23.2 of the Agreement or of Annex A Article 2.4 hereof and then only to the extent and for the purposes expressly permitted therein. ANNEX B - WARRANTY AND SERVICE LIFE POLICY ARTICLE 1 - WARRANTY The following warranty is that to which reference is made in Article 3 of the Agreement. 1.1 Warranty 1.1.1 Subject to Annex B Articles 1.9, 1.10, and 2, BRAD warrants that, at the date of delivery of the Aircraft or BRAD Part, as applicable : a) the Aircraft shall conform to the Specification, except that any matter stated in the Specification as type characteristics, estimates or approximations is excluded from this Warranty; b) the Aircraft shall be free from defects caused by the failure of BRAD to install a Vendor Part or Powerplant Part in accordance with reasonable instructions of the vendor; c) the Aircraft, excluding however Vendor Parts and Powerplant Parts which shall be governed by Article 2 hereof, shall be free from defects in material or workmanship [ * ] and d) the Aircraft, excluding however Vendor Parts and Powerplant Parts which shall be governed by Article 2 hereof, shall be free from defects in design, having regard to the state of the art as of the date of such design. 1.1.2 The Warranty set forth in Annex B Article 1.1.1 (c) and (d) above shall also be applicable to BRAD Parts purchased as Spare Parts. 1.1.3 BRAD further warrants that, at the time of delivery, the Technical Data shall be free from error. 1.2 Warranty Period 1.2.1 The Warranty set forth in Annex B Article 1.1 shall remain in effect for any defect covered by the Warranty (a "Defect") becoming apparent during the following periods (individually, the "Warranty Period"): a) for failure to conform to the Specification and in the installation referred to in Annex B Article 1.1.1 (a) and 1.1.1 (b), thirty-six (36) months from the Delivery Date; b) for those Defects in material or workmanship referred to in Annex B Article 1.1.1 (c) and 1.1.2, thirty-six (36) months from the date of delivery of the Aircraft or BRAD Parts, as applicable; c) for those Defects in design referred to in Annex B Article 1.1.1 (d), thirty-six (36) months from the date of delivery of the Aircraft or BRAD Parts, as applicable; and d) for errors in the Technical Data referred to in Annex B Article 1.1.3, twelve (12) months from the date of delivery of the applicable Technical Data. 1.3 Repair, Replacement or Rework As to each matter covered by this Warranty BRAD's sole obligation and liability under this Warranty is expressly limited to, at BRAD's election, correction by the repair, replacement or rework of the defective part or item of Technical Data. The repaired, replaced or reworked part or item of Technical Data which is the subject of the Warranty claim shall then be warranted under the same terms and conditions for the then unexpired portion of the Warranty Period. In the case of a Defect relating to non-conformance with the Specification, BRAD shall correct that Defect in the equipment item or part in which the Defect appears, except that BRAD will not be obligated to correct any Defect which has no material adverse effect on the maintenance, use or operation of the Aircraft or the image of Buyer as a reputable airline operator. 1.4 Claims Information BRAD's obligations hereunder are subject to a Warranty claim to be submitted in writing to BRAD's warranty administrator, which claim shall include but not be limited to the following information: a) the identity of the part or item involved, including the Part number, serial number if applicable nomenclature and the quantity claimed to be defective; b) the manufacturer's serial number of the Aircraft from which the part was removed; c) the date the claimed Defect became apparent to Buyer; d) the total flight hours (and cycles if applicable) accrued on the part at the time the claimed Defect became apparent to Buyer; and e) a description of the claimed Defect and the circumstances pertaining thereto. 1.5 Intentionally Left Blank . 1.6 Timely Corrections BRAD shall make the repair, replacement or rework, following receipt of the defective part or item, with reasonable care and dispatch. In the event that BRAD does not respond or confirm receipt of a warranty claim from Buyer within [ * ] subject to Buyer and BRAD agreeing on a non-receipt of a confirmation from BRAD within [ * ] from the date of submittal of claim. 1.7 Labour Reimbursement For correction of Defects BRAD shall establish a reasonable estimate for the labour hours required for the repair, replacement or rework of the defective BRAD Part and, if the repair, replacement or rework is performed by Buyer or by third party on behalf of Buyer, BRAD shall reimburse Buyer for BRAD estimated hours or for Buyer's or third party's actual labour hours, whichever is less, for the repair, replacement or rework of the defective BRAD Part excluding any work necessary to gain access to said BRAD Part. Such reimbursement shall be based upon Buyer's direct labour rate per manhour plus burden rate of fifty percent (50%), subject to annual review and adjustment of such labour rate as mutually agreed; provided, however, that this amount shall not exceed fifty percent (50%) of the BRAD published selling labour rate. 1.8 Approval, Audit, Transportation and Waiver All Warranty claims shall be subject to audit and approval by BRAD. BRAD will use reasonable efforts to advise in writing the disposition of Buyer's Warranty claim within thirty (30) days following the receipt of the claim and (if requested) return of the defective BRAD Part to BRAD's designated facility. BRAD shall notify Buyer of BRAD's disposition of each claim. Buyer shall pay all costs of transportation of the defective part from Buyer to BRAD's U.S. distribution centre and BRAD shall pay all costs of transportation of the repaired, corrected or replacement parts back to Buyer. 1.9 Limitations 1.9.1 BRAD shall be relieved of and shall have no obligation or liability under this Warranty if: a) the Aircraft was operated with any products or parts not specifically approved by BRAD, unless Buyer furnishes reasonable evidence acceptable to BRAD that such products or parts were not a cause of the Defect; or b) the Aircraft was not operated or maintained in accordance with the Technical Data listed in Attachment A of Annex A and the manufacturer's documentation furnished to Buyer (including Service Bulletins and airworthiness directives) unless Buyer furnishes reasonable evidence acceptable to BRAD that such operation or maintenance was not a cause of the Defect; or c) the Aircraft was not operated under normal airline use, unless Buyer furnishes reasonable evidence acceptable to BRAD that such operation was not a cause of the Defect; or d) Buyer does not 1) report the Defect in writing to BRAD's Warranty administrator within forty-five (45) calendar days following such Defect becoming apparent, and 2) retain the BRAD Part claimed to be defective until advised by BRAD to return such BRAD Part to BRAD's designated facility in order for BRAD to finalize its evaluation of the Warranty claim or to otherwise dispose of such BRAD Part; or e) Buyer does not submit reasonable demonstration to BRAD within forty-five (45) calendar days after the Defect becomes apparent that the Defect is due to a matter covered within this Warranty; or f) Buyer does not allow BRAD reasonable opportunity (taking into account Buyer's wish to replace Aircraft back in service) to be present during the disassembly and inspection of the BRAD Part claimed to be defective. 1.9.2 The above warranties do not apply to Buyer Furnished Equipment. 1.10 Normal Usage Normal wear and tear and the need for regular maintenance and overhaul shall not constitute a Defect or failure under this Warranty. 1.11 Overhaul of Warranty Parts BRAD's liability for a BRAD Part which has a Defect and is overhauled by Buyer within the Warranty Period shall be limited only to that portion of the labour and material replacement related to the Defect. 1.12 No Fault Found In the event that a BRAD Part returned under a Warranty claim is subsequently established to be serviceable then BRAD shall be entitled to charge and recover from Buyer any reasonable inspection, transportation, repair and other costs of a similar nature incurred by BRAD in connection with such Warranty claim. Providing, however, in the event that repetitive in-service failure occurs on the particular BRAD Part which is subsequently identified by BRAD on a repeated basis to be "no fault found," then BRAD and Buyer shall discuss and mutually agree a course of further action to help identify the problem. In the event the fault is ultimately confirmed to be a legitimate Warranty claim then the above mentioned costs, if incurred by BRAD will be borne by BRAD, and any such costs already paid by Buyer will be reimbursed by BRAD. ARTICLE 2 - VENDOR WARRANTIES 2.1 Warranties from Vendors The Warranty provisions of this Annex B apply to BRAD Parts only. However, BRAD has made or shall make reasonable efforts to obtain favourable warranties from vendors, with respect to Vendor Parts and Power Plant Parts. Except as specifically provided under this Annex B Article 2, BRAD shall have no liability or responsibility for any such Vendor Parts and Power Plant Parts and the warranties for those Vendor Parts and Power Plant Parts shall be the responsibility of the vendor and a matter as between Buyer and vendor. 2.2 Vendor Warranty Backstop For those Vendor Parts installed on the Aircraft at the Delivery Date or subsequently purchased through BRAD, excluding the Powerplant or the Power Plant Parts, in the event the parties agree that a vendor is in default in the performance of any material obligation under any applicable warranty obtained by BRAD from such vendor pursuant to Annex B Article 2.1 above, the warranties and all other terms and conditions of Annex B Article 1 shall become applicable as if the Vendor Parts had been a BRAD Part, except that the warranty period shall be the Warranty Period as set forth herein or by the vendor's warranty, whichever is shorter. 2.3 BRAD's Interface Commitment In the event of a dispute in the application of a Vendor Part warranty, at Buyer's request addressed to BRAD's warranty administrator, BRAD shall, without charge, conduct an investigation and analysis of any such dispute resulting from a technical interface problem to determine, if possible, the cause of the interface problem and then recommend feasible corrective action. Buyer shall furnish to BRAD all data and information in Buyer's possession relevant to the interface problem and shall cooperate with BRAD in the conduct of its investigation and such tests as may be required. BRAD, at the conclusion of its investigation, shall advise Buyer in writing of BRAD's opinion as to the cause of the problem and BRAD's recommended corrective action. ARTICLE 3 - SERVICE LIFE POLICY 3.1 Applicability The Service Life Policy ("SLP") described in this Annex B Article 3 shall apply if [ * ] in any Covered Component which is defined in Annex B Article 3.7 below. 3.2 Term 3.2.1 Should such failures occur in any Covered Component within one hundred and forty-four (144) months following delivery of the Aircraft containing such Covered Component, BRAD shall, as promptly as practicable and at its option; a) design and/or furnish a correction for such failed Covered Component; or b) furnish a replacement Covered Component (exclusive of standard parts such as bearings, bushings, nuts, bolts, consumables and similar low value items). 3.3 Price Any Covered Component which BRAD is required to furnish under this SLP shall be provided for at a price calculated in accordance with the following formula: P = C x T 144 Where: P = Price of Covered Component to Buyer; C = BRAD's then current price for the Covered Component; T = The total time to the nearest month since the Aircraft containing the Covered Component, [ * ] was delivered by BRAD 3.4 Conditions and Limitations 3.4.1 The following general conditions and limitations shall apply to the SLP: a) the transportation cost for the return to BRAD's designated facility, if practicable, of any failed Covered Component necessary for failure investigation or redesigning studies shall be borne by BRAD but Buyer agrees to use reasonable efforts to ship the Covered Component on Buyer's aircraft to a scheduled destination closest to Canadair's designated facility at no cost to BRAD; b) BRAD's obligations under this SLP are conditional upon the submission of reasonable proof acceptable to BRAD that the failure is covered hereby; c) Buyer shall report any failure of a Covered Component in writing to BRAD`s Warranty administrator within two (2) months after such failure becomes evident [ * ] Failure to give this required notice shall excuse BRAD from all obligations with respect to such failure; d) the provisions of Annex B Article 1.9 of the Warranty (except for subparagraphs (d) and (e) thereof) are incorporated by this reference and shall condition BRAD's obligations under this SLP with respect to any Covered Component; e) BRAD's obligations under this SLP shall not apply to any Aircraft which has not been correctly modified in accordance with the specifications or instructions contained in the relevant Service Bulletins which are furnished to Buyer prior to receipt by BRAD from Buyer of any notice of an occurrence which constitutes a failure in a Covered Component, subject to Buyer having had reasonable time to i) obtain parts required for the installation of the Service Bulletin and ii) incorporate the Service Bulletin into the Aircraft. The provisions of this subparagraph shall not apply in the event that Buyer furnishes reasonable evidence acceptable to BRAD that such failure was not caused by Buyer's failure to so modify the Aircraft; f) this SLP shall not apply to a failure of a Covered Component if BRAD determines that such failure may not reasonably be expected to occur on a repetitive basis unless subsequently demonstrated to be; and g) this SLP shall not apply to a Covered Component where the failure results from an accident, abuse, misuse, degradation, except for normal wear and tear, negligence or wrongful act or omission, unauthorized repair or modification adversely affecting a Covered Component, impact or foreign object damage, to any Covered Component. 3.5 Coverage This SLP is neither a warranty, performance guarantee nor an agreement to modify the Aircraft to conform to new developments in design and manufacturing art. BRAD's obligation is only to provide correction instructions to correct a Covered Component or furnish replacement at a reduced price as provided in this SLP. 3.6 Covered Component Only those items or part thereof listed in Attachment A to this Annex B shall be deemed to be a Covered Component, and subject to the provisions of this SLP. ARTICLE 4 - GENERAL 4.1 It is agreed that BRAD shall not be obligated to provide to Buyer any remedy which is a duplicate of any other remedy which has been provided to Buyer under any other part of this Annex B. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 January 29, 1998 Our Ref: B96-7701-RJTL-RJ0350-001B Atlantic Coast Airlines 515A Shaw Road, Dulles, Virginia, U.S.A. 20166 Gentlemen, This Letter Agreement to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement") between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft"). This Letter Agreement No. 001B dated April 24, 1997 cancels and supersedes Letter Agreement No. 001A, dated April 16, 1997 Subject: Credit Memorandum This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. Recital As provided in Letter Agreement RJ0350-13 to the Agreement as amended by this Contract Change Order herein, Buyer has elected to receive [ * ] out of the total credit memorandum available to Buyer in accordance with Letter Agreement RJ0350-001, in the form of a [ * ] credit memorandum for the [ * ] Aircraft. As stipulated in Letter Agreement RJ0350-13, such credit memorandum shall be utilized by Buyer [ * ] Notwithstanding the above, and in order to assist Buyer in the acquisition of [ * ] BRAD agrees, subject always to Buyer being in compliance with all terms and conditions of the Agreement, to provide Buyer each of the [ * ] credit memorandum allocated to the [ * ] Aircraft at time of delivery of the First Aircraft as set forth below; 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 In consideration of Buyer having entered into the above referenced Agreement for the purchase of twenty-three (23) Aircraft, BRAD will issue to Buyer upon delivery and payment for the price of the Aircraft in accordance with the Agreement, a credit memorandum in the amount of (i) [ * ], or (ii) [ * ] ***3.0 In addition, BRAD will, a) issue to Buyer upon delivery and payment in full for the First Aircraft, [ * ] credit memorandum in the amount of [ * ] and b), issue to Buyer upon delivery and payment in full for the Fifth Aircraft, a [ * ] credit memorandum in the amount of [ * ] Each of the credit memorandum in a) and b) above, shall be made available to Buyer by reducing the escalated value of the credit memoranda listed in 2.0 above by [ * ] for each of the [ * ] Aircraft, resulting a corresponding increase in the [ * ] as stated in Letter Agreement RJ0350-13 Such credit memoranda as provided by BRAD above, will be used [ * ] 4.0 [ * The credit memorandum will [ * ] be adjusted on the same pro- rata percentage calculation as other aircraft price changes due to changes in the Specification or Buyer selected optional features as otherwise provided for in this Agreement. The credit memorandum, as adjusted, will be known as the "Credit Memorandum". 5.0 Notwithstanding the provisions of this Letter Agreement, in the case of any Aircraft where the [ * ] 6.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void with respect to any undelivered Aircraft. 7.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer, except as required for financing purposes in accordance with Letter Agreement No. 7 (Financing Assistance) and except as part of an assignment of the Agreement as expressly permitted in Article 20 of the Agreement, without the prior written consent of BRAD. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Scott Crawford Senior Contracts Account Executive Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Rick Kennedy General Counsel and Corporate Secretary CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-002 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 002 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Conditions Precedent 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 In consideration of Buyer having entered into the above referenced Agreement for the purchase of twelve (12) Aircraft, BRAD and Buyer agree that the Agreement is subject to the following conditions: 2.1 United Approval It is understood that Buyer requires approval to operate fifty (50) seat jet aircraft as a United Express operator, on terms satisfactory to Buyer ("United Approval"). If on or before [* ] Buyer determines that United Approval will not be achieved by such date, or in any event Buyer has not received United Approval by [ *] then either party may, unless the parties agree to extend said date with such amendment to the terms hereof that may be appropriate in the circumstances, terminate this Agreement by providing ten (10) days prior notice, which notice shall be given on or before [ *] 2.2 Board Approval BRAD and Buyer confirm to each other they have each obtained the required authorizations and fulfilled any conditions applicable to enable each of them to enter into this Agreement, except that Buyer's final acceptance of the Agreement will be conditioned on the approval of Buyer's Board of Directors to be obtained ten (10) business days following execution of the Agreement, failing receipt of which, either party may terminate this Agreement by providing ten (10) days prior notice. 2.3 Termination Upon notification of termination as provided by Articles 2.1 and 2.2 above, BRAD shall, [ * ] 3.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of BRAD. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 December 17, 1998 Our Ref: B98-7701-RJTL-RJ0350-003B Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 003B to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement") between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of forty- three (43) Canadair Regional Jet Aircraft (the "Aircraft") This Letter Agreement No. 003B dated December 17, 1998 cancels and supersedes Letter Agreement No. 003A dated March 31, 1998 . Subject: Option Aircraft 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 In consideration of the purchase of the Firm Aircraft, BRAD will grant to Buyer the right to purchase seventeen (17) Option Aircraft in accordance with the following conditions: (a) Number of Options The Option Aircraft are [ * ] (b) Terms (i) The Option Aircraft will be as described in Article 2 of the Agreement. (ii) The base price for each of the Option Aircraft excluding the Buyer selected optional features, Ex Works (Incoterms 1990) BRAD's facilities in Montreal, Quebec shall be [ * ] The base price of the Buyer Selected Special Optional Features shall be [ * ] The price of the Aircraft shall be the sum of the Aircraft Base Price and the price of the Buyer Selected Optional Features, and is subject to escalation in accordance with the Economic Adjustment Formula attached as Appendix I to the Agreement, [ * ] of each Option Aircraft ("Option Aircraft Purchase Price"). (iii) Unless expressly provided for in the Agreement, the terms and conditions of the Agreement (including Letter Agreements, except as noted below) shall apply mutatis mutandis to the Option Aircraft, with the exception that the provisions for (i) [ * ] and (ii) with respect to Annex A training courses as specified in Article 3.2.5 (flight dispatch), Article 3.3.3 (ground handling), Article 3.3.4 (general familiarization) and Article 3.3.5 (engine run-up), and (iii) a start-up team as found in Article 3 of Letter Agreement No. 10 (Additional Customer Support) shall not apply to the Option Aircraft. (iv) The following Letter Agreements shall not apply to the Option Aircraft and are hereby excluded: Letter Agreement No. 2 (Conditions Precedent) Letter Agreement No. 4 (Options) Letter Agreement No. 11 (Spares) Letter Agreement No. 19 (Transferability) Letter Agreement No. 20 (United Approval) Letter Agreement No. 23 (Compensation) Letter Agreement No. 24 (Additional Options) (v) Letter Agreement No. 6 (Operational Restrictions), Letter Agreement No. 8 (Schedule Completion Rate), Letter Agreement No. 9 (Maintenance Cost) and Letter Agreement No. 12 (Marketing Support) shall apply mutatis mutandis to the Option Aircraft, with specific terms for Option Aircraft as set out therein. (c) Exercise Procedures for Blocks No. 1, 2, 3, 4 and 5 Timing and procedures for the exercise of options for aircraft in each Block shall be as follows: (i) [ * ] prior to the first day of the desired delivery month of the first aircraft in that Block: Buyer shall give notice ("Notice of Intention") to BRAD of it s conditional intention to purchase Option Aircraft and indicating its desired delivery months for the Option Aircraft in that Block; and Buyer shall pay to BRAD a reservation fee ("Reservation Fee") of [ * ] per Option Aircraft. Buyer shall not request delivery positions [ * ] (ii) During the month following Notice of Intention, BRAD and Buyer will discuss and agree on available delivery positions, [ * ] (iv) Within [ * ] following Notice of Intention: Buyer shall give notice ("Notice of Exercise") to BRAD of its exercise of its option to purchase the Option Aircraft in the respective Block, at which time the Option Aircraft shall become Aircraft; and Coincident with a Notice of Exercise, Buyer shall make payments to BRAD as is necessary to bring the total amount of Total Deposits held to the amount identified in Article 5.2 of the Agreement; and Reservation fees shall be applied as follows: For each Option Aircraft for which Notice of Exercise has been made, all Reservation Fees paid shall be applied toward the Total Deposits, if any, that are then due, or if no Total Deposits are due, shall be refunded by direct bank transfer within [ * ]of Notice of Exercise; [ * ] (v) [ * ] 3.0 BRAD will, upon payment for and delivery of each Option Aircraft, at no additional charge to Buyer, extend the term of Article 1.2.2 of Annex A of the Agreement (the Field Service Representative ("FSR")) by two (2) additional months. 4.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. 5.0 Upon exercise of Buyer's rights to purchase in accordance with this Letter Agreement, the parties shall amend the Agreement or enter into an additional purchase agreement in order to give effect to the purchase of Option Aircraft in accordance with the terms and conditions thereof. 6.0 The provisions of this Letter Agreement are personal to Buyer and, except as part of an assignment of the Agreement as expressly permitted by the provisions in Article 20 of the Agreement, shall not be assigned or otherwise disposed of by Buyer without the prior written consent of BRAD. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Anthony Prezioso Manager, Contracts Acknowledged and Accepted ATLANTIC COAST AIRLINES ________________________ Date:_____________ Kerry B. Skeen President and C.E.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-004 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 004 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Options 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 In consideration of Buyer having entered into the above referenced Agreement, and in addition to the provisions of Letter Agreement No. 003, [ * ] (a) [ * ] (b) [ * ] [ * ] (c) [ * ] [ * ] (d) [ * ] 3.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. 4.0 Upon exercise of Buyer's rights to purchase in accordance with this Letter Agreement, the parties shall amend the Agreement or enter into an additional purchase agreement in order to give effect to the purchase of Option Aircraft in accordance with the terms and conditions thereof. 5.0 The provisions of this Letter Agreement are personal to Buyer and, except as part of an assignment of the Agreement as expressly permitted by the provisions of Article 20 of the Agreement, shall not be assigned or otherwise disposed of by Buyer without the prior written consent of BRAD. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 November 21, 1997 Our Ref: B96-7701-RJTL-RJ0350-005B Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 005B to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twenty- three (23) Canadair Regional Jet Aircraft (the "Aircraft") This Letter Agreement No. 005B dated November 21, 1997 cancels and supersedes Letter Agreement No. 005A dated May 19, 1997. Subject: FIPP 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. Unless otherwise specified, the term "Aircraft" in this Letter Agreement only shall refer additionally to the thirty-seven (37) Option Aircraft as well as the thirty-three (33) Firm Canadair Regional Jet Aircraft. All other terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 BRAD will participate with Buyer in a [ * ] ("FIPP") pursuant to which [ * 3.0 In the event of termination pursuant to Article 16.1 or 16.2 for the default of Buyer or in the event of default of Buyer (or its assignee) under a financing arrangement referred to in Letter Agreement No. 007B which results in a termination of such an arrangement, this Letter Agreement shall become automatically null and void. [ * ] 4.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of BRAD [ * ] except to a member of the Buyer's group of companies to which reference is made in paragraph 20.1, 20.2 or 20.3 of the Agreement. [ * ] provided: (i) that the confidentiality of the terms of this Letter Agreement be maintained in a manner satisfactory to both parties; (ii) that there is no increase in the liability or exposure of BRAD, (iii) that Buyer remains jointly and severally liable with assignee, except in the event of the sale of the Aircraft where BRAD is released of its obligation under the financing, and (iv) that BRAD shall be given a first right of refusal to purchase the Aircraft at the same terms and conditions as that agreed to with assignee. 5.0 [ * ] Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Paul Tate Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-006 Atlantic Coast Airlines, 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 006 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement") between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines, Inc ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Operational Restrictions 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 Grounding 2.1 In the event that (a) the FAA issues an Airworthiness Directive that is ultimately attributable to a defect in the design and/or manufacturing of the Canadair Regional Jet Aircraft (taking into account the state of the art at the time of design or manufacture) that results in a grounding or operational restrictions of all or part of Buyer's fleet of Aircraft (except where directed at Buyer or resulting from Buyer's operating or maintenance practices), which effectively prevents Buyer from operating the Aircraft in revenue service for more than [ * ] or (b) Buyer is prevented from operating the Aircraft in revenue service for more than [ * ] by a court order in the case of a patent infringement claim or action filed before a court in Canada or the United States, [ * ] 3.0 During the time that Buyer is prevented from operating the Aircraft due to such operational restrictions, Buyer shall use best efforts to reschedule the Aircraft within its total route system such that the restriction does not prevent the Aircraft from operating in revenue service. 4.0 The undertaking by BRAD in this Letter Agreement excludes any such grounding or operational restriction caused by: (i) BFE or Buyer-selected equipment or other products or parts not specifically approved by BRAD; (ii) failure by Buyer (subject to parts availability) to comply with or incorporate a service bulletin which would have prevented the grounding; (iii) failure by Buyer to comply with the conditions of the Airworthiness Directive, within a reasonable length of time given the availability of BRAD Parts, Vendor Parts or Powerplant Parts; (iv) modifications made to the Aircraft or its Vendor Parts subsequent to the Delivery Date by Buyer or a third party, unless approved by BRAD; (v) failure to operate or maintain the Aircraft in accordance with the Technical Data; or (vi) not operating the Aircraft in normal commercial airline service. 5.0 The term of this Letter Agreement shall commence on the date of start of revenue service of Buyer's first Aircraft and shall expire five (5) years thereafter. 6.0 Without limitation to the foregoing, during any period of grounding or operational restrictions, BRAD will diligently work to correct the cause(s) relating thereto and Buyer will provide all reasonable assistance, if required. 7.0 Limitation 7.1 [ * ] 8.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement without the prior written consent of BRAD. 9.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 10.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void unless this Agreement is terminated by Buyer pursuant to Article 16.1 or 16.2 as a result of a default or breach of this Agreement by BRAD, or as a result of an Excusable Delay [ * ] in which event the terms and conditions of this Letter Agreement will continue to apply to the Aircraft delivered prior to the date of termination. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 November 21, 1997 Our Ref: B96-7701-RJTL-RJ0350-007B Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 007B to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement") between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twenty- four (24) Canadair Regional Jet Aircraft (the "Aircraft") This Letter Agreement No. 007B dated November 21, 1997 cancels and supersedes Letter Agreement No. 007A dated May 19, 1997. Subject: Financing 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 1.1 This Letter Agreement describes the general terms and conditions of the financing assistance to be provided by BRAD to Buyer. [ * ] collectively referred to as the "Financed Aircraft"). 2.0 Financing Assistance 2.1 Lease financing of the Financed Aircraft will be arranged by Buyer working in close coordination with and supported by BRAD with backstop financing to be underwritten by BRAD as generally outlined below. Any information related to the form and amount of any support which may be provided by BRAD is to be treated as confidential and is not to be provided by Buyer to any third party without the express written consent of BRAD and then only subject to the third party agreeing to BRAD's confidentiality agreement. It is Buyer's responsibility to have such form executed with any third party prior to Buyer's disclosure of any such information and to provide such form to BRAD for approval. The above does not apply where Buyer or the applicable third party is required to disclose such information by law or compelled by court order to do so. It is acknowledged that Buyer's advisor Babcock & Brown has received a copy of this proposal and that BRAD and Babcock & Brown will execute a confidentiality agreement. 2.2 [ * ] 2.3 Buyer and BRAD will work together to structure, arrange and source acceptable third party lease financing based on Buyer's and Guarantor's credit. If Buyer, in conjunction with BRAD, is unable to arrange such lease financing as described above in the first sentence of paragraph 2.1 on the basis of Buyer's and Guarantor's credit, [ * ] 2.4 [ * ] 2.5 [ * ] 2.6 [ * ] 2.7 [ * ] [ * ] 2.8 [ * ] 2.9 [ * ] 3.0 [ * ] 4.0 In the event of the termination of the Agreement pursuant to Article 16.1 or 16.2 as a result of a default or breach of this Agreement by Buyer, or in the event of a default of Buyer (or its assignee) under a financing arrangement referred to Letter Agreement No. 007B which results in termination of such arrangement, this Letter Agreement shall become automatically null and void. 5.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement expressly permitted by Article 20 of the Agreement. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Paul Tate Sr. Vice President and C.F.O. ANNEX A [ * ] [ * ] [ * ] **** 7.0 [ * ] *** 8.0The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement expressly permitted by Article 20 of the Agreement (with the exception of Article 4.0 and 7.0 hereof, which can only be assigned to a wholly owned subsidiary). 9.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 10.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-008 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 008 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Schedule Completion Rate 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 Intent The intent of the Schedule Completion Rate [ * ] is to achieve the full potential of the inherent technical reliability of the Aircraft [ * ] 3.0 Definition [ * ] 4.0 [ * ] [ * ] 5.0 [ * ] [ * ] 6.0 Formula [ * ] [ * ] 7.0 Assumptions [ * ] 8.0 Conditions and Limitations 8.1 [ * ] [ * ] 8.2 Reporting Buyer shall provide to BRAD not later than [ * ] all reports as required by Buyer's regulatory authority relating to dispatch reliability and schedule completion. [ * ] Buyer shall also provide BRAD such other information and data as BRAD may reasonably request for the purpose of analyzing [ * ]. BRAD shall respond to the data in a timely manner and shall provide Buyer with a summary of fleetwide dispatch reliability reports [ * ] 8.3 Master Record The master record of Schedule Completion Rate will be maintained by BRAD in its format based upon information provided by Buyer's maintenance control program as requested herein. BRAD will provide a copy to Buyer of the data. Buyer shall review the data and if it is not in agreement with Buyer's records, Buyer and BRAD will consult to resolve any differences. 9.0 Corrective Action 9.1 In the event the achieved schedule completion rate, as reported to Buyer by BRAD, [ * ] BRAD and Buyer will jointly review the performance for that period to identify improvement changes required. [ * ] [ * ] 9.2 [ * ] shall be dependent upon the quality, extent and regularity of information and data reported to BRAD by Buyer. 10.0 Implementation of Changes Buyer may, at its option, decline to implement any change proposed by BRAD under Article 9.0 above. If Buyer so declines, [ * ] 11.0 [ * ] 12.0 [ * ] [ * ] 13.0 Limitation of Liability [ * ] 14.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of BRAD, which consent shall not be unreasonably withheld. 15.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 16.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 December 17, 1998 Our Ref: B96-7701-RJTL-RJ0350-009B Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Dear Sirs, Letter Agreement No. 009B to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines, Inc. ("Buyer") relating to the purchase of forty-three (43) Canadair Regional Jet Aircraft (the "Aircraft") This Letter Agreement No. 009B dated December 17, 1998 cancels and supersedes Letter Agreement No. 009A dated August 21,1998. Subject: Airframe Direct Maintenance Cost 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 Intent 2.1 The intent of the Airframe direct maintenance cost [ * ] is to achieve the full potential of the maintainability of the Aircraft [ * ] [ * ] 2.2 The "Airframe" shall mean the Aircraft excluding Power Plant Parts, APU parts, seatcovers and carpets, Collins Avionics Components, Buyer Furnished Equipment (BFE) and Ground Support Equipment (GSE). 3.0 Airframe Direct Maintenance Cost [ * ] 3.1 [ * ] 3.1.1 The term of this Letter Agreement shall commence on the first day of the month following delivery of the first Aircraft and shall end seven (7) years thereafter; 3.1.2 [ * ] 3.1.3 [ * ] 3.2 [ * ] [ * ] 4.0 Calculation of Cost 4.1 Airframe Direct Maintenance Material Cost ("ADMMC") The ADMMC is defined as the cost of material consumed, which excludes initial provisioning purchases, for the direct airframe maintenance of the aircraft, less any transportation, duties, taxes or license fees. Notwithstanding Buyer's internal cost allocation system all elements of indirect material such as cleaning supplies, consumable tools, hydraulic fluids, oils and greases, welding supplies and adhesives are excluded from the calculation of ADMMC. 4.2 Airframe Direct Outside Service Cost ("ADOSC") The ADOSC is defined as the cost expended in outside services for direct airframe and component maintenance of the aircraft. The ADOSC shall include the total outside service charges of both labour and material costs, but excluding transportation and taxes. 4.3 Hourly Airframe Direct Maintenance Cost ("ADMC") The following formula shall be used to calculate the hourly ADMC: ADMC = ADMMC + ADOSC T Where: ADMMC = Airframe Direct Maintenance Material Cost, ADOSC = Airframe Direct Outside Service Cost, T = Total flight hours for the Aircraft recorded for the applicable period. 4.4 Exclusion of In-House Labour Costs For more certainty, the parties agree that all labour costs incurred in-house by Buyer in maintaining the Aircraft, including but not limited to scheduled and routine maintenance, troubleshooting, removal and installation of parts, is excluded [ * ] 5.0 [ * ] 5.1 [ * ] 5.1.1 [ * ] 5.1.2 [ * ] [ * ] 5.1.3 [ * ] 5.1.4 [ * ] 5.2 [ * ] 5.2.1 [ * ] 5.2.2 [ * ] [ * ] [ * ] 6.0 Final Adjustment 6.1 [ * ] 6.2 [ * ] [ * ] 6.3 [ * ] 6.4 [ * ] 6.5 [ * ] [ * ] 6.6 [ * ] 6.7 [ * ] 7.0 [ * ] [ * ] 8.0 Reporting 8.1 Buyer will furnish data to BRAD to allow BRAD to carry out its analysis and tracking of Buyer's maintenance costs with respect to [ * ]. If Buyer is not in agreement with BRAD's request for specific data and format, Buyer and BRAD will consult to resolve any differences. 8.2 BRAD shall provide a quarterly report to Buyer on the status of the Airframe direct maintenance cost based on the data submitted by Buyer and approved by BRAD. BRAD shall review the report and, if the supporting data is not in agreement with Buyer's records, Buyer and BRAD will consult to resolve any differences. [ * ] 8.3 BRAD shall not contest any data, as supplied by Buyer, once the [ * ] has been agreed to. 8.4 [ * ] 9.0 Limitation of Liability [ * ] 10.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of BRAD, which shall not be unreasonably withheld. 11.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 12.0 In the event of the termination of the Agreement, this Letter Agreement shall become automatically null and void unless this Agreement is terminated by Buyer pursuant to Article 16.1 or 16.2 as a result of a default or breach of this Agreement by BRAD, or as a result of an Excusable Delay or [ * ] Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Anthony Prezioso Manager, Contracts Acknowledged and Accepted ATLANTIC COAST AIRLINES ________________________ Date:_____________ Kerry B. Skeen President and C.E.O. APPENDIX A AIRFRAME DIRECT MAINTENANCE COST [ * ] [ * ] The following is a listing of all assumptions used to determine [ * ] per flight hour. It is understood by the parties that these assumptions may change in which case the parties, with mutual agreement, will adjust [ * ] 1. All costs are based upon Specification. 2. All costs are based on the maintenance inspection intervals in the Buyer's regulatory agency approved maintenance program. 3. All costs are expressed in July 1, 1997 United States Dollars subject to escalation in accordance with the terms of Appendix B of this Letter Agreement, and are rounded to the nearest whole dollar. 5. Buyer's subcontract airframe labour rate per man-hour is [ * ] 6. [ * ] 7. Annual average Aircraft utilization is not more than [ * ] flight hours per year. 8. Buyer's average annual flight duration for the Aircraft will be [ * ] minutes per departure. 9. Total number of Aircraft Buyer has on firm order from BRAD (including delivered Aircraft under the Agreement) equals [ * ] Should Buyer's average annual flight duration change throughout the [ * ] a new Airframe Direct Maintenance Cost [ * ] value will be generated as per the following formula: [ * ] 9. Buyer's subcontracted maintenance cost levels are: ATA CHAPTER PERCENT [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] APPENDIX B ADMCG Economic Adjustment Formula The [ * ] will be calculated using the following [ * ] Formula. The [ * ] term is specified in Section 3.1.1 of the Letter Agreement. [ * ] CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-010 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 010 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Additional Customer Support 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 Training 2.1 General Terms 2.1.1 The objective of the training programs (the "Programs"), as described herein, shall be to familiarize and assist Buyer's personnel in the introduction, operation, and maintenance of the aircraft. BRAD shall offer to the Buyer the Programs in the English language at a BRAD designated facility. [ * ] 2.1.2 [ * ] 2.1.3 The Programs shall be designed to reflect the model and/or the configuration of the Aircraft and may include differences training to identify such configuration or model. Manuals and training materials which are provided during the Programs exclude revision service. 2.1.4 A Training Conference shall be held where possible no later than six (6) months prior to the Scheduled Delivery of the first aircraft to the Buyer, or as may be otherwise agreed, to establish the Programs' content and schedule. 2.2 [ * ] 2.3 [ * ] 3.0 [ * ] 4.0 [ * ] 4.1 [ * ] 4.2 [ * ] 4.3 In regard to Article 4.2, [ * ] 5.0 Manuals on CD-ROM 5.1 BRAD and Buyer are aware that BRAD is currently in the process of investigating and bringing on-line CD-ROM versions of various manuals. BRAD hereby commits that in the event that it is able to successfully and cost- effectively complete this program, it will provide Buyer with CD-ROM versions of Buyer's technical publications [ * ] 6.0 [ * ] [ * ] 7.0 [ * ] ] 8.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement expressly permitted by Article 20 of the Agreement (with the exception of Article 4.0 hereof, which can only be assigned to a wholly owned subsidiary). 9.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 10.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-011 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 011 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Spares 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 [ * ] 3.0 [ * ] 4.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement (in whole but not in part) expressly permitted by Article 20 of the Agreement. 5.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 6.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-012 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 012 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Marketing Support 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 [ * ] 3.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement expressly permitted under Article 20 of the Agreement. 4.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 5.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-013 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 013 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Spares Credit 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 [ * ] 3.0 [ * ] 4.0 [ * ] 5.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement expressly permitted in Article 20 of the Agreement. 6.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 7.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void with respect to any undelivered Aircraft. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-014 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 014 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Taxes, Duties And Licenses 1.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 2.0 The parties contemplate that at time of delivery, the Aircraft will be sold to a United States company or other USA entity (the "Lessor"), and directly exported from Canada and subsequently leased to Buyer. [ * ] 3.0 [ * ] 4.0 [ * ] 5.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement expressly permitted by Article 20 of the Agreement without the prior written consent of BRAD. 6.0 This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 7.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997 Our Ref: B96-7701-RJTL-RJ0350-015 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 015 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Airworthiness Directives 1.0 Intent In consideration of Buyer entering into the above- referenced Agreement, BRAD states that it is its intention to incorporate before delivery of the Aircraft any Mandatory Modification Service Bulletins outstanding on the Aircraft. [ * ] 2.0 Applicability The provisions of this Letter Agreement will apply to mandatory Airworthiness Directives ("AD"), and resulting service bulletins, issued by the DOT and/or the FAA pursuant to applicable regulations prior to the time of delivery of any Aircraft ("Mandatory Modification Service Bulletin"). 3.0 Conditions For any Mandatory Modification Service Bulletin not incorporated on the Delivery Date, as defined in Article 2.0 above, BRAD shall, subject to the provisions of Article 8.5 of the Agreement, [ * ] as provided in Article 4 hereof. 4.0 [ * ] 5.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 6.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement expressly permitted in Article 20 of the Agreement. 7.0 In the event of the termination of the Agreement, this Letter Agreement shall become automatically null and void unless this Agreement is terminated by Buyer pursuant to Article 16.1 or 16.2 as a result of a default or breach of this Agreement by BRAD, in which event the terms and conditions of this Letter Agreement will continue to apply to the Aircraft delivered prior to the date of termination. Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 8, 1997, 1996 Our Ref: B96-7701-RJTL-RJ0350-016 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 016 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twelve (12) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Reconciliation 1.0 The parties recognize that in the course of the administration of this Agreement, [ * ] in accordance with the terms of the Agreement. 2.0 [ * ] 3.0 [ * ] 4.0 This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 5.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer except as part of an assignment of the Agreement (in whole not in part) expressly permitted under Article 20 of the Agreement and otherwise such consent shall not be unreasonably withheld. 6.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. 7.0 Should there be any inconsistency between this Letter Agreement and the Agreement with respect to the subject matter covered by the terms hereof, then this Letter Agreement shall prevail. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ James B. Glennon Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 November 21, 1997 Our Ref: B97-7701-AP-RJ0350-017 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Gentlemen, Letter Agreement No. 017 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement") between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twenty-four (24) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Spare Parts Price Catalogue This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 1.0 In consideration of Buyer having entered into the above referenced Agreement, Bombardier hereby confirms, [ * ] 2.0 In the event that during [ * ] 3.0 In reference to Article 2 above, Bombardier and Buyer shall mutually agree on the [ * ] 4.0 Except as provided for in Article 20.1 of the Agreement, the provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of Bombardier. 5.0 This Letter Agreement constitutes an integral part of the Agreement and is subject to the terms and conditions contained therein. To the extent of any inconsistency or conflict between this Letter Agreement and the Agreement, this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Paul Tate Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 November 21, 1997 Our Ref: B97-7701-AP-RJ0350-018 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Letter Agreement No. 018 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twenty-four (24) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Exercise of Twelve Option Aircraft Gentlemen: Reference is made to Notice of Intention to Exercise letter dated August 27, 1997, whereby Buyer states of its intention to purchase twelve (12) Option Aircraft pursuant to Letter Agreement No. 003 of the Agreement and to Letter of Intent dated October 30, 1997, whereby Buyer states the terms and conditions by which Buyer will exercise its right to acquire the Option Aircraft. This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 1.0 [ * ] 1.1 [ * ] 1.2 [ * ] 2.0 [ * ] 2.1 [ * ] 2.2 [ * ] 3.0 [ * ] 3.1 [ * ] 4.0 In the event of the termination of the Agreement, this Letter Agreement shall become automatically null and void. 5.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of Bombardier. 6.0 This Letter Agreement constitutes an integral part of the Agreement and is subject to the terms and conditions contained therein. To the extent of any inconsistency or conflict between this Letter Agreement and the Agreement, this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Paul Tate Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 November 21, 1997 Our Ref: B97-7701-AP-RJ0350-019 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Letter Agreement No. 019 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twenty-four (24) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Transferability of Aircraft Delivery Positions Gentlemen: Reference is made to Notice of Intention to Exercise letter dated August 27, 1997, whereby Buyer states of its intention to purchase twelve (12) Option Aircraft pursuant to Letter Agreement No. 003 of the Agreement and to Letter of Intent dated October 30, 1997, whereby Buyer states the terms and conditions by which Buyer will exercise its right to acquire the Option Aircraft. This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 1. [ * ] 2. Subject to Article 20.5 of the Agreement, Buyer may [ * ] 3. [ * ] 4. In the event of the termination of the Agreement, this Letter Agreement shall become automatically null and void. 5. The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of Bombardier. 