<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 33-13071
ASA HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2258221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 HARTSFIELD CENTRE PARKWAY SUITE 800, ATLANTA, GEORGIA 30354
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 766-1400
Securities registered pursuant to Section 12(b) of the Act:
NONE NONE
(Title of class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $0.10 PAR VALUE
(Title of class)
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 Exchange Act of
1934 during 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 [ ]
<PAGE> 2
FACING PAGE
Page 2 of 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 3, 1997, the aggregate market value of voting stock held by
non-affiliates of the Registrant, based on the $22.75 closing sales price of
such stock on The Nasdaq Stock Market's National Market on that date, was
approximately $464,054,000.
As of March 3, 1997, the Registrant had 29,963,570 shares of Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement to be used in connection
with the solicitation of proxies for the Registrant's annual meeting of
shareholders to be held May 21, 1997, are incorporated by reference into Part
III of this Report on Form 10-K.
<PAGE> 3
ASA HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I .....................................................................................1
ITEM 1. BUSINESS...........................................................................1
General ..........................................................................1
Delta Connection...................................................................2
Route System.......................................................................3
Fares ..........................................................................5
Flight Equipment...................................................................6
Personnel and Operations...........................................................7
Maintenance........................................................................8
Aviation Fuel......................................................................9
Marketing.........................................................................10
Competition and Industry Considerations...........................................11
Economy .........................................................................11
Seasonality.......................................................................12
Regulation........................................................................12
Insurance.........................................................................15
Extraordinary Events..............................................................15
Executive Officers................................................................15
ITEM 2. PROPERTIES........................................................................16
ITEM 3. LEGAL PROCEEDINGS.................................................................17
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.................................18
PART II ....................................................................................19
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................................19
Market Information................................................................19
Dividends and Share Repurchases...................................................20
Recent Sales of Unregistered Securities...........................................21
ITEM 6. SELECTED FINANCIAL DATA...........................................................21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................................24
Reorganization....................................................................24
Liquidity and Capital Resources...................................................25
Accounting Standards..............................................................29
Results of Operations.............................................................29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................................55
PART III ....................................................................................55
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................55
</TABLE>
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<TABLE>
<S> <C> <C>
ITEM 11. EXECUTIVE COMPENSATION..........................................................55
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................................55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................55
PART IV .....................................................................................56
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K........................................................................56
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT...................................65
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES..................................67
</TABLE>
<PAGE> 5
PART I
ITEM 1. BUSINESS
General
ASA Holdings, Inc. ("ASA HOLDINGS") is incorporated under the laws of
the State of Georgia. Its principal offices are located at 100 Hartsfield Centre
Parkway, Suite 800, Atlanta, Georgia 30354 and its telephone number is (404)
766-1400.
ASA Holdings is a holding company the principal assets of which are the
shares of its wholly owned subsidiaries Atlantic Southeast Airlines, Inc., a
Georgia corporation ("ASA"), and ASA Investments, Inc., a Delaware corporation
("ASA INVESTMENTS"). ASA Holdings considers the airline business of ASA to be
its only industry segment. All references herein to the "COMPANY" shall refer
collectively to ASA Holdings, ASA, and ASA Investments.
ASA Holdings became the parent holding company for ASA and ASA
Investments pursuant to a corporate reorganization that was effective after the
close of business on December 31, 1996 (the "REORGANIZATION"). Pursuant to the
Reorganization, ASA merged with a wholly owned subsidiary of ASA Holdings (the
"MERGER"). Prior to the Merger, ASA Holdings was a wholly owned subsidiary of
ASA. Pursuant to the Merger, each issued and outstanding share of ASA's common
stock, $0.10 par value per share ("ASA COMMON STOCK"), was automatically
converted into one share of ASA Holdings' common stock, $0.10 par value per
share ("HOLDINGS COMMON STOCK"), except for shares of ASA Common Stock then held
by ASA as treasury shares, which were cancelled as part of the Merger. See
"DIVIDENDS AND SHARE REPURCHASES" herein. Immediately after the consummation of
the Merger, on December 31, 1996, ASA effected a dividend of all the capital
stock of ASA's wholly owned subsidiary, ASA Investments, to ASA Holdings.
ASA is a certificated air carrier providing regularly scheduled, high
frequency airline service between (i) Hartsfield Atlanta International Airport
in Atlanta, Georgia (the "ATLANTA HUB") and 36 other airports in Alabama,
Florida, Georgia, Indiana, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina, Tennessee, Virginia and West Virginia and (ii) Dallas/Fort Worth
International Airport in Dallas, Texas (the "DALLAS/FORT WORTH HUB") and 22
other airports in Arkansas, Kansas, Louisiana, Mississippi, Oklahoma and Texas.
ASA is the largest regional carrier serving Hartsfield Atlanta International
Airport with more flights per week than any other regional carrier. ASA
currently operates over 3,800 flights per week. A majority of ASA's flights are
utilized primarily by business, government and military passengers to make
connections with flights operated by Delta Air Lines, Inc. ("DELTA") and other
air carriers from the Atlanta and Dallas/Fort Worth hubs.
As of March 3, 1997, ASA's operating fleet consisted of 75 turboprop
airplanes, 12 of which seat 66 passengers and the remaining 63 of which seat 30
passengers, and 5 jets that seat 88 passengers each. In January 1997, ASA
announced its intention to expand its fleet through the acquisition of 30 jets
that seat 50 passengers each. See "FLIGHT EQUIPMENT" herein.
<PAGE> 6
In fiscal 1996, ASA Holdings reported a record $56.6 million profit and
an 18.1% increase in earnings per share. Revenues increased 14.2% and net income
increased 10.7%. ASA also carried a record number of passengers in fiscal 1996.
See "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" herein.
The sole business of ASA Investments is to manage certain cash assets
contributed to it by ASA Holdings and its other subsidiaries. As of December 31,
1996, ASA Investments had total assets of approximately $132,000,000.
Delta Connection
Since 1984, ASA has operated from the Atlanta and Dallas/Fort Worth
hubs as a "Delta Connection" carrier pursuant to a marketing agreement (the
"DELTA CONNECTION AGREEMENT") with Delta. As a Delta Connection carrier, ASA's
flights are shown under Delta's two letter code designation (DL) in the
automated airline reservation systems used throughout the industry and in the
Official Airline Guide. ASA is assigned a series of distinctive Delta flight
numbers that travel agents and airline reservation personnel are able to
distinguish as those operated as a Delta Connection carrier. Passengers served
by Delta Connection carriers are able to take advantage of the cost savings
inherent in through fares and are offered Delta frequent flyer mileage and a
full range of promotional fares provided by Delta and ASA. In addition, ASA is
able to offer its passengers coordinated schedules for timely connections with
Delta flights. See "FARES" and "MARKETING" herein.
Approximately 80% of ASA's passengers during fiscal 1996 connected with
or from Delta flights at the Atlanta or the Dallas/Fort Worth hubs. See "ROUTE
SYSTEM" herein.
ASA believes that its marketing agreement with Delta is similar to
those that exist between Delta and other Delta Connection Carriers and in
substance to those that exist between other major and regional air carriers. The
Delta Connection Agreement has been in effect since 1984 and may be terminated
by either party by giving no less than 30-days' advance written notice. ASA
believes that its relationship with Delta is good and does not anticipate any
termination of the Delta Connection Agreement. Given ASA's relationship with
Delta, ASA's results of operations and financial condition may be favorably or
adversely impacted by Delta's decisions regarding its flight routes and other
operational matters. ASA has historically benefited from its relationship with
Delta but there can be no assurance that such benefits will occur in the future.
Any material modification of this relationship with Delta could have a material
adverse effect on ASA and ASA Holdings.
As of March 3, 1997, Delta Air Lines Holdings, Inc., a wholly owned
subsidiary of Delta ("DELTA HOLDINGS"), owned approximately 27% of the
outstanding Holdings Common Stock. Pursuant to the terms of a Stock Agreement
among Delta, Delta Holdings, ASA Holdings and ASA dated as of March 17, 1997,
(the "STOCK AGREEMENT"), (a) at Delta's request, ASA Holdings will include at
least two designees of Delta or Delta Holdings who are reasonably acceptable to
ASA Holdings on the slate of nominees for election as members of ASA Holdings'
Board of Directors and (b) ASA Holdings will use its reasonable best efforts to
assure that the designated individuals are elected to ASA Holdings' Board of
Directors so long as Delta or Delta Holdings continue to own at least 10% of the
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outstanding Holdings Common Stock. Prior to the Reorganization, Delta had rights
substantially similar to those which it has under the Stock Agreement pursuant
to a written agreement with ASA.
Route System
As of March 3, 1997, ASA's route system included service between the
Atlanta hub and 36 other airports in Alabama, Florida, Georgia, Indiana,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee,
Virginia and West Virginia. ASA also operates a similar hub and spoke operation
in Dallas/Fort Worth. As of March 3, 1997, ASA provided service from the
Dallas/Fort Worth hub to 22 airports in Arkansas, Kansas, Louisiana,
Mississippi, Oklahoma and Texas. For information regarding ASA's operating
fleet, see "FLIGHT EQUIPMENT" herein.
ASA's flight schedules are structured to facilitate the connection of
its passengers with Delta's flights at the Atlanta and Dallas/Fort Worth hubs.
Approximately 80% of ASA's passengers connected with or from Delta flights at
the Atlanta or Dallas/Fort Worth hubs. See "DELTA CONNECTION" herein.
The following tables describe ASA's route system as of March 3, 1997:
<TABLE>
<CAPTION>
ATLANTA HUB
Air Mileage Date Service
Airport Served From Atlanta Hub Commenced
- - -------------------------------------------------------------------------
<S> <C> <C>
Albany, GA 146 8/1/82
Alexandria, LA 485 12/1/95
Asheville, NC 164 8/1/82
Augusta, GA 143 4/24/83
Brunswick, GA 238 6/1/81
Charleston, WV 363 2/1/86
Charlotte, NC 227 4/1/91
Chattanooga, TN 106 6/1/91
Columbus, GA 83 6/27/79
Columbus, MS 241 12/15/84
Dothan, AL 171 10/31/82
Evansville, IN 350 6/1/89
Fayetteville, NC 331 11/1/85
Florence, SC 273 9/11/92
Fort Walton Beach, FL 250 11/15/82
Gainesville, FL 300 10/1/85
Greensboro/High-Point/
Winston-Salem, NC 306 6/1/91
Greenville/Spartanburg, SC 153 4/25/82
Gulfport/Biloxi, MS 352 3/2/91
</TABLE>
3
<PAGE> 8
<TABLE>
<CAPTION>
ATLANTA HUB
Air Mileage Date Service
Airport Served From Atlanta Hub Commenced
- - ---------------------------------------------------------------------------
<S> <C> <C>
Jackson, MS 341 4/4/93
Jacksonville, NC 399 12/15/92
Lafayette, LA 503 12/1/95
Lexington, KY 303 12/15/90
Louisville, KY 321 4/4/93
Lynchburg, VA 389 7/1/94
Macon, GA 79 3/20/80
Meridian, MS 267 11/1/84
Montgomery, AL 147 6/1/82
Myrtle Beach, SC 317 9/1/86
Panama City, FL 247 3/1/84
Pensacola, FL 272 4/1/91
Roanoke, VA 357 12/15/85
Tallahassee, FL 223 12/15/85
Tri-Cities, TN 227 10/31/82
Valdosta, GA 208 9/9/81
Wilmington, NC 377 9/17/90
</TABLE>
<TABLE>
<CAPTION>
DALLAS/FORT WORTH HUB
Air Mileage From Date Service
Airport Served Dallas/Fort Worth Hub Commenced
- - ------------------------------------------------------------------------------
<S> <C> <C>
Alexandria, LA 297 10/1/87
Amarillo, TX 313 7/1/93
Beaumont/Port Arthur, TX 270 2/1/87
Columbus, MS 491 12/1/95
Corpus Christi, TX 354 6/1/93
Fayetteville, AR 270 12/15/86
Fort Smith, AR 227 12/15/86
Houston, TX (Intercontinental) 224 10/1/93
Houston, TX (Hobby) 247 5/1/94
Killeen, TX 130 5/1/87
Lafayette, LA 351 12/15/87
Lawton, OK 140 2/1/87
Lubbock, TX 282 7/1/93
Meridian, MS 485 12/1/95
Monroe, LA 293 9/12/94
Oklahoma City, OK 175 7/1/93
San Antonio, TX 247 10/1/93
Shreveport, LA 190 12/1/95
Texarkana, AR 181 12/15/86
</TABLE>
4
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<TABLE>
<CAPTION>
DALLAS/FORT WORTH HUB
Air Mileage From Date Service
Airport Served Dallas/Fort Worth Hub Commenced
- - ------------------------------------------------------------------------------
<S> <C> <C>
Tulsa, OK 237 6/1/93
Wichita, KS 328 7/1/93
Wichita Falls, TX 113 12/15/86
</TABLE>
ASA provides service on all of its routes every weekday with reduced
service on weekends.
Fares
ASA derives its revenues primarily from local fares and through fares.
Local fares are those fares for one way and round trips that are not combined
with the fare of another air carrier. Through fares are fares for transportation
provided jointly by ASA and another carrier and are normally less than the sum
of the fares that would otherwise be charged by each carrier for that portion of
the total trip provided by it.
ASA operates as a Delta Connection carrier pursuant to a marketing
program with Delta. See "DELTA CONNECTION" herein. In addition to the Delta
Connection Agreement, ASA is a party to interline passenger, reservation,
ticketing and baggage agreements with each of the other major air carriers with
which ASA transacts any significant amount of business. These agreements permit
each carrier to reserve seats and sell tickets for flights on the other
contracting carrier, provide that each carrier will honor ticket forms of the
other carriers and provide for an interline baggage exchange system at airport
terminals.
ASA distributes revenues derived from through fares among the
participating air carriers using various proration formulas. The most widely
used method of settlement involves a straight rate prorate division, unless the
carriers enter into agreements providing otherwise. The various pricing
structures are generally presented in the Airline Tariff Publishing Company's
electronic tariff, Passenger Interline Pricing Prorate System (PIPPS).
Air carriers are permitted to set domestic ticket prices without
governmental regulation. See "REGULATION" herein. As a result, the industry
generally is subject to substantial price competition. See "COMPETITION AND
INDUSTRY CONSIDERATIONS" herein.
The aviation trust fund tax, a 10% federal excise tax on tickets sold,
expired effective January 1, 1996, was reinstated effective August 27, 1996,
expired again effective January 1, 1997, and was reinstated again effective
March 7, 1997. In addition, legislation that was effective in 1992 allows public
airports to impose passenger facility charges of up to $3.00 per departing or
connecting
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passenger. Price competition may have an impact on ASA's ability to pass these
charges on to its customers. See "COMPETITION AND INDUSTRY CONSIDERATIONS"
herein.
Flight Equipment
As of March 3, 1997, ASA's operating fleet consisted of 75 turboprop
airplanes, 12 of which seat 66 passengers and the remaining 63 of which seat 30
passengers, and 5 jets which seat 88 passengers each. The age of this fleet
ranged from 3 to 12 years. The following table describes ASA's current operating
fleet as of March 3, 1997:
<TABLE>
<CAPTION>
Number of Number of
Aircraft Aircraft
Aircraft Type Owned Leased Average Age
- - ---------------------------------------------------------- --------------------- ----------------------
<S> <C> <C> <C>
ATR-72 Turboprop
(66 passenger capacity) 4 8 3.2 years
Embraer Brasilia Turboprop (EMB-120)
(30 passenger capacity) 59 4 7.8 years
BAe 146-200 Jet - 5 9.5 years
(88 passenger capacity)
</TABLE>
ASA's Embraer Brasilia EMB-120 turboprop aircraft ("BRASILIAS") operate
on mainly medium to long-haul routes from the Atlanta and Dallas/Fort Worth
hubs. ASA's Brasilias are very fuel efficient and, because of their operating
economy, can provide high frequency service in markets with relatively low
volumes of passenger traffic. These aircraft are powered by two Pratt & Whitney
turboprop engines and accommodate 30 passengers. ASA leases four of the
Brasilias pursuant to operating leases. Two leases expire in December 1998, one
will expire in June 1999 and one will expire in December 1999.
As of March 3, 1997, ASA operated three ATR-72 turboprop aircraft
("ATRs") from the Dallas/Fort Worth hub and nine ATRs from the Atlanta hub. ASA
expects to allocate all 12 ATRs to the Atlanta hub after May 1, 1997. ASA has
used the ATRs to replace smaller aircraft and increase capacity in existing
markets where the volumes are higher than can economically be handled by the
Brasilias. The ATRs are 66-passenger aircraft, powered by two Pratt & Whitney
turboprop engines, and are built by Avions de Transport Regional, a joint
enterprise involving Alenia-Aeritalia & Selenia S.P.A., an Italian aircraft
manufacturer, and Aerospatiale Societe Nationale Industrielle, a French aircraft
manufacturer. ASA leases eight ATRs pursuant to a lease with a seven-year term.
ASA also owns four ATRs, the majority of the purchase price of which was
provided by bank financing. ASA has an option to acquire 16 additional ATRs.
ASA operates five British Aerospace BAe 146-200 jets ("BAe JETS"). The
BAe Jets are each powered by four Allied Signal high by-pass jet engines. The
BAe Jets feature very low noise levels, a wide passenger aisle, ample overhead
storage and five-abreast seating. The Federal Aviation
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Administration ("FAA") certified BAe Jets to operate with a maximum capacity of
108 passengers. ASA is operating the BAe Jets in an 88-passenger configuration
to provide more spacious seating for its passengers. ASA uses the BAe Jets where
volume requirements necessitate the use of that size aircraft. Four BAe Jets
were added to ASA's flight schedule in December 1995 and a fifth BAe Jet was
added on February 1, 1996. ASA used the BAe Jets to expand service from the
Atlanta hub to Panama City and Fort Walton Beach, Florida; Tri-Cities and
Chattanooga, Tennessee; Asheville, North Carolina; Myrtle Beach, South Carolina
and Gulfport, Mississippi. ASA replaced Delta's jet service in all of these
markets except Fort Walton Beach, Myrtle Beach and Gulfport. ASA acquired each
of these five previously-operated BAe Jets under an operating lease for a term
of five years (which can be terminated after two years at ASA's option). Four of
the leases are scheduled to expire in December 2000 and the fifth lease is
scheduled to expire in February 2001. ASA has the option to extend each of these
leases, upon terms to be decided, within 12 months of the expiration of the
original lease term. ASA has options to lease up to 15 additional BAe Jets.
On January 7, 1997, ASA announced its intentions to acquire 30 Canadair
Regional Jet aircraft ("CRJs") and to secure options to acquire up to an
additional 60 CRJs, subject to the effectiveness of a definitive acquisition
agreement with Bombardier, Inc., a definitive financing commitment with the
Export Development Corporation of Canada and a definitive agreement with
General Electric Company with respect to the acquisition of the Model CF34-3B1
engines and related spare parts. ASA expects to begin taking delivery
of the 50-passenger CRJs during the second half of 1997 at the rate of one
aircraft per month. ASA estimates that the cost of the first 30 CRJs, including
spare parts, will be approximately $600 million. ASA plans to use the new CRJs
primarily for growth in new long-haul markets as well as to replace some
turboprop aircraft on existing routes from its Atlanta hub. The CRJs are more
effective than the BAe Jets over long-haul routes because the CRJs are faster.
ASA has pledged 48 of the Brasilias it owns and all four of the ATRs it
owns, as well as a significant portion of its spare parts, to secure long-term
indebtedness of ASA.
Personnel and Operations
ASA's employees perform substantially all phases of ASA's operations,
including ticketing, maintenance, ground and in-flight service and training. As
of March 3, 1997, ASA had approximately 2,433 employees, of which 1,064 were
flight personnel, 956 were ground service personnel, 306 were maintenance
personnel and the remainder were management, supervisory and clerical employees.
As of March 3, 1997, ASA Holdings had three employees, all of whom provide
management services for ASA Holdings' subsidiaries, and ASA Investments had two
employees, both of whom were management employees.
During 1987, the Airline Pilots Association ("ALPA") was certified to
represent ASA's pilots. ASA and ALPA negotiated a three-year collective
bargaining agreement which was effective from October 1992 through October 1995.
In September 1988, ASA's flight attendants voted to join the Association of
Flight Attendants ("AFA"). ASA and AFA entered into a three year collective
bargaining agreement which was effective in June 1991. In June 1994, ASA and AFA
executed a letter of agreement which extended this collective bargaining
agreement until June 1995. Pursuant
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to applicable regulations, the collective bargaining agreements with both of
these unions became amendable in 1995 and are currently being renegotiated. ASA
has been negotiating under federal mediation with ALPA and AFA for approximately
one year. See "REGULATION-LABOR REGULATION" herein. There are no union
affiliations with any other groups of ASA's, ASA Holdings' or ASA Investments'
employees.
ASA operates as a Delta Connection carrier pursuant to a marketing
program with Delta. See "DELTA CONNECTION" herein. ASA is also a party to
interline passenger, reservation, ticketing and baggage agreements with each of
the other major air carriers with which ASA transacts any significant amount of
business. See "FARES" herein.
In addition to carrying passengers, ASA carries mail, freight and small
packages on its flights.
Maintenance
ASA is subject to the jurisdiction of and regulation by the FAA with
respect to ASA's maintenance and operations. See "REGULATION" herein. ASA's
aircraft and engines are maintained in accordance with the standards and
procedures recommended and approved by the manufacturers and the FAA.
ASA provides maintenance for its aircraft using its own personnel,
facilities and parts. ASA employs personnel with appropriate FAA Airframe and
Powerplant licenses to ensure adequate maintenance of its aircraft. ASA employs
major outside repair agencies to perform its engine overhauls, most individual
component repairs or overhauls, and some major checks on certain aircraft types.
ASA's FAA-approved maintenance program specifies the number of days,
hours or operating cycles between inspections and overhauls of the airframes and
their component parts. The nature and extent of each inspection and overhaul is
specifically prescribed by the approved maintenance program. ASA uses an FAA
approved alternative for overhauls on each of its three engine types: Pratt &
Whitney PW118 engines on the Brasilias, Pratt & Whitney PW127 engines on the
ATRs, and Allied Signal ALF502R-5 engines on the BAe Jets. "On condition" engine
overhaul intervals are set by engine condition monitoring and continuous
airworthiness maintenance programs. In addition, all engines contain
time-limited components, each of which has a maximum amount of time (measured by
operating hours) or a maximum number of operating cycles (measured by takeoffs
and landings) after which the component must be removed from the engine assembly
and overhauled or scrapped.
From time to time, the FAA issues airworthiness directives ("ADs") and
other regulations relating to, among other things, retirement of older aircraft,
collision avoidance systems, airborne windshear avoidance systems, noise
abatement, aircraft safety and increased inspections and maintenance procedures.
Some of these ADs require air carriers to undertake inspections and to make
unscheduled modifications and improvements on aircraft, engines and related
components and parts. The ADs sometimes cause ASA to incur substantial,
unplanned expense and, occasionally,
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aircraft or engines must be removed from service prematurely in order to undergo
mandated inspections or modifications on an accelerated basis.
Since 1988 various air carriers, in cooperation with the FAA, have been
engaged in an in-depth review of the adequacy of existing maintenance procedures
applicable to older versions of most of the aircraft types in general use in the
industry. To date, this review has not included aircraft used by ASA. While
certain of these potential aging aircraft ADs may, at some time in the future,
necessitate unscheduled removals from service and increased maintenance costs,
ASA does not anticipate that its compliance will have a material adverse impact
on costs or operations.
Aviation Fuel
ASA's operations are significantly affected by the availability and
price of aviation fuel. Fuel costs, including taxes and "into plane" fees,
constituted 11.54% of ASA's operating costs in 1996. Based on ASA's fiscal 1996
fuel consumption, every $0.01 change in the average annual price per gallon of
aviation fuel caused an approximate $435,000 change in ASA's annual fuel
expense. The following table shows ASA's fuel consumption and costs for fiscal
years 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Average Price Percent of
Fiscal Year Gallons Consumed Cost Per Gallon Operating Expense
----------- ---------------- ---- ---------- -----------------
<C> <C> <C> <C> <C>
1996 43,357,461 $33,479,356 $0.77 11.54%
1995 38,872,025 $24,075,274 $0.62 9.52%
1994 38,151,901 $23,533,851 $0.62 10.33%
</TABLE>
Aircraft fuel expense increased 39.1% in 1996 compared with 1995,
primarily because the average fuel price per gallon increased 24.2% to $0.77
cents per gallon and gasoline consumption increased 11.5%. This fuel price
increase reduced net income by $4.1 million, or $0.13 per share, for 1996. See
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" herein.
