-----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, CDX22ZDzWYIyHJWkLVlZ5ApjMlV37dAMabvtUdC49xbcUxpN56fhor011B0lFYsV em2y6v3uyH6Wo1cEpXL9gg== 0000904020-99-000015.txt : 19991117 0000904020-99-000015.hdr.sgml : 19991117 ACCESSION NUMBER: 0000904020-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991116 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-Q SEC ACT: SEC FILE NUMBER: 000-21976 FILM NUMBER: 99758365 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-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 Commission file number 0-21976 ATLANTIC COAST AIRLINES HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 13-3621051 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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 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 As of November 10, 1999, there were 18,550,758 shares of common stock, par value $.02 per share, outstanding. THIS DOCUMENT IS A COPY OF THE FORM 10Q FILED ON NOVEMBER 16,1999 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION. 2 Part I. Financial Information Item 1. Financial Statements Atlantic Coast Airlines Holdings, Inc. Condensed Consolidated Balance Sheets
Cash and cash equivalents $ 64,412 $43,272 Short term investments 63 65 Accounts receivable, net 30,210 36,143 Expendable parts and fuel inventory, 3,377 4,078 net Prepaid expenses and other current 3,910 14,271 assets Deferred tax asset 2,534 2,534 Total current assets 104,506 100,363 Property and equipment at cost, net of accumulated depreciation and amortization 88,326 111,819 Preoperating costs, net of accumulated amortization 1,486 - Intangible assets, net of accumulated 2,382 2,296 amortization Debt issuance costs, net of accumulated amortization 3,420 3,528 Aircraft deposits 21,060 39,453 Other assets 6,446 8,002 Total assets $ 227,626 $265,461 Liabilities and Stockholders' Equity Current: Accounts payable $ 5,262 $ 5,454 Current portion of long-term debt 3,450 4,110 Current portion of capital lease 1,334 1,824 obligations Accrued liabilities 26,330 34,940 Total current liabilities 36,376 46,328 Long-term debt, less current portion 63,289 74,130 Capital lease obligations, less current 1,446 5,909 portion Deferred tax liability 6,238 6,238 Deferred credits, net 9,900 15,486 Total liabilities 117,249 148,091 Stockholders' equity: Common stock: $.02 par value per share; shares authorized 65,000,000; shares issued 20,821,001 and 21,004,690 respectively; shares outstanding 19,348,501 and 416 419 18,549,024 respectively Additional paid-in capital 85,215 86,788 Less: Common stock in treasury, at cost, 1,472,500 and 2,455,666 shares respectively (17,069) (34,046) Retained earnings 41,815 64,209 Total stockholders' equity 110,377 117,370 Total liabilities and stockholders' $ 227,626 $265,461 equity
See accompanying notes to the condensed consolidated financial statements. 3 Atlantic Coast Airlines Holdings, Inc. Condensed Consolidated Statements of Operations (Unaudited)
Three months ended September 30, (In thousands, except for per share data) 1998 1999 Operating revenues: Passenger $ 76,890 $ 89,758 Other 1,210 1,264 Total operating revenues 78,100 91,022 Operating expenses: Salaries and related costs 17,598 21,763 Aircraft fuel 6,434 8,715 Aircraft maintenance and materials 5,982 5,272 Aircraft rentals 9,543 11,625 Traffic commissions and related fees 10,641 14,633 Facility rents and landing fees 3,768 4,590 Depreciation and amortization 1,532 2,350 Other 5,547 7,542 Total operating expenses 61,045 76,490 Operating income 17,055 14,532 Other income (expense): Interest expense (712) (1,408) Interest income 1,079 882 Other, net (28) (27) Total other income (expense) 339 (553) Income before income tax provision 17,394 13,979 Income tax provision 6,781 5,628 Net income $10,613 $8,351 Income per share: Basic $0.55 $0.45 Diluted $0.49 $0.40 Weighted average shares used in computation: -basic 19,198 18,655 -diluted 22,244 21,632
See accompanying notes to the condensed consolidated financial statements. 4 Atlantic Coast Airlines Holdings, Inc. Condensed Consolidated Statements of Operations (Unaudited)
Nine Months ended September 30, (In thousands, except for per share data) 1998 1999 Operating revenues: Passenger $208,398 $252,571 Other 3,516 3,851 Total operating revenues 211,914 256,422 Operating expenses: Salaries and related costs 48,776 62,074 Aircraft fuel 17,237 23,335 Aircraft maintenance and materials 17,579 17,638 Aircraft rentals 26,760 33,344 Traffic commissions and related fees 31,154 40,459 Facility rents and landing fees 9,698 13,171 Depreciation and amortization 4,380 6,461 Other 16,042 21,231 Total operating expenses 171,626 217,713 Operating income 40,288 38,709 Other income (expense): Interest expense (2,860) (3,905) Interest income 3,016 2,777 Debt conversion expense (1,410) - Other, net 33 (106) Total other income (expense) (1,221) (1,234) Income before income tax provision and cumulative effect of accounting change 39,067 37,475 Income tax provision 16,380 14,293 Income before cumulative effect of accounting change 22,687 23,182 Cumulative effect of accounting change, net of income - (888) tax Net income $22,687 $22,294 Income per share: Basic Income before cumulative effect of accounting $1.28 $1.21 change Cumulative effect of accounting change - (0.04) Income per share $1.28 $1.17 Diluted Income before cumulative effect of accounting change $1.07 $1.07 Cumulative effect of accounting change - (0.04) Income per share $1.07 $1.03 Weighted average shares used in computation: -basic 17,737 19,089 -diluted 22,143 22,159
See accompanying notes to the condensed consolidated financial statements. 5 Atlantic Coast Airlines Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, (In thousands) 1998 1999 Cash flows from operating activities: Net income $ 22,687 $ 22,294 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,858 6,511 Write off of preoperating costs - 1,486 Amortization of intangibles and 522 132 preoperating costs Provision for uncollectible accounts and inventory obsolescence 50 55 Amortization of deferred credits (550) (581) ESOP termination costs - 214 Gain on disposal of fixed assets 211 380 Amortization of debt discount and finance 37 52 cost Debt conversion expense 1,410 - Interest on debt conversion 162 - Interest on credit due from manufacturer (442) (247) Capitalized interest (1,241) (1,190) Gain on ineffective hedge position - (211) Other 708 171 Changes in operating assets and liabilities: Accounts receivable (8,273) (3,181) Expendable parts and fuel inventory (615) (700) Prepaid expenses and other current assets (6,764) (8,753) Preoperating costs (5) - Accounts payable 649 1,163 Accrued liabilities 8,653 8,560 Net cash provided by operating activities 21,057 26,155 Cash flows from investing activities: Purchases of property and equipment (32,194) (26,249) Note receivable from executive officer - (1,260) Maturities of short term investments 10,678 - Funding provided for regional terminal - (10,801) Reimbursement of regional terminal funding - 7,751 Refund of aircraft lease deposits and other 120 3 Payments for aircraft deposits and other (500) (17,270) Net cash used in investing activities (21,896) (47,826) Cash flows from financing activities: Proceeds from bridge loan - 7,751 Stock repurchases - (17,192) Proceeds from spare engine financing 1,318 6,546 Proceeds from issuance of long-term debt 16,767 14,708 Payments of long-term debt (1,787) (3,162) Payments on the bridge loan - (7,751) Payments of capital lease obligations (2,320) (1,275) Deferred financing costs (1,529) (284) Proceeds from exercise of stock options 1,653 1,190 Net cash provided by financing activities 14,102 531 Net increase (decrease) in cash and cash 13,263 (21,140) equivalents Cash and cash equivalents, beginning of period 39,167 64,412 Cash and cash equivalents, end of period $ 52,430 $ 43,272
See accompanying notes to the condensed consolidated financial statements. 6 ATLANTIC COAST AIRLINES HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by Atlantic Coast Airlines Holdings, Inc. ("ACAI") and its subsidiaries, Atlantic Coast Airlines ("ACA") and Atlantic Coast Jet, Inc. ("ACJet"), (ACAI, ACA and ACJet, together, the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such condensed consolidated financial statements. Results of operations for the three and nine month periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 1999. Certain amounts as previously reported have been reclassified to conform to the current year presentation. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, and the notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 2. OTHER - COMMITMENTS On May 4, 1999, the Company entered into two interest rate swap contracts having an aggregate notional amount of $13 million to hedge its exposure by approximately 37%, to interest rate changes until permanent financing for two RJ aircraft scheduled for delivery in October and November 1999, is secured. On July 2, 1999, the Company entered into an interest rate swap contract having an aggregate notional amount of $7 million to hedge its exposure by approximately 40%, to interest rate changes until permanent financing for the RJ aircraft scheduled for delivery in December 1999, is secured. On August 25, 1999, the Company entered into three interest rate swap contracts having an aggregate notional amount of $23 million to hedge its exposure by approximately 44%, to interest rate changes until permanent financing for three RJ aircraft scheduled for delivery in March, April and May 2000, is secured. In April 1999, the Company entered into commodity swap transactions to hedge price changes on approximately 18,700 barrels of jet fuel per month during the period from July through September 1999. The contracts provided for an average fixed price of 45.5 cents per gallon of jet fuel. In June 1999, the Company entered into commodity swap transactions to hedge price 7 changes on approximately 36,700 barrels of jet fuel per month during the period from July through September 1999. The contracts provide for an average fixed price of 41.55 cents per gallon of jet fuel. During the third quarter 1999, the Company recognized gains of approximately $950,000 as a reduction of fuel expense. Also in April 1999, the Company entered into a call option contract to hedge price changes on approximately 19,300 barrels of crude oil per month during the period from October through December 1999. The contract provides for a premium payment of approximately $75,400 and sets a cap on the maximum price equal to approximately 42 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. With this transaction, the Company has hedged approximately 20% of its projected jet fuel requirements for the fourth quarter of 1999. The Metropolitan Washington Airport Authority ("MWAA"), in coordination with the Company, has built an approximately 69,000 square foot regional passenger concourse at Washington Dulles International Airport, ("Washington-Dulles"). The facility opened on May 2, 1999. The Company has 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. The Company's remaining obligation as of September 30, 1999 is approximately $1.9 million. MWAA has agreed to replace the Company's interim financing with the proceeds of bonds or, if obtained, Passenger Facility Charges ("PFC") funds, no later than one year following the substantial completion date of the project. In February 1999, the Company entered into an asset-based lending agreement with two financial institutions that provides the Company with a $15 million bridge loan for the construction of the regional terminal at Washington-Dulles and a line of credit for up to $35 million depending on the amount of assigned ticket receivables and the value of certain rotable spare parts. The $35 million line of credit replaces a previous $20 million line of credit. The interest rate on this line is LIBOR plus .75% to 1.75% depending on the Company's fixed charges coverage ratio. During the first nine months of 1999, the Company borrowed $7.8 million on the bridge loan and recorded a receivable from MWAA for $10.9 million. In May 1999, MWAA paid the Company $7.8 million, and the Company repaid its borrowings on the bridge loan. As of September 30, 1999 there are no outstanding borrowings on the bridge loan. A note receivable from MWAA of $3.1 million is recorded at September 30, 1999. No additional amounts were drawn on the bridge loan for this additional $3.1 million funding. However, the Company may do so in the future as desired. The Company has firm orders for 45 RJs in addition to the 21 previously delivered, and options for an additional 27 RJs. The delivery schedule for the 45 firm orders is as follows: two are scheduled for the fourth quarter of 1999, fifteen in 2000, eighteen in 2001, and ten in 2002. Twenty-two of the 45 firm ordered aircraft are for the United Express operation, 20 for the Delta Connection operation (see footnote 9), and 8 three remain unallocated as of November 1, 1999. The value of the remaining 45 undelivered aircraft on firm order is approximately $830 million. The Company also has a firm order for 25 328JET feeder jet aircraft and a conditional order for 55 328JET and 428JET feeder jet aircraft, and options for an additional 85 feeder jet aircraft, from Fairchild Aerospace Corporation. The delivery schedule for the 25 firm orders for the Delta Connection operation is as follows: fourteen in 2000 and eleven in 2001. The value of the aircraft on firm order is approximately $275 million and the value of the aircraft in the conditional order (excluding the option aircraft) is approximately $700 million. The Company requires United's approval to operate more than 43 jet aircraft as United Express. The conditional portion of the Fairchild order is contingent on the Company receiving United's approval to operate the feeder jets as United Express. The Company at its option may waive the condition and enter into commitments for firm delivery positions under the Fairchild agreement. During the third quarter of 1999, the Company executed a seven year engine services agreement with GE Engine Services, Inc. ("GE") covering the scheduled and unscheduled repair of ACA's CF34-3B1 jet engines operated on the 43 RJs already delivered or on order for the United Express operation. Under the terms of the agreement, the Company will pay a set dollar amount per engine hour flown on a monthly basis to GE and GE assumes the responsibility to repair the engines when required at no additional expense to the Company, subject to certain exclusions. The Company intends to expense the amount due based on the monthly rates stipulated in the agreement, as engine hours are flown. 3. NOTE RECEIVABLE Included in prepaid expenses and other current assets as of September 30, 1999 is a promissory note from an executive officer of the Company dated as of May 24, 1999 with a balance including accrued interest of $1.26 million. The note accrues interest on the outstanding balance at 7.75% payable quarterly. The note is payable in full no later than May 25, 2000. The Company has the right to offset the balance due on the note by certain amounts that may be payable if the officer's employment terminates. 4. INCOME TAXES For the third quarter 1999, the Company had a combined effective tax rate for state and federal taxes of 40.3%. The Company's combined statutory tax rate for state and federal taxes is approximately 40%. The Company's annualized 1999 effective tax rate is positively affected by the application of certain 1998 and prior, state tax credits that were determined realizable in 1999. 9 5. STOCK PURCHASE PLAN On April 21, 1999, the Company's Board of Directors approved a plan to purchase up to $20 million or five percent of its then current outstanding shares in open market or private transactions over a twelve- month period. The Company purchased 871,500 shares of its common stock during the second quarter of 1999 at an average price of $17.17 per share, and an additional 125,000 shares during the third quarter of 1999 at an average price of $17.81 per share. 6. INCOME PER SHARE The computation of basic income per share is determined by dividing net income by the weighted average number of common shares outstanding. Diluted income per share is computed by dividing net income 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, under the if-converted method, dilutive convertible securities are included in the denominator while related interest expense, net of tax, for convertible debt is added to the numerator. A reconciliation of the numerator and denominator used in computing basic and diluted income per share is as follows:
Three Months Nine Months Ended September 30, Ended September 30, (in thousands) 1998 1999 1998 1999 Income (basic) $10,613 $8,351 $22,687 $22,294 Interest expense on 7% Convertible Notes net of tax 183 208 979 623 effect Income (diluted) $10,796 $8,559 $23,666 $22,917 Weighted average shares outstanding (basic) 19,198 18,655 17,737 19,089 Incremental shares related to stock options 844 775 894 868 Incremental shares related to 7% Convertible Notes 2,202 2,202 3,512 2,202 Weighted average shares outstanding (diluted) 22,244 21,632 22,143 22,159
7. CUMULATIVE EFFECT OF ACCOUNTING CHANGE 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 became effective January 1, 1999. The Company had previously deferred certain start-up costs related to the introduction of the RJs and was amortizing such costs to expense ratably over four years. In January 1999, the Company recorded an after tax charge for the remaining unamortized balance of approximately $888,000, ($1,486,000 pretax), associated with previously deferred preoperating costs. 10 8. EMPLOYEE STOCK OWNERSHIP PLAN Effective June 1, 1998, the Board of Directors of the Company voted to terminate the Employee Stock Ownership Plan (the "ESOP"). The Company received a determination letter from the IRS on March 15, 1999 which notified the Company that the termination of the ESOP does not adversely affect the qualifications of the plan for federal tax purposes. In preparing for the final distribution of ESOP shares to participants, it was discovered that a misallocation of shares had occurred in years 1993 through 1997 resulting in a few of the eligible participants not receiving some of their entitled shares. The Company contributed the required number of additional shares to the ESOP during the second and third quarters of 1999 when the final calculation was determined and recognized approximately $250,000 in expense. The Company has filed a request for a compliance statement under the IRS's Voluntary Compliance Resolution Program to obtain Service approval of the Company's response to the share misallocation issue. In September 1999, the ESOP trustee distributed the ESOP assets per participant's direction. The ESOP will continue until all participants are located and any remaining assets are properly distributed. 9. DELTA CONNECTION AGREEMENT The Company has reached a ten year agreement with Delta Air Lines, Inc. to operate regional jet aircraft as part of the Delta Connection program on a fee-per-departure basis. Under the fee-per-departure structure, the Company bears the risk to operate the flight schedule, and Delta assumes the risk of marketing and selling seats to the traveling public. Delta may terminate the agreement at any time if the Company fails to maintain certain performance standards, and may terminate without cause, effective no earlier than two years after commencement of operations, by providing 180 days notice to the Company. The Delta Connection Agreement provides the Company with certain rights in the event of termination without cause. The Company has ordered 20 50-seat Canadair regional jets from Bombardier Aerospace of Montreal and 25 328JET feeder jets from Fairchild for this new venture. The Company has established a new subsidiary, Atlantic Coast Jet, Inc. ("ACJet"), d.b.a. Delta Connection, which is now in the application and approval process with the applicable federal agencies to obtain authority to conduct scheduled passenger air transportation of jet aircraft. Initial Delta Connection service to various destinations in the Northeast United States is expected to begin no sooner than April 2000, subject to satisfactory resolution of regulatory requirements and other start-up considerations. The Company can make no assurances that its ACJet subsidiary will receive all necessary regulatory approvals by this date. 11 10. SUBSEQUENT EVENTS In October 1999, the Company entered into commodity swap transactions to hedge price changes on approximately 13,300 barrels of crude oil per month for the period April to June 2000, and on approximately 23,300 barrels of crude oil per month for the period July through September 2000. The contracts provide for an average fixed price equal to approximately 52.6 cents per gallon for the second quarter of 2000 and 51 cents per gallon for the third quarter of 2000. With these transactions and taking into account that Delta Air Lines, Inc. bears the economic risk of fuel price fluctuations for future fuel requirements associated with the Delta Connection program, the Company has hedged approximately 20% of its anticipated jet fuel requirements for the fourth quarter of 1999; 11% for the second quarter 2000; 22% for the third quarter 2000; and 15%, for the fourth quarter of 2000. In October 1999, the Company funded an additional $870,000 to MWAA as part of its obligation for the construction of the regional passenger concourse at Washington Dulles Airport. The Company's remaining obligation is approximately $1.0 million. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Third Quarter Operating Statistics
Increase Three months ended September 30, 1998 1999 (Decrease ) Revenue passengers carried 712,556 879,748 23.5% Revenue passenger miles ("RPMs") 221,746 280,186 26.3% (000's) Available seat miles ("ASMs") (000's) 381,503 456,899 19.8% Passenger load factor 58.1% 61.3% 3.2 pts Break-even passenger load factor 1 45.2% 51.4% 6.2 pts Revenue per ASM (cents) 20.2 19.6 (3.0%) Yield (cents) 34.7 32.0 (7.8%) Cost per ASM (cents) 16.0 16.7 (4.4%) Average passenger fare $107.91 $102.03 (5.4%) Average passenger segment (miles) 311 318 2.3% Revenue departures - scheduled 46,085 49,575 7.6% Revenue departures - completed 44,884 47,379 5.6% Revenue block hours 59,264 63,339 6.9% Aircraft utilization (block hours) 9.6 8.9 (7.3%) Average cost per gallon of fuel (cents) 2 67.9 74.2 9.3% Aircraft in service (end of period) 72 80 11.1%
Comparison of three months ended September 30, 1999, to three months ended September 30, 1998. Results of Operations The following Management's Discussion and Analysis contains forward-looking statements and information that are based on management's current expectations as of the date of this document. When used herein, the words "anticipate", "believe", "estimate" and "expect" and similar expressions, as they relate to the Company's management, are intended to identify such forward-looking statements. Such forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause the actual results of the Company to be materially different from those reflected in such forward-looking statements. Such factors include, among others, the costs of implementing jet service, the response of the Company's competitors to the Company's business strategy, the amount and timing of Delta Connection start-up costs, obtaining regulatory approval for ACJet to conduct air transportation, the ability of the Company to obtain favorable financing terms for its aircraft, the 13 ability of aircraft manufacturers to deliver aircraft on schedule, market acceptance of the Company's jet service, routes and schedules offered by the Company, the ability to identify, implement and profitably operate new business opportunities, the success of the Company's and other third party's Year 2000 remediation efforts, the cost of fuel, the weather, general economic conditions, changes in and satisfaction of regulatory requirements, aircraft remarketing and fleet rationalization costs, and the factors discussed below and in the Company's Annual Report on Form 10- K for the year ended December 31, 1998. The Company does not intend to update these forward-looking statements prior to its next required filing with the Securities and Exchange Commission. General In the third quarter of 1999 the Company posted net income of $8.4 million compared to net income of $10.6 million for the third quarter of 1998. In the three months ended September 30, 1999, the Company earned pretax income of $14.0 million compared to $17.4 million in the three months ended September 30, 1998. Unit revenues, revenue per ASM ("RASM"), decreased 3.0% to 19.6 cents year over year, while unit costs, operating cost per ASM ("CASM"), increased 4.4% to 16.7 cents year over year. This resulted in operating margin decreasing to 16% for the third quarter of 1999 from 21.8% for the third quarter of 1998. Total passengers increased 23.5% in the third quarter of 1999 compared to the third quarter of 1998 to 879,748 passengers. Operating Revenues The Company's operating revenues increased 16.5% to $91.0 million in the third quarter of 1999 compared to $78.1 million in the third quarter of 1998. The increase resulted from a 19.8% increase in ASMs and an increase in load factor of 3.2 percentage points, partially offset by a 7.8% decrease in yield (ratio of passenger revenue to revenue passenger miles). Operating revenues were negatively affected by severe hurricane weather during the third quarter of 1999, while operating revenues during the third quarter of 1998 were positively impacted by a work stoppage by labor at Northwest Airlines. The increase in ASMs is the result of service expansion utilizing additional Canadair 50 seat Regional Jets ("RJs"). The Company was operating in revenue service 20 RJs as of September 30, 1999 as compared to eleven as of September 30, 1998. The scheduling in 1999 of RJs on routes previously flown by turboprop aircraft has led to the average aircraft stage length for all aircraft in the fleet remaining essentially unchanged on a year over year basis at 272 miles as compared to 271 miles. The average aircraft stage length of the RJ decreased 8.6% to 433 miles for the third quarter of 1999 as compared to 474 miles for the third quarter of 1998. The year over year percentage reduction in yield is attributable to additional competition at the Company's Washington-Dulles 14 hub, general industry yield weakness, and an increase of 2.3% in the average passenger trip length to 318 miles. Operating Expenses The Company's operating expenses increased 25.3% in the third quarter of 1999 compared to the third quarter of 1998 due primarily to a 19.8% increase in ASMs, a 23.5% increase in passengers carried and a 9.3% increase in the price per gallon of jet fuel coupled with a 16.1% increase in the average fuel burn rate to 186 gallons per block hour. The increase in ASMs reflects the net addition of nine RJs into scheduled service since the end of the third quarter of 1998. A summary of operating expenses as a percentage of operating revenues and cost per ASM for the three months ended September 30, 1998, and 1999 is as follows:
Three Months ended September 30 1998 1999 Percent Cost Percent Cost of of Operating Per ASM Operating Per ASM Revenues (cents) Revenues (cents) Salaries and related costs 22.5% 4.6 23.9% 4.8 Aircraft fuel 8.2% 1.7 9.6% 1.9 Aircraft maintenance and 7.7% 1.6 5.8% 1.2 materials Aircraft rental 12.2% 2.5 12.8% 2.5 Traffic commissions and related 13.6% 2.8 16.1% 3.2 Facility rents and landing fees 4.8% 1.0 5.0% 1.0 Depreciation and amortization 2.1% 0.4 2.6% 0.5 Other 7.1% 1.4 8.2% 1.6 Total 78.2% 16.0 84.0% 16.7
Cost per ASM increased 4.4% on a year-over-year basis to 16.7 cents during the third quarter of 1999 even though the Company added nine RJs in revenue service since the end of the third quarter of 1998. The RJ produces approximately 4.5 times more ASM's on a daily basis than one of the Company's average-sized turboprops. The increase in CASM was partially due to our flight completion factor decreasing by 1.8 points principally the result of severe hurricane weather during the third quarter and scheduled aircraft utilization decreasing 4.1% to 9.3 hours primarily as a result of new aircraft banking operations at IAD. Aircraft utilization was positively impacted in the third quarter of 1998 by the work stoppage by labor at Northwest Airlines, which enabled the Company to schedule extra flights in certain markets. Salaries and related costs per ASM increased 4.3% to 4.8 cents in the third quarter of 1999 compared to 4.6 cents in the third quarter of 1998. In absolute dollars, salaries and related costs increased 23.7% from $17.6 million in the third quarter of 1998 to $21.8 million in the third quarter of 1999. The increase resulted primarily from additional flight crews, customer service personnel and maintenance personnel to support the Company's increased level of operations. 15 The cost per ASM of aircraft fuel increased 11.8% to 1.9 cents for the third quarter of 1999 as compared to 1.7 cents for the third quarter of 1998. In absolute dollars, aircraft fuel expense increased 35.5% from $6.4 million in the third quarter of 1998 to $8.7 million, net of gains on fuel hedges, in the third quarter of 1999. The increased fuel expense resulted from the 6.9% increase in revenue block hours, a 9.3% increase in the average cost per gallon of fuel from 67.9 cents to 74.2 cents including applicable taxes and into-plane fees, and the delivery of additional RJ aircraft which burn more fuel than the J-41 and J-32 turboprop aircraft on a per ASM basis. The Company had hedged approximately 60% of its anticipated jet fuel requirements for the third quarter of 1999 at an average price, excluding taxes and into-plane fees, of approximately 43.5 cents per gallon. The Company realized approximately $950,000 in fuel expense savings during the third quarter of 1999 as a result of its fuel hedging activity. There can be no assurance that future increases in fuel prices will not adversely affect the Company's operating expenses. The Company has entered into additional hedge transactions to minimize its exposure to fuel price increases for the remainder of 1999 and the year 2000. See "Other Commitments". The cost per ASM of aircraft maintenance and materials decreased 25% to 1.2 cents in the third quarter of 1999 compared to 1.6 cents in the third quarter of 1998. The large decrease in per ASM cost is due to the addition of nine 50-seat RJs, which are currently covered by manufacturer's warranties, since the third quarter of 1998 and the reversal in the third quarter of 1999 of approximately $1.5 million of maintenance accruals for major RJ engine repairs which are no longer required as a result of the Company's new long-term maintenance agreement with GE Engine Services. This agreement, entered into in September 1999, provides for GE to perform all required maintenance on the RJ engine fleet covered by the agreement. In absolute dollars, aircraft maintenance and materials expense decreased 11.9% from $6.0 million in the third quarter of 1998 to $5.3 million in the third quarter of 1999. Without the reversal of the engine repair accrual, aircraft maintenance and materials expense increased 13.2% in absolute dollars to $6.8 million. The cost per ASM of aircraft rentals remained the same at 2.5 cents for the third quarter of 1999. In absolute dollars, aircraft rentals increased 21.8% from $9.5 million in the third quarter of 1998 to $11.6 million in the third quarter of 1999, reflecting the addition of seven leased RJ aircraft. The cost per ASM of traffic commissions and related fees increased to 3.2 cents in the third quarter of 1999 compared to 2.8 cents in the third quarter of 1998. In absolute dollars, traffic commissions and related fees increased 37.5% from $10.6 million in the third quarter of 1998 to $14.6 million in the third quarter of 1999. Approximately $600,000 of costs relating to the third quarter of 1998 was not billed until 1999 as a result of a billing error related to a third party software program's inability to properly process electronic tickets. These costs were expensed in 1999 when the error was identified, investigated and resolved. The remaining increase results from a 16.7% 16 increase in passenger revenues and a 23.5% increase in revenue passengers. The cost per ASM of facility rents and landing fees remained unchanged at 1.0 cents. In absolute dollars, facility rents and landing fees increased 21.8% from $3.8 million in the third quarter of 1998 to $4.6 million in the third quarter of 1999. The increased costs result primarily from the 5.6% increase in the number of departures and the Company's occupancy of its new regional terminal at Washington Dulles on May 2, 1999. The cost per ASM of depreciation and amortization increased by 25% to 0.5 cents for the third quarter of 1999 from 0.4 cents for the third quarter of 1998. In absolute dollars, depreciation and amortization increased 53.4% from $1.5 million in the third quarter of 1998 to $2.4 million in the third quarter of 1999 primarily as a result of the purchase of two RJs in the last four months of 1998 and one RJ in the second quarter of 1999 and additional rotable spare parts and engines associated with the RJs. The cost per ASM of other operating expenses increased to 1.6 cents in the third quarter of 1999 from 1.4 cents in the third quarter of 1998. In absolute dollars, other operating expenses increased 36% from $5.5 million in the third quarter of 1998 to $7.5 million in the third quarter of 1999. The increased costs result primarily from one time costs associated with the Company's replacement of core information systems and legal settlements, the Company beginning to incur start-up costs associated with the new Delta Connection agreement, and the 23.5% increase in revenue passengers which results in higher passenger handling costs. As a result of the foregoing changes in operating expenses, and a 19.8% increase in ASMs, total cost per ASM increased to 16.7 cents in the third quarter of 1999 compared to 16.0 cents in the third quarter of 1998. In absolute dollars, total operating expenses increased 25.3% from $61 million in the third quarter of 1998 to $76.5 million in the third quarter of 1999. The Company's combined effective tax rate for state and federal taxes during the third quarter of 1999 was approximately 40.3% as compared to 39% for the third quarter of 1998. The Company anticipates its effective tax rate for the remainder of 1999 to be approximately 40%. 17 Nine Months Operating Statistics