6. This Letter Agreement constitutes an integral part of the Agreement and is subject to the terms and conditions contained therein. To the extent of any inconsistency or conflict between this Letter Agreement and the Agreement, this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Paul Tate Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 November 21, 1997 Our Ref: B97-7701-AP-RJ0350-020 Atlantic Coast Airlines 1 Export Drive, Sterling, Virginia, U.S.A. 20164 Letter Agreement No. 020 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twenty-four (24) Canadair Regional Jet Aircraft (the "Aircraft") Subject: United Approval Gentlemen: Reference is made to Notice of Intention to Exercise letter dated August 27, 1997, whereby Buyer states of its intention to purchase twelve (12) Option Aircraft pursuant to Letter Agreement No. 003 of the Agreement and to Letter of Intent dated October 30, 1997, whereby Buyer states the terms and conditions by which Buyer will exercise its right to acquire the Option Aircraft. This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 1. United Approval 1.1 The Aircraft from Block No. 2 of the Option Aircraft [ *] are conditional on United Airlines granting Buyer the authority to operate said Aircraft as a United Express operator, on terms satisfactory to Buyer ("United Approval"). If on or before [ *] Buyer determines that United Approval will not be granted or received by such date, or in any event if Buyer has not received United Approval by such date for Block No. 2 of the Option Aircraft, then either party may, unless the parties agree to extent said date with such amendment to the terms hereof that may be appropriate in the circumstances, terminate the exercise of Block No. 2 of the Option Aircraft pursuant to Change Order No. 7, by providing ten (10) days notice. 1.2 Similarly, the Aircraft derived from Block No. 3 of the Option Aircraft [ *] are conditional on United Airlines granting Buyer the authority to operate said Aircraft as a United Express operator, on terms satisfactory to Buyer ("United Approval"). If on or before [ *] determines that United Approval will not be granted or received by such date, or in any event if Buyer has not received United Approval by such date for Block No. 3 of the Option Aircraft, then either party may, unless the parties agree to extend said date with such amendment to the terms hereof that may be appropriate in the circumstances, terminate those Aircraft positions held for Buyer pursuant to Letter Agreement No. 018 (Article 1.2), by providing ten (10) days notice. 2. [ *] 2.1 In the event that United Approval is not granted and either party terminates the exercise of Option Aircraft Block No. 2 as specified in 1.1 above, then Buyer shall [ * ] 2.2 Similarly, in the event that United Approval is not granted and either party terminates those Option Aircraft delivery positions as specified in 1.2 above, then Buyer shall [ * ] 3. In the event of the termination of the Agreement, this Letter Agreement shall become automatically null and void. 4. The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of Bombardier. 6. This Letter Agreement constitutes an integral part of the Agreement and is subject to the terms and conditions contained therein. To the extent of any inconsistency or conflict between this Letter Agreement and the Agreement, this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Paul Tate Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 March 31, 1998 Our Ref: B98-7701-AP-RJ0350-021 Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Letter Agreement No. 021 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of twenty-three (23) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Flight Data Recorder Gentlemen: This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 1. [ * ] 2. The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of Bombardier. 3. This Letter Agreement constitutes an integral part of the Agreement and is subject to the terms and conditions contained therein. To the extent of any inconsistency or conflict between this Letter Agreement and the Agreement, this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Paul Tate Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 August 31, 1998 Our Ref: B98-7701-AP-RJ0350-022 Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Letter Agreement No. 022 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of thirty-three (33) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Cargo Floorboards Gentlemen: This letter constitutes an integral part of the Agreement and evidences our further agreement with the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 1. [ * ] 2. [ * ] 3. [ * ] 4. The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of Bombardier. 5. This Letter Agreement constitutes an integral part of the Agreement and is subject to the terms and conditions contained therein. To the extent of any inconsistency or conflict between this Letter Agreement and the Agreement, this Letter Agreement shall prevail. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Paul Tate Sr. Vice President and C.F.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. August 27, 1998 Tony Prezioso Bombardier Inc. 123 Garratt Blvd. Downsview, Ontario, Canada M3K 1Y5 Re: Letter Agreement No. 23 to Purchase Agreement (the "Purchase Agreement") Between Bombardier Inc. and Atlantic Coast Airlines dated January 8, 1997 Dear Tony: This Letter Agreement No. 23, when countersigned by you, shall set forth our further understanding with regard to the matters contained herein. [ * ] [ * ] All other terms and conditions of the Purchase Agreement shall remain unchanged. The foregoing terms are subject to the terms and conditions of the Purchase Agreement. Defined terms used but not defined herein shall be as defined in the Purchase Agreement. All amounts expressed herein shall be in U.S. dollars. In Witness Whereof, the parties hereto have executed this Letter Agreement No. 23 as of the day and year first above written. AGREED and ACCEPTED: Atlantic Coast Airlines Bombardier, Inc. By: _____________________________ By: ____________________________ Paul H. Tate Title: Senior Vice President Title: CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. Bombardier Inc. Bombardier Regional Aircraft Division Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Telephone (416) 633-7310 December 17, 1998 Our Ref: B98-7701-AP-RJ0350-024 Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Letter Agreement No. 024 to Purchase Agreement No. RJ-0350 dated January 8, 1997 (the "Agreement" between Bombardier Inc. ("BRAD") and Atlantic Coast Airlines ("Buyer") relating to the purchase of forty-three (43) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Additional Option Aircraft Gentlemen: This letter constitutes an integral part of the Agreement and evidences our further agreement with respect to the matters set forth below. All terms used herein and in the Agreement and not defined herein, shall have the same meaning as in the Agreement. 1.0 [ * ] 1.1 The Additional Option Aircraft will be as described in Article 2 of the Agreement. 1.2 The price for each of the Additional Option Aircraft will [ * ] 1.3 The Option Aircraft shall be offered in [ * ] 1.4 [ * ] [ * ] 2.0 In the event of the termination of the Agreement, this Letter Agreement shall become automatically null and void. 3.0 The provisions of this Letter Agreement are personal to Buyer and shall not be assigned or otherwise disposed of by Buyer without the prior written consent of Bombardier. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Anthony Prezioso Manager, Contracts Acknowledged and Accepted ATLANTIC COAST AIRLINES ________________________ Date:_____________ Kerry B. Skeen President and C.E.O. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. January 20, 1999 Tony Prezioso Bombardier Inc. 123 Garratt Blvd. Downsview, Ontario, Canada M3K 1Y5 Re: Letter Agreement No. 25 to Purchase Agreement (the "Purchase Agreement") Between Bombardier Inc. and Atlantic Coast Airlines dated January 8, 1997 Dear Tony: This Letter Agreement No. 25, when countersigned by you, shall set forth our further understanding with regard to the matters contained herein. [ * ] [ * ] All other terms and conditions of the Purchase Agreement shall remain unchanged. The foregoing terms are subject to the terms and conditions of the Purchase Agreement. Defined terms used but not defined herein shall be as defined in the Purchase Agreement. All amounts expressed herein shall be in U.S. dollars. In Witness Whereof, the parties hereto have executed this Letter Agreement No. 25 as of the day and year first above written. AGREED and ACCEPTED: Atlantic Coast Airlines Bombardier, Inc. By: _____________________________ By: ____________________________ Richard J. Kennedy Title: Vice President & Secretary Title: EX-10 19 2.1 ARTICLE 2. PERIOD OF AGREEMENT 2.01 Effective Date. The Effective Date of this Agreement shall be January 1, 1990, or if executed by the Airline after February 28, 1990, the date on which the Agreement is executed by both the Authority and the Airline. 2.02 Expiration Date. This Agreement shall expire on September 30, 2014, unless sooner terminated as provided in this Article 2, or Article 10, Article 13, or Article 14 of this Agreement. 2.02.1 This Agreement shall terminate as to all Signatory Airlines effective at midnight September 30, 1990, if, prior to August 1, 1990, at least fifty percent (50%) in number of major or national domestic airlines and foreign flag airlines at each Airport representing more than fifty percent (50%) of the true origin and destination passenger activity at each Airport for the twelve (12) month period ending September 30, 1989, have -not become Signatory Airlines. Notwithstanding the foregoing, the Authority has the right to continue the Agreement in effect in accordance with its terms by giving notice thereof to the Airline. Notice, to be effective, must be in writing and mailed to all Signatory Airlines prior to August 31, 1990, provided, that in such event the Airline may elect to terminate this Agreement by notice to the Authority prior to October 1, 1990. 2.02.2 Notwithstanding any other provisions, the Authority may, in its sole discretion for any reason, terminate this Agreement effective at midnight December 31, 2004, or September 30 of any year thereafter during the Period of this Agreement, provided that the Authority gives one hundred eighty (180) days written notice to the Airline which states the Authority's reasons for the termination and, further, the Authority terminates the Agreement of all Signatory Airlines effective on the same date. The Authority shall not terminate the Agreement of any Signatory Airline under this provision unless similar and simultaneous action is taken and effected to terminate the Agreement of each signatory Airline. 2.03 Prior Agreements and Leases. 2.03.1 At midnight, December 31, 1989, all Prior Agreements and Leases not then terminated or expired shall be deemed terminated as of that date, except that the Surviving Agreements, or provisions thereof, listed in Exhibits N-K and D-K shall continue in effect until they expire or are terminated by the Authority or the Airline in accordance with the provisions included in any such Surviving Agreements. 2.03.2 The joint lease agreement listed in Exhibit D-K, Item 2, (Amendments to Contracts DTFAl5-85-C-50015, DTFAl5-85-C- 50006, and DTFA15-85-C-50020) shall expire on December 31, 1990, and the airlines who are parties thereto and the Authority shall have no further obligations thereunder. 2.03.3 The contract listed in Exhibit N-K, Item 3, (Contract No. DOT-FA-NA-5135, as amended) between the Authority and Eastern Air Lines, Inc., and all rights thereunder shall expire on the Substantial Completion Date of Eastern's Permanent Premises in the New North Terminal if not otherwise terminated as provided for therein. ARTICLE 3. DEFINITIONS AND INTERPRETATION 3.01 Definitions. Except as otherwise clearly indicated by the context, the following words, terms, and phrases wherever used in this Agreement shall for the purposes of this Agreement have the following meanings: Additional Projects shall mean capital expenditures for construction, acquisitions, and improvements related to the Airports, other than small capital items includable as O&M Expenses in accordance with Authority policy and other than those Projects included in the Capital Development Program. Administrative Cost Center shall mean the Cost Center described in Exhibits N-E and D-E. Agreement shall mean this Airport Use Agreement and Premises Lease between the Authority and the Airline, as the same may be amended or supplemented from time to time. Air Transportation Business shall mean that business of a Scheduled Air Carrier operated by the Airline at either or both of the Airports. Air Transportation Company shall mean (i) a Scheduled Air Carrier or (ii) a company engaged in nonscheduled common carriage by air of persons, property, and/or mail. Aircraft Parking Positions shall mean those portions of the Ramp Areas at each of the Airports, other than Dulles Jet Apron Positions, that are used for the parking of aircraft and support vehicles and the loading and unloading of passengers and cargo. Aircraft Parking Position Charges shall mean those charges payable by the Airline, if applicable, for the preferential use of Aircraft Parking Positions as set forth in Section 8.04. Airfield Cost Center shall mean the Cost Center described in Exhibits N-E and D-E. Airfield Net Requirement shall mean at each Airport the Total Requirement attributable to the Airfield Cost Center, less (i) Aircraft Parking Position Charges and Dulles Jet Apron Fees, if any; (ii) direct utility or other reimbursements attributable or allocable to the Airfield Cost Center; and (iii) Transfers, if any, allocable to the Airfield Cost Center. Airline shall mean the Scheduled Air Carrier executing this Agreement. Airline Funded Airfield Coverage shall mean for each Fiscal Year at each Airport, Debt Service Coverage allocable to the Airfield Cost Center for such Fiscal Year multiplied by a fraction, the numerator of which is the landed weight for all Signatory Airlines at that Airport for such Fiscal Year and the denominator of which is the total landed weight for all Air Transportation Companies and General Aviation at that Airport for such Fiscal Year. Airline Funded Airfield Coverage shall be calculated separately for Debt Service on Subordinated Bonds and Debt Service on Senior Bonds. Airline Funded Coverage shall mean for each Fiscal Year at each Airport, the sum of Airline Funded Airfield Coverage for such Fiscal Year for that Airport and Airline Funded Terminal Coverage for such Fiscal Year for that Airport. Airline Funded Coverage shall not include Equipment Coverage. Airline Funded Terminal Coverage shall mean for each Fiscal Year for each Airport for each Cost Center and Terminal Sub- Center within the Terminal Cost Center, Debt Service Coverage for such Fiscal Year allocated to such Sub-Center multiplied by a fraction the numerator of which is the amount of Premises leased to and the amount of space used as Common Use Premises by the Signatory Airlines in such Sub-Center and the denominator of which is the total amount of Rentable Space in such Cost Center and Terminal Sub-Center. The Airline Funded Terminal Coverage shall be calculated separately for Debt Service on Subordinated Bonds and Debt Service on Senior Bonds. Airline Operating Facilities shall mean furniture, furnishings, special light fixtures, carpeting, draperies, wall coverings, decorations, decorating or other special finishing work, signs, appliances, trade fixtures and equipment that is owned, furnished, installed, and used by the Airline in its operations on the Airport. Airline Representative shall mean that person designated by a numerical majority of the Signatory Airlines at each Airport to represent said Signatory Airlines in matters relating to the Capital Development Program and Additional Projects at that Airport. Airline Supported Areas shall mean for each Airport the Airfield, Terminal and Equipment Cost Centers at that Airport and at Dulles shall also include the IAB, the AOB, and the Passenger Conveyance System Cost Centers. Airline Transfer Account shall mean the account in the Revenue Fund created pursuant to Section 9.06. Airport or Airports shall mean the real property including improvements constituting either or both Washington National Airport ("National" or "National Airport"), located in Arlington County, Virginia, and Washington Dulles International Airport ("Dulles" or "Dulles Airport"), located partially in Fairfax County and partially in Loudoun County, Virginia, as depicted in Exhibits N-A and D-A attached hereto, and as each may be subsequently improved, enlarged, or otherwise modified. Washington Dulles International Airport shall include the Washington Dulles International Airport Access Highway. Airside Operations Buildings (or "AOB") shall mean the facilities (other than the Existing or New Midfield Concourses) located on the Dulles Jet Apron and used to support the servicing of aircraft. Airside Operations Buildings (or "AOB") Rentals shall mean those rentals payable by the Airline for its use, if any, of the Airside Operations Buildings in accordance with Paragraph 8.08.3. Airside Operations Buildings (or "AOB") Cost Center shall mean the Cost Center described in Exhibit D-E. Amortization Requirements shall mean the repayment of capital costs as principal and interest, in substantially, equal annual installments over a fixed term for a capital expenditure which is not debt financed, and for which Amortization Requirements are to be included in rentals, fees, and charges pursuant to Section 10.06. The Amortization Requirement for each such capital expenditure shall be computed using an amortization period as reasonably determined by the Authority, and an interest component equal to the Thirty-Year Revenue Bond Index, published by the "Bond Buyer," on the date nearest the date on which said capital expenditure is placed in service; provided, however, if the asset in question could not legally be financed with the proceeds of tax-exempt Bonds, the interest component shall be fifty (50) basis points above the then current yield for a United States Government obligation with a maturity comparable to the period of amortization. Authority shall mean the Metropolitan Washington Airports Authority. Authority Capital Fund shall mean that fund created pursuant to Section 9.06. Authority's Architects and Engineers shall mean the architects and engineers employed by the Authority, or who are under contract to the Authority. Aviation Cost Center shall mean the Cost Center described in Exhibits N-E and D-E. Base-of-the-Tower Facilities shall mean the facilities for the conduct of business by an Air Transportation Company appurtenant, as of January 1, 1990, to Aircraft Parking Positions A-l through A-18. Board shall mean the Board of Directors of the Metropolitan Washington Airports Authority. Bonds shall mean Senior Bonds, Subordinated Bonds, and Other Indebtedness. Capital Charges shall mean (i) Debt Service, (ii) Depreciation Requirements, and (iii) Amortization Requirements. Capital Development Program shall mean the construction, acquisitions and improvements to the Airports, as more particularly described in Exhibits N-I and D-I attached hereto, including the Dulles Stage II Development Plan. Cargo Cost Center shall mean the Cost Center described in Exhibit D-E. Chargeable Landings shall mean those aircraft landings for which landing fees shall be due and payable by the Airline, as set forth in Section 8.02. Such landings shall include all landings of aircraft that come to a complete stop on the Airport, with the exception of emergency landings. Common Use Charges shall mean those charges, if any, payable by the Airline t& the Authority for the use of Common Use Premises at each Airport, determined in accordance with Paragraph 8.03.5. Common Use Premises shall mean those areas at the Airport which two or more Scheduled Air Carriers are authorized to use, as shown on Exhibits N-B and D-B attached hereto. For purposes of calculating rentals, fees, and charges hereunder, such Common Use Premises shall be deemed Rentable Space; provided, however, no leasehold interests shall accrue to or be acquired by any authorized user thereof. Construction Documents shall mean those plans and specifications prepared for inclusion in construction bid documents for the Capital Development Program. Contract Security shall mean a security for payment as set forth in Section 8.13. Cost Centers shall mean those areas or functional activities established by the Authority at each Airport, as set forth in Exhibits N-E and D-E attached hereto, and as may be amended by the Authority. Current Cost Estimate shall mean, as of any date of calculation, the projected total costs in then current dollars of one or more or all of the Projects in the Capital Development Program (as the context shall determine) as estimated by the Authority's Program Manager. Any Current Cost Estimate shall incorporate actual costs for completed Projects; substitute bid amounts for estimates when available; include the financial impacts of change-orders accepted by the Authority; and, reflect any other changes that the Authority reasonably believes will change said projected total costs from the amounts shown in Exhibits N-I and D-I. Debt Service shall mean, as of any date of calculation for any Rate Period, the amounts required pursuant to the terms of any Indenture to be collected during said period for the payment of Bonds, plus fees and amounts payable to providers of any form of credit enhancement used in connection with Bonds. Debt Service Coverage shall mean, as of any date of calculation for any period, an amount equal to twenty-five percent (25%) of the portion of Debt Service attributable to Senior Bonds and Subordinated Bonds, plus such other amounts as may be established by any financing agreement or arrangement with respect to Other Indebtedness. Debt Service Reserve Fund shall mean any fund of that name created and established pursuant to any Indenture. Deplaning Passenger shall mean any revenue passenger disembarking at the Airports, including any such passenger that shall subsequently board another aircraft of the same or a different Air Transportation Company. Depreciation Requirements shall mean the annual amount charged by the Authority to recover its remaining investment in certain vehicles and equipment acquired by the Authority during the period from June 7, 1987, through September 30, 1989. Direct Cost Centers shall mean those areas or functional activities established by the Authority at each Airport as set forth in Exhibits N-E and D-E, and as may be amended by the Authority. Dulles Cargo Apron shall mean those areas provided by the Authority at Dulles for the loading and unloading of all-cargo flights, as shown in Exhibit D-A attached hereto. Dulles Jet Apron shall mean that portion of the Dulles Ramp Areas identified as such and shown in Exhibit D-A. Dulles Jet Apron Fees shall mean those amounts payable by the Airline, if applicable, for the use of the Dulles Jet Apron positions, including hard stands, as set forth in Paragraph 8.04.4. Dulles Main Terminal shall mean a Terminal Sub-Center at Dulles as more particularly described in Exhibit D-E. Dulles Rate Credit Amortization Requirements shall mean the amounts to be included in the Total Requirement to reimburse certain Scheduled Air Carriers for terminal improvements completed and paid for by said Scheduled Air Carriers prior to October 1, 1989, as set forth in the Surviving Agreements. Dulles Stage II Development Plan (or "Dulles Stage II") shall mean specific Projects identified as such in Exhibit D-I, which Projects shall generally include the initial New Midfield Concourse(s), Passenger Conveyances, and other related improvements at Dulles. Early Program shall mean those Projects of the Capital Development Program funded from the proceeds of Subordinated Bonds issued prior to January 1, 1990. Effective Date shall mean the date set forth in Article 2 for the commencement of this Agreement. Emergency R&R Fund shall mean that fund created by the Senior Indenture for emergency repair and rehabilitation of the Airports. Enabling Legislation shall mean the District of Columbia Regional Airports Authority Act of 1985 (D.C. Law 6-67), as amended1 and Chapter 598, Virginia Acts of Assembly of 1985, as amended. Enplaning Passenger shall mean any revenue passenger ~ boarding at the Airports, including any such passenger that previously disembarked from another aircraft of the same or a different Air Transportation Company. Equipment shall mean that equipment and devices owned by the Authority and leased to the Airline, which may include but shall not be limited to, baggage make-up and baggage claim conveyors and devices, loading bridges, 400 Hz, and preconditioned air units. Equipment Charges shall mean those amounts payable by the Airline, if applicable, for the use of Equipment in accordance with Section 8.05. Equipment Coverage shall mean for each Fiscal Year for each Airport, Debt Service Coverage for such Fiscal Year included in Equipment Charges. Equipment Sub-Centers shall mean those individual facilities at each Airport that are included in the Equipment Cost Center at that Airport, as described in Exhibits N-E and D-E. Exclusive Use Premises shall mean those Premises leased exclusively to the Airline, as shown on Exhibits N-B and D-B attached hereto. Except as may otherwise be agreed to, Exclusive Use Premises shall include ticket counters, associated offices, and baggage make-up area and Equipment reasonably necessary for the use thereof. Existing Airport Facilities shall mean those Airport areas available for beneficial use and occupancy on January 1, 1990. Existing Midfield Concourses shall mean a Terminal Sub- Center at Dulles as more particularly described in Exhibit D-E. Existing North Terminal shall mean a Terminal Sub-Center at National as more particularly described in Exhibit N-E. Extraordinary Coverage Protection Payments shall mean those payments, if any, required pursuant to Paragraph 9.07.3. FAA shall mean the Federal Aviation Administration, or its authorized successor(s) other than the Authority. Federal Lease shall mean the Agreement and Deed of Lease, dated March 2, 1987, between the United States of America, acting through the Secretary of Transportation, and the Authority, as the same may be amended or supplemented. Fiscal Year shall mean the annual accounting period of the Authority for its general accounting purposes which, at the time of entering into this Agreement, is the period of twelve consecutive months beginning with the first day of October of any year. Fixed Base Operators (or "FBOs") shall mean those commercial businesses at the Airports authorized by the Authority to sell aviation fuels and provide other aviation-related services, but shall not mean the Fueling Agent. Fueling Agent shall mean, for each Airport, that agent selected to operate and maintain the Fueling System for that Airport and deliver fuel through the Fueling System. Fueling System shall mean (i) at Dulles, the Authority-owned hydrant fueling system, if any, and the Authority-owned fuel farm; and (ii) at National, the Authority-owned hydrant fueling system, if any, and the Authority-owned fuel farm. General Aviation shall mean an operator of (i) private or corporate aircraft not used in the common carriage of passengers, cargo, or freight; or (ii) aircraft as a nonscheduled air taxi. General Manager shall mean the General Manager of the Authority and shall include such person or persons as may from time to time be authorized by the General Manager to act for the General Manager with respect to any or all matters pertaining to this Agreement. General Purpose Fund shall mean that fund created by the Senior Indenture. Ground Transportation Cost Center shall mean the Cost Center described in Exhibits N-E and D-E. Indenture shall mean the Senior Indenture, Subordinated Indenture, or Other Indenture, including amendments, supplements, and successors thereto Indirect Cost Centers shall mean those functions and related facilities, not within a Direct Cost Center, established by the Authority at each Airport as set forth in Exhibits N-E and D-E, and as may be amended by the Authority. Interim Hangar 11 Terminal shall mean a Terminal Sub-Center at National as more particularly described in Exhibit N-E. International Arrivals Building ("IAB") shall mean those facilities provided by the Authority at Dulles for the processing by U.S. Customs and Immigration Services of international Deplaning Passengers requiring such processing and shall include the IAB to be constructed at Dulles pursuant to the Capital Development Program. International Arrivals Building (or "IAB") Charges shall mean those charges payable by the Airline for the use, if any, of the International Arrivals Building in accordance with Section 8.07. International Arrivals Building (or "IAB") Cost Center shall mean the Cost Center described in Exhibit D-E. Joint Use Premises shall mean those Premises leased on a joint use basis to the Airline and one or more other Signatory Airlines, as shown on Exhibits N-B and D-B attached hereto. Landing Area shall mean those portions of each Airport provided for the landing, taking off and taxiing of aircraft, including without limitation, approach and turning zones, avigation or other easements, runways, taxiways, runway and taxiway lights, and other appurtenances in connection therewith. Landing Fees shall mean those fees, calculated in accordance with Section 8.01, payable by the Airline for the use of the Airfield. Low Volume Airline shall mean a Scheduled Air Carrier operating under Part 135 of the FAA Regulations1 eligible to pay Low Volume Common Use Fees for the use of Common Use Premises, as described in Paragraph 8.03.6. Low Volume Common Use Fees shall mean those fees payable by a Low Volume Airline, if applicable, for the use of Common Use Premises, as set forth in Paragraph 8.03.6. Main Terminal shall mean a Terminal Sub-Center at National as more particularly described in Exhibit N-E. Maintenance Cost Center shall mean the Cost Centers described in Exhibits N-E and D-E. Majority-in-Interest shall mean, at each Airport, for the Airfield Cost Center, fifty percent (50%) in number of all Signatory Airlines and Signatory Cargo Carriers at such Airport which together landed more than sixty percent (60%) of Signatory Airlines' and Signatory Cargo Carriers' landed weight at that Airport during the most recent six (6) full month period for which the statistics are available, and for the Airline Supported Areas (excluding the Airfield Cost Center), fifty percent (50%) in number of Signatory Airlines at such Airport which together were obligated to pay more than sixty percent (60%) of the sum of Terminal Rentals, Common Use Charges, IAB Charges, AOB Rentals, Passenger Conveyance Charges, and Equipment Charges at such Airport during the most recent six (6) full month period for which statistics are available. Maximum Certificated Gross Landed Weight shall mean the maximum gross certificated landing weight in one thousand pound units, as stated in the Airline's flight operations manual, at which each aircraft operated at the Airports by the Airline is certificated by the FAA. Net Remaining Revenue shall mean that amount set forth in Paragraph 9.05.2. New Midfield Concourse(s) shall mean a Terminal Sub-Center at Dulles and particularly the building(s) and related facilities for the conduct of business by an Air Transportation Company and for appurtenant Aircraft Parking Positions to be constructed as part of the Capital Development Program. New North Terminal shall mean a Terminal Sub-Center at National and particularly the buildings and related facilities for the conduct of business by an Air Transportation Company and for appurtenant Aircraft Parking Positions to be constructed as part of the Capital Development Program. Non-Aviation Cost Center shall mean the Cost Center described in Exhibits N-E and D-E. Operation and Maintenance Expenses ("O&M Expenses") shall mean for any period all expenses of the Authority paid or accrued for the operation, maintenance, administration, and ordinary current repairs of the Airports. Operation and Maintenance Expenses shall not include (i) the principal of, premium, if any, or interest payable on any Bonds; (ii) any allowance for amortization or depreciation of the Airports; (iii) any other expense for which (or to the extent to which) the Authority is or will be paid or reimbursed from or through any source that is not included or includable as Revenues; (iv) any extraordinary items arising from the early extinguishment of debt; (v) rentals payable under the Federal Lease; and (vi) any expense paid with amounts from the Emergency R&R Fund. Operation and Maintenance Fund ("O&M Fund") shall mean that fund created by the Senior Indenture. O&M Reserve shall mean that reserve for O&M Expenses required by the Senior Indenture. Original Cost Estimate shall mean for one or more or all of the Projects in the Capital Development Program (as the context shall determine) the amount specified for such Project in Exhibits N-I and D-I. Other Indebtedness shall mean any financing instrument or obligation of the Authority, except the Federal Lease, payable from Revenues on a basis subordinate to the Authority's obligation to pay Subordinated Bonds. Other Indenture shall mean any indenture, loan agreement, credit arrangement, or other agreement which specifies the terms of the Authority's obligation to pay Other Indebtedness. Outstanding shall mean, with respect to any series of Bonds, the definition of "Outstanding" in the Indenture under which said series of Bonds were issued. Passenger Conveyances shall mean the Dulles mobile lounges, buses, or other ground transportation devices, including any underground people mover systems provided by the Authority at Dulles for the movement of passengers and other persons (i) between aircraft, on the one hand, and the Dulles Main Terminal or the IAB, on the other, (ii) between and among the Existing or New Midfield Concourses and the Dulles Main Terminal, and (iii) between and among the Dulles Main Terminal and IAB at Dulles. Passenger Conveyance Charges shall mean those charges payable by the Airline pursuant to Section 8.09. Passenger Conveyance System Cost Center shall mean the Cost Center described in Exhibit D-E. Passenger Security Reimbursements shall mean those amounts payable by the Airline for the law enforcement officers stationed at the passenger screening facilities pursuant to Federal Aviation Regulations Parts 107 and 108, as they may be amended, and for any cost incurred pursuant to any future regulations, as set forth in Section 8.06. Pavement Structural Maintenance shall mean the maintenance, rehabilitation, and keeping in good repair of asphalt, concrete, or other improved surfaces. Period shall mean the period of time during which the Airline's activities at the Airport shall be governed by this Agreement, as set forth in Article 2 herein. Permanent Premises shall mean those Premises designated as such in Exhibits N-B and D-B. Plateau Amount shall mean, at National, the amount of eight million dollars ($8,000,000) in Fiscal Year 1990, and at Dulles the amount of twelve million dollars ($12,000,000) in Fiscal Year 1990. Both amounts shall be subject to annual escalation in accordance with changes in the U.S. Implicit Price Deflator Index. The base date for such adjustment shall be the index for October 1, 1989. Preferential Use Premises shall mean those Premises leased on a preferential use basis to the Airline, as shown on Exhibits N-B and D-B attached hereto. Except as may otherwise be agreed upon by the parties hereto, Preferential Use Premises shall include the holdrooms and Aircraft Parking Positions leased by the Airline hereunder, if any, and all Equipment reasonably necessary for the use thereof. Premises shall mean areas at the Airports1 whether Permanent Premises or Temporary Airline Premises1 leased by the Airline pursuant to Article 6 of this Agreement. Premises shall include Exclusive, Preferential, and Joint Use Premises. Prior Agreements and Leases shall mean an agreement or contract, if any, between the Authority or its predecessor-in- interest, and an airline or its predecessor-in-interest for the use and lease of facilities at the Airports which was entered into prior to January 1, 1990. This shall not be construed to include prior agreements between the Authority and the Airline or other airlines, or the agent thereof, for the use, operation, and maintenance of the Fueling Systems, for the provisions of crew transportation and skycap services, or for the operation of in- flight kitchens. Priority 2 Projects shall mean those Projects so designated in Exhibits N-I and D-I. Program Manager shall mean the firm or individual employed by the Authority to provide overall construction and project management services for the Capital Development Program. Project shall mean any discrete, functionally complete portion of the Capital Development Program identified as a separate project in Exhibits N-I and D-I, as revised from time to time. Public Safety Cost Center shall mean the Cost Center described in Exhibits N-E and D-E. Rail System shall mean any rail system designed to transport persons to and from Dulles. A Rail System shall not include a Passenger Conveyance. For purposes of this definition, Dulles shall not include the Dulles Access Highway. Ramp Area shall mean the aircraft parking and maneuvering areas adjacent to the Terminals and shall include within its boundaries all Aircraft Parking Positions and the Dulles Jet Apron positions; provided, however, it shall not include the Dulles Cargo Apron. Ramp Area Charges shall mean the Dulles Aircraft Parking Position Charges and Dulles Jet Apron Fees, as set forth in Section 8.04. Rate Period shall mean that period for which rates for rentals, fees and charges are applicable, as set forth in Articles 8 and 9. Regional/Commuter Air Carrier shall mean a Scheduled Air Carrier that is operating under a Part 135 of the FAA Regulations. Rentable Space shall mean, for each Terminal Sub-Center at each Airport, and for the AOB, the total of all areas in that Terminal Sub-Center, or the AOB, which constitute Premises, Common Use Premises, or areas otherwise available for lease to airlines or non-airline tenants, except for any Premises required to be excluded from the Terminal Rentals calculation pursuant to a Surviving Agreement. Requesting Airline shall mean a Scheduled Air Carrier requesting the lease or use of Premises, as set forth in Section 17.03. Revenue Fund shall mean that fund created by the Senior Indenture. Revenues shall mean all revenues of the Authority received or accrued except (i) interest income on, and any profit realized from, the investment of moneys in any fund or account to the extent that such income or profit is not transferred to, or retained in, the Revenue Fund or the Bond Fund created by the Senior Indenture or the Bond Funds created by the Subordinated Indenture; (ii) interest income on, and any profit realized from, the investment of moneys in any fund or account funded from the proceeds of Special Facility Bonds; (iii) amounts received by the Authority from, or in connection with, Special Facilities, unless such funds are treated as Revenues by the Authority; (iv) the proceeds of any passenger facility charge or similar charge levied by, or on behalf of, the Authority, unless such funds are treated as Revenues by the Authority; (v) grants-in-aid, donations, and/or bequests; (vi) insurance proceeds which are not deemed to be revenues in accordance with generally accepted accounting principles; (vii) the proceeds of any condemnation awards; and (viii) any other amounts which are not deemed to be revenues in accordance with generally accepted accounting principles or which are restricted as to their use. Scheduled Air Carrier shall mean any company performing, pursuant to published schedules, commercial air transportation of persons, property, and/or mail over specified routes to and from the Airport and holding the necessary authority from the appropriate Federal or state agencies to provide such air transportation services. Senior Bonds shall mean any bonds or other financing instrument or obligation issued pursuant to the Senior Indenture. Senior Indenture shall mean the Master Indenture of Trust dated as of February 1, 1990, securing the Authority's Airport System Revenue Bonds, as such may be amended or supplemented. Signatory Airline shall mean a Scheduled Air Carrier which has an agreement with the Authority substantially similar to this Agreement. Signatory Cargo Carriers shall mean those scheduled all- cargo Air Transportation Companies, if any, signatory to an agreement with the Authority providing for the calculation of Landing Fees on substantially the same basis as this Agreement. Special Facility shall mean any facility, improvement, structure, equipment, or assets acquired or constructed on any land or in or on any structure or building at the Airports, the cost of construction and acquisition of which are paid for (i) by the obligor under the special facility agreement, or (ii) from the proceeds of Special Facility Bonds, or (iii) both. Special Facility Bonds shall mean revenue bonds, notes, or other obligations of the Authority, issued to finance any Special Facility, the payment of principal of, premium, if any, and interest on which are payable from and secured by the proceeds thereof and rentals, payments, and other charges payable by the obligor under the Special Facility Agreement. Stage II shall mean the Dulles Stage II Development Plan. Sub-Center shall mean either a Terminal or Equipment Sub- Center. Subordinated Bonds shall mean any bonds or other financing instrument or obligation issued pursuant to the Subordinated Indenture. Subordinated Indenture shall mean the Master Indenture of Trust dated March 1, 1988, securing the Authority's General Airport Subordinated Revenue Bonds, as such may be supplemented or amended. Substantial Completion Date (and "Substantially Complete") shall mean the date that any Premises are ready to be moved into and occupied by the Airline, or any Project is substantially complete, as certified by the Authority's Architects and Engineers. Surviving Agreements shall mean those Prior Agreements and Leases between the Authority and any airline, or provisions thereof, which continue in effect after the Effective Date, if any, and which are described in Exhibits N-K and D-K. Systems and Services Cost Center shall mean the Cost Center described in Exhibits N-E and D-E. Temporary Airline Premises ("TAP") shall mean those Premises that are temporarily occupied by the Airline pursuant to Article 5 during the course of the Capital Development Program. Terminal Cost Center shall mean the Cost Center as described in Exhibits N-E and D-E. Terminal Rentals shall mean those amounts payable by the Airline, calculated in accordance with Paragraph 8.02.4, for the lease of its Exclusive, Preferential, and Joint Use Premises. Terminal Sub-Centers shall mean those individual facilities at each Airport that are included in the Terminal Cost Center at that Airport, as described in Exhibits N-E and D-E. At National, Terminal Sub-Centers shall mean the Main Terminal (which shall also include the Existing North Terminal), the Interim Hangar 11 Terminal, and the New North Terminal. At Dulles, Terminal Sub- Centers shall mean the Dulles Main Terminal, the Existing Midfield Concourses, and the New Midfield Concourse(s). Terminal Sub-Center Net Requirement shall mean, for each Terminal Sub-Center at each Airport, the Total Requirement attributable or allocable to each such Terminal Sub-Center, less direct utility or other reimbursements attributable or allocable to said Terminal Sub-Center. Total Passengers shall mean the total of Enplaning Passengers and Deplaning Passengers. Total Requirement shall mean, with respect to any Direct Cost Center or Terminal or Equipment Sub-Center, that portion of the sum of (i) O&M Expenses; (ii) required deposits under the Senior Indenture to maintain the O&M Reserve; (iii) Capital Charges; (iv) Debt Service Coverage; (v) required deposits to any Debt Service Reserve Fund; (vi) Federal Lease payment; (vii) Dulles Rate Credit Amortization Requirements (at Dulles only); (viii) required deposits to the Emergency R&R Fund; and (ix) Extraordinary Coverage Protection Payments, if any, properly attributable or allocable to each said Direct Cost Center or Sub- Center. Transfers shall mean the amounts to be transferred by the Authority to reduce Signatory Airline rentals, fees, and charges as set forth in Section 9.05. U.S. Implicit Price Deflator Index shall mean the then most recently issued year-to-year U.S. GNP Implicit Price Deflator Index, issued by the United States Department of Commerce, or, if such index shall be discontinued, a successor index as designated by the United States Government. Utility Production and Delivery System shall mean the utility production and main line transportation components for electrical, water, sewage, heating and air conditioning or natural gas service up to a main distribution panel, reduction station, shut-off valve, or other point of connection with Terminal buildings. Additional words and phrases used in this Agreement but not defined herein shall have the meanings set forth in the Indenture, if defined therein. 3.02 Interpretation. In this Agreement, unless the context otherwise requires: 3.02.1 Divisions of Articles with one decimal point are Sections, e.g., 1.01. Divisions of Sections with two decimal points are Paragraphs, e.g., 1.01.1. 3.02.2 All Article, Section, and Paragraph references, unless otherwise expressly indicated, are to Articles, Sections, and Paragraphs of this Agreement. 3.02.3 The terms "hereby," "herein," "hereof," "hereto," and "hereunder" and any similar terms used in this Agreement refer to this Agreement. 3.02.4 Words importing persons shall include firms, associations, partnerships, trusts, corporations, and other legal entities, including public bodies, as well as natural persons. 3.02.5 Any headings preceding the text of the articles and sections of this Agreement, and any table of contents, shall be solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 3.02.6 Words importing the male gender shall include the female gender and vice versa. 3.02.7 Words importing the singular shall include the plural and vice versa, unless the context clearly indicates otherwise. ARTICLE 4. USE OF THE AIRPORTS 4.01 Airline Rights and Privileges at Both Airports. The Airline, together with others so authorized, shall have the following rights to use the Premises and Equipment leased to the Airline pursuant to Article 6, and certain other facilities at the Airports, including, but not limited to, Common Use Premises, all as shown in Exhibits N-B and D-B, but not including Premises leased Exclusively, Preferentially, or Jointly to others, for the operation of the Airline's Air Transportation Business. These rights are subject to the terms of this Agreement, including the exclusions, reservations, and conditions set forth in Sections 4.02, 4.03, and 4.04 and the payment obligation set forth in Article 8. These rights are as follows: 4.01.1 To land upon, take off from, and fly over the Airports, and to taxi, park, load, unload, tow, and store the Airline's aircraft and support equipment on the Airport in areas designated for such purposes by the Authority, and, in all events, on the terms and conditions imposed by the Authority. 4.01.2 To enplane and deplane persons, mail, and/or property, along with food, beverages, and other supplies; to provide passenger handling services for the Airline's passengers, including the sale of air transportation tickets and services, and to process the Airline's passengers and their baggage for air travel; to sell, handle and provide mail, freight and package express services for the Airline's customers; to maintain, service and repair aircraft and ground support equipment operated by the Airline in areas designated for these purposes by the Authority; to provide porter/skycap services; to provide interline and lost baggage services for the Airline's passengers; to provide security screening services so long as the services meet the FAA requirements; to provide ground transportation on the Airport for employees, baggage, and, with the approval of the Authority, the Airline's passengers; and to provide ground transportation to and from the Airport for employees, lost baggage, and for passengers and baggage from diverted or cancelled flights of the Airline. In addition, the Airline may, in accordance with the provisions of Article 16 with regard to handling agreements, provide these services for other Air Transportation Companies either by itself or in conjunction with other Signatory Airlines, if the Airline is performing these services for itself at the Airports. 4.01.3 To train personnel in the employ of or to be employed by the Airline at the Airports in the operation of the Airline's Air Transportation Business. 4.01.4 To sell, dispose of, or exchange the Airline's aircraft, engines, accessories, gasoline, oil, grease, lubricants, or other similar equipment or supplies, except aviation fuels, in areas of the Airports designated for this purpose by the Authority; provided, however, that this Paragraph shall not be construed to prohibit the Airline from selling or otherwise conveying aviation fuels or propellants to an Air Transportation Company which is a successor company to the Airline or to another Signatory Airline from time to time. 4.01.5 To select, together with the other Signatory Airlines, a single Fueling Agent for each Airport, and to receive, store and transmit fuel through the Fueling Systems at the Airports in accordance with the provisions of the separate fuel system agreement(s) between the Authority and the Fueling Agent selected by the Signatory Airlines and approved by the Authority, or between the Authority and the Fueling Agent selected in accordance with Paragraph 4.02.6. 4.01.6 To install and maintain in the Airline's Premises, at the Airline's sole cost and expense, identifying signs, posters, displays, and other materials which advertise the services offered by the Airline to the traveling public, consistent with the Authority's regulations and orders; provided, however, identifying signs, posters, displays, and other similar materials shall not be permitted on the Ramp Area, and provided, further, that only the corporate identifiers or "logos" of the Air Transportation Companies using the holdroom shall be permitted in a holdroom area. All such signs, posters, displays, and other similar materials must be approved in writing by the Authority prior to use at the Airport. The Authority reserves the right to place advertising displays in all areas of the Airport that are visible to the public excluding the Exclusive Use Premises and holdroom areas leased to the Airline. The Authority agrees not to allow the placement of advertising of competing route services in the Airline's Premises or common use areas. 4.01.7 To install, maintain and operate at no cost to the Authority, alone or in conjunction with any other Signatory Airline, radio communication, computer, meteorological and aerial navigation equipment and facilities on the Airline's Premises; provided, however, that such installations shall be subject to the prior written approval of the Authority. 4.01.8 To install, maintain and operate customer relations, security and holdroom facilities and equipment, administrative offices, operations offices, and related facilities, and to install personal property, including furniture, furnishings, supplies, machinery and equipment, in the Airline's Premises. 4.01.9 To construct modifications, finishes and improvements in the Airline's Premises subject to the provisions of Section 10.09. 4.01.10 To have ingress to and egress from the Airports and the Airline's Premises for the Airline's officers, employees, agents, contractors, and invitees, including furnishers of services and supplies. 4.01.11 To use, for the benefit of the Airline's employees who perform substantially all of their work at the Airports, vehicular parking areas which will be designated by the Authority 4.01.12 To install soft drink vending machines and snack vending machines in the Airline's non-public Premises for the sole use of the Airline's officers, employees and agents. Vending machines shall not be within the view of the general public and all machine locations are subject to the prior written approval of the Authority. 