Changes in aviation fuel prices have an industry wide impact and will
tend to affect ASA's competitors in the same manner as ASA. There can be no
assurance that ASA will be able to increase its fares in response to any future
increases in fuel prices. See "COMPETITION AND INDUSTRY CONSIDERATIONS" herein.
ASA currently obtains approximately 51% of its fuel requirements from
Chevron USA, Inc. at the Atlanta hub and approximately 24% of its fuel
requirements from fuel suppliers at the Dallas/Fort Worth hub. ASA obtains the
rest of its fuel requirements from various suppliers at other airports.
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ASA's fuel contracts do not provide protection against price increases
or for assured availability of supplies. Although ASA is currently able to
obtain adequate supplies of fuel, it is impossible to predict the future
availability or price of fuel. Political disruptions involving the oil producing
countries, changes in government policy concerning aircraft fuel production,
transportation or marketing, changes in aircraft fuel production capacity,
environmental concerns and other unpredictable events may result in fuel supply
shortages and fuel price increases in the future. ASA's business could be
significantly adversely affected by such shortages and price increases.
The Omnibus Budget Reconciliation Act of 1993 imposed a 4.3 cent per
gallon tax on commercial aviation fuel purchased for use in domestic operations.
Air carriers were exempt from this tax until October 1995. While additional
exemptions have been proposed, there can be no assurance that ASA will not
continue to be required to pay this tax.
Marketing
ASA markets its passenger, air freight and small package services
primarily through direct sales activity and cooperative advertising programs.
The direct sales activity focuses on high-volume sources of business, such as
travel agencies and ticketing outlets located on major military installations.
Since 1984, ASA has operated from the Atlanta and Dallas/Fort Worth
hubs as a Delta Connection carrier pursuant to a marketing agreement with Delta.
See "DELTA CONNECTION" herein. Cooperative advertising programs with Delta, such
as Delta's frequent flyer program and Delta Dream Vacations, are used to promote
ASA's flights to the Atlanta and Dallas/Fort Worth hubs, and Delta's services
from Atlanta and Dallas/Fort Worth to various long-haul destinations.
ASA's passengers accrue mileage in Delta's frequent flyer program,
which offers incentives to maximize travel on flights offered by Delta and Delta
Connection carriers. This program allows participants to accrue mileage for
award travel while flying on Delta, Delta Connection carriers and other
participating air carriers. Mileage credits may also be accrued for the use of
certain services offered by program partners such as hotels, car rental agencies
and credit card companies. Mileage vouchers can be redeemed for free or upgraded
travel on Delta, Delta Connection carriers and other participating air carriers
and for other program partner awards. Delta has reserved the right to terminate
the frequent flyer program with six months advance notice and to change the
program's terms and conditions at any time without notice.
ASA does not accrue for incremental costs associated with the Delta
frequent flyer program's mileage accumulation because the impact is immaterial
both on a quarterly and annual basis. ASA's management believes that the low
percentage of free passenger miles, its load factor and the restrictions applied
to free travel awards minimize the displacement of revenue passengers and that
the displacement that occurs is not significant. ASA expenses, as incurred, all
incremental costs of providing earned free travel awards under Delta's frequent
flyer program. ASA makes payments to Delta for Delta frequent flyer mileage
earned by passengers flying on ASA's routes where those passengers do not
connect to Delta flights. ASA does not receive any payments related to providing
carriage to passengers utilizing frequent flyer mileage earned on Delta flights.
10
<PAGE> 15
Competition and Industry Considerations
Management of ASA believes that its services are utilized primarily by
business, government and military travelers. ASA competes primarily with other
air carriers and, particularly with respect to its shorter flights, with ground
transportation such as automobiles and buses.
Delta provides air service from the Atlanta hub to approximately 31% of
the airports served by ASA out of Atlanta. Under the Delta Connection program,
ASA's flights are coordinated for timely connections with Delta. The flights
provided by Delta and ASA to the same markets are at different times. ASA
generally provides service to these markets at times when ASA can more
efficiently serve the market. Other air carriers provide service to
approximately 11% of ASA's airports from the Atlanta hub.
ASA competes primarily with American/American Eagle at the Dallas/Fort
Worth hub. Other air carriers provide service to approximately 86% of ASA's
airports from the Dallas/Fort Worth hub.
The airline industry historically has been highly competitive. ASA's
management believes that its ability to compete with ground transportation and
other air carriers depends upon the public acceptability of its aircraft and
ASA's provision of convenient, frequent and reliable service to its markets at
reasonable rates.
Air carriers' profit levels are highly sensitive to, and during recent
years have been severely impacted by, changes in fuel costs, fare levels and
passenger demand. Passenger demand and fares can be affected by, among other
things, the general state of the economy, international events and actions taken
by other air carriers with respect to fares. See also "ECONOMY" and
"SEASONALITY" below.
Air carriers are permitted to set domestic ticket prices without
governmental regulation. As a result, the industry generally is subject to
substantial price competition. ASA has in the past both responded to discounting
actions taken by other carriers and initiated discounting actions itself. ASA's
management expects that low-fare competition is likely to continue from time to
time in its markets. If price reductions are not offset by increases in revenue
passenger miles, ASA's operating results could be adversely affected.
Economy
The airline industry is a highly volatile industry. The state of the
economy is the primary determinant of the level of passenger travel. Leisure
travel is highly discretionary and can easily be postponed during economic
down-turns or no growth economic periods. While business travel is not as
discretionary, business travel generally diminishes in uncertain times as
business tends to tighten cost controls.
11
<PAGE> 16
Seasonality
ASA's operations at the Atlanta and Dallas/Fort Worth hubs are
primarily dependent upon business, government and military related travel and
are not subject to wide seasonal variations. However, some seasonal decline in
business travel does occur at these hubs during holiday periods and during
portions of the winter months (i.e., January and February). ASA estimates that
pleasure travel accounted for approximately 20% of ASA's passengers during
1996. Pleasure travel generally increases during the summer months and at
holiday periods. Demand for air travel, especially by pleasure and other
discretionary customers, is also affected by factors such as favorable economic
conditions and fare levels. See "FARES" and "ECONOMY" herein. ASA's operations
are also unfavorably affected by inclement weather which results in cancelled
flights, particularly during winter months.
The following chart indicates the number of passengers carried by ASA
by quarter during its last three fiscal years:
<TABLE>
<CAPTION>
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- - ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996 836,902 985,747 931,812 877,660
1995 680,871 808,338 789,681 788,007
1994 714,953 800,161 819,311 785,869
</TABLE>
Regulation
Historically, the U. S. Department of Transportation (the "DOT") and
the FAA have exercised regulatory authority over the operations of all air
carriers pursuant to the Federal Aviation Act of 1958, as amended (the "1958
ACT"). Most domestic economic regulation of passenger and freight services was
eliminated pursuant to the Airline Regulation Act of 1978 and other legislation
amending the 1958 Act (collectively the "ACT"). The FAA's jurisdiction extends
primarily to the safety and operational provisions of the Act. The DOT's
responsibility primarily involves regulation of the economic and consumer
protection aspects of airline operation.
Both the DOT and the FAA have authority to institute administrative and
judicial proceedings to enforce federal aviation laws and their own regulations,
rules and orders. Both civil and criminal sanctions may be assessed for
violations.
ASA is also subject to various other federal, state and local laws and
regulations affecting its operations. The United States Postal Service has
authority over certain aspects of the transportation of mail. The Communications
Act of 1934, as amended, governs ASA's use and operation of radio facilities.
Labor relations are generally governed by the Railway Labor Act. Environmental
matters (including noise pollution) are governed by various federal, state and
local governmental entities. The United States Department of Justice has
jurisdiction over mergers and acquisitions involving air carriers. Because it
carries military passengers, ASA is also subject to review by the Department of
Defense.
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<PAGE> 17
DOT REGULATION. Because of the economic deregulation of the airline
industry, unrestricted authority to operate domestic air transportation
(including the carrying of passengers and cargo) is available to any air carrier
the DOT determines is "fit" to operate. The DOT also has jurisdiction over
economic and consumer protection matters such as advertising, denied boarding
compensation, baggage handling, smoking aboard aircraft, handicapped access,
computer reservation systems, enforcement of minimum standards of customer
service, regulation of federal compensation payments for essential air service,
and ownership and control of air carriers. The DOT is also authorized to
prohibit unjust discrimination and to require periodic reports from air
carriers. The DOT has authorized ASA's flight operations pursuant to a
Certificate of Public Convenience and Necessity (a "401 CERTIFICATE") issued
under Part 401 of the Act during the first quarter of 1993. The 401 Certificate
requires ASA to maintain DOT-prescribed minimum levels of insurance and to
comply with all applicable statutes, rules and regulations, and subjects ASA to
expanded reporting requirements. The DOT must issue a 401 Certificate to an air
carrier before it will be permitted to operate aircraft with more than 60 seats.
ASA initiated the use of larger aircraft having more than 60 seats during the
second quarter of 1993. Prior to receiving the 401 Certificate, ASA qualified as
a commuter air carrier that was exempt from certain provisions of the Act and
certain regulatory functions of the DOT.
On December 20, 1995, a new federal regulation was issued by the FAA
which requires all air carriers to accomplish the following by March 20, 1997
(earlier in certain instances): (a) establish a director of safety, and (b) for
those air carriers operating aircraft under Part 135 of the Act (30 seats or
less), re-certify their operation of those aircraft in accordance with Part 121
of the Act. Prior to March 20, 1997, Part 135 carriers did not have to dispatch
all their aircraft or train their pilots to the higher Part 121 standards.
Beginning in 1982, ASA operated as both a Part 135 and a Part 121 carrier
because it operated aircraft in both categories. ASA began training all of its
pilots under Part 121 in 1993, although it was not required to do so. ASA was
certified to operate the Brasilias under Part 121 on March 18, 1997. ASA
does not anticipate incurring any significant costs in complying with this new
regulation.
Under the Act, the DOT has the authority to designate ASA as an
"essential air carrier" in any community in which it is the only carrier
providing service and that is an "essential air service community." Except for
such "essential air carrier" service, the economic deregulation of the airline
industry permits unrestricted competition with respect to ASA's routes,
services, fares and rates. An air carrier that serves an "essential air service
community" is required to give advance notice to the DOT if it plans to
terminate service to that community. Otherwise, air carriers may terminate
service to a community without restriction. ASA is currently the only air
carrier that provides service between the Atlanta hub and the following
"essential air service communities": Albany, Brunswick, Columbus, Macon and
Valdosta, Georgia; Columbus, Gulfport and Meridian, Mississippi; Asheville,
North Carolina; Dothan, Alabama; Fort Walton Beach and Panama City, Florida. The
service provided by ASA to these "essential air service communities" is on an
unsubsidized basis.
FAA REGULATION. As part of its safety and operational regulatory
authority, the FAA regulates flying operations generally, including, among other
things, control of navigable air space; airport access; aircraft certification
and maintenance; equipment and ground facilities; flight operations dispatch and
other communications; weather observation; the training and qualifications
13
<PAGE> 18
of flight, maintenance and other operational and technical personnel; record
keeping and other matters affecting air safety generally.
To ensure compliance with its regulations, the FAA requires air
carriers to obtain operating, airworthiness and other certificates that are
subject to suspension or revocation for cause. ASA holds a valid air carrier
operating certificate issued by the FAA. ASA's certificates have never been
suspended and, to the knowledge of ASA's management, it is in compliance with
all applicable FAA regulations.
LABOR REGULATION. The Railway Labor Act ("RLA") governs the labor
relations of employers and employees in the airline industry. Comprehensive
provisions are set forth in the RLA establishing the right of the airline
employees to organize and bargain collectively along craft or class lines and
imposing a duty upon the air carriers and their employees to make reasonable
efforts to maintain collective bargaining agreements. The RLA provides that
collective bargaining agreements do not terminate, but instead become amendable
at a particular date and stay in force while a new collective bargaining
agreement is being negotiated. The RLA also contains detailed procedures
regarding negotiation, mediation and arbitration that must be exhausted before
lawful work stoppages can occur once a collective bargaining agreement becomes
amendable. Pursuant to the RLA, ASA has collective bargaining agreements with
two unions representing its pilots and flight attendants.
See "PERSONNEL AND OPERATIONS" herein.
ENVIRONMENTAL REGULATION. The United States Environmental Protection
Agency (the "EPA") is authorized to regulate aircraft emissions. ASA's
management believes that the engines on ASA's current aircraft and on all
aircraft ASA has ordered comply with applicable EPA standards.
Federal and state environmental laws require that underground storage
tanks be upgraded to new construction standards and equipped with leak
detection. These requirements were phased into effect based on the age,
construction and use of existing tanks. Federal and state environmental laws
also govern the use and operation of above ground storage tanks. ASA operates no
underground or above ground storage tanks for the storage of fuels. ASA pays
fixed base operators at various airports to store fuels. ASA's management
believes it is otherwise in compliance with these laws.
NOISE REGULATIONS. The FAA requires air carriers to comply with certain
noise restrictions concerning their aircraft. Air carriers must bring existing
aircraft into compliance with these regulations by retrofit or engine
replacement. ASA's current aircraft and all aircraft ASA has ordered are in
compliance with these regulations. In addition, several state legislatures and
other governmental administrative bodies have, from time to time, considered
noise reduction measures of various sorts. At the present time, ASA does not
provide service to any airport to which any such noise regulations apply.
14
<PAGE> 19
Insurance
For the fiscal year ended December 31, 1996 ASA maintained insurance
coverage with major insurance carriers with coverage up to $25 million for
damage per aircraft and $300 million of third party liability per occurrence
(for personal injury and property damage, including baggage and cargo
liability). The per aircraft deductibles range from $25,000 to $500,000
depending on the type of aircraft. In addition, ASA carries Hull War Risk
coverage on certain aircraft where ASA believes, based on information currently
available to it, such insurance is necessary to protect it and its property
against material loss. ASA's also maintains workers compensation insurance in
compliance with state law in each state in which ASA operates. ASA does not
maintain business interruption insurance.
In the opinion of its management, the Company maintains insurance
policies of types customary in the airline industry and in amounts and with
insurance carriers it believes, based on information currently available to it,
are adequate to protect it and its property against material loss. There can be
no assurance, however, that the amount of insurance carried by the Company will
be sufficient to protect it from material loss.
Extraordinary Events
On August 21, 1995, ASA suffered a tragic loss when one of its flights
crashed. The propeller manufacturer (through its insurer) has agreed to address
all claims arising from this accident without acknowledging fault. Accordingly,
ASA's management does not believe that ASA has any liability in this matter,
based on factual information currently available to it. Therefore, ASA has not
accrued a liability for potential claims. On November 26, 1996, the National
Transportation Safety Board (the "NTSB") released the results of their
investigation of the crash. See "LEGAL PROCEEDINGS" herein. See also
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" herein.
Executive Officers
The following information is furnished with respect to the executive
officers of ASA Holdings as of March 3, 1997:
<TABLE>
<CAPTION>
Executive Officer
Executive Officers Age Since (1)
- - ------------------ --- ---------
<S> <C> <C>
George F. Pickett 55 1979
John W. Beiser 56 1979
Ronald V. Sapp 52 1985
R. Mark Bole 38 1997
</TABLE>
(1) If years prior to 1997 are included, tenure in this position with ASA
prior to the Reorganization is included.
15
<PAGE> 20
George F. Pickett is ASA Holdings' and ASA's Chairman of the Board and
Chief Executive Officer and a member of the Board of Directors of both
companies. He has served as Chairman of the Board and Chief Executive Officer of
ASA since February 1994 and of ASA Holdings since its inception in September
1996. Since ASA's inception in 1979 and until February 1994, he served as ASA's
President and Chief Executive Officer. Mr. Pickett has been a member of the
Board of Directors of both ASA and ASA Holdings since their respective
inception.
John W. Beiser is ASA Holdings' and ASA's President and a member of the
Board of Directors of both companies. He has served as President of ASA since
February 1994 and of ASA Holdings since its inception. He has served as
Secretary of both companies since their respective inception. In addition, Mr.
Beiser was ASA's Vice President from its inception until 1985 when he was
designated as ASA's Senior Vice President-Sales and Services. Mr. Beiser has
been a member of the Board of Directors of ASA since 1982 and of ASA Holdings
since its inception.
Ronald V. Sapp is ASA Holdings' and ASA's Vice President-Finance and
Chief Financial Officer. Mr. Sapp has been Vice President-Finance and Chief
Financial Officer for ASA since 1985 and for ASA Holdings since the
Reorganization was effective. He served as ASA's Treasurer from 1985 until
February 1997 and as ASA Holdings' Treasurer between September 1996 and February
1997. From 1983 to 1985, Mr. Sapp served as Vice President-Finance and Treasurer
of Air Atlanta, Inc., a scheduled passenger airline. From 1979 to 1983, Mr. Sapp
served as Vice President and Controller of Air California, Inc., a scheduled
passenger airline.
R. Mark Bole was named ASA Holdings' and ASA's Assistant Vice
President-Treasurer in February 1997. He was ASA's Assistant Vice
President-Assistant Treasurer from February 1996 until February 1997 and held
the same positions with ASA Holdings from the effective date of the
Reorganization until February 1997. Mr. Bole served as a Vice President of
Wachovia Bank of Georgia, N.A., from May 1991 until February 1996.
ITEM 2. PROPERTIES
ASA has entered into agreements with other air carriers to provide
ground handling services (either directly or through outside vendors) to ASA in
20 of the cities it serves. In addition, ASA performs ground handling services
for other air carriers at six airports. ASA maintains ticketing, gate and
baggage claim facilities at each of the other airports it serves pursuant to
direct leases or use agreements with local airport authorities or other
carriers. ASA leases its apron, gate, ticketing and baggage claim facilities at
the Dallas/Fort Worth hub from Delta pursuant to a Ground Service Agreement. At
12 airports, ASA operates under month-to-month use agreements. ASA is currently
negotiating 13 other leases that have expired. ASA is operating month to month
at these airports. The leases or use agreements at the remaining airports have
remaining terms generally ranging from one month to 14 years.
16
<PAGE> 21
Substantially all the maintenance and repairs on ASA's aircraft
operating from the Atlanta hub (except for major engine, propeller and component
overhauls) are performed at ASA's 79,000 square foot hangar and maintenance
facility in Macon, Georgia. ASA leases the hangar facilities pursuant to a
30-year lease with renewal options until the year 2028.
ASA also maintains a limited inventory of spare parts and has
maintenance personnel at the Atlanta hub in a facility located near ASA's ramp
and gate space that is leased from The City of Atlanta.
ASA leases a maintenance facility in Texarkana, Arkansas. Substantially
all the maintenance and repairs on ASA's aircraft operating from the Dallas/Fort
Worth hub are performed at this facility. In addition, ASA maintains a limited
inventory of spare parts and has maintenance personnel at the Dallas/Fort Worth
hub.
During 1996, ASA relocated all of its operations to 15 gates on
Concourse C North at the Atlanta hub. The relocation has significantly enhanced
the convenience of connections between flights operated by ASA and Delta in
Atlanta.
ASA Holdings and ASA maintain their principal offices and ASA's
training center in approximately 38,000 square feet of office space at
100 Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia, under a lease
expiring in 1999.
ASA's operations control center, located at its principal offices in
Atlanta, provides weather information, fuel information, weight limitations,
routing instructions and other information to ASA's pilots.
ITEM 3. LEGAL PROCEEDINGS
Except as described below, there are no material legal proceedings
pending in which the Company is a party or to which any of the Company's
property is subject. In addition, in the opinion of its management, ASA
maintains insurance policies of types customary in the airline industry and in
amounts and with insurance carriers it believes, based on information currently
available to it, are adequate to protect it and its property against material
loss. There can be no assurance, however, that the amount of insurance carried
by the Company will be sufficient to protect it from material loss.
On August 21, 1995, ASA suffered a tragic loss when one of its flights
crashed. There were 26 passengers and three crew members on board that flight.
Of those individuals, there were nine fatalities (including one crew member), 12
individuals either were not hospitalized or were released the day after the
crash with minor injuries and eight individuals were more seriously injured. No
one
17
<PAGE> 22
was injured or killed on the ground. The crash also caused minor damage
to a few trees adjacent to the pasture in which the plane came to rest. ASA had
the crash site cleaned in accordance with the EPA's guidelines and regulations.
ASA has received insurance proceeds from its insurance company related to the
hull value of the aircraft and the debt related to this aircraft was paid with
part of these insurance proceeds. A number of claims and lawsuits have been
filed in connection with this matter. The propeller manufacturer (through its
insurer) has agreed to address all claims arising from this accident without
acknowledging fault. Accordingly, the Company's management does not believe
that the Company has any liability in this matter, based on factual information
currently available to it. Therefore, ASA has not accrued a liability for
potential claims. Neither the propeller manufacturer nor its insurer has
entered into any written indemnity agreement with ASA or its insurer and
neither is legally obligated to indemnify either ASA or its insurer for
expenses actually incurred in connection with the crash. In addition, ASA
maintains insurance coverage which it believes, based on factual information
currently available to it, is sufficient to cover claims associated with this
incident if ASA were found to be at fault.
On November 26, 1996, the NTSB released the results of their
investigation of the crash. The NTSB concluded that the probable cause of the
accident was the in-flight fatigue fracture and separation of a propeller blade
that resulted in excessive drag, loss of wing lift and reduced directional
control of the aircraft. The NTSB further concluded that the fracture in the
propeller blade was caused by a fatigue crack resulting from multiple corrosion
pits that were not discovered by the propeller manufacturer because of its
inadequate and ineffective corporate inspection and repair techniques, training,
documentation and communication. The NTSB also determined that factors
contributing to the accident included failure of the propeller manufacturer and
the FAA to require recurrent on-wing ultrasonic inspections for the affected
propellers. Finally, the NTSB concluded that (a) the flight crew was trained,
certified and qualified to conduct the flight, (b) the flight crew was in good
health and held the proper FAA medical certificates, (c) there was no evidence
that the performance of any crew member was impaired by alcohol, drugs or
fatigue, (d) the flight was conducted in accordance with applicable FAA
regulations and company requirements and (e) ASA maintained the aircraft in
accordance with applicable FAA regulations and company operations
specifications.
After the results of the NTSB investigation were announced, ASA was
dismissed from all existing lawsuits with respect to the crash.
See also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" herein.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report the
only matter to be submitted to a vote of security holders of ASA through the
solicitation of proxies or otherwise was at a special meeting of ASA's
shareholders held on December 23, 1996, at which the shareholders voted on a
proposal to consider and approve the Reorganization and to adopt and approve an
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<PAGE> 23
Amended and Restated Agreement and Plan of Merger dated November 6, 1996, by and
among ASA Holdings, ASA and Atlantic Southeast Merging Co., a Georgia
corporation and wholly owned subsidiary of ASA Holdings. See "BUSINESS-GENERAL"
herein. The votes with respect to this proposal were as follows: 20,650,616 for,
570,672 against, 40,671 abstained, and no broker non-votes.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
Holdings Common Stock is traded in The Nasdaq Stock Market's National
Market system under the symbol "ASAI." As of March 3, 1997, there were
approximately 1,087 shareholders of record (approximately 9,600 beneficial
holders) of Holdings Common Stock. As of March 3, 1997, the closing price of
Holdings Common Stock was $22.75.
The transfer agent for Holdings Common Stock is SunTrust Bank, Atlanta.
Prior to the consummation of the Reorganization on December 31, 1996,
ASA Common Stock was traded in The Nasdaq Stock Market's National Market system
under the symbol "ASAI." Set forth below are the reported high and low closing
sales price for ASA Common Stock for the fiscal quarters indicated as reported
by The Nasdaq Stock Market. The quotations reflect actual sales prices without
retail mark-up, mark-down or commissions.