Increase (Decrease) Nine months ended September 30, 1998 1999 % Change Revenue passengers carried 1,823,766 2,390,975 31.1% Revenue passenger miles ("RPMs") 564,661 767,221 35.9% (000's) Available seat miles ("ASMs") (000's) 1,001,072 1,307,999 30.7% Passenger load factor 56.4% 58.7% 2.3 pts Break-even passenger load factor 1 45.5% 49.7% 4.2 pts Revenue per ASM (cents) 20.8 19.3 (7.2%) Yield (cents) 36.9 32.9 (10.8%) Cost per ASM (cents) 17.1 16.6 (2.9%) Average passenger fare $114.27 $105.64 (7.6%) Average passenger segment (miles) 310 321 3.6% Revenue departures - scheduled 130,541 145,369 11.4% Revenue departures - completed 124,684 138,770 11.3% Revenue block hours 165,921 184,705 11.3% Aircraft utilization (block hours) 9.4 9.1 (3.2%) Average cost per gallon of fuel (cents)2 68.2 69.5 1.9% Aircraft in service (end of period) 72 80 11.1%
Comparison of nine months ended September 30, 1998, to nine months ended September 30, 1999. Results of Operations General For the first nine months of 1999, the Company posted net income of $22.3 million compared to net income of $22.7 million for the first nine months of 1998. For the nine months ended September 30, 1999, the Company earned pretax income of $37.5 million compared to $39.1 million for the nine months ended September 30, 1998. Unit revenues, RASM, decreased 7.2% to 19.3 cents period over period, while unit costs, CASM, decreased 2.9% to 16.6 cents period over period. This resulted in the operating margin decreasing to 15.1% for the first nine months of 1999 from 19.0% for the first nine months of 1998. 18 Operating Revenues The Company's operating revenues increased 21% to $256.4 million for the first nine months of 1999 compared to $211.9 million in the first nine months of 1998. The increase resulted from a 30.7% increase in ASMs and an increase in load factor of 2.3 percentage points, partially offset by a 10.8% decrease in yield. The increase in ASM's is the result of service expansion utilizing the RJ. The Company was operating 20 RJs in revenue service as of September 30, 1999 as compared to eleven as of September 30, 1998. The longer stage length of the RJ results in the average aircraft stage length for the first nine months of 1999 increasing 2.3% over the first nine months of 1998 to 272 miles. The year over year percentage reduction in yield is primarily the result of the 3.6% increase in the average passenger trip length to 321 miles, issues associated with utilizing United's Orion yield management system during the first half of 1999, additional competition at the Company's Washington-Dulles hub, general industry yield weakness, and the unusually high number of weather cancellations during the first and third quarters of 1999 that particularly disrupted high yield business travelers. Total passengers increased 31.1% in the first nine months of 1999 compared to the first nine months of 1998. Operating Expenses The Company's operating expenses increased 26.9% for the first nine months of 1999 compared to the first nine months of 1998 due primarily to a 30.7% increase in ASMs and a 31.1% increase in passengers carried. The increase in ASMs reflects the net addition of nine RJs into scheduled service since the end of the third quarter of 1998. A summary of operating expenses as a percentage of operating revenues and cost per ASM for the nine months ended September 30, 1998, and 1999 is as follows:
1998 1999 Percent Cost Percent Cost of of Operating Per ASM Operating per ASM Revenues (cents) Revenues (cents) Salaries and related costs 23.0% 4.9 24.2% 4.7 Aircraft fuel 8.1% 1.7 9.1% 1.8 Aircraft maintenance and 8.3% 1.7 6.9% 1.3 materials Aircraft rentals 12.6% 2.7 13.0% 2.6 Traffic commissions and related 14.7% 3.1 15.8% 3.1 fees Facility rents and landing fees 4.6% 1.0 5.1% 1.0 Depreciation and amortization 2.2% 0.4 2.5% 0.5 Other 7.5% 1.6 8.3% 1.6 Total 81.0% 17.1 84.9% 16.6
19 Cost per ASM decreased 2.9% to 16.6 cents during the first nine months of 1999 compared to 17.1 cents during the first nine months of 1998 primarily due to the introduction of nine RJs in revenue service since the end of the third quarter of 1998. The RJ produces approximately 4.5 times more ASM's on a daily basis than one of the Company's average-sized turboprops. Salaries and related costs per ASM decreased 4.1% to 4.7 cents in the first nine months of 1999 compared to the first nine months of 1998. In absolute dollars, salaries and related costs increased 27.3% from $48.8 million in the first nine months of 1998 to $62.1 million in the first nine months of 1999. The increase resulted primarily from additional flight crews, customer service personnel and maintenance personnel to support the Company's increased level of operations. The cost per ASM of aircraft fuel increased 5.9% to 1.8 cents for the first nine months of 1999 as compared to 1.7 cents for the first nine months of 1998. In absolute dollars, aircraft fuel expense increased 35.4% from $17.2 million in the first nine months of 1998 to $23.3 million in the first nine months of 1999. The increased fuel expense resulted from the 11.3% increase in revenue block hours, a 1.9% increase in the average cost per gallon of fuel from 68.2 cents to 69.5 cents including taxes and into-plane fees, and the delivery of additional RJ aircraft which burn more fuel than the J-41 and J-32 turboprop aircraft on a per ASM basis. The Company had hedged approximately 70% of its jet fuel requirements for the first nine months of 1999 at an average price, excluding taxes and into-plane fees, of approximately 43.8 cents per gallon. The Company realized net savings of approximately $355,000 in fuel costs during the first nine months of 1999 as a result of its fuel hedging activity. There can be no assurance that future increases in fuel prices will not adversely affect the Company's operating expenses. The Company has entered into additional hedge transactions to minimize its exposure to fuel price increases during the remainder of 1999 and the year 2000. See "Other Commitments". The cost per ASM of aircraft maintenance and materials decreased 23.5% to 1.3 cents in the first nine months of 1999 compared to the first nine months of 1998. In absolute dollars, aircraft maintenance and materials expense increased 0.3% in the first nine months of 1999 to $17.6 million. The cost per ASM of aircraft rentals decreased to 2.6 cents for the first nine months of 1999 compared to 2.7 cents for the first nine months of 1998. This decrease is the result of leasing six additional RJ aircraft which generally have lower per ASM ownership costs than the turboprop aircraft and the purchase of three RJ aircraft during this period which reduce aircraft rental expense per ASM. In absolute dollars, aircraft rentals increased 24.6% from $26.8 million in the first nine months of 1998 to $33.3 million in the first nine months of 1999 reflecting the addition of the six leased RJ aircraft. 20 The cost per ASM of traffic commissions and related fees remained the same at 3.1 cents in the first nine months of 1999 and 1998, respectively. In absolute dollars, traffic commissions and related fees increased 29.9% from $31.2 million in the first nine months of 1998 to $40.5 million in the first nine months of 1999. The increase resulted from a 21.2% increase in passenger revenues and a 31.1% increase in passengers. The cost per ASM of facility rents and landing fees remained the same at 1.0 cents. In absolute dollars, facility rents and landing fees increased 35.8% from $9.7 million in the first nine months of 1998 to $13.2 million in the first nine months of 1999. The increased costs result primarily from the 11.3% increase in the number of departures which includes the addition of the Chicago-O'Hare hub operation and the Company's occupancy of the new regional terminal at Washington-Dulles on May 2, 1999. The cost per ASM of depreciation and amortization increased to 0.5 cents for the first nine months of 1999 compared to 0.4 cents for the first nine months of 1998. In absolute dollars, depreciation and amortization increased 47.5% from $4.4 million in the first nine months of 1998 to $6.5 million in the first nine months of 1999 primarily as a result of additional rotable spare parts and engines associated with the RJs and the purchase of two RJs in the last four months of 1998 and one in the second quarter of 1999. The cost per ASM of other operating expenses remained the same at 1.6 cents in the first nine months of 1999 and 1998. In absolute dollars, other operating expenses increased 32.3% from $16.0 million in the first nine months of 1998 to $21.2 million in the first nine months of 1999. The increased costs result primarily from the 31.1% increase in revenue passengers which resulted in higher passenger handling costs, one time expenses incurred for closure of the Company's ESOP, replacement of core information systems and legal fees, and the beginning of start-up costs for the Delta Connection agreement. As a result of the foregoing changes in operating expenses, and a 30.7% increase in ASMs, total cost per ASM decreased to 16.6 cents in the first nine months of 1999 compared to 17.1 cents in the first nine months of 1998. In absolute dollars, total operating expenses increased 26.9% from $171.6 million in the first nine months of 1998 to $217.7 million in the first nine months of 1999. The Company's combined effective tax rate for state and federal taxes during the first nine months of 1999 was approximately 38.1% as compared to 41.9% for the first nine months of 1998. This decrease is due to the non deductibility for taxes of a one time non-cash, non-operating charge recorded in the second quarter of 1998 related to the temporary reduction in the conversion price for holders of the Company's 7% Convertible Subordinated Notes and the application of certain 1998 and prior, state tax credits that were determined realizable in 1999. The 21 Company anticipates its effective tax rate for the remainder of 1999 to be approximately 40%. Outlook This outlook section contains forward-looking statements which are subject to the risks and uncertainties set forth above on pages 12 and 13. On October 21, 1999, the Company announced that effective January 1, 2000, President and CEO Kerry Skeen will become Chairman of the Board of Directors while retaining his role as Chief Executive Officer. C. Edward Acker will retire as Chairman on that date, but will remain a member of the Board. Thomas Moore, presently Executive Vice- president and Chief Operating Officer, will become President and COO on January 1, 2000. As of November 12, 1999, the Company's Atlantic Coast Airlines ("ACA") subsidiary, DBA United Express, was operating a fleet of 81 aircraft comprised of 21 RJs, 32 J41's and 28 J32's. The Company has United approval to operate, as United Express, 43 regional jets. The Company has also placed a conditional aircraft order with Fairchild Aerospace Corporation ("Fairchild") to acquire 15 32-seat 328JET and 40 44-seat 428JET feeder jet aircraft. The Company requires United's approval to operate these additional jet aircraft as United Express. The Fairchild order is conditioned on the Company receiving United's approval to operate the feeder jets as United Express. The Company at its option may waive the condition and enter into commitments for firm delivery positions under the Fairchild agreement. Deliveries of the conditionally ordered 328JET could begin in the first quarter of 2001, if the Company receives United's approval or otherwise waives the contract condition. The Company has reached a ten year agreement with Delta Air Lines, Inc. to operate regional jet aircraft as part of the Delta Connection program on a fee-per-departure basis. Under the fee-per- departure structure, the Company bears the risk to operate the flight schedule, and Delta assumes the risk of marketing and selling seats to the traveling public. Delta may terminate the agreement at any time if the Company fails to maintain certain performance standards, and may terminate without cause, effective no earlier than two years after commencement of operations, by providing 180 days notice to the Company. The Delta Connection Agreement provides the Company with certain rights in the event of termination without cause. The Company has ordered 20 50- seat Canadair regional jets from Bombardier Aerospace of Montreal and 25 328JET feeder jets from Fairchild for this new venture. The Company has established a new subsidiary, Atlantic Coast Jet, Inc. ("ACJet"), d.b.a. Delta Connection, which is now in the application and approval process with the applicable federal agencies to obtain authority to conduct scheduled passenger air transportation of jet aircraft. Initial Delta Connection service to various destinations in the Northeast United States is expected to begin no sooner than April 2000, subject to satisfactory resolution of regulatory requirements and other start-up considerations. The Company can make no assurances that its ACJet subsidiary will 22 receive all necessary regulatory approvals by this date or that aircraft will be delivered on time. The Company expects to incur approximately $3.0 million in additional start-up expenses for ACJet during the next six months. The continued introduction of these additional RJ aircraft will expand ACA's current business into new markets and may increase capacity in existing markets. In general, service to new markets and increased capacity to existing markets will result in increased operating expense that may not be immediately offset by increases in operating revenues. ACJet will incur start-up expenses and will require DOT and FAA approvals to conduct scheduled air transportation. Initially, the Company will incur expenses in excess of the expected revenues from the fee-per- departure structure until additional aircraft enter the fleet. There can be no assurances that ACJet will be able to operate profitably. The Company continues to assess plans to phase out the 28 leased 19 seat J32 aircraft used in the United Express operation by the end of 2001. The Company continues to analyze its phase-out plan, including quantification of expected costs related to the removal of the J32 from the fleet. The timing of approval by United to operate the feeder jet aircraft as United Express will also be a factor in analyzing the J32 phase-out plan. During the first half of 1999 US Airways announced and began to implement new service from Washington-Dulles to various cities. New and announced service includes operations as mainline US Airways, MetroJet, Shuttle, and US Airways Express. As of November 1, 1999, the Company served 44 cities out of Washington-Dulles. US Airways service existed in 7 of the Company's markets as of December 31, 1998 and 20 as of November 1, 1999. Generally this service has utilized fare structures similar to that implemented by the Company. Two of the implemented markets are served by MetroJet, which offers fares lower than that which has typically been offered by the Company. The increased competition by US Airways and other airlines in the Company's markets could adversely affect the Company's results of operations or financial position. The Company continually monitors and responds to the effects competition has on its routes, fares and frequencies, and believes that it can compete effectively with US Airways and other competitors. However, there can be no assurances that US Airways' and other competitors' continued expansion at Washington-Dulles will not have a material adverse effect on the Company's future results of operations or financial position in the current or any future quarters. During April and May, 1999, United significantly increased the number of flights it operated at Washington-Dulles. In July, 1999, United and the Company revised their Dulles flight schedules to increase connections and to thereby take greater advantage of United's increased capacity. As of November 1, 1999, United operated 112 daily departures from Washington Dulles, a 62% increase from December 31, 1998. During 1999, the Company and United have either increased frequencies or 23 upgraded equipment, or both, in markets affected by the US Airways expansion. During the third quarter of 1999, the Company executed a seven year engine services agreement with GE Engine Services, Inc. ("GE") covering the scheduled and unscheduled repair of ACA's CF34-3B1 jet engines operated on the 43 RJs already delivered or on order for the United Express operation. Under the terms of the agreement, the Company will pay a set dollar amount per engine hour flown on a monthly basis to GE and GE assumes the responsibility to repair the engines when required at no additional expense to the Company, subject to certain exclusions. The Company intends to expense the amount due based on the monthly rates stipulated in the agreement, as engine hours are flown. During the third quarter, the Company reversed approximately $1.5 million in life limited parts repair expense accruals related to these engines that are no longer required based on the maintenance services and terms contained in the new engine maintenance agreement. The Company's future maintenance expense on regional jet engines covered under the new agreement will escalate based on contractual rate increases, intended to match the timing of actual maintenance events that are due pursuant to the terms. Accordingly, maintenance costs recognized on these RJ engines during 2000 will be greater than those recorded historically. Liquidity and Capital Resources As of September 30, 1999, the Company had cash, cash equivalents and short-term investments of $43.3 million and working capital of $54.0 million compared to $64.5 million and $68.1 million respectively as of December 31, 1998. During the first nine months of 1999, cash and cash equivalents decreased by $21.1 million, reflecting net cash provided by operating activities of $26.2 million, net cash used in investing activities of $47.8 million, and net cash provided by financing activities of $0.5 million. The net cash provided by operating activities is primarily the result of net income for the period of $22.3 million, an increase of $8.6 million in accrued liabilities resulting from increased operations and non cash depreciation and amortization expenses of $6.5 million, offset by an $8.8 million increase in prepaid expenses related to aircraft rent and a $3.2 million increase in receivables due to the increase in passenger revenues. In order to minimize total aircraft rental expense over the entire life of the related aircraft leveraged lease transactions, the Company has uneven semiannual lease payment dates generally occurring on January 1 and July 1. Approximately 33% of the Company's annual lease payments are due in January and 30% in July. The net cash used in investing activities consisted primarily of the purchase of one regional jet and spare engines and parts, and payments of $17.3 million of additional aircraft deposits related to the Bombardier and Fairchild aircraft orders. Financing activities consisted primarily from the issuance of long term debt for the acquisition of an RJ aircraft and spare engines, and proceeds from the exercise of stock options, offset by the repurchase of the Company's 24 stock under the stock repurchase program and payments on long term debt and capital lease obligations. Other Financing In February 1999, the Company entered into an asset-based lending agreement with two financial institutions that provides the Company with a $15 million bridge loan to fund the Company's obligation to MWAA for construction costs on the Company's regional terminal at Washington-Dulles International Airport and a line of credit for up to $35 million depending on the amount of assigned ticket receivables and the value of certain rotable spare parts. The $35 million line of credit replaces a previous $20 million line of credit. The interest rate on this line is LIBOR plus from .75% to 1.75% depending on the Company's fixed charges coverage ratio. During the first nine months of 1999, the Company drew $7.8 million of the $15 million bridge loan. Upon reimbursement from MWAA, the Company repaid the loan. As of September 30, 1999 the outstanding balance on the bridge loan was zero. Subsequent to the initial reimbursement from MWAA, the Company has loaned to MWAA an additional $3.9 million and recorded a note receivable from MWAA. No additional amounts were drawn on the bridge loan for this additional funding. However, the Company may do so in the future as desired. The Company's remaining obligation to MWAA for interim financing of the regional terminal is approximately $1.0 million. The Company has pledged $2.9 million of the line of credit as collateral to secure letters of credit issued on behalf of the Company by a financial institution. As of September 30, 1999, the available amount of credit under the $35 million line was $32.1 million. Other Commitments In April 1999, the Company entered into a call option contract to hedge price changes on approximately 19,300 barrels of crude oil per month during the period from October through December 1999. The contract provides for a premium payment of approximately $75,400 and sets a cap on the maximum price equal to approximately 42 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, the Company entered into commodity swap transactions to hedge price changes on approximately 13,300 barrels of crude oil per month for the period April to June 2000 and on approximately 23,300 barrels of crude oil per month for the period July through September 2000. The contracts provide for an average fixed price equal to approximately 52.6 cents per gallon for the second quarter of 2000 and 51 cents per gallon for the third quarter of 2000. With these transactions and taking into account that Delta Air Lines, Inc. bears the economic risk of fuel price fluctuations for future fuel requirements associated with the Delta Connection program, the Company has hedged approximately 20% of its anticipated jet fuel requirements for the fourth quarter of 1999; 11% for the second quarter 2000; 22% for the third quarter 2000; and 15%, for the fourth quarter of 2000. Had these 25 contracts and transactions settled on September 30, 1999 the counterparties would have been required to pay the Company approximately $494,000. On May 4, 1999, the Company entered into two interest rate swap contracts having an aggregate notional amount of $13 million to hedge its exposure by approximately 37%, to interest rate changes until permanent financing for two RJ aircraft scheduled for delivery in October and November 1999, is secured. On July 2, 1999, the Company entered into interest rate swap contracts having an aggregate notional amount of $7 million to hedge its exposure by approximately 40%, to interest rate changes until permanent financing for the RJ aircraft scheduled for delivery in December 1999 is secured. On August 25, 1999, the Company entered into three interest rate swap contracts having an aggregate notional amount of $23 million to hedge its exposure by approximately 44%, to interest rate changes until permanent financing for three RJ aircraft scheduled for delivery in March, April and May 2000, is secured. The contracts entered into on May 4, 1999 relating to the aircraft delivered in October and November 1999 have been closed out with the counterparty paying the Company approximately $274,000. Neither the counterparty nor the Company would have been obligated to pay any amounts had the remaining contracts settled on September 30, 1999. Aircraft The Company now has firm orders for 45 RJs in addition to the 21 previously delivered, and options for an additional 27 RJs. The delivery schedule for the 45 firm orders is as follows: two are scheduled for the fourth quarter of 1999, fifteen in 2000, eighteen in 2001, and ten in 2002. Twenty-two of the 45 firm ordered aircraft are for the United Express operation, 20 are for the Delta Connection operation, and three remain unallocated at this time. The value of the remaining 45 undelivered aircraft on firm order is approximately $810 million. The Company also has a firm order for 25 328JET feeder jet aircraft and a conditional order for 55 328JET and 428JET feeder jet aircraft, and options for an additional 85 feeder jet aircraft, from Fairchild Aerospace Corporation. The value of the aircraft on firm order is approximately $275 million and the value of the aircraft in the conditional order (excluding the option aircraft) is approximately $700 million. The Company requires United's approval to operate more than 43 jet aircraft as United Express. The conditional portion of the Fairchild order is contingent on the Company receiving United's approval to operate the feeder jets as United Express. The Company at its option may waive the condition and enter into commitments for firm delivery positions under the Fairchild agreement. The Company has approximately $36.7 million on deposit with the aircraft manufacturers related to its aircraft orders. The deposit amounts totaling $11.0 million related to the conditional order with Fairchild is fully refundable if the order is cancelled due to lack of 26 United's approval. The Company intends to use a combination of debt and lease financing to acquire these aircraft. Capital Equipment and Debt Service Capital expenditures for the first nine months of 1999 were $26.2 million compared to $32.2 million for the same period in 1998. Capital expenditures for 1999 have consisted primarily of the purchase of one regional jet, spare jet engines, rotable spare parts for the RJ and J- 41 aircraft, facility leasehold improvements, ground equipment, and computer and office equipment. For the remainder of 1999, the Company anticipates spending approximately $22 million for: one RJ aircraft, (a portion of the purchase price to be mortgage debt financed), rotable spare parts related to the RJ and J-41 aircraft, ground service equipment, facilities, computers and software. Debt service including capital leases, but excluding the Regional Terminal bridge loan, for the nine months ended September 30, 1999 was $4.4 million compared to $4.1 million in the same period of 1998. The Company believes that, in the absence of unusual circumstances, its cash flow from operations, the asset-based credit facility including the bridge loan, and other available equipment financing, will be sufficient to meet its working capital needs, capital expenditures, and debt service requirements for the next twelve months. YEAR 2000 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. All mission critical and key vendors have stated they are year 2000 compliant. The Company is in constant contact with all of these mission critical vendors and is closely monitoring their status. In cases where the Company has not received assurances from non critical third parties that their systems are year 2000 ready, it is continuing mail or phone correspondence and has 27 developed a contingency plan to handle these non critical situations. 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 had completed remediation and testing of all of its internal IT and non-IT systems as of 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's cost to modify its own non-year 2000 ready systems or applications did not have a material effect on its financial position or the results of its operations. Risks The Company's final 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 vendors and suppliers to become year 2000 compliant or for one to experience a year 2000 failure in one or more systems (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 Contingency Plans The Company continues to develop its year 2000 contingency plans and continues to refine them as more information is received from third parties upon which it is heavily reliant. The Company continues to closely monitor the completed year 2000 compliance efforts of the third parties 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. 