4.01.13 To furnish and operate a preferred customer or "VIP" club for the Airline's passengers in Premises designated for this purpose by the Authority. Further, such preferred customer or "VIP" club may be shared with one or more other Air Transportation Companies; provided, however, that the club is leased to the Airline only, and provided that the rights of all the Air Transportation Companies using the club terminate when such lease terminates. 4.01.14 To install telephones, telefax, and other telecommunications devices and conduit in the Airline's Premises that are not accessible to the public. The Authority retains the right to install all public telephones, telefax, and other telecommunications devices and conduit in all areas of the Airports accessible to the public, including the Premises leased to the Airline, and to collect the proceeds therefrom; provided, however, the Airlines may install telephones and telefax in the Airline's "VIP" club. If the Airline installs public telephones or telefax in its "VIP" club, it shall pay to the Authority a monthly payment of fifty percent (50%) of the gross revenues received by the Airline from any source from the installation and operation of such telephones or telefax. 4.01.15 To install, operate and maintain, using the Airline's own employees or those of a wholly-owned subsidiary of the Airline or the Airline's parent company, an establishment for the cooking and preparation of food and beverages for consumption only by passengers and crews on the Airline's aircraft and in the Airline's "VIP" club, if any; provided that the Authority determines, in its discretion, that space is available on the Airports for this purpose and that, if such space is not included and designated in the Airline's Premises, the Airline enters into a separate agreement for such cooking and food preparation space with the Authority. Such food and beverages shall not be intended for consumption by any persons except the Airline's passengers and crews while on the Airline's aircraft, patrons of Airline's "VIP" club, and such employees directly engaged in the cooking and preparation of such food and beverages; provided, however, upon entering a separate agreement with the Authority, and subject to fees and conditions as set forth therein, the Airline may provide these services to one or more other Air Transportation Companies operating from the Airport, including another Signatory Airline. 4.01.16 To purchase prepared food and beverages for consumption by passengers and crews on the Airline's aircraft and in the Airline's "VIP" club, if any; provided, however, if the Airline purchases catering, not including beverages and complimentary packages of snack food to be consumed on the Airline's aircraft, from an off-Airport caterer including, but not limited to, an Air Transportation Company, for delivery of prepared food and/or beverages to the Airline on the Airport, said caterer will be required to have a contract with the Authority and to pay a fee to the Authority at a rate equal to the rate paid by the Authority's inflight food catering concessionaires located on that Airport. The Airline shall not purchase any prepared food or beverage from a caterer for delivery on the Airports unless and until the caterer is authorized by the Authority to do business on the Airports. 4.01.17 To acquire, by purchase or otherwise, any Air Transportation Business-related services and/or supplies from any agent, contractor, or other Signatory Airline subject to the conditions of Paragraph 4.02.5. 4.02 Exclusions, Reservations, and Conditions. The rights granted to the Airline under this Agreement shall be strictly construed, and may be exercised by the Airline only to the extent such rights are necessary or incidental to the conduct by the Airline of its Air Transportation Business. Except with the prior written approval of the Authority, the Airline is prohibited from conducting any business on the Airport separate and apart from the conduct of its Air Transportation Business. 4.02.1 If the Airline receives notice from the Authority, or if the Airline reasonably should know (i) that it is materially interfering with the use, operation or maintenance of the Airport, including but not limited to, the safe and efficient use of the Airfield and the effectiveness or accessibility of the drainage, sewerage, water, communications, fire protection, utility, electrical, or other systems installed or located from time to time at the Airport; (ii) that it is causing or contributing to a dangerous or hazardous condition; or (iii) that it is in violation of law or applicable rules or regulations; the Airline shall immediately cease such interference, or, where immediate elimination of said interference is not possible, the Airline shall immediately take corrective action and cause others under its control to take corrective action to eliminate the interference. 4.02.2 As soon as possible, after obtaining any necessary approval from appropriate governmental agencies, the Airline shall remove any of its disabled aircraft from the Landing Area and Ramp Area upon the request of the Authority. The Airline shall place any such disabled aircraft only in such storage areas as may be designated by the Authority, and shall store such disabled aircraft only upon such terms and conditions as at that time may be established by the Authority, consistent with any directives of the FAA and the National Transportation Safety Board. (i) In the event the Airline shall fail to remove any of its disabled aircraft as expeditiously as possible, the Authority may, but shall not be obligated to, cause the removal of such disabled aircraft by any reasonable means; provided however, the Authority shall give the Airline prior notice of its intent to do so. (ii) If the Authority removes, or causes another to remove the Airline's disabled aircraft, the Airline shall pay to the Authority, upon receipt of an invoice, the costs incurred for such removal, including the cost of labor. The Airline shall also pay any damages incurred by, or imposed upon the Authority as a result of the disabled aircraft. 4.02.3 Except as may otherwise be authorized herein or in separate agreements between the Airline and the Authority, the Airline shall not provide to its passengers, other Air Transportation Companies, or other persons on the Airport food or beverages, products or services of a kind normally provided by Airport concessionaires nor shall the Airline maintain or operate on the Airport a cafeteria, restaurant, bar, or cocktail lounge, stand, or any other facility for the purpose of providing food and beverages to the public or to the Airline's employees and passengers or to any other Air Transportation Company. This prohibition shall not apply to the Airline's "VIP" club to the extent the Airline provides, in such club, such food and beverage, products or services on a complimentary basis and such club is located and constructed in such a manner as to be separate and distinct from the space that is accessible by the public who are not members of the club and is physically separated by a wall or walls from the Airline's passenger holdroom or boarding area, where persons holding tickets to board the Airline's aircraft are congregating. Further, it shall not be construed to apply to the provision of food, beverages, products, or services aboard an aircraft. 4.02.4 The Airline shall not use, store, transport, or dispose of any fuels, oil, grease, lubricants, or other hazardous materials to, from, within, or upon the Airports in a manner which violates federal, state, local, or Authority laws and regulations. 4.02.5 If the Airline uses anyone other than its own employees, the employees of a parent or subsidiary company, or those of another Signatory Airline to perform the Air Transportation Business services and related activity authorized in this Article, the person or entity providing the service may be required to meet the Authority's reasonable qualifications for doing business on the Airports, and obtain an Authority permit, license, or contract if required to do so by the Authority. The Authority may also require the person or entity providing the services to pay reasonable fees or rents, except as otherwise provided in Section 8.10. The Airline shall provide the Authority with a copy of any contract or agreement between the Airline and the agent or contractor upon the Authority's request. 4.02.6 The Authority reserves the right to impose reasonable conditions on the use of the Fueling System at either Airport whenever a separate agreement on the use of the system is not in effect. In the event the Signatory Airlines fail to select a Fueling Agent by October 1, 1990, the Authority shall have the right to select its own agent to be responsible for the overall operation and maintenance of the Fueling System and to award a contract for a period not to exceed five (5) years to such agent; provided, however, that the Authority shall not select a Fueling Agent without first providing notice to the Signatory Airlines at the Airport (i) of the Authority's intent to select an agent, and (ii) of the anticipated date that the agent will assume responsibility for the Fueling System1 which date shall be at least ninety (90) days after the date of the said notice; and, provided, further, that if the Signatory Airlines thereafter select a different Fueling Agent, in accordance with Paragraph 4.01.5, the Authority shall, upon receipt of a written request from the Signatory Airlines, terminate its contract with the Fueling Agent selected by it at the earliest date upon which such contract may be terminated without penalty and shall thereupon enter into an agreement with such different Fueling Agent in accordance with Paragraph 4.01.5. 4.02.7 The Authority reserves the right to either temporarily or permanently restrict the use of any roadway, taxiway, or runway or other area at the Airport at any time, provided, that in the event of such restrictions, the Authority shall ensure the availability of reasonable ingress and egress, and shall not unreasonably restrict Airfield operations. 4.03 Operating Rights, Exclusions, and Conditions Applicable Only at National. In addition to the Airline's rights, privileges, and exclusions enumerated in Sections 4.01 and 4.02, the following rights, privileges, and exclusions are applicable to the Airline's operations at National: 4.03.1 The Airline may (i) use only those Aircraft Parking Positions at National shown on Exhibit N-B for enplaning and deplaning passengers, baggage, cargo and/or mail, and the servicing of aircraft; (ii) park an aircraft that is ready for immediate use as an extra section of a scheduled flight only at an area designated on Exhibit N-B; and (iii) park an aircraft overnight at a location at other than its Aircraft Parking Positions only with the express permission of the Authority and on reasonable terms and conditions, including payment of fees as set forth in Section 8.04. 4.03.2 Unless otherwise authorized by the Authority, the Airline must use the Fueling Agent to service its aircraft. 4.03.3 The Airline may not load or unload an all cargo aircraft on the passenger Ramp Areas adjacent to the Terminal facilities. 4.04 Operating Rights, Exclusions, and Conditions Applicable Only at Dulles. In addition to the rights, privileges, and exclusions enumerated in Sections 4.01 and 4.02, the following rights, privileges and exclusions are applicable to the Airline's operations at Dulles: 4.04.1 The Airline may use only those hard stand or Dulles Jet Apron positions assigned by the Authority for enplaning and deplaning passengers, baggage, cargo and mail, and for servicing of aircraft. 4.04.2 If the Airline leases space in the Airside Operations Building on the Dulles Jet Apron, the Authority, in its assignment of Dulles Jet Apron positions, will use its best efforts to assign the Airline those positions which are reasonably convenient to the Airline's Airside Operations Building space. The Airline may park aircraft overnight at a location other than the Airline's Aircraft Parking Positions, or assigned Dulles Jet Apron positions, if any, only with the prior permission of the Authority and on reasonable terms and conditions, including payment of fees as set forth in Section 8.04. 4.04.3 The Airline shall use only the Fueling Agent to fuel its aircraft, except that the Airline may use the Fixed Base Operators at Dulles to fuel the Airline's aircraft if the aircraft are on the FBO's own premises or on the Cargo Ramp, except as may be agreed to in a separate agreement between the Authority and the Fueling Agent. 4.04.4 The Airline may not load or unload cargo from all- cargo aircraft on the passenger Ramp Area adjacent to the Terminal or the Dulles Jet Apron positions. ARTICLE 5. TRANSITION PROVISIONS 5.01 Implementation of Capital Development Program. The Authority and the Airline agree that completion of the Capital Development Program shown in Exhibits N-I and D-I entails (i) the physical modification or removal of some Existing Airport Facilities and (ii) the modification in the function or use of other Existing Airport Facilities (whether or not these facilities are physically modified) and, in particular, the reduction in the number of Aircraft Parking Positions used for aircraft of other than Regional/Commuter Air Carriers in the Existing Airport Facilities at National Airport. Notwithstanding the preceding two sentences, after construction of the Capital Development Program at National Airport, the number of Aircraft Parking Positions for aircraft of Scheduled Air Carriers (other than Regional/Commuter Air-Carriers) at National where passengers enplane and deplane through a loading bridge shall be forty-four (44), the same as in the Existing Airport Facilities at National. 5.02 Temporary Airline Premises. 5.02.1 In order to implement the Capital Development Program in accordance with Section 5.01, the Airline agrees that the Premises leased to it pursuant to Section 6.01 will be deemed to be Temporary Airline Premises (TAP), and the Premises to be leased to it pursuant to Section 6.02 will be deemed to be the Airline's Permanent Premises. The implementation of the Capital Development Program may require the Airline to lease TAP on the Effective Date hereof. Further, the Airline may be required to relocate on a temporary or permanent basis, from TAP to Premises that are different from those that the Airline occupies on the Effective Date. Such relocation is anticipated by the Airline and the Authority but will occur only if it is reasonably necessary to accomplish the Capital Development Program. Further, such relocation may be from TAP into other TAP until the Airline relocates to Permanent Premises. However, at Dulles, the Airlines will not be required to relocate from the TAP initially leased under Section 6.01 into other TAP except as follows: (i) To implement the expansion and rehabilitation of the Dulles Main Terminal; (ii) To implement Dulles Stage II of the Capital Development Program; or Article 17. (iii) As part of a relocation required by Article 17. 5.02.2 Unless a different notice period and procedure is agreed to, the Airline's occupancy and use of TAP are subject to the notice and process provided in Paragraphs 5.02.3, 5.02.4, and 5.02.5 to vacate the TAP and to relocate to other TAP or to Airline's Permanent Premises. The Authority agrees to use its best efforts to (i) relocate the Airline to TAP suitable for the conduct of the Airline's Air Transportation Business, but not necessarily comparable in size, location, access, or other features of the Premises originally leased under Section 6.01, (ii) minimize operational disruptions to the Airline as a result of such relocations, and (iii) maintain a phasing schedule for implementation of the Capital Development Program, including the Substantial Completion Date of the Airline's Permanent Premises so as to not unreasonably interfere with the Airline's operation. 5.02.3 When, in the judgment of the Authority, implementation of the Capital Development Program requires the Airline to vacate TAP, the Authority shall give to the Airline not less than sixty (60) calendar days written notice to vacate any, or all, of the TAP, and the Authority shall then have the right to amend the Exhibits to this Agreement to reflect the deletion of the TAP from the Airline's Premises and in the Authority's sole discretion, to lease said TAP to another tenant or to close said TAP. The Airline agrees to vacate the TAP on the date specified in the said written notice, regardless of whether that date is the last day of the month; provided, however, that if the Airline notifies the Authority as promptly as is reasonably practicable upon receipt of such notice that it cannot reasonably prepare the TAP to which the Airline is being relocated within such notice period, and the reasons therefor, the Airline shall have additional time, not to exceed thirty (30) days, to vacate the TAP. 5.02.4 The Airline agrees that it will cooperate with the Authority in moving to TAP, in moving from TAP to other TAP, and in moving to Permanent Premises, and that it will move in such a manner so as not to interfere unreasonably with the Authority's planned Capital Development Program. The allocation of the Airline's costs associated with relocation to assist the Capital Development Program shall be in accordance with the Authority policy attached hereto as Exhibit A-P. 5.02.5 The Airline, while occupying TAP, shall be subject to all of the other conditions and terms of this Agreement. 5.03 Transition to Permanent Premises. 5.03.1 The Authority shall give written notice to the Airline of the estimated Substantial Completion Date of the Airline's Permanent Premises, at least one hundred and twenty (120) days prior to said date. The Airline will be permitted to install its own equipment and furnishings in the Airline's Permanent Premises beginning sixty (60) days prior to such estimated Substantial Completion Date. 5.03.2 The Airline shall move into and occupy its Permanent Premises on or before the actual Substantial Completion Date of such Permanent Premises whereupon such Permanent Premises shall not be considered TAP subject to Section 5.02; provided, however, that if the Airline notifies the Authority as promptly as is reasonably practicable upon receipt of the notice specified in Paragraph 5.03.1 that it cannot reasonably prepare its Permanent Premises by the estimated Substantial Completion Date, and the reasons therefor, the Airline shall have additional time, not to exceed thirty (30) days, to move into and occupy its Permanent Premises. Unless a different payment is required by Section 8.14, the Airline shall be subject to, and shall pay, the rentals, fees, and charges for its Permanent Premises beginning on the actual Substantial Completion Date thereof regardless of whether the Airline occupies its Permanent Premises prior to, on, or after such actual Substantial Completion Date. 5.03.3 If the Airline's Permanent Premises are not completed by the estimated Substantial Completion Date that was contained in the written notice given by the Authority pursuant to Paragraph 5.03.1, the Authority shall not be liable to the Airline for failure to deliver possession or to complete said Permanent Premises by said date. The Authority will notify the Airline of any change in such estimated Substantial Completion Date. ARTICLE 6. LEASE 6.01 Lease of Temporary Airline Premises and Equipment. The Authority, as lessor, hereby leases to the Airline, and the Airline, as lessee, hereby leases from the Authority, commencing on the date hereof and subject to all of the terms and conditions herein, particularly the transition provisions of Article 5, the following Temporary Airline Premises and Equipment: (i) The Exclusive Use Premises specifically described and identified as TAP in Exhibits N-B and D-B; (ii) The Joint Use Premises specifically described and identified as TAP in Exhibits N-B and D-B; (iii) The Preferential Use Premises specifically described and identified as TAP in Exhibits N-B and D-B; and (iv) The Equipment specifically described and identified as TAP in Exhibits N-H and D-H. 6.02 Lease of Permanent Premises and Equipment. Commencing on the Substantial Completion Date of the Airline's Permanent Premises, the Authority, as lessor, shall, without any further action, lease to the Airline, and the Airline, as lessee, shall, without any further action, lease from the Authority, subject to all of the terms and conditions herein, the following Permanent Premises and Equipment: (i) The Exclusive Use Premises described and identified in Exhibits N-B and D-B; (ii) The Joint Use Premises described and identified in Exhibits N-B and D-B; (iii) The Preferential Use Premises described and identified in Exhibits N-B and D-B; and (iv) The Equipment described and identified in Exhibits N-H and D-H. 6.03 Changes. All of the Premises and Equipment described in Sections 6.01 and 6.02 are subject to modification in accordance with Article 5, this Article 6, Article 16, and Article 17 of this Agreement. 6.04 Allocation of Premises at Dulles. At Dulles, prior to the completion of the design of the westerly expansion of the Main Terminal, and subsequently, prior to the completion of the design of the easterly expansion of the Main Terminal, the Authority will determine the location of each Airline's Premises in the expanded Main Terminal. The following will be the primary, but not exclusive, considerations in establishing the priority order of allocation: (i) The amount of space committed to by each Airline in an executed use and lease agreement; (ii) The individual Airline's preference with respect to location of its leasable Premises, and the desirability of, and operational requirements for, contiguous space for related functions; and (iii) The efficient phasing and implementation of the Main Terminal expansion, whereby relocations are minimized and flexibility for construction phasing is maximized. 6.05 Modification of Premises. In the event that the Authority and the Airline, by mutual agreement, add additional space or spaces to, or delete space or spaces from, the various Premises of the Airline, Exhibits N-B or D-B, as applicable, shall be revised accordingly to reflect such addition or deletion and the revised exhibits shall be incorporated into the Agreement. Space added to the Airline's Premises shall be subject to all of the terms, conditions, requirements, and limitations of this Agreement and the Airline shall pay to the Authority all rentals, fees, and charges applicable to such additional space in accordance with the provisions of this Agreement. 6.06 Addition of Equipment. 6.06.1 Subject to Paragraph 6.06.3, the Authority reserves the right to acquire and install Equipment in, upon, and adjacent to, the Airline's Premises but only in one or more of the following events: (i) The acquisition and installation of the Equipment is identified as part of the Capital Development Program; (ii) The acquisition and installation of Equipment is identified as part of any Additional Project; (iii) In any Premises, whenever there is a change in tenants; or (iv) Such acquisition and installation are agreed to between the Airline and the Authority. 6.06.2 The Airline agrees to facilitate the installation of the Equipment, including, upon reasonable notice from the Authority, the decommissioning and removal, at the Airline's expense, of the Airline's equipment, if any, that is to be replaced by Equipment pursuant to Paragraph 6.06.1. 6.06.3 Prior to the acquisition and installation of Equipment pursuant to Paragraph 6.06.1, the Authority shall consult with the Airlines with respect to the technical standards and requirements applicable to such Equipment. So long as such Equipment meets such standards and requirements, the Airline may select the vendor or supplier of Equipment for the Airline's Premises. At the request of the Airline, and provided that it would not adversely affect the tax-exempt status of the Bonds, the Authority may allow the Airline to initially purchase the Equipment and be subsequently reimbursed by the Authority. 6.07 Adjustment of Dimensions. After the Substantial Completion Date of each Airline's Permanent Premises, the actual square footage of the Airline's Premises shall be determined by the Authority from actual measurements, and incorporated into revised Exhibits N-B and N-C, and D-B and D-C. If measurements are to be taken, the Airline shall be notified in advance and shall be entitled to have a representative present when such measurements are taken. Premises consisting of enclosed space shall be measured for interior space from the center line of interior walls to the inside face of exterior walls. ARTICLE 7. OPERATION AND MAINTENANCE 7.01 Authority Responsibilities. 7.01.1 The Authority shall, with reasonable diligence and prudence, operate and maintain the Airports with adequate, efficient, qualified personnel, and keep the Airports in good condition and repair, including the Terminals, Ramp Area, Existing and New Midfield Concourses, Airside Operations Buildings, and any Passenger Conveyances between Existing and New Midfield Concourses or between aircraft and Terminals and the visual public display of arrival and departure flight information for the Dulles Main Terminal. 7.01.2 The Authority shall, with reasonable diligence and prudence, act to maintain the Landing Area for the safe and proper use thereof by the Airline, including the clearing and removal of snow from the runways and taxiways as quickly as reasonably practicable. 7.01.3 The Authority will operate and maintain the Airports in a manner at least equal to the standards established by the FAA to maintain the Airport Operating Certificates and any other governmental agency having jurisdiction thereof, except for conditions beyond the control of the Authority. 7.01.4 The Authority shall not be liable to the Airline for temporary failure to furnish all or any services to be provided by the Authority hereunder, whether due to mechanical breakdown or for any other causes beyond the reasonable control of the Authority. 7.01.5 The Authority's operation and maintenance responsibilities are set forth in Exhibits D-D and N-D, except that the Airline and the Authority may agree to a different allocation of maintenance responsibility in Exhibits N-B and D-B (leasehold exhibits) in which event any conflict between Exhibits D-D and ND and D-B and N-B shall be resolved in accordance with Exhibits D-B and N-B. Further, and except as may be provided in Exhibits D-B and N- B, the Authority shall not be obligated to perform the operation and maintenance responsibilities designated by Section 7.02 and Exhibits N-D and D-D as being the responsibility of the Airline, or for which the Airline, another Signatory Airline, or any other person has assumed such responsibility by separate written agreement with the Authority, including a Surviving Agreement. 7.01.6 The Authority shall provide, operate, and maintain the Passenger Conveyance system at Dulles, including a sufficient number of trained personnel. The Authority shall provide adequate Passenger Conveyances for the transportation of passengers between the Main Terminal and the Airline's aircraft that are parked on remote hard stand or on the Dulles Jet Apron at a parking position that is not serviced by a passenger holdroom and a loading bridge. The Airline shall determine who boards Passenger Conveyances traveling between the Dulles Main Terminal and its aircraft directly. On Passenger Conveyances serving aircraft directly, passengers enplaning or deplaning for more than one aircraft operation shall not be combined in a single one-way trip. Except in an emergency, the Authority shall not be obligated to provide transportation directly between the Terminal and the Airline's aircraft which is, or in the reasonable judgment of the Authority can be, parked at an Aircraft Parking Position at the Existing Midfield Concourse or New Midfield Concourse(s) and served by a passenger holdroom and a loading bridge. If the Passenger Conveyance has departed directly for the Airline's aircraft before all of the Airline's passengers have boarded it, the Airline may transport its passengers to or from its aircraft by another means subject to the Authority's approval. 7.01.7 The Authority and the Airline recognize that regular, shuttle-type mobile lounge service of high quality is important for the proper transportation of passengers to and from the Existing Midfield Concourse. The Authority agrees: (i) To use its reasonable best efforts to provide mobile lounge service from the Dulles Main Terminal to the Existing Midfield Concourse beginning one hour before any Airline's first departure from the Existing Midfield Concourse and will continue to operate on a regular basis until a half hour after the' last scheduled flight arrives, even if that flight is later than its scheduled arrival. (ii) To use its reasonable best efforts so that (a) after a mobile lounge departs from a terminus another takes its place as soon as practicable, and (b) regardless of the number of passengers carried, mobile lounges depart the terminus after waiting no more than five minutes for boarding passengers; provided that a lounge may remain at one or each terminus for a longer period if no passengers of a Signatory Airline are waiting service for transportation. (iii) An adequate number of gates at the Dulles Main Terminal will be designated as the gates from which the mobile lounges to the Existing Midfield Concourses will operate. The Authority reserves the right to designate different or additional gates for this service from time to time upon reasonable notice to the Airlines whose aircraft operate at the Existing Midfield Concourse. 7.02 Airline Responsibilities - General. The Airline shall perform custodial grounds and interior maintenance, including janitorial services, to the non-public areas of its Premises as specified in the Exhibits hereto, and such other operations and maintenance responsibilities as specified herein or by separate written agreement with the Authority, including the Surviving Agreements. In addition, the Airline shall be responsible for operation and maintenance of all Airline Operating Facilities located within its Premises. 7.02.1 The Airline shall supervise, or cause to be supervised, all persons lawfully present on its Premises, including, but not limited to, its Enplaning and Deplaning Passengers on the loading bridges, persons traveling on Passenger Conveyances directly to or from the Airline's aircraft, persons traveling on buses or similar vehicles operated by the Airline, and on all paths, walkways, and Ramp Areas used by the passengers to move between the Terminal and/or Passenger Conveyances, and the Airline's aircraft. 7.02.2 The Airline shall operate, maintain, and repair, at its own expense (i) any loading bridges and ground power/preconditioned air units located at its assigned Aircraft Parking Positions, and (ii) any outbound baggage makeup conveyor system located on its Premises, whether or not title to such bridges, ground power/preconditioned air units, or baggage conveyors rests with the Airline or the Authority; provided, however, the Authority retains the right to assume responsibility for operation, maintenance, and repair of any Equipment upon thirty (30) days prior written notice to the Airlines, and provided, further, that nothing herein shall relieve the Airline of the obligation to pay Equipment Charges for any Equipment, as set forth in Section 8.05 and Exhibits N-H and D-H. 7.02.3 Except as authorized in writing by the Authority, or except in an emergency, the Landing Area of the Airport shall not be used by any of the Airline's aircraft which exceed the design strength of the Landing Area as described in the then current FAA-approved Airport Layout Plan. In addition, the Authority may prohibit or restrict the use of the Ramp Area by any aircraft the wheel loading of which exceeds the design strength of the pavement as determined by the Authority. 7.02.4 The Airline shall, together with all other Signatory Airlines, operate, maintain, and repair the triturator at each Airport through a common agent of and selected by the Signatory Airlines; provided, however, there shall be no more than one such agent at each Airport1 and that such agent shall be subject to the approval of the Authority. 7.03 Additional Airline Responsibilities at National. 7.03.1 At National, the Airline shall be responsible for custodial grounds maintenance, including removal of snow, ice, vegetation, stones, fuel, oil, grease, debris, and all other foreign matter from the Ramp Areas and equipment storage areas, including passenger walkways and Aircraft Parking Positions, and cargo handling areas at its Premises, from the exterior face of the Terminal to the nearest edge of the Airfield's vehicle lane, as depicted in Exhibit N-B. 7.03.2 The Airline shall assume Pavement Structural Maintenance responsibilities for its Aircraft Parking Positions if the Airline (i) improperly parks aircraft on an Aircraft Parking Position pad, or (ii) fails to perform the custodial grounds maintenance responsibilities required by Paragraph 7.03.1 and, in the Authority's determination, any of these events is sufficient to cause damage to the Aircraft Parking Position. The Authority shall provide the Airline with written notice when it determines that any of these events is sufficient to cause damage to the Aircraft Parking Position. In that event, the cost of performing any Pavement Structural Maintenance for those Aircraft Parking Position(s) shall become payable by the Airline, without reimbursement. 7.03.3 If the Airline desires to park heavier or larger aircraft on an Aircraft Parking Position than the Aircraft Parking Position was designed to accommodate, it shall, prior to such use and subject to the approval of the Authority, at its own cost and expense, improve the Aircraft Parking Position so that it meets the Authority's standards for such aircraft. In that event, the Airline shall be entitled to reimbursement from the Authority for these improvements at such time as, and to the extent that, the Authority has funds available for such purpose. 7.04 Additional Airline Responsibilities at Dulles. 7.04.1 The Airline shall be responsible for custodial grounds maintenance, including removal of snow, ice, vegetation, stones, fuel, oil, grease, debris, and all other foreign matter from the following Ramp Areas and equipment storage areas at its Premises: (i) If the Airline has Premises in the Existing Midfield Concourses or Airside Operations Building on the Dulles Jet Apron, the Airline shall perform custodial grounds maintenance for the Dulles Jet Apron out from the exterior wall of said Premises to the south edge of the vehicle roadway on the north side of the Dulles Jet Apron, and out to the north edge of the vehicle roadway to the south, as depicted in Exhibit D-B. (ii) If the Airline's Premises include any of the space in the Base-of-the-Tower Facilities, the Airline shall perform custodial grounds maintenance for the Ramp Area from the south exterior wall of said Premises to the north edge of the vehicle roadway, as depicted in Exhibit D-B. 7.04.2 If the Airline desires to park heavier or larger aircraft on an Aircraft Parking Position than the Aircraft Parking Position was designed to accommodate, it shall, prior to such use and subject to the approval of the Authority, at its own cost and expense, improve the Aircraft Parking Position so that it meets the Authority's standards for such aircraft. In that event, the Airline shall be entitled to reimbursement from the Authority for these improvements at such time as, and to the extent that, the Authority has funds available for such purpose. In no event shall the Airline park any aircraft with a fuselage longer than one hundred twenty (120) feet at the Base-of-the-Tower Facilities. 7.04.3 The Airline shall provide and maintain at its expense, the telecommunications system between the Airline and the mobile lounge controllers. The Airline will cooperate with the Authority in its operation of the flight information and mobile lounge dispatch communications system by furnishing necessary information to the Authority's controller through said system. 7.05 If the Airline fails to perform its maintenance obligations hereunder, or as specified in Exhibits N-D and D- D, or if the negligence or willful misconduct of the Airline causes additional maintenance obligations for the Authority, the Authority shall have the right, but shall not be required, to perform such maintenance, and to charge the Airline therefor; provided, however, the Authority shall give to the Airline reasonable advance written notice of non- compliance and the Authority's intent to enter upon the Premises prior to the exercise of this right. 8.23 ARTICLE 8. RENTALS, FEES, AND CHARGES 8.01 General. 8.01.1 The Airline shall pay to the Authority rentals for use of Premises at the Airports, and fees and charges for the other rights, licenses, and privileges granted hereunder during the Period of this Agreement. Such rentals, fees, and charges shall be calculated based on allocations of Total Requirements, reduced by Transfers, to the Cost Centers and Sub-Centers within the Airline Supported Areas and as specifically provided for herein and in Exhibits N-F and D-F and the accompanying Schedules. 8.01.2 In each Fiscal Year at each Airport, the total of rentals, fees, and charges payable by the Signatory Airlines hereunder (and, with respect to the Airfield Cost Center, by the Signatory Cargo Carriers), plus Transfers allocable to the Airline Supported Areas at such Airport for such Fiscal Year, shall in any event be at least equal to the sum of (i) O&M Expenses, (ii) amounts required to maintain the O&M Reserve, (iii) Debt Service, (iv) other Capital Charges, (v) Federal Lease payment, (vi) at Dulles, Dulles Rate Credit Amortization Requirement, (vii) required deposits, if any, to the Debt Service Reserve Fund, and (viii) required deposits, if any, to the Emergency R&R Fund allocable to the Airline Supported Areas at such Airport for such Fiscal Year; and, in each Fiscal Year, at each Airport, the total of rentals, fees, and charges payable hereunder by the Signatory Airlines (and, with respect to the Airfield Cost Center, by the Signatory Cargo Carriers), shall in any event be at least equal to the amount required such that total Revenues of that Airport, plus Transfers for such Fiscal Year, less Operating and Maintenance Expenses at that Airport, for such Fiscal Year, shall be at least equal to one hundred twenty-five percent (125%) of the sum of Debt Service on Senior Bonds and Debt Service on Subordinated Bonds at that Airport for such Fiscal Year. 8.01.3 Notwithstanding the above, the Airline shall not be required to pay rentals, fees, and charges that are inconsistent with a Surviving Agreement, if any, between the Airline and the Authority. 8.01.4 For purposes of calculating rates for rentals, fees, and charges payable hereunder, the following Direct Cost Centers and Indirect Cost Centers, each as described in Exhibits N-E and D-E, are hereby created: (i) Direct Cost Centers - National (a) Airfield (b) Terminal (c) Aviation (d) Ground Transportation (e) Non-Aviation (f) Equipment (ii) Direct Cost Centers - Dulles (a) Airfield (b) Terminal (c) International Arrivals Building (IAB) (d) Airside Operations Buildings (AOB) (e) Cargo (f) Aviation (g) Ground Transportation (h) Non-Aviation (i) Equipment (j) Passenger Conveyance System (iii) Indirect Cost Centers - National/Dulles (a) Maintenance (b) Public Safety (c) Systems and Services (d) Administrative 8.01.5 For purposes of calculating rates for rentals, fees, and charges payable hereunder, and subject to the provisions of Paragraph 8.03.2, the following Terminal Sub- Centers and Equipment Sub-Centers, each as described in Exhibits N-E and D-E, are hereby created: (i) Terminal and Equipment Sub-Centers - National (a) Main Terminal (Includes Existing North Terminal) (b) Interim Hangar 11 Terminal (c) New North Terminal (ii) Terminal and Equipment Sub-Centers - Dulles (a) Main Terminal (Includes Base-of-Tower Facilities) (b) Existing Midfield Concourses (c) New Midfield Concourse(s) (iii) Additional Equipment Sub-Centers - Dulles (a) International Arrivals Building (IAB) (b) Airside Operations Buildings (AOB) 8.02 Landing Fees. 8.02.1 Calculation of Rates. The Landing Fee rates for each Airport in any Rate Period shall be calculated by dividing each Airport's Airfield Net Requirement by the combined estimated landed weight for all Air Transportation Companies and General Aviation operating at that Airport during the Rate Period. 8.02.2 Rate Schedule. Schedules NF-l (National) and DF-l (Dulles) show the calculation of Landing Fee rates for each Rate Period. 8.02.3 Airline's Landing Fee Charges. Each month the Airline shall pay to the Authority Landing Fees for Chargeable Landings for the preceding month. The Airline's Landing Fees shall be determined as the product of the appropriate Airport's Landing Fee rate for the Rate Period, and the Airline's total landed weight for the month. The Airline's total landed weight at each Airport for the month shall be determined as the sum of the products obtained by multiplying the Maximum Authorized Gross Landed weight of each type of aircraft operated by the Airline at each Airport by the number of Chargeable Landings of each said aircraft operating at that respective Airport during such month. 8.03 Terminal Rentals, Fees, and Charges. 8.03.1 Calculation of Rates. The Terminal Rental rates at each Airport in each Rate Period shall be calculated separately for each Terminal Sub-Center. The rates for each type of space shall be determined in the following Manner: (i) First, for each Terminal Sub-Center at each Airport, the Terminal Sub-Center average rental rates shall be calculated as follows: (a)Each Terminal Sub-Center Net Requirement shall first be divided by total Rentable Space in that Sub-Center to determine that Terminal Sub-Center's average rental rate for the Rate Period; provided, however, the transition adjustments related to the Capital Development Program as set forth in Paragraph 8.03.2 shall be made prior to determining each Terminal Sub-Center's average rental rates. (b)The unadjusted Signatory Airline requirement shall next be determined by multiplying the total amount of Signatory Airline Premises and Common Use Premises in each Terminal Sub-Center, as set forth on Schedules NF-1l and DF-13, times the appropriate Terminal Sub-Center average rental rate. (c)The unadjusted Signatory Airline requirement shall then be reduced by the amount of Transfers, if any, and by the amount, if any, of certain Revenues derived from Surviving Agreements, applicable to each Terminal Sub-Center at each Airport to determine the adjusted amount due from the Signatory Airlines. (d)The adjusted amount calculated in (c) shall then be divided by the total amount of Signatory Airline Terminal Sub-Center Premises and Common Use Premises to determine the Terminal Sub-Center average Signatory Airline rental rate. (ii) To determine the differential Terminal Sub-Center rental rates, each Terminal Sub-Center Premises and Common Use Premises shall first be classified according to the types of space set forth below: Type of Weighted Space Location/Function Value 1 Ticket Counter 1.00 2 Ticket Offices; .90 Administrative and Upper Level Offices; V.I.P. Rooms; Holdrooms 3 Bag Claim; Baggage Service .85 Offices 4 Bag Make-Up; Operations .55 Areas 5 Tug Drives; Exterior .25 Baggage Space 6 Unenclosed Covered Areas (a) (b) 7 Unenclosed Improved (a) (b) Uncovered Areas (a) Rentals for Type 6 and Type 7 space shall be based on initial fixed rates of $4.00 and $1.00, respectively, per square foot, with said rates to be adjusted each Fiscal Year, commencing October 1, 1990, in accordance with changes in the U.S. Implicit Price Deflator Index. The base date for such adjustment shall be the index available on October 1, 1989. (b) If the Airline encloses, or otherwise modifies any such areas, as approved by the Authority, or if the Authority encloses or otherwise modifies any such area(s), the area(s) shall be reclassified into the appropriate space type. The rate for the reclassified space shall be the then current rate for the reclassified space. If the Airline modifies any such area and the rental rate for the reclassified space is higher than it was prior to reclassification, then, at the time the Airline requests approval to modify the space, the Airline and the Authority shall negotiate an appropriate rental credit(s) to reimburse the Airline for any costs incurred by the Airline in modifying such area(s); provided, however, such agreed upon rental credits shall in no event result in ~ rate less than the then current rate for the space prior to its modification. (iii) Next, using the appropriate space totals shown in Schedules NF-11 and DF-13, the Signatory Airline Terminal Sub- Center average rental rate for each Terminal Sub-Center for the Rate Period shall then be converted to differential Terminal Sub- Center rental rates as follows: (a)For each Terminal Sub-Center, the amount of Type 1 through Type 5 space shall be Multiplied by the relative weighted values set forth in Paragraph 8.03.1(ii) above, to obtain a weighted equivalent amount of space. (b)The adjusted Signatory Airline requirement calculated in Paragraph 8.03.1(i)(c), above, shall be reduced by the amount of Type 6 and Type 7 space rentals due for that Rate period, to determine the differential Signatory Airline requirement. (c)For each Terminal Sub-Center, said differential Signatory Airline requirement shall then be divided by the weighted equivalent amount of Premises and Common Use Premises for said Terminal Sub-Center to determine the rate for Type 1 (premium) space. Rates for Types 2 through Type 5 space shall then be determined by multiplying the Type 1 (premium) rate by the relative weighted values for each type of rentable area. 8.03.2 Transition Adjustments. The parties hereto recognize that certain facilities at each Airport, due to construction of the Capital Development Program, are anticipated to be abandoned and/or ultimately demolished in stages during the Period of this Agreement: (i) To the extent any portions of the Existing North Terminal at National are in service during the Period of this Agreement, the following transition adjustments shall be made: (a)The Terminal Sub-Center Net Requirement calculated for National's Main Terminal Sub-Center shall also include the costs attributable to the Existing North Terminal, whether occupied or not, during any Rate Period in which the Existing North Terminal has not yet been demolished; and (b)Rentable Space in the Existing North Terminal used for the calculations in Paragraph 8.03.1 shall include only those areas of the Existing North Terminal actually occupied in each Rate Period. (ii) To the extent any portions of the Base-of-the-Tower Facilities at Dulles are in service during the Period of this Agreement, the following transition adjustments shall be made: (a)The Terminal Sub-Center Net Requirement calculated for the Main Terminal Sub-Center at Dulles shall also include the costs attributable to the Base-of-the-Tower Facilities, whether occupied or not, during any Rate Period in which the Base-of-the-Tower Facilities have not yet been demolished; and (b)Rentable Space in the Base-of-the-Tower Facilities used for the calculations in Paragraph 8.03.1 shall include only those areas of the Base-of-the-Tower Facilities actually occupied in each Rate Period. (iii) To the extent any portions of the Existing Midfield Concourses at Dulles are in service following Substantial Completion of one or more New Midfield Concourse(s) I the following transition adjustments shall be made: (a)The Existing Midfield Concourse Sub-Center Net Requirement shall include the costs attributable to all then remaining portions of the Existing Midfield Concourses, whether occupied or not; and (b)Rentable Space in the then remaining Existing Midfield Concourses used for the calculations in Paragraph 8.03.1 shall include only those areas of the Existing Midfield Concourses actually occupied in each Rate Period. (iv) To the extent that certain areas of each Terminal Sub- Center at either Airport, due to relocations necessitated by the Capital Development Program, may be vacant for temporary periods, the total Rentable Space used for the calculations in Paragraph 8.03.1 at the affected Airport(s) shall be reduced by the amount of such vacated space, whether such temporarily vacated space is that of the Signatory Airlines or other Terminal tenants. (v) Upon Substantial Completion of the New North Terminal at National, the Total Requirement for the Interim Hangar 11 Terminal (related to either its use as a terminal or certain costs related to its conversion from terminal use) shall be included in the calculation of rental rates for the New North Terminal at National. 8.03.3 Rate Schedules. Schedules NF-2, NF-3, and NF-4 (National) and Schedules DF-2, DF-3, and DF-4 (Dulles) show the calculation of average and differential rental rates for each Terminal Sub-Center. 8.03.4 Airline's Terminal Rentals. The Airline's Terminal Rentals for Exclusive, Preferential, and Joint Use Premises in each Rate Period shall be determined as the sum of the products obtained by multiplying the appropriate differential Terminal Sub-Center rental rate for the Rate Period, calculated in accordance with Paragraph 8.03.1, by the amount of the corresponding type of space leased by the Airline in each Terminal Sub-Center at each Airport as Exclusive, Preferential, and Joint Use Premises. Said Terminal Rentals for each Rate Period shall be payable in equal Monthly installments. 8.03.5 Common Use Charges. The Common Use Charges due from Signatory Airlines for Common Use Premises in each Terminal Sub-Center at each Airport in each Rate Period shall be calculated as the product of the appropriate differential Terminal rental rate for the Rate Period and the amount of each category and area of Common Use Premises in each Terminal Sub- Center. Said total Common Use requirement for each Terminal Sub- Center at each Airport shall then be reduced by any amounts for that Rate Period estimated by the Authority (based upon the prior Rate Period's Low Volume Common Use Fees) to be payable as Low Volume Common Use Fees attributable to said Terminal Sub-Center, as set forth in Paragraph 8.03.6, to derive the "net aggregate Common Use requirement." Each Signatory Airline's monthly Common Use Charge, if applicable, for each Airport shall then be determined as follows: (i) Ten percent (10%) of the net aggregate Common Use requirement due in each Terminal Sub-Center (or category or area thereof, if applicable) at each Airport shall be prorated equally among the Signatory Airlines, other than those paying Low Volume Common Use Fees. (ii) The remaining ninety percent (90%) of the net aggregate Common Use requirement due in each Terminal Sub-Center (or category or area thereof, if applicable) at each Airport shall be prorated among the Signatory Airlines, other than those paying Low Volume Common Use Fees, based upon each such Signatory Airline's proportionate share of Total Passengers for all Signatory Airlines, except that the component of the Common Use Charge at Dulles attributable to baggage claim and holdroom shall be calculated on the basis of Total Passengers less the Airline's deplaning passengers using the IAB. (iii) The allocation of Common Use Charges pursuant to Paragraphs (i) and (ii) above, shall be made by the Authority twice each Fiscal Year, with the first such allocation applicable to the six month period commencing on the first day of each Fiscal Year and ending on the last day of the sixth Month of said Fiscal Year, and the second allocation applicable to the remaining six months of said Fiscal Year; provided, however, the Authority shall further have the right to adjust such allocations for the remaining portion of the then current six month period at any other time rates for Common Use Charges are adjusted during a Fiscal Year pursuant to Sections 9.03 or 9.04. At any time such allocations are adjusted, the Authority shall notify the Airline and other Signatory Airlines of the revised allocations, the amounts due from each Signatory Airline, and the period for which such allocations and amounts are applicable, and the Airline shall then pay its allocated share of Common Use Charges in equal monthly installments during said period. Each such allocation shall be based upon activity data for the most recent six months for which such data is then available. (iv) For purposes of the Common Use Charge allocation calculations, the Airline shall include in its monthly activity report required by Section 8.12, and individually identify, the number of Enplaning Passengers and Deplaning Passengers handled or otherwise accommodated by the Airline for other Air Transportation Companies not having an agreement with the Authority that provides for the direct payment to the Authority of appropriate Common Use Charges. 