<TABLE>
<CAPTION>
Fiscal year ended December 31, 1996 High Low
- - ----------------------------------- ---- ---
<S> <C> <C>
Quarter Ended March 31, 1996 $28.50 $17.88
Quarter Ended June 30, 1996 $29.38 $22.00
Quarter Ended September 30, 1996 $28.38 $20.25
Quarter Ended December 31, 1996 $25.00 $19.88
Fiscal year ended December 31, 1995 High Low
- - ----------------------------------- ---- ---
Quarter Ended March 31, 1995 $21.00 $15.25
Quarter Ended June 30, 1995 $30.75 $18.00
Quarter Ended September 30, 1995 $34.25 $21.75
Quarter Ended December 31, 1995 $27.88 $20.75
</TABLE>
19
<PAGE> 24
Dividends and Share Repurchases
ASA Holdings' Board of Directors established the quarterly cash
dividend payable on Holdings Common Stock at $.10 per share during the first
quarter of 1997. Prior to the Reorganization, ASA paid cash dividends on ASA
Common Stock totaling $.38 per share during 1996 and $.34 per share during 1995.
The 1997 increase represented the eighth consecutive annual increase in cash
dividends by ASA Holdings or ASA, as appropriate, since dividends were first
paid by ASA in 1989. ASA Holdings expects to continue the payment of quarterly
cash dividends at the rates last approved by its Board of Directors. However,
ASA Holdings' Board of Directors will reconsider the declaration and the amount
of cash dividends periodically, in its sole discretion, and there can be no
assurance as to the declaration or the amount of dividends ASA Holdings will pay
in the future. ASA Holdings' payment of dividends in the future may depend upon
the results of operations and financial condition of the Company and other
factors that ASA Holdings' Board of Directors deems relevant.
Prior to the Reorganization, ASA entered into credit agreements in
connection with the acquisition of aircraft (some of which financings
do not mature until 2006). Certain of these credit agreements included
restrictive covenants that limited the payment of cash dividends and the
repurchase of ASA Common Stock by ASA. These agreements were amended prior to
the Reorganization. Included in these amendments were provisions that removed
such limitations on the transfer of funds by ASA in the form of cash dividends,
loans or advances except to the extent that such transfers would otherwise
cause ASA to breach other financial covenants. During the first three quarters
of 1996, and in 1995 and 1994, ASA paid dividends of $8.9 million, $11.2
million, and $10.9 million, respectively, on ASA Common Stock and acquired
approximately $2.8 million, $3.3 million and $2.8 million, respectively, of ASA
Common Stock without exceeding these previously existing limitations. ASA's
Board of Directors authorized ASA to repurchase on the open market up to $50.0
million of ASA Common Stock at any time during fiscal 1994 and 1995 and up to
an additional $50.0 million of ASA Common Stock during fiscal 1996. These
repurchases were authorized by the Board to be in addition to the repurchases
allowed under the existing credit agreements. Because these repurchase programs
were not within the limitations set forth in the credit agreements, ASA's
lenders consented to the repurchase programs, in advance, as required by the
various credit agreements. Pursuant to these repurchase programs, ASA
repurchased approximately $49.3 million of ASA Common Stock through December
31, 1995, and an additional $34.7 million of ASA Common Stock during 1996. As
of December 31, 1996, ASA had repurchased an aggregate of 4,393,100 shares of
ASA Common Stock within the limitations of the restrictive covenants and
pursuant to the separate repurchase programs. All such repurchased shares of
ASA Common Stock were held as treasury stock. These shares of treasury stock
were cancelled as part of the Reorganization. In January 1997, ASA Holdings
announced that its Board of Directors had authorized a common stock repurchase
program of up to $50.0 million during fiscal 1997. The shares will be held as
treasury stock and will be used for general corporate purposes or cancelled.
Repurchases are subject to market conditions.
ASA Holdings is not subject to any such limitations on the payment of
cash dividends or the repurchase of Holdings Common Stock. ASA Investments is
free of any limitations on the transfer of funds to ASA Holdings in the form of
cash dividends, advances or loans. ASA may make cash dividends, advances or
loans to ASA Holdings except to the extent that any such
20
<PAGE> 25
distributions would otherwise cause ASA to breach the financial covenants in its
credit agreements. At December 31, 1996, approximately $35 million was available
for distribution by ASA under the most restrictive of these provisions.
Immediately after the consummation of the Merger, on December 31, 1996, ASA
effected a dividend of all of the capital stock of ASA Investments to ASA
Holdings as part of the Reorganization. At December 31, 1996, approximately
$129 million of net assets was available for distribution by ASA Investments to
ASA Holdings.
Recent Sales of Unregistered Securities
ASA sold no ASA Common Stock that was not registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT") during the period
beginning January 1, 1994, and ending with the effectiveness of the Merger on
December 31, 1996. ASA Holdings sold no Holdings Common Stock that was not
registered under the Securities Act during the period beginning with the
effectiveness of the Merger and ending March 3, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The financial schedule on the following two pages sets forth certain
selected financial data of the Company for each year since 1987. The information
in this schedule should be read in conjunction with the Company's financial
statements and the notes thereto in the section entitled "FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA" herein and the section entitled "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" herein. All
information contained in this section with respect to periods ending prior to
December 31, 1996, refers collectively to ASA and its subsidiaries, ASA Holdings
and ASA Investments, and with respect to periods ending on December 31, 1996,
refers collectively to ASA Holdings and its subsidiaries, ASA and ASA
Investments.
21
<PAGE> 26
ASA HOLDINGS, INC.
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- -------------- ------------- ------------- -------------
OPERATING FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Passenger revenues $ 367,250 $ 318,360 $ 305,846 $ 283,410 $ 230,980
Other revenues 8,050 10,365 6,244 5,053 4,599
Total Operating Revenues 375,300 328,725 312,090 288,463 235,579
Operating Expenses:
Depreciation, amortization
and obsolescence 27,534 27,695 27,171 24,172 22,046
Other operating expenses 262,614 225,155 200,647 186,671 152,719
Total Operating Expenses 290,148 252,850 227,818 210,843 174,765
Income from Operations 85,152 75,875 84,272 77,620 60,814
Non-Operating (Income) Expense:
Interest income (10,673) (11,998) (7,500) (4,970) (4,829)
Interest expense, net 5,862 7,609 6,199 5,180 6,326
Other (1,144) (510) (47) (12) -
Total Non-Operating (Income) Expense (5,955) (4,899) (1,348) 198 1,497
Income before Taxes and Accounting Change 91,107 80,774 85,620 77,422 59,317
Income Taxes 34,494 29,637 32,964 31,090 22,250
Cumulative Effect of Accounting Change - - - 4,212 -
Net Income $ 56,613 $ 51,137 $ 52,656 $ 50,544 $ 37,067
Net Income per Share * $1.83 $1.55 $1.54 $1.47 $1.09
Weighted Average Shares (000)* 30,991 32,964 34,188 34,395 34,165
Operating Margin 23% 23% 27% 27% 26%
Net Margin 15% 16% 17% 18% 16%
</TABLE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
------------- ------------- ------------- -------------- -------------
OPERATING FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Passenger revenues $ 216,605 $ 184,496 $ 177,348 $ 135,320 $ 116,094
Other revenues 5,311 2,733 2,782 1,824 3,051
Total Operating Revenues 221,916 187,229 180,130 137,144 119,145
Operating Expenses:
Depreciation, amortization
and obsolescence 21,780 19,011 16,304 13,985 9,303
Other operating expenses 147,608 128,352 119,856 103,911 91,198
Total Operating Expenses 169,388 147,363 136,160 117,896 100,501
Income from Operations 52,528 39,866 43,970 19,248 18,644
Non-Operating (Income) Expense:
Interest income (6,015) (7,601) (6,326) (3,484) (3,341)
Interest expense, net 7,013 6,508 5,854 5,302 3,959
Other (66) (31) (94) (1,152) 15
Total Non-Operating (Income) Expense 932 (1,124) (566) 666 633
Income before Taxes and Accounting Change 51,596 40,990 44,536 18,582 18,011
Income Taxes 19,093 15,600 16,924 7,065 6,750
Cumulative Effect of Accounting Change - - - - -
Net Income $ 32,503 $ 25,390 $ 27,612 $ 11,517 $ 11,261
Net Income per Share * $0.95 $0.73 $0.76 $0.31 $0.28
Weighted Average Shares (000)* 34,050 34,938 36,299 37,743 39,943
Operating Margin 24% 21% 24% 14% 16%
Net Margin 15% 14% 15% 8% 9%
</TABLE>
* Adjusted for stock splits on November 26, 1991 and February 18, 1993
22
<PAGE> 27
ASA HOLDINGS, INC.
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- -------------- ------------- ------------- -------------
OTHER FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Working Capital $ 147,719 $ 141,677 $ 140,391 $ 126,975 $ 93,372
Total Assets $ 486,237 $ 512,699 $ 519,684 $ 474,599 $ 430,752
Long-Term Debt, excluding Current Portion $ 94,618 $ 120,210 $ 152,610 $ 135,963 $ 145,804
Total Liabilities $ 226,021 $ 259,844 $ 272,214 $ 249,512 $ 252,013
Shareholders' Equity $ 260,216 $ 252,855 $ 247,470 $ 225,087 $ 178,738
Shareholders' Equity per Share * $8.68 $7.98 $7.45 $6.55 $5.23
Return on Average Shareholders' Equity 22% 20% 22% 25% 23%
Shareholders' Equity to Total Liabilities 1.2:1 1.0:1 .9:1 .9:1 .7:1
Cash Dividends Declared per Share * 38(CENT) 34(cent) 32(cent) 28(cent) 24(cent)
Long-Term Debt to Shareholders' Equity .4:1 .5:1 .6:1 .6:1 .8:1
Shares Outstanding at End of Year (000) * 29,994 31,704 33,224 34,340 34,180
STATISTICAL DATA
Revenue Passengers Carried (000) 3,632 3,067 3,120 2,661 2,417
Revenue Passenger Miles (000,000) 874 763 780 641 547
Available Seat Miles (000,000) 1,781 1,688 1,654 1,367 1,077
Yield per Revenue Passenger Mile 42.0(CENT) 41.7(cent) 39.2(cent) 44.2(cent) 42.2(cent)
Operating Cost per Available Seat Mile 16.3(CENT) 15.0(cent) 13.8(cent) 15.4(cent) 16.2(cent)
Passenger Load Factor 49.1% 45.2% 47.2% 46.9% 50.8%
Break-Even Load Factor 37.2% 34.1% 34.2% 34.3% 38.0%
Average Passenger Trip Length (miles) 241 249 250 241 226
Flights per Week (end of period) 3,814 3,886 4,163 4,087 3,507
</TABLE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
------------- ------------- ------------- -------------- -------------
OTHER FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Working Capital $ 78,721 $ 59,590 $ 55,525 $ 42,011 $ 41,955
Total Assets $ 377,603 $ 325,311 $ 287,971 $ 231,626 $ 209,906
Long-Term Debt, excluding Current Portion $ 139,356 $ 127,724 $ 111,749 $ 90,109 $ 82,061
Total Liabilities $ 229,683 $ 204,956 $ 179,613 $ 139,958 $ 124,702
Shareholders' Equity $ 147,910 $ 120,355 $ 108,358 $ 91,668 $ 85,204
Shareholders' Equity per Share * $4.35 $3.57 $3.07 $2.47 $2.20
Return on Average Shareholders' Equity 24% 22% 28% 13% 14%
Shareholders' Equity to Total Liabilities .6:1 .6:1 .6:1 .7:1 .7:1
Cash Dividends Declared per Share * 20(cent) 15.9(cent) 8(cent) - -
Long-Term Debt to Shareholders' Equity .9:1 1.1:1 1.0:1 1.0:1 1.0:1
Shares Outstanding at End of Year (000) * 34,034 33,750 35,314 37,075 38,762
STATISTICAL DATA
Revenue Passengers Carried (000) 2,251 2,002 2,001 1,586 1,456
Revenue Passenger Miles (000,000) 501 427 413 320 290
Available Seat Miles (000,000) 1,020 856 791 753 678
Yield per Revenue Passenger Mile 43.2(cent) 43.2(cent) 42.9(cent) 42.3(cent) 40.0(cent)
Operating Cost per Available Seat Mile 16.6(cent) 17.2(cent) 17.2(cent) 15.7(cent) 14.8(cent)
Passenger Load Factor 49.2% 49.9% 52.3% 42.5% 42.8%
Break-Even Load Factor 37.7% 39.0% 39.3% 36.7% 36.3%
Average Passenger Trip Length (miles) 223 213 207 202 199
Flights per Week (end of period) 3,360 3,124 3,033 2,827 2,904
</TABLE>
* Adjusted for stock splits on November 26, 1991 and February 18, 1993
23
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reorganization
ASA Holdings is a holding company the principal assets of which are the
shares of its wholly owned subsidiaries ASA and ASA Investments. ASA Holdings
became the parent holding company for ASA and ASA Investments pursuant to the
Reorganization, which was effective after the close of business on December 31,
1996. In May 1996, ASA's Board of Directors approved the Reorganization subject
to the approval of ASA's shareholders.
Pursuant to the Reorganization, ASA merged with a wholly owned
subsidiary of ASA Holdings. As part of the merger, each issued and outstanding
share of ASA's common stock (other than treasury stock, which was cancelled)
was converted into one share of ASA Holdings' common stock. Immediately after
the merger on December 31, 1996, ASA effected a dividend to ASA Holdings of all
of the capital stock of ASA Investments. As a result of the Reorganization,
ASA and ASA Investments became wholly owned subsidiaries of ASA Holdings. ASA
Holdings considers the airline business of ASA to be its only industry segment.
There was no significant impact on the consolidated financial statements as a
result of these transactions.
All references to the "COMPANY" contained in this section refer
collectively to ASA and its subsidiaries, ASA Holdings and ASA Investments,
prior to December 31, 1996, and to ASA Holdings and its subsidiaries, ASA and
ASA Investments, beginning December 31, 1996. All significant intercompany
transactions have been eliminated.
ASA's material lenders consented to the Reorganization where ASA's
credit agreements made such consent necessary. In addition, during 1996 ASA
renegotiated the restrictive covenants in its credit agreements. The
renegotiated credit agreements currently contain restrictive covenants that
limit, among other things, the sale or lease of assets; the acquisition of stock
of other entities; the ratio of total liabilities to tangible net worth; and
maintenance of minimum tangible net worth and funds flow coverage. In addition,
the transfer of funds by ASA in the form of cash dividends, loans or advances is
limited solely to the extent that such transfers would cause ASA to breach other
financial covenants. ASA Holdings and ASA Investments are not subject to the
restrictive covenants of ASA's credit agreements except to the extent that ASA
is restricted in its ability to transfer funds to ASA Holdings or ASA
Investments in the form of cash dividends, loans or advances.
ASA Holdings' Board of Directors believes that the holding company
structure makes available to ASA Holdings and its subsidiaries a greater
selection of financing, acquisition and organizational alternatives than was
available to ASA prior to the reorganization. The holding company structure
provides greater flexibility than was available to ASA primarily because (a) any
new subsidiaries formed by ASA Holdings will be insulated from the liabilities
of and risks associated with ASA's operation of a commercial airline; (b) ASA
will be better insulated from the liabilities of any risks associated with the
operation of businesses by other subsidiaries of ASA Holdings;
24
<PAGE> 29
(c) ASA Holdings and its other subsidiaries will not be restricted by credit
agreements that have been or may be entered into by ASA that include
restrictive covenants; (d) ASA Holdings and its other subsidiaries will not be
constrained by the other contracts that, from time to time, are binding on ASA;
(e) ASA will not be constrained by, the credit agreements or other contracts
entered into by ASA Holdings' other subsidiaries; (f) depending on the
business, ASA Holdings and its subsidiaries may be free from certain direct
constraints on ASA imposed by regulatory requirements; and (g) the holding
company structure accommodates any future acquisition opportunities, whether
the acquisition is inside or outside of ASA's current line of business, because
ASA Holdings can now acquire additional businesses directly, thereby permitting
these businesses to remain independent of ASA's operations.
Liquidity and Capital Resources
The Company's working capital increased to $147.7 million with a
current ratio of 3.5:1 at December 31, 1996 compared with working capital of
$141.7 million and a current ratio of 3.1:1 at December 31, 1995. Cash, cash
equivalents and investments in marketable securities increased $2.0 million in
1996. Cash provided by operations in 1996 was $93.3 million and the Company
received $4.9 million from the disposal of property. These sources of cash were
primarily offset by long-term debt repayments in the amount of $32.4 million,
the purchase of property and equipment in the amount of $15.3 million, $11.7
million of dividends paid and $37.4 million of common stock repurchases.
ASA has an unsecured line of credit totaling $8 million with one of its
banks. At December 31, 1996, $.7 million of this line was committed to support a
letter of credit. The remainder is available for general working capital
purposes on an as needed basis. At December 31, 1996, there were no outstanding
amounts against the line of credit.
Management believes that, as a result of the Reorganization, borrowings
from banks, other financial institutions or the securities markets are available
to ASA Holdings on substantially the same terms as were available to ASA prior
to the Reorganization. ASA Holdings also can now borrow money directly and use
it internally or contribute it to ASA or any other subsidiary. In addition, any
of the subsidiaries can borrow money independently.
Total assets were down by $26.5 million at December 31, 1996 primarily
due to a $23.1 million decrease in net property and equipment. Net flight
equipment was lower primarily due to approximately $5.2 million related to the
sale of Dash-7 and Bandierante aircraft and engines which had been previously
phased-out of operations and a $32.2 million increase in accumulated
depreciation, offset by $8.2 million of additions in 1996. Other property and
equipment increased primarily due to approximately $6 million of costs related
to the relocation of ASA's operations to Concourse C at the Atlanta airport,
which has significantly enhanced the convenience of connections between flights
operated by ASA and Delta in Atlanta.
25
<PAGE> 30
Current liabilities were down by $9.1 million to $60.0 million at
December 31, 1996 compared with $69.1 million at December 31, 1995. The current
portion of long-term debt decreased by $6.8 million due to $4.4 million of debt
payments, including the accelerated debt retirement due to the loss of an
aircraft, and a $2.4 million reclassification to long-term debt. Interest
payable decreased by $1.6 million due to less debt outstanding and the timing of
debt payments at year-end, and taxes payable decreased by $1.1 million due to
the timing of property tax payments.
The Company's long-term debt to equity ratio decreased to 0.4:1 at
December 31, 1996 compared with 0.5:1 in 1995. Long-term debt decreased by $25.6
million due to $28.0 million of long-term debt payments offset by a
reclassification of $2.4 million from current maturities. Forty-eight E-120
Brasilia aircraft and four ATR-72 aircraft, as well as a significant portion of
the ASA's spare parts, are pledged to secure long-term debt.
Current maturities of long-term debt, aircraft lease payments,
compliance with FAA directives and other capital expenditures were funded from
the Company's cash reserves and internally generated funds during fiscal 1996.
Shareholders' equity per share increased to $8.68 at December 31, 1996
from $7.98 at the end of 1995. Net worth increased $7.4 million in 1996
primarily due to earnings of $56.6 million, offset by $11.7 million of dividends
paid and $37.4 million of common stock repurchases.
During 1996, ASA renegotiated the restrictive covenants in its credit
agreements. See "REORGANIZATION" above. ASA Holdings and ASA Investments are not
subject to the restrictive covenants in ASA's credit agreements except to the
extent that ASA is restricted in its ability to transfer funds to ASA Holdings
or ASA Investments in the form of cash dividends, loans or advances. ASA's
dividend to ASA Holdings of all of the shares of ASA Investments' capital stock
in connection with the Reorganization provided ASA Holdings with approximately
$129 million of net assets that are free of the restrictive covenants in ASA's
credit agreements and lease arrangements. In addition, approximately $35 million
of net assets was available at December 31, 1996, for distribution by ASA to ASA
Holdings under the most restrictive of these agreements.
The net number of shares of common stock outstanding decreased by 1.7
million to 30.0 million at December 31, 1996 due to the repurchase of common
stock. Prior to the amendment of these credit agreements, ASA was limited in
the amount of cash it could apply to the repurchase of common stock and the
payment of dividends generally to 30% of average annual earnings. During the
first three quarters of 1996 and in 1995, these limitations allowed ASA to pay
dividends on its common stock in the amount of approximately $8.9 and $11.2
million, and acquire approximately $2.8 and $3.3 million of its common stock.
In 1994, ASA acquired approximately $2.8 million of its common stock under
the previous terms of the agreements. ASA's Board of Directors authorized ASA
to repurchase up to an additional $50.0 million of its common stock on the open
market at any time on or before December 31, 1995 and up to an additional $50.0
million of ASA common stock during 1996. These repurchases were authorized by
the Board to be in addition to the repurchases allowed under the existing
credit agreements. Because these common stock repurchase programs were not
within the limitations set forth in the credit agreements, they were consented
to by ASA's lenders, in advance, as required by the credit agreements. Pursuant
26
<PAGE> 31
to these repurchase programs, ASA repurchased approximately $49.3 million of its
common stock through December 31, 1995 and an additional $34.7 million of its
common stock during 1996. All of the repurchased shares of common stock were
held as treasury stock. In connection with the Reorganization on December 31,
1996, all of the shares of treasury stock were cancelled. In January 1997, ASA
Holdings announced that its Board of Directors authorized it to repurchase up to
$50.0 million of its common stock on the open market during 1997. The
repurchased shares will be held as treasury stock and used for general corporate
purposes or will be cancelled. Repurchases are subject to market conditions.
ASA Holdings is authorized to issue up to 150 million shares of its
common stock whereas ASA was authorized to issue up to only 50 million shares of
ASA's common stock prior to the Reorganization. These additional shares may be
issued for a variety of corporate purposes, including, without limitation, (a)
to effect stock splits, (b) to raise additional capital in future public
offerings, (c) to facilitate corporate acquisitions, or (d) to pay performance
based compensation to employees of ASA Holdings and its subsidiaries. ASA
Holdings' Board of Directors is able to approve the issuance of additional
shares without shareholder approval. Any such issuances of additional shares
would result in dilution of the current equity interest of existing
shareholders. The issuance of such additional securities will be subject to
certain limitations imposed by the rules of The Nasdaq Stock Market and by
general fiduciary principles. ASA Holdings does not have any current plans or
pending proposals to issue additional shares of Holdings common stock other than
pursuant to ASA Holdings' Stock Appreciation Rights Plan (the "SARS PLAN").
In January 1997, ASA announced its intentions to acquire 30 CRJs from
Bombardier, Inc. of Canada and to secure options to acquire an additional 60
aircraft, subject to the effectiveness of a definitive acquisition agreement
with Bombardier, a definitive financing commitment with the Export Development
Corporation of Canada and a definitive agreement with General Electric Company
with respect to the acquisition of the engines and related spare parts. At this
time, ASA has not determined whether the acquisition will be a purchase or lease
arrangement or both. ASA estimates that the cost of the 30 aircraft, including
spare parts, will be approximately $600 million. Delivery is scheduled to begin
during the second half of 1997 at the rate of one per month. The CRJ is a
50-passenger jet with four-abreast seating that ASA will use to promote growth
in new markets as well as replace some turboprop equipment on existing routes.
On August 21, 1995, ASA suffered a tragic loss when one of its flights
crashed. On November 26, 1996, the NTSB, in a unanimous vote, determined that
the probable cause of the accident was the in-flight fatigue fracture and
separation of a propeller blade that resulted in excessive drag, loss of wing
lift and reduced directional control of the aircraft. The NTSB further concluded
that the fracture in the propeller blade was caused by a fatigue crack from
multiple corrosion pits that were not discovered by the propeller manufacturer
because of its inadequate and ineffective corporate inspection and repair
techniques, training, documentation and communication. Accordingly, ASA's
management does not feel that ASA was at fault, based on the factual information
currently available to it. ASA has received insurance proceeds from its
insurance company related to the hull value of the aircraft, and the debt
related to this aircraft was paid with part of these insurance proceeds. A
number of claims and lawsuits have been filed in connection with this matter.
The propeller
27
<PAGE> 32
manufacturer (through its insurer) has agreed to address all claims arising
from this accident without acknowledging fault. Accordingly, the Company's
management does not believe that the Company has any liability in this matter,
based on factual information currently available to it. Therefore, ASA has not
accrued a liability for potential claims. Neither the propeller manufacturer
nor its insurer has entered into any written indemnity agreement with ASA or
its insurer, and neither is legally obligated to indemnify either ASA or its
insurer for expenses actually incurred in connection with the crash. In
addition, ASA maintains insurance coverage which it believes, based on factual
information currently available to it, is sufficient to cover claims associated
with this incident. After the results of the NTSB investigation were announced,
ASA was dismissed from all existing lawsuits with respect to the crash.