28 Recent Accounting Pronouncements 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. In July 1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133" which defers the effective date of Statement No. 133 by one year. Therefore, the Company will adopt Statement No. 133 during its first quarter of fiscal 2001 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 3. Quantitative and Qualitative Disclosures about Market Risk For the remainder of 1999 and into 2000, the Company has hedged a portion of ACA's exposure to jet fuel price fluctuations by entering into jet fuel option contracts for approximately 20% of its estimated fuel requirements for the fourth quarter of 1999 and 11% and 18%, respectively for the second and third quarters of 2000. The Company bears no fuel price risk for the ACJet operation per the terms of the Delta Connection Agreement. Based on the Company's projected fuel consumption for 2000, a one-cent increase in the average price of jet fuel would increase the Company's aircraft fuel expense for 2000 by approximately $620,000. The Company's exposure to market risk associated with changes in interest rates relates to the Company's commitment to acquire regional jets. As of November 01, 1999, the Company has outstanding, four interest rate swap contracts having an aggregate notional amount of $30 million to hedge its exposure by approximately 43%, to interest rate changes until permanent financing for four RJ aircraft scheduled for delivery in December 1999, and March, April and May, 2000 are secured. A one basis point decrease in interest rates from the strike price of the Company's call contracts would increase the Company's annual aircraft lease or ownership costs associated with these contracts by approximately $90,000. 29 ATLANTIC COAST AIRLINES HOLDINGS, INC. FISCAL QUARTER ENDED September 30, 1999 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. The Company is a party to routine litigation incidental to its business, none of which the Company believes is likely to have a material effect on the Company's financial position. ITEM 2. Changes in Securities. None to report. ITEM 3. Defaults Upon Senior Securities. None to report. ITEM 4. Submission of Matters to a Vote of Security Holders. None to report. ITEM 5. Other Information. None to report. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.8 Delta Connection Agreement, dated as of September 9, 1999 among Delta Air Lines, Inc., Atlantic Coast Airlines Holdings, Inc. and Atlantic Coast Jet, Inc. 10.12(b)(1) Amendment Number One to Severance Agreement, dated as of August 12, 1999, amending the Severance Agreement, dated as of January 20, 1999, between the Company and Thomas J. Moore. 30 10.12(c)(1) Amendment Number One to Severance Agreement, dated as of August 17, 1999, amending the Restated Severance Agreement, dated as of January 20, 1999, between the Company and Kerry B. Skeen. 10.40A(1) Contract Change Orders No. 13, 14, and 15, dated April 28, 1999, July 29, 1999, and September 24, 1999, respectively, amending the Purchase Agreement between Bombardier Inc. and Atlantic Coast Airlines relating to the purchase of Canadair Regional Jet Aircraft dated January 8, 1997. 10.41 Purchase Agreement between Bombardier Inc. and Atlantic Coast Airlines relating to the Purchase of Canadair Regional Jet Aircraft dated July 29, 1999, as amended through September 30, 1999. 10.45(1) First Amendment dated effective September 10, 1999, to the Aircraft Purchase Agreement between Dornier Luftfahrt GmbH and Atlantic Coast Airlines dated effective March 31, 1999. 27.1 Financial Data Schedule. (b) Reports on Form 8-K None to report. 31 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ATLANTIC COAST AIRLINES HOLDINGS, INC. November 15, 1999 By: /S/ Paul H. Tate Paul H. Tate Senior Vice President and Chief Financial Officer November 15, 1999 By: /S/ Kerry B. Skeen Kerry B. Skeen President and Chief Executive Officer _______________________________ 1 "Break-even passenger load factor" represents the percentage of ASMs which must be flown by revenue passengers for the airline to break-even at the operating income level. 2 Average cost per gallon of fuel is inclusive of all taxes, into plane and flowage fees, and gains and losses from fuel hedge transactions. EX-10 2 EXHIBIT 10.8 CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. DELTA CONNECTION AGREEMENT This Agreement (this "Agreement"), dated and effective the 9th day of September, 1999, is between Delta Air Lines, Inc., Hartsfield Atlanta International Airport, Atlanta, Georgia 30320 ("Delta"), and Atlantic Coast Airlines Holdings, Inc. ("Holdings") and ACA Management, Inc. ("Operator"), each located at 515A Shaw Road, Dulles, Virginia 20166. WHEREAS, Delta operates the Delta Connection program; and WHEREAS, Holdings has agreed to establish and maintain Operator as a separate business entity, and for Operator to obtain authority to conduct scheduled passenger air transportation of jet aircraft; and WHEREAS, Holdings desires for Operator to exclusively (except as otherwise provided herein) manage the operations of the Aircraft (as defined below) as a Delta Connection carrier under the Delta Connection program; and WHEREAS, Operator desires for Delta to perform and provide various marketing, schedule and fare related, and other services for Operator in connection with the Delta Connection program; and WHEREAS, Delta is willing to perform and provide various marketing, schedule and fare related, and other services for Operator in connection with the Delta Connection program; and WHEREAS, this Agreement will enhance the ability of Operator and Delta to serve the public and the communities that they serve or may choose to serve; and WHEREAS, unless otherwise specified, references in this Agreement to ACA are to Atlantic Coast Airlines, a subsidiary of Holdings, and Operator and any affiliate of Holdings; and NOW, THEREFORE, for and in consideration of the mutual undertakings set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Delta and Holdings and Operator, intending to be legally bound, hereby agree as follows: ARTICLE 1. FARES AND RULES PUBLICATION. A. Delta Connection Program and Appointment of Delta as Agent. Delta hereby grants Operator the authority to operate as a Delta Connection carrier, and Operator hereby accepts such grant, to conduct air transportation operating the Aircraft utilizing certain services together with certain trademarks and service marks owned by Delta, all as provided herein. In connection herewith, Operator appoints Delta as its agent to publish its fares, schedules and related information under Delta's two letter designator code in city pairs specified by Delta (which shall not include ---------- unless agreed by Operator) on the twenty (20) Canadair Regional Jets and twenty-five (25) Dornier 328 regional jet aircraft set forth on Exhibit A attached hereto and any other aircraft subsequently agreed to be operated by Operator as Delta Connection Flights (as such term is defined herein) (the aircraft identified on Exhibit A, and such subsequently agreed aircraft, collectively, "Aircraft"), and Delta hereby accepts such appointment. B. Fares, Rules and Seat Inventory.Delta shall establish and publish all fares and related tariff rules for all seats on the Aircraft, including fares and rules for local traffic in city pairs served by such Aircraft. Operator shall not publish any fares, tariffs, or related information for the Aircraft. In addition, Delta will control all seat inventory and revenue management decisions for the Aircraft. C.Schedules Publication. Delta shall establish and publish all schedules for the Aircraft, including city-pairs served, frequencies, utilization and timing of scheduled departures. Schedules shall conform to Operator's reasonable operational requirements. Operator shall operate the Aircraft in the city- pairs designated by Delta, subject to the frequency, scheduling and other requirements established by Delta from time to time and in a manner at least comparable to ACA's operational standards as of the date hereof. Delta will notify Operator of schedule times, frequencies and related information for the Aircraft at least ---------- days in advance of the schedule publication date so that the information can be properly disseminated to Operator for pilot and flight attendant staffing, and related operational requirements. Block times for the Aircraft shall be established by Delta in cooperation with Operator, and ------- -------------------------------------------------------------- --------------------------------- ARTICLE 2. EXCLUSIVITY. A. With the exception of (i) flights operated by ACA with United Airlines, Inc. or its successors ("United"), (ii) code share flights with any non-U.S. carrier with which United has a code-share agreement, and (iii) flights operated solely under the "DH" and Operator two letter designator code, ACA agrees to list its flights only under Delta's code during the term of this Agreement (the "Delta Connection Flights"). B. ACA must obtain Delta's approval if it chooses to enter into a code-sharing arrangement with another carrier (other than United or a non-U.S. carrier with which United has a code share arrangement). C. Other than with United or a non-U.S. carrier with which United has a code share arrangement, ACA (or any affiliated company) may not operate flights for any other carrier without Delta's prior written approval other ------------------------- - --------------------------------------------------- and other than in connection with the disposition of ACA's turboprop aircraft. D. ACA shall not publish or operate any other scheduled flights in any city pair that includes ------------------------------- without Delta's prior written consent. ARTICLE 3. COMPENSATION. A. Base Compensation. In exchange for the flying and operation of the Aircraft, Delta will pay Operator ----------------- percent ------ of the Cost Recovery Amount (the "Base Compensation"). The "Cost Recovery Amount", which shall be mutually agreed by Delta and Operator on an annual basis, is --------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------- B. Incentive Compensation. In addition to the Base Compensation, Operator shall have an opportunity to earn additional compensation ("Incentive Compensation") --------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ - -------- ----- ---- --- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------ ---- -------- -------- -------- -------- -------- -------- ------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ---------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - --------------------------------------------- C. Accounting Provisions. Delta shall retain all revenues for all ticket sales on the Aircraft for Delta Connection Flights. Operator shall forward to Delta all monies with respect to all airline ticket sales, on- board sales, baggage charges, passenger charges, and all other revenue collected in connection with the operation of the Aircraft (including credit card transactions). On each Monday, or if a not a business day, on the following business day, Delta will advance monies to Operator by wire transfer using the Base Compensation Amount for Delta Connection flights to be operated during the period beginning that Monday through the following Sunday. ---------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - --------------- Ninety (90) days following the end of each month, Delta and Operator will reconcile actual costs incurred for certain cost items with the estimated costs identified as part of the Cost Recovery Amount. These items are: ------------------------------ - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ------------- The reconciliation will include any applicable Incentive Compensation based on Operator's operating statistics for the applicable month of its actual completion rate. Within two (2) business days of completing such reconciliation, Delta or Operator, as the case may be, shall wire transfer to an account designated by the other party, monies equal to the reconciled amount. D. Audit. Operator and ACA (to the extent ACA's expenses are shared by Operator) shall maintain complete and accurate records to support and document all costs related to the Aircraft hereunder, in accordance with generally accepted accounting principles consistently applied to past periods in all material respects. Prior to the annual negotiation of the Cost Recovery Amount, Delta's in-house accounting staff and any independent accountants selected by Delta shall be entitled, following reasonable notice to ACA, to audit Operator's and, to the extent ACA's expenses are shared by Operator, ACA's records with respect to services provided in prior periods, the service levels achieved, and the determination of charges due pursuant to this Agreement for the purpose of prospectively adjusting the Cost Recovery Amount. Any such audit will be conducted during regular business hours at ACA's offices at a mutually agreed time. ARTICLE 4. AIRPORT RELATED AND TICKETING SERVICES. A. Ticketing Services. Delta will provide its own airport ticketing services, and, if requested by Delta and agreed by Operator, Operator will provide ticketing services for Delta Connection Flights at Operator airport ticketing locations and will use Delta ticket stock for such purposes. B. Signage. Delta will design, provide and pay for appropriate airport and other signage to reflect the Delta Connection relationship between Operator and Delta. The nature and type of such signage will be in the sole discretion of Delta, subject to any airport, governmental or quasi-governmental restrictions or requirements. Delta will be responsible for installing and maintaining all such signage, but the parties will mutually determine which party will obtain any necessary formal or informal approvals from appropriate airport or other authorities to install such signage. The parties will fully cooperate with each other in all endeavors relating to such signage and any necessary approvals. ARTICLE 5. CUSTOMER SERVICES. A. During the in-flight operation of any and all Delta Connection Flights and at any location where Operator is performing customer related services in connection with any Delta Connection Flight at the request of Delta, ACA will handle all customer related services in connection with the Delta Connection Flights in a professional, businesslike and courteous manner. In order to insure a high level of customer satisfaction Operator will: 1. establish and maintain customer handling procedures and policies that are similar to those utilized by Delta; and 2. establish, maintain and enforce employee conduct, appearance and training standards and policies that are similar to those utilized by Delta. Delta shall provide Operator a reasonable number of copies of all such Delta policies, training standards and procedures. B. Operator and Delta will periodically meet to discuss and review Operator's customer service and handling procedures and policies and Operator's employee conduct, appearance and training standards and policies to insure compliance with this Article 5. Each party will seek to set forth concerns and complaints under this Article 5 in writing to the other party. To the extent Delta advises Operator in writing of any deviation from Article 5(A), the parties will meet to mutually determine appropriate solutions and to agree to the terms of a corrective action plan and the timing of its implementation. In the event Operator shall fail, in any material respect, to adopt or implement any such agreed corrective action plan in the time period described therein, any such failure may be deemed a material breach of this Agreement. C. Operator shall adopt as its own Delta's Terms and Conditions of Contract of Carriage ("Contract of Carriage"), as amended from time to time, and be bound by its terms with respect to its operation of Delta Connection Flights. Delta will supply Operator an adequate number of its Contract of Carriage for distribution as required. D. At no cost to Operator, Delta's customer affairs department shall process and adjudicate (including paying cash or in kind compensation as appropriate in a manner not inconsistent with its Contact of Carriage) any claims submitted to Delta or to Operator with respect to the conduct of any Delta Connection Flights or services provided in connection therewith, except claims of compensation for property damage, injury or death of passengers on Delta Connection Flights arising out of any action or inaction of Operator. Any claims for such property damage, injury or death shall be processed by Operator. Each party will undertake to use Delta's standard procedures for processing and adjudicating all claims for which it is responsible in accordance with this Article 5(D) in order to avoid the matter being the subject of either a law suit or a claim on either party's insurance policy. At either party's request, the other party shall reasonably assist the requesting party, including providing available information, in the processing or adjudication of any such claims handled by the requesting party. E. At any stations agreed to be handled by Operator, Delta will provide Operator with local in-kind compensation to be offered to inconvenienced customers in accordance with Delta's policies and procedures. In addition, in the event Operator incurs any out of pocket expenses in connection with providing passenger handling services at the request of Delta, Delta shall reimburse Operator for any and all such expenses provided such expenses are in accordance with Delta's Contract of Carriage and /or customer service procedures, in effect at such time. Such reimbursement will be made as incurred, separate and apart from the Cost Recovery Amount, without markup, provided that should Operator agree, upon Delta's written request, to provide services in this area on a regular basis, then the said services would be included in the Cost Recovery Amount pursuant to Article 8(B) herein. ARTICLE 6. TRAFFIC DOCUMENTS AND RELATED PROCEDURES. To the extent that the parties subsequently agree that Operator will handle traffic documents or passenger handling services in connection with Delta Connection Flights, the following terms shall apply, at Delta's cost except as specifically provided: A. Pursuant to mutually acceptable procedures, Delta will periodically provide Operator with Delta machine and manual ticket stock, miscellaneous charges orders, credit card refund drafts, FIMs, expense vouchers, expense checks, travel credit vouchers, credit card refund vouchers and other related documents (collectively referred to as "Traffic Documents"). Delta will maintain a supply of Traffic Documents at a suitable location and, upon written request from Operator, will provide Operator with appropriate supplies of Traffic Documents. B. Unless otherwise agreed to by Delta in writing, Traffic Documents may be used, completed, validated and issued only by Operator and only in connection with transactions related to Delta Connection Flights and for no other purpose. C. Operator will promptly surrender and return all Traffic Documents to Delta upon Delta's written request. D. Operator will maintain records of the Traffic Documents in a manner and format acceptable to Delta. Operator will acknowledge receipt in writing of all Traffic Documents in the manner prescribed by Delta. E. Operator will conform with and abide by all of Delta's rules and regulations regarding the Traffic Documents. F. Operator will take all reasonable and necessary measures to safeguard the Traffic Documents as of the time of receipt and thereafter and will maintain the Traffic Documents in accordance with mutually agreed upon security procedures. Operator shall be responsible for all risk of loss, use, misuse, misappropriation or theft of Traffic Documents as of the time Operator takes possession of the Traffic Documents, provided that Delta has timely audited the use of Traffic Documents and has provided Operator with prompt notice of any irregularities. G. Reporting and Remitting With Respect to Traffic Documents. 1. On a daily basis, Operator will provide Delta with a report for each Operator ticketing location of all ticketing and related transactions on Traffic Documents for the prior day. Such report will be in a format determined by Delta and will include, without limitation, all credit card transactions and supporting documentation. 2. Operator will issue all Traffic Documents, and will collect appropriate charges, in accordance with the tariffs, fares, rates, rules and regulations of Delta and other applicable carriers. H. Refund Vouchers. 1. Delta will use Delta refund vouchers for all refund transactions handled by Delta involving Operator. 2. Operator will use Delta refund vouchers and credit card sales refunds and will comply with Delta's rules and regulations for handling and processing such refunds. Delta will supply Operator with an adequate supply of refund vouchers and credit card refund vouchers. ARTICLE 7. FREQUENT FLYER PARTICIPATION. During the term of this Agreement, the parties agree that passengers on Operator's Delta Connection Flights will be eligible to participate in the Delta SkyMiles frequent flyer program or any other similar program developed by Delta (the "Program") and all Program award tickets will be honored for travel on Delta Connection Flights on the following terms and conditions: A. Administration. Administration of the Program shall be performed by and at the cost of Delta. Delta will promote and administer the Program. B. Program Information. Title and full and complete ownership rights to Program membership data and information developed by Delta, wherever located, shall remain with Delta. ACA understands and agrees that such data and information constitutes Delta's proprietary information. Any membership lists, labels, data, or other compiled membership information supplied to ACA in any form and any and all copies thereof are to be used by Operator exclusively in the performance of its obligations under this Agreement and will not be otherwise used, sold, licensed, leased, transferred, stored, duplicated or transmitted, in any form or by any means, without Delta's prior written consent. All such information will either be returned to Delta or destroyed at Delta's request. ARTICLE 8. SUPPORT SERVICES. A. Services. Delta shall provide certain support services to Operator, including all customer reservations, customer service, ground handling, station operations, pricing, scheduling, revenue accounting, revenue management, frequent flyer, advertising and other passenger, aircraft and traffic servicing functions in connection with the operation of the Aircraft other than as allocated to Operator as described in Exhibit B, and Delta will be responsible for all taxes and fees associated therewith. Any and all such services provided by Delta to Operator pursuant to this Article 8(A) shall be at cost and not be included in the Cost Recovery Amount as described in Exhibit B. B. Additional Services. -------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------- Similarly, if Delta and Operator agree that Operator or Holdings, or its designees, will provide services that are anticipated to be provided by Delta in accordance with Article 8(A) hereof, the cost of such services will be included in the Cost Recovery Amount. C. Certain Regulatory Compliance. The parties acknowledge that Operator is responsible for various aspects of airport and aircraft security pursuant to certain FAA regulations, and to other applicable regulations in connection with the operation of Delta Connection Flights. The parties further acknowledge that Delta will provide airport and aircraft handling of Operator's Delta Connection Flights in accordance with the terms of this Agreement including providing airport and aircraft security functions. To facilitate operations contemplated herein, Operator will adopt as its own Delta's FAA-approved air carrier security plan subject to any FAA required modifications as approved by the FAA ("Security Plan"). Delta shall adhere to the terms and provisions of Operator's Security Plan at all airports at which Delta handles or will handle Operator's Delta Connection Flights. ------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- - -------------------------------------------------------------- Operator shall diligently defend any allegations of violations of the above, and Delta will cooperate with Operator in investigating any such claim and to reasonably assistant Operator, if requested to do so, in defending the matter. If there are any differences between Operator's Security Plan and Delta's security plan, Operator will provide to Delta's employees and contractors any necessary differences training to the extent required by the FAA and the cost of such training will be included in the Cost Recovery Amount. ARTICLE 9. AUTOMATION SERVICES. Delta agrees to provide Operator, at Delta's sole cost, the following automation and related services for the Delta Connection Flights, and Operator agrees to participate in such services in the manner described below. A. Internal Reservations and Communications Equipment. Delta shall provide or arrange for the provision to Operator of an electronic reservations system (currently referred to as "Deltamatic" but including any successor reservations system adopted by Delta) which shall provide Operator with: (i) the ability to access passenger name records, (ii) automated ticketing capabilities, (iii) operational message switching capabilities, (iv) the ability to update Delta Connection Flight information, (v) the ability to distribute flight releases and weather packages, and (vi) perform other reservations-related or operational functions for the Delta Connection Flights (Deltamatic and any successor system are hereinafter referred to as the "Res System"). Delta reserves the right to modify the functionality of the Res System at any time. Operator will use the Res System made available by Delta for the Delta Connection Flights only. B. Delta's Rights and Obligations. 1. Delta will install or cause to be installed the equipment requested by Operator at the locations set forth on Exhibit C to this Agreement and shall provide Operator connection to the Res System. The equipment described on Exhibit C and any software installed on such Equipment are hereinafter referred to as the "Equipment." Operator understands and agrees that: (i) all Equipment shall remain the sole property of Delta; (ii) Operator shall not remove any identifying marks from the Equipment; (iii) Operator shall not subject the Equipment to any lien; (iv) Operator shall not install any computer programs, software or similar materials on the Equipment; and (v) Delta may enter Operator's premises to remove the Equipment immediately upon termination of this Agreement. Exhibit C may be amended from time to time by mutual agreement of the parties to reflect the installation, removal or relocation of Equipment and the corresponding charges therefor. 2. Delta will provide initial and recurrent training to Operator training staff and other key designated personnel in the use of the Res System, at Delta's training centers unless otherwise agreed. Delta may remove from a training program any Operator employee who is not satisfactorily participating therein. 3. Delta will provide, or arrange to provide, all equipment upgrades, repairs and maintenance services required for the Equipment and will use reasonable business efforts to keep the Equipment and the Res System in good repair, condition, and upgrade status consistent with Delta's standard for maintaining its own equipment. Operator will not perform or attempt to perform repairs or maintenance of any kind on the Equipment without prior consultation with Delta and will promptly contact Delta regarding the need for repairs or maintenance. C. Operator's Rights and Obligations. 1. The Equipment initially selected by Operator is set forth by location on Exhibit C. Operator will pay all costs associated with preparing the location for the Equipment, which location must conform with the specifications of both Delta and the Equipment manufacturer and must include adequate electrical power and in-house voice/data wiring. Delta shall be responsible for backbone data lines and related communications equipment. Operator will not for any reason relocate or remove any of the Equipment without Delta's prior written consent. Delta will pay all costs associated with, and be responsible for, the installation, relocation or removal of Equipment. 2. Operator will use the Equipment and the Res System in strict conformity with the training and operating instructions provided by, or arranged to be provided by, Delta. Without limiting the generality of the foregoing, Operator will not use the Res System to develop or publish any reservation, ticketing, sales, cargo, tariff or other guide, to provide services not authorized by this Agreement to third parties, to train persons other than Operator's employees in the use of the Equipment or the Res System, or for other uses designated by Delta in writing as prohibited. Operator may not publish, disclose or otherwise make available to any third party the compilations of air carrier service or fares obtained from the Res System; provided, however, that Operator may use specific air carrier service and fare data for the benefit of its customers. 3. Operator will encourage and allow its employees to attend training sessions related to the Res System, and it is Operator's responsibility to insure that each employee receives full and adequate training on the Res System. 4. Operator will protect the Equipment from loss, damage or theft and shall prevent its unauthorized use or improper operation. Operator will make no alterations to the Equipment and will return the Equipment to Delta upon the termination of this Agreement in the same condition as received, excepting only ordinary wear and tear in the normal course of Operator's operations. Operator will obtain and maintain insurance for the Equipment against all risks of damage and loss, including without limitation loss by fire, theft and such other risks of loss as are customarily insured in a standard all-risk policy. Such insurance shall also provide the following: (a) Full replacement value coverage for the Equipment (subject to policy deductibles); (b) An endorsement naming Delta as the loss payee to the extent of its interest in the Equipment; and (c) An endorsement requiring the insurer to give Delta at least thirty (30) days prior written notice of any intended cancellation, nonrenewal or material change of coverage; provided that only ten (10) days prior written notice of cancellation, nonrenewal or material change of coverage need be given in the event that such cancellation, nonrenewal or material change in coverage is caused solely by failure to make a premium payment. Upon request by Delta, Operator will promptly provide satisfactory evidence of the insurance required pursuant to this Article 9(C)(4). Notwithstanding the foregoing, Operator shall be liable to Delta for any loss or damage to the Equipment, regardless of cause, occurring while the Equipment is in the possession, custody or control of Operator. 