8.03.6 Low Volume Common Use Fees. Notwithstanding the above Paragraph 8.03.5, a Signatory Airline that is a Low Volume Airline shall pay a monthly Low Volume Common Use Fee in lieu of the payment of Common Use Charges, in each Rate Period, for each Airport, calculated as follows: (i) The Common Use requirement for such Rate Period, at such Airport, calculated in accordance with Paragraph 8.03.5 shall be divided by the actual Total Passengers at each Airport for the most recent twelve (12) months for which such activity reports are available. This amount shall be the Low Volume Common Use Fee per Passenger for each Airport. (ii) For each Common Use Charge allocation period as set forth in Paragraph 8.03.5(iii), a Low Volume Airline is a Signatory Airline (a) which operated at that Airport, (b) which operates under Part 135 of the FAA Regulations, and (c) which either reported an average monthly Enplaning Passenger activity level at that Airport less than or equal to one thousand (1,000) Enplaning Passengers per month during the preceding Common Use Charge allocation period, or, if a new Signatory Airline, is projected to generate a monthly average of less than one thousand (1,000) Enplaning Passengers at that Airport for the ensuing Common Use Charge allocation period. (a)In the event that the monthly average Enplaning Passenger activity level of any Signatory Airline paying the Low Volume Common Use Fee becomes greater than one thousand (1,000) Enplaning Passengers at that Airport during the then-current Common Use Charge allocation period, such signatory Airline shall pay Common Use Charges as set forth in Paragraph 8.03.5 in the next ensuing Common Use allocation period. (b)In the event that the monthly average Enplaning Passenger activity level of any Signatory Airline paying Common Use Charges pursuant to Paragraph 8.03.5 (and which operates under Part 135 of the FAA Regulations) becomes less than one thousand (1,000) Enplaning Passengers at that Airport during the then-current Common Use Charge allocation period, such Signatory Airline shall pay the Low Volume Common Use Fee in the next ensuing Common Use Charge allocation period. 8.03.7 Rate Schedules. Schedules NF-5 (National) and DF- 5 (Dulles) show the calculation of Common Use Charges and Low Volume Common Use Fees for each Rate Period. 8.04 Aircraft Parking Position Charges and Dulles Jet Apron Fees. 8.04.1 Aircraft Parking Position Charges at National. The Authority reserves the right to charge the Airline Aircraft Parking Position Charges at National during the Period of this Agreement; provided, however, (i) The Authority shall provide written notice no less than ninety (90) days prior to the effective date of such Aircraft Parking Position Charge; (ii) The Aircraft Parking Position Charge at National shall be calculated in a manner substantially similar to the Aircraft Parking Position Charge at Dulles, as set forth in Paragraph 8.04.2; (iii) The total amount for such charge shall not exceed ten percent (10%) of the Airfield Total Requirement; and (iv) Revenues derived from any such charges shall be applied to reduce the Airfield Total Requirement in any Rate Period in which such charges are imposed and collected by the Authority. 8.04.2 Rates for Ramp Area Charges at Dulles. Dulles Aircraft Parking Position Charges and Dulles Jet Apron Fees ("Ramp Area Charges") shall be calculated, beginning January 1, 1992, as follows: (i) For the initial period commencing January 1, 1992, five percent (5%) of the estimated Airfield Total Requirement shall be the basis of Ramp Area Charges; provided, however, the Authority shall estimate in each subsequent Rate Period the actual requirement attributable to the Ramp Area as a percentage of the Dulles Airfield Total Requirement. Such Authority-estimated Ramp Area requirement for Dulles shall not exceed ten percent (10%) of the Airfield Total Requirement in any Rate Period. (ii) The Ramp Area requirement for Dulles determined as set forth in Paragraph 8.04.2(i) above shall be next divided into Aircraft Parking Position and Dulles Jet Apron components, based upon the number of Aircraft Parking Positions and Dulles Jet Apron positions as a percentage, respectively, of the total of all such aircraft positions at Dulles. (iii) The Aircraft Parking Position requirement determined in Paragraph 8.04.2(u) above in each Rate Period shall be divided by the actual linear footage of all Aircraft Parking Positions (measured one hundred (100) feet from the face of the Terminal or Concourse) in each Rate Period, to determine the Aircraft Parking Position Charge rate. In the event such actual measurement cannot be accomplished, each Aircraft Parking position for a narrow-body aircraft shall be deemed to be one hundred twenty-five (125) linear feet and for a wide-body aircraft shall be deemed to be one hundred seventy-five (175) linear feet. (iv) The Dulles Jet Apron requirement determined in Paragraph 8.04.2(u) above in each Rate Period shall be divided by the estimated number of operations at the Dulles Jet Aprons in each Rate Period to determine the Dulles Jet Apron Fee rate for each operation. (v) In the event that the Authority designates a separate area(s) of the Ramp Area for the shared use by Signatory Airlines operating under Part 135 of the FAA Regulations, then in such event the Authority shall allocate a reasonable amount of the Ramp Area requirement determined as set forth in Paragraph 8.04.2(i) above to such area(s), and shall charge such Airline for the use of said area(s) based upon each such operator's share of total Enplaning Passengers using the area(s). 8.04.3 Airline's Dulles Aircraft Parking Position Charges. At Dulles, the Airline's Aircraft Parking Position Charges, if applicable, shall be the product obtained by Multiplying the total linear footage of the Airline's Aircraft Parking Position(s), as set forth in Exhibit D-B, tiles the Aircraft Parking Position Charge rate for the Rate Period. Such charge shall be paid in equal Monthly installments in accordance with Section 8.11. 8.04.4 Airline's Dulles Jet Apron Fees The Airline's monthly Dulles Jet Apron Fees, if applicable, shall be calculated as the product obtained by multiplying the Dulles Jet Apron Fee rate for the Rate Period by the number of the Airline's aircraft utilizing the Jet Apron to board or disembark passengers during the month; provided, however, the Airline shall not be subject to this Dulles Jet Apron Fee if the Airline pays Aircraft Parking Position Charges directly to the Authority and uses the Dulles Jet Apron exclusively to disembark passengers. An aircraft which both disembarks and boards passengers at a Jet Apron Position will be subject to a single fee. The fee shall be paid monthly in accordance with Section 8.11. 8.05 Equipment Charges. 8.05.1 Equipment Charges. For each Rate Period, the Airline shall pay charges for each type and item of Equipment leased by the Airline from the Authority, if any, as set forth in Exhibits NH and DH. Except as set forth in Paragraph 8.05.2, said charges shall be calculated as the sum of the following: (i) The annual capital requirement for each type and item of Equipment shall be equal to the sum of the Capital Charges plus Debt Service Coverage reduced by Transfers allocable to such Equipment; and (ii) The O&M requirement in each Rate Period for each type and item of Equipment which shall be equal to the O&M Expenses incurred by the Authority and allocable to such Equipment. 8.05.2 The Airline's charges for certain types of Equipment, including baggage claim conveyors and devices, and flight information and baggage information display systems, shall be included in the Airline's Terminal Rentals and Common Use Charges for the Premises and the Common Use Premises in the Terminal Sub-Center in which such Equipment is located. 8.05.3 Equipment Charge Rate Schedules. Schedules NF-6 (National) and DF-6 (Dulles) show the calculation of Equipment Charges rates for each Rate Period. 8.06 Passenger Security Reimbursements. 8.06.1 Security Reimbursement Requirement. Total Passenger Security Reimbursements due and payable at each Airport in each Fiscal Year shall be equal to the Authority's costs of providing security services, including law enforcement officers, for passenger screening. 8.06.2 Airline's Passenger Security Requirements. (i) The Passenger Security Reimbursement requirement shall be allocated among the Signatory Airlines serving each Airport based upon their respective total Enplaning Passengers requiring such services as set forth in Paragraph 8.06.2(u). (ii) The allocation of Passenger Security Reimbursements pursuant to Paragraph 8.06.2(i) shall be made by the Authority twice each Fiscal Year, with the first such allocation applicable to the six month period commencing on the first day of each Fiscal Year and ending on the last day of the sixth month of said Fiscal Year, and the second allocation applicable to the remaining six months of said Fiscal Year; provided, however, the Authority shall further have the right to adjust said allocation for the remaining portion of the then current six month period at any other time the Passenger Security Reimbursements requirement is adjusted during a Fiscal Year pursuant to Sections 9.03 and 9.04. Each such allocation shall be based upon activity data for the most recent six months for which such activity data is then available. (iii) For purposes of such allocations, the Airline shall include in its monthly activity report required pursuant to Section 8.12, and individually identify, the number of Enplaning Passengers handled or otherwise accommodated by the Airline for other Air Transportation Companies not having an agreement with the Authority that provides for the direct payment to the Authority of appropriate charges for Passenger Security Reimbursements. 8.06.3 Passenger Security Reimbursement Schedules. Schedules NF-7 (National) and DF-7 (Dulles) show the calculation of the Passenger Security Reimbursement charges for the current Rate Period. 8.07 International Arrivals Building ("IAB") Charges at Dulles. 8.07.1 IAB Rate. The IAB rate for each Rate Period shall be calculated by reducing the Total Requirement for the IAB by utility and other reimbursements and Transfers, and dividing such amount by the estimated total international Deplaning Passengers using the IAB facility in each Rate Period, to determine the IAB rate per international Deplaning Passenger. 8.07.2 IAB Rate Schedule. Schedule DF-S shows the calculation of the IAB rate for each Rate Period. 8.07.3 Airline's IAB Charges. The Airline's monthly IAB Charge, if any, shall be determined as the product of the IAB rate for the Rate Period and the Airline' 5 international Deplaning Passengers using the facility during the month. 8.08 Airside Operations Building ("AOB") Rentals at Dulles. 8.08.1 AOB Rate. The AOB Rental rate in each Rate Period shall be calculated by reducing the Total Requirement for the AOB by utility and other reimbursements and Transfers, and dividing such net requirement by the total AOB Rentable Space. 8.08.2 AOB Rate Schedule. Schedule DF-9 shows the calculation of the AOB rate for each Rate Period. 8.08.3 Airline's AOB Charges. The Airline's AOB Rentals for each Rate Period, if any, shall be determined as the product of the AOB Rental rate and the number of square feet of AOB Premises leased to the Airline. The Airline shall pay such AOB Rentals in equal monthly installments. 8.09 Passenger Conveyance Charges. 8.09.1 Passenger Conveyance Charges Prior to the Completion of Dulles Stage II. (i) The Total Passenger Conveyance Charges requirement in each Rate Period prior to the completion of Dulles Stage II shall be equal to the Total Requirement for Passenger Conveyances, reduced by Transfers allocable to Passenger Conveyances and by mobile lounge fees, if any, received by the Authority from non- Signatory Airlines. (ii) The Passenger Conveyance Charges requirement determined above shall be allocated among the Signatory Airlines serving Dulles based upon their respective total Enplaning Passengers for such Rate Period as set forth in Paragraph 8.09.l(iii). (iii) The allocation of Passenger Conveyance Charges pursuant to Paragraph 8.09.1(u) shall be Made by the Authority twice each Fiscal Year, with the first such allocation applicable to the six month period commencing on the first day of each Fiscal Year and ending on the last day of the sixth month of said Fiscal Year, and the second allocation applicable to the remaining six months of said Fiscal Year; provided, however, the Authority shall further have the right to adjust said allocation for the remaining portion of the then current six month period at any other time the Passenger Conveyance Charges requirement is adjusted during a Fiscal Year pursuant to Sections 9.03 and 9.04. Each such allocation shall be based upon activity data for the most recent six months for which such activity data is then available. (iv) For purposes of such allocations, the Airline shall include in its Monthly activity report required pursuant to Section 8.12g and individually identify, the number of Enplaning Passengers handled or otherwise accommodated by the Airline for other Air Transportation Companies not having an agreement with the Authority that provides for the direct payment to the Authority of appropriate charges for Passenger Conveyances. (v) Schedule DF-l0 (Dulles) shows the calculation of the Passenger Conveyance Charges requirement for the current Rate Period. 8.09.2 Passenger Conveyance Charges Following Substantial Completion of Dulles Stage II. (i) Total Passenger Conveyance Charges requirements in each Rate Period following completion of Dulles Stage II shall be calculated in the same manner as set forth in Paragraph 8.09.1(i) above; provided, however, said requirement shall then be divided by the Authority into two components based upon the respective Total Requirements of each component: (a)Inter-Terminal and IAB People Mover Train component (b)Mobile Lounge/Planemate/Bus component (ii) The Mobile Lounge/Planemate/Bus component shall be allocated among the signatory Airlines based on their number of Enplaning Passengers using this transportation component in the manner as set forth in Paragraph 8.09.1 above. (iii) The Inter-Terminal and IAB People Mover Train component shall first be allocated between the IAB, on the one hand, and the Terminal Cost Center, on the other hand, based upon the number of Deplaning Passengers using the IAB and the number of Deplaning Passengers using the Terminal Cost Center, respectively. (b) The remainder of such component shall be allocated to the Total Requirement for each Terminal Sub-Center served by said system, based upon the respective Rentable Space in each such Terminal Sub-Center. (c) Notwithstanding the foregoing1 if the Inter-Terminal and IAB People Mover Train does not serve the IAB, no portion of the Inter-Terminal and IAB People Mover component shall be allocated to the IAB. 8.10 Other Fees and Charges. 8.10.1 The Authority expressly reserves the right to assess and collect the following: (i) Reasonable and non-discriminatory concession, permit or license fees for services or supplies provided by the Airline to others, and by others to the Airline. Notwithstanding the foregoing, except with respect to the provision of inflight catering services or the provision of other food, beverage, products, or services for the Airline's passengers, the Authority shall not charge the following: (a)Any such fees to a Signatory Airline providing supplies or services, including aircraft and Equipment maintenance, to another Signatory Airline, so long as the Signatory Airline providing such services or supplies is concurrently providing such supplies or services for itself and such provision of supplies or services is incidental to its Air Transportation Business and is not conducted as a separate business; or (b)Any such fees in excess of the Authority's actual costs of any services or facilities provided by the Authority to such servicer/supplier for services or supplies that the Airline could otherwise perform or provide for itself pursuant to Section 4.01. (ii) Pro rata shares of any charges for the provision of any services or facilities which the Authority is required to provide by any governmental entity having jurisdiction over the Airport or the operations of the Airline. 8.10.2 The Authority reserves the right to charge the Airline or its employees a reasonable fee for the employee parking areas provided at the Airports. Such fee shall be based upon the Authority's costs to construct, operate and maintain such facility(s). 8.10.3 The Airline shall pay charges for other services or facilities that are provided by the Authority to the Airline at the Airline's request or which are the responsibility of the Airline hereunder. Such services or facilities may include, but are not limited to, maintenance of Airline Premises, when such maintenance is requested by the Airline or is the responsibility of the Airline pursuant to this Agreement, directly metered utility costs and other O&M Expenses, if any, related to Equipment. 8.10.4 The Airline shall pay the required fees for all permits and licenses necessary for the conduct of its Air Transportation Business at the Airport. The Airline shall also pay all taxes and assessments, which during the Period of this Agreement may become a lien or which may be levied by any governmental authority upon any taxable interest acquired by the Airline in this Agreement, or any taxable possessory right which the Airline may have in or to the Premises or facilities leased hereunder, or the improvements thereon, by reason of its occupancy thereof, or otherwise, as well as taxes on taxable property, real or personal, owned by the Airline in or about said Premises. Upon any termination of tenancy by expiration, cancellation or otherwise, all taxes then levied or a lien on any of said property, or taxable interest therein, shall be paid in full by the Airline as soon as a statement thereof has been issued by the taxing jurisdiction. However, the Airline shall not be deemed to be in default under this Agreement for failure to pay taxes pending the outcome of any proceedings instituted by the Airline to contest the validity or the amount of such taxes. 8.10.5 Nothing herein shall be construed to prohibit the Authority from imposing and collecting any fines or penalties imposed for violations of any regulation now or hereafter lawfully adopted, as such regulation may be amended, including a regulation for noise abatement purposes. 8.10.6 The Authority reserves the right to charge ground rentals or fees for the lease or use of land at the Airports. 8.11 Payments. 8.11.1 Rentals for the Airline's Exclusive, Preferential, and Joint Use Premises, Common Use Charges, Passenger Conveyance Charges, Equipment Charges, Aircraft Parking Position Charges, Passenger Security Reimbursements, and Airside Operations Building Rentals as applicable, shall be due and payable in advance, without demand or invoice, except as provided in Article 9 with respect to adjustments in rates, on the first calendar day of each month. Said rentals and charges shall be deemed delinquent if payment is not received by the tenth calendar day of the month. 8.11.2 Payment for Landing Fees, Low Volume Common Use Fees, Dulles Jet Apron Fees, and International Arrivals Building Charges for each month shall be due and payable on the tenth calendar day of the next month without demand or invoice and shall be deemed delinquent if not received by the twentieth calendar day of that month. 8.11.3 Payment for all other fees and charges payable hereunder, including but not limited to metered utility charges, and other miscellaneous charges, shall be due within twenty (20) days of the date of the Authority's invoice. Said payment for fees and charges shall be deemed delinquent if payment is not received within thirty (30) days of the date of such invoice. 8.11.4 If the Airline fails to make any payment of rentals, fees, or charges due under this Agreement on or before the due date such payment shall bear monthly interest from the date payment was due at the rate per annum which is four percent (4~) higher than the "prime rate" as published in The Wall Street Journal on the date such payment was due; provided, however, that nothing contained herein shall be construed as permitting the Authority to charge or receive interest in excess of the maximum legal rate then allowed by law. Further, this provision shall not be construed as precluding the Authority from pursuing any other remedies it may have for the Airline's default in the payment of its rentals, fees, or charges, from executing against or requiring the Airline to furnish Contract Security pursuant to Section 8.13, or from exercising any other rights contained herein or provided by law. 8.11.5 In the event the Airline fails to submit its monthly activity reports as required in Section 8.12 the Authority may, in its discretion, estimate the fees and charges due and payable by the Airline as set forth in Paragraph 8.11.2, based upon one hundred twenty-five percent (125~) of the monthly activity reported by the Airline for the next preceding month and issue an invoice to the Airline for said estimated amount, less amounts, if any, already received from the Airline for rentals, fees, and charges due for such month for which complete activity data has not been received by the Authority. The Airline agrees to pay said estimated amount and to be liable for any deficiencies in payments based on this estimate, plus interest, as set forth in Paragraph 8.11.4 above. If such estimate results in an overpayment by the Airline, and (i) if the Airline submits the delinquent activity report to the Authority within 30 days of the original date due, then the Authority shall credit the Airline's subsequent month's amount due for such overpayment less adjustment for applicable interest charges, if any, as set forth in Paragraph 8.11.4; or (ii) if the Airline does not submit the delinquent activity report to the Authority within thirty (30) days of the original date due, the Authority shall have the right to retain any such overpayment. If such estimate results in an underpayment by the Airline, the Airline shall include with its delinquent activity report any additional amounts due to the Authority, plus applicable interest charges. 8.11.6 In the event the Airline's rights, licenses, or privileges granted hereunder shall commence or terminate on any date other than the first or last day, respectively, of the month, the Airline's rentals, fees, and charges shall be prorated on the basis of the number of days such Premises, facilities, rights, licenses, services, or privileges were enjoyed during that month and on the Authority's estimate of the Airline's activity for such number of days. 8.11.7 The Airline will assure that all payments due hereunder are made separately for each Airport. All payments shall be accompanied by a written certificate substantially in the form of Exhibits N-L and D-L attached hereto setting forth the Airport, Premises or activity and period for which payment is being made. All payments due and payable hereunder shall be paid in lawful money of the United States of America, without set off, by check made payable to the Metropolitan Washington Airports Authority and, unless another address is specified by the Authority, delivered to: Metropolitan Washington Airports Authority P.O. Box 2143 Merrifield, Virginia 22116-2143 8.12 Information to be Supplied by the Airline. 8.12.1 Not later than seven (7) calendar days after the end of each month, the Airline shall file with the Authority written reports on forms provided by the Authority for activity conducted by the Airline during said month, and for activity handled or otherwise accommodated by the Airline for other Air Transportation Companies not having an agreement with the Authority providing for its own submission of activity data to the Authority. Unless otherwise specified in writing by the Authority, the report shall be delivered to: Metropolitan Washington Airports Authority Office of Air Carrier Affairs 44 Canal Center Plaza Alexandria, Virginia 22314 8.12.2 The Authority shall have the right to rely on said activity reports in determining rentals, fees, and charges due hereunder; provided, however, the Airline shall have full responsibility for the accuracy of said reports. Payment deficiencies due to incomplete or inaccurate activity reports shall be subject to interest charges as set forth in Paragraph 8.11.4. Notwithstanding the foregoing, upon receipt of complete, accurate reports, overpayments, if any, shall be credited by the Authority against the Airline's subsequent month's amount due. 8.12.3 The Airline agrees, at all times, to maintain and keep books, ledgers, accounts or other records, accurately reflecting all of the entries for the activity statistics to be reported pursuant to Paragraph 8.12.1. Such records shall be retained by the Airline for a period of three (3) years subsequent to the activities reported therein. The Airline agrees to produce such books and records for the Authority at the Authority's place of business within fifteen (15) calendar days of the Authority's notice to do so or, at a location of the Airline's choosing, in which case the Airline shall pay all reasonable expenses, including, but not limited to, transportation, food, and lodging, necessary for an auditor selected by the Authority to audit said books and records. 8.12.4 The cost of the audit, with the exception of the aforementioned expenses, shall be borne by the Authority; provided, however, the total cost of said audit shall be borne by the Airline if either or both of the following conditions exist: (i) The audit reveals an underpayment of the lesser of one hundred thousand dollars ($100,000) or five percent (5%) of rentals, fees, and charges due hereunder, as determined by said audit; and/or (ii) The Airline has failed to maintain accurate and complete books, accounts, and other records in accordance with Paragraph 8.12.3. 8.13 Security for Payment. 8.13.1 If at any time during the twelve (12) consecutive months immediately preceding the Effective Date of this Agreement, the Airline committed an act or omission that constituted a default in payments due to the Authority pursuant to the terms and provisions of the Prior Agreements and Leases, then the Authority has the right to require the Airline to provide to the Authority on the Effective Date, payment of outstanding default amounts, if any, and a surety bond, irrevocable letter of credit or other security acceptable to the Authority ("Contract Security") in an amount equal to an estimate of four (4) months' rentals, fees, and charges payable by the Airline pursuant to this Article 8. Such Contract Security shall be for the purpose of guaranteeing the payment of all rentals, fees, and charges due hereunder. If Contract Security is required by the Authority, the Airline shall maintain such Contract Security in effect until the expiration of twelve (12) consecutive months during which period the Airline commits no act or omission that would constitute a payment default pursuant to Paragraph 13.01.9 of this Agreement. Such Contract Security shall be in such form and with such company approved to do business in the Commonwealth of Virginia as shall be reasonably acceptable to the Authority. 8.13.2 Upon the failure of the Airline to make a payment on or before the date due, as prescribed in Section 8.11, and the continued failure by the Airline to make payments within five (5) calendar days after the date of written notice from the Authority of such failure to pay, the Authority, within thirty (30) days of the date of the written notice, shall have the right to impose or reimpose the requirements of Paragraph 8.13.1, above, on the Airline. In such event, the Airline shall provide the Authority with the required Contract Security within fourteen (14) days from its receipt of such written notice that the Authority is imposing or reimposing such Contract Security requirement and maintain said security in effect until the expiration of a period of twelve (12) consecutive months during which the Airline makes all payment, to the Authority as required by Section 8.11 herein when due. The Authority shall have the right to reimpose the requirements of Paragraph 8.13.1, above, on the Airline each time the Airline fails to make a payment as required by Section 8.11 during the Period of this Agreement. The Authority's rights under this Paragraph 8.13.2 shall be in addition to all other rights and remedies available to the Authority either by law or under the terms of this Agreement. 8.14 Rentals, Fees, and Charges During Construction of the Capital Development Program. 8.14.1 The rentals, fees, and charges payable by the Airline to the Authority, and the rates for such rentals, fees, and charges, may be recalculated and increased or decreased a~ appropriate, effective as of each Substantial Completion Date of any Project included in the Capital Development Program to the extent that the costs allocable to such Project, or a portion thereof, are allocable to the Airline Supported Areas; provided, however, the Authority may include in any rate adjustment made pursuant to Sections 9.02 and 9.03 the Capital Charges, Debt Service Coverage, O&M Expenses, and all other payments and reserves for any such Project anticipated by the Authority to become payable from Revenues during the next ensuing Rate Period. 8.14.2 Upon the Substantial Completion Date of any Premises and until the actual square footage of such Premises has been incorporated into revised Exhibits N-C-2 and D-C-2, all determinations that are based on the dimensions of the Premises, including rentals, fees, and charges, shall be based on the approximate dimensions stated in Exhibits N-C-l and D-C-l. After the incorporation of the actual square footage, the rentals, fees, and charges that are determined by the dimensions of the Premises shall be calculated using the actual square footage, and amounts previously paid or owed by the Airline shall be adjusted retroactively to the Substantial Completion Date. After the retroactive adjustment, the Airline shall pay to the Authority, together with the payment for the next monthly period, any additional rentals, fees, and charges that are due to the Authority or the Authority shall credit the Airline with any rentals, fees, and charges that were overpaid by the Airline so that the total payment made by the Airline for the period beginning with the Substantial Completion Date and ending with the date of the adjustment shall be the amount the Airline would have paid if the rentals, fees, and charges had been calculated on the actual square footage from the Substantial Completion Date. 8.14.3 In the event that Debt Service and Debt Service Coverage applicable to any Project in a Cost Center or Sub-Center within any Airline Supported Area shall become payable from Revenues prior to the Substantial Completion Date of said Project, the Total Requirement for such Cost Center or Sub-Center shall include such Debt Service and Debt Service Coverage from such earlier date. 8.15 Passenger Facility Charges. in the event that passenger facility charges, now precluded by 49 U.S.C. 1513(a), are by legislative enactment, regulatory action, or by an adjudication by a court of competent jurisdiction determined to be lawful for the Authority to assess and collect during the Period of this Agreement, the Authority hereby reserves the right to assess, collect and expend such charges, subject to any conditions and restrictions expressly provided by such legislation or regulation. 8.16 No Other Fees and Charges. Except as provided for in this Agreement or any other contract between the Airline and the Authority, no charges, fees, or tolls of any nature, direct or indirect, shall be imposed by the Authority upon the Airline, its employees, agents, passengers, guests, patrons, and invitees, its suppliers of materials, or furnishers of services; provided, however, and except as otherwise provided herein, that the foregoing shall not be construed to prohibit the Authority from imposing and collecting charges and fees for the use of the public auto parking areas on the Airports, from operators of ground transportation to, from, and on the Airports and from any concessionaire at the Airports in accordance with the terms of a contract with the Authority for the operation of such concession. 8.17 1990 Fiscal Year Adjustment. In consideration for the Authority's agreement to refrain from exercising its right under Prior Agreements and Leases to impose new rates and charges on the Airline effective as of October 1, 1989, and instead, deferring the effectiveness of said new rates and charges to January 1, 1990, the rates and charges in effect for the period January 1, 1990, through September 30, 1990, will include an amount that represents the difference, during the period from October 1, 1989, to December 31, 1989, between the amount of the rates and charges then in effect and the amount that would have been charged to the Airline if the rates and charges under this Agreement had been made effective on October 1, 1989. ARTICLE 9. CHANGES IN RATES FOR RENTALS, FEES, AND CHARGES 9.01 General. 9.01.1 Rates for Signatory Airlines' rentals1 fees, and charges shall be adjusted as set forth in this Article 9. Said adjusted rates shall become effective (i) on the first day of each Fiscal Year pursuant to Section 9.02 ("Annual Adjustment"); (ii) on the first day of the seventh month of each Fiscal Year, if adjusted pursuant to Section 9.03 ("Midyear Adjustment"); or (iii) at any other time pursuant to Section 9.04. 9.01.2 Beginning on the effective date of a Rate Period following each such adjustment as provided for herein and for the duration of that Rate Period, unless said rates are subsequently adjusted during a Fiscal Year pursuant to Section 9.03 or 9.04, the Airline's rentals, fees, and charges payable to the Authority hereunder shall be based upon the rates as adjusted. 9.01.3 All adjustments made pursuant to this Article 9 shall be determined by the Authority and provided to the Airline substantially in conformance with the methods set forth in Article 8. Upon each adjustment, revised Schedules NF-l through NF-l1 and DF-1 through DF-14, showing the calculation of adjusted rates for rentals, fees, and charges for that Rate Period shall be prepared by the Authority and transmitted to the Airline, and said rates shall apply without the necessity of formal amendment of this Agreement. 9.01.4 If the calculation of adjusted rates for the next ensuing Rate Period is not completed by the Authority or the notice to the Airline of said adjusted rates as required herein is not given on or before twenty (20) calendar days prior to the end of the then current Rate Period, the rates for rentals, fees, and charges then in effect shall continue to be paid by the Airline until such calculations are concluded and such twenty (20) day notice is given. Upon the conclusion of such calculations and the giving of such twenty (20) day notice, the Authority shall determine the difference(s), if any, between the actual rentals, fees, and charges paid by the Airline to date for the then current Rate Period and the rentals, fees, and charges that would have been paid by the Airline if said adjusted rates had been in effect beginning on the first day of the then current Rate Period. Said differences shall be applied to the particular rentals, fees or charges for which a difference(s) in rates resulted in an overpayment or underpayment, and shall be remitted by the Airline or credited by the Authority in the month immediately following the calculation of the new Rate Period rates and the giving of notice to Signatory Airlines. 9.02 Annual Adjustment. 9.02.1 Approximately sixty (60) days prior to the end of each Fiscal Year, the Authority shall notify the Signatory Airlines of the estimated rates for rentals, fees, and charges for the next ensuing Fiscal Year. Said rates shall be based upon estimated activity at each Airport, budgeted O&M Expenses, the estimated Transfers amount required by this Agreement, Capital Charges, Debt Service Coverage, Lease payments, and all other payments and reserves as set forth in Exhibits N-F and D-F, for the next ensuing Fiscal Year. 9.02.2 Within twenty (20) days after the forwarding of said estimated rates for rentals, fees, and charges, the Authority shall meet collectively with the Signatory Airlines of each Airport at a mutually convenient time for the purpose of discussing such estimated rates for rentals, fees, and charges. The Authority shall make available to the Signatory Airlines any reasonably requested additional information relating to the determination of the proposed rates. The Authority agrees to fully consider the comments and recommendations of the Signatory Airlines prior to finalizing its schedule of estimated rates for rentals, fees, and charges for the next ensuing Fiscal Year. 9.02.3 Following said meeting, the Authority shall provide at least twenty (20) days advance written notice to the Signatory Airlines of the estimated rates for rentals, fees, and charges in accordance with this Section 9.02, and subject to the provisions of Paragraph 9.01.4, such adjusted rates shall become effective on the first day of the next ensuing Fiscal Year. 9.03 Midyear Adjustment. 9.03.1 In addition to the provisions of Sections 9.02 and 9.04, the Authority shall have the right to adjust the estimated rates for rentals, fees, and charges payable by the Signatory Airlines at the midpoint of each Fiscal Year in accordance with this Section 9.03. 9.03.2 Approximately sixty (60) days prior to the end of the sixth month of the then current Fiscal Year, the Authority shall re-estimate the rates for rentals, fees, and charges payable hereunder, applicable to the last six months of the then current Fiscal Year, and shall then determine in accordance with Paragraph 9.03.5 whether a midyear adjustment to any rate(s) will be made. Said re-estimated rates shall be based upon any adjustment to Transfers required by this Agreement based upon the actual audited results for the preceding Fiscal Year and revised estimates of activity, 0&M Expenses, Capital Charges, Debt Service Coverage, and all other payments and reserves, as set forth in Exhibits N-F and D-F, for the then current Fiscal Year. 9.03.3 In the event midyear adjustments to rates are made by the Authority, the Authority shall notify the Signatory Airlines of the re-estimated rates approximately forty-five (45) days prior to the end of the sixth month of the then current Fiscal Year. Within twenty (20) days after the forwarding of said rates, the Authority shall, if requested by the Airline or another Signatory Airline, meet collectively with the Signatory Airlines at each Airport at a mutually convenient time for the purpose of discussing said re-estimated rates. The Authority shall make available to the Signatory Airlines any reasonably requested additional information relating to said rates. The Authority agrees to fully consider the comments and recommendations of the Signatory Airlines prior to finalizing the midyear adjusted rates. 9.03.4 Following said meeting, the Authority shall provide at least twenty (20) days advance written notification to the Signatory Airlines of the adjusted rates to become effective on the first day of the seventh month of the then current Fiscal Year, subject to the provisions of Paragraph 9.01.4. 9.03.5 Nothing in this Section 9.03 shall be construed to require that the Authority make a midyear adjustment to estimated rates at either Airport; provided further that the Authority shall not make any such midyear adjustment to any rate at an Airport if the total of rentals, fees, or charges payable by the Signatory Airlines at that Airport, using the then current rates for rentals, fees, and charges at that Airport, is at least ninety-eight percent (98%) of the total of rentals, fees, or charges that would be payable by the Signatory Airlines using any re-estimated rate(s) calculated pursuant to this Section 9.03. 9.03.6 In the event that the Authority does not make a midyear adjustment to rates, any difference between the estimated Transfers amount included in the calculation of the then current rates, and the amount of Transfers actually due to the Signatory Airlines based upon the audited results for the preceding Fiscal Year, may at the option of the Authority (i) be included in any subsequent adjustment of rates during the then current Fiscal Year, as provided for in Section 9.04; or (ii) be incorporated into the settlement calculations for the then current Fiscal Year as provided for in Section 9.07. 9.04 Other Rate Adjustments. 9.04.1 Notwithstanding the provisions of Sections 9.02 and 9.03, any rate for rentals, fees, or charges payable by the Signatory Airlines at an Airport may be adjusted by the Authority at any other time in the event of one or more of the following: (i) Current year-to-date unaudited financial data and/or activity statistics indicate that total rentals, fees, and charges payable at an Airport pursuant to the then current rates are projected by the Authority to vary by more than five percent (5%) from the total rentals, fees, and charges that would be paid during the Rate Period at that Airport if rates were based upon more current financial and activity data then available. (ii) The Indenture requires such an adjustment; provided, however, that total rentals, fees, and charges payable to the Authority by Signatory Airlines shall be calculated in accordance with this Agreement. (iii) Additional Projects are constructed in Airline Supported Areas, and Debt Service and/or Amortization Requirements for such Additional Projects become payable from Revenues on a date other than the first day of any Fiscal Year; provided, however, the Authority may include in any rate adjustments made pursuant to Sections 9.02 and 9.03 the Capital Charges, O&M Expenses, and all other payments, Debt Service Coverage, and reserves required by this Agreement for any such Additional Project, the costs of which are anticipated by the Authority to become payable from Revenues (as opposed to capitalized interest) during the next ensuing Rate Period. (iv) At any other time as provided for in this Agreement, including, but not limited to, adjustments made in accordance with Section 8.14 for Projects included in the Capital Development Program. 9.04.2 The Authority shall provide at least twenty (20) days advance written notice to the Signatory Airlines of changes to estimated rates made in accordance with this Section 9.04, including the reasons necessitating any such adjustment, and such adjusted rates shall become effective on the date specified in the Authority's written notice to the Airline, subject to the provisions of Paragraph 9.01.4. 9.05 Transfers. 9.05.1 At the conclusion of each Fiscal Year, the amount of any "Net Remaining Revenue" at each Airport, as such term is defined in Paragraph 9.05.2, shall be determined. For each Fiscal Year during the Period of this Agreement such Net Remaining Revenue shall be allocated between the Authority and the Signatory Airlines at that Airport in accordance with provisions of Paragraph 9.05.4. For the first Fiscal Year immediately following the expiration or earlier termination of this Agreement, such Net Remaining Revenue shall be allocated in accordance with the provisions of Paragraph 9.05.6. The Signatory Airlines' share (hereinafter called "Transfers") of Net Remaining Revenue for each Fiscal Year shall be transferred by the Authority from the General Purpose Fund to the Airline Transfer Account at the beginning of the next ensuing Fiscal Year. Amounts in the Airline Transfer Account shall be applied as credits in the calculation of Signatory Airline rates for rentals, fees, and charges in such next ensuing Fiscal Year. The Authority's share of Net Remaining Revenue shall be transferred by the Authority from the General Purpose Fund to the Authority Capital Fund at the beginning of such next ensuing Fiscal Year, and used for the purposes described in Section 9.06. 9.05.2 For any Fiscal Year, Net Remaining Revenue at each Airport is hereby defined to mean the total of Revenues for such Fiscal Year plus Transfers, if any, from the prior Fiscal Year less (i) O&M Expenses; (ii) required deposits to maintain the O&M Reserve; (iii) Debt Service; (iv) Federal Lease payment; (v) the amount of rental credits given to certain Scheduled Air Carriers as set forth in the Surviving Agreements; (vi) required deposits to any Debt Service Reserve Fund; and (vii) required deposits to the Emergency R&R Fund; all as calculated in accordance with Schedules NF-8 and DF-l0 for the then current Fiscal Year. 9.05.3 When estimating the rates for rentals, fees, and charges for the next ensuing Fiscal Year, as set forth in Section 9.02, the Authority shall also estimate for each Airport the Transfers required by this Agreement to be transferred from Net Remaining Revenue generated at each Airport in the then current Fiscal Year. Said estimated required Transfers at each Airport shall be allocated to the Cost Centers and Sub-Centers at that Airport in the manner described in Paragraph 9.05.4, and included as a credit in the calculation of rates for Signatory Airlines' rentals, fees, and charges for the next ensuing Fiscal Year. 9.05.4 Net Remaining Revenue at each Airport for each Fiscal Year shall be allocated between the Signatory Airlines and the Authority and the Signatory Airlines' share shall be allocated to Airline Supported Areas at each Airport as follows: (i) An amount equal to the entire amount of the Depreciation Requirement collected from the Signatory Airlines for such Fiscal Year shall be allocated to the Authority; (ii) An amount equal to the entire amount of Airline Funded Coverage on Subordinated Bonds (or if any such Bonds have been refunded from the proceeds of Senior Bonds, then the entire amount of Airline Funded Coverage on such Senior Bonds) collected from the Signatory Airlines for such Fiscal Year shall be allocated to the Airline Supported Areas in direct proportion to the allocation of Debt Service on Subordinated Bonds (or Senior Bonds, if any, issued to refund Subordinated Bonds) to the Cost Centers and Sub-Centers within the Airline Supported Areas; (iii) An amount equal to the entire amount of any Extraordinary Coverage Protection Payments, as described in Paragraph 9.07.3, shall be allocated to Airline Supported Areas in direct proportion to the Total Requirements of each of the Cost Centers and Sub-Centers within the Airline Supported Areas. (iv) An amount equal to the entire amount of Equipment Coverage collected from the Signatory Airlines for such Fiscal Year shall be allocated to the Equipment Sub-Centers in direct proportion to the allocation of Debt Service to such Sub-Centers. (v) An amount equal to the excess of Net Remaining Revenue for such Fiscal Year over the sum of the amounts described in (i), (ii), (iii), and (iv) above shall be divided between the Signatory Airlines and the Authority as follows: (a)Such amount for each Airport shall be divided equally between the Signatory Airlines and the Authority until the Authority's share under this Paragraph (v) for that Airport is equal to the Plateau Amount for that Airport for that Fiscal Year; (b)Once the Authority's share of Net Remaining Revenue has reached the Plateau Amount for an Airport for such Fiscal Year, the Signatory Airlines' share of any additional Net Remaining Revenue at that Airport shall equal seventy-five percent (75%) and the Authority's share shall equal twenty-five percent (25%); (vi) The Signatory Airlines' share of Net Remaining Revenue determined pursuant to Paragraph (v) above shall be allocated to the Airline Supported Areas as follows: (a)An amount equal to fifty percent (50%) of the amount of Airline Funded Coverage on Debt Service on Senior Bonds collected from the Signatory Airlines for such Fiscal Year shall be allocated to the Airline Supported Areas in proportion to the allocation of Debt Service on Senior Bonds to the Cost Centers and Sub-Centers within the Airline Supported Areas; (b)The remainder shall be allocated to the Airline Supported Areas in proportion to the Total Requirements (for purposes of this allocation only, Total Requirements shall include one hundred twenty-five percent (125%) of any Special Facility Bond debt service attributable to facilities in the Airline Supported Areas which are reasonably entitled pursuant to Paragraph 10.01.3 and the terms of any Special Facility agreement to the benefit of Transfers) of each of the Cost Centers and Sub- Centers within the Airline Supported Areas. 9.05.5 The Authority shall credit Transfers only from funds available for such purposes in the General Purpose Fund. If for any reason the amount in the General Purpose Fund available for Transfers to the Signatory Airlines pursuant to this Agreement is less than the amount required to be credited to the Signatory Airlines pursuant to Paragraph 9.05.4, the Authority shall make appropriate increases in Transfers from available funds in subsequent Fiscal Years. 9.05.6 Net Remaining Revenue for the last Fiscal Year during the Period of this Agreement shall be allocated either (i) in accordance with the terms of any subsequent airport use agreement entered into between the Authority and some or all of the Signatory Airlines, or (ii) in the absence of such agreement, between the Authority, on the one hand, and the airlines then operating at the Airports on the other hand, substantially in accordance with the methodology set forth in this Agreement except with respect to any distinctions made herein between Signatory Airlines and non-Signatory Airlines. 9.06 Creation of Funds and Accounts. Authority Capital Fund - The Authority shall create a fund to be entitled the Authority Capital Fund into which the Authority shall transfer its share of Net Remaining Revenue calculated in accordance with Section 9.05. Amounts in the Authority Capital Fund may be used by the Authority for any one or more of the following purposes: (i) To pay the costs of any Projects in the Capital Development Program, including any cost overruns; (ii) To redeem, defease, or retire any Outstanding Bonds; (iii) To pay the costs of any Additional Projects, including any projects in the Authority's repair and rehabilitation program; (iv) To pay the O&M Expenses of, or any capital costs in excess of ten million dollars ($10,000,000) for, a Rail System; and (v) To pay Debt Service on any Bonds issued to fund the costs of any of the foregoing. Airline Transfer Account - The Authority shall create an account to be held in the Revenue Fund into which the Authority shall deposit Transfers calculated in accordance with Section 9.05. 9.07 Settlement. 9.07.1 Rentals, fees, and charges paid by the Airline during any Fiscal Year shall be subject to adjustment provided for in this Section 9.07. Within one hundred twenty (120) days following the close of each Fiscal Year or as soon as the audited financial data for said Fiscal Year is available, rates for rentals, fees, and charges for the preceding Fiscal Year shall be recalculated using audited financial data and the methods set forth in Article 8 and Exhibits N-F and D-F. Upon the determination of any difference(s) between the rentals, fees, and charges paid by the Signatory Airlines during the preceding Fiscal Year and the rentals, fees, and charges that would have been paid by the Signatory Airlines using said recalculated rates, the Authority shall credit the Airline with the amount of any overpayment, and/or invoice the Airline for the amount of any underpayment 9.07.2 Notwithstanding the results of the settlement calculations made pursuant to Paragraph 9.07.1, the Authority shall also determine whether the total of Revenues and Transfers allocable hereunder to the Airline Supported Areas at each Airport in the preceding Fiscal Year then being audited were at least equal to the (i) O&M Expenses; (ii) amounts required to maintain the O&M Reserve; (iii) Debt Service; (iv) other Capital Charges; (v) Federal Lease payment; (vi) at Dulles, Dulles Rate Credit Amortization Requirement; (vii) required deposits, if any, if any, to the Emergency R&R Fund allocable to the Airline Supported Areas at that Airport in said Fiscal Year. Should any deficiency exist for any reasons whatsoever, including but not limited to payment defaults and/or unleased premises, then the Airline, collectively with all other Signatory Airlines and Signatory Cargo Carriers, if any, shall pay its pro rata share of such deficiency, with such payments to be included as Revenues in the Fiscal Year then being audited. The Airline's pro rata share shall be calculated (i) on the basis of its share of total Signatory Airline and Signatory Cargo Carrier landed weight at the Airport at which the deficiency occurred, if attributable to the Airfield; and/or (ii) on the basis of its share of total Terminal Premises actually rented by the Signatory Airlines and for which rental payments were actually received by the Authority at the Airport at which the deficiency occurred, if attributable to the Terminal. The Authority shall invoice the Airline for its share of any such deficiency, and the Airline shall remit its payment therefor within thirty (30) days of the date of the Authority' 5 invoice. 