Approximately 25% of ASA's workforce are members of the unions
representing pilots and flight attendants. In 1995, collective bargaining
agreements with both of these unions became amendable and are currently being
renegotiated. The Railway Labor Act, which governs labor relations for these
unions, contains detailed provisions that must be exhausted before work
stoppages can occur once a collective bargaining agreement becomes amendable.
Federal mediation between ASA and the pilots and flight attendants has been
ongoing for approximately one year.
ASA has negotiated to receive interest rate subsidies on certain
indebtedness through the export support program of the Federative Republic of
Brazil. Outstanding debt aggregating approximately $83.1 million at December 31,
1996 is subject to subsidy payments which reduce the stated interest rates on
such debt to an average of approximately 3.34%. Of this amount, subsidies on
outstanding debt aggregating approximately $77.0 million are at risk to ASA if
the Federative Republic of Brazil does not meet its obligations under the export
support program. For the remaining debt that is subject to such subsidies, the
lenders have assumed such risk by building such subsidy payments into ASA's
payment obligations. During 1996, 1995 and 1994, ASA reduced its interest
expense by approximately $2.8, $3.7 and $3.8 million, respectively, as a result
of these interest rate subsidies. The amount of net interest paid during 1996,
1995 and 1994 was approximately $7.3, $7.4 and $4.7 million, respectively. As
indicated above, there can be no assurance that ASA will continue to receive
such subsidy payments.
In 1984, ASA and Delta implemented a marketing program called the
"Delta Connection". At December 31, 1996, Delta Air Lines Holdings, Inc. (an
affiliate of Delta) owned approximately 27% of ASA Holdings' outstanding common
stock. Delta leases reservation equipment and terminal facilities to ASA, and
provides certain services to ASA, including reservation and ground handling
services. Given ASA's relationship with Delta, ASA's results of operations and
financial condition may be favorably or adversely impacted by Delta's decisions
regarding flight routes and other operational matters. ASA has historically
benefited from its relationship with Delta, but there can be no assurance that
such benefits will occur in the future.
Based on information currently available to it, the Company believes
that available resources will be sufficient to meet its existing expenditure
commitments (including current maturities of long-term debt and aircraft lease
payments) as well as its anticipated capital expenditures and other working
capital requirements for the foreseeable future. Financial resources anticipated
to be
28
<PAGE> 33
available to the Company for such purposes include existing cash reserves,
internally generated funds, amounts available under the existing line of credit,
and short and long-term financing arrangements that the Company believes are
available to it.
Accounting Standards
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of 1996 and the effect of adoption was not significant.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages companies to recognize expense for
stock-based awards based on their fair value on the date of grant. At a minimum,
Statement 123 requires pro forma disclosures in the Company's 1996 financial
statements. The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations and provide the necessary disclosures required by Statement 123,
rather than adopt the expense recognition provisions of this Statement.
Results of Operations
The Company set new records in passenger traffic, operating revenues
and net income in 1996. Total operating revenues were $375.3 million in 1996
compared with $328.7 million in 1995 and $312.1 million in 1994. Operating
revenues were up 14% in 1996 primarily due to a 15% increase in revenue
passenger miles ("RPMs") flown to 874 million. RPMs were higher in 1996 due to
the number of passengers carried increasing by 18% to 3.6 million while the
average trip length decreased by 3% to 241 miles. In late 1995, ASA replaced
Delta's service to several markets with the BAe 146 jet aircraft. Higher
passenger traffic in 1996 was largely attributable to an increase in traffic in
markets served by the BAe 146 aircraft. ASA's load factor for 1996 was 49.1%
compared with 45.2% for 1995. The average passenger yield (passenger revenue
divided by RPMs) increased by .7% to 42.0 cents in 1996 compared with 41.7
cents in 1995, while average passenger fare decreased by 3% to $101.11 in 1996
compared with $103.81 in 1995. Passenger fares vary based on a number of
factors including competition, fare discounting and economic conditions.
Operating revenues in 1995 increased 5% over 1994 primarily due to a 6%
increase in the average passenger yield offset by a 2% decrease in RPMs.
ASA's average load factor in 1995 was 45.2%, down from 47.2% in 1994.
For the year ended December 31, 1996, net income increased by 11% to
$56.6 million compared with $51.1 million for 1995. Net income per share for
1996 increased to $1.83 on 31.0 million weighted average shares outstanding
compared with $1.55 on 33.0 million weighted
29
<PAGE> 34
average shares outstanding for 1995. The decrease in the average number of
shares outstanding was due to the stock repurchase programs mentioned above in
the "LIQUIDITY AND CAPITAL RESOURCES" section. In 1994, net income was $52.7
million or $1.54 per share on 34.2 million weighted average shares outstanding.
Operating expenses increased 15% in 1996 and 11% in 1995. The Company
experienced a 9% increase in the cost per available seat mile (ASM) flown to
16.3 cents compared with 15.0 cents in 1995. Capacity (the number of ASMs) was
up 6% in 1996 due to changes in aircraft as described in the "LIQUIDITY AND
CAPITAL RESOURCES" section above. Operating expenses in 1996 included $.7
million of expense related to the Company's SARs plan due to a 2% increase in
the Company's stock price and additional vesting, while 1995 included $2.4
million of expense associated with stock appreciation rights ("SARs") due to a
39% increase in the stock price and additional vesting. Included in operating
expenses for 1995 was approximately $2.3 million of "start-up" expenses
associated with adding the BAe 146 aircraft to the fleet. Excluding the effect
of the SARs expense and BAe start-up costs, operating expenses would have
increased 17% in 1996 compared with 1995. Operating costs are higher primarily
due to more expensive jet fuel, higher marketing related expenses, increased
maintenance costs for the E-120 Brasilia turboprop fleet, and rent on the BAe
146 jet aircraft. The BAe 146 aircraft are currently being flown over shorter
haul routes, and therefore their rent expense per ASM is higher than the
Company's system average. Operating expenses in 1995 were up 11% compared with
1994. Included in 1995 were $2.3 million of BAe 146 start-up costs and $2.4
million of SARs expense compared with a $4.2 million credit in 1994 due to a 55%
decline in the stock price. Excluding the effect of the BAe start-up costs and
SARs expense, operating expenses would have increased 7% in 1995 compared with
1994 primarily due to (a) higher labor and related costs due to a 5% increase in
the average number of employees; (b) higher maintenance expense due to the
frequency of scheduled maintenance inspections and overhauls of time controlled
components; and (c) higher aircraft rent expense due to a partial year's rent on
four E-120 Brasilia aircraft and four BAe 146 jets leased in 1995. The following
table compares components of operating cost per ASM for the years ended December
31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Labor and related 4.2(CENT) 4.3(cent) 3.7(cent)
Fuel 1.9 1.4 1.4
Direct maintenance 2.6 2.4 2.2
Passenger related 2.1 1.8 1.8
Depreciation and aircraft rent 2.4 2.2 2.1
Other 3.1 2.9 2.6
------- ------- -----
Total operating expense per ASM 16.3(CENT)15.0(cent)13.8(cent)
</TABLE>
30
<PAGE> 35
The following table presents various components of operating expense as
a percentage of total operating expense for the years ended December 31, 1996,
1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Labor and related 25% 29% 27%
Fuel 12 9 10
Direct maintenance 16 16 15
Passenger related 13 12 13
Depreciation and aircraft rent 15 15 16
Other 19 19 19
---- ---- ----
Total operating expense 100% 100% 100%
</TABLE>
The Company's break-even load factor was 37.2% in 1996 compared with
34.1% in 1995 and 34.2% in 1994. The higher break-even load factor in 1996 was
primarily the result of higher operating expenses. The slightly lower break-even
load factor in 1995 compared with 1994 was primarily attributable to a 6%
increase in the average passenger yield offset by a 9% increase in the cost per
available seat mile.
Labor and related costs were $74.2 million in 1996, $72.3 million in
1995 and $60.9 million in 1994. The average number of employees in 1996 was
2,398, an increase of 6% over 1995 which contributed to higher labor and related
costs. As mentioned above, 1996 included $.7 million of expense related to the
SARs plan in comparison with $2.4 million of expense in 1995. In contrast, 1994
included a $4.2 million credit to SARs expense resulting from a decline in the
Company's stock price and the related reversal of previously accrued SARs
expense. Excluding SARs expense, labor and related costs per ASM would have been
4.1 cents for 1996 and 1995, and 3.9 cents for 1994 as compared with 4.2, 4.3
and 3.7 cents, respectively.
Fuel expense was $33.5 million, $24.1 million and $23.5 million in
1996, 1995 and 1994, respectively. Fuel consumption increased 12% in 1996 while
the average fuel price per gallon, including taxes and into plane fees,
increased 25% in 1996 to 77.2 cents from 61.9 cents in 1995 primarily due to the
increase in crude oil prices during 1996 and the additional 4.3 cent per gallon
transportation fuel tax in October 1995. In August 1993, the United States
government increased taxes on fuel, including aircraft fuel, by 4.3 cents per
gallon. ASA was exempt from this tax increase until October 1995. This new tax
increased the Company's operating expenses by $1.9 million in 1996 and $.4
million in 1995. The average price per gallon, including taxes and into plane
fees, remained constant in 1995 compared with 1994, with consumption increasing
2%. Changes in aviation fuel prices have an industry wide impact and will tend
to affect ASA's competitors in the same manner as ASA. Lower fuel prices may be
offset by increased price competition and lower revenues for all carriers. There
can be no assurance that ASA will be able to increase its fares in response to
any future increases in fuel prices.
31
<PAGE> 36
Direct maintenance expense, excluding labor and related costs,
increased to $46.2 million in 1996 from $40.3 million and $35.5 million in 1995
and 1994, respectively. This 15% increase in 1996 was primarily due to a 6%
increase in capacity and increased maintenance inspections and overhauls of
time controlled components. As with any air carrier, ASA's fleet of aircraft is
aging and requires more frequent maintenance. The leased BAe 146 jet aircraft
are maintenance mature aircraft that are under maintenance plans. Charges for
the BAe 146 are incurred for each hour that the airframe, engines, landing
gear, etc. are flown, and the charges for these maintenance plans are expensed
on a monthly basis. The anticipated addition of new CRJ aircraft, which will
hold 50 passengers and are expected to be used over longer haul routes, will
create a higher capacity over which maintenance costs can be spread.
Maintenance expenses in 1995 were higher compared with 1994 primarily due to
the timing for scheduled maintenance inspections and overhauls.
Passenger related expenses, which include a majority of the expenses
under the caption "Reservation, commission and other" on the Company's Income
Statement, were $36.8 million, $30.2 million and $29.0 million in 1996, 1995 and
1994, respectively. The increase of $6.6 million in 1996 compared with 1995 was
primarily due to an increase in travel agency commissions, credit card discounts
and reservation fees. These expenses are directly related to the 18% increase in
passengers carried in 1996 versus 1995. Passenger related expenses were
approximately 10% of passenger revenue in 1996 compared with 9% of passenger
revenue in both 1995 and 1994. Delta began charging ASA higher fees for
reservation service/systems in April 1995 and higher credit card fees in October
1995.
Aircraft rental costs were approximately $16.9 million in 1996
compared with $10.3 million in 1995 and $9.4 million in 1994. The increased
expense in 1996 was primarily attributable to three E-120 Brasilia aircraft and
four BAe 146 aircraft leased during the fourth quarter of 1995, as well as a
fifth BAe 146 aircraft leased in January 1996. Depreciation expense remained
relatively constant at $26.5, $26.8 and $26.0 million for 1996, 1995 and 1994,
respectively.
Other expenses increased to $56.1 million in 1996 compared with $48.9
million in 1995 and $43.5 million in 1994. The increases in 1996 were due
primarily to higher station security fees, liability insurance and interrupted
trip and baggage claim expenses. The increases in 1995 were due primarily to the
same expenses as indicated for 1996 plus higher station rent and hull insurance
expense.
Interest expense decreased to $5.9 million in 1996 compared with $7.6
million in 1995 and $6.2 million in 1994. The decrease in 1996 was attributable
to lower interest rates on ASA's outstanding floating rate debt and less total
debt outstanding. The increase in 1995 compared with 1994 was attributable to a
full year of interest expense for the four ATR-72 aircraft purchased in 1994 as
well as the upward trend in interest rates in 1995. Interest income was $10.7
million in 1996 compared with $12.0 million in 1995 and $7.5 million in 1994. A
decline in interest rates contributed to lower interest income in 1996. Higher
average cash available for investment and a rise in interest rates contributed
to the increase in interest income for 1995.
32
<PAGE> 37
The Company's effective income tax rate differs from the statutory rate
of 35% due primarily to the impact of state income taxes, net of federal tax
benefit. In 1995, deferred tax liabilities and deferred tax expense were reduced
by $1.3 million due to the resolution of prior years' income tax audits.
33
<PAGE> 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------- ---------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 137,468,791 $ 66,402,694
Marketable securities 52,653,227 121,697,247
Receivables, less allowance for uncollectible accounts
of $204,347 in 1996 and $266,343 in 1995 - Note J 6,552,616 11,715,607
Expendable parts, less allowance for obsolescence
of $4,202,742 in 1996 and $4,048,772 in 1995 8,145,369 6,439,628
Other current assets 2,904,208 4,487,636
--------------- ---------------
207,724,211 210,742,812
Property and Equipment - Note B
Flight equipment 456,809,305 474,188,485
Other property and equipment 15,515,205 8,734,697
Advance payments on property and equipment 136,342 88,113
--------------- ---------------
472,460,852 483,011,295
Less accumulated depreciation and amortization 203,180,823 190,612,743
--------------- ---------------
269,280,029 292,398,552
Other Assets 9,232,637 9,558,130
--------------- ---------------
TOTAL ASSETS $ 486,236,877 $ 512,699,494
=============== ===============
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 39
ASA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 25,576,213 $ 32,390,437
Accounts payable - Note J 18,402,087 20,945,977
Air traffic liability 4,345,769 1,934,289
Accrued compensation and related expenses 7,286,476 6,697,331
Accrued interest payable 1,318,550 2,941,011
Other accrued expenses 3,075,765 4,156,667
--------------- ---------------
60,004,860 69,065,712
Long-Term Debt - Note B 94,617,877 120,209,650
Other Non-Current Liabilities 1,763,471 1,369,128
Deferred Income Taxes - Note E 69,634,773 69,199,527
Commitments and Contingencies - Notes B, C and F
Shareholders' Equity - Notes A, G and H
Common stock, $.10 par; authorized -
150,000,000 shares; issued - 29,993,570
and 34,386,670 shares, respectively 2,999,357 3,438,667
Capital in excess of par - 45,887,347
Retained earnings 257,218,657 258,857,819
Unrealized holding (loss) gain on investments (2,118) 72,444
--------------- ---------------
260,215,896 308,256,277
Less treasury stock at cost - 2,683,100
shares in 1995 - Note G - 55,400,800
--------------- ---------------
Total Shareholders' Equity 260,215,896 252,855,477
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 486,236,877 $ 512,699,494
=============== ===============
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 40
<TABLE>
<CAPTION>
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1996 1995 1994
---------------- ---------------- ---------------
REVENUES
<S> <C> <C> <C>
Operating Revenues:
Passenger $ 367,250,428 $ 318,360,153 $ 305,846,064
Other 8,049,998 10,365,287 6,243,518
---------------- ---------------- ---------------
Total Operating Revenues 375,300,426 328,725,440 312,089,582
EXPENSES
Operating Expenses:
Flying operations 85,074,131 68,956,898 65,063,156
Maintenance 61,376,727 54,309,317 49,036,093
Passenger service 18,664,839 16,049,620 14,199,904
Aircraft and traffic servicing 45,390,058 40,229,297 36,333,282
Reservation, commission and other 39,344,575 32,148,818 30,480,757
General and administrative 12,078,785 13,159,314 5,284,986
Depreciation, amortization and obsolescence 27,534,057 27,695,335 27,170,678
Other 684,815 301,734 249,185
---------------- ---------------- ---------------
Total Operating Expenses (Including payments to
Delta Air Lines, Inc. of $11.9, $9.6 and $5.8 million) 290,147,987 252,850,333 227,818,041
Income from Operations 85,152,439 75,875,107 84,271,541
Non-Operating (Income) Expenses:
Interest:
Income (10,672,964) (11,997,712) (7,499,615)
Expense 5,862,866 7,609,317 6,199,299
Other, net (1,143,983) (510,315) (47,891)
---------------- ---------------- ---------------
(5,954,081) (4,898,710) (1,348,207)
Income before Income Taxes 91,106,520 80,773,817 85,619,748
Income Taxes - Note E:
Current 34,058,554 26,289,595 24,897,824
Deferred 435,246 3,346,805 8,066,176
---------------- ---------------- ---------------
34,493,800 29,636,400 32,964,000
---------------- ---------------- ---------------
NET INCOME $ 56,612,720 $ 51,137,417 $ 52,655,748
================ ================ ===============
EARNINGS PER SHARE $1.83 $1.55 $1.54
Weighted Average Number of Shares Outstanding 30,990,599 32,964,138 34,187,833
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 41
<TABLE>
<CAPTION>
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995 1994
--------------- --------------- ---------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income $ 56,612,720 $ 51,137,417 $ 52,655,748
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 26,518,027 26,794,942 26,027,910
Amortization and provision for obsolescence 1,016,030 900,393 1,142,768
Amortization of engine overhauls 6,656,680 7,710,438 6,570,952
Deferred income taxes 435,246 3,346,805 8,066,176
Other (107,722) (174,173) 1,253,601
Changes in Operating Assets and Liabilities:
Receivables 5,187,991 (5,014,461) 104,232
Expendable parts (1,859,712) 640,194 (1,830,457)
Other assets 742,274 (3,147,901) 409,523
Accrued compensation and related expenses 983,488 3,014,807 (4,821,546)
Accrued interest payable (1,622,461) (195,201) 1,494,320
Other liabilities (1,213,312) 10,971,435 2,041,278
Income taxes payable - (1,243,399) (2,998,093)
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 93,349,249 94,741,296 90,116,412
INVESTING ACTIVITIES:
Purchase of Marketable Securities (189,882,992) (198,048,934) (186,608,304)
Proceeds from Sale of Marketable Securities 258,806,167 210,597,389 165,574,532
Purchases of Property and Equipment
including Advance Payments (15,321,851) (13,851,990) (67,944,372)
Other 5,699,260 5,329,796 537,249
--------------- --------------- ---------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 59,300,584 4,026,261 (88,440,895)
FINANCING ACTIVITIES:
Proceeds from Long-Term Debt - - 43,782,329
Principal Payments on Long-Term Debt (32,405,997) (28,264,141) (24,862,330)
Dividends Paid (11,731,958) (11,203,992) (10,926,232)
Acquisition of Treasury Stock (37,445,781) (35,423,612) (19,977,188)
--------------- --------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (81,583,736) (74,891,745) (11,983,421)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 71,066,097 23,875,812 (10,307,904)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 66,402,694 42,526,882 52,834,786
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 137,468,791 $ 66,402,694 $ 42,526,882
=============== ============== ===============
</TABLE>
See notes to consolidated financial statements.
37
<PAGE> 42
<TABLE>
<CAPTION>
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Capital in Retained
Shares Amount Excess of Par Earnings Other
----------- ------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 34,339,772 $ 3,433,977 $ 44,458,248 $ 177,194,878 $ -
Net Income 52,655,748
Dividends Paid (32(cent)per share) (10,926,232)
Exercise of Stock Appreciation Rights 23,935 2,394 779,803
Unrealized Holding Loss on Investments, Net (151,377)
Purchase of Treasury Stock
----------- ------------- ---------------- ---------------- -----------
Balance, December 31, 1994 34,363,707 3,436,371 45,238,051 218,924,394 (151,377)
Net Income 51,137,417
Dividends Paid (34(cent)per share) (11,203,992)
Exercise of Stock Appreciation Rights 22,963 2,296 649,296
Unrealized Holding Gain on Investments, Net 223,821
Purchase of Treasury Stock
----------- ------------- ---------------- ---------------- -----------
Balance, December 31, 1995 34,386,670 3,438,667 45,887,347 258,857,819 72,444
NET INCOME 56,612,720
DIVIDENDS PAID (38(CENT)PER SHARE) (11,731,958)
UNREALIZED HOLDING LOSS ON INVESTMENTS, NET (74,562)
PURCHASE OF TREASURY STOCK
CANCELLATION OF TREASURY STOCK (4,393,100) (439,310) (45,887,347) (46,519,924)
----------- ------------- ---------------- ---------------- -----------
BALANCE, DECEMBER 31, 1996 29,993,570 $ 2,999,357 $ - $ 257,218,657 $ (2,118)
=========== ============= ================ ================ ===========
</TABLE>
<TABLE>
<CAPTION>
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Treasury Stock
Shares Amount
------------- --------------
<S> <C> <C>
Balance, January 1, 1994 - $ -
Net Income
Dividends Paid (32(cent)per share)
Exercise of Stock Appreciation Rights
Unrealized Holding Loss on Investments, Net
Purchase of Treasury Stock (1,140,000) (19,977,188)
------------- ------------
Balance, December 31, 1994 (1,140,000) (19,977,188)
Net Income
Dividends Paid (34(cent)per share)
Exercise of Stock Appreciation Rights
Unrealized Holding Gain on Investments, Net
Purchase of Treasury Stock (1,543,100) (35,423,612)
------------- ------------
Balance, December 31, 1995 (2,683,100) (55,400,800)
NET INCOME
DIVIDENDS PAID (38(CENT)PER SHARE)
UNREALIZED HOLDING LOSS ON INVESTMENTS, NET
PURCHASE OF TREASURY STOCK (1,710,000) (37,445,781)
CANCELLATION OF TREASURY STOCK 4,393,100 92,846,581
------------- ------------
BALANCE, DECEMBER 31, 1996 - $ -
============= ============
</TABLE>
See notes to consolidated financial statements.
38
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Business: ASA Holdings, Inc. (ASA Holdings) is a
holding company the principal assets of which are the shares of its wholly owned
subsidiaries, Atlantic Southeast Airlines, Inc. (ASA) and ASA Investments, Inc.
(ASA Investments). ASA Holdings became the parent holding company for ASA and
ASA Investments pursuant to a corporate reorganization (the Reorganization),
which was effective after the close of business on December 31, 1996. In May
1996, ASA's Board of Directors approved the Reorganization subject to the
approval of ASA's shareholders. The shareholders approved the Reorganization on
December 23, 1996.
Pursuant to the Reorganization, ASA merged with a wholly owned subsidiary of ASA
Holdings. As part of the merger, each issued and outstanding share of ASA's
common stock (other than treasury stock, which was cancelled) was converted into
one share of ASA Holdings' common stock. Immediately after the merger on
December 31, 1996, ASA effected a dividend to ASA Holdings of all of the capital
stock of ASA Investments. As a result of the Reorganization, ASA and ASA
Investments became the wholly owned subsidiaries of ASA Holdings. There was no
significant impact on the consolidated financial statements as a result of
these transactions.
All references to the Company contained herein refer collectively to ASA and its
subsidiaries, ASA Holdings and ASA Investments, prior to December 31, 1996, and
to ASA Holdings and its subsidiaries, ASA and ASA Investments, beginning
December 31, 1996. All significant intercompany transactions have been
eliminated.
ASA, ASA Holdings' principal operating subsidiary, is a large regional airline
serving airports in the Southeastern and Southwestern United States. ASA derives
its revenues primarily through the air transportation of passengers and cargo in
scheduled airline service under a marketing agreement with Delta Air Lines, Inc.
(Delta). Under this agreement, ASA's flights are listed on reservation systems
as connecting Delta flights. Delta Air Lines Holdings, Inc., a subsidiary of
Delta, owns approximately 27% of ASA Holdings' common stock (See Note J).
ASA Investments operates as an investment entity which manages cash assets
contributed to it by ASA Holdings or its other subsidiaries.
Use of Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
39
<PAGE> 44
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. Such
investments include U.S. Government agency securities, corporate commercial
paper and overnight repurchase agreements. The Company believes that the credit
risk is minimal.