5. Operator waives any proprietary rights that it may have with respect to information entered into the Res System. D. Entry and Inspection. Delta personnel and persons designated or authorized by Delta may enter Operator's premises during normal business hours for the purposes of (a) monitoring, inspecting, and reviewing Operator's use of and operations with respect to the Res System, (b) performing repairs or maintenance on the Equipment, (c) installing, removing, replacing or relocating the Equipment (unless otherwise permitted by this Agreement), or (d) training or retraining Operator's employees in the use of the Res System; provided that such activities may not unreasonably interfere with Operator's business. E. Limitations on Liability. In addition to any other limitations on liability set forth herein: 1. Delta is not responsible for errors or inaccuracies in the availability records, fare quotes, or other information contained in the Res System at any time, for any planned or unplanned interruptions, delays or malfunctions in the operation of the Res System or the Equipment. 2. OPERATOR HEREBY WAIVES AND RELEASES DELTA AND ITS AFFILIATES AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS FROM ANY AND ALL OBLIGATIONS AND LIABILITIES AND ALL RIGHTS, CLAIMS AND REMEDIES OF OPERATOR AGAINST DELTA OR ITS AFFILIATES OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, DUE TO ANY DEFECTS OR INTERRUPTIONS OF SERVICE IN, OR ERRORS OR MALFUNCTIONS BY, SOFTWARE, THE EQUIPMENT OR THE RES SYSTEM, INCLUDING ALL LIABILITY, OBLIGATION, RIGHT, CLAIM, OR REMEDY IN TORT, AND INCLUDING ALL LIABILITY, OBLIGATION, RIGHT, CLAIM OR REMEDY FOR LOSS OF REVENUE OR PROFIT OR ANY OTHER DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES. FURTHER, DELTA DISCLAIMS AND OPERATOR HEREBY WAIVES ANY WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR INTENDED USE RELATING TO THE RES SYSTEM, THE EQUIPMENT, DATA, OR SERVICES FURNISHED UNDER THIS ARTICLE 9. F. Patent and Copyright Indemnity. Delta will defend or settle, at its own expense, any action brought against Operator to the extent that it is based on a claim that the Res System provided by Delta pursuant to this Agreement, in its normal use, or any part thereof, infringes any U.S. copyright or patent; and Delta will pay those costs, damages and attorney's fees finally awarded against Operator in any such action attributable to any such claim, but such defense, settlements and payments are conditioned on the following: (1) that Delta shall be notified promptly in writing by Operator of any such claim; (2) that Delta shall have sole control of the defense of any action on such claim and of all negotiations for its settlement or compromise; (3) that Operator shall cooperate with Delta in a reasonable way to facilitate the settlement or defense of such claim, provided that Delta shall pay all of Operator's reasonable expenses in connection with any such cooperation requested by Delta; and (4) should such Res System become, or in Delta's opinion be likely to become, the subject of such claim of infringement, then Operator shall permit Delta, at Delta's option and expense, either to (a) procure for Operator the right to continue using the Res System, or (b) replace or modify the same so that it becomes noninfringing and functionally equivalent, or (c) upon failure of (a) and (b) above despite the reasonable efforts of Delta, accept immediate termination of this Agreement as it relates to such system. This paragraph (F) states the entire liability of Delta with respect to the infringement of copyrights and patents by the Res System provided hereunder or the operation thereof. ARTICLE 10. OPERATIONAL PERFORMANCE. A. Operator agrees to provide to Delta, for each month during the term of this Agreement, within 10 days of the last day of each such month, the completion rate (actual) of the Delta Connection Flights during such month. Operator understands that it is Delta's goal that participants in the Delta Connection Program maintain a completion rate (actual) of ---- or greater -- - ----------------------------------------------------------------- - ---------- B. If Operator fails to meet the standard set forth in Article 10(A) above for any---- calendar months in any ----month -------- - ----------------------------------------------------------------- - ------------ Delta may advise Operator that it considers said failure to be a "Performance Deficiency", and Operator agrees to discuss with Delta such Performance Deficiency and potential ways to improve such Performance Deficiency. If Operator does not meet said standard during any of the ----- calendar months following said discussion, then Delta shall have the right to terminate this Agreement immediately upon the expiration of such - ------calendar month period ------------------------. Should Operator meet said standard for any month during said ------month period, --------------------------------------------------------- - -------------------------------- (in either case, a "Performance Cure"), Delta shall no longer have the right to terminate this Agreement for the previously discussed Performance Deficiency, or to provide a new Performance Deficiency based in part on any months occurring prior to the Performance Cure. ARTICLE 11. TERM AND TERMINATION. A. This Agreement is effective on the date first written above and will continue thereafter until March 31, 2010. At the end of such initial term, Delta shall have the right to extend the term of the Agreement for an additional five (5) years on the same terms and conditions. In the event of a Merger (as defined below) or Change of Control (as defined below) of Holdings or Operator, Delta shall have the right to extend the term of the Agreement for an additional ten (10) years beyond the applicable termination date of this Agreement pursuant to this Article 11(A). B. Either party may terminate this Agreement immediately if the other party files a voluntary petition in bankruptcy, makes an assignment for the benefit of creditors, fails to secure dismissal of any involuntary petition in bankruptcy within sixty (60) days after the filing thereof, or petitions for reorganization, liquidation, or dissolution under any federal or state bankruptcy or similar law. C. In the event of a material breach of this Agreement by either party remaining uncured for more than thirty (30) days after receipt of written notification of such breach by the nonbreaching party, then the nonbreaching party may terminate this Agreement at its sole option. D. Notwithstanding the provisions of Articles 11(B) and (C), Delta shall have the right to terminate this Agreement immediately and at its sole option upon the occurrence of one or more of the following: (i) Holdings or Operator agrees to merge into or with any entity, to be acquired by any entity, to sell all or substantially all of its assets to another entity, or enters into a letter of intent, or similar document, to merge into or with any entity or to be acquired by any entity or to sell all or substantially all of its assets to another entity (unless any such letter of intent or similar document in contains a provision whereby Delta's prior approval is a condition precedent to the merger or acquisition), unless Holdings or Operator, as applicable, is the acquiring or surviving entity (each such event, a "Merger"); (ii) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than --- of either (a) the then outstanding shares of common stock of Holdings or Operator, or (b) the combined voting power of the then outstanding voting securities of either Holdings or Operator entitled to vote generally in the election of such party's directors (each such event, a "Change of Control"); (iii) Operator's level of safety with respect to its operation of the Aircraft is not reasonably satisfactory to Delta; (iv) pursuant to Article 10(B) hereof; (v) if Operator fails to maintain any material insurance pursuant to Articles 13 and 14 of this Agreement. E. Notwithstanding the provisions of Articles 11(A), (B), (C) and (D) hereof, Delta may terminate this Agreement, with or without cause, in its sole discretion, on not less than one hundred eighty (180) days' prior written notice to ACA; ------ - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - ------------------------------------------- F. Termination of this Agreement for any reason shall not relieve either party of rights and obligations incurred prior to the effective date of termination. ARTICLE 12. LIABILITY PROVISIONS. A. Except as otherwise provided in Articles 5(D), 5(E), and 8(C) of this Agreement, Holdings and Operator, jointly and severally, shall be liable for and each hereby agrees fully to defend, release, discharge, indemnify, and hold harmless Delta, its directors, officers, employees and agents from and against any and all claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses of any kind, character or nature whatsoever (in each case whether groundless or otherwise), including attorneys' fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to, or recoverable from Delta or its directors, officers, employees or agents in any manner arising out of, connected with, or attributable to this Agreement, the performance, improper performance, or nonperformance of any and all obligations to be undertaken by ACA pursuant to this Agreement, the loss, theft, use, misuse or misappropriation of Traffic Documents, or the operation, non-operation, or improper operation of the Aircraft or ACA's equipment or facilities at any location, excluding only claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses resulting from the gross negligence or willful misconduct of Delta, its directors, officers, agents or employees. ACA will do all things necessary to cause and assure, and will cause and assure, that ACA will at all times be and remain in custody and control of all aircraft, equipment, and facilities of ACA, and Delta, its directors, officers, employees and agents shall not, for any reason, be deemed to be in custody or control, or a bailee, of ACA's aircraft, equipment or facilities. B. Delta shall be liable for and hereby agrees fully to defend, release, discharge, indemnify, and hold harmless each of Holdings and Operator, their directors, officers, employees, and agents from and against any and all claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, costs and expenses of any kind, character or nature whatsoever, including attorneys' fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to, or recoverable from Holdings or Operator, or their directors, officers, employees or agents in any manner arising out of, connected with, or attributable to this Agreement, the performance, improper performance or nonperformance of any and all obligations to be undertaken by Delta pursuant to this Agreement, or the operation, non- operation or improper operation of Delta's aircraft, equipment or facilities at any location, in each case to the extent, but only to the extent, caused by Delta's gross negligence or willful misconduct. Delta will do all things necessary to cause and assure, and will cause and assure, that Delta will at all times be and remain in custody and control of any aircraft, equipment and facilities of Delta, and Holdings or Operator, their directors, officers, employees and agents shall not, for any reason, be deemed to be in the custody or control, or a bailee, of Delta's aircraft, equipment or facilities. C. ACA and Delta agree to comply with all rules, regulations, directives and similar instructions of appropriate governmental, judicial and administrative entities including, but not limited to, airport authorities, the Federal Aviation Administration and the Department of Transportation (and any successor agencies). D. OTHER THAN ANY WARRANTIES SPECIFICALLY CONTAINED IN THIS AGREEMENT, EACH PARTY DISCLAIMS AND THE OTHER PARTY HEREBY WAIVES ANY WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THIS AGREEMENT OR ITS PERFORMANCE OF ITS OBLIGATIONS HEREUNDER INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR INTENDED USE RELATING TO ANY EQUIPMENT, DATA, INFORMATION OR SERVICES FURNISHED HEREUNDER. EACH PARTY AGREES THAT THE OTHER PARTY IS NOT LIABLE TO IT OR ANY OTHER PERSONS FOR CONSEQUENTIAL OR PUNITIVE DAMAGES UNDER ANY CIRCUMSTANCES. E. Indemnification Claims. A party (the "Indemnified Party") entitled to indemnification from the other party under the terms of this Agreement (the "Indemnifying Party") shall provide the Indemnifying Party with prompt written notice (an "Indemnity Notice") of any third party claim which the Indemnified Party believes gives rise to a claim for indemnity against the Indemnifying Party hereunder, and the Indemnifying Party shall be entitled, if it accepts financial responsibility for the third party claim, to control the defense of or to settle any such third party claim at its own expense and by its own counsel; provided that the Indemnified Party's prior written consent (which may not be unreasonably withheld or delayed) must be obtained prior to settling any such third party claim. No consent will be required for claims defended or settled by an Indemnifying Party's insurance carrier. If the Indemnifying Party does not accept financial responsibility for the third party claim or fails to defend against the third party claim that is the subject of an Indemnity Notice within thirty (30) days of receiving such notice (or sooner if the nature of the third party claim so requires), or otherwise contests its obligation to indemnify the Indemnified Party in connection therewith, the Indemnified Party may, upon providing written notice to the Indemnifying Party, pay, compromise or defend such third party claim. The Indemnified Party shall provide the Indemnifying Party with such information as the Indemnifying Party shall reasonably request to defend any such third party claim and shall otherwise cooperate with the Indemnifying Party in the defense of any such third party claim. Except as set forth above in this Article 12(E), the Indemnified Party shall not enter into any settlement or other compromise or consent to a judgment with respect to a third party claim as to which the Indemnifying Party has an indemnity obligation hereunder without the prior written consent of the Indemnifying Party (which may not be unreasonably withheld or delayed), and the entering into any settlement or compromise or the consent to any judgment in violation of the foregoing shall constitute a waiver by the Indemnified Party of its right to indemnity hereunder to the extent the Indemnifying Party was prejudiced thereby. Any Indemnifying Party shall be subrogated to the rights of the Indemnified Party to the extent that the Indemnifying Party pays for any Loss suffered by the Indemnified Party hereunder. Notwithstanding anything contained in this Article 12(E) to the contrary, Operator, Holdings, and Delta will cooperate in the defense of any claim imposed jointly against them or as the result of the conduct of the other. ARTICLE 13. WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE PROVISIONS. A. For purposes of worker's compensation insurance, Delta's employees, agents and independent contractors under no circumstances shall be deemed to be, or shall be, employees, agents or independent contractors of ACA. B. For purposes of worker's compensation insurance, ACA's employees, agents and independent contractors under no circumstances shall be deemed to be, or shall be, the employees, agents or independent contractors of Delta. C. Each party assumes full responsibility for, and liability to, its own employees on account of injury, or death resulting therefrom, sustained in the course of their employment. Each party, with respect to its own employees, accepts full and exclusive liability for the payment of applicable workers' compensation and employers' liability insurance premiums with respect to such employees, and for the payment of all taxes, contributions or other payments for unemployment compensation and old age benefits, and other similar benefits now or hereafter imposed upon employers by any government or agency thereof having jurisdiction in respect of such employee. Each party also agrees to make such payments and to make and file all reports and returns and to do all things necessary to comply with all applicable laws at any time imposing such taxes, contributions, or payments. D. Each party will have their workers compensation carrier endorse their policy to provide a waiver of subrogation against the other party. ARTICLE 14. INSURANCE PROVISIONS. A. Operator shall procure and maintain in full force and effect during the term of this Agreement policies of insurance of the types and in the minimum amounts set forth below, with insurers of recognized reputation and responsibility: 1. All risk hull insurance. 2. Comprehensive airline liability including premises, products, baggage, cargo, contractual, and completed operations, covering bodily injury, personal injury and property damage in an amount not less than ------------ per occurrence; provided, however, that non-passenger personal injury coverage may be limited to ----------- per occurrence. 3. Workers' compensation for statutory limits. 4. Employer's liability in an amount not less than -- ------- 5. Automobile liability in an amount not less than ------ - ------ B. The policies of insurance described in Article 14(A) above shall include: 1. As to the policies of insurance described in Articles 14(A)(1) and (A)(3), to provide that any waiver of rights of subrogation against other parties by Operator will not affect the coverage provided hereunder with respect to Delta, its directors, officers, employees and agents; and with respect to Articles 14(A)(1) and (A)(2), to provide that Operator's underwriters shall provide breach of warranty coverage to Delta, its directors, officers, employees and agents, regardless of any breach or violation by Operator. 2. As to the policies of insurance described in Articles 14(A)(2) and A(5): (a) to provide that Delta, its directors, officers, employees and agents shall be named as additional insured parties thereunder; and (b) to provide that such insurance shall be primary insurance. 3. As to the policies of insurance described in Articles 14(A)(2) and A(5): (a) to provide a cross- liability clause as though separate policies were issued for Delta and Operator and their respective directors, officers, employees and agents. 4. As to any insurance obtained from foreign underwriters, to provide that Delta may maintain against such underwriters a direct action in the United States upon such insurance policies and, to this end, to include a standard service of process clause designating a United States attorney in New York, New York. C. Operator shall cause each of the insurance policies to be duly and properly endorsed to provide that such policy or policies or any part or parts thereof shall not be canceled, terminated or materially altered, changed or amended by Operator's insurance underwriters until after thirty (30) days' written notice to Delta, which thirty (30) days' notice shall commence to run from the date such notice is actually received by Delta. D. Not later than the date of delivery of the first Aircraft, and from time to time thereafter upon request by Delta, Operator shall furnish Delta evidence satisfactory to Delta of the aforesaid insurance coverages and endorsements, including certificates certifying that the aforesaid insurance policy or policies with the aforesaid limits are duly and properly endorsed as required and are in full force and effect. E. In the event Operator fails to maintain in full force and effect any of the insurance and endorsements required to be maintained by Operator pursuant to Article 14(A), Delta shall have the right (but not the obligation) to procure and maintain such insurance or any part thereof on behalf of Operator. The cost of such insurance shall be payable by Operator to Delta upon demand by Delta. The procurement of such insurance or any part thereof by Delta does not discharge or excuse Operator's obligation to comply with the provisions set out herein. Operator agrees not to cancel, terminate or materially alter, change or amend any of the policies until after providing thirty (30) days' advance written notice to Delta of Operator's intent to so cancel, terminate or materially alter, change or amend such policies of insurance, which thirty (30) day notice period shall commence to run from the date notice is actually received by Delta. F. During the term of this Agreement, Operator agrees to maintain on deposit with the Department of Transportation a signed counterpart of the interim "Montreal Agreement" (Agreement CAB 18900), which has the effect of increasing the limits of liability under the Warsaw Convention to seventy- five thousand dollars ($75,000.00). Operator further agrees to be bound by Agreement CAB 18900 and any subsequent amendment thereto or any subsequent order of the Department of Transportation or protocol ratified by the United States government which relates to or modifies the limit of liability under the Warsaw Convention. G. With respect to all claims against Operator (but not against Delta) with respect to which Operator is not entitled to be indemnified by Delta pursuant to Article 12(B), whether or not covered by the insurance policies set forth in this Article 14 or otherwise, Delta is responsible only for filing an initial report and will reasonably cooperate with Operator with respect to discovery to the extent information is available to it, and has no other obligations with respect to such claims, and Operator is fully responsible for handling all adjustments, settlements, negotiations, litigation and similar activities in any way related to or connected with such claims. ARTICLE 15. OPERATIONS OF OPERATOR AS A DELTA CONNECTION CARR IER. A. Delta and Operator and Holdings agree that, subject to the provisions of this Agreement, Operator will be operated exclusively as a Delta Connection carrier. B. Operator acknowledges and agrees that participation in the Delta Connection program obligates Operator to offer and maintain a professional, high quality level of service in terms of schedules, customer service and the like. Accordingly, not less than once each year during the term of this Agreement, the parties will: (a) meet to mutually review and discuss the services, operations and plans of Operator and Delta for the Delta Connection program; and (b) jointly develop a business plan for the Delta Connection operations and services of Operator. Holdings and Operator will reasonably comply with the business plans so developed and all reasonable recommendations of Delta in carrying out the material provisions of the business plan. C. During the last quarter of each calendar year, Delta shall develop an advertising budget and program for the next succeeding calendar year (or portion thereof) during the term of this Agreement for promoting the Delta Connection and the relationship between Delta and Operator established by this Agreement. Delta shall be responsible for the development and production of all promotional materials for the program. ARTICLE 16. REPRESENTATIONS AND WARRANTIES. A. Representations and Warranties of Holdings and Operator. Holdings and Operator, jointly and severally, represent and warrant to Delta as of the date hereof as follows: (1) Organization and Qualification. Each of Holdings and Operator is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and has the corporate power and authority to own, operate and use its assets and operate the Delta Connection Flights. (2) Authority Relative to this Agreement. Each of Holdings and Operator has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Holdings and Operator. This Agreement has been duly and validly executed and delivered by Holdings and Operator and is, assuming due execution and delivery thereof by Delta, a valid and binding obligation of Holdings and Operator, enforceable against each of Holdings and Operator in accordance with its terms. (3) Conflicts; Defaults. Neither the execution or delivery of this Agreement nor the performance by each of Holdings and Operator of the transactions contemplated hereby will (i) violate, conflict with, or constitute a default under any of the terms of either of Holdings' or Operator's articles of incorporation, by-laws, or any provision of, or result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement or instrument, including without limitation, any order, judgment or decree relating to the Delta Connection Flights, (ii) result in the creation or imposition of liens in favor of any third person or entity, (iii) violate any law, statute, judgment, decree, order, rule or regulation of any governmental authority, or (iv) constitute any event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens. (4) Broker. Neither Holdings or Operator has retained or agreed to pay any broker or finder with respect to this Agreement and the transactions contemplated hereby. B. Representations and Warranties of Delta. Delta represents Holdings and Operator as of the date hereof as follows: (1) Organization and Qualification. Delta is a duly incorporated and validly existing corporation in good standing under the laws of the State of Delaware. (2) Authority Relative to this Agreement. Delta has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Delta. This Agreement has been duly and validly executed and delivered by Delta and is, assuming due execution and delivery thereof by Holdings and Operator and that Holdings and Operator each has full legal power and right to enter into this Agreement, a valid and binding obligation of Delta, enforceable against Delta in accordance with its terms. (3) Conflicts; Defaults. Neither the execution or delivery of this Agreement nor the performance by Delta of the transactions contemplated hereby will (i) violate, conflict with, or constitute a default under any of the terms of Delta's articles of incorporation, by-laws, or any provision of, or result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement or instrument, including without limitation, any order, judgment or decree relating to the Delta Connection Flights, (ii) result in the creation or imposition of any liens in favor of any third person or entity, (iii) violate any law, statute, judgment, decree, order, rule or regulation of any governmental authority, or (iv) constitute any event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens. (4) Broker. Delta has not retained or agreed to pay any broker or finder with respect to this Agreement and the transactions contemplated hereby. ARTICLE 17. AIRCRAFT. - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - ------------------------------------ B. Future Dornier Regional Jets. In addition to the Aircraft, as of the date hereof, ACA also has options for eighty five (85) new Dornier 328 or 428 regional jets (the "Option Dorniers") and fifty-five (55) additional 328/428 Dornier aircraft on conditional (subject to approval by United to operate said aircraft as United Express) order (the "Conditional Dorniers"). ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ------------- The above aircraft orders assume that ACA is able to compete definitive amendments to its aircraft acquisition agreement to allow it to acquire additional Dornier aircraft. The terms of said amendments are subject to a signed Memorandum of Understanding as of the date hereof. Should said definitive agreements not be completed to allow for the acquisition of additional contemplated aircraft, the above terms will be adjusted to reflect a lesser number of aircraft orders on terms described in the Annex A Term Sheet that was attached to the Memorandum of Understanding between ACAH and Delta dated August 23, 1999. C. Additional Regional Aircraft. In order to assure competitive regional jet growth between United and Delta beyond the aircraft (whether delivered or not yet delivered) that are allocated by ACA as of the date hereof to either their United Express or Delta operations, ----------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------- ARTICLE 18. AIRPORT FACILITIES. A. Right of First Refusal. If, at any time during the term of this Agreement, ACA receives an offer, bid, inquiry or other expression of interest ("Facilities Offer") to purchase, lease, sublease, encumber or otherwise acquire any interest in any of its airport facilities where the Aircraft are operated, including any slots, gates or other facilities (the "Airport Facilities"), which Facilities Offer ACA desires to accept, ACA will, within thirty (30) days of receiving such Facilities Offer, notify Delta in writing of such Facilities Offer and the material terms and conditions thereof (the " Facilities Offer Notice"). Upon receipt of a Facilities Offer Notice, Delta will have thirty (30) days to either (i) notify ACA that it wishes to consummate the transaction for or in connection with the Airport Facilities set forth in the Facilities Offer (the "Offered Airport Facilities") on the same financial terms and conditions as are in such Facilities Offer, or (ii) notify ACA that it does not wish to consummate such transaction (failure to reply in such 30 day period shall be deemed to be an election by Delta not to consummate such transaction). If Delta elects to consummate the transaction involving the Offered Airport Facilities, ACA and Delta shall consummate the transaction contemplated in the Facilities Offer as soon as reasonably practicable but no later than 30 days after any and all governmental approvals required for such transaction have been obtained (Delta and ACA agree to use their reasonable best efforts to obtain such approvals as soon as practicable). If Delta elects not to consummate the transactions contemplated in the Facilities Offer Notice, ACA may consummate such transaction with the third party or parties making the Facilities Offer. B. Exclusions. The right of first refusal with respect to Airport Facilities set forth in Article 18(A) shall not apply to the extent any such Airport Facilities are used by ACA for business purposes other than in connection with the Aircraft operations, and shall apply only to the extent permitted in applicable leases; provided, however, that Holdings or ACA, as applicable, shall use its commercially reasonable efforts to assign such assets and leases to Delta, at no additional cost to Delta, Holdings or ACA; provided, if there are any costs imposed by the airport authority or slot holder with the transfer, such costs shall be paid by Delta. ARTICLE 19. CONTRACT INTERPRETATION. A. This Agreement is subject to, and will be governed by and interpreted in accordance with, the laws of the State of New York and of the United States of America. B. The descriptive headings of the several articles and sections of this Agreement are inserted for convenience only, confer no rights or obligations on either party, and do not constitute a part of this Agreement. C. Time is of the essence in interpreting and performing this Agreement. D. Except as provided in Article 17(B), if applicable, this Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof, and any other prior or contemporaneous agreements, whether written or oral, are expressly superseded hereby. E. If any part of any provision of this Agreement shall be invalid or unenforceable under applicable law, such part shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining parts of such provision or the remaining provisions. F. This Agreement may be executed by a facsimile and in any number of counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same instrument. ARTICLE 20. CIRCUMSTANCES BEYOND THE PARTIES' CONTROL. With the exception of outstanding rights and obligations, each party will be relieved of its obligations under this Agreement in the event, to the extent and for the period of time that performance is delayed or prevented by any cause reasonably beyond that party's control, including specifically non- delivery or delay in delivery of aircraft to ACA, delay in completion of required training of Operator's employees by the aircraft manufacturer, or delay in receipt of any necessary government approvals. ARTICLE 21. TRADEMARKS AND CORPORATE IDENTIFICATION. A. TRADEMARKS. 