9.07.3 The Authority shall include Extraordinary Coverage Protection Payments in the rates for rentals, fees, and charges for the Airline Supported Areas at each Airport in any Fiscal Year in which the amount of Revenues plus Transfers less operating and Maintenance Expenses at that Airport is projected to be less than one hundred twenty-five percent (125%) of the sum of Debt Service on Senior Bonds and Debt Service on Subordinated Bonds at that Airport. Any amounts which must be collected for such Extraordinary Coverage Protection Payments will be allocated to Cost Centers and Sub-Centers within the Airline Supported Areas on the basis of the Total Requirements of such Cost Centers and Sub-Centers. ARTICLE 10. CAPITAL IMPROVEMENTS 10.01 General. 10.01.1 The parties hereto recognize that capital expenditures to preserve, protect, enhance, expand, or otherwise improve the Airports, or parts thereof, are required during the Period of this Agreement. Such capital expenditures include the Capital Development Program and Additional Projects of the Authority, and may include improvements by the Airline. Any such improvements by the Airline, and capital expenditures of the Authority to be paid for or financed with Bonds or Revenues of the Airports shall be subject to the provisions of this Article 10. 10.01.2 Subject to the provisions of this Article 10, the Authority may pay for any such capital expenditures using any funds lawfully available for such purposes, and/or may issue Bonds, whether subject to, or exempt from, Federal income taxation, in amounts sufficient to finance any such capital expenditures, including any costs for design or program management, capitalized interest, any required Debt Service Reserve Fund, costs of issuance, bond insurance premiums or credit facility fees, or any other costs reasonably incurred by the Authority in connection with the issuance of Bonds. All costs associated with such capital expenditures of the Authority, including but not limited to, O&M Expenses and appropriate reserves therefor, Debt Service, Debt Service Coverage, and any other payments, Amortization Requirements, and/or reserves applicable to said capital expenditures, shall be included in the determination of rates for rentals, fees, and charges in accordance with Articles 8 and 9; provided, however, that, except in accordance with Paragraph 9.07.3, no such rentals, fees, and charges payable hereunder, shall be payable by the Airline for capital expenditures, the costs for which are not properly attributable or allocable to the Airline Supported Areas. 10.01.3 Nothing herein shall preclude the Authority from undertaking, or authorizing to be undertaken, capital expenditures to be financed or paid from sources other than Revenues, or to borrow funds which are repayable from sources other than Revenues, for the purpose of funding capital expenditures. Such other sources may specifically include, but are not limited to, the proceeds of Special Facility Bonds. In the event any Special Facility is constructed within any Airline Supported Areas, the Special Facility agreement between the Authority and the Special Facility obligor may provide, among other things, for the following: (i) The treatment of O&M Expenses and responsibilities either as direct obligations of the obligor or in the same manner as O&M Expenses are handled for other facilities within the Airline Supported Areas; (ii) A method of compensating the obligor for costs allocable to any premises constructed as part of the Special Facility which costs, under the Authority's allocation methodology, would not be allocated to airline leased premises and to allocate a fair and reasonable amount of Transfers to such Special Facility; the method of compensation or allocation could include, for example, fair and reasonable direct payments to the Special Facility obligor, allocations of Revenues or Transfers, credits against other payments due from the Special Facility obligor, or any combination of the foregoing; (iii) Provisions relating to security for the Special Facility Bonds; and (iv) Provisions relating to the operation and use of the Special Facility, including accommodation provisions. 10.02 Capital Development Program. 10.02.1 Exhibits N-I and N-J (National) and Exhibit D- I and D-J (Dulles) summarize the Capital Development Program commenced by the Authority in 1988, including a listing of Projects, a description of the Projects, their priority status, their estimated costs, their estimated construction start and Substantial Completion Dates, and the applicable Cost Centers or Terminal or Equipment Sub-Centers. The Authority shall, from time to time, refine and update such Project descriptions. Such Project refinements may include the addition or deletion of components functionally related to the Capital Development Program; provided, however, that no such refinements shall materially change the scope of the Capital Development Program. 10.02.2 Subject to the issuance of Bonds, and the availability of the proceeds thereof, and to the provisions of Section 10.04 with respect to the Dulles Stage II Development Plan, the Authority shall complete the Projects of the Capital Development Program in a good and workmanlike manner, substantially in accordance with Exhibits N-J and D- J and the Project Construction Documents developed or to be developed by the Authority's Architects and Engineers for each Project, current copies of which are or will be on file at the Authority's offices. 10.02.3 The Authority shall provide the Airline information with respect to the Capital Development Program and an opportunity to consult on matters with respect thereto. This may be accomplished in the following manner The Signatory Airlines will establish, staff, and maintain an organization known as the Metropolitan Washington Airlines Committee ("MWAC"). The Airline may designate its representative to MWAC. The seven largest Signatory Airlines, as determined by reference to the combined landed weight at the two Airports, will constitute an executive committee of the MWAC, provided that the executive committee includes at least one domestic airline from each Airport and at least one foreign flag airline at Dulles. The executive committee of MWAC shall designate an individual to serve as a representative for all Scheduled Air Carriers ("Airline Representative") to the Authority with respect to the construction and operational impact of all Projects described in the Capital Development Program and all Additional Projects. (i) The Authority shall afford the Airline Representative access to all construction sites relating to the Capital Development Program and an opportunity to participate in the evaluation of design and construction alternatives. The Authority shall consider the comments and requests of the Airline Representative regarding design and construction of a Project and of alternatives and methods proposed to reduce or eliminate adverse operational impacts or costs. (ii) The Authority shall provide the Airline Representative the following: (a)The scope, budget, and schedule for each Project in the Capital Development Program prior to the award of a contract for design, if any, for that Project. (b)Copies of design submittals for the schematic, design, development, and construction document phases of the design process. Routine submittals will include site plans, floor plans, and elevations. Architectural and structural details or mechanical and electrical design documents will not be routinely submitted. Design submittals shall not include correspondence or minutes of meetings between the Authority and the designer. (c)A periodic Capital Development Program cost control report which shall include the original Cost Estimate and the Current Cost Estimate, including all fees, for each Project contained in the Capital Development Program. (d)Notice of pre-bid and pre-construction meetings (e)A monthly listing of change orders in excess of one hundred thousand dollars ($100,000). (f)A monthly update of the Capital Development Program schedule. (g)A monthly status report for each contract which has been awarded and not completed and each contract that is in the bidding process. (h)A weekly construction forecast. (iii) The Airline Representative shall have an opportunity, upon his reasonable request, to meet with the Authority to discuss the Project design, and the effects of the Project construction on airfield operations or landside access. (iv) The Authority agrees to sponsor employment of said Airline Representative by providing necessary funds to the Air Transport Association ("ATA") for his salary and for the staffing and operation of his office. Payments will be made to ATA commencing February 1, 1990, and every six (6) months thereafter based on a budget submitted by the Airline Representative to the Authority for its review following approval by the executive committee of MWAC. Salaries, benefits, and expenses will be included as O&M Expenses of the Airfield Cost Centers. (v) The Authority will provide to the Airline Representative an office at National which shall be considered administrative space for rate making purposes. The space will be furnished, finished, maintained, and provided utilities by the Authority, the cost of which will be recovered as if it were the Authority's administrative space. All necessary permits and access facilitation, including employee parking and National and Dulles security identification, will be made available to the Airline Representative and his staff. 10.03 Capital Development Program Other Than Projects in the Early Program or in the Dulles Stage II Development Plan. 10.03.1 The Original Cost Estimate for the Capital Development Program, not including the Early Program and not including the Dulles Stage II Development Plan, is six hundred sixty-nine million and four hundred fifty-four thousand and four hundred dollars ($669,454,400) (stated in 1989 dollars) for National (Exhibit N-I), and three hundred fifty-nine million and six hundred four thousand dollars ($359,604,000) (stated in 1989 dollars) for Dulles (Exhibit D-I). Such Original Cost Estimate excludes financing costs, interest on Bonds, or on any interim financing obtained by the Authority to finance the Capital Development Program, and other deposits and reserves required by any Indenture. The Original Cost Estimate for each Airport shall be revised from time to time to reflect any design changes approved by the Authority and a Majority-in-Interest of Signatory Airlines for the Airfield Cost Center at that Airport. In addition, the Original Cost Estimates shall be revised annually in accordance with the U.S. Implicit Price Deflator Index. Such revision shall be calculated by escalating the estimated costs of the Projects included in the Original Cost Estimate to their respective midpoints of construction. The Original Cost Estimates, as revised pursuant to this Paragraph 10.03.1, of the Capital Development Program, shall not be exceeded except as set forth in this Article. 10.03.2 The Authority shall for each Airport develop and maintain Current Cost Estimates for each of the Projects included in the Capital Development Program, except for Projects in the Early Program, and except for the Dulles Stage II Development Plan which shall be subject to Paragraph 10.04.3. (i) Whenever the Current Cost Estimate applicable to a Project in the Capital Development Program (except the Early Program and the Dulles Stage II Development Plan) at either Airport exceeds the Original Cost Estimate, as revised pursuant to Paragraph 10.03.1, for that Project by more than five percent (5%) percent, the Authority shall promptly notify the Airline Representative. Whenever such excess is more than ten percent (10%), the Authority shall meet promptly with the Airline Representative to discuss such increased cost and to determine whether and how the Project could be revised so that the Current Cost Estimate for such Project will not exceed the Original Cost Estimate for such Project by more than ten percent (10%). (ii) The Authority agrees to consider the requests, suggestions, and recommendations of the Airline Representative; provided, however, that so long as the Current Cost Estimate for the Capital Development Program (excluding the Early Program and Dulles Stage II) at an Airport has not exceeded the Original Cost Estimate, as revised pursuant to Paragraph 10.03.1, plus the contingency described in Paragraph 10.03.3, the decision whether to revise the Capital Development Program at that Airport shall be solely reserved to the Authority, and shall be made at the sole discretion of the Authority. 10.03.3 The following contingencies are hereby established for the Capital Development Program (excluding the Early Program and excluding the Dulles Stage II Development Plan): National: twenty-five percent (25%) of the Original Cost Estimate, as revised pursuant to Paragraph 10.03.01 Dulles: twenty percent (20%) of the Original Cost Estimate, as revised pursuant to Paragraph 10.03.1 In the event the Original Cost Estimate, as revised pursuant to Paragraph 10.03.1, plus the contingency, for the Capital Development Program (excluding the Early Program and Dulles Stage II) at either Airport is exceeded by the Current Cost Estimate for such Airport, the Authority shall be required to do one or more of the following: (i) Modify or defer a sufficient number of Priority 2 Projects at that Airport so that the Current Cost Estimate for such Airport does not exceed the Original Cost Estimate, as revised pursuant to Paragraph 10.03.1, plus the contingency at such Airport; (ii) Fund the cost overrun from the Authority's annual share of Net Remaining Revenue or from any balance in the Authority Capital Fund (in which event there shall be no Amortization Requirement); (iii) Issue subordinated debt payable from and secured by the Authority's share of Net Remaining Revenue to fund the cost overrun; or (iv) Obtain approval for additional funding from a Majority-in-Interest of the Signatory Airlines for the appropriate Cost Center at that Airport. 10.03.4 The Authority shall provide to the Signatory Airlines a financial feasibility study of the Capital Development Program Project 152 (structured parking at Dulles), as it may be redesignated, and any analysis thereof by the Authority. The Authority will not proceed with completion of final design and construction of such Project until a five month review and comment period for Signatory Airline response on the feasibility study has transpired. 10.04 Dulles Stage II Development Plan. 10.04.1 The Authority shall have the right to undertake the construction of the Dulles Stage II Development Plan only after one or more of the following provisions has been satisfied: (i) Design and construction may commence at any time that the cost of the New Midfield Concourse(s) is to be financed as a Special Facility; (ii) Design and construction may commence at any time that Signatory Airlines at Dulles accounting for at least fifty percent (50%) of total Dulles Enplaning Passengers during the then most recent twelve (12) consecutive month period, have executed amendments to their Agreements to lease at least sixty-six and two-thirds percent (66.67%) of the Airline leasable premises in the New Midfield Concourse(s); (iii) In the absence of the authorization to begin design and construction of the Dulles Stage II Development Plan pursuant to Paragraph 10.04.1(i) or (ii), the design and preparation of Construction Documents for the Dulles Stage II Development Plan may be undertaken by the Authority (but no actual construction may commence) at any time following the date that total Enplaning Passengers at Dulles in the twelve (12) consecutive month period immediately preceding said date were at least eight million (8,000,000) Enplaning Passengers; during such design period, the Authority and the Signatory Airlines shall use their best efforts to resolve any outstanding issues related to the Dulles Stage II Development Plan; (iv) In the absence of the authorization to begin design and construction of the Dulles Stage II Development Plan pursuant to Paragraph 10.04.1(i) or (ii), subject to the Signatory Airlines' rights described in Paragraph 10.04.6, actual construction of the Dulles Stage II Development Plan may commence at any time following the date that total Enplaning Passengers at Dulles in the twelve (12) consecutive month period immediately preceding said date were at least nine million five hundred thousand (9,500,000) Enplaning Passengers. For purposes of this Paragraph 10.04.1, "actual construction" shall be deemed to commence at the time that a contract, or contracts, has been awarded for the construction of any portion of the Dulles Stage II Development Plan, provided that the total amount of such contract, or contracts, is at least two million dollars ($2,000,000); (v) Design and construction of the Dulles Stage II Development Plan may commence at any time with approval of a Majority-in-Interest of the Signatory Airlines for the Airline Supported Areas (excluding the Airfield Cost Center) at Dulles; or (vi) Design and construction of the Dulles Stage II Development Plan may commence at any time on or after January 1, 2000. 10.04.2 The Original Cost Estimate for the Dulles Stage II Development Plan is three hundred twenty-five million and three hundred ninety-five thousand dollars ($325,395,000) (stated in 1989 dollars). Such Original Cost Estimate excludes financing costs, interest on Bonds or on any interim financing obtained by the Authority to finance Dulles Stage II, and other deposits and reserves required by the Indenture. The Original Cost Estimate shall be revised from time to time to reflect any design changes approved by the Authority and a Majority-in-Interest of the Signatory Airlines at Dulles for the Airline Supported Areas excluding the Airfield Cost Center. In addition, the Original Cost Estimate shall be revised annually in accordance with the U.S. Implicit Price Deflator Index. Such revision shall be calculated by escalating the estimated Project costs included in the Original Cost Estimate to their respective midpoints of construction. In the event Dulles Stage II is undertaken pursuant to Paragraph 10.04.l(iv), the Original Cost Estimate, as revised pursuant to this Paragraph 10.04.2, for the Dulles Stage II Development Plan shall not be exceeded except as set forth in this Article. 10.04.3 The Authority shall develop and maintain Current Cost Estimates for each of the Projects included in the Dulles Stage II Development Plan. In the event Dulles Stage II is undertaken pursuant to Paragraph l0.04.l(iv), the following shall apply: (i) Whenever the Current Cost Estimate applicable to a Project in the Dulles Stage II Development Plan exceeds the Original Cost Estimate, as revised in accordance with Paragraph 10.04.2, for that Project by more than five percent (5%) percent, the Authority shall promptly notify the Airline Representative. Whenever that excess is more than ten percent (10%), the Authority shall meet promptly with the Airline Representative to discuss such increased cost and to determine whether and how the Project could be revised so that the Current Cost Estimate for such Project will not exceed the Original Cost Estimate for such Project by more than ten percent (10%). (ii) The Authority agrees to consider the requests, suggestions, and recommendations of the Airline Representative; provided, however, that so long as the Current Cost Estimate for the Dulles Stage II Development Plan has not exceeded the Original Cost Estimate, as revised in accordance with Paragraph 10.04.2, plus the contingency described in Paragraph 10.04.4, the decision whether to revise the Stage II Development Plan shall be solely reserved to the Authority, and shall be made at the sole discretion of the Authority. 10.04.4 The contingency for the Dulles Stage II Development Plan is hereby established as twenty-five percent (25%) of the Original Cost Estimate, as revised in accordance with Paragraph 10.04.2, of the Stage II Development Plan. 10.04.5 In the event Dulles Stage II is undertaken pursuant to Paragraph l0.04.l(iv) and except as provided in Paragraph 10.04.6, in the event the Original Cost Estimate, as revised in accordance with Paragraph 10.04.2, plus the contingency, for the Dulles Stage II Development Plan is exceeded by the Current Cost Estimate, the Authority shall be required to do one or more of the following: (i) Modify or defer a sufficient number of Priority 2 Projects, if any, so that the Current Cost Estimate does not exceed the Original Cost Estimate, as revised in accordance with Paragraph 10.04.2, plus the contingency; (ii) Fund the cost overrun from the Authority's annual share of Net Remaining Revenue or from any balance in the Authority Capital Fund (in which event there shall be no Amortization Requirement); (iii) Issue subordinated debt payable from and secured by the Authority's share of Net Remaining Revenue to fund the cost overrun; or (iv) Obtain approval for additional funding from a Majority-in-Interest of the Signatory Airlines for the Airline Supported Areas (excluding the Airfield Cost Center) at that Airport. 10.04.6 In the event the condition in Paragraph l0.04.1(iv) is satisfied and the Authority notifies the Airline Representative that it intends to proceed with construction of the Stage II Development Plan, and at the time of the notice the Current Cost Estimate exceeds the Original Cost Estimate, as revised in accordance with Paragraph 10.04.2, plus contingency, if the Authority does not receive a Majority-in-Interest approval of the Signatory Airlines at Dulles for the Airline Supported Areas (excluding the Airfield Cost Center), the Authority shall defer actual construction of Dulles Stage II for one year. Thereafter, the Authority may proceed with construction of the Dulles Stage II Development Plan and (i) Paragraph 10.04.5 shall not apply, and (ii) to the extent that the Authority expends funds for the Dulles Stage II Development Plan from the Authority's share of Net Remaining Revenues or from any balance in the Authority Capital Fund, there shall be no Amortization Requirement. 10.04.7 Upon Substantial Completion of the New Midfield Concourse(s), the Authority may, in its sole discretion, remove from service or demolish all, or a portion of, the Existing Midfield Concourses. 10.05 Additional Projects. 10.05.1 The Authority will provide the Airline Representative with a list of any proposed Additional Projects for each Fiscal Year in advance of the Fiscal Year. The Authority will also provide the Airline Representative at least sixty (60) days notice before beginning any Additional Project not included in said list. No additional notification, approval, or other requirements shall apply to any other Additional Projects except those in Airline Supported Areas. In addition, the Authority shall notify the Airline in writing if it intends to undertake Additional Projects in Airline Supported Areas. Such notice shall include the following: (i) A description of the proposed Additional Project(s) together with cost estimates, scheduling, and any preliminary drawings, if applicable; (ii) A statement of the need for the proposed Additional Project(s), along with the planned benefits to be derived from such expenditures; (iii) The Authority's means of financing or paying the costs of the proposed Additional Project(s); and (iv) The planned allocation of the costs thereof to the various Cost Centers and Sub-Centers and the estimated impact on Signatory Airline rates for rentals, fees, and charges. 10.05.2 Within thirty (30) days after the Authority's delivery of said notice of Additional Projects in Airline Supported Areas, the Authority shall schedule a meeting with the Signatory Airlines collectively, or with an airline committee selected by the Signatory Airlines. The Authority shall review and consider the comments, suggestions, and recommendations of the Airline together with the comments and recommendations of the other Signatory Airlines; provided, however, the Authority reserves the right to make, subject to the provisions of Paragraph 10.05.4 with respect to Additional Projects to be financed with the proceeds of Bonds, the final decision with respect to such Additional Project. After the meeting, the Authority shall notify the Airline of its decision on whether to proceed with the Additional Project as proposed or modified. 10.05.3 If the Authority proceeds with Additional Projects in the Airline Supported Areas, the Authority shall provide the Airline Representative the following: (i) The scope, budget, and schedule for the Additional Project. (ii) Copies of design submittals, if any, for the schematic, design, development, and construction document phases of the design process. Routine submittals will include site plans, floor plans, and elevations. Architectural and structural details or mechanical and electrical design documents will not be routinely submitted. Design submittals shall not include correspondence or minutes of meetings between the Authority and the designer. (iii) An opportunity to meet with the Authority to discuss the Project design and the effects of Project construction on airfield operations or landside access. (iv) Notice of pre-bid and pre-construction meetings. 10.05.4 With respect to Additional Projects in Airline Supported Areas which the Authority proposes to fund with the proceeds of Bonds, the following provisions shall apply: (i) If the Additional Project is within one or more of the following categories, no additional procedures are required: (a)Projects necessary to comply with any current or future law, rule, regulation, order or judgment of any Federal, state, or local agency (excluding the Authority) or court, or any Federal grant agreement or airport certification requirement, including any required modification or replacement of the National air traffic control tower; (b)Projects to improve the safe operation of the Airport; (c)Projects for restoration or replacement of airport capacity; (d)Airfield projects eligible for Federal funding for which the Authority has received the full level of eligible Federal funding; (e)Any project with respect to which the Authority has received commitments from users to lease eighty percent (80%) or more of the leasable premises included in such project; (f)Projects necessary to replace or repair damaged, destroyed, or condemned property to the extent that the amount of insurance or condemnation proceeds has been inadequate; (g)Projects for the acquisition and installation of Equipment in accordance with Section 6.06; or (h)Projects included in the Fiscal Year 1990 repair and rehabilitation program and, in the Fiscal Year in which a Surviving Agreement at Dulles expires, projects in the amounts necessary and appropriate to fund additions to the O&M Reserve required by the application of this Agreement to the Premises which were leased under the Surviving Agreement; or (i)Any project with respect to which the Authority has received approval of a Majority-in-Interest of the Signatory Airlines with respect to the Cost Center at the Airport in which the project is located. (ii) If an Additional Project is not within one or more of the foregoing categories, then: (a)During Fiscal Years 1990 through 1994, the Authority could not issue Bonds to fund such project; (b)During Fiscal Years 1995 through 1999, the Authority could issue Bonds to fund such project but only if the amount of such Bonds, together with Bonds previously issued pursuant to this Paragraph (b) or previously issued pursuant to a Majority-in-Interest approval, would not exceed one hundred million dollars ($100,000,000) at either Airport; (c)During Fiscal Years 2000 through 2004, the Authority could issue Bonds to fund such project but only if the Authority defers for one year from the date of Majority-in-Interest disapproval the issuance of Bonds for any such project the estimated cost of which exceeds twenty- five million dollars ($25,000,000); and (d)During Fiscal Years 2005 through 2014, the Authority could issue Bonds to fund such project but only if the Authority defers for one year from the date of Majority-in-Interest disapproval the issuance of Bonds for any such project the estimated cost of which exceeds twenty- five million dollars ($25,000,000) (stated in 2001 dollars and escalated in accordance with the U.S. Implicit Price Deflator Index); thereafter, the Authority may proceed with the Project (i) if it obtains a Majority-in-Interest approval, or (ii) if after requesting Majority-in-Interest approval, such approval is not obtained, the Authority may issue Bonds for the project only after giving the Airline sixty (60) days notice of its intent to do so. Commencing on the date of notification of the Authority's intent to proceed to issue Bonds and continuing for sixty (60) days thereafter, the Airline would have the right to terminate this Agreement upon one hundred eighty (180) days' written notice to the Authority; provided, further, however, that if the Authority does not issue such Bonds, any such termination notice shall be ineffective. 10.06 Amortization. Subject to the provisions of Paragraph 10.03.3(u), 10.04.5(u), and 10.04.6 in the event that the Authority funds any Project in the Capital Development Program, or portion thereof, or any Additional Project, or portion thereof, attributable or allocable to the Airline Supported Areas from the Authority's share of Net Remaining Revenue, Amortization Requirements shall be charged for such Additional Project and included in the calculation of Signatory Airline rentals, fees, and charges pursuant to Articles 8 and 9. 10.07 Capital Development Program Audit. The MWAC may conduct a financial audit, using a nationally recognized accounting firm, of the Authority's implementation of the Capital Development Program and of Additional Projects in the Airline Supported Area. The Authority shall make its financial records for the most recent three (3) years available for this audit at a location selected by the Authority upon reasonable notice of the audit from the Airline Representative. The finding of any such audit shall be reviewed with the Authority. 10.08 Federal and State Grants and Loans. 10.08.1 The Authority agrees to use its best efforts to maximize Federal and Commonwealth of Virginia aviation grants that may be available to fund a portion of the costs of the Capital Development Program and any Additional Projects. 10.08.2 The parties hereto recognize that the Commonwealth of Virginia has advanced four million dollars ($4,000,000) to the Authority to be expended on design costs for the New Midfield Concourse(s). Upon repayment of this advance by the Authority to the Commonwealth, Capital Charges related to such repayment shall be included in the calculation of Signatory Airline Passenger Conveyance Charges until the Substantial Completion Date of the New Midfield Concourse(s) at which time such repayment shall be included in the calculation of Terminal Rentals for the New Midfield Concourse(s). Such repayment shall be amortized or financed over a ten (10) year period. 10.09 Improvements by the Airline. 10.09.1 The Airline may construct and install, consistent with the terms and provisions of this Agreement and at its sole expense, Airline Operating Facilities and improvements in its Exclusive, Preferential, and if any, Joint Use Premises as the Airline deems to be necessary for its operations; provided, however, that the plans and specifications, location, and construction schedule for such Airline Operating Facilities and improvements must be approved by the Authority in writing prior to the commencement of any and all such construction or installation. No reduction or abatement of rentals, fees, and charges due to the Authority hereunder shall be allowed for any interference by such construction with the Airline's operations hereunder. 10.09.2 Prior to the commencement of construction of any such Airline Operating Facilities and improvements, the Airline shall obtain or cause to be obtained a contract surety bond in a sum equal to the full amount of any construction contract. Said bond shall (i) be drawn in a form and from such company reasonably acceptable to the Authority; (ii) shall guarantee the faithful performance of necessary construction and completion of improvements in accordance with the Authority's approved final plans and detailed specifications; and, (iii) shall protect the Authority against any losses and liability, damages, expenses, claims, liens, and judgments caused by or resulting from the failure to perform completely the work described. The Airline shall further acquire, or cause to be acquired, a payment bond with any contractor or contractors of the Airline as principal, in a sum equal to the full amount of the construction contract awarded by the Airline for the improvements and shall require its contractor to acquire similar bond from its subcontractors. Said bond shall guarantee payment of all wages for labor and services engaged, and of all bills for materials, supplies and equipment used in the performance of said construction contract. The Airline shall assure that any work associated with such construction or installation shall not unreasonably interfere with the operation of the Airports, or otherwise unreasonably interfere with the permitted activities of other Airport tenants and users. The Airline shall within five (5) working days discharge any lien filed against its property or Premises by posting a bond or other adequate security. 10.09.3 The Airline shall require contractors to furnish satisfactory evidence of statutory worker's compensation insurance1 comprehensive general liability insurance, comprehensive automobile insurance and physical damage insurance, on a builder's risk form with the interest of the Authority endorsed hereon, in such amounts and in such manner as the Authority may reasonably require. The Authority may require additional insurance for any alterations or improvements approved hereunder, in such limits as the Authority reasonably determines to be necessary. 10.09.4 Any construction or installation shall be at the sole risk of the Airline and shall be in accordance with all applicable state and local codes and laws and subject to inspection by the Authority. 10.09.5 Upon completion of approved construction, and within sixty (60) days of the Airline's receipt of a certificate of occupancy for the new construction, a complete set of as-built drawings shall be delivered to the Authority for the permanent record of the Authority. 10.09.6 All Airline Operating Facilities, except those financed by the Authority, shall be and remain the property of the Airline during the Period of this Agreement. Upon termination or expiration of this Agreement, any Airline Operating Facilities and improvements which are permanently affixed to the Airline's Premises shall become the property of the Authority. Provided, that in the event of a termination of this Agreement before the expiration of the twenty-five (25) year Period in accordance with Section 2.02, the Airline shall be entitled to receive from the Authority, or the Authority shall cause the Airline to receive, payment for the unamortized value of approved installation of Airline Operating Facilities and improvements that are permanently affixed to the Premises which are vacated by the Airline and not leased to the Airline in a subsequent Agreement or subsequently used by the Airline. For these purposes, facilities and improvements shall be amortized on the basis of generally accepted accounting principles over their useful life as agreed upon at the time the Authority approves the improvement in accordance with Paragraph 10.08.1. 10.10 Rail System. The Authority and the Airlines recognize that, at the time of preparation and distribution for execution of this Agreement, the Authority has no current intention to participate in the capital or operating costs of a Rail System. The Authority will, however, be supportive of efforts of those outside the Authority to provide a Rail System to the Airport and will use its best efforts to accommodate a Rail System on the Airport. The Authority and the Airlines have mutual concerns regarding potential financial impact of future proposals or decisions relating to a Rail System. In view of these concerns, it is agreed as follows: (i) No operating or maintenance costs associated with any Rail System may be incurred by the Authority and/or paid for from any source of funds other than the Authority's Capital Fund unless and until such costs are addressed and mutually resolved in a written agreement between the Majority-in-Interest of the Signatory Airlines at Dulles for the Airfield Cost Center and the Authority. (ii) Any capital costs in excess of ten million dollars ($10,000,000), and all operating costs that may ultimately be incurred by the Authority as a result of its accommodation of or participation in a Rail System will be addressed in an agreement between the Majority-in-Interest of the Signatory Airlines at Dulles for the Airfield Cost Center and the Authority. The negotiation of such an agreement will commence at least six (6) months prior to the Authority's Fiscal Year in which such costs would be incurred with the objective of reaching an agreement not less than sixty (60) days prior to such Fiscal Year. (iii) In the absence of such an agreement, the aggregate of all capital costs of any rail link to Dulles which the Authority may incur is ten million dollars ($10,000,000) over the Period of this Agreement and all costs shall be allocated to the Dulles ground transportation cost center. 11.3 ARTICLE 11. DAMAGE AND DESTRUCTION TO PREMISES; INSURANCE 11.01 The Authority's Responsibilities. 11.01.1 The Authority shall maintain insurance or cause insurance to be maintained with a responsible insurance company or companies approved to do business in the Commonwealth of Virginia, or adopt and maintain a risk financing plan for property losses and said insurance, plan, or combination thereof shall cover such risks as are ordinarily insured against by reasonably prudent operators of airports, including the insurance required by the Indenture, and further, including, without limiting the generality of the foregoing, fire, lightning, windstorm, hail, floods, explosion, riot, riot attending a strike, civil commotion, damage from aircraft, smoke and uniform standard extended coverage with vandalism and malicious mischief endorsements, coverage of demolition of buildings and removal of debris, all-risk coverage, business interruptions, and extra expense. Such insurance or plan shall be maintained in an amount not less than the full insurable replacement value. Full insurable replacement value of any insured improvement shall be deemed to equal the actual replacement cost of the improvement and shall be determined by the Authority from time to time, but not less frequently than once every three years. In the event that such determination of full insurable replacement value indicates that the improvements are underinsured, the Authority shall secure the necessary additional coverage. 11.01.2 If a portion of the Airports within the Airline Supported Areas, except property for which the Airline is responsible under Section 11.02, is damaged or destroyed by fire or other peril, and except for TAP or as provided elsewhere in this Article 11, the Authority after consultation with the Airline, shall, to the extent of proceeds of the Authority's property insurance paid to the Authority or self insurance, repair, reconstruct, and replace the damaged or destroyed improvements so that the Airports are returned substantially to the same condition, character, and utility value (based upon the plans and specifications for the Premises, subject to the then- existing Airport building standards) as existed prior to such damage or destruction, exclusive of improvements made by the Airline and Airline Operating Facilities. With respect to TAP, the Authority shall so repair, reconstruct, and replace damaged or destroyed TAP to the extent suitable to the conduct of the Airline's Air Transportation Business or provide alternative suitable Premises. 11.02 The Airline's Property Insurance Responsibilities. 11.02.1 The Airline shall be primarily responsible for insuring its Airline Operating Facilities and for insuring the property for which it has responsibility in accordance with a Surviving Agreement. The Authority shall be an additional named insured on policies for the insurance of the Airline's Premises. 11.02.2 The insurance for Airline Operating Facilities and property required by Paragraph 11.02.1 shall be in an amount equal to the full replacement value thereof. This insurance shall include the following coverages at a minimum fire, lightning, windstorm, hail, floods, explosion, riot, riot attending a strike, civil commotion, damage from aircraft, smoke and uniform standard extended coverage with vandalism and malicious mischief endorsements, coverage of demolition of buildings and removal of debris, all-risk coverage, business interruptions, and extra expense. 11.03 Rental Abatement. 11.03.1 If the Premises or Equipment, or any portion thereof, are rendered untenantable by reason of damage or destruction, other than damage or destruction described in Paragraph 11.03.2, the Airline shall be entitled to a pro rata abatement of rentals, based upon size and type of area rendered untenantable, until the Premises or Equipment are restored; provided, however, that the Airline shall not be entitled to any such abatement of rentals at any time if the rate covenant under the Indenture is not at such time being met, or if such abatement would cause the rate covenant to be violated, or if such abatement would prevent the Authority from complying with any additional bonds test under the Indenture. 11.03.2 Notwithstanding any other provisions of this Article 11, if the Premises or Equipment shall be damaged or destroyed by fire or other peril, due to the negligence or willful act or omission of the Airline, its officers, its employees acting within the course and scope of their employment, its agents, or licensees, the Airline shall not be entitled to any rental abatement. 11.04 Responsibilities if Damage or Destruction Occurs. 11.04.1 The Authority shall use its best efforts to provide the Airline with alternative Premises and Equipment during the period that its Premises and Equipment are damaged or destroyed and are untenantable or unusable. Said alternative Premises or Equipment shall be suitable for the conduct of the Airline's Air Transportation Business, but shall not be construed to require alternative Premises and Equipment that are comparable to the size1 location, access, or other features of the Premises or Equipment leased under Article 6. 11.04.2 The Airline shall pay rentals, fees, and charges in accordance with Article 8 for any alternative Premises and Terminal Equipment used or leased by it during the period of repair and reconstruction of the original Premises. ARTICLE 12. THIRD PARTY OBLIGATIONS; INDEMNIFICATION AND INSURANCE 12.01 Indemnification. The Airline shall defend, indemnify, and hold the Authority and its agents, officers and employees completely harmless from and against any and all claims, suits, demands, actions, liabilities, losses, damages, judgments, or fines arising by reason of injury or death of any person, or damage to any property, including all reasonable costs for investigation and defense thereof (including, but not limited to, attorney fees, court costs and expert fees) of any nature whatsoever arising out of the Airline's conduct of its Air Transportation Business on the Airports, or in its use or occupancy of the Premises, regardless of where the injury, death, or damage may occur, except to the extent such injury, death, or damage is caused by the negligent act or omission or willful misconduct of the Authority. The Authority shall give to the Airline reasonable notice of, and an opportunity to defend against, any such claims or actions, and the Authority shall take reasonable actions to mitigate its damages. 12.01.1 The Airline shall defend, indemnify, and hold the Authority, and its agents, officers, and employees, completely harmless from and against any claim, suit, demand, action, liability, loss, damage, judgment, fine, or civil penalty and all costs and expenses of whatever kind or nature (including, but not limited to, attorney fees, court costs, and expert fees) associated therewith in any way arising from or based upon the violation of any Federal, state, or municipal laws, statutes, resolutions, or regulations by the Airline, its agents, employees, contractors, or tenants, in conjunction with the Airline's use and/or occupancy of the Airport. The Authority shall give the Airline reasonable notice of, and an opportunity to defend against, any such claims or actions, and the Authority shall take reasonable actions to mitigate its damages. 12.01.2 If the Authority is deemed to be in noncompliance with laws or regulations governing access to secure areas of the Airport and to the areas of the Airfield and said non-compliance is the result of or due to the negligence or willful act or omission of the Airline or of any of the Airline's employees, agents, or contractors and such breach results in a civil penalty action against the Authority, the Airline agrees to reimburse the Authority for all expenses, including reasonable attorney fees, incurred by the Authority in defending against the civil penalty action and for any civil penalty or settlement amount paid by the Authority as a result of being deemed in non-compliance. The Authority shall give the Airline reasonable notice of any allegation, investigation, or proposed or actual civil penalty sought for such non-compliance. 12.01.3 The provisions of this Section 12.01 shall survive the expiration, termination, or early cancellation of this Agreement for claims, suits, demands, actions, liabilities, loss, or damage, which occur prior to the termination or early cancellation of this Agreement. 12.02 Required Insurance Coverage. The Airline, at its sole cost and expense, shall throughout the Period of this Agreement, keep all of its operations on the Airports, and its obligation to indemnify the Authority pursuant to Section 12.01, continuously and fully insured in accordance with this section of this Agreement. The minimum amounts and types of insurance coverage required hereunder shall in no event be construed to limit or modify the Airline's obligation to indemnify the Authority as set forth in Section 12.01. 12.02.1 Airline Liability Insurance This insurance shall be maintained in respect of all aircraft owned, leased or operated by the Airline for bodily injury or death and property damage liability in a combined single limit amount of not less than two hundred million dollars ($200,000,000) per occurrence and shall include aircraft liability, airport liability, passenger liability and baggage and cargo liability. Provided, however, if the Airline operates at the Airports only as a Regional/Commuter Air Carrier, the Airline shall maintain aircraft liability insurance in a combined single limit amount of not less than fifty million dollars ($50,000,000) per occurrence. A twenty-five million dollars ($25,000,000) per occurrence sub- limit for personal injury, bodily injury (including death) and property damage liability shall cover premises-operation, medical payments, contractual liability, liability of independent contractors, personal injury, and fire legal liability. If the Airline operates a club or "VIP" room serving alcoholic beverages, liquor liability insurance must be provided. 12.02.2 Comprehensive Automobile Liability Insurance. This insurance shall cover owned, hired, and nonowned vehicles against death, bodily injury, and property damage claims, in a combined single limit amount of not less than five million dollars ($5,000,000). 12.02.3 Workers' Compensation and Employers' Liability. This insurance shall provide Virginia Statutory Limits with an All States Endorsement and one million dollars ($1,000,000) in Employer's Liability coverage. 12.03 Insurance Companies; Certificates; Self Insurance; Review of Coverage. 12.03.1 All insurance shall be in a form and with an insurance company or companies that is reasonably acceptable to the Authority, and, if a domestic insurer, rated B+10 or better under the Best rating system. Said insurance shall be in occurrence form, not claims made. 12.03.2 On or before the Effective Date, an original Certificate or Certificates of Insurance shall be transmitted to the Authority providing evidence that the required insurance coverage has been procured by the Airline and is in effect on the Effective Date in the types and amounts required by this Article. Said Certificate(s) shall clearly list the Metropolitan Washington Airports Authority as an additional named insured on the liability policies with respect to the Airline's indemnity obligation under Section 12.01. Further, said Certificate(s) of Insurance shall unequivocally provide thirty (30) days advance written notice to the Authority prior to any material change, cancellation, or non-renewal of coverage thereunder. The Certificate(s) shall be signed by, or bear the facsimile of, a representative of the insurance company authorized to bind that company. 12.03.3 All insurance policies required hereunder may be written to include a reasonable retention or deductible. Said retention or deductible shall be subject to the approval of the Authority which approval shall not be unreasonably withheld. 12.03.4 Notwithstanding anything to the contrary in this Article, the Authority will allow the insurance coverage required by Section 12.02 herein to be provided through a self-insurance plan established by the Airline; provided that the self-insurance plan may consist of a combination of primary, excess umbrella insurance and a self-insured retention, and the total of insurance and self insurance protection is no less than the limits stated in this Article. The self-insurance plan must be approved in writing by the Authority prior to becoming effective at the Airports. An Airline requesting the Authority's approval of a self-insurance plan must submit a copy of its self-insurance plan, current financial statement showing the limits of its established self-insurance retention and proof of the primary and excess umbrella insurance. The Authority shall have thirty (30) days to review the proposed self-insurance plan. If the self- insurance plan is approved by the Authority and becomes effective, the Airline shall not increase the self-insurance retention levels stated in the self-insurance plan approved by the Authority without the approval of the Authority. 