Marketable Securities: The Company's investment in marketable securities
consists of debt instruments of the U.S. Treasury, U.S. Government agencies and
municipal authorities. All such marketable securities have a maturity of less
than one year. These investments are classified as available for sale and
reported at fair market value.
Expendable Parts: Flight equipment expendable parts are valued at average cost
less an allowance for obsolescence. Expendable parts are charged to maintenance
expense as used.
Property, Equipment and Depreciation: Flight equipment and other property and
equipment are stated at cost. Major additions, betterments and renewals are
capitalized. Depreciation of costs less estimated residual values is computed on
the straight-line basis over the estimated useful lives of the related assets as
follows:
Flight equipment 3 - 15 years
Other property and equipment 4 - 28 years
For income tax purposes, accelerated depreciation methods are used.
Maintenance: The cost of major engine overhauls for owned aircraft is
capitalized and amortized to maintenance expense over the estimated overhaul
life. Overhaul expense is accrued or amortized for leased aircraft in accordance
with lease provisions.
Intangibles: Excess of cost over fair value of tangible assets acquired is
amortized by the straight-line method over a 40-year period. Also included in
other assets are deferred financing fees, reorganization costs and deferred gate
assignment costs. These deferred assets are amortized over periods from one to
20 years. Accumulated amortization for these intangible assets and deferred
costs at December 31, 1996 and 1995 was $2,910,829 and $2,462,580, respectively.
Also included in other assets is restricted cash which serves as collateral for
a portion of ASA's financing (See Note B). The cost of routine development of
new or extended routes and the pre-operating costs incurred in connection with
aircraft acquisitions are charged to expense as incurred.
Passenger Revenue Recognition: ASA issues Delta ticket stock for passenger
sales. Passenger revenues are recognized at the time transportation is provided.
As a "Delta Connection" carrier, ASA participates in Delta's frequent flyer
incentive program. ASA does not accrue for incremental costs associated with the
program's mileage accumulation since the impact is immaterial both on a
quarterly and annual basis. Included in air traffic liability are cargo
liabilities and amounts resulting from timing differences in billings with
Delta.
40
<PAGE> 45
Income Taxes: The Company uses the liability method of accounting for income
taxes. Deferred income taxes are provided for temporary differences in the
recognition of income and expenses for financial reporting and income tax
reporting.
Earnings per Share: Earnings per share are based on the weighted average number
of shares of common stock outstanding and dilutive common stock equivalents (See
Notes G and H).
Recent Pronouncements: Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement 121 in the first quarter of 1996 and the effect of adoption was not
significant.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", encourages companies to recognize expense for stock-based awards
based on their fair value on the date of grant. At a minimum, Statement 123
requires pro forma disclosures in the Company's 1996 financial statements. The
Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations and
provide the necessary disclosures required by Statement 123, rather than adopt
the expense recognition provisions of this Statement (See Note H).
NOTE B - LONG-TERM DEBT
ASA's long-term debt was as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
---------------- -----------------
<S> <C> <C>
Notes payable to banks. ASA pledged aircraft and support equipment with a net
book value of $46,850,141 as collateral. Payments are due in semi-annual
installments of $3,758,836 plus interest at 6.5% to 1999. $ 9,648,266 $ 20,004,170
Notes payable to banks. ASA pledged aircraft and support equipment with a net
book value of $22,184,014 as collateral. Payments are due in semi-annual
installments of $1,718,711 plus interest at 6.125% to 6.5% to 1999. 6,837,627 10,275,048
Notes payable to banks. ASA pledged aircraft and support equipment
with a net book value of $7,260,700 as collateral. Payments are due
in quarterly installments of $259,662 plus interest at 7% to 1999. 2,856,285 3,894,935
</TABLE>
41
<PAGE> 46
<TABLE>
<CAPTION>
December 31,
1996 1995
========= ---------
<S> <C> <C>
Notes payable to bank. ASA pledged aircraft and support equipment with a net
book value of $12,288,908 as collateral. Payments are due in semi-annual
installments of $788,901 plus interest at 5.35% to 5.7875% to 2000. 6,048,214 7,626,015
Floating rate note payable to bank. ASA pledged aircraft and support equipment
with a net book value of $4,304,768 as collateral. Payments are due in
semi-annual installments of $264,615 plus interest based on floating six month
LIBOR to 2000. Rate at December 31, 1996 was 6.1688%. 2,116,920 2,646,150
Floating rate note payable to bank. ASA pledged a Euro-time deposit of an equal
amount as collateral. Payments are due in semi-annual installments of $264,926
plus interest based on floating six month LIBOR to 2000. Rate at December 31, 1996
was 6.425%. 2,119,411 2,649,263
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $17,369,218 as collateral. Payments are due in
semi-annual installments of $1,069,327 plus interest based on floating six month
LIBOR to 2001. Rates at December 31, 1996 were 6.5375% - 6.69375%. 9,623,945 11,762,599
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $17,706,185 as collateral. Payments are due in
semi-annual installments of $1,051,214 plus interest based on floating six month
LIBOR to 2002. Rates at December 31, 1996 were 6.35% - 6.4938%. 9,981,855 12,084,284
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $49,149,262 as collateral. Payments are due in
semi-annual installments of $2,727,240 plus interest based on floating six month
LIBOR to 2003. Rates at December 31, 1996 were 6.25% - 6.325%. 33,846,816 41,748,628
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $43,637,615 as collateral. Payments are due in mortgage
style semi-annual installments estimated at $1,470,792 (subject to change) plus
interest based on floating six month LIBOR to 2006. Rates at December 31, 1996
were 6.03516% to 6.1875%. 37,114,751 39,908,995
---------------- -----------------
120,194,090 152,600,087
Less current portion 25,576,213 32,390,437
---------------- -----------------
$ 94,617,877 $ 120,209,650
================ =================
</TABLE>
42
<PAGE> 47
As of December 31, 1996, maturities on long-term debt were:
<TABLE>
<C> <C>
1997 $ 25,576,213
1998 21,876,209
1999 18,671,639
2000 15,382,312
2001 11,632,669
After 2001 27,055,048
-----------------
$ 120,194,090
=================
</TABLE>
During 1996, ASA renegotiated the restrictive covenants in its credit
agreements. The renegotiated credit agreements currently contain restrictive
covenants that limit, among other things, the sale or lease of assets; the
acquisition of stock of other entities; ratio of total liabilities to tangible
net worth; and maintenance of minimum tangible net worth and funds flow
coverage. In addition, the transfer of funds by ASA in the form of cash
dividends, loans or advances is limited solely to the extent that the payment of
such transfers would cause ASA to breach other financial covenants. ASA Holdings
and ASA Investments are not subject to the restrictive covenants of ASA's credit
agreements, except to the extent that ASA is restricted in its ability to
transfer funds to ASA Holdings or ASA Investments in the form of cash dividends,
loans or advances. At December 31, 1996, approximately $35 million of net assets
was available for distribution by ASA to ASA Holdings under the most restrictive
of these provisions. At December 31, 1996, approximately $129 million of net
assets was available for distribution by ASA Investments to ASA Holdings.
ASA has negotiated to receive interest rate subsidies on certain
indebtedness through the export support program of the Federative Republic of
Brazil. Outstanding debt aggregating $83,079,338 at December 31, 1996 is subject
to subsidy payments which reduce the stated interest rates on such debt to an
average of approximately 3.34%. However, subsidies on outstanding debt
aggregating $77,031,124 are at risk to ASA if the Federative Republic of Brazil
does not meet its obligations under the export support program. For the
remaining debt that is subject to such subsidies, the lenders have assumed such
risk by building such subsidy payments into ASA's payment obligations. During
1996, 1995 and 1994, ASA reduced its interest expense by $2,826,564, $3,726,620
and $3,800,430, respectively, as a result of these interest rate subsidies. The
amount of net interest paid during 1996, 1995 and 1994 was $7,314,112,
$7,446,255 and $4,702,987, respectively. As indicated above, ASA is at risk with
respect to certain of these subsidy payments. While the Company has no reason to
believe, based on information currently available to it, that ASA will not
continue to receive such subsidy payments from the Federative Republic of Brazil
in the future, there can be no assurance that such a default will not occur.
43
<PAGE> 48
NOTE C - AIRCRAFT COMMITMENTS
As of December 31, 1996, ASA had no aircraft purchase commitments. In
January 1997, ASA announced its intentions to acquire 30 Canadair Regional Jet
aircraft from Bombardier, Inc. and to secure options to acquire an additional 60
aircraft, subject to the effectiveness of a definitive acquisition agreement
with Bombardier, a definitive financing commitment with the Export Development
Corporation of Canada and a definitive agreement with General Electric Company
with respect to the acquisition of the engines and spare parts. At this time,
ASA has not determined whether the acquisition will be a purchase or lease
arrangement or both. ASA estimates that the cost of the 30 aircraft, including
spare parts, will be approximately $600 million.
NOTE D - LINES OF CREDIT
ASA has an $8,000,000 bank line of credit available at LIBOR plus .4%.
This line of credit expires in February 1998 and is renewed annually. At
December 31, 1996 and 1995, there was $.7 million of this line committed to
support a letter of credit. The remainder is available for general working
capital purposes on an as needed basis. At December 31, 1996 and 1995, there
were no outstanding amounts against the line of credit.
NOTE E - INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income tax liabilities and assets as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -------------------
Deferred income tax liabilities:
<S> <C> <C>
Tax over book depreciation $ 72,736,336 $ 72,277,493
Other 110,225 172,151
------------------ -------------------
Total deferred income tax liabilities 72,846,561 72,449,644
Deferred income tax assets:
Asset valuation reserves 749,755 1,565,805
Other 2,462,033 1,684,312
------------------ -------------------
Total deferred income tax assets 3,211,788 3,250,117
------------------ -------------------
Net deferred income tax liabilities $ 69,634,773 $ 69,199,527
================== ===================
</TABLE>
44
<PAGE> 49
For financial reporting purposes, the provision for income taxes
includes the following components for the years ended December 31, 1996, 1995
and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- -------------------- ----------------
<S> <C> <C> <C>
Federal:
Current $ 30,993,254 $ 23,397,695 $ 22,124,324
Deferred 396,046 2,978,705 7,178,897
---------------- -------------------- ----------------
31,389,300 26,376,400 29,303,221
---------------- -------------------- ----------------
State:
Current 3,065,300 2,891,900 2,773,500
Deferred 39,200 368,100 887,279
---------------- -------------------- ----------------
3,104,500 3,260,000 3,660,779
---------------- -------------------- ----------------
$ 34,493,800 $ 29,636,400 $ 32,964,000
================ ==================== ================
</TABLE>
A reconciliation of the provision for income taxes at the applicable
federal statutory income tax rate to the income tax expense as reported is as
follows for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
<S> <C> <C> <C>
Income tax expense at statutory rate $ 31,887,282 $ 28,270,836 $ 29,966,912
State income taxes, net of federal
tax benefit 2,004,211 2,160,835 2,489,421
Other 602,307 (795,271) 507,667
------------------- ------------------- -------------------
Income tax expense $ 34,493,800 $ 29,636,400 $ 32,964,000
=================== =================== ===================
</TABLE>
In 1995, prior years' income tax audits were resolved and the Company
reduced its deferred tax liabilities and deferred tax expense by approximately
$1.3 million.
The Company paid income taxes in the amount of $33,389,841 in 1996,
$27,259,730 in 1995 and $27,801,152 in 1994.
NOTE F - COMMITMENTS AND CONTINGENCIES
ASA's current fleet includes the following aircraft under operating
leases:
<TABLE>
<CAPTION>
NON-CANCELLABLE
# OF AIRCRAFT TYPE OF AIRCRAFT LEASE TERM
------------- ---------------- ---------------
<S> <C> <C> <C>
8 ATR-72 7 years
4 EMB-120 3.1 - 4.4 years
5 BAe 146 2 years
</TABLE>
45
<PAGE> 50
ASA has the option to extend each of the BAe 146 aircraft leases.
ASA leases facilities from local airport authorities or other carriers
as well as office space for its corporate headquarters and hangar facilities.
These leases are operating leases and have terms ranging from one month to 22
years.
Total rental expense on operating leases for the years ended December
31, 1996, 1995 and 1994 was $24,041,093, $17,591,292 and $14,597,677,
respectively.
Minimum future lease payments under all non-cancellable operating
leases are as follows:
<TABLE>
<S> <C> <C>
1997 $ 21,206,239
1998 15,807,881
1999 13,809,966
2000 12,750,678
2001 12,553,759
After 2001 38,202,729
------------
$114,331,252
============
</TABLE>
On August 21, 1995, ASA suffered a tragic loss when one of its flights
crashed. On November 26, 1996, the National Transportation Safety Board (NTSB),
in a unanimous vote, determined that the probable cause of the accident was the
in-flight fatigue fracture and separation of a propeller blade that resulted in
excessive drag, loss of wing lift and reduced directional control of the
aircraft. The NTSB further concluded that the fracture in the propeller blade
was caused by a fatigue crack from multiple corrosion pits that were not
discovered by the propeller manufacturer because of its inadequate and
ineffective corporate inspection and repair techniques, training, documentation
and communication. Accordingly, ASA's management does not feel that ASA was at
fault, based on the factual information currently available to it. ASA has
received insurance proceeds from its insurance company related to the hull value
of the aircraft, and the debt related to this aircraft was paid with part of
these insurance proceeds. A number of claims and lawsuits have been filed in
connection with this matter. The propeller manufacturer (through its insurer)
has agreed to address all claims arising from this accident without
acknowledging fault. Accordingly, the Company's management does not believe
that the Company has any liability in this matter, based on factual information
currently available to it. Therefore, ASA has not accrued a liability for
potential claims. Neither the propeller manufacturer nor its insurer has
entered into any written indemnity agreement with ASA or its insurer, and
neither is legally obligated to indemnify either ASA or its insurer for
expenses actually incurred in connection with the crash. In addition, ASA
maintains adequate insurance coverage which it believes, based on factual
information currently available to it, is sufficient to cover claims associated
with this incident. After the results of the NTSB investigation were announced,
ASA was dismissed from all existing lawsuits with respect to the crash.
46
<PAGE> 51
Approximately 25% of ASA's workforce are members of the unions
representing pilots and flight attendants. In 1995, collective bargaining
agreements with both of these unions became amendable and are currently being
renegotiated. Federal mediation between ASA and the pilots and flight
attendants has been ongoing for approximately one year. The Railway Labor Act,
which governs labor relations for these unions, contains detailed provisions
that must be exhausted before work stoppages can occur once a collective
bargaining agreement becomes amendable.
NOTE G - DIVIDENDS AND COMMON STOCK TRANSACTIONS
During the fourth quarter of 1996, ASA renegotiated certain restrictive
covenants in its credit agreements. Limitations on ASA's payment of dividends
and ASA's repurchases of common stock were removed, except to the extent that
the transfer of funds in the form of cash dividends, loans or advances would
cause ASA to breach other financial covenants (See Note B). ASA Holdings and ASA
Investments are not subject to such restrictions except to the extent that ASA
is restricted in its ability to transfer funds to ASA Holdings or ASA
Investments in the form of cash dividends, loans or advances. Prior to the
amendment of these credit agreements, ASA was limited in the amount of cash it
could apply to the repurchase of common stock and the payment of dividends
generally to 30% of average annual earnings. During the first three quarters of
1996 and in 1995, ASA paid dividends on its common stock in the amount of
$8,882,569 and $11,203,992 and acquired approximately $2,785,000 and $3,329,000
of its common stock, without exceeding these previously existing limitations. In
1994, ASA acquired approximately $2,777,000 of its common stock under the
previous terms of the agreements. ASA's Board of Directors authorized ASA to
repurchase on the open market up to an additional $50,000,000 of its common
stock at any time on or before December 31, 1995 and up to an additional
$50,000,000 of ASA common stock during fiscal 1996. These repurchases were
authorized by the Board to be in addition to the repurchases allowed under the
existing credit agreements. Because these common stock repurchase programs were
not within the limitations set forth in the credit agreements, they were
consented to by ASA's lenders, in advance, as required by the credit agreements.
Pursuant to these repurchase programs, ASA repurchased approximately $49,295,000
of its common stock through December 31, 1995 and an additional $34,661,000 of
its common stock during 1996. All of the repurchased shares of common stock were
held as treasury stock. In connection with the Reorganization on December 31,
1996, all of the shares of treasury stock were cancelled. In January 1997, ASA
Holdings announced that its Board of Directors authorized it to repurchase up to
$50,000,000 of its common stock on the open market during 1997.
During 1996, ASA paid a total of $11,731,958 in dividends at 9.5 cents
per share per quarter. In January 1997, ASA Holdings' Board of Directors
increased the regular quarterly cash dividend to 10 cents per share.
47
<PAGE> 52
NOTE H - STOCK PLANS
The Company has a Stock Appreciation Rights (SARs) plan which allows
for up to 900,000 shares of ASA Holdings' common stock to be issued to certain
employees. The plan provides for the appreciation in market value, at the date
of exercise, over the grant price to be issued in shares of common stock, cash
or a combination thereof, as determined by the Board of Directors and set at the
time of each SAR grant. SARs outstanding at December 31, 1996 are exercisable
over a period of five years at certain intervals, as provided in the form of
each grant. Grants are made by a committee of the Board of Directors.
SARs transactions are as follows:
<TABLE>
<CAPTION>
NUMBER OF SARS GRANT PRICE
-------------- -----------
<S> <C> <C>
Outstanding at January 1, 1994 416,200 $17.13 - $21.13
Exercised (122,200) 21.13
Granted 235,700 36.75
---------- ----------------------
Outstanding at December 31, 1994 529,700 17.13 - 36.75
Exercised (150,300) 21.13
Granted 411,000 17.13
---------- ----------------------
Outstanding at December 31, 1995 790,400 17.13 - 36.75
Exercised - -
Granted - -
---------- ----------------------
Outstanding at December 31, 1996 790,400 $17.13 - $36.75
---------- ----------------------
</TABLE>
In January 1997, an additional 414,100 SARs were granted at an exercise
price of $22.38. In 1996 and 1995, SARs increased expense by $729,000 and
$2,416,000, respectively. In 1994, the Company reversed previously accrued
expenses associated with SARs resulting in a credit to expense of approximately
$4,198,000 due to a decline in the price of its common stock. In connection with
the exercise of SARs, the Company made cash payments of $434,445 and issued
22,963 shares of common stock in 1995, and made cash payments of $521,529 and
issued 23,935 shares of common stock in 1994. Assuming full vesting, shares
issuable under SARs outstanding at December 31, 1996 were 57,601 and all SARS
are fully vested as of February 1997.
As indicated in Note A, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its SARs. However, the
Financial Accounting Standards Board Opinion No. 123, "Accounting for
Stock-Based Compensation", requires pro forma information regarding net income
and earnings per share as if the Company had accounted for its SARs granted
subsequent to
48
<PAGE> 53
December 31, 1994 under the fair value method of that Statement. The fair value
of these SARs was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions for 1995 and 1996: a risk-free
interest rate of 6%; a dividend yield of 2%; a volatility factor of the expected
common stock market price of .472; and a weighted-average expected life of the
SAR of five years. The fair value of the SARs granted in 1995 was computed to be
$7.11. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
volatility. Because the Company's employee stock plan has characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the SARs. For purposes of pro forma
disclosures, the estimated fair value of the SARs is amortized over the vesting
period of the related SARs. The Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below (in thousands
except per share information):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Net Income - as reported $56,613 $51,137
Net Income - pro forma $56,524 $50,844
Earnings per Share - as reported $1.83 $1.55
Earnings per Share - pro forma $1.82 $1.54
</TABLE>
NOTE I - EMPLOYEE BENEFIT PLANS
All employees of the Company who have completed one year of employment
are generally eligible to participate in ASA's Investment Savings Plan. For each
dollar of salary reduction elected by an employee (up to 6% of an employee's
earnings), the Company has made a matching contribution of 20 cents to 50 cents
(depending on the number of years of participation for each participant). The
amounts contributed by the Company for 1996, 1995 and 1994 were approximately
$920,000, $915,000 and $820,000, respectively.
The Company has an Executive Deferred Compensation Plan for certain
employees, as designated by a committee of the Board of Directors. The Company
contributes from 10% to 15% of each participant's base salary to the plan.
Approximately $126,000, $122,000 and $100,000 were contributed in 1996, 1995 and
1994, respectively.
The Company has a Supplemental Executive Retirement Plan (SERP) which
was approved by the Board of Directors in May 1995. The SERP provides
supplemental retirement income to certain key executive employees at the time of
their retirement or termination of employment from
49
<PAGE> 54
the Company, on or after the attainment of age 55. During 1996 and 1995,
respectively, the Company recorded expense of approximately $142,000 and
$131,000 related to the SERP. At December 31, 1996 and 1995, respectively, other
non-current liabilities included approximately $913,000 and $681,000 related to
the SERP.
The Company has no material liability for post-retirement or
post-employment benefits under Statements of Financial Accounting Standards No.
106 and 112.
NOTE J - RELATED PARTY TRANSACTIONS
Delta Air Lines Holdings, Inc. (an affiliate of Delta) owns 7,995,000
shares or approximately 27% of ASA Holdings' outstanding common stock. ASA
leases reservation equipment and certain terminal facilities from Delta and
Delta provides certain services to ASA including reservation and ground handling
services. Expenses paid to Delta under these agreements were approximately
$11,883,000 in 1996, $9,642,000 in 1995, and $5,762,000 in 1994. Other
information related to Delta is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accounts Receivable from Delta
at December 31: $ 121,000 $ 129,000
Accounts Payable to Delta
at December 31: $1,747,000 $2,275,000
</TABLE>
Given ASA's relationship with Delta, ASA's results of operations and
financial condition may be favorably or adversely impacted by Delta's decisions
regarding its flight routes and other operational matters. ASA's flight
schedules are structured to facilitate the connection of its passengers with
Delta flights at ASA's Atlanta and Dallas/Fort Worth hubs. ASA has historically
benefited from its relationship with Delta, but there can be no assurance that
such benefits will occur in the future.
NOTE K - MARKETABLE SECURITIES AND FAIR VALUE INFORMATION
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates its fair value.
50
<PAGE> 55
Marketable securities: Investments are classified as available for sale
and reported at fair value (estimated based on quoted market prices). The gross
unrealized holding loss of $3,432 as of December 31, 1996 and the $117,414
holding gain as of December 31, 1995 are reflected as adjustments to
shareholders' equity, net of related income taxes. Realized gains and losses
other than interest income were not material.
Long-term debt: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's estimate
of current borrowing rates for credit facilities with maturities which
approximate the weighted average maturities for its existing long-term debt.
Off-balance sheet financial instruments: The Company receives interest
rate subsidies on certain long-term debt instruments (See Note B). The fair
values of these off-balance sheet instruments are estimated using discounted
cash flow analyses based on the Company's estimate of current borrowing rates.
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNTS ESTIMATED FAIR VALUE
1996 1995 1996 1995
--------------- --------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 137,468,791 $ 66,402,694 $ 137,468,791 $ 66,402,694
Marketable securities 52,653,227 121,697,247 52,653,227 121,697,247
Total long-term debt
(including current maturities) (120,194,090) (152,600,087) (119,894,051) (152,501,958)
Off-balance sheet financial
instruments - - 5,700,053 8,305,613
</TABLE>
51
<PAGE> 56
ASA HOLDINGS, INC.
REPORT OF MANAGEMENT
The management of ASA Holdings, Inc. is responsible for the
preparation, content, integrity and objectivity of the financial statements and
other information presented in this report. The financial statements, which were
prepared in conformity with generally accepted accounting principles applied on
a consistent basis, have been audited by Ernst & Young LLP, independent
auditors.
The Company maintains a system of internal controls that provides
reasonable assurance as to the integrity and reliability of the financial
statements, that its assets are safeguarded against loss or unauthorized use and
that fraudulent financial reporting is prevented and detected.
The Board of Directors pursues its responsibilities through its Audit
Committee composed entirely of directors who are not employees of the Company.
The Audit Committee meets periodically and privately with the Company's
independent auditors and Company management to review accounting, auditing,
internal control and financial reporting matters.
/s/ George F. Pickett
- - -------------------------
George F. Pickett
Chairman of the Board and
Chief Executive Officer
/s/ Ronald V. Sapp
- - ---------------------------
Ronald V. Sapp
Chief Financial Officer and
Vice President - Finance
52
<PAGE> 57
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
ASA Holdings, Inc.