1. Each of Delta and ACA acknowledges for all purposes that any and all logos, trademarks, service marks and trade names of the other, whether registered or not, are and shall at all times remain the exclusive property of the other and may not be used without the prior written consent of such party, except as set forth herein. Each of Delta and ACA further acknowledges that any goodwill or other rights which arise as a result of the use by it of the other party's marks as permitted under this Agreement shall accrue solely to the benefit of the party or affiliate of the party owning such marks, whether registered or not. Should any right, title or interest in the logos, trademarks, service marks or trade names of a party become vested in the other party, the latter party shall hold such right, title and interest in trust for the benefit of the former party and shall, at the request of the former party, promptly and unconditionally assign such right, title and interest to the former party without royalties or compensation of any kind. 2. Each of Delta and ACA hereby grants to the other, a limited non-exclusive, non-transferable, royalty-free license for the term of this Agreement to use their respective service marks as identified to each other from time to time (including Delta's marks "Delta" and "Delta Connection") (each a "Licensed Trademark"), subject to the terms and conditions set forth in this Article 21. This license is limited to the use of the Licensed Trademarks in connection with the (i) advertising and promotion of the Delta Connection Flights and (ii) the Livery (as defined in Article 21(B)(1) below) of the Aircraft as contemplated by this Agreement. 3. Each party agrees to use the Licensed Trademarks only in a manner permitted herein or as approved in advance and in writing by the party owning or possessing the right to license such Licensed Trademarks. Each Licensed Trademark shall be marked with an r or SM or other symbol, as appropriate. 4. Each party agrees that all Livery, advertising and promotional materials bearing the Licensed Trademarks in relation to air transport services contemplated by this Agreement shall meet the quality and presentation standards as set forth by the party owning the relevant Licensed Trademark. 5. Each party agrees that all advertising, promotional and other materials with the other party's name or Licensed Trademark, shall be submitted for such other party's prior review and approval before painting, printing, publishing, or distributing any such material. Each party's Licensed Trademark must appear exactly as set forth in specifications provided by such party. Once a party has approved a specific type of advertisement the other party may continue to use such party's name or Licensed Trademark in the same format during the term of this Agreement. At either party's direction, the other party shall cause the withholding, discontinuance, recall or cancellation, as appropriate, of any advertising or promotional material not approved by such party that differs significantly from that approved by such party or that is put to a use or used in a media not approved by such party. Each party reserves the right to refuse to participate in any advertising or promotional materials proposed by the other party. 6. Each party has sole discretion to determine the acceptability of both the quality and presentation of advertising and promotional materials using its Licensed Trademark. B. BRANDING. 1. Livery. Each of the Aircraft shall be in the color scheme, including exterior paint and interior upholstery and appointments ("Livery") of the Delta Connection Livery, as provided to Operator by Delta from time to time. 2. On Board Branding. Delta shall control all on board branding and in-flight materials including, without limitation, in-flight publications, food and beverage products, paper goods, service ware and flight attendant uniforms. 22. CONFIDENTIALITY A. Except as otherwise provided below, each party shall, and shall ensure that its directors, officers, employees, affiliates and professional advisors (collectively, the "Representatives"), at all times, maintain strict confidence and secrecy in respect of all Confidential Information (as defined below) of the other party (including its affiliates) received directly or indirectly as a result of this Agreement. If a party (the "Disclosing Party") in good faith determines that it is required to disclose any Confidential Information of other party (the "Affected Party") in order to comply with any applicable law or government regulation, or under the terms of a subpoena or order issued by a court or governmental body, it shall (a) notify the Affected Party immediately of the existence, terms and circumstances surrounding such request, (b) consult with the Affected Party on the advisability of taking legally available steps to resist or narrow such request and (c) if any disclosure of Confidential Information is required to prevent the Disclosing Party from being held in contempt or subject to other legal penalty, furnish only such portion of the Confidential Information as it is legally compelled to disclose and use commercially reasonable efforts (at the cost of the party whose Confidential Information is being protected) to obtain an order or other reliable assurance that confidential treatment shall be accorded to the disclosed Confidential Information. Each party agrees to transmit Confidential Information only to such of its Representatives as required for the purpose of implementing and administering this Agreement, and shall inform such Representatives of the confidential nature of the Confidential Information and instruct such Representatives to treat such Confidential Information in a manner consistent with this Article 22. For purposes of this Agreement, "Confidential Information" shall mean (a) all confidential or proprietary information of a party, including, without limitation, trade secrets, information concerning past, present and future research, development, business activities and affairs, finances, properties, methods of operation, processes and systems, customer lists, customer information (such as passenger name record or "PNR" data) and computer procedures and access codes; and (b) the terms and conditions of this Agreement and any reports, invoices or other communications between the parties given in connection with the negotiation or performance of this Agreement; and (c) excludes (i) information already in a party's possession prior to its disclosure by other party; (ii) information obtained from a third person or entity that is not prohibited from transmitting such information to the receiving party as a result of a contractual, legal or fiduciary obligation to the party whose information is being disclosed; (iii) information that is or becomes generally available to the public, other than as a result of disclosure by a party in violation of this Agreement; or (iv) information that has been or is independently acquired or developed by a party, or its Affiliate, without violating any of its obligations under this Agreement. B. Each party acknowledges and agrees that in the event of any breach of this Article 22, the Affected Party shall be irreparably and immediately harmed and could not be made whole by monetary damages. Accordingly, it is agreed that, in addition to any other remedy at law or in equity, the Affected Party shall be entitled to an injunction or injunctions (without the posting of any bond and without proof of actual damages) to prevent breaches or threatened breaches of this Article 22 and/or to compel specific performance of this Article 22. C. The confidential obligations of the parties under this Article 22 shall survive the termination or expiration of this Agreement. ARTICLE 23. MODIFICATION AND WAIVER. No amendment, modification, supplement, termination or waiver of any provision of this Agreement, and no consent to any departure by either party therefrom, shall in any event be effective unless in writing signed by authorized representatives of both parties, and then only in the specific instance and for the specific purpose given. ARTICLE 24. NOTICES. Unless otherwise provided herein, all notices, requests and other communications required or provided for hereunder shall be in writing (including telecopy or similar teletransmission or writing) and shall be given at the following addresses: (1) If to Delta: Delta Air Lines, Inc. Hartsfield Atlanta International Airport Atlanta, Georgia 30320 Attention: Senior Vice President, Network Management Telecopy: (404) 715-6018 (2) If to ACA: Atlantic Coast Airlines Holdings, Inc. 515A Shaw Road Dulles, Virginia 20166 Attention: President Telecopy: 703-925-6288 Any such notice, request or other communication shall be effective (i) if given by mail, upon the earlier of receipt or the third business day after such communication is deposited in the United States mails, registered or certified, with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means including, without limitation, by air courier, when delivered at the address specified herein. Delta or ACA may change its address for notice purposes by notice to the other party in the manner provided herein. ARTICLE 25. ASSIGNMENT. This Agreement shall bind and inure to the benefit of Delta and ACA and their respective successors and assigns; provided, however, neither party may assign or transfer this Agreement or any portion hereof to any person or entity without the express written consent of the other party. Any assignment or transfer, by operation of law or otherwise, without such consent shall be null and void and of no force or effect. ARTICLE 26. ADDITIONAL DOCUMENTS. The parties hereby covenant and agree, prior to the commencement of Delta Connection services by Operator, to execute and deliver the following additional documents in connection with this Agreement: A. A ground handling agreement, providing for ground handling by Delta at stations operated by Delta----------- --------------- ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- ---------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - ---- ARTICLE 27. MISCELLANEOUS. A. TRAVEL BENEFITS. - -------------------------------------------------------------- - -------------------------------------------------------------- - -------------------------------------------------------------- - ------------------------------------------------------------- ACA further reserves the right to enter into interline agreements with other carriers to provide free and reduced rate travel for ACA's employees, and to provide reciprocal benefits for employees of such carriers on Delta Connection Flights on a space available basis. B. CARGO. Delta Connection Flights will initially provide small package services as typically provided under Delta's "Delta Dash" service. Operator and Delta agree to meet and discuss the implementation of expanded cargo operations on the Delta Connection Flights at an appropriate time to be agreed. C. TRAINING PROVIDED BY OPERATOR. Operator will train Delta's personnel on aircraft and ground handling operations as necessary and required with regard to Delta's handling of the Aircraft. ARTICLE 28. GOOD FAITH. Each party shall exercise good faith in its dealings with the other parties hereto and in performance of its obligations under this Agreement. {The remainder of this page intentionally left blank} IN WITNESS WHEREOF, the parties have executed this Agreement by their undersigned duly authorized representatives: Atlantic Coast Airlines Holdings, Inc. Delta Air Lines, Inc. By: By: Name: ____________________ Name: __________________ Title: _____________________ Title: ___________________ ACA Management, Inc. By: ______________________ Name: ____________________ Title: _____________________ EXHIBIT A The Aircraft No. of Aircraft Scheduled Aircraft Type Delivery Date -- ---- ------ - --- ------ - --- ------ ------------- --- ------ - - ---- ------ - ---- ------ - ---- ------ -- ---- ------ - ---- ------ - ---- ------ ------------- ---- ------ - - ---- ------ - ---- ------ - ---- ------ - ---- ------ - ---- ------ ------------- ---- ------ - - ---- ------ - ---- ------ - ---- ------ ------------- --------------- ------ -- --- ------------- --------------- ------ -- --- ------------- --------------- ------ -- --- ------------- --------------- ------ -- --- ------------- --------------- ------ --- --- ------------- --------------- ------ -- --- ------------- --------------- ------ --- --- ------------- --------------- ------ -- --- ------------- --------------- ------ --- --- ------------- --------------- ------ --- --- - --------------- ------ --- - --------------- ------ --- - --------------- ------ --- - --------------- ------ --- - --------------- ------ --- ------------- --------------- ------ - --- - --------------- ------ --- - --------------- ------ ---- - --------------- ------ ---- - --------------- ------ --- --- --------------- ------ --- Exhibit B - ----------------------------------------------------------------- - ------------------------------- --- --- --- - ------------------ - --------------------------- ------ ------ ------ - --------------------------- - -------------------------- - --------------------------- ------ ------ ------ - --------------------------- - --------------------------- - --------------------------- - ------------- - --------------------------- ------- ------- ------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - ------------------------- - --------------- - --------------------------- ------ ------ ------ - --------------------------- - ----------- - --------------------------- ------- ------- ------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - ------------------------- - ------------ - --------------------------- ------ ------ ------ - --------------------------- - --------------------------- - --------------------------- - ------------------- - --------------------------- ----- ----- ----- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - -- - --------------------------- ------- ------- ------- - --------------------------- - --------------------------- - ---------------- - --------------------------- ------ ------ ------ - --------------------------- - --------------------------- - --------------------------- - --------------------------- - ---- - --------- - --------------------------- ------ ------ ------ - --------------------------- - --------------------------- - ----- - --------------------------- ----- ----- ----- - --------------------------- - --------------------------- - -- - --------------------------- ------ ------ ------ - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - -------- - ----- - --------------------------- ------- ------- ------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --- - ------------- - --------------------------- ------ ------ ------ - --------------------------- - --------------------------- - --------------------------- - --------------------------- - -- - --------------- - --------------------------- ------ ------ ------ - --------------------------- - --------------- - --------------------------- - --- - --------------------------- -------------- - ------------------------- - ----------- - --------------------------- --------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------- - --------- - --------------------------- ------ ------ ------ - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------- - --------------------------- ------ ------ ------ - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------------------- - ------ - --------------------------- - --------------------------- - --------------------------- - --------------------------- - --------------- - ----------------- - --------------------------- ------------------------------- - --------------------------- ------------------------------- - --------------------------- --------------- - --------------------------- - --------------------------- - ---------- - --------------- - --------------------------- ----- ----- ----- - --------------------------- - --------------------------- - -------------------- - --------------------------- - --------------------------- - --------------------------- - ------------------ Exhibit C RES SYSTEM EQUIPMENT Equipment, as defined in Article 9(B)(1), will be provided to Operator by Delta at the following of Operator's locations: Headquarters Dispatch Training Maintenance base for the Aircraft Operator handled stations Exhibit D OUTLINE OF EMERGENCY RESPONSE PROGRAM ------------------------------------------------------------ ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------- EX-10 3 EXHIBIT 10.12(b)(1) AMENDMENT NUMBER ONE TO SEVERANCE AGREEMENT This Amendment Number One to Severance Agreement ("Amendment Number One") is made and entered into as of this 17th day of August, 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 and the Company are parties to a Severance Agreement dated as of January 20, 1999 (the "Severance Agreement"); and Whereas, the Compensation Committee of 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; 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 that the Severance Agreement be and hereby is amended as follows: I. Paragraph 5.A of the Agreement is hereby amended and restated to read as follows: A. An annual base salary of Two-Hundred Ninety Five Thousand Dollars ($295,000) shall be paid to Skeen. Commencing October 1, 1999, an annual base salary of Three-Hundred Ninety Five Thousand Dollars ($395,000) shall be paid to Skeen. Commencing October 1, 2000 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). II. A new Paragraph 6.D is hereby added to the Agreement to read as follows: D. The Company agrees to reimburse Skeen for the cost of investment and tax planning services up to $5,000 incurred during 1999. Thereafter, any such reimbursement shall be subject to the discretion of the Compensation Committee of the Board of Directors. 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. III. Paragraph 8.A of the Agreement is hereby amended and restated to read as follows: 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 October commencing in October, 2000, 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. Notwithstanding the above, the terms of the grant of such options shall be no less favorable to Skeen than the terms of options granted as of the time of the grant to other senior executive officers. IV. A new Paragraph 8.D is hereby added to the Agreement to read as follows: D. The Company has granted to Skeen options, under the Stock Option Plan and pursuant to a Company Stock Option Agreement, to purchase 100,000 shares of the common stock of ACAH, effective as of July 21, 1999 at the price per share at the closing of the trading market on July 20, 1999. Skeen acknowledges that said grant is in lieu of grants that were to be made to him effective January 1, 2000 pursuant to the terms of this Agreement as existed prior to the execution of Amendment Number One. In Witness Whereof, the Company has hereunto caused this Amendment Number One 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: /s/_____________________________ /s/__________________________ Kerry B. Skeen COMPANY: ATTEST: ATLANTIC COAST AIRLINES /s/____________________________ BY: /s/_________________________ Richard J. Kennedy, C. Edward Acker, Secretary Chairman of the Board ATTEST: ATLANTIC COAST AIRLINES HOLDINGS, INC. /s/____________________________ BY: /s/_________________________ Richard J. Kennedy, C. Edward Acker, Secretary Chairman of the Board EXHIBIT 10.12(c)(1) AMENDMENT NUMBER ONE TO SEVERANCE AGREEMENT This Amendment Number One to Severance Agreement (the "Amendment") is made and entered into as of this 12th day of August, 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 and the Company are parties to a Severance Agreement dated as of January 20, 1999 (the "Severance Agreement"); and Whereas, the Compensation Committee of 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 that the Severance Agreement be and hereby is amended as follows: I. Paragraph 5.A of the Agreement is hereby amended and restated to read as follows: A. An annual base salary of Two-Hundred Thousand Dollars ($200,000) shall be paid to Moore. Commencing on January 1, 2000, Moore's annual base salary shall be increased to Two Hundred Fifty Thousand Dollars ($250,000). Commencing on October 1, 2000 and on each October 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'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). II. A new Paragraph 6.D is hereby added to the Agreement to read as follows: D. The Company agrees to reimburse Moore for the cost of investment and tax planning services up to $5,000 incurred during 1999. Thereafter, any such reimbursement shall be subject to the discretion of the Compensation Committee of the Board of Directors. III. Paragraph 8.A of the Agreement is hereby amended and restated to read as follows: 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 October commencing in October, 2000, 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 50,000 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. IV. A new Paragraph 8.E is hereby added to the Agreement to read as follows: E. The Company has granted to Moore options, under the Stock Option Plan and pursuant to a Company Stock Option Agreement, to purchase 100,000 shares of the common stock of ACAH effective as of July 21, 1999 at the price per share at the closing of the trading market on July 20, 1999. V. Paragraph 10.E.(i) of the Agreement is hereby amended and restated to read 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. In the event that a Termination Date occurs on or before December 31, 1999 such that Moore is entitled to Severance Compensation as provided herein, severance pay will be at the rate of 100% of his annual base salary that would have been in effect beginning January 1, 2000 as provided herein. In Witness Whereof, the Company has hereunto caused this Amendment 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: /s/_____________________________ /s/__________________________ Thomas J. Moore COMPANY: ATTEST: ATLANTIC COAST AIRLINES /s/____________________________ BY: /s/_________________________ Richard J. Kennedy, Kerry B. Skeen, Secretary President & Chief Executive Officer ATTEST: ATLANTIC COAST AIRLINES HOLDINGS, INC. /s/____________________________ BY: /s/_________________________ Richard J. Kennedy, Kerry B. Skeen, Secretary President & Chief Executive Officer EX-10 4 EXHIBIT 10.40A(1) CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. CONTRACT CHANGE ORDER PURCHASER: Atlantic Coast Airlines PURCHASE AGREEMENT NO.: P.A.-0350 AIRCRAFT TYPE:CRJ-200 C.C.O. NO.: 13 DATED: 28/04/99 PAGES AFFECTED: N/A Page 1 of 2 ____________________________________________________________ _________________________ 1.0 REASON FOR CHANGE - Agreed Change 2.0DESCRIPTION OF CHANGE - To amend the Purchase Agreement with the incorporation of the Letter Agreement No. 0350-25 for the change in delivery month of the -----------Aircraft from-----------------------. 3.0 PRICE - Not Applicable 4.0 PAYMENT - Not Applicable 5.0 CUSTOMER SERVICES - Not Applicable 6.0 TECHNICAL MATTERS - Not Applicable 7.0 OTHER - 7.1 Letter Agreement No. 0372-25 attached hereto is hereby created and made a part of the Agreement. ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED For administrative purposes only, a consolidation of the amendments contained in this CCO is attached. In the event of inconsistencies between the attached pages and this CCO, this CCO shall prevail. ____________________________________________________________ _________________________ FOR AND ON BEHALF OF: FOR AND ON BEHALF OF: Bombardier Inc. Atlantic Coast Airlines Signed: _______________________________ Signed:_____________________ Date: ___28/04/98__ Date: __28/04/99_ April 28, 1999 Our Ref: B99-7701-MD-RJ0350-025 Atlantic Coast Airlines 1 Export Drive, Dulles, Virginia, U.S.A. 20166 Letter Agreement No. 025 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: Change in Delivery Month Gentlemen: This letter constitutes an integral part of the Agreement and evidences our further agreement with the matter 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. Bombardier has requested that Buyer start the delivery and acceptance process of the ---------- Aircraft ----- ----- on --------------, with the closing and execution of the interim lease agreement ACL-332 on --- -----------. ----------------------------------------- ----, Bombardier will issue to Buyer a credit memo in the amount of ----------------------------------------- ------------------------------------------ upon the execution of such lease agreement for the ---------- Aircraft. 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:_____________ Name: Marianella de la Barrera Title: Account Executive, Contracts Bombardier Regional Aircraft Division Acknowledged and Accepted: this________day of April, 1999 ATLANTIC COAST AIRLINES ________________________ Date:_____________ Name: Title: Atlantic Coast Airlines CONTRACT CHANGE ORDER PURCHASER: ATLANTIC COAST AIRLINES PURCHASE AGREEMENT NO.: CRJ-0350 AIRCRAFT TYPE: CRJ C.C.O. NO.: 14 DATED: July 29, 1999 PAGES AFFECTED: See below PAGE 1 of 38 REASON FOR CHANGE 1. To amend the Purchase Agreement to (i) give effect to the exercise by Buyer of 17 Option Aircraft and thereby increase the order to 60 Firm Aircraft, (ii) to provide Buyer with interim aircraft in the event of a delay in delivery of those Aircraft scheduled to deliver in the----- ------ (iii) to introduce a new Maintenance Cost Guarantee Letter Agreement to reflect the current order of 60 Aircraft and to include within the Letter Agreement the 3 CRJ aircraft purchased by Buyer pursuant to purchase agreement PA-0454, (iv) to revise the Completion Rate Guarantee Letter Agreement and the Operational Restrictions Letter Agreement to include the CRJ aircraft purchased by Buyer pursuant to purchase agreement PA-0454, and (v) to give Buyer the conditional right to assign its right to purchase and lease up to seventeen (17) Aircraft to a new corporation to be formed in the United States. PAGES TO BE SUBSTITUTED NEW/REVISED PAGES Purchase Agreement pages no. 56 & 56A Attachment 1 to CCO #14 dated July 29, 1999 Purchase Agreement page no. C-1 Attachment 2 to CCO #14 dated July 29, 1999 Letter Agreement No. 006 page no. 2 Attachment 3 to CCO #14 dated July 29, 1999 Letter Agreement No. 008A Attachment 4 to CCO #14 dated July 29, 1999 Letter Agreement No. 009C Attachment 5 to CCO #14 dated July 29, 1999 Letter Agreement No. 026 Attachment 6 to CCO #14 dated July 29, 1999 Letter Agreement No. 027 Attachment 7 to CCO #14 dated July 29, 1999 DESCRIPTION OF CHANGE: P.A. and all Letter Agreements All references to forty-three (43) Aircraft are hereby changed to refer to sixty (60) Aircraft. P.A. Pages 56 & 56A - DELIVERY SCHEDULE The delivery schedule is amended to add Aircraft forty-four (44) through sixty (60). P.A. Page C-1 - FSR TERM The term for the FSR is amended from ---------------------------------- -----------------------, due to the exercise of the seventeen (17) Option Aircraft. Letter Agreement No. 003B - (OPTION AIRCRAFT) Letter Agreement No. 003B is no longer applicable and is hereby canceled Letter Agreement No. 006 - (OPERATIONAL RESTRICTIONS) Letter Agreement is revised to include the CRJ aircraft to be delivered under purchase agreement PA-0454 between Buyer and Bombardier. Letter Agreement No. 008A (SCHEDULE COMPLETION RATE) Letter Agreement No. 008 is hereby deleted and replaced with Letter Agreement No. 008A to include the CRJ aircraft to be delivered under purchase agreement PA- 0454 between Buyer and Bombardier. Letter Agreement No. 009C (AIRFRAME DIRECT MAINTENANCE COST) Letter Agreement No. 009B is hereby deleted and replaced with Letter Agreement No. 009C to incorporate changes to reflect a new guarantee value for the Airframe Direct Maintenance Cost Guarantee ("ADMCG") which takes into account Buyer's current order of sixty (60) Aircraft, and to include under the Letter Agreement CRJ aircraft to be delivered to Buyer pursuant to purchase agreement PA-0454 between Bombardier and Buyer. The guarantee value shall be ------------------------------------------ ----------------------------------------------------------------------- -------- Letter Agreement No. 026 - INTERIM AIRCRAFT Letter Agreement No. 026 is introduced to provide Buyer with interim CRJ aircraft for lease in the event Bombardier requires these to meet the year 2000 aircraft deliveries. Letter Agreement No. 027 - ASSIGNMENT Letter Agreement No. 027 is introduced to provide Bombardier's conditional consent to Buyer with respect to Buyer's request to assign its right to purchase and to lease up to seventeen (17) of the Aircraft being exercised via this Contract Change Order to a new corporation to be formed in the United States. ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED ___________________________________________________________________________ _____ FOR AND ON BEHALF OF: FOR AND ON BEHALF OF: BOMBARDIER INC. ATLANTIC COAST AIRLINES Signed: __________________________ Signed:__________________________ Date: __________________________ Date: __________________________ 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---------------** Thirty-third Aircraft-------------** Thirty-fourth Aircraft--------------** Thirty-fifth Aircraft-------------- Thirty-sixth Aircraft-------------- APPENDIX II DELIVERY SCHEDULE (CONTINUED) Thirty-seventh Aircraft------------- Thirty-eighth Aircraft------------- Thirty-nine Aircraft------------- Fortieth Aircraft------------- Forty-first Aircraft-------------- Forty-second Aircraft ----------- Forty-third Aircraft ------------- Forty-fourth Aircraft -------------- Forty-fifth Aircraft --------------** Forty-sixth Aircraft ----------- Forty-seventh Aircraft ---------------** Forty-eighth Aircraft --------------- Forty-ninth Aircraft ----------------** Fiftieth Aircraft ----------------** Fifty-first Aircraft --------------** Fifty-second Aircraft ---------------** Fifty-third Aircraft ---------------** Fifty-fourth Aircraft -------------- ** Fifty-fifth Aircraft --------------** Fifty-sixth Aircraft -------------** Fifty-seventh Aircraft -----------** Fifty-eighth Aircraft --------------** Fifty-ninth Aircraft ----------------** Sixtieth Aircraft ------------------ 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 sixty (60) Aircraft to Buyer (should Buyer eventually take delivery of less than sixty (60) Aircraft, the term shall be accordingly amended as per Letter Agreement No. 003B 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"). (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 and pertains to the Aircraft included in the Agreement and the aircraft to be delivered under purchase agreement PA-0454 between Buyer and Bombardier dated July 29, 1999. 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 -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- --------------- July 29, 1999 Our Ref: B96-7701-RJTL-RJ0350-008A Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 008A 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 sixty (60) Canadair Regional Jet Aircraft (the "Aircraft") This Letter Agreement No. 008A dated July 29, 1999 cancels and supersedes Letter Agreement No. 008 dated January 8, 1997. 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 Buyer's sixty 60 Aircraft exercised by Contract Change Order No. 14 to the Agreement together with Buyer's three (3) CRJ aircraft purchased by Buyer pursuant to purchase agreement PA-0454 dated July 29, 1999 between Buyer and Bombardier Inc. (together redefined as the "Aircraft" for purposes of this Letter Agreement only) ----------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------ 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. ---------------------------------- ---------------------------- a) --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- ---------------------------------- 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. Should Buyer request to assign this Letter Agreement to another entity, BRAD reserves the right to revise the ------------------to reflect any deviation in any of the underlying assumptions used to generate the------------------ - --- and to revise the maximum compensation credit to reflect any changes in the number of Aircraft covered 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:_____________ Kerry B. Skeen President and C.E.O. LETTER AGREEMENT NO. 009C SUPERSEDED July 29, 1999 Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Letter Agreement No. 026 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 sixty (60) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Interim 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 -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- --- BRAD shall have the flexibility to provide interim Canadair Regional Jet Aircraft (the "Interim Aircraft") on lease for periods not exceeding ------------------ under the following general conditions: BRAD shall provide written notice to Buyer of its intention to substitute Interim Aircraft for the - ---------- Aircraft deliveries and a form of short term lease no later than ---------------- prior to the first day of the Scheduled Delivery Date of each of the ------------- Aircraft deliveries. After notice to Buyer of BRAD's intention to provide the first Interim Aircraft, Buyer shall have-------------------------- to review the form of lease and to negotiate with BRAD with respect to the form of lease, unless the parties mutually agree to extend the lease negotiation period. The parties shall negotiate such lease terms in good faith. Thereafter, Buyer shall advise BRAD if it elects to accept the Interim Aircraft or to defer the corresponding ------------- Aircraft delivery to a Scheduled Delivery Date when Bombardier will have Aircraft available (within the three (3) month period identified in this paragraph 1.0). The Interim Aircraft shall; i)be in a neutral paint scheme; ii) require no additional crew training (other than what is currently required for Buyer's flight and maintenance personnel); iii) be leased at a lease rate ----------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------------- iv) require maintenance reserves -------- ------------------------------ and v)have a lease period which shall end on the day Buyer obtains FAA approval to add the applicable --------- Aircraft on Buyer's operations specifications, which will occur no later than ---------------- after the initial day of the lease, unless the parties mutually agree otherwise to extend the term of the Interim Aircraft lease. 1.1 With respect to the Interim Aircraft other than the first Interim Aircraft accepted by Buyer, Buyer shall have the right, within --- --------------------- following notice from BRAD of a substitution of a ------------ Aircraft with an Interim Aircraft, to elect not to take the Interim Aircraft and to defer the corresponding -------------- Aircraft delivery to a Scheduled Delivery Date when Bombardier will have Aircraft available (within the --------------------- period identified in paragraph 1.0). 1.2 BRAD shall use reasonable efforts to minimize use of the Interim Aircraft as substitute aircraft for Buyer's ------------- Aircraft, so as to minimize slip of Buyer's ----------- ---- Aircraft in the following calendar year. 1.3 The form of lease for the Interim Aircraft shall conform to this Letter Agreement and will contain reasonable terms which shall be subject to the mutual agreement of the parties. 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. 4.0 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:_____________ Kerry B. Skeen President and C.E.O. July 29 1999 Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Letter Agreement No. 027 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 sixty (60) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Assignment 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 Buyer shall have the right to assign its right to purchase and to lease up to seventeen (17) Aircraft being exercised by Contract Change Order No. 14 (Aircraft 44-60) to a new corporation to be formed in the U.S. ("Newco") subject to: (i) Newco shall be a U.S. citizen; (ii) section 1110 of the U.S. Bankruptcy Code applies; (iii) the provisions of Articles 20.1, 20.2, 20.3 of the Agreement and Article 4.0 of Letter Agreement No. 005b; (iv) financing shall be based on Buyer's credit; and (v) additional reasonable terms and conditions required due to the different structure of the transaction and aircraft operations following disclosure and due diligence of the transaction envisaged. 3.0 Subject to the satisfaction of the foregoing, the assignment shall then be an assignment permitted pursuant to the terms of Article 20 of the Agreement, such that Newco will be entitled to all benefits (including FIPP) as contained in the Agreement. 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. Yours truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice-President, Contracts Acknowledged and Accepted ATLANTIC COAST AIRLINES ________________________ Date:_____________ Kerry B. Skeen President and C.E.O. CONTRACT CHANGE ORDER PURCHASER: Atlantic Coast Airlines PURCHASE AGREEMENT NO.: RJ-350 AIRCRAFT TYPE: CRJ C.C.O. NO.: 15 DATED: September 10, 1999 PAGES: 21 REASON FOR CHANGE: To amend the Purchase Agreement to (i) revise the Scheduled Delivery Dates for the Twenty-fourth, the Twenty-sixth through Thirty-first and Thirty-Third through Sixtieth Aircraft, and (ii) introduce a new Airframe Direct Maintenance Cost Guarantee Letter Agreement to reflect the current order of sixty (60) Aircraft and to include within the Letter Agreement the six (6) CRJ aircraft purchased by Buyer pursuant to purchase agreement PA-0454. PAGES TO BE SUBSTITUTED: NEW/REVISED PAGES Purchase Agreement pages 56 and 56A Attachment No. 1 to CCO No. 15 Letter Agreement No. 009C Attachment No. 2 to CCO No. 15 DESCRIPTION OF CHANGE: P.A. Pages 56 & 56A - Appendix II (Delivery Schedule) The Delivery Schedule is amended by revising the Scheduled Delivery Dates for the Twenty-fourth, the Twenty-sixth through Thirty-first and the Thirty-Third through Sixtieth Aircraft. Letter Agreement No. 009D (Airframe Direct Maintenance Cost) Letter Agreement No. 009C is hereby deleted and replaced with Letter Agreement No. 009D to incorporate changes to reflect a new guarantee value for the Airframe Direct Maintenance Cost Guarantee ("ADMCG") which takes into account Buyer's current order of Sixty (60) Aircraft, and to include under the Letter Agreement CRJ aircraft to be delivered to Buyer pursuant to purchase agreement No. PA-0454 between Bombardier and Buyer. The guarantee value shall be -------------------------------------- - -------------------------------------------------------------------- - ------------- ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED ____________________________________________________________________ ____________________ FOR AND ON BEHALF OF: FOR AND ON BEHALF OF: Bombardier Inc. Atlantic Coast Airlines Bombardier Aerospace Regional Aircraft Signed: __________________________ Signed:__________________________ Date: ____________________________ Date: ___________________________ 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-------------- * Thirty-third Aircraft-------------- * Thirty-fourth Aircraft--------------- * Thirty-fifth Aircraft------------- * Thirty-sixth Aircraft------------- APPENDIX II DELIVERY SCHEDULE (CONTINUED) * Thirty-seventh Aircraft--------------* Thirty-eighth Aircraft----------------* Thirty-nine Aircraft---------------- * Fortieth Aircraft---------------- * Forty-first Aircraft----------------* Forty-second Aircraft -------------- * Forty-third Aircraft -------------- * Forty-fourth Aircraft --------------- * Forty-fifth Aircraft ---------------* Forty-sixth Aircraft -------------- * Forty-seventh Aircraft -----------* Forty-eighth Aircraft -------------- * Forty-ninth Aircraft ---------------* Fiftieth Aircraft --------------- * Fifty-first Aircraft ---------------* Fifty-second Aircraft --------------- * Fifty-third Aircraft ----------------* Fifty-fourth Aircraft ---------------- * Fifty-fifth Aircraft ---------------* Fifty-sixth Aircraft ---------------- * Fifty-seventh Aircraft -------------- * Fifty-eighth Aircraft ------------* Fifty-ninth Aircraft --------------- * Sixtieth Aircraft ----------------- September 10, 1999 Our Ref: B96-7701-RJTL-RJ0350-009D Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Dear Sirs, Letter Agreement No. 009D 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 sixty (60) Canadair Regional Jet Aircraft (the "Aircraft") This Letter Agreement No. 009D dated September 10, 1999 cancels and supersedes Letter Agreement No. 009C dated July 29, 1999. 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 Buyer's sixty 60 Aircraft exercised by Contract Change Order No. 14 to the Agreement together with Buyer's six (6) CRJ aircraft purchased by Buyer pursuant to purchase agreement PA-0454 dated July 29, 1999 between Buyer and Bombardier Inc. (together redefined as the "Aircraft" for purposes of this Letter Agreement only) ----------------------------- ------------------- ------------------------ --------------------------------------------- --------------------------------------------- ---------------- 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 --------------------------- ------------------------------------- ------------------------------------- ------------------------- a) -------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- --- 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. Should Buyer request to assign this Letter Agreement to another entity, BRAD reserves the right to revise the ------------ --------- to reflect any deviation in any of the underlying assumptions used to generate the ------ --------------------, and to revise the maximum compensation credit to reflect any changes in the number of Aircraft covered. 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:_____________ Scott Preece 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 and Aircraft purchased by Buyer pursuant to purchase agreement PA-0454 between Buyer and Bombardier) -------------------------------- 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 ADMCG economic adjustment will be calculated using the ----------------------------------- Formula. The --- - --------- term is specified in Section 3.1.1 of the Letter Agreement. - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - ---------------------------------- EX-10 5 EXHIBIT 10.41 CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. BOMBARDIER REGIONAL AIRCRAFT DIVISION PURCHASE AGREEMENT PA-0454 BETWEEN BOMBARDIER INC. AND ATLANTIC COAST AIRLINES Relating to the Purchase of SIX (6) 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 Letter Agreement No. 001 Credit Memorandum Letter Agreement No. 002 Assignment Letter Agreement No. 003 Option Aircraft Letter Agreement No. 004 Financing Letter Agreement No. 005 Additional Customer Support Letter Agreement No. 006 Spares Credit Letter Agreement No. 007 Taxes, Duties and Licenses Letter Agreement No. 008 Airworthiness Directives Letter Agreement No. 009 Reconciliation Letter Agreement No. 010 Spares Parts Price Catalogue Letter Agreement No. 011 Cargo Floor Boards This Agreement is made on the 29th day of July 1999. BY AND BETWEEN: BOMBARDIER INC., a Canadian corporation represented by Bombardier Aerospace, Regional Aircraft having an office located at 123 Garratt Boulevard, Downsview, Ontario, Canada. (hereafter called "Bombardier")Bombardier AND: ATLANTIC COAST AIRLINES, a California Company, having offices at 515A Shaw Road, Dulles,, Virginia 20166, U.S.A. ("Buyer") WHEREAS Bombardier Inc. through its Canadair Manufacturing Division, is engaged in the manufacture of the Canadair Regional Jet aircraft products; and Bombardier 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 six (6) Aircraft (as later defined) and related data, documents, and services under this Agreement (as later defined), and Bombardier desires to arrange the sale of such Aircraft, data, documents and services to Buyer, WHEREAS Atlantic Coast Airlines Holdings 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 Bombardier 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)"Technical Data" shall have the meaning attributed to it in Annex A Article 4.1; 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, Bombardier will sell and Buyer will purchase six (6) Canadair Regional Jet aircraft model CL600-2B19 Version 200ER, manufactured pursuant to specification Number RAD-601R-146 Issue B dated June 11, 1999, 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"). With the exception of Permitted Changes as defined in Section 11.2 (a) and (b) of the Agreement, and notwithstanding wording and or description changes, the Specification for the Aircraft is the same as the aircraft specification for the aircraft subject to Aircraft Purchase Agreement between Bombardier and Buyer dated January 8, 1997, as amended, except with respect to any systems and related components in connection with the EICAS 2000 (CR Ref No. 31-120), DFDR 88 Parameters (CR Ref No. 31-340), EGPWS (CR Ref No. 34-328) and AMI Pilot and co- pilot seats. ARTICLE 3 - CUSTOMER SUPPORT SERVICES AND WARRANTY 3.1 Bombardier shall provide to Buyer the customer support services pursuant to the provisions of Annex A attached hereto. 3.2 Bombardier 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) Bombardier's offices or premises in Montreal, Province of Quebec, Canada, is ------------------------------------- ---------------------------------------- -------- expressed in January 1, 1999 dollars. (b) The base price of the Buyer Selected Optional Features is ---------- ---------------------------------------- ---------------------------------------- -------- expressed in January 1, 1999 dollars. The Aircraft base price (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) ("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 January 1, 1999 to the respective delivery date of the Aircraft. Such adjustments shall be based on the formula as found in Appendix I ("Economic Adjustment Formula"), but when adjusted, the Aircraft Purchase Price shall in no case be lower than the Aircraft Base Price, as stipulated in Article 4.1 herein. 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 Bombardier 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 Bombardier and Buyer agree to any ------ ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------- 4.3.2 The Credit Memorandum adjustment shall be in accordance with the terms of Letter Agreement No. 1. 4.3.3 ------------------------------ ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ----- 4.3.4 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 Bombardier, any affiliate of Bombardier, Buyer or the Aircraft whether or not there is an obligation for Bombardier 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, Bombardier 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 Bombardier for such Taxes, as the case may be, including interest and penalties. Buyer shall only reimburse Bombardier for interest and penalties if Bombardier 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 Bombardier's request, Buyer shall execute and deliver to Bombardier any documents that Bombardier 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, Bombardier 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 Bombardier acknowledges having previously received a deposit of -- ----------------------------------- ----------------------per Aircraft, totaling -------------------------- ----------------------------------- 5.2 Buyer shall make payment or cause payment to be made for each Aircraft as follows: ----------------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ----- All payments referred to in paragraphs a., b. and c. above are to be made on the first day of the applicable month. 5.3 Payment Terms On or before the Delivery Date Bombardier shall have received in full the amount of 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 Bombardier toward the Aircraft Purchase Price (said 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 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 Bombardier 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. Bombardier shall have the option (but not the obligation) of waiving such termination should Buyer make arrangements satisfactory to Bombardier for such payment and all future payments within ten (10) calendar days of Buyer's default. 5.5 Buyer shall pay Bombardier 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. Bombardier's right to receive such interest is in addition to any other right or remedy Bombardier has at law as a result of Buyer's failure to make payments when due. 5.6 If under any terms of the Agreement Bombardier is obligated to return any of the payments or make other payments if applicable to Buyer, with or without interest as provided for herein, Bombardier shall do so within five (5) working days, and if Bombardier fails to do so, Bombardier 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) day grace period mentioned above shall not apply to return of any excess payments, if any, received by Bombardier toward the payment of the Net Aircraft Purchase Price, which shall be paid to Buyer on the Delivery Date. 5.7 Buyer shall make all payments due under this Agreement in immediately available funds by deposit on or before the due date to Bombardier's account in the following manner: (a) Transfer to: ---------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- --------------------------- (b) To pay: ------ -------------------------- -------------------------- ------- (c) For credit to: ------ -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- ----------- (d) For further credit to: ----- ----------------------------------- ----------------------------------- ----------------------------------- ------- Bombardier 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 Bombardier, 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 Bombardier'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 Bombardier on or before the date required by Bombardier, all information as Bombardier may reasonably request to manufacture the Aircraft including, without limitation, the selection of furnishings, internal and external colour schemes. Nine (9) months prior to delivery of the First Aircraft Buyer will: (a) provide Bombardier with an external paint scheme agreed on by the parties; and (b) select interior colours (from Bombardier'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 Bombardier 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 Bombardier 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. Bombardier will, assist Buyer in obtaining import permits and licenses. Bombardier 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 Bombardier 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 Bombardier'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 Bombardier'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 Bombardier 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 Bombardier's transmittal of such Change Order, all in accordance with this Agreement. Although Buyer's consent to said Change Order is not required, Bombardier agrees to consult with Buyer regarding the change proposed by Bombardier 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 Bombardier 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 ---------------- ----------------------------------- ---------- Bombardier shall inform Buyer by facsimile or telegraphic communication or other expeditious means, of the projected week of delivery within the delivery month Bombardier 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. Bombardier and Buyer shall then agree on a mutually acceptable targeted delivery schedule within the delivery month. Bombardier 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 Bombardier as to the source and method of payment of the balance of the Aircraft Purchase Price; (b) identify to Bombardier 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 Bombardier 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. Bombardier 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 Bombardier'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 Bombardier, and at Bombardier's expense. At all times during ground inspection and flight test, Bombardier 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 Bombardier, 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, Bombardier 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) Bombardier will supply a TC Certificate of Airworthiness for Export; and (c) Buyer shall pay Bombardier the balance of ------------------------ ------- and any other amounts due, at which time Bombardier shall issue an FAA bill of sale and a warranty bill of sale in a form acceptable to Bombardier 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 Bombardier 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 Bombardier has met all of its obligations under this Article 9, should Buyer not accept, pay for () 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 Bombardier for all costs and expenses reasonably incurred by Bombardier 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 Bombardier 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, Bombardier may, at its option, terminate the present Agreement with respect to any of the undelivered Aircraft. Bombardier 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 Bombardier 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 Bombardier 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 Bombardier, 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 Bombardier and any of Bombardier'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, Bombardier 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 Bombardier, 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 Bombardier. 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, Bombardier shall furnish, without charge, office space at Bombardier's facility for one (1) representative of Buyer. Buyer shall be responsible for all expenses of its representative and shall notify Bombardier 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 Bombardier's and Bombardier'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 Bombardier's or Bombardier's affiliates' facilities where the work is being carried out provided there shall be no disruption in the performance of the work. 12.3 Bombardier shall advise Buyer's representative of Bombardier's or Bombardier'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. Bombardier shall provide a written response to any such request. Communication between Buyer's representative and Bombardier shall be solely through Bombardier's Contract Department or its designate. 12.5 BUYER HEREBY RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS BOMBARDIER, 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 BOMBARDIER'S OR BOMBARDIER'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 BOMBARDIER, 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 Bombardier 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 Bombardier (an "Excusable Delay"), Bombardier 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 Bombardier or its affiliates or requested by a governmental agency to the compliance program of Bombardier 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 Bombardier 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, Bombardier shall give prompt written notice to Buyer of such delay. Bombardier 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 Bombardier 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 ---------- ------------------- 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 ----------------------------- 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 Bombardier hereunder with respect to such delayed Aircraft and all related undelivered items and services, except that Bombardier shall, within -------------------- - of such termination, repay to Buyer, and Bombardier's sole liability and responsibility shall be limited to the repayment to Buyer, of all advance payments for such Aircraft received by Bombardier less any amount due by Buyer to Bombardier. 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, Bombardier shall promptly notify Buyer in writing. Such notice shall specify the earliest date reasonably possible, consistent with Bombardier's other contractual commitments and production schedule, by which Bombardier 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 Bombardier written notice, within thirty (30) days of Bombardier's notice, that Buyer desires a replacement for such Aircraft. If Buyer gives such notice to Bombardier, 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 Bombardier 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 Bombardier 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 Bombardier ---------------------- ------------ 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 Bombardier ------------------ -----, 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) Bombardier 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 Bombardier, all amounts paid by Buyer with respect to the applicable undelivered Aircraft shall be retained by Bombardier and shall be applied against the costs, expenses, losses and damages incurred by Bombardier as a result of Buyer's default and/or the termination of this Agreement, to which Bombardier 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 Bombardier shall be addressed to: Bombardier Inc. 123 Garratt Boulevard Downsview, Ontario Canada M3K 1Y5 Attention: Director Contracts Telephone: (416)375- 4052 Facsimile: (416) 375-4533 (b)Notice to Buyer shall be addressed to: ATLANTIC COAST AIRLINES 515A Shaw Road, Dulles , Virginia 20166 U.S.A. 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, Bombardier 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 Bombardier 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. Bombardier'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 Bombardier's detailed design or to any system, accessory, equipment or part manufactured by a third party to Bombardier's detailed design without Bombardier's authorization. ---------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- ------------------------------ 18.3 Buyer's remedy and Bombardier's obligation and liability under this Article are conditional upon (i) Buyer giving Bombardier 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 Bombardier to reduce or mitigate any such expenses, damages, costs or royalties involved, and (iii) Buyer furnishes promptly to Bombardier all data, papers and records in its possession or control necessary or useful to resist and defend against such claim or suit. Bombardier may at its option conduct negotiations with any party claiming infringement and may intervene in any suit or action. Whether or not Bombardier intervenes, Bombardier shall be entitled at any stage of the proceedings to assume or control the defense. Buyer's remedy and Bombardier's obligation and liability are further conditional upon Bombardier's prior approval of Buyer's payment or assumption of any liabilities, expenses, damages, royalties or costs for which Bombardier may be held liable or responsible. 18.4 THE INDEMNITY, OBLIGATIONS AND LIABILITIES OF BOMBARDIER 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 BOMBARDIER AND OF ITS AFFILIATES AND ALL OTHER RIGHTS, REMEDIES AND CLAIMS, INCLUDING CLAIMS FOR DAMAGES, DIRECT, INCIDENTAL OR CONSEQUENTIAL, OF BUYER AGAINST BOMBARDIER 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 LETTER OF AGREEMENT NO. 008 HERETO, EXCLUSIVELY SETS FORTH BOMBARDIER'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 BOMBARDIER 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 BOMBARDIER 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 BOMBARDIER 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 BOMBARDIER 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 BOMBARDIER, 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 BOMBARDIER'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 BOMBARDIER FOR CONTRIBUTION TOWARD THIRD- PARTY BODILY INJURY OR PROPERTY DAMAGE CLAIMS BASED ON PRODUCT LIABILITY THEORIES TO THE EXTENT OF BOMBARDIER'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, BOMBARDIER 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 BOMBARDIER 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 Bombardier'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 Bombardier, (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 Bombardier'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 Bombardier 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 Bombardier. 