12.03.5 The Authority reserves the right to periodically review any and all policies of insurance and to request reasonable adjustments in the limits of coverage required hereunder from time to time throughout the Period of this Agreement, but not more frequently than once every two years. The Authority shall provide the Airline with such request in writing and the Airline shall comply within sixty (60) days from the receipt thereof. ARTICLE 13. AUTHORITY REMEDIES 13.01 Default. The occurrence of any of the following events shall be considered an event of default by the Airline: 13.01.1 The Airline becomes insolvent (as such term is defined under Section 101 of the Federal Bankruptcy Code, 11 U.S.C. 101 et seq., or any successor statute thereto); or fails to pay its debts generally as they mature; or takes the benefit of any present or future Federal or state insolvency statute; or makes a general assignment for the benefit of creditors, or files a voluntary petition in bankruptcy or a petition or answer seeking an arrangement of its indebtedness under the Federal Bankruptcy Code or under any other law or statute of the United States or of any state thereof, or consents to the appointment of a receiver, trustee, custodian, liquidator, or other similar official, of all or substantially all of its property; or an order for relief shall be entered by or against the Airline under any chapter of the Federal Bankruptcy Code. 13.01.2 The Airline is adjudged a debtor or bankrupt by order or decree of a court, or an order is made approving a petition filed by any of the Airline's creditors or by any of its stockholders, seeking its reorganization or the restructuring of its indebtedness under the Federal Bankruptcy Code or under any other law or statute of the United States or any state thereof, and such order or decree shall not be stayed or vacated within sixty (60) days of its issuance. 13.01.3 A petition under any chapter of the Federal Bankruptcy Code or an action under any Federal or state insolvency law or statute shall be filed against the Airline and is not dismissed or stayed within sixty (60) days after the filing thereof. 13.01.4 A receiver, trustee, custodian, liquidator, or other similar official takes possession or control of all or substantially all of the property of the Airline by or pursuant to, or under authority of any legislative act, resolution, or rule, or any order or decree of any court or governmental board, agency, or officer, and such possession or control continues in effect for a period of sixty (60) days. 13.01.5 The Airline becomes a corporation in dissolution. 13.01.6 The transfer, passing, or devolving of any interests or rights of the Airline hereunder, by operation of law or otherwise1 to any other person, firm, corporation, or other entity, by, in connection with, or as a result of any bankruptcy, insolvency, trusteeship, liquidation, or other proceedings or occurrence described in Paragraphs 13.01.1 through 13.01.5. 13.01.7 The discontinuance by the Airline of its Air Transportation Business at the Airports for a period of thirty (30) consecutive days or for a period of sixty (60) days in any Fiscal Year; provided, however, that suspension of operations by the Airline during a strike or work stoppage by its employees at the Airports, or for similar reasons beyond the control of the Airline, shall not be a discontinuance of operations. 13.01.8 The voluntarily discontinued use or abandonment by the Airline for a period of thirty (30) consecutive days of all, or a portion, of its Premises or Equipment at one or both Airports and the failure to remedy this condition within thirty (30) days of notice to remedy same from the Authority. 13.01.9 The failure of the Airline to pay rentals, fees, and charges or any other payment required by this Agreement when due and the expiration of the period, if any, provided for herein after which said payment due becomes delinquent, except, however, in the event of a dispute over a payment, the Airline shall not be in default provided that the Airline has presented, at the time the payment is due, the dispute in detail and in writing, to the General Manager of the Authority. The decision of the General Manager will reinstate or modify the amount due and the due date. The Airline shall pay the amount due as specified by the General Manager within ten (10) days of the receipt of notice from the General Manager. If a dispute remains over that amount, the Airline agrees to pay the amount claimed by the Authority while pursuing its remedies. 13.01.10 The failure of the Airline to maintain the minimum insurance levels required in Articles 11 and 12 of this Agreement. 13.01.11 The failure of the Airline to provide Contract Security required pursuant to Section 8.13. 13.01.12 The conduct of any business, practice, or performance of any act at the Airport which is not specifically authorized herein or by any other agreement between the Authority and the Airline, if said business or act does not cease permanently within thirty (30) days of receipt of the Authority's written notice to cease said business, practice, or act. 13.01.13 The nonperformance by the Airline of any other material covenant, condition, term, or agreement required to be performed by the Airline herein, and the continued failure of the Airline (i) to remedy such nonperformance within a thirty (30) day period after receipt of written notice from the Authority to remedy the same; or (ii) to diligently commence and proceed towards a remedy for such nonperformance which cannot be remedied within such thirty (30) day period in which event the Airline shall have the burden of proving that the nonperformance cannot be remedied within thirty (30) days, that it is proceeding with diligence to remedy same, and that such nonperformance will be remedied within a reasonable period of time. 13.01.14 The issuance of an order or the taking of action by any court or governmental authority having jurisdiction over the Airline's operations which for a period of thirty (30) days substantially limits or prohibits the Airline's operations at the Airports. Provided, however, that before it invokes its remedies for a default under this Paragraph 13.01.14, the Authority will have reasonably determined that the material adverse consequences of a default herein cannot be substantially eliminated by the procedures available to the Authority under Article 17. 13.02 Remedies. 13.02.1 In addition to any remedy provided by law, and except for defaults under Paragraph 13.01.8, if the Airline shall be in default under this Agreement, and if the notice of default to the Airline stated that this Agreement could, as a result thereof, be terminated, the Authority shall have the right, in its sole discretion, to terminate this Agreement. The termination may be effective in not less than ten (10) calendar days from the date of written notice of termination from the Authority unless the Airline has cured the default during this period. 13.02.2 The Authority's remedies for a default under Paragraph 13.01.8 includes the right to reclaim, in its discretion, the Premises that have been abandoned and to delete same from the Airline's Agreement. Such reclamation may be effective in not less than ten (10) calendar days from the date of written notice from the Authority. Nothing herein shall preclude the Authority from terminating this Agreement in its entirety in the event that the Airline's default under Paragraph 13.01.8 relates to all of its Premises at both Airports. Nothing herein shall, in the event of a default under Paragraph 13.01.8, preclude the Authority, as an alternative to reclaiming the Premises or Equipment or terminating this Agreement, from continuing to hold the Airline responsible for the performance of this Agreement for the Period thereof. 13.02.3 Upon the effective date of termination or reclamation under Paragraphs 13.02.1 or 13.02.2, respectively, the Authority may re-enter and take immediate possession of the Premises. Notices of termination or reclamation under Paragraphs 13.02.1 or 13.02.2 shall operate as a notice to quit and any other notice to quit or notice of the Authority's intention to re- enter the Premises is hereby expressly waived. If necessary, the Authority may proceed to recover possession of the Premises under and by virtue of the laws of the Commonwealth of Virginia, or by such other proceedings, including re-entry and possession, as may be applicable. If the Authority elects to terminate this Agreement in whole or in part, everything contained in this Agreement on the part of the Authority to be done and performed shall cease without prejudice to the right of the Authority to recover from the Airline all rentals, fees, charges, and other sums accrued up to the time of termination or recovery of possession by the Authority, whichever is later. Further, the Authority shall use its best efforts to relet the Premises, and, if the full rentals provided for herein plus the costs, expenses, and damages described below shall not be realized by the Authority, the Airline shall be liable for all damages sustained by the Authority, including, without limitation, any deficiency in rentals, fees, and charges, the expenses of placing the Premises in good rentable condition, and reasonable attorneys' fees. The provisions contained in this Section shall be in addition to, and shall not prevent the enforcement of, any claim the Authority may have against the Airline for anticipatory breach of this Agreement. 13.02.4 All rights and remedies of the Authority set forth herein are in addition to all other rights and remedies available to the Authority at law or in equity. All rights and remedies available to the Authority hereunder, at law or in equity, are expressly declared to be cumulative. The exercise by the Authority of any such right or remedy shall not prevent the concurrent or subsequent exercise of any other right or remedy. No delay in the enforcement or exercise of any such right or remedy shall constitute a waiver of any default by the Airline hereunder or of any of the Authority's rights or remedies in connection therewith. The Authority shall not be deemed to have waived any default by the Airline hereunder unless such waiver is set forth in a written instrument signed by the Authority. If the Authority waives in writing any default by the Airline, such waiver shall not be construed as a waiver of any covenant, condition, or term set forth in this Agreement except as to the specific circumstances described in such written waiver. 13.02.5 If the Authority shall institute proceedings against the Airline and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of any subsequent breach of the same or of any other covenant, condition, or term set forth herein, nor of any of the Authority's rights hereunder with regard to any future occurrence of the same or other matter. Neither the payment by the Airline of a lesser amount than the full rentals, fees, and charges due hereunder nor any endorsement or statement on any check or letter accompanying a check for payment of rent or other sums payable hereunder shall be deemed an accord and satisfaction, and the Authority may accept such check or payment without prejudice to the Authority's right to recover the balance of such rent or other sums or to pursue any other remedy available to the Authority. Unless previously agreed to by the Authority in writing, no re-entry by the Authority shall be considered an acceptance of a surrender of this Agreement or Premises. 13.03 To the extent that the Authority's right to terminate this Agreement as a result of an event enumerated in Paragraphs 13.01.1 through 13.01.6 of this Article is determined to be unenforceable under the Federal Bankruptcy Code, as amended from time to time, or under any other statute, then the Airline and any trustee who may be appointed agree (i) to perform promptly every obligation of the Airline under this Agreement until this Agreement is either assumed or rejected under the Federal Bankruptcy Code; (ii) to pay on a current basis all rentals, fees, and charges set forth in this Agreement; (iii) to reject or assume this Agreement within sixty (60) days of a filing of a petition under the Federal Bankruptcy Code; (iv) to cure or provide adequate assurance of a prompt cure of any default of the Airline under this Agreement; and (v) to provide to the Authority such adequate assurance of future performance under this Agreement as may be requested by the Authority, including a tender of Contract Security as set forth in Section 8.13 of this Agreement. 13.04 Special Cancellation Right. In the event that the United States government determines that the Airline has failed to comply with the nondiscrimination covenants set forth in Section 18.04 herein, the Authority shall have the right to cancel this Agreement after such action as the United States government may direct to enforce such covenants has been followed and completed, including exercise or expiration of appeal rights ARTICLE 14. AIRLINE REMEDIES 14.01 Default. The occurrence of the following shall be considered an event of default by the Authority The failure of the Authority to perform any material covenant or term required to be performed by the Authority and the failure continues for thirty (30) days after receipt of written notice from the Airline, or, if by its nature such default cannot reasonably be cured within thirty (30) days, the Authority fails to diligently commence to cure such default within said thirty (30) day period after receipt from the Airline of written notice to remedy the same 14.02 Airline's Remedy. Provided the Airline is not itself in default of this Agreement as set forth in Article 13, the Airline may bring an appropriate action in a court of competent jurisdiction to compel the Authority to perform in accordance with the terms of this Agreement. 14.03 Termination. At any time when no Bonds are Outstanding, and if the Airline is not then in default in the payment of any amount due from it to the Authority hereunder, the Airline may terminate this Agreement by giving the Authority sixty (60) days advance notice upon or after the happening and during the continuance of any one of the following events: (i) The issuance by any court of competent jurisdiction of an injunction in any way preventing or restraining the use of the Airport or any part thereof so as to substantially limit or prohibit the Airline's use of the Airport in the conduct of its Air Transportation Business, and the remaining in force of such injunction, not stayed by way of appeal or otherwise, for a period of at least sixty (60) days; (ii) The enactment of any law, issuance of any order, rule, ordinance, or regulation, or the taking of any action by a Federal, state, or local government body or agency having jurisdiction with respect to the Airport, or the occurrence of any fire, other casualty, act of God or the public enemy, substantially limiting or prohibiting, for a period of at least sixty (60) days, the Airline's use of the Airport in the conduct of its Air Transportation Business; provided, however, that none of the foregoing is instituted or initiated by the Airline or due to any fault of the Airline; (iii) The default by the Authority in the performance of any material covenant or agreement required to be performed by the Authority herein, which default materially and adversely limits or prohibits the Airline's operations at the Airport, and the failure by the Authority to remedy such default after written notice thereof has been delivered to the Authority, unless (a) the Authority takes prompt action to remedy such default within a period of thirty (30) days after receipt from the Airline of such notice, or (b) in the case of any such failure which cannot with due diligence be cured within such thirty (30) day period, the Authority takes corrective action within the thirty (30) day period and diligently pursues such action until the failure is cured. (iv) The substantial limiting or restricting of the Authority's operation of the Airport by action of any Federal, state, local government body or agency having jurisdiction with respect thereto, and the continuance thereof for a period of not less than sixty (60) days, provided such restriction materially and adversely affects the Airline's operations at the Airport. ARTICLE 15. SURRENDER OF PREMISES; HOLDING OVER 15.01 Surrender and Delivery. Immediately upon termination or the expiration of this Agreement, or upon deletion of any portion of the Premises (including TAP) and Equipment leased hereunder in accordance with Article 5 or 17, the Airline shall peaceably surrender and deliver to the Authority the Premises and Equipment that are the subject of said expiration or termination. Premises and Equipment shall be surrendered in good condition, with the exception of ordinary wear from use of the Premises and Equipment for the purpose for which they were leased. After surrender, the Airline agrees to pay to the Authority the costs, if any, incurred by the Authority to bring the Premises and Equipment up to such condition. 15.02 Removal of Property. 15.02.1 Except as provided in Paragraph 15.02.2, nothing herein shall be construed to preclude the Airline from removing from the Airports or otherwise disposing of its personal property, including aircraft, tools, equipment, and trade fixtures, title to which is to remain with the Airline. All Authority property damaged by or as a result of the removal of Airline property shall be promptly restored by the Airline to the condition existing before such damage, at the Airline's sole cost and expense. Such aircraft, tools, equipment, trade fixtures, and other personal property shall be removed upon the expiration of this Agreement or from any portion of the Premises upon the deletion from this Agreement of that portion from the Premises leased hereunder. 15.02.2 Any removal of property by the Airline pursuant to this Section 15.02 shall be subject to any valid lien which the Authority may have thereon and such property shall not be removed from the Airport without the written consent of the Authority. 15.02.3 At the expiration or termination of this Agreement, any personal property of the Airline not removed in accordance with Paragraph 15.02.1 above, at the option of the Authority, may be removed and placed in storage by the Authority at the sole cost of the Airline. If such property is not removed from storage by the Airline within one month after placement therein, the Authority may elect, after notice to the Airline, to take ownership of the property or dispose of the property by either public or private sale and retain the proceeds. Any costs of removal and disposition not covered by such proceeds shall be borne by the Airline. 15.03 Holding Over. In the event the Airline holds over, refuses, or fails to give up the possession of the Premises and Equipment at the expiration or termination of this Agreement, or the relevant portion of Premises and Equipment in the event of expiration or termination of the lease for said portion, without written consent of the Authority, the Airline shall have only the status of a tenant at sufferance and no periodic tenancy will be deemed to have been created. The Airline shall pay reasonable rentals, rates, and charges as then prescribed by the Authority and such rentals, rates, and charges may be different from those prescribed during the Period of the Agreement. Rent shall be paid on a pro rata basis for the period of time that the Airline is in such a hold over status. Further, in the event that the Airline holds over, and if the Authority shall desire to regain possession of the Premises, then the Authority may re-enter and take possession of the Premises. Furthermore, if the Authority so elects, it may accept rent and concurrently commence legal proceedings to regain possession of the Premises. ARTICLE 16. TRANSFER OF PREMISES BY ASSIGNMENT, SUBLETTING, ETC. HANDLING AGREEMENTS 16.01 General. The Airline shall not assign, transfer, convey, sell, mortgage, pledge, or encumber (hereinafter collectively referred to in Article 16 as "assignment") or sublet its Premises or Equipment, without the prior written approval of the Authority. The Airline shall not allow the use of its Premises or Equipment through a handling or services agreement or similar arrangement (hereinafter collectively referred to in Article 16 as "handling agreements") by any other Air Transportation Company without the prior written approval of the Authority. If the Airline fails to obtain prior written approval of any such assignment, sublease, or handling agreement, the Authority, in addition to the rights and remedies set forth in Article 13, shall have the right to refuse to recognize the agreement and the assignee, sublessee or "handled" Air Transportation Company shall acquire no interest in this Agreement or any rights to use Premises or Equipment. 16.02 Authority Approval of Assignments. It shall not be unreasonable for the Authority to disapprove or condition an assignment of the Airline's Premises or Equipment under any or all of the following circumstances, among others: 16.02.1 If the Airline has failed to accommodate a Requesting Airline on reasonable terms prescribed by the Authority in accordance with Article 17. 16.02.2 If said assignment would result in the transfer of fifty percent (50%) or more of any of the following the Airline's linear feet of ticket counter space; square feet of holdroom space; or number of gate positions. 16.02.3 If the assignee is not, and is not willing to become, a Signatory Airline. 16.02.4 If a Signatory Airline, including a Signatory Airline which is not leasing space directly from the Authority because of the unavailability of such space, is, in the determination of the Authority, in need of the Premises and/or Equipment proposed to be assigned; provided, however, that such signatory Airline is willing to take such Premises and Equipment on substantially the same terms and conditions relating to the use of such Premises and Equipment to be assigned as proposed in the assignment. 16.02.5 If the Authority determines that there is adequate space for lease by the proposed assignee directly from the Authority. 16.02.6 If the Authority determines that the proposed assignee is not substantially as creditworthy as the Airline. 16.02.7 Notwithstanding the foregoing, this section shall not be interpreted to preclude the assignment of this Agreement, and the Airline's rights and obligations hereunder, to a parent, subsidiary, or merged company if such parent, subsidiary, or merged company conducts an Air Transportation Business at the Airport at which the Airline is a Signatory Airline and assumes all rights and obligations hereunder. Written notice of such assumption shall be provided by the parent, subsidiary, or merged company thirty (30) days prior to the effective day of such assignment. 16.03 Authority Approval of Subleases. It shall not be unreasonable for the Authority to disapprove or condition a sublease of the Airline's Premises or Equipment under any or all of the following circumstances, among others: 16.03.1 If the Airline has failed to accommodate a Requesting Airline on reasonable terms prescribed by the Authority in accordance with Article 17. 16.03.2 If said sublease would result in the sublease (i) for a period greater than fifty percent (50%) of the remaining Period of the Agreement, and (ii) is for greater than fifty percent (50%) of any of the following Premises the Airline's linear feet of ticket counter space; square feet of holdroom space; or number of gate positions. 16.03.3 If the sublessee is an Air Transportation Company who is not, and is not willing to become, a Signatory Airline. 16.03.4 If a Signatory Airline, including a Signatory Airline which is not leasing space directly from the Authority because of the unavailability of such space, is, in the determination of the Authority, in need of the Premises and/or Equipment proposed to be subleased; provided, however, that such Signatory Airline is willing to take such Premises or Equipment on substantially the same terms and conditions as proposed in the sublease and is willing to provide the Airline with a reasonable security deposit, not to exceed three (3) months' rentals. 16.03.5 If the Authority determines that there is adequate space for lease directly from the Authority by the proposed sublessee or if the sublease does not contain a provision which permits it to be terminated upon notice from the Authority to the parties thereto of the availability of Premises in accordance with Section 1.04. 16.04 Authority Approval of Handling Agreements. It shall not be unreasonable for the Authority to disapprove or condition a handling agreement if the Airline has failed to accommodate a Requesting Airline on reasonable terms prescribed by the Authority in accordance with Article 17. 16.05 Reasons for Disapproval. The circumstances under which the Authority may determine to disapprove or condition assignments, subleases, and handling agreements set forth in Sections 16.02, 16.03, and 16.04 are not intended to be a comprehensive list of all those which the Authority may impose under Section 16.01. 16.06 Method of Obtaining Approval. The Airline, when requesting an approval of an assignment, sublease, or handling agreement under Section 16.01, shall include with its request a copy of the proposed agreement, if prepared, or a detailed summary of the material terms and conditions to be contained in such agreement. Any proposed agreement or detailed summary thereof shall provide the following information (i) the Premises and/or Equipment to be assigned, sublet, or used under a handling agreement; (ii) the terms; (iii) if a sublease, the rentals and fees to be charged; and (iv) all material terms and conditions of the assignment, sublease, or handling agreement the Authority may reasonably require. If approved, the Airline shall submit a fully executed copy of such agreement to the Authority within thirty (30) days prior to the commencement of the assignment or sublease or within fifteen (15) days after the commencement of the handling agreement. 16.07 Administrative Charge. In the event the Airline is authorized by the Authority to sublease any portion of its Premises or Equipment, the Airline may charge such sublessee, in addition to a reasonable charge for any services and Airline owned property provided by the Airline or actual costs other than rental costs incurred by the Airline, reasonable rentals not to exceed one hundred fifteen percent (115%) of the Airlines' rentals for such portion of the Premises and Equipment. 16.08 Airline to Remain Liable. The Airline shall remain fully and primarily liable during the Period of this Agreement for the payment of all of the rental due and payable to the Authority for the Premises and Equipment that are subject to an assignment, sublease, or handling agreement under Section 16.01, and fully responsible for the performance of all the other obligations hereunder, unless otherwise agreed to by the Authority; provided, however, this Section 16.08 shall not apply to Premises and Equipment with respect to which an assignment has been made at the Authority's request pursuant to Paragraph 16.02.4 hereof. 16.09 Authority Determination of Type of Agreement. The Authority shall have the right to examine the terms of any agreement or arrangement submitted to it for approval pursuant to this Article 16, and determine whether such agreement or arrangement is most appropriately characterized as an assignment, sublease, or handling agreement, regardless of the Airline's characterization of such agreement or arrangement. ARTICLE 17. AVAILABILITY OF ADEQUATE FACILITIES 17.01 General. The Authority and the Airline agree that facilities at the Airports are limited and the Airline shall cooperate fully with the Authority's exercise of its obligation to prudently operate and manage the Airports so as to provide adequate facilities for all Air Transportation Companies, including the Airline1 operating or desiring to operate at the Airports. 17.02 Periodic Reallocation of Premises. It is recognized that an allocation of Premises at National occurred in 1989 and is reflected in Exhibits N-B and D-B. It is recognized that an allocation of Premises will occur at Dulles in conjunction with the westerly and easterly expansions of the Main Terminal and said allocation will be consistent with Section 6.04. In addition to any other rights of the Authority, the Authority may, effective the date which is nine (9) months prior to the date of Substantial Completion of the new North Terminal at National and on every third anniversary of the date of Substantial Completion thereafter, reallocate the Airline's Premises and Equipment at National Airport among the Signatory Airlines. In addition to any other rights of the Authority, the Authority may, effective on the date which is the third anniversary of the date of Substantial Completion of the westerly expansion of the Main Terminal at Dulles and on every third anniversary of that date thereafter, reallocate the Airline's Premises and Equipment at Dulles Airport among the Signatory Airlines. Such reallocations may result in the reduction of the Airline's Premises and Equipment and/or cause the Airline to vacate Premises and relocate to other Premises. The reallocation of any Premises shall be accomplished in accordance with a utilization study conducted by the Authority which shall take into account the following factors, among others: (i) Each Signatory Airline's historical, current and reasonably projected frequency of operations; (ii) Each Signatory Airline's number of Enplaning and Deplaning Passengers; (iii) Each Signatory Airline's number of gates; (iv) Each Signatory Airline's linear feet of ticket counter space, square feet of holdroom space and square feet of other Premises; (v) The need to provide Premises and Equipment to a Signatory Airline which is without adequate Premises and Equipment leased directly from the Authority due to the unavailability of such space; (vi) The practicality of the Authority constructing additional Premises within a reasonable period of time; and (vii) The need for the Authority to manage aircraft and passenger activity at the Airport in order to correct an imbalanced use of Airport facilities, including Aircraft Parking Positions, or to minimize or ameliorate congestion in the Terminal or at the curbside. 17.02.1 In making such reallocations, the Authority shall give the Airline, along with other Signatory Airlines at the affected Airport, not less than thirty (30) days written notice of the proposed space reallocations together with the Authority's reasons for the reallocations. The Airline shall during the thirty (30) day period be entitled to respond to the proposed reallocations in writing. A final decision of the Authority shall be in writing from the General Manager and contain the basis therefor along with the effective date of a reallocation, if any. 17.02.2 In implementing such reallocations, the Authority shall attempt to minimize disruptions to the Airline's operations and to preserve the operational integrity of the Airline's Premises during and after such reallocation. 17.02.3 If, as a result of a reallocation under this Section 17.02, the Airline is required to relocate all or a portion of its operations, or to consolidate its operations in its remaining Premises, the Authority shall determine the reasonable cost of such relocation or consolidation, including the unamortized cost on the basis of generally accepted accounting principles of reallocated Airline Operating Facilities and fixed improvements vacated by the Airline, and said costs shall be borne by the Signatory Airline gaining the use of the reallocated Premises or Equipment, and shall be paid to the Airline. 17.02.4 The Authority shall revise the Exhibits hereto, as appropriate, to reflect the resulting modifications of the Agreement, and such amended Exhibits shall be substituted herein. 17.03 Voluntary Accommodation of a Requesting Airline. 17.03.1 The need exists to maximize the use of facilities that are available on a long term basis to the signatory Airlines and to facilitate the entry of new Scheduled Air Carriers and the expansion of service by other Scheduled Air Carriers operating at the Airports (hereinafter collectively referred to as "Requesting Airline(s)"). The Authority hereby expresses a preference to have, to the extent possible, a Requesting Airline's need to use the Airport(s) accommodated by the Signatory Airlines on a voluntary basis. The Airline's voluntary accommodation of a Requesting Airline hereunder shall be subject to the prior execution of a handling agreement or written sublease between the Airline and such Requesting Airline setting forth mutually agreed upon terms, conditions, rates and charges, which handling agreement or sublease shall also require the written approval of the Authority prior to the effectiveness thereof in accordance with Article 16. Any such accommodation agreement made by the Airline and the Requesting Airline may define the priority rights of the Airline. 17.04 Accommodation on Exclusive and Joint Use Premises. 17.04.1 In the event the Authority receives a written request from a Requesting Airline for a type of space leased on an exclusive or joint use basis to others, and the Requesting Airline demonstrates to the satisfaction of the Authority that it has contacted all Signatory Airlines at a level above the local station manager and has exhausted all reasonable efforts to find reasonable accommodations for its proposed operations on the Airport, the Authority shall serve written notice to all Signatory Airlines of the Authority's intention to make a determination, in not less than fifteen (15) calendar days, as to how the Requesting Airline will be accommodated. 17.04.2 The Authority will be guided by all pertinent factors, including Airline's present use and the use planned by the Airline for such Premises in the one hundred eighty (180) days immediately after the request, the present and planned requirements for Air Transportation Companies that the Airline is then accommodating or handling, the compatibility of such Requesting Airline's proposed operations and work force with the Airline's own operations and work force and those of other Air Transportation Companies already using such facilities, and the security of the Airline's and the Requesting Airline's operations. 17.04.3 The Authority may request that planned uses and requirements be documented and submitted in writing to the Authority, and if the Airline requests, the Authority shall treat such planned uses and requirements as confidential, proprietary information. 17.04.4 If the Authority determines that the Requesting Airline can be accommodated on the Airline's Exclusive or Joint Use Premises, the Authority may (i) authorize in writing the Requesting Airline to use the Premises leased to the Airline; (ii) notify the Airline in writing of such authorization and the effective date thereof; and (iii) provide to the Airline and to such Requesting Airline a written statement specifying the required terms and conditions, if any, including whether the Requesting Airline may handle its aircraft and passengers with its own employees or agents, except that the Authority shall not prescribe the rates and charges to be imposed by the Airline upon the Requesting Airline for any services provided by the Airline to the Requesting Airline, other than as prescribed in Article 16. 17.04.5 If the Airline is directed to accommodate a Requesting Airline in accordance with Section 17.04 and Section 17.06, the Airline shall make available to the Requesting Airline for the Requesting Airline's use, the Airline's Exclusive or Joint Use Premises or such portion thereof as shall be determined by the Authority. 17.05 Accommodation on Preferential Use Premises. 17.05.1 In the event the Authority receives a request from a Requesting Airline for a type of space leased on a preferential basis to others, the Authority shall make a determination as to how the Requesting Airline will be accommodated. Promptly thereafter, the Authority shall notify the Airline of any planned accommodation on the Airline's Preferential Use Premises; provided, however, the Authority has determined that the Requesting Airline's schedule is compatible with the Airline's priority use as described in Paragraph 17.05.2 and would not require the Airline to reschedule an existing arrival or departure. The Airline shall, consistent with its right of priority use, as described in Paragraph 17.05.2, accommodate such Requesting Airline as directed by the Authority by providing access to and use of its Preferential Use Premises. 17.05.2 If the Airline is directed to accommodate a Requesting Airline under Paragraph 17.05.1, the Airline shall have the priority use of such Premises at all times except for each period commencing fifteen (15) minutes before the Requesting Airline's next scheduled arrival at a gate and continuing until the earlier of the Requesting Airline's scheduled departure from the gate or forty-five (45) minutes (one hundred twenty (120) minutes for a wide body aircraft) before the next scheduled use of the gate by the Airline assuming there is no other gate available to the Airline for such next scheduled use. The Airline may make a change in its own scheduled use of said facilities by giving the Requesting Airline who is being accommodated at least thirty (30) days notice of any schedule change that would require the Requesting Airline to change its schedule or otherwise discontinue use of said facilities. In the event of any conflicts due to schedule delays of either the Airline or the Requesting Airline, such conflicts shall be resolved in the manner least likely to inconvenience the passengers of both airlines. Such conflicts shall be resolved by the Airline and the Requesting Airline whenever possible. In the absence of such resolution, the Authority shall resolve such conflicts. 17.05.3 Accommodation on Preferential Use Premises shall not be subject to the procedures of Section 17.04, but shall be as directed by the Authority for the operations of aircraft by an Air Transportation Company; provided, however, that the Authority shall not require an accommodation under this Section 17.05 unless there is not a reasonable means of accommodating the Air Transportation Company on Premises and Equipment obtained directly from the Authority, and, if the Requesting Airline is a Signatory Airline, there is not a reasonable means as determined by the Authority, of accommodating the aircraft operations on that Signatory Airline's Premises and Equipment. 17.05.4 For purposes of Paragraph 17.05.1, a direction by the Authority shall be sufficient if given by the manager of the Airport to the Airline's manager of its station for the Airport. 17.06 Use of Equipment. In connection with an accommodation pursuant to Section 17.04 or 17.05, the Authority may also authorize the Requesting Airline to use Equipment or airline- owned equipment; provided, however, that whenever the Requesting Airline is authorized to use airline-owned equipment, the following conditions shall apply (i) such equipment must be essential to the accommodation of the Requesting Airline (e.g., loading bridges and baggage claim and makeup equipment), and (ii) when reasonably required, the Airline may require the Requesting Airline to use the Airline's employees to operate such equipment. 17.07 Indemnification. During the period of accommodation by a Requesting Airline pursuant to Sections 17.04 through 17.06, the Airline shall be relieved of its obligation under this Agreement to indemnify and save harmless the Authority, its officers, directors, employees, or agents with regard to any claim for property damage or personal injury arising out of the accommodation of said Requesting Airline unless such damage or injury is caused by the negligence or willful misconduct of the Airline, its officers, directors, employees, or agents. The Authority shall require the Requesting Airline to agree in writing to indemnify the Authority and the Airline in the manner and to the extent required of the Airline, pursuant to Article 12 hereof. 17.08 Payment by Requesting Airline. Payment by the Requesting Airline to the Airline for accommodation on the Airline's Premises or Equipment or Airline-owned property and for services shall be reasonable and for the Premises or Equipment or Airline-owned property shall not exceed one hundred fifteen percent (115%) of the Airline's cost on a pro-rata basis. The Airline may require a reasonable security deposit from the Requesting Airline, not to exceed three (3) months' payments. In the event of a payment default by the Requesting Airline, the Airline may institute termination procedures in the following manner (i) the Airline shall certify such payment default to the Authority; (ii) the Authority shall have fifteen (15) days in which to pursue appropriate remedies against the Requesting Airline; and (iii) if, after such fifteen (15) day period, the Requesting Airline remains in default, the Airline may terminate the Requesting Airline's use of such Premises, Equipment and airline-owned equipment upon fifteen (15) days' notice. ARTICLE 18. FEDERAL REQUIREMENTS 18.01 Relationship to Federal Lease. This Agreement shall be and remain subordinate to the provisions of the Federal Lease dated March 2, 1987, between the United States Department of Transportation and the Authority, providing for the Authority's lease of the Airports effective June 7, 1987. The Authority agrees to provide the Airline written advance notice of any material amendments to the Federal Lease. At any time after the execution of this Agreement, the United States Department of Transportation, or its successor, shall have the right to declare this Agreement to be superior to the Federal Lease. 18.02 Other Government Agreements. This Agreement shall be and remain subordinate to the provisions of any existing or future agreements between the Authority and the United States government or other governmental authority, relative to the operation or maintenance of the Airports, the execution of which has been or will be required as a condition precedent to the granting of Federal or other governmental funds for the development of the Airport, to the extent that the provisions of any such existing or future agreements are generally required by the United States or other governmental authority of other civil airports receiving such funds. The Authority agrees to use its best efforts to notify the Airline of any provision of which the Authority becomes aware which would materially and adversely modify the material terms of this Agreement. 18.03 Federal Government's Emergency Clause. All provisions of this Agreement shall be subordinate to the rights of the United States of America to operate the Airports or any portion thereof during time of war or declared national emergency in accordance with established lawful procedures. Such rights shall supersede any provision of this Agreement that is inconsistent with the operation of the Airports by the United States of America during a time of war or national emergency. 18.04 Nondiscrimination. 18.04.1 The Airline for itself, its personal representatives, successors in interest, and assigns, as a part of the consideration hereof, does hereby agree as a covenant running with the land that (i) no person on the grounds of race, color or national origin shall be excluded from participation in, denied the benefits of, or be otherwise subjected to discrimination in the use of Premises; (ii) in the construction of any improvements on, over, or under Premises and the furnishing of services thereon, no person on the grounds of race, color or national origin shall be excluded from participation in, denied the benefits of, or be otherwise subjected to discrimination; and (iii) the Airline shall use the Premises in compliance with all other requirements imposed by or pursuant to the Airport and Airway Improvement Act of 1982, as amended or superseded, and any regulations issued thereunder, as well as in compliance with Title VI of the Civil Rights Act of 1964 and 49 CFR, Subtitle A, Part 21, Nondiscrimination in Federally Assisted Programs of the United States Department of Transportation, as said Statute and regulations may be amended. 18.04.2 The Airline acknowledges that the provisions of 49 CFR Part 23, "Participation by Minority Business Enterprise in Department of Transportation Programs," as said regulations may be amended, and such other similar regulations that may be enacted governing Disadvantaged Business Enterprises, may be applicable to the activities of the Airline under the terms of this Agreement, unless exempted by said regulations, and hereby agrees to comply with the applicable regulations. These requirements may include, but not be limited to, compliance with Disadvantaged Business Enterprise or Minority Business Enterprise, as such terms are defined in 49 USC 2204, 49 CFR 23.5, or such other statutes or regulations as may be enacted governing minority or disadvantaged business enterprises, participation goals, the keeping of certain records of good faith compliance efforts, which would be subject to review by the various agencies, the submission of various reports and, if so directed, the contracting of specified percentages of goods and services contracts to Minority and Disadvantaged Business Enterprises. 18.05 Airfield and Sterile Area Security. The Airline expressly acknowledges its responsibility to provide security for the sterile area in accordance with 14 CFR Part 107, "Airport Security," and 14 CFR Part 108, "Airplane Operator Security," as such may be amended from time to time, and with all rules and regulations of the Authority concerning security procedures, including each Airport's approved security program. 18.06 Airport Certification. The Airline shall not operate at the Airports in a manner that prevents or impairs the Authority's ability to meet and maintain compliance with 14 CFR Part 139, "Certification and Operations Land Airports Serving Certain Air Carriers," and other requirements for obtaining, and maintaining, an Airport Operating Certificate from the FAA. ARTICLE 19. GENERAL PROVISIONS 19.01 Rights Reserved to the Authority. All rights not specifically granted to the Airline by this Agreement are reserved to the Authority. 19.02 Actions By the Authority and the Signatory Airlines. Whenever in this Agreement the doing of any act or the exercise of any right by the Airline is conditioned upon receipt of approval, permission, agreement or authorization, the Authority shall promptly render its decision and shall neither unreasonably withhold nor unreasonably condition its approval of a request by the Airline. Whenever in this Agreement any approval is required from the Airline or from a Majority-in-Interest, such decision shall be promptly rendered and shall not be unreasonably withheld or conditioned. 19.03 Majority-in-Interest Approval Procedures. The Authority shall initiate the Majority-in-Interest approval process by delivering the request for approval to the Signatory Airlines at the appropriate Airport for the appropriate Cost Center. The request will be deemed to have been approved unless the Authority receives, within thirty (30) days, written notice of disapproval from the Signatory Airlines representing a Majority-in-Interest at such Airport for such Cost Center. 19.04 Authority Not Liable. Except as specifically provided for in this Agreement, the Authority shall not be under any duty or obligation to the Airline to repair or maintain the Premises, or any portion thereof, or any facilities or equipment constructed thereon. The Authority shall not be responsible or liable to the Airline for any claims for compensation for any losses, damages, or injury, including lost profits, sustained by the Airline resulting from failure of any water supply, heat, air conditioning, electrical power, or sewer or drainage facility, or caused by the natural physical conditions on the Airports, whether on the surface or underground, including stability, moving, shifting, settlement of ground, or displacement of materials by fire, water, windstorm, tornado, act of God, or state of war, civilian commotion or riot, or any other cause or peril beyond the control of the Authority, except to the extent covered by the Authority's insurance. 19.05 Laws, Regulations, and Compliance. 19.05.1 Laws and Regulations. The Airline and the Authority shall each comply with all applicable Federal, state, and local laws, codes, regulations, including regulations of the Authority, ordinances, rules, and orders now or hereafter in force; provided, however, that the Airline or the Authority may, without being considered in breach hereof, contest any of the foregoing as long as such contest is diligently commenced and prosecuted by the Airline or the Authority, as the case may be. 19.05.2 Safety and Fire Regulations The Airline shall conduct its operations and activities under this Agreement in compliance with all safety regulations and directives of the Authority and applicable Federal, state, and local laws. The Airline shall procure and maintain such fire prevention and extinguishing devices as required by the Authority and shall at all times be familiar with and comply with the fire regulations and orders of the Authority. 19.05.3 Security. The Airline understands that the police security protection provided by the Authority is finite and limited to that generally provided to any other airline or business on the Airports and expressly acknowledges that any special security measures deemed necessary or desirable for additional protection of the Premises, equipment, improvements, and the Airline's personal property, and that of its employees and invitees shall be the sole responsibility of the Airline and shall involve no cost to the Authority. 19.05.4 Compliance By Other Tenants. The Authority shall, whenever possible, make reasonable efforts to obtain uniform compliance with the Authority's rules and regulations; however, the Authority shall not be liable to the Airline for any violation or non-observance of such rules and regulations by any user, tenant, concessionaire, other Air Transportation Company, invitee, licensee, or trespasser at the Airports nor shall such violation or non-observance by a user, tenant, concessionaire, other Air Transportation Company, invitee, licensee, or trespasser at the Airports, constitute a waiver of the Airline's obligation to comply with Authority rules and regulations. 19.06 Inspection. The Airline shall allow the Authority's authorized representatives entry to the Premises for the purpose of examining and inspecting said Premises, for purposes necessary, incidental to, or connected with the performance of the Authority's rights and obligations under this Agreement or in the exercise of its governmental functions. Except in the case of an emergency, the Authority shall conduct such inspections during reasonable business hours, and in the presence of the Airline's representative. 19.07 Relationship of the Parties. The Airline is and shall be deemed to be an independent contractor and operator responsible to all parties for its respective acts and omissions, and the Authority shall in no way be responsible therefor. Nothing in this Agreement shall be construed as making the Airline an agent or representative of the Authority for any purpose whatsoever. 19.08 Covenant Not to Grant More Favorable Terms. The Authority shall accord all Signatory Airlines substantially equal treatment and shall not hereafter, during the Period of this Agreement, offer to other Scheduled Air Carriers more favorable rates or terms and conditions at the Airports than those provided in this Agreement for comparable rights and privileges, unless the more favorable rates and conditions are offered to the Airline at the same time; provided, however, nothing herein shall be construed to limit the Authority's rights to distinguish or discriminate among different classes of Air Transportation Companies, or to charge differential rental rates; provided, further, the Airline acknowledges the Surviving Agreements in Exhibits N-K and D-K, that these Surviving Agreements will be accorded priority in the event of a conflict between the terms of a Surviving Agreement and this Agreement, and the Airline agrees that more favorable treatment of one or more Signatory Airlines may result from the implementation of a Surviving Agreement and said treatment shall not be a violation of this covenant specifically or this Agreement generally. 19.09 Quiet Enjoyment. The Authority agrees that, upon payment of the rentals, fees and charges and performance of the covenants and agreements on the part of the Airline to be performed hereunder, the Airline shall peaceably have and, in accordance with the terms hereof, enjoy the Premises and all rights, licenses, services, and privileges of the Airports and their appurtenances granted herein. 19.10 No Individual Liability. No member, officer, agent, director, or employee of the Authority or the Airline shall be charged personally, or held contractually liable by or to the other party, under the terms or provisions of this Agreement, or because of any breach thereof, or because of the execution or attempted execution of this Agreement. 