We have audited the accompanying consolidated balance sheets of ASA
Holdings, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ASA
Holdings, Inc. at December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 31, 1997
53
<PAGE> 58
ASA HOLDINGS, INC.
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
---------- ---------- ---------- ----------- -----------
1996
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 89,405 $ 104,238 $ 94,670 $ 86,987 $ 375,300
OPERATING INCOME 17,063 28,823 25,462 13,804 85,152
INCOME BEFORE INCOME TAXES 18,221 29,960 26,821 16,105 91,107
NET INCOME $ 11,297 $ 18,430 $ 16,549 $ 10,337 $ 56,613
NET INCOME PER SHARE $ 0.36 $ 0.59 $ 0.53 $ 0.35 $ 1.83
WEIGHTED AVERAGE SHARES OUTSTANDING 31,490 31,325 30,975 30,181 30,991
STOCK PRICE DATA
HIGH $ 28.50 $ 29.38 $ 28.38 $ 25.00 $ 29.38
LOW $ 17.88 $ 22.00 $ 20.25 $ 19.88 $ 17.88
1995
Operating Revenues $ 71,891 $ 90,049 $ 84,225 $ 82,560 $ 328,725
Operating Income 14,375 23,294 23,108 15,098 75,875
Income before Income Taxes 15,008 24,258 24,522 16,986 80,774
Net Income $ 9,560 $ 14,967 $ 15,130 $ 11,480 $ 51,137
Net Income per Share $ 0.29 $ 0.45 $ 0.46 $ 0.35 $ 1.55
Weighted Average Shares Outstanding 33,069 33,113 33,107 32,558 32,964
Stock Price Data
High $ 21.00 $ 30.75 $ 34.25 $ 27.88 $ 34.25
Low $ 15.25 $ 18.00 $ 21.75 $ 20.75 $ 15.25
</TABLE>
54
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No change in or disagreements with ASA's accountants took place during
ASA's fiscal years ended December 31, 1996 and 1995, or during the subsequent
interim period through March 3, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the data under the heading "ELECTION OF DIRECTORS" and "SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Proxy Statement to be
used in connection with the solicitation of proxies for ASA Holdings' annual
meeting of shareholders to be held May 21, 1997, to be filed with the Securities
and Exchange Commission (the "COMMISSION").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the data under the heading "EXECUTIVE COMPENSATION" in the Proxy
Statement to be used in connection with the solicitation of proxies for ASA
Holdings' annual meeting of shareholders to be held May 21, 1997, to be filed
with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by
reference to the data under the heading "VOTING SECURITIES AND PRINCIPAL HOLDERS
THEREOF -- SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" in
the Proxy Statement to be used in connection with the solicitation of proxies
for ASA Holdings' annual meeting of shareholders to be held May 21, 1997, to be
filed with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the data under the heading "ELECTION OF DIRECTORS -- COMPENSATION
COMMITTEE INTERLOCKS AND ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION
DECISIONS" in the Proxy Statement to be used in connection with the solicitation
of proxies for ASA Holdings' annual meeting of shareholders to be held May 21,
1997, to be filed with the Commission.
55
<PAGE> 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this Report:
l. The following financial statements of the Registrant required by
Item 8 of Form 10-K are included as pages [34] through [51] of this Report on
Form 10-K:
Consolidated Balance Sheets as of December 31, 1996 and 1995;
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994;
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994;
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994; and
Notes to Consolidated Financial Statements.
2. The following financial statement schedule[s] of the Registrant
required by Item 8 and Item 14(d) of Form 10-K are included as pages [67]
through [68] of this Report on Form 10-K:
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts and Reserves
Schedules other than those listed above have been omitted because they are not
applicable or required under the accounting regulations and related instructions
of the Commission.
3. The following exhibits required by Item 601 of Regulation S-K and by
Item 14(c) of Form 10-K are filed herewith or incorporated by reference as
indicated. Exhibit numbers refer to Item 601 of Regulation S-K:
The exhibits listed on the Exhibit Index on pages 62 through 69
of this Report are incorporated herein by reference. The management
contracts or compensatory plans or arrangements required to be filed
as exhibits to this Report pursuant to Item 14(c) are identified in
the Exhibit Index.
(b) ASA filed no current reports on Form 8-K during the fourth quarter of 1996.
56
<PAGE> 61
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ASA HOLDINGS, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1996
(In Thousands)
<S> <C>
ASSETS
Current Assets
Receivables from Affiliates $ 2,807
Investment in Subsidiaries 260,217
Other Assets 1,214
--------
Total Assets $264,238
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities $ 2,364
Accrued Compensation and Related Expenses
Other Accrued Expenses 100
--------
2,464
Non-Current Liabilities 1,558
Shareholders' Equity
Common Stock Par Value 2,999
Retained Earnings 257,217
--------
260,216
--------
Total Liabilities and Shareholders' Equity $264,238
========
See accompanying note.
</TABLE>
57
<PAGE> 62
ASA HOLDINGS, INC.
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
December 31, 1996
(In Thousands)
<S> <C>
Net Income before Equity in Earnings of Subsidiaries -
Equity in Earnings of Subsidiaries $ 56,613
-----------
Net Income $ 56,613
===========
CONDENSED STATEMENT OF CASH FLOWS
Net Income $ 56,613
Adjustment to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Undistributed earnings of subsidiaries (56,613)
-----------
Net Cash Provided by Operating Activities -
Increase (Decrease) in Cash -
Cash at Beginning of Year -
-----------
Cash at End of Year -
===========
</TABLE>
Note to Condensed Financial Statements
Note A - Basis of Presentation
ASA Holdings, Inc., the parent company, was formed pursuant to a corporate
reorganization which was effective December 31, 1996. ASA Holdings, Inc. holds
all of the outstanding shares of Atlantic Southeast Airlines, Inc. and ASA
Investments, Inc. The Company's investment in subsidiaries is stated at equity.
58
<PAGE> 63
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
December 31, 1996
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Col. A Col. B Col. C
- - --------------------------------------------------------------------------------------------
Additions
--------------------------
Charged Charged to
Balance at to other
beginning of cost and accounts
Description period expenses (describe)
Year ended December 31, 1994
Reserves and allowances deducted
from asset accounts:
<S> <C> <C> <C>
Allowance for doubtful accounts $ 195,970 $ 120,000
Allowance for obsolescence of
expendable parts 2,938,200 565,913
-------------- ------------ --------------
$ 3,134,170 $ 685,913 $ 0
Year ended December 31, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 280,569 $ 20,000
Allowance for obsolescence of
expendable parts 3,504,113 546,339
-------------- ------------ --------------
$ 3,784,682 $ 566,339 $ 0
Year ended December 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $ 266,343 $ (25,000)
Allowance for obsolescence of
expendable parts 4,048,772 567,788
-------------- ------------ --------------
$ 4,315,115 $ 542,788 $ 0
============== ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Col. A Col. D Col. E
- - ---------------------------------------------- ------------------ -----------
------------------ -----------
Balance at
Deductions end of
Description (describe) period
Year ended December 31, 1994
Reserves and allowances deducted
from asset accounts:
<S> <C> <C>
Allowance for doubtful accounts $ (35,401) (A) $ 280,569
Allowance for obsolescence of
expendable parts 3,504,113
----------- -----------
$ (35,401) $ 3,784,682
Year ended December 31, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ (34,226) (A) $ 266,343
Allowance for obsolescence of
expendable parts (1,680) (B) 4,048,772
----------- -----------
$ (35,906) $ 4,315,115
Year ended December 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $ (36,996) (A) $ 204,347
Allowance for obsolescence of
expendable parts (413,818) (B) 4,202,742
----------- -----------
$ (450,814) $ 4,407,089
=========== ===========
</TABLE>
(A) Uncollectible Accounts charged off during the period.
(B) Obsolete parts charged off during the period.
59
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ASA HOLDINGS, INC.
By: /s/ George F. Pickett
-----------------------------------------
George F. Pickett
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
Date: March 31, 1997
60
<PAGE> 65
We, the undersigned officers and directors of ASA Holdings, Inc.,
hereby severally constitute George F. Pickett and John W. Beiser and each of
them singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated below,
any and all amendments to this report, and generally do all such things in our
name and behalf in such capacities to enable ASA Holdings, Inc. to comply with
the applicable provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys, or either of
them, to any and all such amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C>
/s/ George F. Pickett March 31, 1997
- - ---------------------------------
George F. Pickett, Chairman of the Board
and Chief Executive Officer (Principal
Executive Officer) and Director
/s/ John W. Beiser March 31, 1997
- - ---------------------------------
John W. Beiser, President, Secretary
and Director
/s/ Ronald V. Sapp March 31, 1997
- - ---------------------------------
Ronald V. Sapp, Vice President - Finance
(Principal Financial and Accounting
Officer)
/s/ Jean A. Mori March 31, 1997
- - ---------------------------------
Jean A. Mori, Director
/s/ Parker H. Petit March 31, 1997
- - ---------------------------------
Parker H. Petit, Director
/s/ Ralph W. Voorhees March 31, 1997
- - ---------------------------------
Ralph W. Voorhees, Director
/s/ Alan M. Voorhees March 31, 1997
- - ---------------------------------
Alan M. Voorhees, Director
</TABLE>
61
<PAGE> 66
EXHIBIT INDEX
Exhibit Number and Description
3(a) Articles of Incorporation. (Incorporated by reference to Exhibit 3(a)
to the Registration Statement on Form S-4 [Registration No. 333-13071],
as amended [the "REORGANIZATION REGISTRATION STATEMENT"].)
3(b) Bylaws. (Incorporated by reference to Exhibit 3(b) to the
Reorganization Registration Statement.)
4 Instruments defining the rights of security holders, including
indentures. See Exhibits 3(a) and 3(b).)
10(a) Stock Agreement dated as of March 17, 1997, between ASA Holdings, ASA,
Delta and Delta Holdings. Attached hereto as Exhibit 10(a).
10(b) Delta Connection Agreement dated July 1, 1986, between ASA and Delta.
(Incorporated by reference to Exhibit 10(e) to ASA's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, file number
0-11097, filed with the Commission on March 27, 1992.) Letter Agreement
dated February 19, 1987 from Delta and agreed to and accepted by ASA.
(Incorporated by reference to Exhibit 10(a) to ASA's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, file number
0-11097, filed with the Commission on November 14, 1996.) Amendment to
the Delta Connection Agreement dated December 17, 1987, between Delta
and ASA. (Incorporated by reference to Exhibit 10(b) to ASA's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, file
number 0-11097, filed with the Commission on November 14, 1996.)
Amendment to the Delta Connection Agreement effective July 1, 1988,
between Delta and ASA. (Incorporated by reference to Exhibit 10(c) to
ASA's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, file number 0-11097, filed with the Commission on November 14,
1996.) Amendment to the Delta Connection Agreement dated March 4, 1992,
between Delta and ASA. (Incorporated by reference to Exhibit 10(d) to
ASA's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, file number 0-11097, filed with the Commission on November 14,
1996.) Amendment to the Connection Carrier Agreement dated as of August
1, 1994, between Delta and ASA. (Incorporated by reference to Exhibit
10(e) to ASA's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, file number 0-11097, filed with the Commission on
November 14, 1996.) Confidential treatment has been applied for with
respect to certain provisions in these exhibits.
10(c) Office Lease Agreement dated December 18, 1991, by and between ASA and
Trident Partners. (Incorporated by reference to Exhibit 10(q) to ASA's
Annual Report on Form 10-K for the year ended December 31, 1991, file
number 0-11097, filed with the Commission on March 27, 1992.)
62
<PAGE> 67
10(d) Lease Agreement dated April 1, 1988, between ASA and Macon - Bibb
County Industrial Authority. (Incorporated by reference to Exhibit
10(k) to ASA's Annual Report on Form 10-K for the year ended December
31, 1992, file number 0-11097, filed with the Commission on March 31,
1993.)
10(e) Credit Agreement dated as of December 24, 1986, among ASA, ASA
Investments, and Manufacturers Hanover Leasing International Corp.,
American Security Bank, N.A., Barclays Bank PLC, B.S.F.E. - Banque de
la Societe Financiere Europeene, Canadian Imperial Bank of Commerce,
Citizens and Southern National Bank, Continental Illinois National Bank
and Trust Company of Chicago, Kawasaki Lease Financing Inc., National
Bank of Canada, National Bank of Georgia and The Royal Bank of Canada.
(Incorporated by reference to Exhibit 10(f) to ASA's Annual Report on
Form 10-K for the year ended December 31, 1991, file number 0-11097,
filed with the Commission on March 27, 1992.) Amendment No. 1 dated as
of February 20, 1987. (Incorporated by reference to Exhibit 10(f) to
ASA's Annual Report on Form 10-K for the year ended December 31, 1992,
file number 0-11097, filed with the Commission on March 31, 1993.)
Amendment No. 2 dated as of May 23, 1989. (Incorporated by reference to
Exhibit 19(a) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1989, file number 0-11097, filed with the
commission on November 11, 1989.) Amendment No. 3 dated as of August
17, 1989. (Incorporated by reference to Exhibit 19(b) to ASA's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1989,
file number 0-11097, filed with the Commission on November 11, 1989.)
Fourth Amendment dated September 17, 1996. (Incorporated by reference
to Exhibit 10(f) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the Fourth Amendment.
10(f) Single Payment Note, dated January 26, 1987, payable to SunTrust Bank.
(Incorporated by reference to Exhibit 10(g) to ASA's Annual Report on
Form 10-K for the year ended December 31, 1991, file number 0-11097,
filed with the Commission on March 27, 1992.)
10(g) Credit Agreement dated as of April 23, 1987, among ASA, ASA
Investments, Inc., Manufacturers Hanover Leasing International Corp.,
Kawasaki Lease Financing, Inc. and Credit Lyonnais, Cayman Islands
Branch. (Incorporated by reference to Exhibit 10(i) to ASA's Annual
Report on Form 10-K for the year ended December 31, 1991, file number
0-11097, filed with the Commission on March 27, 1992.) Amendment No. 1
dated as of May 23, 1989. (Incorporated by reference to Exhibit 19(c)
to ASA's Quarterly Report on Form 10-Q for the quarter ended September
30, 1989, file number 0-11097, filed with the Commission on November
11, 1989.) Second Amendment dated as of October 31, 1989. (Incorporated
by reference to Exhibit 10(s) to ASA's Annual Report on Form 10-K for
the year ended December 31, 1989, file number 0-11097, filed with the
Commission on March 30, 1990.) Third Amendment dated September 17,
1996. (Incorporated by reference to Exhibit 10(h) to ASA's Quarterly
Report on Form 10-Q for the quarter ended
63
<PAGE> 68
September 30, 1996, file number 0-11097, filed with the Commission on
November 14, 1996.) Confidential treatment has been applied for with
respect to certain provisions in the Third Amendment.
10(h) Credit Agreement dated June 15, 1990 between ASA and Bank of America
National Trust and Savings Association ("BANK OF AMERICA"). Attached as
Exhibit 10(h) hereto. First Amendment dated September 13, 1996
(Incorporated by reference to Exhibit 10(j) to ASA's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, file number
0-11097, filed with the Commission on November 14, 1996.) Confidential
treatment has been applied for with respect to certain provisions in
the First Amendment.
10(i) Credit Agreement dated December 1, 1990 between ASA and Wachovia Bank
of Georgia, N.A. ("WACHOVIA"). Attached as Exhibit 10(i) hereto.
Amendatory Agreement dated July 6, 1993. Second Amendment dated
September 13, 1996. (Incorporated by reference to Exhibit 10(l) to
ASA's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, file number 0-11097, filed with the Commission on November 14,
1996.) Confidential treatment has been applied for with respect to
certain provisions in the Second Amendment.
10(j) Credit Agreement dated February 25, 1991 between ASA and Bank of
America. Attached as Exhibit 10(j) hereto. First Amendment dated
September 13, 1996 (Incorporated by reference to Exhibit 10(n) to ASA's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996,
file number 0-11097, filed with the Commission on November 14, 1996.)
Confidential treatment has been applied for with respect to certain
provisions in the First Amendment.
10(k) Credit Agreement dated April 19, 1991 between ASA and Wachovia.
Attached as Exhibit 10(k) hereto. First Amendment dated September 13,
1996 (Incorporated by reference to Exhibit 10(p) to ASA's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, file
number 0-11097, filed with the Commission on November 14, 1996.)
Confidential treatment has been applied for with respect to certain
provisions in the First Amendment.
10(l) Credit Agreement dated June 1, 1992, among ASA, Wachovia, in both its
capacities as Lender and Agent, and the Bank of Tokyo - Mitsubishi,
LTD., Atlanta Agency f/k/a The Bank of Tokyo, Ltd., Atlanta Agency.
Attached as Exhibit 10(l) hereto. First Amendment dated September 13,
1996. (Incorporated by reference to Exhibit 10(r) to ASA's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, file
number 0-11097, filed with the Commission on November 14, 1996.)
Confidential treatment has been applied for with respect to certain
provisions in the First Amendment.
10(m) Credit Agreement with Trust Company Bank dated as of April 20, 1994.
(Incorporated by reference to Exhibit 10(a) to ASA's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994, file number 0-11097,
filed with the Commission on May 13, 1994.)
64
<PAGE> 69
Confidential treatment has been granted by the Commission with respect
to certain provisions in this Credit Agreement. First Amendment dated
September 11, 1996. (Incorporated by reference to Exhibit 10(t) to
ASA's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996, file number 0-11097, filed with the Commission on
November 14, 1996.) Confidential treatment has been applied for with
respect to certain provisions in the First Amendment.
10(n) Aircraft Purchase Agreement dated August 27, 1990, between ASA and
Embraer - Empresa Brasileira de Aeronautica S.A. (Incorporated by
reference to Exhibit 10(t) to ASA's Annual Report on Form 10-K for the
year ended December 31, 1990, file number 0-11097, filed with the
Commission on March 29, 1991.) Confidential treatment has been granted
for with respect to certain provisions in this exhibit.
10(o) Purchase Agreement Assignment [N630AS] dated June 22, 1995; Purchase
Agreement Assignment [N631AS] dated June 22, 1995; Purchase Agreement
Assignment [N632AS] dated June 22, 1995; Purchase Agreement Assignment
[N633AS] dated June 22, 1995; Purchase Agreement Assignment [N634AS]
dated June 22, 1995; Purchase Agreement Assignment [N635AS] dated June
22, 1995; Purchase Agreement Assignment [N636AS] dated June 22, 1995;
and Purchase Agreement Assignment [N637AS] dated June 22, 1995 all
between the Company and First Security Bank of Utah, N.A. (Incorporated
by reference to Exhibit 10(c) to ASA's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, file number 0-11097, filed with
the Commission on August 14, 1995.)
10(p) Aircraft Purchase Agreement dated as of April 15, 1993, between ASA and
Embraer-Empresa Brasileira de Aeronautica S.A., related Letter
Agreements (I), (II), and (III) dated as of April 15, 1993, and a
Second Amendment dated as of April 15, 1993, to a Letter Supplement
dated as of November 21, 1988. (Incorporated by reference to Exhibit
10(a) to ASA's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993, file number 0-11097, filed with the Commission on August 16,
1993.) Confidential treatment has been granted by the Commission with
respect to certain provisions in this exhibit.
10(q) Participation Agreement dated as of May 1, 1993 between the Company and
Antoine Finance Corporation. (Incorporated by reference to Exhibit
10(b) to ASA's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993, file number 0-11097, filed with the Commission on August 16,
1993.) Confidential treatment has been granted by the Commission with
respect to certain provisions in this exhibit.
10(r) Unconditional Guaranty of Performance between the Company and Avions de
Agreement between the Company and Avions de Transport Regional dated
February 10, 1993 and related letter agreements. (Incorporated by
reference to Exhibit 10(d) to ASA's quarterly report on Form 10-Q for
the quarter ended June 30, 1993, file number 0-11097, filed with the
Commission on August 16, 1993.)
65
<PAGE> 70
10(s) Purchase Agreement Assignment No. 1 dated May 10, 1993, Purchase
Agreement Assignment No. 2 dated May 12, 1993, Purchase Agreement
Assignment No. 3 dated May 26, 1993, Purchase Agreement Assignment No.
4 dated June 16, 1993, Purchase Agreement Assignment No. 5 dated June
23, 1993, and Purchase Agreement Assignment No. 6 dated July 21, 1993,
all with respect to ATR 72 Purchase Agreement between the Company and
Avions de Transport Regional dated February 10, 1993 and related letter
agreements. (Incorporated by reference to Exhibit 10(e) to ASA's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, file
number 0-11097, filed with the Commission on August 16, 1993.) Purchase
Agreement Assignment No. 7 dated August 25, 1993, Purchase Agreement
Assignment No. 8 dated September 9, 1993, and Purchase Agreement
Assignment No. 9 dated September 23, 1993. (Incorporated by reference
to Exhibit 10(b) to ASA's quarterly report on Form 10-Q for the quarter
ended September 30, 1993, file number 0-11097, filed with the
Commission on November 15, 1993.)
10(t) Collateral Assignment of Purchase Agreement with Trust Company Bank
dated as of April 20, 1994 with respect to ATR 72 Purchase Agreement
between the Company and Avions de Transport Regional dated February 10,
1993. (Incorporated by reference to Exhibit 10(b) to ASA's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994, file number
0-11097, filed with the Commission on May 13, 1994.)
10(u) Sublease Agreement [N630AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N630AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N630AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N630AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(d) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(v) Sublease Agreement [N631AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N631AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N631AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N631AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(e) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(w) Sublease Agreement [N632AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N632AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N632AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N632AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(f) to ASA's Quarterly Report on Form 10-Q/A for the quarter
66
<PAGE> 71
ended June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(x) Sublease Agreement [N633AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N633AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N633AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N633AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(g) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(y) Sublease Agreement [N634AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N634AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N634AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N634AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(h) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(z) Sublease Agreement [N635AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N635AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N635AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N635AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(i) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(aa) Sublease Agreement [N636AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N636AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N636AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N636AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(j) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(ab) Sublease Agreement [N637AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N637AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N637AS]
dated June 22, 1995; and
67
<PAGE> 72
Nondisturbance and Recognition Agreement [N637AS] dated June 22, 1995.
(Incorporated by reference to Exhibit 10(k) to ASA's Quarterly Report
on Form 10-Q/A for the quarter ended June 30, 1995, file number
0-11097, filed with the Commission on February 23, 1996.) Confidential
treatment has been granted by the Commission with respect to certain
provisions in this exhibit.
10(ac) Agreement to Lease Used British Aerospace 146 Series 200 Aircraft
between British Aerospace Holdings, Inc. Asset Management Organization
and the Company dated as of October 2, 1995. (Incorporated by reference
to Exhibit 10(ac) to ASA's Annual Report on Form 10-K for the year
ended December 31, 1995, file number 0-11097, filed with the Commission
on April 1, 1996.)
10(ad) JetSpares Agreement, dated as of October 2, 1995, between British
Aerospace Holdings, Inc., Avro International Aerospace Division, and
ASA. (Incorporated by reference to Exhibit 10(ad) to ASA's Annual
Report on Form 10-K for the year ended December 31, 1995, file number
0-11097, filed with the Commission on April 1, 1996.)
10(ae) Engine Maintenance Cost Protection Program Agreement between
AlliedSignal, Inc., AlliedSignal Engines and the Company dated as of
October 2, 1995. (Incorporated by reference to Exhibit 10(ae) to ASA's
Annual Report on Form 10-K for the year ended December 31, 1995, file
number 0-11097, filed with the Commission on April 1, 1996.)
10(af) Customer Support Agreement (ALF 502 Series TurboFan Engines) between
AlliedSignal Aerospace-Engine Division and the Company dated as of
October 2, 1995. (Incorporated by reference to Exhibit 10(af) to ASA's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
file number 0-11097, filed with the Commission on April 1, 1996.)
10(ag) 1990 Stock Appreciation Rights Plan of Atlantic Southeast Airlines,
Inc. (Incorporated by reference to Exhibit 19(a) to ASA's Quarterly
Report for the quarter ended June 30, 1990, file number 0-11097, filed
with the Commission on August 13, 1990.) (MANAGEMENT CONTRACT OR
COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO
THE ANNUAL REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM 10-K.)