20.6 Bombardier 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, Bombardier 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 Bombardier arising through such financing. ARTICLE 21 - SUCCESSORS 21.1 This Agreement shall inure to the benefit of and be binding upon each of Bombardier 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 Bombardier 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 Bombardier) supplied by or on behalf of Bombardier, 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 In the event Buyer now or hereafter has a class of securities registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is subject to the reporting requirements of Section 15(d) thereof, or Buyer proposes to effect an offering of securities registered under the Securities Act of 1933, as amended (the "Securities Act"), and in any such case, Buyer reasonably determines that this Agreement is a "material contract" as described in Item 601 of Regulations S-K, and is required to be filed as an exhibit to a registration statement under the Securities Act or a periodic report under the Exchange Act, Buyer shall notify Bombardier prior to the date of such anticipated filing of such determination and the reasons therefor, and shall use its reasonable efforts to prepare and file with the Securities and Exchange Commission (the "Commission") a request for confidential treatment pursuant to Rule 24b-2 under the Exchange Act or Rule 406 under the Securities Act, as the case may be, with respect to information in this Agreement, which Buyer reasonably believes to be eligible for confidential treatment. Buyer agrees to provide Bombardier with advance notice of the information selected for inclusion in its request for confidential treatment and to reasonably consider recommendations made by Bombardier for the inclusion of any additional information. . Subject to compliance with the foregoing, and notwithstanding the other provisions of this Article, portions of this Agreement may be filed as exhibits to such registration statement or periodic report to the extent determined to be appropriate to comply with applicable law and such filing shall not constitute a breach hereof by Buyer. 23.5 Bombardier hereby acknowledges that Buyer is sensitive with respect to the public disclosure of its operating data provided to Bombardier pursuant to this Agreement. Although Bombardier shall have no confidentiality undertaking with respect to such data, Bombardier 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 Bombardier 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 Bombardier 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 Bombardier 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 (COLLECTIVELY THE "BOMBARDIER GROUP") AND TO THE OFFICERS, DIRECTORS, EMPLOYEES AND REPRESENTATIVES OF THE BOMBARDIER GROUP, ON WHOSE BEHALF AND FOR WHOSE BENEFIT BOMBARDIER IS, FOR PURPOSES OF THIS ARTICLE 24.3, ACTING AS AGENT AND TRUSTEE. ------------------------------------------ ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- ---------- 24.4 Buyer and Bombardier 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 Bombardier 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.: _______________________ ______________________ Kerry Skeen Michel Bourgeois President and C.E.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 obtained by calculating the arithmetic average of the labour indices for the fifth, sixth, and seventh months prior to the month of delivery of the Aircraft; LO =the Canadian labour index obtained by calculating the arithmetic average of the labour indices for the fifth, sixth, and seventh months prior to the month of the Base Price of the Aircraft, which is 20.52; ED =the U.S. labour index obtained by calculating the arithmetic average of the U.S. labour indices for the fifth, sixth, and seventh months prior to the month of delivery of the Aircraft; EO =the U.S. labor index obtained by calculating the arithmetic average of the U.S. labour indices for the fifth, sixth, and seventh months prior to the month of the Base Price of the Aircraft, which is 19.11; CD =the Industrial Commodities index obtained by calculating the arithmetic average of the Industrial Commodities indices for the fifth, sixth, and seventh months prior to the month of delivery of the Aircraft; CO =the Industrial Commodities index obtained by calculating the arithmetic average of the Industrial Commodities indices for the fifth, sixth, and seventh months prior to the month of the Base Price of the Aircraft, which is 124.97; MD =the material index obtained by calculating the arithmetic average of the material indices for the fifth, sixth, and seventh months prior to the month of delivery of the Aircraft; MO =the material index obtained by calculating the arithmetic average of the material indices for the fifth, sixth, and seventh months prior to the month of the Base Price of the Aircraft, which is 127.93; FD =the fuel index obtained by calculating the arithmetic average of the fuel indices for the fifth, sixth, and seventh months prior to the month of delivery of the Aircraft; and FO = the fuel index obtained by calculating the arithmetic average of the fuel indices for the fifth, sixth, and seventh months prior to the month of the Base Price of the Aircraft, which is 76.13. 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 Bombardier shall be prevented from calculating the Aircraft Purchase Price of each Aircraft due to any delay in the publication of the required indices, Bombardier shall use the last provisionally published indices, and in the event that provisional indices are not available, Bombardier 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, Bombardier 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. (g) the indices used in the Economic Adjustment Formula and the weighting assigned to them, as well as the various indices quoted here, are based on the information known to date and represent the projection by Bombardier of the manner in which Bombardier 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 Bombardier; 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 -------------- APPENDIX III SPECIFICATION TYPE SPECIFICATION -------------------------------------------- APPENDIX IV BUYER SELECTED OPTIONAL FEATURES CR Ref. # Option Description Price in Jan. 1999 US Dollars 00-008 PERFORMANCE - EXTENDED --- RANGE 00-312 ADDITIONAL FLAP SETTING, 8 ------- DEG TAKE-OFF 00-313 CERTIFICATION - FAA --- STRAPPING 11-300 PAINT SCHEME ** ---- 25-22-301 IN-ARM MEAL TRAYS IN ROW 1 ------ 25-22-302 UNDERSEAT LIFE VEST POUCHES ------ 25-22-304 RECLINING PASSENGER SEATS ------- 25-24-301 ENTRANCE STORAGE ---- COMPARTMENT 25-26-301 PARTITION - LHD WINDSCREEN ---- 25-26-302 PARTITION - RHD WINDSCREEN ---- 25-31-320 G1 GALLEY: PROVISIONS FOR ------ SNACK & HOT BEVERAGE SERVICE 25-34-310 STANDARD BEVERAGE MAKER - ------- COFFEE (QTY 2) 30-001 ICE DETECTION - RED WARNING --- LIGHT 31-320 EICAS 2000 --- 31-340 DFDR 88 PARAMETERS ------- 33-003 RED BEACON LIGHTS ------- 33-310 TAIL LOGO LIGHTS ------- 33-320 CARGO DOOR FLOODLIGHTS ------- 34-328 EGPWS - ENHANCED GROUND ------- PROXIMITY WARNING SYSTEM 34-330 FMS - SINGLE COLLINS FMS- ------- 4200 - 34-350 GPS - SINGLE COLLINS GPS- ------- 4000 34-353 VHF NAV - FM IMMUNITY (VIR- ------ 432+) 34-362 ALTIMETER - BARO SETTING ---- REMINDER 35-004 EROS MAGIC MASK (THREE) ------- 38-313 8 US GAL. GALLEY ------- WATER/WASTE TANK SYSTEM (WITH G1 GALLEY SELECTION) AMI PILOT & CO-PILOT SEAT --- Total Technical Features ------- - ------------------------------------------------------------- --------- ** ------------------------------------------------------------------------ - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - -- All prices listed above are expressed in January 1, 1999 US dollars, and are subject to economic adjustment to the date of aircraft delivery as provided in the Agreement. 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 Bombardier 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 Bombardier 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 ------------------- 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 Bombardier, 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 Bombardier (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 Bombardier or the FSR or other Bombardier employee as a result of or in connection with the rendering of the services. 1.2.7 Right to Stop Work Bombardier 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 Bombardier employee; or d.) the Government of the country where Buyer's facilities are located or where Buyer desires the FSR to travel refuses the Bombardier 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 Bombardier 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, Bombardier shall provide Buyer Bombardier's standard format scheduled maintenance task cards that shall conform to the Aircraft at the Delivery Date. At Buyer's request Bombardier shall provide a proposal for task cards produced to Buyer's format. 1.3.2 In-Service Maintenance Data Buyer agrees to provide to Bombardier in-service maintenance data in order to provide updates to Bombardier's recommended maintenance program. Buyer and Bombardier shall agree on standards and frequency for communication of such data. 1.4 Additional Services At Buyer's request Bombardier 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."Bombardier Parts": any spare parts, ground support equipment, tools and test equipment which bear an inhouse Cage Code number in the Bombardier 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 Bombardier 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 Bombardier. The term Spare Parts includes Bombardier Parts, Power Plant Part and Vendor Parts. e."Order": any order for Spare Parts issued by Buyer to Bombardier; 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 Bombardier 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 Bombardier 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, Bombardier shall also maintain, or cause to be maintained, a shelf stock of certain Bombardier Parts selected by Bombardier to ensure reasonable re-order lead times and emergency support. Bombardier shall maintain, or cause to be maintained, a reasonable quantity of Bombardier 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 Bombardier 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 Bombardier and shall not obligate Bombardier 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 Bombardier and Bombardier 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 Bombardier 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 Bombardier of Redesigned Parts Bombardier 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 Bombardier parts redesigned. 2.5 Purchase of Vendor Parts & Power Plant Parts Bombardier shall not be obligated to maintain a stock of Power Plant Parts. Bombardier maintains a spares stock of selected Vendor Parts at its own discretion to support provisioning and replenishment sales. Bombardier 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 Bombardier's internal processing time. 2.6 Spare Parts Pricing 2.6.1 Spare Parts Price Catalogue Prices for commonly used Bombardier Parts stocked by Bombardier shall be published in the spare parts price catalogue ("Spare Parts Price Catalogue"). Bombardier 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 Bombardier prices for Vendor Parts If Buyer orders Vendor Parts from Bombardier, 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 Bombardier. Price quotations will be held firm for a period of ninety (90) calendar days or as otherwise specified by Bombardier. 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 Bombardier 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 Bombardier as a result of any sale, use, delivery, storage or transfer of any Spare Parts. If Bombardier has reason to believe that any such tax is applicable, Bombardier shall separately state the amount of such tax in its invoice. If a claim is made against Bombardier for any such tax, Bombardier shall promptly notify Buyer. In addition, Buyer shall pay to Bombardier on demand the amount of any customs duties required to be paid by Bombardier with respect to the importation by Buyer of any Spare Parts. 2.6.5 Vendor Pricing Bombardier 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 Bombardier in order to: (i) discuss the operational parameters to be provided by Buyer to Bombardier which Bombardier considers necessary for preparing its quantity recommendations for initial provisioning of Spare Parts to be purchased from Bombardier 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 Bombardier 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, Bombardier 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 Bombardier Parts and Vendor Parts shall be provided by Bombardier as follows: a)Bombardier 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 Bombardier 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 Bombardier 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), Bombardier 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 Bombardier by Buyer. Bombardier 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 Bombardier at its plant in Ontario or Quebec, or such other destination as Bombardier may reasonably designate. Spare Parts substituted for such returned obsolete or unusable Spare Parts shall be delivered to Buyer from Bombardier's plant in Ontario or Quebec, or such other Bombardier shipping point as Bombardier may reasonably designate. Bombardier shall pay the freight charges for the shipment from Buyer to Bombardier of any such obsolete or unusable Spare Part and for the shipment from Bombardier 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 Bombardier as initial provisioning for the Aircraft, (ii) were purchased by Buyer from Bombardier or Vendor at Bombardier's recommendation, and (iii) are surplus to Buyer's needs. 2.8.4 Exceptions Bombardier 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 Bombardier 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 Bombardier pursuant to Annex A Article 2.7, which were the basis of Bombardier's initial provisioning recommendations for the Aircraft. 2.8.5 Notification and Format Buyer shall notify Bombardier, in writing, when Buyer desires to return Provisioning Items which Buyer's review indicates are eligible for repurchase by Bombardier 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 Bombardier 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 Bombardier shall complete the review of such summary. 2.8.6 Review and Acceptance by Bombardier Upon completion of Bombardier's review of any detailed summary submitted by Buyer pursuant to Annex A Article 2.8.5., Bombardier shall within sixty calendar days issue to Buyer a Material Return Authorization notice ("MRA") for those Provisioning Items Bombardier agrees are eligible for repurchase in accordance with Annex A Article 2.8.3. Bombardier 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 Bombardier 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 Bombardier pursuant to Annex A Article 2.8.6 will be the original invoice price thereof. Bombardier shall pay the repurchase price by issuing a credit memorandum in favour of Buyer which may be applied against amounts due Bombardier for the purchase of Spare Parts and services. 2.8.8 Return of Surplus Provisioning Items Provisioning Items repurchased by Bombardier pursuant to Annex A Article 2.8.6 shall be delivered to Bombardier'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 Bombardier pursuant to Annex A Article 2.8.8 shall pass to Bombardier upon delivery thereof to Bombardier. 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 Bombardier pursuant to Annex A Article 2.8.3 shall pass to Bombardier upon delivery thereof to Bombardier. With respect to the obsolete or unusable Spare Parts which may be returned to Bombardier and the Spare Parts substituted therefor, pursuant to Annex A Article 2.8.1, and the Provisioning Items which may be repurchased by Bombardier, 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 Bombardier 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 Bombardier's price, if available. 2.9.2 Processing of Orders Upon acceptance of any Order, unless otherwise directed by Buyer, Bombardier shall, if the Spare Parts are in stock, proceed immediately to prepare the Spare Parts for shipment to Buyer. If Bombardier does not have the Spare Parts in stock, Bombardier 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 Bombardier 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. Bombardier 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 Bombardier written notice of objection within thirty (30) calendar days after receipt of Bombardier'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 Bombardier shall insert in each shipment a packing list/release note itemized to show: (i) the contents of the shipment, (ii) the approved signature of Bombardier'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 Bombardier 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 Bombardier's U.S. distribution centre. AOG and Critical Orders shall be delivered FOB point of origin. 2.13.2 Delivery Time Bombardier shall use reasonable efforts so that shipment of Bombardier 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 Bombardier'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 Bombardier, charges for shipment, insurance, prepaid freight charges and all other costs paid by Bombardier 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 Bombardier 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 Bombardier 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) Bombardier maintains a purchase money security interest in them. Risk of loss of the Spare Parts will pass to the Buyer upon delivery by Bombardier. 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 Bombardier . Bombardier 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 Bombardier concurs with a rejection, Bombardier shall, at its option, either correct, repair or replace the rejected Spare Parts. Buyer shall, upon receipt of Bombardier's written instructions and Material Return Authorization ("MRA") number, which Bombardier shall issue in a timely manner, return the rejected Spare Parts to Bombardier at its specified plant, or other destination as may be mutually agreeable. The return of the rejected Spare Parts to Bombardier 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 Bombardier'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 Bombardier 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 Bombardier 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 Bombardier, 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, Bombardier, 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 Bombardier 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 Bombardier's inventory without increasing Bombardier's normal maximum stock level, no cancellation charges shall be made. 2.26 Lease Bombardier shall select and make available certain parts for lease, subject to availability Buyer has the option to negotiate a lease agreement with Bombardier separate from this Agreement. 2.27 Additional Terms and Conditions Bombardier'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. Bombardier shall offer to the Buyer the Programs in the English language at a Bombardier 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, Bombardier will provide with each delivered Aircraft, a TC or FAA approved transition training for ------- (--) of Buyer's 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). Bombardier 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 Bombardier shall provide access at Buyer's expense to a TC or FAA approved flight simulator for the crew trained under Annex A Article 3.2.1. Bombardier shall provide a simulator instructor for eight (8) missions for the crew trained on Bombardier'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 ---- (--) of Buyer's pilots. Bombardier 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 ---- (--) 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. Bombardier 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 Bombardier in the development of the Flight Attendant Training Guide to incorporate Buyer's specific equipment and procedures. 3.2.5 Recurrent Pilot Training Bombardier 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. 3.2.6 Course Training Material Bombardier 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 Bombardier shall, at no additional charge, train up to ---- (--) of Buyer's qualified personnel per Aircraft. 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 Bombardier shall, at no additional charge, train up to ---- (--) of Buyer's qualified personnel per Aircraft. 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 Specialist Courses At Buyer's request, Bombardier shall make a proposal for specialist courses which will be derived from Bombardier's standard courses detailed herein. 3.3.4 Recurrent Training At Buyer's request, Bombardier shall make a proposal for a Regulatory Authority approved training plan for maintenance recurrent training. 3.3.5 Vendor Training At Buyer's request, Bombardier shall assist Buyer to obtain vendor maintenance training. 3.3.6 Course Training Material Bombardier, upon Buyer's request, shall present a proposal to provide one (1) set of the training materials (without revision service) used to conduct Bombardier'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 3.4.1Buyer 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 Bombardier (and its affiliates) as additional insured. The hull policy shall contain a waiver of subrogation in favour of Bombardier (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 Bombardier except that Buyer shall not be required to provide insurance with respect to the manufacturing, repair and maintenance activities of Bombardier (and of its affiliates) and the related potential liability (product or otherwise) arising therefrom. ARTICLE 4 - TECHNICAL DATA 4.1 Technical Data Provided Bombardier 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 Bombardier'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) Bombardier'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 Bombardier and all rights to copyright belong to Bombardier 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 Bombardier. 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 Bombardier 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, Bombardier warrants that, at the date of delivery of the Aircraft or Bombardier 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 Bombardier 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 Bombardier Parts purchased as Spare Parts. 1.1.3 Bombardier 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 Bombardier 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 Bombardier 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 Bombardier's sole obligation and liability under this Warranty is expressly limited to, at Bombardier'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, Bombardier shall correct that Defect in the equipment item or part in which the Defect appears, except that Bombardier 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 Bombardier's obligations hereunder are subject to a Warranty claim to be submitted in writing to Bombardier'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 Bombardier shall make the repair, replacement or rework, following receipt of the defective part or item, with reasonable care and dispatch. In the event that Bombardier does not respond or confirm receipt of a warranty claim from Buyer -------- ------------------------------------------------------- ------- subject to Buyer and Bombardier agreeing on a non-receipt of a confirmation from Bombardier within -- -------- from the date of submittal of claim. 1.7 Labour Reimbursement For correction of Defects Bombardier shall establish a reasonable estimate for the labour hours required for the repair, replacement or rework of the defective Bombardier Part and, if the repair, replacement or rework is performed by Buyer or by third party on behalf of Buyer, Bombardier shall reimburse Buyer for Bombardier 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 Bombardier Part excluding any work necessary to gain access to said Bombardier 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 Bombardier published selling labour rate. 1.8 Approval, Audit, Transportation and Waiver All Warranty claims shall be subject to audit and approval by Bombardier. Bombardier 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 Bombardier Part to Bombardier's designated facility. Bombardier shall notify Buyer of Bombardier's disposition of each claim. Buyer shall pay all costs of transportation of the defective part from Buyer to Bombardier's U.S. distribution centre and Bombardier shall pay all costs of transportation of the repaired, corrected or replacement parts back to Buyer. 1.9 Limitations 1.9.1 Bombardier 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 Bombardier, unless Buyer furnishes reasonable evidence acceptable to Bombardier 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 Bombardier 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 Bombardier that such operation was not a cause of the Defect; or d)Buyer does not 1)report the Defect in writing to Bombardier's Warranty administrator within forty-five (45) calendar days following such Defect becoming apparent, and 2)retain the Bombardier Part claimed to be defective until advised by Bombardier to return such Bombardier Part to Bombardier's designated facility in order for Bombardier to finalize its evaluation of the Warranty claim or to otherwise dispose of such Bombardier Part; or e)Buyer does not submit reasonable demonstration to Bombardier 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 Bombardier reasonable opportunity (taking into account Buyer's wish to replace Aircraft back in service) to be present during the disassembly and inspection of the Bombardier 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 Bombardier's liability for a Bombardier 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 Bombardier Part returned under a Warranty claim is subsequently established to be serviceable then Bombardier shall be entitled to charge and recover from Buyer any reasonable inspection, transportation, repair and other costs of a similar nature incurred by Bombardier in connection with such Warranty claim. Providing, however, in the event that repetitive in-service failure occurs on the particular Bombardier Part which is subsequently identified by Bombardier on a repeated basis to be "no fault found," then Bombardier 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 Bombardier will be borne by Bombardier, and any such costs already paid by Buyer will be reimbursed by Bombardier. ARTICLE 2 - VENDOR WARRANTIES 2.1 Warranties from Vendors The Warranty provisions of this Annex B apply to Bombardier Parts only. However, Bombardier 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, Bombardier 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 Bombardier, 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 Bombardier 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 Bombardier 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 Bombardier's Interface Commitment In the event of a dispute in the application of a Vendor Part warranty, at Buyer's request addressed to Bombardier's warranty administrator, Bombardier 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 Bombardier all data and information in Buyer's possession relevant to the interface problem and shall cooperate with Bombardier in the conduct of its investigation and such tests as may be required. Bombardier, at the conclusion of its investigation, shall advise Buyer in writing of Bombardier's opinion as to the cause of the problem and Bombardier'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, Bombardier 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 Bombardier 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 = Bombardier'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 Bombardier 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 Bombardier's designated facility, if practicable, of any failed Covered Component necessary for failure investigation or redesigning studies shall be borne by Bombardier 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 Bombardier; b)Bombardier's obligations under this SLP are conditional upon the submission of reasonable proof acceptable to Bombardier that the failure is covered hereby; c)Buyer shall report any failure of a Covered Component in writing to Bombardier`s Warranty administrator within two (2) months after such failure becomes evident ----------------------- -- Failure to give this required notice shall excuse Bombardier 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 Bombardier's obligations under this SLP with respect to any Covered Component; e)Bombardier'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 Bombardier 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 Bombardier 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 Bombardier 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. Bombardier'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 Bombardier 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. September 10, 1999 Atlantic Coast Airlines 515A Shaw Road, Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 001A to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement" between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) Canadair Regional Jet Aircraft (the "Aircraft") This Letter Agreement No. 001A dated September 10, 1999 cancels and supersedes Letter Agreement No. 001 dated July 29, 1999. Subject: Credit Memoranda 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 six (6) Aircraft (and for the exercise of any Option Aircraft (as defined in Letter Agreement No. 003)), Bombardier will issue to Buyer, upon delivery and payment of the price of the Aircraft in accordance with the Agreement, (i) for each of the ------------------- Aircraft (including any delivered Option Aircraft), a credit memorandum in the amount of ----------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- ----------------- - ------------------------------------------------------- - ------------------------------------------------------- - ---------- 3.0 In consideration of Buyer having entered into the above referenced Agreement, Bombardier will issue to Buyer, upon delivery and payment of the price of the Aircraft in accordance with the Agreement, for each of the -----------------------------, a ----------- credit memorandum in the amount of --------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------- ----------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ----------------------------------------------- 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 collectively be known as the "Credit Memoranda". 5.0 In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void with respect to any undelivered Aircraft. 