19.11 Waiver of Performance. The failure of the Authority or the Airline, in any one or more instances, to invoke a provision, term, covenant, reservation, condition, or stipulation of this Agreement, or to enforce or take action to enforce, or to demand performance by the other party hereto, or to insist upon a strict performance by the other of any of the provisions, terms, covenants, reservations, conditions or stipulations contained in this Agreement shall not be considered a waiver or relinquishment of the rights to invoke, enforce, demand, or insist thereon, but the same shall continue and remain in full force and effect, and no waiver by either party of any provision, term, covenant, reservation, condition, or stipulation hereof shall be deemed to have been made in any instance unless expressed in writing. In the event any agreement contained in this Agreement is breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to be a waiver of any other breach hereunder. 19.12 Force Majeure. Except as herein provided, neither the Authority nor the Airline shall be deemed to be in default hereunder if either party is prevented from performing any of the obligations, other than the payment of rentals, fees and charges hereunder, by reason of strikes, boycotts, labor disputes, embargoes, shortages of energy or materials, acts of God, acts of the public enemy, riots, rebellion, or sabotage. 19.13 Severability. If any article, section, provision, term, or condition of this Agreement is held to be invalid by a court of competent jurisdiction, the remainder of this Agreement, including the remaining rights and obligations of the Authority and the Airline, shall not be affected thereby. 19.14 Subordination to Indenture. 19.14.1 This Agreement and all rights granted to the Airline hereunder are expressly subordinated and subject to the lien and provisions of the pledges, transfer, hypothecation or assignment made by the Authority in any prior Indenture, or Indenture hereafter executed by the Authority, to issue Bonds. The Authority expressly reserves the right to enter into such Indentures and to make such pledges and grant such liens and enter into such covenants as it may deem necessary or desirable to secure and provide for the payment of Bonds, including the creation of reserves therefor; provided, however, that no such pledges, liens, covenants, or reserves shall have a material adverse affect on the Airline. 19.14.2 The Airline understands that the Authority is and will be the issuer of Bonds, the interest on which, with the exception of taxable Bonds, is intended to be excludable from gross income from the holders of such Bonds for Federal income tax purposes under the Internal Revenue Code of 1986. The Airline agrees that it will not act, or fail to act (and will immediately cease and desist from any action, or failure to act) with respect to the use of the Premises and Equipment leased to the Airline under this Agreement, if such act or failure to act may cause the Authority to be in noncompliance with the provisions of the Internal Revenue Code of 1986 as they may be amended, supplemented, or replaced, or the regulations or rulings issued thereunder, nor will the Airline take, or persist in, any action or omission which may cause the interest on the tax-exempt Bonds not to be excludable from the gross income of the holders thereof for Federal income tax purposes. 19.15 Prohibition Against Exclusive Rights. It is hereby specifically understood and agreed that nothing herein contained shall be construed to grant or authorize the granting of an exclusive right to provide aeronautical services to the public as prohibited by Section 308(a) of the Federal Aviation Act of 1958, as amended, and the Authority reserves the right to grant to others the privileges and right of conducting any or all activities of an aeronautical nature. 19.16 Airline Mergers and Consolidations. If the Airline consolidates with or merges into another corporation or permits one or more other corporations to consolidate with or merge into it, or transfers or conveys all or substantially all of its property, assets and licenses to another corporation, the corporation resulting from or surviving such merger (if other than the Airline) or consolidation or the corporation to which such transfer or conveyance is made shall (i) expressly assume in writing and agree to perform all of the Airline's obligations hereunder, (ii) be qualified to do business in the Commonwealth of Virginia, and (iii) if such corporation shall not be organized and existing under the laws of the United States of America or any state or territory thereof or the District of Columbia, furnish to the Authority an irrevocable consent to service of process in, and to the jurisdiction of the courts of, the Commonwealth of Virginia with respect to any action or suit, in law or at equity, brought by the Authority to enforce the Agreement. If the Airline is the surviving corporation in such a merger, the express assumption referred to in the preceding sentence shall not be required. 19.17 No Third Party Beneficiaries. This Agreement is for the benefit of the parties hereto only and is not intended to and shall not create any rights in or confer any benefits upon any person or entity (including any other Signatory Airline) other than the parties hereto. 19.18 Distribution of Funds Upon Termination. All amounts remaining in any fund or account, including any debt service reserve, established under any Indenture entered into by the Authority shall be distributed or applied in accordance with the provisions of the Indenture under which such fund or account was established. All amounts in any other fund or account established in connection with this Agreement shall be distributed to the Authority, which may use such amounts for any lawful purpose. 19.19 The Airline hereby irrevocably elects (binding the Airline and all successors-in-interest under the Agreement) not to claim depreciation or any investment tax credit with respect to any Project or Additional Project financed with the proceeds of Bonds. 19.20 Notices. Except as specifically provided elsewhere in this Agreement, any notice given under the provisions of this Agreement shall be in writing and shall be delivered personally or sent by certified or registered mail, postage prepaid -- To Authority:General Manager Metropolitan Washington Airports Authority 44 Canal Center Plaza Alexandria, Virginia 22314 To Airline: or to such other respective addresses as the parties may designate to each other in writing from time to time. Notice by certified or registered mail shall be deemed given three (3) days after the date that such notice is deposited in a United States Post Office. 19.21 Governing Law. This Agreement shall be governed by and in accordance with the laws of the Commonwealth of Virginia. 19.22 Venue. To the extent allowed by law, the venue for any action arising from this Agreement shall be Arlington County, Virginia, for National Airport and Loudoun County, Virginia, for Dulles Airport. 19.23 Capacity to Execute. The individuals executing this Agreement personally warrant that they have full authority to execute this Agreement on behalf of the Airline or the Authority as the case may be. 19.24 Execution. The parties hereto acknowledge that they have thoroughly read this Agreement, including any exhibits or attachments hereto and have sought and received whatever competent advice and counsel was necessary for them to form a full and complete understanding of all rights and obligations herein. The parties further acknowledge that this Agreement is the result of extensive negotiations between the parties and shall not be construed against the Authority by reason of the preparation of this Agreement by the Authority. 19.25 Clear Title. The Authority covenants that at the granting and delivery of this Agreement, it has the right and authority to lease the Premises and Equipment to the Airline as set forth in this Agreement. 19.26 Binding Effect. The terms, conditions, and covenants of this Agreement shall inure to the benefit of, and be binding upon, the parties hereto and upon their successors, assigns and sublessees, if any. This provision shall not constitute a waiver of any conditions regarding assignment or subletting contained in this Agreement. 19.27 Entirety of Agreement The parties agree that this Agreement sets forth the entire Agreement between the parties, and that there are no promises or understandings other than those stated herein. Except as otherwise provided in this Agreement, none of the provisions, terms, and conditions contained in this Agreement may be added to, modified, superseded, or otherwise altered, except by written instrument executed by the parties hereto. IN WITNESS WHEREOF, this Airport Use Agreement and Premises Lease is duly executed by the AUTHORITY and WESTAIR COMMUTER AIRLINES as of the dates shown below, intending themselves to be legally bound hereby. WESTAIR COMMUTER AIRLINES By: Title: Date: METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By: General Manager Date: SECRETARY'S CERTIFICATE I, __________________________________, certify that I am the Secretary of the Corporation named as Airline herein; that __________________________________, who signed this Agreement on behalf of the Airline was then ______________________________ of said Corporation; that said Agreement was duly signed for in behalf of said Corporation by authority of its governing body, and within the scope of its corporate powers. _______________________________ ______ (Secretary's Signature (Corporate Seal) WA990750.097/2+ WHEREAS, the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY (hereinafter referred to as the "Authority") and WESTAIR COMMUTER AIRLINES (hereinafter referred to as the "Airline") have entered into Agreement No. 4-90-A040, providing for the use of facilities and lease of space at Washington National Airport and Washington Dulles International Airport; and WHEREAS, a prior agreement between the Authority and other airlines operating at Washington Dulles expires by its own terms on December 31, 1990, and certain passenger boarding gates and other premises revert to the Authority and become available for lease; and WHEREAS, the Airline has been utilizing one of the passenger gates under a sublease with another airline, and desires to continue the lease of the premises from the Authority; and WHEREAS, the Authority agrees to lease the premises to the boarding Airline. NOW, THEREFORE, the Parties hereto agree as follows: As provided for in subparagraph 6.05, Modification of Premises, Area E-270, consisting of 1,459 square feet of space and known as the Gate A-i Hold Room, is added to the Airline's leased premises at Washington Dulles, effective January 1, 1991, as shown on the attached Exhibits D-B-1A and D-B-1, p.10. All other terms and conditions of the Agreement remain unchanged. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard, Manager Finance and Administration Division Washington Dulles International Airport Date WESTAIR COMMUTER AIRLINES By Title Date SECRETARY'S CERTIFICATE I, ___________________, certify that I am the secretary of the corporation named as the Airline herein; that ___________________, who signed this amendment on behalf of the Airline, was then _________________ of said corporation; that said amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. ______________________________ (Corporate Seal) Secretary's Signature METROPOLITAN WASHINGTON AIRPORTS AUTHORITY WASHINGTON DULLES INTERNATIONAL AIRPORT AIRLINE PREMISES EXHIBIT The following space is leased to ATLANTIC COAST AIRLINES, a division of WESTAIR COMMUTER AIRLINES, as provided for in this Agreement: PAP (P) RENTAL RATE SQUARE AREA/NUMBER/PURPOSE or PER SQUARE ANNUAL FEET FOOT TAP (T) RATE PER ANNUM Type 2 Space - Ticket Offices; Administrative and Upper Level Offices; VIP Rooms; Hold Rooms Exhibit D-B-1, p.5 W-200 T 169 Administrative Office W-201 T 213 Administrative Office W-202 T 260 Administrative Office W-203 T 84 Administrative Office W-210 Gate A-11 T 1,833 Hold Room W-220 Gate A-12 1,833 Hold Room Exhibit D-B-1, p.10 E-270 Gate A-1 Hold T 1,459 Room TOTAL Type 2 5,851 $ 83.37 $487,79 Space 7.87 TOTAL ANNUAL RENTAL EFFECTIVE $487,79 1/1/91: 7.87 TOTAL MONTHLY RENTAL EFFECTIVE $ 1/1/91: 40,649. 82 THIS AMENDMENT NO. 2 is made effective as of January 1, 1992, by and between the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, a California corporation with its principal office in Sterling, Virginia ("ACAI"), and ATLANTIC COAST AIRLINES, a Delaware corporation, with its principal office in Sterling, Virginia ("ACA") (collectively referred to in this Amendment as the ("Airline") to Agreement No. 4-90-A040 (the "Agreement"). WHEREAS, the Agreement provides that the Airline lease the aircraft parking positions connected to the preferential use holdrooms leased by the Airline under the Agreement. NOW, THEREFORE, the Parties hereto agree as follows: As provided for in Article 8.04, Aircraft Parking Position Charges and Dulles Jet Apron Fees, the preferential use aircraft parking positions for Gates A-1, A-11, and A- 12, all narrow-bodied aircraft positions, are added to the Airline's leased premises at Washington Dulles, effective January 1, 1992, as shown on the attached Exhibit D-B-1A and Exhibit D-B-1, p.5 and 10. All other terms and conditions of the Agreement remain unchanged. WITNESS the following signatures: METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard, Manager Finance and Administration Division Washington Dulles International Airport ATLANTIC COAST AIRLINES, a California Corporation By Title SECRETARY'S CERTIFICATE I, ___________________, certify that I am the Ass't. secretary of the corporation named as Atlantic Coast Airlines, Inc., herein; that ___________________, who signed this amendment on behalf of the Airline, was then _________________ of said corporation; that said amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. ______________________________ (Corporate Seal) Secretary's Signature ATLANTIC COAST AIRLINES, a California Corporation By Title SECRETARY'S CERTIFICATE I, ___________________, certify that I am the Ass't. secretary of the corporation named as Atlantic Coast Airlines, Inc., herein; that ___________________, who signed this amendment on behalf of the Airline, was then _________________ of said corporation; that said amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. ______________________________ (Corporate Seal) Secretary's Signature METROPOLITAN WASHINGTON AIRPORTS AUTHORITY WASHINGTON DULLES INTERNATIONAL AIRPORT AIRLINE PREMISES EXHIBIT The following space is leased to ATLANTIC COAST AIRLINES as provided for in this Agreement: PAP (P) RENTAL RATE SQUARE AREA/NUMBER/PURPOSE or PER SQUARE ANNUAL FEET FOOT TAP (T) RATE PER ANNUM Type 2 Space - Ticket Offices; Administrative and Upper Level Offices; VIP Rooms; Hold Rooms Exhibit D-B-1, p.5 W-200 T 169 Administrative Office W-201 T 213 Administrative Office W-202 T 260 Administrative Office W-203 T 84 Administrative Office W-210 Gate A-11 T 1,833 Hold Room W-220 Gate A-12 1,833 Hold Room Exhibit D-B-1, p.10 E-270 Gate A-1 Hold T 1,459 Room TOTAL Type 2 5,851 $ 61.99 $362,70 Space 3.49 Aircraft Parking Positions Exhibit D-B-1, p.5 Gate A-11 Narrow- T $13,750 body .32 Gate A-12 Narrow- T $13,750 body .32 Exhibit D-B-1, p.10 Gate A-1 Narrow- T $13,750 body .32 TOTAL Aircraft Parking $41,250 Position Charges .96 TOTAL ANNUAL RENTAL EFFECTIVE $403,95 1/1/91: 4.45 TOTAL MONTHLY RENTAL EFFECTIVE $ 1/1/91: 33,662. 87 Mr. Barron Beneski Atlantic Coast Airlines 1 Export Drive Sterling, VA 22170 Dear Mr. Beneski: Enclosed is proposed Amendment No. 3 to Agreement No. 4-90-A040 providing for the lease of the Gate A-2 passenger holdroom and the associated aircraft parking position at Washington Dulles. Please have three copies of the amendment signed, your Secretary's Certificate completed, and return the copies to me. The extra copy is for your file. When the amendment is executed on behalf of the Authority, a fully executed copy will be returned to you. If you have any questions about this issue, please call James Flanagan of my staff on 703-661-2911. Sincerely, Keith W. Meurlin Airport Manager Enclosures KWM:lge MA-230A:JMFlanagan & MA-232:DSMorris:lge:661-2911:4/13/93 Ltr revised per MA-7:DMorris:lge:661-2907:6/14/93 cc: MA-1/2, 20, 22(Wenneson) w/enc., 50, 53 w/enc., 130 w/enc., 200(2), 230 (WP.Jim-1--AM3-A040.con) THIS AMENDMENT NO. 3 is made effective as of April 1, 1993, by and between the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, INC., a California corporation with its principal office in Sterling, Virginia ("ACAI"), and ATLANTIC COAST AIRLINES, a Delaware corporation, with its principal office in Sterling, Virginia ("ACA") (collectively referred to in this Amendment as the "Airline") to Agreement No. 4-90-A040 (the "Agreement") as amended on January 10, 1992. WHEREAS, the Airline desires to lease an additional passenger boarding gate and associated aircraft parking position to handle an increase in its operations at Washington Dulles; and WHEREAS, the Authority agrees to lease such space and gate, which had previously been designated as airline common use assigned premises, to the Airline. NOW, THEREFORE, the Parties hereto agree as follows: As provided for in subparagraph 6.05, Modification of Premises, Area E-260, consisting of 1,877 square feet of space and known as the Gate A-2 Hold Room, and Aircraft Parking Position A-2, a narrow-body aircraft position, is added to the Airline's leased premises at Washington Dulles, effective April 1, 1993, as shown on the attached Exhibits D- B-1A and D-B-1, p.10. All other terms and conditions of the Agreement remain unchanged. Amendment No. 3 Agreement No. 4-90-A040 Page 1 of 3 Pages WITNESS the following signatures: METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard, Manager Finance and Administration Division Washington Dulles International Airport ATLANTIC COAST AIRLINES, INC. a California Corporation By Title SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named as Atlantic Coast Airlines, Inc., herein; that , who signed this amendment on behalf of the Airline was then of said corporation; that said amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature Amendment No. 3 Agreement No. 4-90-A040 Page 2 of 3 Pages ATLANTIC COAST AIRLINES a Delaware Corporation By Title SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named as Atlantic Coast Airlines herein; that , who signed this amendment on behalf of the Airline was then of said corporation; that said amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature THIS AMENDMENT NO. 4 is made effective as of May 1, 1994, by and between the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, INC., a California corporation with its principal office in Sterling, Virginia ("ACAI"), and ATLANTIC COAST AIRLINES, a Delaware corporation, with its principal office in Sterling, Virginia ("ACA") (collectively referred to in this Amendment as the "Airline"). WHEREAS, the Authority has constructed an unenclosed, covered baggage sort facility which the Airline desires to lease to support its operations at Washington Dulles; and WHEREAS, the Authority desires to develop a portion of the Airline's Gate A-11 passenger holdroom for use as a food and beverage concession area, and agrees to reduce the Airline's leased premises to reflect this change. NOW, THEREFORE, the Parties hereto agree as follows: As provided for in subparagraph 6.06, Modification of Premises, the following changes are made to the Airline's leased premises at Washington Dulles, effective May 1, 1994, as shown on the attached Exhibits D-B-1A (IAD) and D-B-1, pages 5 and 16a: 1. Add Area TB-400 consisting of 9,979 square feet of Type 6 unenclosed, covered space for a baggage sort facility. 2. Add Area TB-401, consisting of 7,258 square feet of Type 7 uncovered equipment storage area adjacent to the baggage sort facility. 3. Reduce the size of Type 2 Holdroom W-210 by 127 square feet to 1,706 square feet, for use as a food and beverage concession area. All other terms and conditions of the Agreement remain unchanged. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By _________________________________________________ Charles C. Erhard, Manager Finance and Administration Division Washington Dulles International Airport Date _______________________________________________ ATLANTIC COAST AIRLINES, INC. a California Corporation By _________________________________________________ Title ________________________________________________ Date ________________________________________________ SECRETARY'S CERTIFICATE I, _______________________, certify that I am the Chief Financial Officer of the corporation named as Atlantic Coast Airlines, Inc., herein; that Kerry Skeen, who signed this amendment on behalf of the Airline was then President of said corporation; that said amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. _________________________ (Corporate Seal) Chief Financial Officer & Assistant Secretary's Signature METROPOLITAN WASHINGTON AIRPORTS AUTHORITY WASHINGTON DULLES INTERNATIONAL AIRPORT AIRLINE PREMISES EXHIBIT The following space is leased to ATLANTIC COAST AIRLINES as provided for in this Agreement: PAP (P) RENTAL RATE or SQUARE PER SQURE FOOT ANNUAL AREA NUMBER/PURPOSE TAP (T) FEET PER ANNUM RENTAL Type 2 Space - Ticket Offices; Administrative and Upper Level Offices; VIP Rooms; Holdrooms Exhibit D-B-1, p.5 W-200 Administrative Office T 169 W-201 Administrative Office T 213 W-202 Administrative Office T 260 W-203 Administrative Office T 84 W-210 Gate A-11 Holdroom T 1,706 W-220 Gate A-12 Holdroom T 1,833 Exhibit D-B-1, p.10 E-260 Gate A-2 Holdroom T 1,877 E-270 Gate A-1 Holdroom T 1,459 TOTAL Type 2 Space 7,601 $65.25 $495,965.25 Type 6 Space - Unenclosed Covered Area Exhibit D-B-1, p.16a Area TB-400 Baggage Sort Facility T 9,979 TOTAL Type 6 Space 9,979 $4.58 $45,703.82 Type 7 Space - Uncovered Equipment Storage Area Exhibit D-B-1, p.16a Area TB-401 Baggage Equipment Staging Area T 7,258 TOTAL Type 7 Space 7,258 $1.15 $8,346.70 Aircraft Parking Positions Exhibit D-B-1, p.5 Gate A-11 Narrow-body T $18,103.00 Gate A-12 Narrow-body T $18,103.00 Exhibit D-B-1, p.10 Gate A-1 Narrow-body T $18,103.00 Gate A-1 Narrow-body T $18,103.00 TOTAL Aircraft Parking Charges $72,412.00 TOTAL ANNUAL RENTAL EFFECTIVE 5/1/94: $622,427.77 TOTAL MONTHLY RENTAL EFFECTIVE 5/1/94: $ 51,868.98 Ms. Amy L. Patterson Manager, Properties and Facilities Atlantic Coast Airlines 1 Export Drive Sterling, VA 22170 Dear Ms. Patterson: Enclosed is proposed Amendment No. 5 to Agreement No. 4- 90-A040, providing for the lease of operations building space at Washington Dulles. Please have three copies of the amendment signed, the Secretary's Certificate completed, and return the copies to me. Upon execution by the Authority, a fully executed copy will be returned to you. The extra copy is for your files. If you have any questions about this issue, please call James Flanagan of my staff on 703-572-2911. Sincerely, Keith W. Meurlin Airport Manager Enclosure (4) KWM:lge MA-230A:JMFlanagan:lge:572-2911:12/13/96 (WP61WIN-- H:\JMF\AM5-A040.CON) cc: MA-1/2, -4 w/enc., -22(Wenneson) w/enc., -130 w/enc., - 200(2), 230 THIS AMENDMENT NO. 5 is made effective as of December 1, 1996, by and between the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, INC., a California corporation with its principal office in Sterling, Virginia ("ACAI"), and ATLANTIC COAST AIRLINES, a Delaware corporation, with its principal office in Sterling, Virginia ("ACA") (collectively referred to in this Amendment as the "Airline"). WHEREAS, the Airline desires to lease operations building Premises at Washington Dulles. NOW, THEREFORE, the Authority and the Airline hereto agree as follows: 1. As provided for in Section 6.05, Modification of Premises, the Airline's Premises are amended, effective December 1, 1996, to add Area BR-201C and a 13.3 percent share of Joint Use Areas BR-200 and BR-210, containing a total of 1,130 square feet of space, as shown on the enclosed Exhibit D- B-1, page 11A. The enclosed Exhibit D-B-1A, dated December 1, 1996, reflects this change and replaces Exhibit D-B-1A, dated October 1, 1996. 2. In accordance with paragraph 7.01.5,, the Airline agrees to be responsible for: a. Interior maintenance, including janitorial services, for the joint use utility, hallway, and restroom premises Areas BR-200 and BR-210, in common with the other tenants leasing space in the Bravo Ramp operations building. b. Maintenance and repair of the heating, ventilation, and air-conditioning (HVAC) production and distribution system exclusively servicing Area BR-201C, in common with the other tenants leasing space in Areas BR- 201B and BR-201A. All other terms and conditions of the Agreement remain unchanged. Amendment No. 5 Agreement No. 4-90-A040 Page 1 of 2 Pages IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard, Manager Finance and Administration Division Washington Dulles International Airport Date ATLANTIC COAST AIRLINES, INC. a California Corporation By Title Date SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named as Atlantic Coast Airlines, Inc., herein; that , who signed this Amendment on behalf of the Airline was then of said corporation; that said Amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature Ms. Amy L. Patterson Manager, Properties and Facilities Atlantic Coast Airlines 1 Export Drive Sterling, VA 22170 Dear Ms. Patterson: Enclosed is proposed Amendment No. 6 to Agreement No. 4- 90-A040, providing for the deletion of your baggage sort building and the associated equipment staging area. As previously agreed, the Authority is demolishing the building and the area will be restored for aircraft parking use. Please have three copies of the amendment signed, the Secretary's Certificate completed, and return the copies to me. Upon execution by the Authority, a fully executed copy will be returned to you. The extra copy is for your files. If you have any questions about this issue, please call James Flanagan of my staff on 572-2911. Sincerely, Keith W. Meurlin Airport Manager Enclosure (4) KWM:lge MA-230A:JMFlanagan:lge:572-2911:7/1/97 (WP61-- H:\JMF\AM6-A040.CON) cc: MA-1/2, -4 w/enc., -22(Wenneson) w/enc., -130 w/enc., - 200(2), 230 THIS AMENDMENT NO. 6 is made effective as of July 1, 1997, by and between the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, INC., a California corporation with its principal office in Sterling, Virginia ("ACAI"), and ATLANTIC COAST AIRLINES, a Delaware corporation, with its principal office in Sterling, Virginia ("ACA") (collectively referred to in this Amendment as the "Airline"). WHEREAS, the Authority and the Airline have agreed to demolish an unenclosed, covered baggage sort facility which has been leased to the Airline, to provide additional aircraft parking area. NOW, THEREFORE, the Authority and the Airline hereto agree as follows: 1. As provided in Section 6.05 of the Agreement, the Airline's Premises are amended, effective July 1, 1997, to delete Area TB-400, containing 9,979 square feet of Type 6 covered space, and Area TB-401, containing 7,258 square feet of Type 7 uncovered space. The enclosed Exhibit D-B-1A (IAD), dated July 1, 1997, reflects this change and replaces Exhibit D-B-1A (IAD), dated December 1, 1996. All other terms and conditions of the Agreement remain unchanged. Amendment No. 6 Agreement No. 4-90-A040 Page 1 of 2 Pages IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard, Manager Finance and Administration Division Washington Dulles International Airport Date ATLANTIC COAST AIRLINES, INC. a California Corporation By Title Date SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named as Atlantic Coast Airlines, Inc., herein; that , who signed this Amendment on behalf of the Airline was then of said corporation; that said Amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature Ms. Amy L. Patterson Manager, Properties and Facilities Atlantic Coast Airlines 515A Shaw Road Dulles, VA 20166 Dear Ms. Patterson: Enclosed is proposed Amendment No. 7 to Agreement No. 4- 90-A040, providing for the lease of unimproved operations building premises at Washington Dulles. As you discussed with my staff, we anticipate these premises will be replaced when alternative premises become available next year. Please have three copies of the amendment signed, the Secretary's Certificate completed, and return the copies to me. Upon execution by the Authority, a fully executed copy will be returned to you. The extra copy is for your files. If you have any questions about this issue, please call James Flanagan of my staff on 572-2911. Sincerely, Keith W. Meurlin Airport Manager Enclosure (4) KWM:lge MA-230A:JMFlanagan:lge:572-2911:10/24/97 (WP61-- H:\JMF\AM7-A040.CON) cc: MA-1/2, -4 w/enc., -22(Wenneson) w/enc., -130 w/enc., - 200(2), 230 THIS AMENDMENT NO. 7 is made effective as of November 1, 1997, by and between the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, a California corporation with its principal office in Sterling, Virginia ("ACA"), and ATLANTIC COAST AIRLINES, INC., a Delaware corporation with its principal office in Sterling, Virginia ("ACAI") (collectively referred to in this Amendment as the "Airline"). WHEREAS, the Airline desires to lease certain unimproved operations building premises at Washington Dulles, and the Authority agrees to such lease, subject to the conditions described below. NOW, THEREFORE, the Parties hereto agree as follows: 1. As provided for in subparagraph 6.05, Modification of Premises, Bravo Ramp Operations Building Area BR-107, consisting of 1,833 square feet of Exclusive Use Premises, and a 23.7 percent share of Areas BR-100 through BR- 110, consisting of 179 square feet of Joint Use Premises, are added to the Airline's premises at Washington Dulles effective November 1, 1997, as shown on the enclosed Exhibit D-B-1, p.11A. The enclosed Exhibit D-B-1A, dated November 1, 1997, reflects this change and replaces Exhibit D-B-1A, dated July 1, 1997. 2. The lease of these premises may be canceled by either Party by providing the other Party with 30 days advance written notice, subject to the availability and lease of alternative replacement premises. 3. The Exclusive Use Premises are in a shell finish condition. The Authority agrees to allow the Airline to occupy the premises in such condition, provided the premises are used only for the storage of aircraft maintenance equipment and components, and other nonflammable, low hazard group S-2 classification materials. The Airline will be responsible for custodial maintenance of the restrooms and other Joint Use Premises, in common with other tenants who may occupy the building, and shall be responsible for maintenance of existing electrical and mechanical equipment and fixtures in the Exclusive Use Premises. All other terms and conditions of the Agreement remain unchanged. Amendment No. 7 Agreement No. 4-90-A040 Page 1 of 2 Pages IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard, Manager Finance and Administration Division Washington Dulles International Airport Date ATLANTIC COAST AIRLINES a California Corporation and ATLANTIC COAST AIRLINES, INC, a Delaware Corporation By Title Date SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named herein; that , who signed this Amendment on behalf of the Airline was then of said corporation; that said Amendment was duly signed for and on behalf of said corporation by authority of its governing body, and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature AMENDMENT NO. 8 TO AGREEMENT NO. 4-90-A040 BETWEEN METROPOLITAN WASHINGTON AIRPORTS AUTHORITY AND ATLANTIC COAST AIRLINES WHEREAS, the Metropolitan Washington Airports Authority ("Authority") and ATLANTIC COAST AIRLINES, a California corporation with its principal office in Sterling, Virginia ("ACA"), and ATLANTIC COAST AIRLINES HOLDINGS, INC., a Delaware corporation with its principal office in Sterling, Virginia ("ACAI") (collectively referred to as the "Airline"), have entered into Agreement No. 4-90-A040 ("Agreement") providing for the use and lease of facilities at Washington Dulles International Airport; and WHEREAS, the Airline desires to lease and use Premises including holdrooms, operations space, offices, and Aircraft Parking Positions suitable for use by a Regional/Commuter Air Carrier; and WHEREAS, the Authority is willing to plan, finance, design, construct, operate, and maintain a Regional Concourse and aircraft parking apron for the Airline at Washington Dulles International Airport under the terms and conditions of the Agreement and as expressed herein; and WHEREAS, the Airline is willing to facilitate the Project, as defined herein, and, in order to induce the Authority to undertake the development of the Regional Concourse and aircraft parking apron is willing to lease Premises in the Regional Concourse along with the associated Aircraft Parking Positions under the terms and conditions of the Agreement and such other terms as expressed herein; NOW, THEREFORE, in consideration of the preceding, and the fees, charges, covenants and agreements contained herein, the Authority and the Airline (the "Parties") agree to amend Agreement No. 4-90-A040 as follows: 1. The Project. The Project for purposes of this Amendment No. 8 consists of the Regional Concourse and adjacent aircraft apron paving and related improvements. a. The Authority will undertake and use its best efforts to plan, finance, design, construct, equip, operate and maintain an approximate 68,100 square foot Regional Concourse with 36 gates that is suitable for the operation of Regional/Commuter Air Carriers at Washington Dulles International Airport. The Regional Concourse, as described in Attachment A, will include facilities for accommodating the enplaning and deplaning of passengers and baggage and include concessions and other facilities and services for the public. Construction of the Regional Concourse is expected to be substantially complete by September 1999. b. In conjunction with the Regional Concourse, the Authority will plan, finance, design and construct an aircraft parking apron adequate for the movement and parking of up to 36 regional/commuter aircraft using the Regional Concourse. Construction of the aircraft parking apron is expected to be substantially complete by September 1999. See Attachment A. 2. The Airline Covenants. a. The Airline agrees that the Regional Concourse will be an Additional Project in Airline Supported Areas and that as such, the Authority cannot proceed with the Regional Concourse unless and until the provisions of Section 10.05.4 of the Agreement are met. b. The Airline hereby covenants that it will support the Authority in its efforts to undertake and complete the Regional Concourse and that the Airline will take all action necessary or appropriate so that the Authority can proceed in a timely manner to complete the Regional Concourse as an Additional Project in an Airline Supported Area. c. The Airline hereby commits to lease from the Authority, and take possession of, the leasable Premises in the Regional Concourse and the associated Aircraft Parking Positions offered to it by the Authority on the Substantial Completion Date of the Project for the duration of the Agreement which shall not be less than 80 percent of the leasable Premises in the Regional Concourse along with the associated Aircraft Parking Positions. The Regional Concourse is in the Airline Supported Areas at Washington Dulles International Airport. 3. Fitout of Space in the Regional Concourse. a. Consistent with paragraph 1 above, the Authority will furnish or contract to furnish all labor, materials, equipment and furnishings to fitout and furnish the public areas of the Regional Concourse, including: a) the gate holdrooms with public area seating, carpeting, public address system, and podium casework; b) the public corridors, stairways, elevators, and restrooms; MUFIDS, and security equipment and cabling; canopies and walkways leading to the Aircraft Parking Positions; conduit and plugs for ground power units; and d) through its concessionaires the concession areas. b. The Authority shall give written notice to the Airline of the estimated Substantial Completion Date of the Project at least one hundred and twenty (120) days prior to that date. Upon receipt of the notice of the estimated Substantial Completion Date, the Airline will be allowed to commence installation of its own equipment and furnishings and otherwise fitout and furnish its exclusively leased club, office, and operations Premises in the Regional Concourse. 4. Authority not liable for delay. If there is any delay in the completion of the Project which delays the use of the Regional Concourse by the Airline beyond the estimated Substantial Completion Date, the Authority shall not be liable to the Airline for failure to complete the Project or deliver possession of the Premises on the estimated Substantial Completion Date. The Authority will notify the Airline of any change in the estimated Substantial Completion Date and the Airline's obligations will remain as agreed to herein with the changed estimated Substantial Completion Date. Failure by the Airline to complete the fitout and furnishing of its exclusively leased Premises shall not delay the Substantial Completion Date for purposes of paragraph 6, below. 5. Substantial Completion Date. On the Substantial Completion Date of the Project, the date of which, unless changed by mutual agreement, shall not be sooner than one hundred and twenty (120) days after the notice given in paragraph 3.b. above, the following shall occur: a. The lease of the Premises in the Regional Concourse and associated Aircraft Parking Positions offered to the Airline shall become effective. Exhibit D-B-1 and D-B-1A shall be deemed amended to add the Airline's Premises and associated Aircraft Parking Positions under the Agreement and all of the provisions, rights, privileges, obligations including rental charges and other fees, terms and conditions of the Agreement as amended shall apply. b. Provided that the Airline has otherwise satisfied all of its requirements for the Authority to issue a certificate of public occupancy, the Airline may occupy its Premises in the Regional Concourse and associated Aircraft Parking Positions for purposes of conducting its Air Transportation Business. The Airline's failure to satisfy all of its requirements for the Authority to issue a certificate of public occupancy shall not delay the effective date of the lease of Premises in the Regional Concourse and associated Aircraft Parking Positions. 6. Rates and Charges. a. For purposes of determining rates and charges under Section 8.03 of the Agreement, the Regional Concourse will be a separate cost Sub-Center ("Regional Concourse Sub- Center"). Other than those costs paid for with PFC revenue, all costs to design, finance, construct, operate and maintain the Regional Concourse, as described under paragraph 1.a. above, and those additional costs allocated to the Regional Concourse under the methodology of Article 8 of the Agreement will be allocated to the Regional Concourse Sub-Center for purposes of determining rates and charges. b. Except as provided in paragraph 8 hereinafter, all other costs to design, finance, construct, and maintain the aircraft movement and parking areas serving the Regional Concourse, as described under paragraph 1.b. above, including the additional costs allocated under the methodology of Article 8 of the Agreement, will be included in the Airfield Cost Center for Washington Dulles International Airport. There will be Aircraft Parking Position Charges as provided for in Section 8.04. of the Agreement assessed to the Airline for the use of the aircraft parking areas serving the Regional Concourse. The Aircraft Parking Position Charges will be established as equivalent to 12 narrow-body air carrier Aircraft Parking Positions for the entire Regional Concourse. That is, three regional/commuter aircraft parking positions will be equivalent to one narrow-body air carrier aircraft parking position for the purpose of assessing the Aircraft Parking Position Charges associated with the Regional Concourse. c. See Attachment B for the estimate of rates and charges of the Regional Concourse with Bonds and PFC's and the estimated Aircraft Parking Position Charges. The amortization period for the Bond financing shall be the life of the Bonds. 7. Bond Financing, Airline Interim Financing, and Passenger Facility Charges (PFC's). The Authority agrees to submit an application to the Federal Aviation Administration (FAA) to impose a PFC and use a portion of the PFC revenue collected, subject to FAA approval, to finance the cost of the construction of those parts of the Regional Concourse eligible for PFC financing. The Airline understands that the application to impose and use PFC revenue may not be approved by the FAA. The Parties agree that, prior to the approval of the application to use PFC revenue, or if the PFC application is not approved, the Parties will pursue either of the following two financing options, as they may mutually decide, to complete the Regional Concourse: a. The Authority may proceed with the usual and customary planning, design, and construction of the Project and pay for such work with the proceeds of Bonds. The Authority agrees that, upon the approval by the FAA to use PFC revenue for the Regional Concourse, the Authority will take reasonable and prudent measures to cause the repayment of the Bonds for those parts of the Regional Concourse eligible for PFC funding up to a limit of the PFC revenue allocated to the Regional Concourse and approved by the FAA. The Airline also understands that to the extent the Project is paid for, in whole or in part, with Bonds before the application to use PFC revenue is approved by FAA, the timing for the repayment of the Bonds for those parts of the Regional Concourse eligible for PFC funding will be subject to applicable laws and regulations. b. b. The Airline may obtain its own Interim Financing from a third party lender and proceed through the lender to fund a portion of the total program cost of the Regional Concourse not to exceed Thirteen Million Dollars ($13 million) and utilize the Authority's construction contract by making construction progress payments to the Authority. The provisions for the Airline's Interim Financing shall be by agreement between the Authority, the Airline, and the Airline's third party lender. The Authority shall fund the balance of the total program cost of the Regional Concourse with Bonds that will total no less than $4.7 million. The program cost of the Regional Concourse is estimated to total $17.7 million. The Authority will not add changes to the Regional Concourse that increase costs unless requested by the Airline and/or unforseen costs occur during construction. The Authority agrees that, upon the approval by the FAA to use PFC revenue for the Regional Concourse, provided such approval occurs no later than one year following the Substantial Completion Date of the Project, the Authority will take reasonable and prudent measures to replace the Airline's Interim Financing with its PFC Revenue Note up to the limit of the PFC funding allocated to the Regional Concourse and approved by the FAA. Should the FAA disapprove or not act on the Authority application within the one year period following the Substantial Completion Date of the Project, the Parties agree that the Authority shall be obligated to replace the Airline's Interim Financing with the proceeds of Bonds. Should the application to use PFC revenue for the Regional Concourse be subsequently approved by the FAA, the Authority will take reasonable and prudent measures to cause the repayment of that portion of the Bonds equal to the limit of the PFC funding allocated to the Regional Concourse and approved by the FAA, with the timing of such repayment of Bonds being subject to applicable laws and regulations. c. c. Should the Airline obtain its own Interim Financing to fund the construction of the Regional Concourse from a third party lender utilizing the Authority's construction contract by making construction progress payments to the Authority, the Authority agrees that it will recognize the interest of that lender in the Regional Concourse and it will execute documents to provide appropriate security for the lender upon the condition, however, that all rights acquired by the lender under such Interim Financing shall be subject to all of the covenants, conditions, and restrictions set forth in Agreement No. 4-90-A040, this Amendment No. 8, and any supplemental agreement entered into by the Authority, the Airline, and the lender providing the Interim Financing. 8. Hydrant Fueling. The Authority will plan, finance, design, and construct a hydrant fueling system to serve the 36 regional/commuter aircraft parking positions of the Regional Concourse as part of the work under the Project completed under paragraph 1.b. above. The costs of this addition to the hydrant fueling system shall not be part of the Project. The Airline agrees to make use of the hydrant fueling system through the Fueling Agent. 9. Maintenance. Maintenance responsibilities for the Regional Concourse and associated Aircraft Parking Positions by the Parties will be as provided for under Exhibit D-D of the Agreement. 10. Cancellation/Termination, Surrender of Premises. a. Notwithstanding that a portion of the Project is to be funded with PFC revenue, the Airline's right to terminate this Amendment No. 8 to Agreement No. 4-90-A040 shall be as specified in the Agreement with respect to Bond financed projects. Further, in addition to the rights of the Authority under Paragraph 2.02.2 of the Agreement, the Authority may, in its sole discretion, terminate the Airline's lease of Premises in the Regional Concourse and associated Aircraft Parking Positions, effective at midnight, December 31, 2004, or December 31 of any year thereafter during the period of the Agreement, provided that the Authority gives one hundred eighty (180) days written notice to the Airline and the Authority terminates the leases and the rights of all other Airlines using the Regional Concourse effective on the same date. b. The Authority may terminate the Airline's lease of Premises in the Regional Concourse and associated Aircraft Parking Positions without terminating the Agreement or leases of Premises elsewhere on the Airport. Article 14, "Surrender of Premises; Holding over," shall apply to any action under this paragraph 10. c. The Airline agrees that, in the event the Authority exercises the right of termination as described in this paragraph 10., the Airline shall be relieved on the date the Authority terminates the lease of Premises of any remaining unamortized costs of the Regional Concourse. 11. All terms and conditions of the Agreement, including the provisions of Article 17 regarding reallocation of Premises and accommodation of other Airlines, shall apply to the Regional Concourse, except that the date for periodic reallocation of Premises in the Regional Concourse, shall be the first anniversary of the Substantial Completion Date of the Regional Concourse or the next date for reallocation of Premises for the Airport in accordance with Section 17.02, whichever is the later date. 12. Any Project cost associated with environmental clean up of the Project site, if any (e.g., remediation of contaminated soil), shall be assigned to the Regional Concourse Sub-Center or to the Airfield Cost Center, as appropriate. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No. 8 as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By _____________________________________________ James A. Wilding President and Chief Executive Officer Date ____________________________________________ ATLANTIC COAST AIRLINES a California Corporation and ATLANTIC COAST AIRLINES HOLDINGS, INC. A Delaware Corporation By _____________________________________________ Michael S. Davis Senior Vice President Customer Service Date _____________________________________________ SECRETARY'S CERTIFICATE I, ____________________________, certify that I am the Secretary of the corporation named herein; that ______________________________, who signed this Agreement on behalf of the Airline was then _____________________________ of said corporation, that said Agreement was duly signed for and on behalf of said corporation by authority of its governing body and is within the scope of its corporate powers. _______________________________ (Corporate Seal) Secretary's Signature Regional Concourse ATTACHMENTS Attachment A Regional Concourse and Aircraft Parking Apron Attachment B Rates and Charges Mr. Jerome J. Barnack Acting Director, Properties and Facilities Atlantic Coast Airlines 515A Shaw Road Dulles, VA 20166 Dear Mr. Barnack: Enclosed is proposed Amendment No. 9 to Agreement No. 4- 90-A040, providing for the lease of passenger holdrooms and aircraft parking positions for Gates A-5, A-6, and A-7 at Washington Dulles, along with additional administrative offices in two Concourse A locations. Please have the original and two copies of the amendment signed by the appropriate official, the Secretary's Certificate completed, and return all three copies to me. The extra copy is for your files. When the amendment is signed on behalf of the Authority, a fully executed copy will be returned to you. If you have any questions, please call Charles Erhard or James Flanagan of my staff on 572-2900. Sincerely, Keith W. Meurlin Airport Manager Enclosure (4) KWM:lge MA-230A:JMFlanagan:lge:572-2911:3/18/98 (WP61--- H:\JMF\AM9-A040.CON) cc: MA-1/2, 4 w/enc., 22(Wenneson) w/enc., 130 w/enc., 200(2) (IAD#004:1/19/98), 230 THIS Amendment No. 9 is made effective as of March 16, 1998, by and between the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, a California corporation with its principal office in Sterling, Virginia ("ACA"), and ATLANTIC COAST AIRLINES, INC., a Delaware corporation with its principal office in Sterling, Virginia ("ACAI") (collectively referred to in this Amendment as the "Airline"). WHEREAS, the Airline desires to lease certain aircraft gates, passenger holdrooms, and administrative offices in Concourse A at Washington Dulles, and the Authority agrees to such lease. NOW, THEREFORE, the Parties hereto agree as follows: As provided for in Section 6.05 Modification of Premises of the Agreement, the Airline's Premises at Washington Dulles are amended, effective March 16, 1998, to add the following Premises: -- Type 2 Holdrooms E-210, E- 220, and E- 230 4,978 square feet --Type 2 Administrative Offices E-231, E-232, E-233, E-234, and E-235 1,010 square feet --Type 2 Administrative Offices E-261, E-262, E-263, and E-264 967 square feet --Narrow-body Aircraft Parking Positions Gates A-5, A-6, and A-7 3 parking positions These Premises are shown on the enclosed drawing Exhibit D-B-1, p.10. The enclosed Exhibit D-B-1A (IAD), dated March 16, 1998, reflects this change and replaces Exhibit D-B-1A (IAD), dated January 1, 1998. All other terms and conditions of the Agreement remain unchanged. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard Airport Administration Manager Washington Dulles International Airport Date ATLANTIC COAST AIRLINES a California Corporation and ATLANTIC COAST AIRLINES, INC. a Delaware Corporation By Title Date SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named as the Airline herein; that who signed this Amendment on behalf of the Airline, was then of said corporation; that said Amendment was duly signed for and on behalf of said corporation by authority of its governing body and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature Mr. Jerome J. Barnack Acting Director, Properties and Facilities Atlantic Coast Airlines 515A Shaw Road Dulles, VA 20166 Dear Mr. Barnack: Enclosed is proposed Amendment No. 10 to Agreement No. 4-90-A040, providing for your relocation to larger operations building premises at Washington Dulles. Please have the original and two copies of the amendment signed by the appropriate official, the Secretary's Certificate completed, and return all three copies to me. The extra copy is for your files. When the amendment is signed on behalf of the Authority, a fully executed copy will be returned to you. If you have any questions, please call Charles Erhard or James Flanagan of my staff on 572-2900. Sincerely, Keith W. Meurlin Airport Manager Enclosure (4) KWM:lge MA-230A:JMFlanagan:lge:572-2911:5/13/98 (WP61--- H:\JMF\AM10-A040.CON) cc: MA-1/2, 22(Wenneson) w/enc., 130 w/enc., 200(2), 230, 460 w/enc. THIS Amendment No. 10 is made effective as of May 1, 1998, by and between the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, a California corporation with its principal office in Sterling, Virginia ("ACA"), and ATLANTIC COAST AIRLINES HOLDINGS, INC., a Delaware corporation with its principal office in Sterling, Virginia ("ACAI") (collectively referred to in this Amendment as the "Airline"). WHEREAS, the Airline desires to relocate to larger operations building premises at Washington Dulles, and the Authority agrees to such lease. NOW, THEREFORE, the Parties hereto agree as follows: 1. As provided for in Section 6.05 Modification of Premises of the Agreement, the following changes are made to the Airline's Premises, effective May 1, 1998: a.Delete the following Premises: -- Bravo Ramp Opera tions Build ing Area BR- 107 1,833 square feet -- Share of Joint Use Premises BR- 100/BR-110 (23.7 percent of 756 square feet) 179 square feet b.Add the following Premises: -- Bravo Ramp Operations Building Areas BR-202, BR-204, and BR-211 3,817 square feet c.Increase the Share of Joint Use Premises BR-200/BR-210 from 101 square feet to 474 square feet These areas are shown on the enclosed lease drawing Exhibit D-B-1, p.11A. The enclosed Exhibit D-B-1A (IAD), dated May 1, 1998, reflects these changes and replaces Exhibit D-B-1A (IAD), dated March 16, 1998. 