10(ah) Atlantic Southeast Airlines, Inc. Executive Deferred Compensation
(Retirement) Plan dated May 15, 1990. (Incorporated by reference to
Exhibit 19(b) to ASA's Quarterly Report for the quarter ended June 30,
1990, file number 0-11097, filed with the Commission on August 13,
1990.) First Amendment to Executive Deferred Compensation (Retirement)
Plan dated December 31, 1992. (Incorporated by reference to Exhibit
10(s) to ASA's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, file number 0-11097, filed with the Commission on
March 31, 1993.) (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR
ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO THE ANNUAL REPORT ON
FORM 10-K PURSUANT TO ITEM 14(C) OF FORM 10-K.)
68
<PAGE> 73
10(ai) Founding Officer Agreement dated June 27, 1990, between ASA and George
F. Pickett. (Incorporated by reference to Exhibit 19(c) to ASA's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990.) (MANAGEMENT
CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN
EXHIBIT TO THE ANNUAL REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF
FORM 10-K.)
10(aj) Founding Officer Agreement dated June 27, 1990, between ASA and John W.
Beiser. (Incorporated by reference to Exhibit 19(d) to ASA's Quarterly
Report for the quarter ended June 30, 1990, file number 0-11097, filed
with the Commission on August 13, 1990.) (MANAGEMENT CONTRACT OR
COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO
THE ANNUAL REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM 10-K.)
10(ak) Atlantic Southeast Airlines, Inc. Supplemental Executive Retirement
Plan effective May 24, 1995. (Incorporated by reference to Exhibit
10(a) to ASA's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, file number 0-11097, filed with the Commission on August 14,
1995.) (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT
REQUIRED TO BE FILED AS AN EXHIBIT TO THE ANNUAL REPORT ON FORM 10-K
PURSUANT TO ITEM 14(C) OF FORM 10-K.)
11 Statement re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Power of Attorney (Included on the signature page of this Form 10-K.)
27 Financial Data Schedule.
99 Information required by Form 11-K with respect to the Atlantic
Southeast Airlines, Inc. Investment Savings Plan will be filed as an
amendment to this Form 10-K within 180 days after the end of the fiscal
year of the plan as permitted by Rule 15d-21 under the Securities
Exchange Act of 1933.
69
<PAGE> 1
EXHIBIT 10(a)
STOCK AGREEMENT
THIS STOCK AGREEMENT (the "Agreement") is made and executed this 17th
day of March, 1997, by and among DELTA AIR LINES, INC., a Delaware corporation
("Delta"), DELTA AIR LINES HOLDINGS, INC., a Delaware corporation ("Delta
Holdings"), ATLANTIC SOUTHEAST AIRLINES, INC., a Georgia corporation
("Airlines"), and ASA HOLDINGS, INC., a Georgia corporation ("ASA Holdings").
WHEREAS, Delta previously acquired capital stock in Airlines pursuant
to that certain Stock Purchase Agreement dated May 28, 1986, between Delta and
Airlines (the "Purchase Agreement");
WHEREAS, Delta has previously assigned all its right, title and
interest in and to any and all capital stock owned by Delta in Airlines to
Delta Holdings, whereupon Delta ceased to be a shareholder of record of
Airlines and currently is not a shareholder of record of any capital stock in
or to Airlines or ASA Holdings; and
WHEREAS, effective 11:59 p.m. E.S.T. on December 31, 1996, Airlines
undertook a reorganization transaction (the "Subject Transaction") pursuant to
which Airlines has become a wholly owned subsidiary of ASA Holdings; and
WHEREAS, under the Subject Transaction, all capital stock owned of
record by Delta Holdings in Airlines was automatically converted to the same
number of shares of capital stock in ASA Holdings, whereupon Delta Holdings
ceased to own of record any capital stock in Airlines; and
WHEREAS, the parties desire to (i) set forth herein the applicable
terms, conditions and other provisions originally contained under the Purchase
Agreement which shall apply as between Delta and Delta Holdings, as applicable,
on the one hand, and ASA Holdings, on the other, with respect to all capital
stock now owned or hereafter acquired by Delta Holdings in ASA Holdings (the
"Subject Stock") and (ii) except as noted in subclause (i), terminate in its
entirety the Purchase Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
I. RECITALS.
All parties acknowledge and agree that all of the foregoing recitals
are true and correct.
II. TERMINATION.
In accordance with Section 7.8 of the Purchase Agreement, the parties
acknowledge and agree that the Purchase Agreement is hereby amended in its
entirety as hereinafter provided.
<PAGE> 2
III. COVENANTS.
3.1 ASA Holdings' Board of Directors. ASA Holdings agrees that,
if Delta or Delta Holdings shall so request, (i) as promptly as practicable,
ASA Holdings will take such action as may be necessary to cause the election to
ASA Holdings' Board of Directors of two designees selected by Delta or Delta
Holdings and reasonably acceptable to ASA Holdings and (ii) for as long as
Delta or Delta Holdings owns at least 10% of the outstanding common stock of
ASA Holdings, ASA Holdings will include at least two designees of Delta or
Delta Holdings reasonably acceptable to ASA Holdings on the slate of nominees
for election as directors nominated by the ASA Holdings' Board of Directors and
will use its reasonable best efforts to assure that such individuals are
elected to ASA Holdings' Board of Directors (including, without limitation, by
soliciting proxies in favor of their election).
3.2 Equity Accounting. ASA Holdings will furnish to Delta and
Delta Holdings all information that is required by generally accepted
accounting principles to enable Delta and Delta Holdings to account for its
investment in ASA Holdings pursuant to the equity method if Delta or Delta
Holdings elects or is required by generally accepted accounting principles to
do so. To the extent reasonably requested by Delta or Delta Holdings, ASA
Holdings will, and will cause its employees, independent public accountants and
other representatives to, provide information regarding ASA Holdings to, and
otherwise cooperate with, Delta and Delta Holdings so as to enable Delta and
Delta Holdings to prepare financial statements in accordance with generally
accepted accounting principles and to comply with its reporting requirements
and other disclosure obligations under applicable federal securities laws and
regulations.
3.3 Registration Rights.
(a) Demand Rights. If, at any time Delta Holdings shall
desire to sell any or all of the Subject Stock, or any "New Securities" (as
defined in Section 3.4 hereof) acquired by Delta Holdings pursuant to Section
3.4 hereof (for purposes of this Section 3.3, the "Subject Stock" shall include
such New Securities), under circumstances requiring registration under the
Securities Act of 1933, as amended (the "Securities Act"), and shall so advise
ASA Holdings by written notice (which notice shall specify the number of shares
of the Subject Stock proposed to be sold, describe the method of proposed sale
and contain an undertaking by Delta Holdings to provide all such information
and to take all such action as may be required in order to permit ASA Holdings
to comply with all applicable requirements of the Securities and Exchange
Commission (the "SEC") and to obtain acceleration of the effective date of such
registration statement), ASA Holdings shall promptly prepare and file a
registration statement with the SEC relating to such Subject Stock designated
in such notice and use its reasonable best efforts to cause such registration
statement to become effective and remain effective for a period of not less
than six months (or such lesser period as the parties may agree); provided,
however, that ASA Holdings shall not be obligated to effect more than three
such registrations. If the plan of distribution specified by Delta Holdings
with respect to any such registration involves the selection of a managing
underwriter or underwriters, such managing underwriter or underwriters shall be
chosen by Delta Holdings, subject to the reasonable approval of
2
<PAGE> 3
ASA Holdings. In connection with any such registration, ASA Holdings will make
such filings, and will use its reasonable best efforts to cause such filings to
become effective, so that the Subject Stock proposed to be sold shall be
registered or qualified for sale under the securities or Blue Sky laws of such
jurisdictions as shall be reasonably appropriate for the distribution of the
Subject Stock covered by the registration statement; provided, however, that
ASA Holdings shall not be required to register as a broker or dealer in any
jurisdiction where it is not then so registered or to qualify to do business as
a foreign corporation in any jurisdiction where it is not then so qualified or
to file any general consent to service of process.
(b) Piggyback Rights. If, at any time ASA Holdings shall
propose the registration under the Securities Act of an underwritten offering
of shares of capital stock, ASA Holdings shall give written notice to Delta and
Delta Holdings of such proposed registration and will use its reasonable best
efforts to include in such registration such number of shares of the Subject
Stock as Delta Holdings shall request in writing within 15 days after receipt
of ASA Holdings' notice and to cause such Subject Stock to be offered to the
public on the same terms (including the method of distribution and, in the case
of shares of the same class of stock, the offering price) applicable to the
other shares of capital stock to be included in such offering; provided,
however, that if the managing underwriter or underwriters of such offering
shall determine in good faith and so advise ASA Holdings in writing that the
number of shares of capital stock proposed to be sold in such offering
(including the shares of the Subject Stock proposed to be sold by Delta
Holdings) exceeds the number which can be sold in such offering, ASA Holdings
shall be required to include in such offering only such number of shares of the
Subject Stock, which, when added to the number of shares of capital stock
proposed to be sold by ASA Holdings in such offering, can, in the good faith
judgment of the managing underwriter or underwriters, be sold without adversely
affecting the success of the offering (it being understood, however, that if
other holders of capital stock of ASA Holdings shall have requested the
inclusion of their shares in such registration, the number of shares held by
Delta Holdings and the number of shares of capital stock of ASA Holdings held
by such other holders to be included in such offering shall be determined on a
pro-rata basis).
(c) Expenses. ASA Holdings shall pay all fees and expenses in
connection with any registration effected pursuant to this Section 3.3, except
for underwriting discounts and commissions to brokers or dealers attributable
to the Subject Stock being sold by Delta Holdings and the fees and
disbursements of any counsel and accountants retained by Delta Holdings in
connection with such registration.
(d) Indemnification. In the case of any registration effected
pursuant to this Section 3.3, ASA Holdings and Delta Holdings will each provide
the other and any underwriter retained in connection therewith with customary
indemnities.
3.4 Preemptive Rights.
(a) For so long as Delta Holdings owns at least 10% of the
outstanding common stock of ASA Holdings, if ASA Holdings proposes to issue any
shares of any class of its voting securities
3
<PAGE> 4
(such securities, together with any voting securities which Delta Holdings has
the right to acquire under this Section 3.4(a) upon the exercise of any
employee stock options or upon the issuance of any voting securities for
consideration other than cash, hereinafter collectively referred to as the "New
Securities"), ASA Holdings shall promptly advise Delta and Delta Holdings in
writing of the terms on which the New Securities are to be issued. Delta
Holdings shall have the right, which may be exercised at any time within 30
days following such notice, to acquire on the same terms and conditions as such
proposed issuance (or, in the case of the issuance of any New Securities upon
the exercise of any employee stock options, at the market price of such
securities on the date of exercise, or in the case of the issuance of any New
Securities for consideration other than cash, at a cash price equal to the fair
market value of such non-cash consideration on the date that ASA Holdings first
agrees to issue such New Securities) its pro rata share of the New Securities.
Delta Holdings' pro rata share of the New Securities shall be determined by
multiplying the total number of New Securities by a fraction, the numerator of
which is the total number of votes represented by the voting securities then
owned by Delta Holdings and the denominator of which is the total number of
votes represented by all of the then outstanding voting securities.
(b) Notwithstanding the foregoing, ASA Holdings need not
notify Delta and Delta Holdings of the issuance of New Securities upon the
exercise of employee stock options or of any other issuances of New Securities
which in the aggregate represent less than 1% of the total number of votes
represented by all then outstanding voting securities, but shall notify Delta
and Delta Holdings within 15 days after the end of each fiscal quarter of ASA
Holdings (or more frequently if requested by Delta Holdings) as to the number
of shares of New Securities so issued during such quarter. Delta Holdings'
right under this Section 3.4 to purchase its pro rata share of New Securities
may, at the election of Delta Holdings, be exercised at any time within 30 days
following the notice given pursuant to this Section 3.4(b) or such right to
purchase New Securities after a notice given pursuant to this Section 3.4(b)
shall cumulate and may be carried forward and exercised by Delta Holdings at
the time of and together with the subsequent purchase of additional New
Securities by Delta Holdings pursuant to the next notice received by Delta
Holdings pursuant to Subsection (a) of this Section 3.4.
(c) For purposes of this Section 3.4, (i) the term "voting
securities" shall mean any securities of ASA Holdings entitled to vote
generally in the election of directors; (ii) the term "current market price" of
any voting securities shall mean, on the day in question, the last reported
sale price (regular way) on the principal national securities exchange on which
such securities are listed or admitted to trading, or if they are not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices of such securities as reported through the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any comparable system, or if price quotations for such securities
are not reported through NASDAQ or a comparable system, the average of the
closing bid and asked prices of such securities as furnished by two members of
the National Association of Securities Dealers, selected from time to time by
ASA Holdings for that purpose; and (iii) the term "fair market value" of any
non-cash consideration on the date in question shall mean the fair market value
of such consideration as mutually agreed by ASA Holdings and Delta Holdings, or
if such parties are unable to agree, as determined by an investment
4
<PAGE> 5
banking firm mutually agreeable to both parties. In the event that the parties
are unable to agree on an investment banking firm, then each party shall name
its own investment banking firm and such firms shall select a third investment
banking firm to determine the "fair market value" of any non-cash
consideration. The fees and expenses of such third investment banking firm
shall be borne equally by ASA Holdings and Delta Holdings.
3.5 Right of First Refusal. If at a time when Delta Holdings owns
at least 5% of the outstanding common stock of ASA Holdings, Delta Holdings
proposes to sell any voting securities (as defined in Section 3.4(c)) then
owned by it either (i) to five or fewer persons pursuant to a registration
statement prepared as a result of Delta Holdings' exercise of its demand rights
under Section 3.3(a), or (ii) in a private sale without registration under the
Securities Act, Delta Holdings shall promptly advise ASA Holdings in writing of
the price and terms on which such voting securities are to be sold and, if
known, the intended purchaser of such voting securities. ASA Holdings shall
have the right, which may be exercised at any time within 30 days following
such notice, to acquire all, but not less than all, of the voting securities
proposed to be sold at the same price and on the same terms as such proposed
sale; provided, however, that if such price is payable in whole or in part in
consideration other than cash, the price payable by ASA Holdings shall be
payable in cash and shall be equal to the fair market value of such non-cash
consideration on the date Delta Holdings first agrees to sell such voting
securities, determined as provided in Section 3.4(c). If ASA Holdings does not
exercise its right to purchase the voting securities proposed to be sold, Delta
Holdings shall be free to sell such voting securities at the same price and on
the same terms contained in Delta Holdings' written notice to ASA Holdings
within the one hundred twenty (120) day period following the expiration of ASA
Holdings' thirty (30) day exercise period.
3.6 Covenant to Satisfy Conditions. Each of the parties hereto
will use their respective reasonable best efforts, and cooperate with the
other, to ensure that the conditions set forth in Article III hereof are
satisfied as promptly as practicable.
IV. MISCELLANEOUS.
4.1 Brokers. ASA Holdings and Delta Holdings each represent and
warrant to the other that neither has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby. Delta Holdings and ASA
Holdings each agrees to indemnify and hold the other harmless from and against
any and all claims, liabilities or obligations with respect to any such fees or
commissions asserted by any person on the basis of any act or statement alleged
to have been made by such party.
4.2 Expenses. Each party shall pay its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
4.3 Survival of Representations. All representations, warranties
and agreements made by ASA Holdings and Delta Holdings in this Agreement shall
survive the execution of this Agreement
5
<PAGE> 6
and the consummation of any transaction contemplated herein and any
investigation at any time made by or on behalf of any party hereto.
4.4 Adjustments. In the event of any change in the common stock
of ASA Holdings by reason of stock dividend, split-up, recapitalization,
combination, exchange of shares or the like, the number and kind of shares
subject to this Agreement shall be appropriately adjusted.
4.5 Legend. The certificates representing the Subject Stock shall
bear a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT, AND
IN COMPLIANCE WITH THE APPLICABLE LAWS OF ANY STATE OR OTHER
JURISDICTION. THE SALE, TRANSFER OR OTHER DISPOSITION OF THE
SHARES REPRESENTED BY THIS CERTIFICATE IS ALSO SUBJECT TO
RESTRICTIONS CONTAINED IN A STOCK AGREEMENT DATED MARCH 17,
1997, AMONG DELTA AIR LINES, INC., DELTA AIR LINES HOLDINGS,
INC., ATLANTIC SOUTHEAST AIRLINES, INC., AND ASA HOLDINGS,
INC., A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE
SECRETARY OF ASA HOLDINGS, INC.
4.6 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to its subject matter. There
are no restrictions, agreements, promises, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between all or any number of the parties with respect to its
subject matter.
4.7 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
4.8 Amendment; Waiver. This Agreement may be amended only by a
written instrument duly executed by each of ASA Holdings, Airlines, Delta, and
Delta Holdings. To the extent permitted by law, any condition to a party's
obligations hereunder may be waived in writing by such party.
4.9 Parties in Interest. This Agreement will be binding upon,
inure to the benefit of and be enforceable by ASA Holdings, Airlines, Delta and
Delta Holdings and their respective successors and assigns. This Agreement may
not be assigned by the parties hereto, except that Delta Holdings
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<PAGE> 7
may assign its rights hereunder to Delta or to any directly or indirectly
wholly owned subsidiary or parent of Delta or Delta Holdings; provided,
however, that no such assignment shall relieve Delta Holdings of any of its
obligations hereunder.
4.10 Specific Performance. ASA Holdings acknowledges and agrees
that Delta Holdings would not have an adequate remedy at law and would be
irreparably harmed in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that Delta Holdings shall be entitled to
injunctive relief to prevent breaches of this Agreement and to specifically
enforce the terms and provisions hereof, in addition to any other remedy to
which it may be entitled, at law or in equity.
4.11 Notices. All notices, claims, certificates, requests, demands
and other communications hereunder ("notices") will be given in writing and
will be deemed to have been duly given when hand-delivered or, if mailed, three
days after being mailed (registered or certified mail, postage prepaid, return
receipt requested) addressed as follows:
(a) If to Delta Holdings to:
Delta Air Lines Holdings, Inc.
Suite 1305
1105 North Market Street
Wilmington, Delaware 19801
Attention: Secretary
(b) If to Delta to:
Delta Air Lines, Inc.
Hartsfield Atlanta International Airport
1030 Delta Boulevard
Atlanta, Georgia 30320
Attention: Chief Executive Officer
copy to:
Senior Vice President-General Counsel & Secretary
Delta Air Lines, Inc.
Hartsfield Atlanta International Airport
1030 Delta Boulevard
Atlanta, Georgia 30320
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<PAGE> 8
(c) If to Airlines or ASA Holdings:
ASA Holdings, Inc.
100 Hartsfield Centre Parkway, Suite 800
Atlanta, Georgia 30354
Attn: John W. Beiser, President
copy to:
Altman, Kritzer & Levick, P.C.
6400 Powers Ferry Road
Suite 224
Atlanta, Georgia 30339
Attn: Craig H. Kritzer, Esq.
or, in either case, such other address as the person to whom notice is to be
given may have previously furnished to the others in the manner set forth
above.
4.12 Governing Law. This Agreement will be governed by and
construed in accordance with the internal laws of the State of Georgia, without
regard to the principles of conflicts of law.
4.13 Counterparts. This Agreement may be executed simultaneously
in counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
DELTA AIR LINES, INC.
By: /s/ Thomas J. Roeck, Jr.
-----------------------------------------
Title: Senior Vice President-Finance and
--------------------------------------
Chief Financial Officer
-----------------------
DELTA AIR LINES HOLDINGS, INC.
By: /s/ [illegible]
-----------------------------------------
Title: Treasurer
--------------------------------------
ATLANTIC SOUTHEAST AIRLINES, INC.
By: /s/ John W. Beiser
-----------------------------------------
Title: President
--------------------------------------
ASA HOLDINGS, INC.
By: /s/ John W. Beiser
-----------------------------------------
Title: President
--------------------------------------
9
<PAGE> 1
EXHIBIT 10(h)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of
June 15, 1990
between
ATLANTIC SOUTHEAST AIRLINES, INC.,
Borrower,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
Lender.
Three Embraer Model EMB-120 Brasilia Aircraft
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE I
DEFINITIONS; REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.03 Section and Exhibit References, etc. . . . . . . . . . . . . . . . . . . 6
ARTICLE II
PURCHASE OF NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.01 Purchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.02 Procedure for Purchase of Notes . . . . . . . . . . . . . . . . . . . . . 6
Section 2.03 Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
SECURITY FOR BORROWER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . 7
Section 3.01 Security Interest in Collateral . . . . . . . . . . . . . . . . . . . . . 7
Section 3.02 Set-Off Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
PAYMENTS UNDER THE NOTES AND OTHER
AMOUNTS PAYABLE BY BORROWER . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.01 How Payments are Made . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.02 Right to Prepay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.03 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.04 Mandatory Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.05 Amount of Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.06 Interest on Past Due Amounts . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.07 Reduction In Net Interest Payable by
Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 9
Section 5.01 Corporate Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.02 Corporate Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.03 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.04 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.05 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.06 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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<TABLE>
<S> <C> <C>
Section 5.07 Status as United States Citizen and
Air Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.08 Location of Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.09 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.10 Condition of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.11 Absence of ERISA Liability . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.12 Delta Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.13 Subsidiaries; Stock Ownership . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.14 Investment Company Status . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.01 financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.02 Inspection of Collateral and Records . . . . . . . . . . . . . . . . . . 13
Section 6.03 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.04 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.05 Citizenship and Air Carrier Status . . . . . . . . . . . . . . . . . . . 15
Section 6.06 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.07 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.08 Performance of Delta Agreement . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASE OF THE
NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.01 Conditions Precedent to the Purchase
of the Initial Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.02 Conditions Precedent to the Purchase
of All Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IX
BORROWER'S INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.01 General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.02 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE X
YIELD PROTECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.02 Breakage Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.01 No Waivers; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<TABLE>
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Section 11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.03 Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.04 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.05 Succesors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.06 Lender's Representations and Warranites . . . . . . . . . . . . . . . . . 27
Section 11.07 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.08 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.09 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.10 Survival of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.12 Finex Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Annex A Procedures for Purchasing Aircraft
and Notes; Documentation
Exhibit A Form of Note
Exhibit B Form of Finex Agreement
Exhibit C Form of Mortgage
Exhibit D Form of Purchase Agreement Assignment
Exhibit E Form of Consent
Exhibit F Form of opinion of Borrower's counsel
Exhibit G Form of opinion of Crowe & Dunlevy (Aircraft)
Exhibit H Form of opinion of counsel to Embraer
Exhibit I Form of Guarantee
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
This Credit Agreement is entered into as of June 15, 1990 by
and between Atlantic Southeast Airlines, Inc. ("Borrower"), a Georgia
corporation, and Bank of America National Trust and Savings Association
("Lender") , a national banking association.
Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS; REFERENCES
SECTION 1.01 -- Definitions. The following terms, when
capitalized as below, have the following meanings:
"Act": the Federal Aviation Act of 1958, as amended, or its
successor.
"Agreement": this Credit Agreement.
"Aircraft": three Embraer EMB-120 Brasilia aircraft to be
delivered under the Purchase Agreement and in each case designated by Borrower
(by notice to Lender at least three Business Days before the Purchase Date
therefor) as an "Aircraft" to be financed under this Agreement.
"Basic Documents": this Agreement, the Purchase Agreement, the
Finex Agreement (s), the Guarantee, and the Mortgage; and each Note, Purchase
Agreement Assignment, Consent, and Mortgage Supplement as executed and
delivered.
"Borrower Interest Rate" for a Note: a fixed interest rate
equal to the Finex LIBO Rate for its Purchase Date, minus 2% per annum
(computed on the basis of a year of 360 days), based on actual days elapsed, or
such other interest rate as Borrower is actually required to pay on such Note
under the Finex Program.
"Borrower's Rebate": defined in Section 4.07.
"Business Day": any day, other than a Saturday or Sunday, on
which commercial banks are open for business in New York, New York, and London,
England, and Lender is open for business in Los Angeles, California, and if
such day is a Purchase Date or Interest Payment Date or relates to a notice by
Borrower with respect to any Purchase Date, which is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Collateral": the "Collateral" under the Mortgage.
<PAGE> 6
"Commitment": Lender's commitment to purchase the Notes for an
aggregate amount of $17,500,000; Borrower may reduce such amount upon 30 days
prior written notice to Lender.