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 required for financing purposes in accordance with Letter Agreement No. 004 (Financing) 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 Bombardier. 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 Preece Manager, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Kerry B. Skeen President & C.E.O. July 29, 1999 Atlantic Coast Airlines 515A Shaw Road Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 002 to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement" between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Assignment 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 Buyer shall have the right to assign its right to purchase and to lease up to six (6) of the Aircraft (Aircraft 1-6) to a new corporation to be formed in the U.S. ("Newco") subject to: (i) Newco shall be a U.S. citizen; (ii) section 1110 of the U.S. Bankruptcy Code applies; (iii) the provisions of Articles 20.1, 20.2, 20.3 of the Agreement; (iv) financing shall be based on Buyer's credit; and (v) additional reasonable terms and conditions required due to the different structure of the transaction and aircraft operations following disclosure and due diligence of the transaction envisaged. 3.0 Subject to the satisfaction of the foregoing, the assignment shall then be an assignment permitted pursuant to the terms of Article 20 of the Agreement, such that Newco will be entitled to all benefits as contained in the Agreement. 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. Yours very truly, BOMBARDIER INC. ________________________ Date:_____________ Michel Bourgeois Vice President, Contracts Acknowledged and Accepted Atlantic Coast Airlines ________________________ Date:_____________ Kerry B. Skeen President & C.E.O. Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 003 to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement") between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of Six (6) Canadair Regional Jet Aircraft (the "Aircraft") 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 Buyer having entered into the above referenced Agreement, Bombardier will grant to Buyer the right to purchase seventeen (17) additional Aircraft (the "Option Aircraft") in accordance with the following general conditions: (a) Number of Option Aircraft The Scheduled Delivery Dates of the Option Aircraft are follows: --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- -------- (b) Terms (i) The Option Aircraft will be as described in Article 2 of the Agreement. (ii) (a) The base price for each of the Option Aircraft (excluding the Buyer Selected Optional Features) Ex Works (Incoterms 1990) Bombardier's offices or premises in Montreal, Province of Quebec, Canada, is --------------------- ---------------------------------------- ------------------------ --------------- ---------------------. (b) The base price of the Buyer Selected Optional Features is ---------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ------ The Option Aircraft base price shall be the base price for the Option Aircraft as stated in paragraph (b)(ii)(a), plus the base price of the Buyer Selected Optional Features as stated in paragraph (b)(ii)(b) (the "Option Aircraft Base Price"). The price of the Option Aircraft (the "Option Aircraft Purchase Price") shall be the Option Aircraft Base Price adjusted to ---------------------------- ---------------------------------------- ---------------------------------------- ---------------- of the Option Aircraft. Such adjustments shall be based on the Economic Adjustment Formula as found in Appendix I of the Agreement. (ii) As consideration for this option, Buyer shall make or cause to make payment to Bombardier ----------------------------- ---------------------------------------- ----- per Option Aircraft (the "Option Deposit") upon execution of the Agreement, for a total amount of ------- ---------------------------------------- ------------------------ (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 with respect to Annex A training courses as specified in Article 3.2.4 of the Agreement (Flight Attendant Courses), shall not apply to the Option Aircraft. (iv) The following Letter Agreement shall not apply to the Option Aircraft and is hereby excluded: Letter Agreement No. 003 (Option Aircraft) (v) Letter Agreement No. 008A (Schedule Completion Rate), Letter Agreement No. 009C (Airframe Direct Maintenance Cost) and Letter Agreement No. 006 (Operational Restrictions) of purchase agreement no. RJ-0350 dated January 8, 1997, as amended through contract change order no. 14 to such purchase agreement, shall apply mutatis mutandis to the Option Aircraft, with specific terms for Option Aircraft as set out therein. (c) Option Aircraft Payment Terms Terms of payment for each of the Option Aircraft shall be based upon the Option Aircraft Base Price of such aircraft and will be as follows: --------------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ------------------------------- All payments referred to in paragraphs a., b. and c. above are to be made on the first day of the applicable month. (d) Exercise Procedures Timing and procedures for the exercise of Option Aircraft shall be as follows: (i) The Option Aircraft will be exercised as individual aircraft, with Buyer providing written notice of its intention to do so ("Notice of Intention") -------------------- prior to the first day of the month of the Scheduled Delivery Date of the applicable Option Aircraft, at which point the Option Deposit for the applicable Option Aircraft will become non-refundable, and a definitive irrevocable, written exercise----------- --------- prior to the first day of the month of the Scheduled Delivery Date of the applicable Option Aircraft. (ii) At any time prior to the Notice of Intention of an Option Aircraft, Buyer may elect (on one occasion only as to any such Option Aircraft) to reschedule the Scheduled Delivery Date for such Option Aircraft to a date up to -------- ---------- after its original Scheduled Delivery Date, subject to Bombardier having position(s) available for the requested rescheduled delivery date(s), taking into account Bombardier's then production rate and commitments. In the event Bombardier cannot offer an aircraft delivery position in the month requested by Buyer, Bombardier shall use its reasonable efforts (taking into account Bombardier's production and commitments), to offer a delivery position in the calendar quarter next succeeding the requested rescheduled delivery date, failing which Bombardier shall offer to Buyer the available positions, if any, --------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ----------------- (iv) The following process shall be utilized to provide notices (with notice provisions in accordance with Article 17 of the Agreement): Buyer may provide notice of its desire to reschedule ("Notice of Reschedule") the Scheduled Delivery Date for an Option Aircraft (on one occasion only as to any such Option Aircraft) at any time up to and including -------------------- prior to the first day of the Scheduled Delivery Date of such option Aircraft. Following receipt of Buyer's notice to reschedule, Bombardier shall have ------ ---------------- within which to respond to Buyer's notice, providing alternative delivery date(s), where available and as applicable as per paragraph d(ii) above. Buyer shall use its reasonable efforts to notify Bombardier of its definitive intentions regarding the postponement requested within ---------------- of its request for postponement. ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ------------------------------- (v) In all cases, prior to notice being received by Bombardier from Buyer of Buyer's formal acceptance of the rescheduled delivery position(s), any rescheduled delivery position(s) provided from Bombardier to Buyer will be subject to prior sale, commitment or other disposition of the applicable aircraft. (vi) Buyer's failure to exercise its rights with respect an Option Aircraft shall result in the cancellation of such Option Aircraft. (vii) The price of any of the Option Aircraft which have been rescheduled by Buyer (including as a result of a Buyer Excusable Delay, as defined in Article 13 of the Agreement) to a delivery month beyond October 2003 will increase to reflect price changes to the aircraft standard base price (list price), if any, as a result of value added modifications incorporated as standard into the Option Aircraft from the date of the execution of the Agreement to the date of exercise of the applicable Option Aircraft. (viii) Buyer will endeavor to keep Bombardier informed as to its intentions regarding rescheduling of Option Aircraft. 3.0 Bombardier 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 Bombardier. 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:_____________ Kerry B. Skeen President and C.E.O. July 29, 1999 Atlantic Coast Airlines 515A Shaw Road, Sterling, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 004 to Purchase Agreement No. PA-0454 dated July 29, 1999 (the "Agreement") between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) Canadair Regional Jet Aircraft (the "Aircraft") 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 Bombardier to Buyer. ------------------ ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ----------------------- 2.0 Financing Assistance 2.1 Financing assistance referred to in this Letter Agreement No. 004 shall apply only to the Financed Aircraft. Financing for the Financed Aircraft will be arranged by Buyer working in coordination with Bombardier. The form of any support which may be provided by Bombardier is to be treated as confidential and is not to be provided by Buyer to any third party without the third party executing Bombardier'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 Bombardier 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. 2.2 ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- 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---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- --------------------------------- 5.0 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, this Letter Agreement shall become automatically null and void. 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 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:_____________ Kerry B. Skeen President and C.E.O. July 29, 1999 Atlantic Coast Airlines 515A Shaw Road Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 005 to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement" between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) 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 Manuals on CD-ROM 2.1 Bombardier and Buyer are aware that Bombardier is currently in the process of investigating and bringing on-line CD-ROM versions of various manuals. Bombardier 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 -------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- ------------------------------------------ 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. 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:_____________ Kerry B. Skeen President & C.E.O. July 29, 1999 Atlantic Coast Airlines 515A Shaw Road, Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 006 to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement" between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) 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 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. 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 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:_____________ Kerry B. Skeen President & C.E.O. http://www.aerospace.bombardier.com July 29, 1999 Atlantic Coast Airlines 515A Shaw Road Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 007 to Purchase Agreement No. PA-0454 dated July 29, 1999 (the "Agreement" between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of three (3) 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 30 of the Agreement without the prior written consent of Bombardier. 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:__________________________ Kerry B. Skeen ___ President & C.E.O. July 29, 1999 Atlantic Coast Airlines 515A Shaw Road Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 008 to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement" between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Airworthiness Directives 1.0Intent In consideration of Buyer entering into the above- referenced Agreement, Bombardier states that it is its intention to incorporate before delivery of the Aircraft any Mandatory Modification Service Bulletins outstanding on the Aircraft. -------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- ------ 2.0Applicability 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"). 3.0Conditions For any Mandatory Modification Service Bulletin not incorporated on the Delivery Date, as defined in Article 2.0 above, Bombardier 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 Bombardier, 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:_____________ Kerry B. Skeen President & C.E.O. July 29, 1999 Atlantic Coast Airlines 515A Shaw Road Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 009 to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement" between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) Canadair Regional Jet Aircraft (the "Aircraft") Subject: Reconciliation 1.0The parties recognize that in the course of the administration of this Agreement, ---------------------- -------------------------------------------------------- -------------------------------------------------------- ------------------ 2.0-------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------- 3.0-------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- ---------------------------- 4.0This 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. 5.0The 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 (in whole not in part) expressly permitted under Article 20 of the Agreement and otherwise such consent shall not be unreasonably withheld. 6.0In the event of the Termination of the Agreement, this Letter Agreement shall become automatically null and void. 7.0Should 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:_____________ Kerry B. Skeen President & C.E.O. July 29, 1999 Atlantic Coast Airlines 515A Shaw Road, Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 10 to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement") between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) 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:_____________ Kerry B. Skeen President & C.E.O. SCHEDULE 1 ECONOMIC ADJUSTMENT FORMULA IN RESPECT OF Bombardier PARTS The rate of published escalation applicable between succeeding periods for which the Spare Parts Price Catalogue is published to which reference is made in Letter Agreement No. 017 will be calculated using the following formula: --------------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- ------------------ July 29, 1999 Atlantic Coast Airlines 515A Shaw Road, Dulles, Virginia, U.S.A. 20166 Gentlemen, Letter Agreement No. 011 to Purchase Agreement No. PA- 0454 dated July 29, 1999 (the "Agreement" between Bombardier Inc. ("Bombardier") and Atlantic Coast Airlines ("Buyer") relating to the purchase of six (6) 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. -------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- - ------- 5. 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. 6. This Letter Agreement constitutes an integral part of the Agreement and subject to the terms and conditions contained therein. 7. 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:_____________ Kerry B. Skeen President & C.E.O. EX-10 6 EXHIBIT 10.45(1) CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. FIRST AMENDMENT TO THE AIRCRAFT PURCHASE AGREEMENT BETWEEN DORNIER LUFTFAHRT GMBH AND ATLANTIC COAST AIRLINES Dornier Luftfahrt GmbH ("Seller") and Atlantic Coast Airlines ("Purchaser"), have entered into an Aircraft Purchase Agreement dated March 31, 1999 (the "Agreement"), concerning the sale of certain Dornier 328-300 and 428 aircraft. The Capitalized Terms used without definition in this First Amendment shall have the meaning ascribed to them in the Agreement. WHEREAS, the parties hereto wish to amend certain provisions of the Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, the parties hereto agree as follows: 1. The Agreement is hereby amended by: a. Definitions - ---------------------------- -------------------------------------------- b. Definitions - inserting the following new definitions between "FAT" and "Insurance Items": "Group A Aircraft - The Aircraft identified as Group A Aircraft to be delivered to Purchaser in accordance with the delivery schedule set forth in Exhibit III." "Group B Aircraft - The Aircraft identified as Group B Aircraft to be delivered to Purchaser in accordance with the delivery schedule set forth in Exhibit III." c. Article 1.1, replacing the words "fifty- five (55)" with "eighty (80)". d. Article 1.2, replacing (i) the words "twenty-five (25)" in the first sentence with "forty (40)", (ii) ------------------- in the second sentence with--------- and (iii) the words ----------------------- - in the third sentence with ---------------------------- --------------------------------------------------------- ------------------------ e. Article 2.1b, replacing the numbers "26- 55" in the second sentence with "41-80". f. Article 2.2, replacing the date "February 2003" and the numbers "26-55" with "September 2002" and "41-80", respectively. g. Article 2.2a, replacing ------------------ ------------------------------------------------------ with ----- h. Article 2.2c, replacing (i) the year "2003" in the first sentence with "2002", (ii) the date "December 31, 2001" in the second sentence with "July 31, 2001", and (iii) the date "June 2004" in the third sentence with "January 2004". i. Article 2.2, inserting the following at the end of the article as Article 2.2e: "e. ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ---------------- j. Article 2.3, replacing --------------- with ----- k. Article 2.5, replacing the numbers "26-55" with "41-80". l. Article 4.1b, deleting the second sentence in its entirety and replacing it with the following: "The Initial Deposit of ----------, the Additional Deposit of ------------- and the deposit paid in connection with the first amendment in the amount of ------------ will be held by Seller for a total deposit of --------- ---- ("Deposit") representing a ---------- deposit with respect to each Aircraft." m. Article 8.2, replacing the words "In the event Purchaser elects to change the Aircraft configuration or its selected Optional Equipment, the" with "Purchaser shall provide Seller with its interior selections for the Group A Aircraft by no later than October 1, 1999, Group A paint scheme for the Group A Aircraft by no later than October 31, 1999, and the interior/exterior selections for the Group B Aircraft by no later than May 31, 2000. Any". n. Article 11.1a.(iii), adding the following sentence at the end of the article: "A delay of delivery of the 2002 428JETs, as defined below, pursuant to Article 12.5 shall also constitute an Excusable Delay." o. Article 12, inserting the following at the end of the article as Article 12.5: "12.5 Notwithstanding the provisions of Article 12, any late delivery penalties under Article 12 will not apply to the four (4) 428JET Aircraft scheduled for delivery during 2002 ("2002 428JETs") until such time as Seller has reconfirmed the delivery date of the 2002 428JETs. Seller shall reconfirm the delivery dates ("428JET Delivery Reconfirmation") for the 2002 428JETs no later than one hundred twenty (120) days prior to the scheduled delivery date, provided however, if Seller determines, prior to the dates required for 428JET Delivery Reconfirmation, that it will be unable to deliver said aircraft on the delivery dates set forth herein, then, no later than the date by which Delivery Reconfirmation is due, Seller shall notify Purchaser of a delay in delivery and provide Purchaser with a new revised delivery schedule. The Parties will work together to complete the delivery of the aircraft at the earliest possible time, provided that Purchaser will not be required to accept delivery on less than 120 days notice, or to accept delivery of more than two Aircraft in any one month. A delay in delivery of a 2002 428JET may be resolved by deferring said delivery to a month to be mutually agreed, but no later than November 2005. Any delay in delivery of a 2002 428JET pursuant to this paragraph 12.5 shall be considered an Excusable Delay. ------ - ------------------------------------------------------------------- - ------------------------------- p. Article 19.1, replacing ------------------ ---------------------------------. q. Article 19.2, replacing ------------------ with ----------------------------. r. Article 20.1, replacing ------------------ --------- with -------------- s. Article 20.2 and 20.2a, second paragraph, replacing ----------------with ----- t. Article 20.2i, replacing ----------------- -------- with --------------- u. Article 20.3, second paragraph, inserting the following at the end of the second sentence: ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------ v. Article 20.4, replacing------------------- -------------------------------------- with ------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------------- w. Article 20.9, inserting (i) the ---------- ----------------------after ----------------------------- --------------------------------------------------------- ---------------------------------- x. Article 21.1, replacing the words "fifty- five (55)" with "eighty-five (85)." y. Article 21.9, replacing ------------------ --------- with ------------------- z. Article 21.11, replacing ----------------- -----------------------------------------with----------- aa. Article 23, inserting ------------------- prior to ------------------------------------------------ ----------------- bb. Article 25.1, replacing the words "this Agreement" in the first sentence with "the sale to Purchaser of the Group B Aircraft." cc. Article 25.2, deleting subparagraphs a, b, c and d in their entirety and replacing with the following subparagraphs: "a. If Purchaser receives the United Approval on or before April 30, 2000, the Group B 328-300 Aircraft will be delivered according to the Delivery Schedule. b. If Purchaser receives United Approval after April 30, 2000, ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------The remaining ----------- ---328-300 Group B Aircraft will be delivered as scheduled. Seller will advise Purchaser of any rescheduling decision within -----------------of the United Approval receipt. c. If Purchaser does not receive the United Approval on or before -------- -----, the entire fifteen (15) 328- 300 Group B Aircraft scheduled in Exhibit III may, at Seller's sole option, be delayed by up to --------- --------- from the date the United Approval is received, unless Seller and Purchaser agree on earlier deliveries. Seller will advise Purchaser of any rescheduling decision within ---------------- of the United Approval receipt. Purchaser shall not be required to accept an Aircraft delivery with less than ---------------advance notice. d. Any 328-300 Group B Aircraft Delivery Schedule adjustments addressed above will not cause the rescheduling of 428JET Aircraft deliveries under the Group B Aircraft Delivery Schedule in Exhibit III. e. If any of the 328-300 Aircraft in Group B are rescheduled beyond February 2003, Purchaser may, at its sole option, replace such 328-300 Aircraft with a firm order for 428JET Aircraft. Purchaser shall advise Seller, within -----------------after receipt of Seller's notice to Purchaser of the rescheduling, that Purchaser has elected to replace 328- 300 Aircraft with a firm order for 428JET Aircraft. ------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------- f. If Seller shall have the right to reschedule any of the delivery positions, as set forth in this Article 25 upon receipt of the United Approval, it shall not reschedule any 328-300 Aircraft that has not been sold to a third party buyer prior to Seller's --------------- notice to Seller as required in Articles 25.b and c. above." dd. Article 25.3, (i) replacing the words "twenty-five (25)" with "the" and (ii) inserting the words "Group B Aircraft" after the numbers "328-300." ee. Article 25.5, inserting the words -------- --------------------------------------------------------- --------------------------------------------------------- ---------------------------- ff. Article 28.1, replacing ------------------ --- with ----------- gg. Article 28.1c., replacing the number "fifty-five (55)" with "eighty (80)". hh. Article 28.2, replacing ------------------ --- with ----------- ii. Article 29.1, replacing ------------------ --------------- with ---------- jj. Article 29.2, subparagraphs a. and b., replacing ------------------- with ---------------------- ---------------- kk. Article 29.2c, replacing ----------------- ---------------- with -------------------------------- ll. Article 29.3b, replacing ----------------- ---with -------- mm. Article 35.12, (I) replacing the word "events" with "event" and (ii) deleting the words "and removal of the Condition Precedent set forth in Article 25", from the first paragraph. nn. Exhibit III, Delivery Schedule, replacing the exhibit in its entirety with Exhibit III, Delivery Schedule attached hereto as Attachment 1. oo. Exhibit IX, Clause IX.1.1(i), inserting (i) "and at such time as the total number of Aircraft on firm order (without condition for United Approval) is at least 56, a second set of Job Instruction Cards" after the word "Cards" and (ii) the following sentence after the fourth sentence: "At such time as the total number of Aircraft on firm order (without condition for United Approval) is at least --, Seller will --------- ---------- of Seller's Technical Publications and Documentation to be delivered to Purchaser in accordance with Annex A, except for those Technical Publications and Documentation identified in Annex A to be provided on a per- Aircraft basis." pp. Exhibit IX, Clause IX.1.4.d, replacing the words "Upon Purchaser providing its first Notice of Exercise, as that term is defined in Article 21.2c," with "At such time as Aircraft number ---is delivered to Purchaser." qq. Exhibit IX, Clause IX.2.2g(iv), replacing the third sentence in its entirety with the following two sentences: ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------------------------------------- rr. Exhibit IX, Clause IX.2.2g(iv), replacing the last sentence in its entirety with the following: ------------------------------------------ ------------------------------------------ ------------------------------------------ --------------------------------------- ss. Exhibit IX, Clause 2.6, replacing the words "Not later than thirty (30) days after Purchaser's receipt of the United Approval" with "By no later than October 10, 1999." tt. Exhibit IX, Clause IX.2.9 and IX.2.9b, replacing the with ----- uu. Exhibit IX, inserting the following at the end of Clause 2 as Clause 2.11: "IX.2.11 ------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- vv. Exhibit IX, Clause IX.3.5c, amending the table by adding the following at the end of the table: ---------------------- ww. Exhibit IX, Clause IX.3.6, (i) replacing - ---------------------------with ------------- in the first sentence of subparagraph a., (ii) replacing ------- -------------------" in subparagraph b. with ------------ ------- and (iii) inserting a new subparagraph c. as follows: "c. ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------ xx. Exhibit IX, Clause 4.a, inserting the following sentence after the first sentence: "The period of assignment will be extended by ---------------for each Aircraft of Aircraft numbers -----delivered to Purchaser." yy. Exhibit XIII, (i) replacing the number "fifty-five (55)" with "eighty (80)" in the definitions for "Eligible Aircraft" and "Guaranteed Amount", (ii) replacing ------------------------------------- with ---- -----------------------------------, and (iii) deleting the chart included with the definition for "Guaranteed Reconciliation Period Amount" in its entirety and replacing with the Guaranteed Reconciliation Period Amount Chart attached hereto as Attachment 2. 2. Purchaser has paid to Seller, in connection with the purchase of fifteen (15) Dornier 328-300 Aircraft and ten (10) 428JET Aircraft as outlined in the Memorandum of Understanding dated September 3, 1999, between the parties, a cash deposit in the amount of ---------------------- for a total deposit of ---------- ("MOU Deposit"). The MOU Deposit will become non-refundable upon execution of this Amendment, except as otherwise provided for in the Agreement. An additional deposit of ------------ shall be paid to Seller upon execution of this First Amendment ("Amendment Deposit"). Paragraph 1.k above amends the Agreement accordingly. 3. Purchaser will be permitted to execute Option Aircraft during any such time that the Condition Precedent for United Approval may not have been met. 4. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 5. This First Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. [NEXT PAGE IS SIGNATURE PAGE] IN WITNESS WHEREOF, the parties hereto have entered into this First Amendment to the Aircraft Purchase Agreement effective this 10th day of September 1999. DORNIER LUFTFAHRT GMBH BY: TITLE: ATLANTIC COAST AIRLINES BY: TITLE: ATTACHMENT 1 EXHIBIT III DELIVERY SCHEDULE GROUP A Number of 328-300 Aircraft/428JET Year Aircraft -- ---- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ------------------- -- ---- ----------------------------------- ----------------------------------- ---------------- GROUP B Number of 328-300 Aircraft/428JET Year Aircraft - ---- ----------------------------------- ----------------------------------- --------------------------- - --- ---- ----------------------------------- ----------------- - ---- ---- ----------------------------------- ---------------------- - --- ---- ----------------------------------- ------------------- - --- ---- --------------------------- - --- ---- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ---------------- ATTACHMENT 2 GUARANTEED RECONCILIATION PERIOD AMOUNT CHART - ------------------------------------------------------------------- - ------------------------------------------------------------------- - ------------------------------------------------------------------- - ------------------------------------------------------------------- - ------------------------------------------------------------------- - ------------------------------------------------------------------- - ------------------------------------------------------------------- - ------------------------------------------------------------------- - ------------------------------------------ EX-27 7
5 9-MOS DEC-31-1999 SEP-30-1999 43,272 65 36,143 0 4,078 100,363 111,819 0 265,461 46,328 0 0 0 419 116,951 265,461 252,571 256,422 0 217,713 0 0 3,905 37,475 14,293 37,475 0 0 888 22,294 1.17 1.03
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