2. In accordance with paragraph 7.01.5, the Airline will be responsible for interior maintenance, including janitorial services, for the joint use utility, hallway, and restroom premises Areas BR-200 and BR-210, in common with the other tenants leasing space in this Bravo Ramp operations building. The Authority agrees to be responsible for the maintenance and repair of the heating, ventilation, and air-conditioning (HVAC) production and distribution system servicing areas BR-202, BR-204, and BR- 211, as well as the HVAC system servicing area BR-201C previously added to the Airline's Premises by Amendment No. 5 to the Agreement. Amendment No. 10 Agreement No. 4-90-A040 Page 1 of 2 Pages All other terms and conditions of the Agreement remain unchanged. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard, Manager Airport Administration Department Washington Dulles International Airport Date ATLANTIC COAST AIRLINES a California Corporation and ATLANTIC COAST AIRLINES HOLDINGS, INC. a Delaware Corporation By Michael F. Davis Senior Vice President Customer Service Date SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named as the Airline herein; that who signed this Amendment on behalf of the Airline, was then of said corporation; that said Amendment was duly signed for and on behalf of said corporation by authority of its governing body and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature Amendment No. 10 Agreement No. 4-90-A040 Page 2 of 2 Pages Mr. Jerome J. Barnack General Manager - Properties Atlantic Coast Airlines 515A Shaw Road Dulles, VA 20166 Dear Mr. Barnack: Enclosed is proposed Amendment No. 11 to Agreement No. 4-90-A040, providing for the lease of passenger holdrooms and aircraft parking positions for Gates A-3 and A- 4 at Washington Dulles, along with additional administrative offices in Concourse A. Please have the original and two copies of the amendment signed by the appropriate official, the Secretary's Certificate completed, and return all three copies to me. The extra copy is for your files. When the amendment is signed on behalf of the Authority, a fully executed copy will be returned to you. If you have any questions, please call Charles Erhard or James Flanagan of my staff on 572-2900. Sincerely, Keith W. Meurlin Airport Manager Enclosure (4) KWM:lge MA-230A:JMFlanagan:lge:572-2911:7/30/98 (WP61--- H:\JMF\AM11A040.CON) cc: MA-1/2, 22 (Wenneson) w/enc., 130 (Wilkinson) w/enc., 200(2), 230, 460 w/enc. WHEREAS, the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, a California corporation with its principal office in Sterling, Virginia ("ACA"), and ATLANTIC COAST AIRLINES HOLDINGS, INC., a Delaware corporation with its principal office in Sterling, Virginia ("ACAHI") (collectively referred to in this Amendment as the "Airline"), have entered into Agreement No. 4-90-A040 ("Agreement") providing for the use and lease of facilities at Washington Dulles International Airport; and WHEREAS, the Airline desires to lease certain aircraft gates, passenger holdrooms, and administrative offices in Concourse A at Washington Dulles, and the Authority agrees to such lease. NOW, THEREFORE, the Parties hereto agree as follows: As provided for in Section 6.05 Modification of Premises of the Agreement, the Airline's Premises at Washington Dulles are amended to add the following Premises: 1. Effective July 16, 1998: -- Type 2 Holdrooms E-240 and E-250 2,994 square feet -- Narrow-body Aircraft Parking Positions Gates A-3 and A-4 2 parking positions 2. Effective August 1, 1998: -- Type 2 Administrative Offices E- 251, E-252, E-253, E-254, and E-255 985 square feet These Premises are shown on the enclosed drawing Exhibit D-B-1, p.10. The enclosed Exhibits D-B-1A (IAD), dated July 16 and August 1, 1998, reflect these changes and replace Exhibit D-B-1A (IAD), dated July 1, 1998. All other terms and conditions of the Agreement remain unchanged. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No. 11 as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By Charles C. Erhard, Manager Airport Administration Department Washington Dulles International Airport Date ATLANTIC COAST AIRLINES a California Corporation and ATLANTIC COAST AIRLINES HOLDINGS, INC. a Delaware Corporation By Title Date SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named as the Airline herein; that who signed this Amendment on behalf of the Airline, was then of said corporation; that said Amendment was duly signed for and on behalf of said corporation by authority of its governing body and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature WHEREAS, the METROPOLITAN WASHINGTON AIRPORTS AUTHORITY ("Authority") and ATLANTIC COAST AIRLINES, a California corporation with its principal office in Sterling, Virginia ("ACA"), and ATLANTIC COAST AIRLINES HOLDINGS, INC., a Delaware corporation with its principal office in Sterling, Virginia ("ACAHI") (collectively referred to in this Amendment as the "Airline"), have entered into Agreement No. 4-90-A040 ("Agreement") providing for the use and lease of facilities at Washington Dulles International Airport; and WHEREAS, the Authority is responsible under the Agreement for providing the Passenger Conveyances at Dulles; and WHEREAS, the Airline, with the approval of the Authority, is providing supplemental passenger ground transportation to and from the Main Terminal and its aircraft parked on the Dulles Jet Apron; and WHEREAS, the Authority agrees to reimburse the Airline for the costs it incurs in providing its supplemental passenger ground transportation, as approved by the Authority. NOW, THEREFORE, the Parties hereto agree as follows: 1. The Agreement shall be effective when signed by both parties and shall be applicable to costs incurred and approved by the Authority beginning as of January 1, 1998. 2. Section 8.09 Passenger Conveyance Charges is amended by adding the following paragraph after Paragraph 8.09.2: "8.09.3. The Airline shall provide the supplemental passenger ground transportation to and from its aircraft and the Main Terminal in a manner that is acceptable to the Authority and shall be reimbursed by the Authority for the costs of that service in accordance with the following procedures: (i.) The Airline shall select and enter into a contract with a service contractor to provide, operate, and maintain shuttle buses or vans to provide the supplemental passenger ground transportation. The Authority shall not be a party to that contract. The Airline shall submit for the approval of the Authority each contract or amendment to a contract for which a reimbursement will be requested. (ii.) The Airline's supplemental passenger ground transportation shall be used to transport passengers to and from its aircraft parked on the Dulles Jet Apron and the Main Terminal until the Airline relocates its aircraft to the Regional Concourse. Thereafter, the Airline's passengers will be transported to the Regional Concourse by the Authority's Passenger Conveyance system. It is intended that the remainder of the Airline's aircraft will be accommodated at the Main Terminal gates and that the supplemental passenger ground transportation shall be discontinued at that time.. (iii.) The Authority shall reimburse the Airline for the supplemental passenger ground transportation costs approved by the Authority and incurred by the Airline up to a maximum of $110,000 per month. Such costs shall include the vehicle leasing costs for up to seven buses; driver; supervisor/dispatcher labor costs; and vehicle maintenance, insurance, and fueling costs. Costs in excess of the $110,000 per month shall not be eligible for reimbursement unless necessitated by increased passenger levels. (iv.) Costs for services that are not directly related to passenger ground transportation, as well as the Airline's personnel and overhead costs for administering the service contract, are not eligible for reimbursement. (v.) The Authority shall reimburse the Airline by granting the Airline a credit against the monthly fees and charges due to the Authority from the Airline under the Agreement in accordance with the following: Within 45 days after the end of each month, the Airline shall provide to the Authority a certified statement of the costs it incurred, including original paid invoices from the service contractor in sufficient detail and format to compare to the contract terms. In addition, the Airline shall provide a summary of the service levels provided for the month, including the number of buses scheduled per hour for a typical operating day. The Authority shall notify the Airline in writing, within 15 days after receipt of the certified statement, of the approval or disapproval of the certified statement. If disapproved, the reasons for disapproval and the identification of the costs disapproved for reimbursement will be stated. After approval by the Authority, the Airline may apply the approved cost amount as a credit against fees and charges otherwise due to the Authority under the Agreement. (vi.) The certified statement of costs submitted by the Airline and approved by the Authority shall be subject to audit by the Authority. The Airline agrees to maintain all documentation supporting the certified statement for two year and will make that documentation available to the Authority upon request. The Authority reserves the right to adjust the amount of the credit based on subsequent audits and examination of supporting documentation. (vii.) The amount of the approved credits for the supplemental passenger ground transportation shall be added to the Passenger Conveyance charge requirement and recovered as part of the Passenger Conveyance Charge as provided for under Article 8 of the Agreement." All other terms and conditions of the Agreement remain unchanged. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No. 12 as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By James A. Wilding President and Chief Executive Officer Date ATLANTIC COAST AIRLINES a California Corporation and ATLANTIC COAST AIRLINES HOLDINGS, INC. a Delaware Corporation By Title Date SECRETARY'S CERTIFICATE I, , certify that I am the secretary of the corporation named as the Airline herein; that who signed this Amendment on behalf of the Airline, was then of said corporation; that said Amendment was duly signed for and on behalf of said corporation by authority of its governing body and is within the scope of its corporate powers. (Corporate Seal) Secretary's Signature [METROPOLITAN WASHINGTON AIRPORTS AUTHORITY LETTERHEAD] Date Mr. Jerome J. Barnack General Manager, Properties Atlantic Coast Airlines 515A Shaw Road Dulles, VA 20166 Dear Mr. Barnack: Enclosed is a fully executed copy of Amendment No. 13 to Amendment No. 4-90-A040 for the provision and use of boarding devices for individuals with disabilities using small aircraft at Ronald Reagan Washington National Airport and Washington Dulles International Airport. If you have any questions, please contact Ford Larsen at (703) 417-8765 Sincerely, James A. Wilding President and CEO Enclosure WA990760.179/2+ AGREEMENT FOR THE PROVISION AND USE OF BOARDING DEVICES FOR INDIVIDUALS WITH DISABILITIES USING SMALL AIRCRAFT WHEREAS, the Metropolitan Washington Airports Authority (hereafter the "Authority") and Atlantic Coast Airlines (hereafter, the "Airline" and together with the Authority, the "Parties,") have entered into Agreement No. 4-9-A040 (hereafter, the "Agreement") providing for the use and lease of facilities at Ronald Reagan Washington National Airport ("National") and Washington Dulles International Airport ("Dulles") together the "Airports"; and WHEREAS, the Authority and the Airline desire to provide boarding assistance devices for individuals with disabilities who are enplaning onto, or deplaning from, certain small aircraft operated by the Airline at the Airports and to do so in a manner that is at least sufficient to meet the requirements of federal regulations (49 CFR, Part 27) in effect on the date hereof requiring an agreement between the Parties on the provision of boarding devices; and WHEREAS, the Parties are willing to make commitments to the terms and conditions expressed herein; NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Authority and the Airline agree to amend the Agreement as follows: 1. Definitions: Boarding device shall mean a boarding assistance device for individuals with a disability enplaning or deplaning on small aircraft. Small aircraft shall mean aircraft with a capacity of 19 seats or more, but not exceeding 30 seats for passengers exclusive of crew. 2. The Parties agree that they will cooperate with each other to provide boarding assistance to individuals with disabilities who are enplaning onto or deplaning from small aircraft at the Airports by providing mechanical lifts, ramps or other devices that will eliminate the need for employees of the Airline or other persons to lift or carry passengers up, or downstairs, to or from the small aircraft except for extraordinary conditions beyond the control of the Parties. 3. The Authority shall purchase and have available for the use by the Airline at the Airports following boarding devices: a. At National Airport: Two (2) Self-propelled (electric) Wollard Passenger Access Lifts (PAL) 651. b. At Dulles Airport: Two (2) Self-propelled (electric) Wollard Passenger Access Lifts (PAL) 651. 4. The Parties agree that these boarding devices are suitable for providing boarding assistance for individuals with disabilities who seek to enplane onto or deplane from small aircraft other than those aircraft that have been determined by the United States Department of Transportation to be unsuitable for boarding assistance by a lift device. 5. The Authority agrees to make these boarding devices available at the Airports on or before December 2, 1998, and the Airline agrees that, thereafter, it will use said boarding devices or other suitable boarding devices to assist individuals with disabilities at the Airports on the Airline's small aircraft unless (i) circumstances beyond the control of the Airline prevent the Airline from using the boarding devices, or (ii) the United States Department of Transportation determines that such assistance is not required. 6. Nothing herein shall preclude the Airline from purchasing or otherwise providing its own boarding devices for individuals enplaning or deplaning on its aircraft. Also, the Authority may in its discretion provide additional boarding devices of the kind described herein or of some other kind and deploy them at the Airports. 7. The boarding devices purchased by the Authority in accordance with paragraph 3 shall be owned by the Authority. They will be stored on the Airport so as to be accessible by the Airline for use by the Airline at the Airports as provided herein. 8. The Airline may use a boarding device that is owned by the Authority as follows: a. The Airline shall have access to the boarding device on a first come, first serve basis to serve individuals who are present at the Airport. If the Airline is aware in advance of the individual's arrival at the airport of the need for the boarding device, the Airline agrees to acquire the boarding device from the Authority not more than 45 minutes before the scheduled departure of the aircraft or more than 15 minutes before the scheduled arrival. Unless the Authority agrees otherwise, transportation of the boarding device between the place where it is the responsibility of the Airline. When it has concluded using the boarding device, the Airline shall promptly return the boarding device to the storage area and take all appropriate measures to properly store the boarding device. b. Training - The Airline shall assure that each of its employees or agents who operates the boarding device on behalf of the Airline is trained to proficiency in the use of the particular boarding device. The Airline agrees that only individuals so trained shall operate the boarding device. c. Duty to inspect - Prior to each use of the boarding device by the Airline, qualified representatives of the Airline shall inspect the boarding device and following such inspection shall either (a) in the boarding device appears to be fit for its intended use, accept the boarding device for use in accordance with this Agreement, or (b) if the boarding device appears to be in any way damaged, unsafe, broken, improperly or not maintained, missing parts or deficient so as to be unfit for its intended use, promptly notify the Authority and not use the boarding device until such time as the problems identified have been corrected so as to permit the boarding device to be safely used for its intended purpose. 9. Maintenance - If at any time the Airline becomes aware of the need for maintenance or repairs to the Authority's boarding device, the Airline shall promptly notify the Authority in writing of the nature of the maintenance or repairs needed, and refrain from using the boarding device until such time as the Authority has performed such repairs or maintenance as it deems necessary or has granted its written consent to the continued use of the boarding device. The Airline shall make no repairs or alterations to the Authority's boarding device without the prior written consent of the Authority. 10. After the Airline has taken possession of the Authority's boarding device, the Authority's boarding device is to be used exclusively for the purpose of enplaning and deplaning passengers from small aircraft that are owned or operated by the Airline and located at the Airports. The Airline will not permit any other use of the boarding device without the permission of the Authority. 11. The cost of the boarding device shall be recovered by the Authority through the airfield cost center at each Airport. 12. No warranties - The Authority makes no warranty or representation, either express or implied, as to the design or condition of, or as the quality of the material, equipment or workmanship in the boarding devices provided by the Authority and the Authority makes no warranty of merchant ability, or fitness or suitability of the devices for any particular purpose or any component thereof or as to any other matter, it being agreed that all such risks, as between the airline and the benefits of any and all implied warranties of the Authority are hereby waived by the airline. 13. Entire Agreement - The Parties agree that the Agreement as amended herein sets forth the entire agreement between the parties with regard to the provision of boarding devices and there are no promises or understandings other than those stated in the Agreement as amended herein. 14. All other terms and conditions of the Agreement as previously amended remain in effect. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By _________________________________________________ Title ________________________________________________ Date ________________________________________________ ATLANTIC COAST AIRLINES By _________________________________________________ Title ________________________________________________ Date ________________________________________________ SECRETARY'S CERTIFICATE I, _______________________, certify that I am the Secretary of the Corporation named herein; that _______________________, who signed this Agreement on behalf of Atlantic Coast Airlines was the Senior Vice President of said corporation; that this Agreement was duly signed for and on behalf of said Corporation by authority of its governing body, and is within the scope of its corporate powers. _________________________ (Corporate Seal) Secretary's Signature WA990760.178/4+ WHEREAS, the Metropolitan Washington Airports Authority (hereinafter referred to as the "Authority") and ATLANTIC COAST AIRLINES, a California corporation with its principal office in Sterling, Virginia ("ACA"), and ATLANTIC COAST AIRLINES HOLDINGS, INC., a Delaware corporation with its principal office in Sterling, Virginia ("ACAI") (collectively referred to as the "Airline", and together with the "Authority" referred to herein as the "Parties"), have entered into Agreement No. 4-90-A040 ("Agreement") providing for the use of facilities at Washington Dulles International Airport and the lease of Premises; and WHEREAS, the Airline desires to lease and use additional Premises including holdrooms, operations space, offices, and Aircraft Parking Positions suitable for use by a Regional/Commuter Air Carrier; and WHEREAS, the Authority is willing to plan, finance, design, construct, operate, and maintain the additional Premises for the Airline as part of a development project (the Project) as defined herein, and lease same to the Airline at Washington Dulles International Airport under the terms and conditions of the Agreement and as expressed herein; and WHEREAS, the Airline is willing to facilitate the Project and, in order to induce the Authority to undertake the development of the Premises, is willing to commit to lease said Premises under the terms and conditions of the Agreement and such other terms as expressed herein; NOW, THEREFORE, in consideration of the preceding, and of the fees, charges, covenants and agreements contained herein, the Parties agree to amend Agreement No. 4-90-A040 as follows: 1. The definitions in the Agreement apply to this Amendment No. 14 unless expressly stated otherwise. 2. Amendment No. 8 represents a prior agreement between the Parties on the subject of the Project and the financing thereof. This Amendment No. 14 represents the agreement of the Parties as of the date hereof and is a restatement of, and in furtherance of, the agreement reached in Amendment No. 8. In the event of any inconsistencies between the two Amendments, Amendment No. 8 and this Amendment No. 14 are to be construed so as to give full effect to this Amendment No. 14. 3. The Project. The Project for purposes of this Amendment No. 14 consists of the Regional Concourse, adjacent aircraft apron paving including Aircraft Parking Positions and other related improvements. a. The Authority will undertake and use its best efforts to plan, finance, design, construct, equip, operate and maintain a building, also known as the Regional Concourse, containing usual and customary facilities for accommodating passengers and their baggage, concessions, and other facilities to serve the Airline's passengers and others who are associated with the enplaning and deplaning of aircraft on the apron adjacent to the Regional Concourse. The Regional Concourse will be constructed to substantially conform to the drawings attached here to as Exhibit D-B-1 dated January 8, 1999, depicting the Regional Concourse and the apron. b. In conjunction with the Regional Concourse, the Authority will plan, finance, design and construct an aircraft parking apron adequate for the parking and movement of 36 regional/commuter aircraft. The apron when constructed will conform substantially to the drawing attached hereto as Exhibit D-B-1, dated January 8, 1999, depicting the Regional Concourse and the apron. The demarcation of the Aircraft Parking Positions will be proposed by the Airline and approved by the Airport Manager consistent with the Exhibit. 4. Lease of Permanent Premises. The Airline hereby commits to the Authority that, as of the Substantial Completion Date, as provided for in Section 6.02 of the Agreement, Lease of Permanent Premises and Equipment, the Airline, without the need for any further action, will lease from the Authority, subject to all of the terms and conditions herein, the following Permanent Premises: a. Type 2 Preferential Use Holdrooms - 24,480 square feet 203.02, 203.04, 204.03, 204.05, 205.10, and 205.12 b. Type 2 Exclusive Use Club - 204.09 1,330 square feet c. Type 2 Exclusive Use Admin. Offices - 3,413 square feet 202.04, 204.09A, and 204.01 d. Type 4 Exclusive Use Operations Space - 12,052 square feet 102.12, 102.11, 102.07, 202.03, 204.07, 205.02, 205.14, and 401.02 e. Type 6 Preferential Use Covered Walkways 33,896 square feet and Covered Baggage Facility - 203.01, 203.05, 204.02, 204.06, 205.09, 205.13, and 102.05 These Permanent Premises are shown on enclosed drawings Exhibit D-B-1. 5. Fitout of Space in the Regional Concourse. a. Consistent with paragraph 3 above, the Authority will furnish or contract to furnish all labor, materials, equipment and furnishings to fitout and furnish the public areas of the Regional Concourse, including: a) the gate holdrooms with public area seating, carpeting, public address system, and podium casework; b) the public corridors, stairways, elevators, and restrooms; c) mobile lounge docks; d) MUFIDS, and security equipment and cabling; e) canopies and walkways leading to the Aircraft Parking Positions; f) conduit and plugs for ground power units; and g) through its concessionaires, the concession areas. b. The Authority shall give written notice to the Airline of the estimated Substantial Completion Date of the Project at least one hundred and twenty (120) days prior to that date. Upon receipt of the notice of the estimated Substantial Completion Date, the Airline will be allowed to commence installation of its own equipment and furnishings and otherwise fitout and furnish its exclusively leased club, office, and operations Premises in the Regional Concourse. 6. Authority not liable for delay. The Authority shall not be liable to the Airline for failure to complete the Project or deliver possession of the Premises on the estimated Substantial Completion Date. The Authority will notify the Airline of any change in the estimated Substantial Completion Date and the Airline's obligations will remain as agreed to herein with the changed estimated Substantial Completion Date. Failure by the Airline to complete the fitout and furnishing of its exclusively leased Premises shall not delay the Substantial Completion Date for purposes of paragraph 7, below. 7. Substantial Completion Date. On the Substantial Completion Date of the Project, the date of which, unless changed by mutual agreement, shall not be sooner than one hundred and twenty (120) days after the notice given in paragraph 5.b. above, the following shall occur a. The Airline's lease of the Premises in the Regional Concourse described in paragraph 4, above, and associated Aircraft Parking Positions shall become effective. Exhibit D-B-1 and D-B-1A shall be deemed amended as of that date to add the Airline's Premises and associated Aircraft Parking Positions under the Agreement and all of the provisions, rights, privileges, obligations including rental charges and other fees, terms and conditions of the Agreement as amended shall apply. b. Provided that the Airline has otherwise satisfied all of its requirements for the Authority to issue a certificate of public occupancy, the Authority shall issue said certificate and the Airline may occupy its Premises in the Regional Concourse and associated Aircraft Parking Positions for purposes of conducting its Air Transportation Business. The Airline's failure to satisfy all of its requirements for the Authority to issue a certificate of public occupancy shall not delay the effective date of the lease of Premises in the Regional Concourse and associated Aircraft Parking Positions. 8. PFC and Airline Interim Financing. a. Pursuant to the Agreement of the Parties in Amendment No. 8 for the Airline to provide to the Authority interim financing for the Project in the absence of the approval by the United States Federal Aviation Administration (the "FAA") of a Passenger Facility Charge to finance the cost of the construction of certain eligible parts of the Project ("PFC Financing") (which PFC Financing is not available for the Project as of the date hereof due to no fault or failure of the Authority), the Parties hereby agree as follows with respect to certain interim funding for the Project. b. The Airline either will loan to the Authority, or facilitate the lending to the Authority, of up to $15.0 million to be utilized by the Authority to pay for a portion of the total costs of the Project including the Authority's program management costs (the "Project Costs"). The Airline will utilize the proceeds of a bridge loan (the "Bridge Loan") from Fleet Capital Corporation (the "Lender") to reimburse the Authority for Project Costs, on the terms and conditions provided herein. c. Bridge Loan proceeds shall be paid by the Airline to the Authority not later than the 14th day (or next business day) after receipt by the Airline of a notification (the "Notification") from the Authority that the Authority has incurred and paid Project Costs. In the Notification, the Authority shall (i) include a copy of the paid invoice(s) representing and confirming the actual payment of Project Costs by the Authority; (ii) certify and acknowledge the obligation of the Authority to repay the principal amount requested in the Notification, that the amount requested to be paid or reimbursed by the Airline constitutes the binding repayment obligation of the Authority to the Airline as provided for herein (a "Bridge Loan Obligation") as well as a Bridge Loan Obligation pursuant to, and as defined in, the January __, 1999, Escrow Agreement (the "Escrow Agreement") among the Airline, the Authority and Lender; and (iii) certify and acknowledge that all Project Costs included in the Notification actually have been incurred (and not prepaid) by the Authority in connection with the Project in accordance with all applicable contractual conditions and requirements. d. The Authority shall pay the balance of the total cost of the Project with PFC Financing, the proceeds of Bonds and/or an additional $1.0 million grant from the State of Virginia. The total cost of the Regional Concourse is reasonably estimated by the Authority at $21.7 million, and the Authority has no knowledge, or reason to believe, that the Regional Concourse cannot be completed for $21.7 million. The Authority will not add changes to the Regional Concourse that will materially increase costs without the consent of the Airline. There exists no material claim or dispute arising out of the Contract, any other material agreement concerning the Regional Concourse or with respect to the construction or completion of the Project. e. The repayment of the Lender shall be the Airline's obligation and responsibility subject only to the terms and conditions of the Escrow Agreement. The Authority may prepay the Bridge Loan Obligations in whole or in part at any time, or from time to time, without penalty and will repay to the Airline the entire then outstanding principal amount of the Bridge Loan Obligations without right of set- off, counterclaim or deduction on or before May 1, 2000, utilizing PFC Financing, Bond proceeds, the amount deposited in to escrow pursuant to the Escrow Agreement or other funds. The Authority will be responsible only for the repayment of the principal amount of the Bridge Loan Obligations and shall not be obligated to pay to the Airline or the Lender any interest thereon, or any expenses, charges, costs or amounts with respect thereto or arising out of the Bridge Loan, which shall remain the sole obligation of the Airline. f. Any amount paid to the Airline by, or on behalf of, the Authority with respect to the Bridge Loan Obligations shall be utilized by the Airline to repay its principal obligation on the Bridge Loan to the Lender with one business day of receipt from the Authority. g. The Airline acknowledges that the Authority has submitted a PFC Application to the FAA for PFC funding of the Project and is using its reasonable best efforts to cause the PFC Application to be approved. In the event any PFC Financing which is obtained is inadequate to repay the entire amount of the Bridge Loan Obligations which either then or subsequently are outstanding, the Authority shall remain obligated pursuant to the terms of this Amendment No. 14 and the Escrow Agreement for the balance of any Bridge Loan Obligations. In the event the FAA has disapproved, or failed to act on the PFC Application on or before the date which is one year after the Substantial Completion Date of the Regional Concourse, the Authority may repay the Bridge Loan Obligations with the proceeds of Bonds. Provided, however, in the event that the Authority has given Notification to the Airline in accordance with paragraph 8.c. above and payment is not received by the Authority on or before the 14th day after Notification, the Authority may expend Bond funds on costs that were the subject of the Notification. 9. Provisions of Airline Bridge Loan, Security, and Defaulta. In furtherance of Amendment No. 8, paragraph 7.c., the Authority will deposit $15 million with an escrow agent pursuant and subject to the terms of the Escrow Agreement to provide security to the Lender for the Bridge Loan Obligations in the event of a default by the Airline under the Bridge Loan or, in the event the Bridge Loan Obligations are not otherwise repaid on or before May 1, 2000, to provide for repayment of the Bridge Loan Obligations by the Authority to the Airline, in each case as set forth in the Escrow Agreement. The Lender shall only have such rights as against the Authority as are expressly set forth in the Escrow Agreement. b. Nothing contained herein, in the Escrow Agreement or otherwise shall preclude the Airline, the Lender and the Authority from agreeing that the Authority will pay the Bridge Loan Obligations directly to the Lender and that acceptance thereof by the Lender and the application of such payment by the Lender to the obligations of the Airline with respect to the Bridge Loan shall constitute full performance by the Authority and that no additional amount to the Airline from the Authority will be due and owing under this Amendment No. 14. c. Any claim by the Lender against the Airline or the Authority for any amount in excess of the amount placed in escrow for any interest due on the Bridge Loan Obligations, or for any penalty, damages, or fine, shall be the responsibility of the Airline and not an obligation of the Authority. d. Upon the payment by the Authority of the amount of the Airline's Bridge Loan as provided for herein with the proceeds of Bonds or PFC Secured Funds, the Authority shall adjust the Airline's rates and charges as provided for under Article 8 of the Agreement and paragraph 10 of this Amendment 14 and the Airline shall pay the adjusted amount due, if any, as provided for under the Agreement. e. In addition to its obligations under Article 12 of the Agreement, the Airline shall defend, indemnify, and hold the Authority and its agents, officers, and employees completely harmless from and against any and all claims, suits, demands, actions, liabilities, losses, damages, judgments, or fines arising from its Bridge Loan. f. In furtherance of Section 19.14.1 of the Agreement, this Amendment and any agreement for the Bridge Loan is expressly subordinated and subject to the pledges, transfer, hypothecation or assignment made by the Authority in any prior Indenture or Indenture hereafter entered into to issue Bonds. g. The Airline shall not place any lien upon the Project, or against any Premises Equipment or any rents or fees due from the Airline to the Authority without the express written consent of the Authority. h. By the terms of an agreement among the Authority, the Airline and the Lender the provisions hereof may be modified. 10. Rates and Charges. a. For purposes of determining rates and charges under Section 8.03 of the Agreement, the Regional Concourse will be a separate Terminal and Equipment Sub-Center ("Regional Concourse Sub-Center"). All Authority costs to design, finance, construct, operate and maintain the Regional Concourse, as described under paragraph 3.a. above, and those additional Authority costs allocated to the Regional Concourse under the methodology of Article 8 of the Agreement will be allocated to the Regional Concourse Sub- Center for purposes of determining rates and charges. b. Except as provided in paragraph 11 herein, all other Authority costs to design, finance, construct, and maintain the aircraft movement and parking areas serving the Regional Concourse, as described under paragraph 3.b. above, including the additional Authority costs allocated under the methodology of Article 8 of the Agreement, will be included in the Airfield Cost Center for Washington Dulles International Airport. The Airline will be responsible for the Aircraft Parking Position Charges as provided for in Section 8.04. of the Agreement for the use of the aircraft parking areas serving the Regional Concourse. Three regional/commuter aircraft parking positions (Exhibit D-B-1, Sheet 1) will be equivalent to one narrow-body air carrier aircraft parking position for the purpose of assessing the Aircraft Parking Position Charges associated with the Regional Concourse. c. Attachment A provides an estimate of rates and charges for the Regional Concourse assuming (i) expenditures of $5.7 million in Bonds by the Authority, $1.0 million grant from the Commonwealth of Virginia, and Airline Interim Financing of $15 million; (ii) the same as (i) except that PFC secured funds are used to repay the Airline for the Interim Financing, or; (iii) the same as (i) except that the proceeds of Bonds are used to repay the Airline for the Interim Financing. Exhibit D-B-1A (IAD) will be revised to include the rental due for the lease of the Premises constructed under the Project effective on the Substantial Completion Date. Attachment B presents an estimate of rentals and charges that will be due for the additional Premises and the Aircraft Parking Positions in the format of Exhibit D-B-1A (IAD). The amortization period for any Bond financing shall be the life of the Bonds as is provided for with other Bond funded facilities and terminal projects under the Authority's Capital Development Program.1. Hydrant Fueling. The Authority will plan, finance, design, and construct a hydrant fueling system ("the Fueling System") to serve the aircraft parking apron of the Regional Concourse. The costs of this addition to the Fueling System shall be recovered by the Authority from the charges assessed to all users of the Fueling System. 12. Maintenance. Maintenance responsibilities for the Regional Concourse and associated Aircraft Parking Positions by the Parties will be allocated as provided for under Exhibit D-D of the Agreement. 13. Cancellation/Termination, Surrender of Premises. a. Notwithstanding that a portion of the Project is to be funded with PFC revenue, the Airline's right to terminate its lease of Premises constructed under the Project shall be to the same extent as its right to terminate this Agreement No. 4-90-A040 while Bonds are outstanding. 14. All terms and conditions of the Agreement, including the provisions of Article 2 regarding termination and Article 17 regarding reallocation of Premises and accommodation of other Airlines, shall apply to the Regional Concourse, except that the date for periodic reallocation of Premises in the Regional Concourse shall be the second anniversary of the Substantial Completion Date of the Regional Concourse or the next date for reallocation of Premises for the Airport in accordance with Section 17.02, whichever is the later date. 15. Any Project cost associated with environmental clean up of the Project site, if any (e.g., remediation of contaminated soil), shall be assigned to the Regional Concourse Sub-Center as a cost of site preparation or to the Airfield Cost Center, or the Aviation Cost Center as appropriate. 16. Mobile Lounge Service to the Regional Concourse The Authority's responsibilities to provide regular shuttle-type mobile lounge service as provided for under Article 7.01.7 of the Agreement shall include such service between the Main Terminal and the Regional Concourse commencing on the Substantial Completion Date. 17. All other terms and conditions of the Agreement remain unchanged. 18. This Amendment No. 14 shall be effective upon the signature of the Parties. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No. 14 as of the dates shown below. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By _____________________________________________ Charles C. Erhard, Manager Airport Administration Department Date ____________________________________________ ATLANTIC COAST AIRLINES a California Corporation and ATLANTIC COAST AIRLINES HOLDINGS, INC. A Delaware Corporation By _____________________________________________ Michael S. Davis Senior Vice President Customer Service Date _____________________________________________ SECRETARY'S CERTIFICATE I, ____________________________, certify that I am the Secretary of the corporation named herein; that ______________________________, who signed this Agreement on behalf of the Airline was then _____________________________ of said corporation, that said Agreement was duly signed for and on behalf of said corporation by authority of its governing body and is within the scope of its corporate powers. _______________________________ (Corporate Seal) Secretary's Signature Regional Concourse ATTACHMENTS Attachment A Regional Concourse and Aircraft Parking Apron Attachment B Rates and Charges EXHIBIT D-B-1A (IAD) Preliminary Rates Regional Concourse METROPOLITAN WASHINGTON AIRPORTS AUTHORITY WAHSINGTON DULLES INTERNATIONAL AIRPORT AIRLINE PREMISES EXHIBIT ATLANTIC COAST AIRLINES RENTAL RATE PAP (P) PER SQUARE or SQUARE FOOT PER ANNUAL AREA NUMBER/PURPOSE TAP (T) FEET ANNUM RENTAL Type 2 Space Holdrooms; VIP Rooms; Administrative Offices Exhibit D-B-1 205.10 Gates A-1 and 3 Holdroom P 4,080 205.12 Gates A-2 and 4 Holdroom P 4,080 204.03 Gates A-5 and 7 Holdroom P 4.080 204.05 Gates A-6 and 8 Holdroom P 4,080 203.02 Gates A-9 and 11 Holdroom P 4,080 203.04 Gates A-10 and 12 Holdroom P 4,080 204.09 VIP Room P 1,330 202.04 Administrative Offices 204.01 Administrative Offices P 2,898 204.09A Administrative Offices P 515 TOTAL Type 2 Space 29,223 $43.05 $1,258,050.15 Type 4 Space Operations Space 102.12, 102.11, 102.07, 202.03, 204.07, 205.02, 205.14 P 12,052 $26.31 $ 317,088.12 Type 6 Space Unenclosed Covered Area 203.01, 203.05, 204.02, 204.06, 205.09, 205.13, 102.05 P 33,896 $ 5.12 $ 173,448.00 Aircraft Parking Positions Exhibit D-B-1 Gates A-1 and 3 2 Narrow-body P $14,029 x 2 $ 28,058.00 Gates A-2 and 4 2 Narrow-body P $14,029 x 2 $ 28,058.00 Gates A-5 and 7 2 Narrow-body P $14,029 x 2 $ 28,058.00 Gates A-6 and 8 2 Narrow-body P $14,029 x 2 $ 28,058.00 Gates A-9 and 11 2 Narrow-body P $14,029 x 2 $ 28,058.00 Gates A-10 and 12 2 Narrow-body P $14,029 x 2 $ 28,058.00 TOTAL Aircraft Parking Positions $ 168,348.00 TOTAL ANNUAL RENTAL (Preliminary) EFFECTIVE SUBSTANTIAL COMPLETION DATE: $1,916,934.27 TOTAL MONTHLY RENTAL (Preliminary) EFFECTIVE SUBSTANTIAL COMPLETION DATE: $ 159,744.52 This Amendment between the Metropolitan Washington Airports Authority (hereinafter referred to as the "Authority") and Atlantic Coast Airlines (hereinafter referred to as the "Airline") is to provide for the improvement of the Premises that are being constructed by the Authority and which will be leased by the Airline as Permanent Airline Premises at Washington Dulles International Airport. WHEREAS, the Airline and the Authority agree that the Airline is responsible for making these improvements known as "Fitout Improvements," and that the Airline's Eligible Costs thereof (Eligible Costs) shall be paid by the Authority as part of the Capital Development Program and recovered from the Airline by the Authority through the Equipment Cost Center identified in Section 8.01(4)(i)(f) of the Agreement; NOW THEREFORE, the Parties hereto agree as follows: 1. The effective date of this Amendment shall be February 1, 1999. 2. Section 10.09, Improvements by the Airline, is amended by adding the following paragraph at the end of the section: Section 10.09.7 - The Fitout Improvements listed in paragraph (ii) to this Amendment shall be constructed by the Airline. The Eligible Costs of these Fitout Improvements shall be reimbursed to the Airline by the Authority in accordance with the following: (i) The Airline shall select and enter into contracts with an architect/engineer and a construction contractor to accomplish the Fitout Improvements. The Authority shall not be a party to these contracts. Airline shall submit for review a copy of each contract for which reimbursement will be requested This shall be accomplished prior to reimbursement for work performed under that contract. (ii) The Airline's construction contracts for the Fitout Improvements shall require completion of the Fitout Improvements by a certain date, which date shall not be after May 2, 1999, provided that the Authority makes the Premises available to the Airline for Fitout Improvements on or before November 9, 1998. Provided further, that for every day the Authority delays in making particular Premises available to the Airline, the date by which the Airlines must complete the Fitout Improvements for those Premises is extended one day The Authority's rights to move the Airline into Temporary Airline Premises, or Permanent Airline Premises, in accordance with Article 5, and the rights of the other Signatory Airlines to move into Permanent Airline Premises, shall not be diminished by the failure of the Airline to complete its Fitout Improvements. The Airline's acknowledges that time is of the essence and that the failure to complete the Fitout on or before May 2, 1999, may result in the Airline's Permanent Airline Premises not being substantially complete and that the substantial completion date of the Airline's Permanent Premises may, therefore, be delayed. The Airline's contracts to accomplish the Fitout Improvements shall contain provisions requiring the retention of 10 percent of its contractor's billings pending final acceptance by the Airline of the Fitout Improvements. The Airline shall take all reasonable actions necessary to enforce timely completion of the Fitout Improvements. (iii) The Authority shall reimburse the Airline for the Eligible Cost of the Fitout Improvements incurred by the Airline up to a maximum of $1,000,000 for Dulles. The Eligible Cost to be reimbursed by the Authority include amounts paid by the Airline for all construction, equipment, and material costs for the Fitout Improvement such as ceilings; walls; flooring; windows; doors; mechanical, electrical, and utility systems and connections and outlets; cabinets and mill work; and any other equipment and finish work attached to and made a permanent part of the Premises; and any taxes and freight costs directly attributed to the Fitout. The reimbursement would also include the reasonable amounts paid to architects and engineers. All invoices should be submitted no later than May 2, 2000. (iv) The following are not Eligible Costs: the cost of any Airline operating facilities, as specified in the Agreement, Article 3.01, including furniture, furnishings, special light fixtures, carpeting, draperies, wall coverings, decorations, decorating or other special finishing work, appliance, trade fixtures and equipment that is owned, furnished, installed and used by the airline in its operation at the Airport. The cost of Airline personnel and overhead costs of any Airline are not Eligible Costs. (v) Any Fitout Improvement costs incurred by the Airline in excess of the maximum stated above shall be the responsibility of the Airline and shall not be an Eligible Cost. (vi) The Authority shall reimburse the Airline in accordance with the payment procedures stated herein. The Airline will establish a separate bank checking account to be used exclusively for payment of Eligible Costs of reimbursable Fitout Improvement Cost. Checks drawn upon this account shall require the signature of both the Airline and the Authority regardless of the amount. The Authority shall make timely deposits of principal funds into the account in amounts sufficient to cover checks drawn on the account. Any interest earned by the account, less the amount of any bank charges against the account, including any penalties assessed by the bank for failure of the Authority to deposit sufficient funds into the account to cover checks, shall belong to the Authority and may be withdrawn by the Authority at any time after it has been credited to the account by the bank. Further, funds remaining in the account after payment of Eligible Costs shall belong to the Authority to the extent that the Authority deposited principal into the account in excess of the reimbursable Fitout Improvement costs. (vii) The Airline shall be responsible for providing to the Authority complete documentation of the Fitout Improvements and costs for which reimbursement is sought showing that the work has been performed in an acceptable manner and that payment is due to the contractor(s). Failure to provide such documentation in a timely manner may delay payment to the Airline's contractor(s). (viii) Monthly progress payments shall be made on the basis of Eligible costs incurred or on estimates thereof as provided by the contractor and approved by the Airline and the Authority's contracting officer. The Airline shall require the contractor to submit an invoice to the Airline. The Airline has the responsibility to determine the amount to be paid. The Airline will mail a signed check, drawn on the account described herein payable to the contractor with an original and three copies of the contractor's invoice to the following address: Metropolitan Washington Airports Authority Accounting Operations Department, MA-22B 44 Canal Center Plaza Alexandria, VA 22314-1562 The Authority reserves the right to recommend to the Airline a reduction in the payment to the contractor for noncompliance with Airport regulations, the terms of this Agreement, as amended or other specified reasons. The final decision regarding any reduction in payment is the responsibility of the Airline. The reason for any reduction from the contractor's invoice amount by the Airline shall be stated in writing and attached to the invoice. (ix) The Authority's Design Manual, revised as of July 1997 (including Appendices 1-3), is to be employed by the Airline in making the Fitout Improvements. (x) All contractors and subcontractors working on Fitout Improvements must enroll in the Authority's Owner Controlled Wrap-Up Insurance Program (OCWIP). Eligibility and enrollment procedures are defined in the OCWIP Manual, which is available from the Authority. (xii) The Airline shall take no action inconsistent with Article 19.14.2 of the Agreement pertaining to the Authority's compliance with the Internal Revenue Code of 1986. (xiii) The Authority strongly encourages the use of Minority and Women Business Enterprises (MBE/WBE) for the Fitout Improvements, regardless of the size or location of the MBE/WBE. The Local Disadvantaged Business Enterprise's (LDBE) participation is also strongly encouraged, with a goal of 25 percent LDBE participation. The Airline agrees to contact the Authority's Equal Opportunity Programs Department at (703) 417-8625 to pursue MBE/WBE/LDBE participation. All other terms and conditions of the Agreement remain unchanged. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment. METROPOLITAN WASHINGTON AIRPORTS AUTHORITY By: James A. Wilding Date President & CEO ATLANTIC COAST AIRLINES By: Name Date Title I, ________________ certify that I am the Secretary of the Airline named herein: that who signed this Amendment on behalf of the Airline, was then ________________ of said Airline; that said Amendment was duly signed for and on behalf of said corporation by authority of its governing body and is within the scope of its corporate powers. ________________________ (Corporate Seal) Secretary's Signature -----END PRIVACY-ENHANCED MESSAGE-----