"Commitment Fee": the fee required to be paid to Lender
pursuant to section 2.03.
"Commitment Period": the period from the date of execution of
this Agreement to and including the earliest of (w) December 31, 1990, (x) the
date upon which the third Aircraft is delivered to and accepted by Borrower
pursuant to the Purchase Agreement, (y) the date on which the remaining
Commitment is terminated pursuant to section 8.02, and (z) a date set by
Borrower pursuant to a notice sent to Lender at least 30 days prior to such
date.
"Consent": a Consent and Agreement, substantially in the form
of Exhibit E, relating to a Purchase Agreement Assignment and dated the same
date as that Purchase Agreement Assignment.
"Default": any event or condition that would become an Event
of Default upon the giving of notice or lapse of time or both, or any Event of
Default.
"Delta Agreement": that certain agreement between Delta Air
Lines, Inc. and Borrower dated June 1, 1986 and relating to joint marketing or
code sharing for interconnecting flights.
"Dollars" and "$": United States dollars.
"Downpayment": 15% of Equipment Cost for the first
$6,862,745.00 of Equipment Cost, and 100% of Equipment Cost in excess of
$6,862,745.00, for an Equipment Portion, minus any amounts that Borrower paid
to Vendor before the relevant Purchase Date (including deposits applied to such
Equipment Portion), pursuant to the Purchase Agreement, relating to such
Equipment Portion.
"Embraer": Embraer-Empresa Brasileira de Aeronautica S.A., a
Brazilian corporation, and its successors and assigns.
"Equipment Cost": the purchase price for an Equipment Portion,
as set forth (and as adjusted pursuant to) the Purchase Agreement.
"Equipment Portion": an Aircraft and the Spare Parts purchased
with that Aircraft.
"ERISA": defined in section 5.11.
"Event of Default": defined in section 8.01.
"Event of Loss": defined in section 1.01 of the Mortgage.
"FAA": the Federal Aviation Administration of the United
States, or any instrumentality of the United States succeeding to its function.
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<PAGE> 7
"Financed Amount": the face amount of the Note for an Aircraft
being purchased on a Purchase Date.
"Finex Agreement": an agreement by that name, substantially in
the form of Exhibit B.
"Finex Bank": Multi-Banco Internacional de Investimentos S.A.
(or any other Person serving as a Finex bank under a Finex Agreement), in its
capacity as Finex bank under the Finex Agreement, and its successors in such
capacity.
"Finex Interest Payments": the Finex Interest Payments
described in section 3.01 of the Finex Agreement.
"Finex LIBOR" or "Finex LIBO Rate" for any Purchase Date or
Interest Period: (x) the interest rate for such Purchase Date or Interest
Period, published by Banco Central do Brasil two Business Days before that
Purchase Date or the beginning of that Interest Period, respectively, as the
180-day interest rate applicable to transactions under the Finex Program, or
(y) when applicable, the Alternate LIBO Rate for such Interest Period
established pursuant to section 3.02 of the Finex Agreement.
"Finex Program": the export support program (Fundo de
Financiamento a Exportaceo) of the Federative Republic of Brazil as established
by Resolution No. 509 of January 24, 1979 of Banco Central do Brasil, and in
Circular Cacex/Finex No. 10 of the Carteira de Comercio Exterior (Cacex) of
Banco do Brasil S.A., dated September 21, 1982, as from time to time
supplemented or amended.
"GAAP": generally accepted accounting principles as in effect
in the United States and applied on a basis consistent with that used in the
preparation of the financial statements referred to in section 5.05, except for
changes therein with which Borrower's independent public accountants concur
that are disclosed in the notes to the relevant financial statements.
"Guarantee": the document by that name, executed by ASA
Investments, Inc., in substantially the form of Exhibit I.
"herein", "hereof", "hereunder", etc.: in, of, or under, etc.
this Agreement (and not merely in, of, under, etc. the section or provision
where that reference appears).
"including": containing, embracing, or involving the
enumerated item(s), but not necessarily limited to such item(s).
"Indemnitee": Lender, or any agent (other than Finex Bank),
employee, director, successor, or permitted assign of Lender.
"Interest Payment Date" for a Note: each "180-day anniversary"
of the Purchase Date for that Note; except that, for purposes of payment and of
determining the beginning and end of each Interest Period (but not for the
purpose of determining the following Interest Payment Date), any Interest
Payment Date that
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<PAGE> 8
falls on a day which is not a Business Day shall instead occur on the following
Business Day.
"Interest Period" for a Note: each period beginning on the day
after an Interest Payment Date for that Note (or, in the case of the first
Interest Period for that Note, beginning on its Purchase Date) and ending on
the following Interest Payment Date for that Note.
"Lien": any mortgage, pledge, assignment, encumbrance, lien
(statutory or other), or other security interest of any kind or nature
whatsoever (including any conditional sale or other title retention agreement,
or any lease in the nature thereof).
"Mortgage": the Security Agreement and Chattel Mortgage
between Borrower and Lender, substantially in the form of Exhibit C.
"Mortgage Supplement": defined in section 3.01.
"Note": Borrower's promissory note, in the form of Exhibit A,
issued in connection with a designated Aircraft, or a note issued in exchange
or replacement for such a note.
"1989 10-K": Borrower's annual report on Form 10-K for the
year ended December 31, 1989.
"1990 10-Q": Borrower's quarterly report on Form 10-Q for the
quarter ended March 31, 1990.
"Officer's Certificate": a certificate signed in the name of
Borrower (or, with respect to section 6.04(c), of the Successor) by the
chairman of the board, the president, a vice president, or the treasurer of
Borrower (or the Successor).
"or": at least one, but not necessarily only one, of the
alternatives enumerated.
"Permitted Lessee": defined in the Mortgage.
"Permitted Lien": defined in the Mortgage.
"Person": any individual, corporation, partnership, joint
venture, or other legal or governmental entity.
"Purchase Agreement": Purchase Agreement No. 162-COV/88
(including all attachments, exhibits, and letter agreements thereto) dated
November 21, 1988, between Vendor and Borrower.
"Purchase Agreement Assignment": a document by that name,
substantially in the form of Exhibit D, executed and delivered on a Purchase
Date with respect to the Aircraft then being delivered.
"Purchase Date": a date on which Borrower purchases an
Aircraft and, simultaneously, Lender purchases the related Note.
"Reference Rate": the rate of interest publicly announced from
time to time by Lender in San Francisco, California, as its
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<PAGE> 9
reference rate. It is a rate that Lender sets based upon various factors,
including Lender's costs and desired return, general economic conditions, and
other factors, and is used as a reference point for pricing some loans.
Interest is payable for the actual number of days elapsed computed on the basis
of a 360-day year on the unpaid principal amount. Lender may price loans at,
above, or below its reference rate. Any change in the Reference Rate shall
take effect on the day specified in the public announcement of such change.
"Regulatory Change": any change after the date of this
Agreement in federal, state, or foreign law or regulations or the adoption or
making after such date of any interpretations or directives applying to a class
of banks including Lender of or under any federal, state, or foreign law or
mandatory regulations by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"SEC Filings": the 1989 10-K and the 1990 10-Q.
"Spare Parts": the appliances, spare parts, and other items of
equipment purchased with Aircraft under the Purchase Agreement.
"Successor": defined in section 6.04(a).
"Taxes": defined in the last sentence of section 9.02(a).
"Taxing Authorities": defined in the first sentence of section
9.02(a).
"Vendor": Embraer.
SECTION 1.02 -- Use of Defined Terms. Any defined terms used
in the plural preceded by "the" encompasses all members of the relevant class.
Any defined term used in the singular preceded by "any" indicates any number of
the members of the relevant class. Any agreement or instrument referred to in
section 1.01 means such agreement or instrument as from time to time
supplemented and amended.
SECTION 1.03 -- Section and Exhibit References, etc.
References to articles, sections, exhibits, and the like refer to those in or
attached to this Agreement unless otherwise specified.
ARTICLE II
PURCHASE OF NOTES; PAYMENTS
SECTION 2.01 -- Purchase of Notes. Subject to the
satisfaction of the conditions precedent set forth in article VII, and on the
terms and conditions set forth in this article II, on the Purchase Date for
each Aircraft, Lender shall purchase the related Note from Finex Bank. The
Financed Amount for each
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<PAGE> 10
Aircraft shall be 85% of the Equipment Cost for the related Equipment Portion,
so that such total Equipment Cost shall be paid 15% by Borrower and 85% by the
related Note, provided, that the Financed Amount for an Aircraft shall not
exceed 85% of $6,862,745.00, and Borrower shall pay 100% of Equipment Cost in
excess of $6,862,745.00 for any Equipment Portion. Each Note shall be
purchased for its face amount. Lender's Commitment to purchase the Notes
pursuant to this Agreement shall expire at 12:00 noon, New York City time, on
the last day of the Commitment Period.
SECTION 2.02 -- Procedure for Purchase of Notes. The
procedure to be followed in the purchase of Notes is described in Annex A. At
Lender's offices at 555 South Flower Street, Los Angeles, California 90071 (or
such other location as the parties hereto agree upon), not later than 12:00
noon (New York City time) on the appropriate Purchase Date, upon fulfillment of
the conditions set forth in article VII and compliance with the procedures set
forth in Annex A, Lender will purchase the related Note from Finex Bank (who
will have purchased that Note simultaneously from Vendor), with general
corporate funds, in each case for a purchase price equal to its face amount (as
set forth in section 2.01).
SECTION 2.03 -- Commitment Fee. In partial consideration of
the Lender's agreement to purchase the Notes, Borrower shall pay to Lender a
Commitment Fee ("Commitment Fee") for the Commitment Period, payable in arrears
son the first day of each quarter or partial quarter (for the prior quarter or
partial quarter) after the execution and delivery of this Agreement during the
Commitment Period, with a final payment on the last day of the Commitment
Period, and computed at a rate per annum (calculated on the basis of a 360-day
year and actual days elapsed) of 0.25% of the average daily unused portion of
Lender's Commitment. The term "quarter" as used in this section shall mean the
relevant calendar quarter ending on one of the following dates: March 31, June
30, September 30, or December 31.
ARTICLE III
SECURITY FOR BORROWER'S OBLIGATIONS
SECTION 3.01 -- Security Interest in Collateral. To secure
Borrower's obligations to Lender under each Note and the other Basic Documents
to which it is or becomes a party, Borrower shall execute and deliver to
Lender, on each Purchase Date, a supplement to the Mortgage (a "Mortgage
Supplement"), substantially in the form of Schedule A to the Mortgage, granting
to Lender a perfected purchase money security interest in the Aircraft being
purchased from Vendor on such Purchase Date.
SECTION 3.02 -- Set-Off Rights. If Borrower becomes
insolvent, or any Event of Default occurs, any indebtedness that Lender then
owes to Borrower and any other property of Borrower that Lender then holds may
be offset and applied toward the payment of any obligation of Borrower to
Lender under the Basic Documents, whether or not any such other obligation is
then due.
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<PAGE> 11
ARTICLE IV
PAYMENTS UNDER THE NOTES
AND OTHER AMOUNTS PAYABLE BY BORROWER
SECTION 4.01 -- How Payments Are Made. Borrower shall make
its payments and prepayments of principal and interest due on the Notes, all
amounts due as Commitment Fees hereunder, and all other amounts payable by
Borrower to Lender under the Basic Documents, to Lender (ABA # 121-000-358
S.F.) at 1850 Gateway Blvd., Concord, California 94520, Attention: Dana
Henderson for credit to PSO Account Administration #5693, Reference: Atlantic
Southeast Airlines Note No. 1, 2, or 3 [as appropriate]or at such other
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<PAGE> 12
place as Lender from time to time notifies Borrower), in immediately available
funds and in Dollars, no later than 10:00 a.m. (San Francisco time) on the date
when due. Any payment made by Borrower to Lender after 10:00 a.m. (San
Francisco time) on any day shall be deemed to have been made on the following
Business Day. If any payment due under the Basic Documents come due on a day
which is not a Business Day, such payment shall instead be made on the
following Business Day, and interest or Commitment Fees, as the case may be,
shall accrue at the applicable rate to the day of payment.
SECTION 4.02 -- Right to Prepay. Unless a Default exists,
Borrower shall have the right to prepay in full the outstanding principal
amount of the Note issued with respect to any designated Aircraft, without
premium or penalty. Any prepayment under this section 4.02 of the Note issued
with respect to a designated Aircraft shall be made only on an Interest Payment
Date for such Note, and Borrower shall give to Lender at least 60 days' prior
written notice (which notice shall be irrevocable) or such prepayment. Upon
any prepayment of any Note under this section 4.02, Borrower shall pay all
accrued and unpaid interest on the principal of such Note to the date of
prepayment, together with all other amounts payable under section 10.02 with
respect to such prepayment.
SECTION 4.03 -- Mandatory Prepayments. Following the
occurrence of an Event of Loss with respect to any Aircraft, Borrower shall
prepay the Note executed in connection with that Aircraft, in accordance with
section 7.01(b) of the Mortgage, and shall pay all other amounts payable under
section 10.02 with respect to such prepayment. Upon acceleration of the Notes
pursuant to section 8.02, Borrower shall prepay such Notes, and shall pay all
other amounts payable under section 10.02 with respect to such prepayment.
SECTION 4.04 -- Mandatory Purchase. Upon the occurrence of a
Prepayment Event, Lender shall have the right to require Borrower to purchase
or cause the purchase of the Note for its then-outstanding principal amount,
plus all accrued but unpaid interest on the Note to the date of such purchase.
The payment described in the preceding sentence shall be due 10 days after
Lender notifies Borrower that a Prepayment Event has occurred (if that
Prepayment Event has not been cured by then), and shall be made in the manner
prescribed by section 4.01. A "Prepayment Event" shall occur if (a) Borrower
fails to keep an Aircraft registered with the FAA, or Lender fails or ceases to
have a perfected first-priority interest in an Aircraft, or a Lien (other than
a Permitted Lien) on an Aircraft exists; or (b) Borrower fails to obtain an FAA
standard airworthiness certificate for an Aircraft within four weeks following
the Purchase Date for such Aircraft.
SECTION 4.05 -- Amount of Prepayment. A Note shall be deemed
satisfied in full upon the prepayment of all principal of such Note, the
payment of the interest due on or with respect to such Note on such prepayment
date, and the payment of all past-due interest on or with respect to such Note.
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<PAGE> 13
SECTION 4.06 -- Interest on Past Due Amounts. Any amounts
past due (by acceleration or otherwise) and at any time outstanding under any
Note or from Borrower under any other Basic Document shall (to the extent
permitted by law) bear interest, payable on demand, from the due date until
payment in full, at a rate equal to 2% per annum above the Reference Rate.
SECTION 4.07 -- Reduction in Net Interest Payable by Borrower.
In consideration of this transaction's being classified as a "supplier's
credit" by Cacex and of the total benefits receivable by Lender and its
affiliates under the Finex Program as a result of Borrower's purchase and
financing of the Aircraft under the Basic Documents, Lender agrees that the
amount of interest that Borrower owes under each Note shall be automatically
reduced by 0.65% per annum of the principal from time to time outstanding under
the terms of that Note, and that Borrower shall not be responsible for or
otherwise obligated to pay any interest under that Note which is attributable
to that reduction for purposes of this Agreement or any of the other Basic
Documents. For example, if a Note carries a stated interest rate of 6.5% per
annum, Borrower actually shall pay interest on that Note based on a 5.85% per
annum rate for timely payments. All per annum rates in this section are based
on a 360-day year and actual days elapsed.
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
SECTION 5.01 -- Corporate Standing. Borrower is a duly
organized corporation existing in good standing under the laws of Georgia, has
the corporate power and legal authority to own or lease its properties and to
carry on its business as now conducted and as now proposed to be conducted, and
is duly qualified to do business in all jurisdictions wherein such
qualification is necessary (except in any jurisdictions in which the failure to
qualify would have no materially adverse effect on its business or on its
ability to carry out its obligations under the Basic Documents to which it is
(or is to become) a party).
SECTION 5.02 -- Corporate Powers. Borrower's execution,
delivery, and performance of the Basic Documents to which it is (or
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<PAGE> 14
is to become) a party are within Borrower's corporate powers; and the Basic
Documents to which it is (or is to become) a party have been duly authorized by
all necessary corporate action on Borrower's part, and do not contravene,
result in a breach of, or require any consent under any law, judgment, decree,
order, or contractual restriction binding on Borrower or any agreement or
instrument to which Borrower is a party or to which it or any of its property
is subject.
SECTION 5.03 -- Binding Effect. The Basic Documents to which
Borrower is (or is to become) a party are (or will be when executed and
delivered) legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with their terms, except as may be limited by
bankruptcy, insolvency, or other similar laws affecting enforcement of
creditors' rights generally.
SECTION 5.04 -- Litigation. Except as disclosed in the SEC
Filings, there are no pending or (to the best of Borrower's knowledge after due
inquiry) threatened actions or proceedings before any court or administrative
agency which may be expected to have a materially adverse effect on Borrower's
business or financial condition or which seek to question or set aside any of
the transactions herein contemplated.
SECTION 5.05 -- Financial Statements. The audited balance
sheet as of December 31, 1989 and unaudited balance sheet as of March 31, 1990
for Borrower and its consolidated subsidiaries, and the related results of
operations for the year and quarter then ended, have been prepared in
accordance with GAAP and correctly present Borrower's financial condition as of
such dates and results of operations for such periods, and since March 31,
1990, there has been no materially adverse change in Borrower's business,
assets, operations, or condition (financial or otherwise).
SECTION 5.06 -- Taxes. Borrower has filed all tax returns
which it is or was required to file, and has paid all taxes shown to be due and
payable on those returns or on any assessment received by it, except such taxes
of Borrower, if any, as are being contested diligently in good faith, and by
appropriate proceedings, and as to which adequate reserves have been provided
in accordance with GAAP.
SECTION 5.07 -- Status as United States Citizen and Air
Carrier. Borrower is a "citizen of the United States" as that term is used in
section 101(16) of the Act, and is a duly certified "air carrier" within the
meaning of the Act.
SECTION 5.08 -- Location of Offices. Borrower's chief
executive office and principal place of business, and the place where Borrower
keeps its financial records concerning the Collateral, is located at its
address referred to in section 11.02.
SECTION 5.09 -- Governmental Consents. Neither the execution,
delivery, and performance of any of the Basic Documents (other than the Finex
Agreement), nor the consummation of any of the transactions contemplated
thereby by Borrower or Vendor (including the importation of the Aircraft into
the United States from Brazil), requires the consent or approval of, giving of
notice
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to, registration with, or taking of any other action in respect of any federal,
state, or foreign governmental authority or agency (including any judicial
body) except for (a) the filing and recording of the Mortgage, and of the FAA
bill of sale, the FAA application for registration, and the Mortgage Supplement
for each Aircraft with the FAA; (b) the filing and recording of UCC-1 financing
statements for each Aircraft with the Superior Court Clerk Offices in Bibb,
Clayton, and Fulton County, Georgia, and in the appropriate places in Texas and
Arkansas; and (c) the registration of each Aircraft with the FAA pursuant to
the Act, and except for any necessary action with respect to the Finex Program.
SECTION 5.10 -- Condition of Aircraft. On each Purchase Date,
the Aircraft to be delivered on such Purchase Date shall be in such condition
as is sufficient to enable Borrower to obtain a standard U.S. certificate of
airworthiness for such Aircraft and to enable such airworthiness certificate to
be maintained in good standing; and, to Borrower's knowledge (which shall be
based on acceptance tests by Borrower in accordance with its usual practices,
to the extent permitted under the Purchase Agreement), such Aircraft shall
otherwise conform in all material respects to the specifications for such
Aircraft set forth in the Purchase Agreement.
SECTION 5.11 -- Absence of ERISA Liability. Each employee
pension benefit plan (as defined in section 3(2) of the Employee Retirement
Income Security Act of 1974, as from time to time amended ("ERISA")) of
Borrower is in compliance with the applicable provisions of ERISA and of the
Internal Revenue Code of 1986, as from time to time amended, in all respects,
except to the extent that noncompliance would not be materially adverse to
Borrower's business, assets, financial condition, or ability to perform its
obligations under the Basic Documents.
SECTION 5.12 -- Delta Agreement. The Delta Agreement is (a)
the only agreement between Delta Air Lines, Inc. and Borrower relating to Joint
marketing or code sharing for interconnecting flights, and (b) in full force
and effect. There exists no default under the terms of the Delta Agreement and
there has not occurred any event that would ripen into a default upon the
giving of notice or passage of time.
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SECTION 5.13 -- Subsidiaries; Stock Ownership. Borrower owns
100% of the outstanding stock of ASA Investments, Inc. and Borrower has no
material stock or other equity investment in any other corporation,
partnership, or other Person.
SECTION 5.14 -- Investment Company Status. The Borrower is not
an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Note, or any amount owed by Borrower under any
other Basic Document, remains outstanding or unpaid or Lender has any
Commitment hereunder:
SECTION 6.01 -- Financial Statements. Borrower shall furnish
to Lender:
(a) within 45 days after the end of each of the first three
quarters in each fiscal year, consolidated statements of operations of
Borrower and its consolidated subsidiaries for the period from the
beginning of the then-current fiscal year to the end of such quarterly
period, and balance sheets of Borrower and its consolidated
subsidiaries, on a consolidated basis, as of the end of such quarter
prepared in accordance with GAAP and setting forth in each case in
comparative form figures for the corresponding period in the preceding
year, all in reasonable detail and certified by the Chief Financial
Officer of Borrower, subject to changes resulting from year-end
adjustments, and Borrower's Form 10-Q for such period;
(b) within 90 days after the end of each fiscal year,
consolidated statements of operations of Borrower and its consolidated
subsidiaries, for such year, and the balance sheets of Borrower and
its consolidated subsidiaries, on a consolidated basis, as of the end
of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in
reasonable detail, and certified to Borrower by its independent
certified public accountants and to Lender by Borrower's Chief
Financial Officer, as presenting fairly the financial position and
results of operations of Borrower and its consolidated subsidiaries
and as having been prepared in accordance with GAAP, and Borrower's
Form 10-K for such period;
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(c) within two Business Days after any officer of Borrower
obtains knowledge of any Default, an Officer's Certificate specifying
its nature, the period of its existence, and what action Borrower
proposes to take with respect to it; and
(d) promptly upon request, such other data or information
(financial or otherwise) regarding Borrower or the Collateral as
Lender from time to time reasonably requests.
SECTION 6.02 -- Inspection of Collateral and Records.
Borrower shall permit any person(s) from time to time designated in writing by
Lender, at Lender's expense (or at Borrower's expense if a Default exists at
the time), to visit and inspect any of the Collateral and Borrower's (or any
Permitted Lessee's) records with respect to the Collateral, at such times as
Lender reasonably requests, and to discuss Borrower's affairs, finances, and
accounts with Borrower's officers. No such inspection shall unreasonably
interfere with Borrower's (or any Permitted Lessee's) operations or
maintenance. Lender shall have no duty to make any such inspection and shall
not incur any liability or obligation by reason of not making any such
inspection. Upon Lender's request, Borrower shall promptly notify Lender of the
maintenance operations then scheduled on the Aircraft for the six-month period
following such request.
SECTION 6.03 -- Corporate Existence. Except as permitted by
section 6.04, Borrower shall maintain its corporate existence in good standing
in the state of its incorporation and in all jurisdictions where qualification
is necessary (except in any jurisdiction in which the failure to qualify would
have no materially adverse effect on its business or on its ability to carry
out its obligations under the Basic Documents to which it is (or is to become)
a party). Borrower shall preserve and renew its rights (charter and statutory),
patents, and franchises, unless Borrower determines in good faith that the
preservation thereof is no longer necessary or desirable in the conduct of its
business and that the loss thereof will not adversely affect Lender's rights or
Borrower's business, assets, operations, condition (financial or otherwise).
SECTION 6.04 -- Merger. Borrower shall not consolidate with or
merge into any other corporation, or convey, transfer, or lease all or
substantially all of its assets as an entirety to any person, unless:
(a) the Borrower is the surviving corporation;
(b) the corporation formed by such consolidation or merger or
the Person who acquires by conveyance, transfer, or lease all or
substantially all of Borrower's assets as an entirety (the
"Successor") (i) is a corporation organized and existing under the
laws of the United States of America or any state or the District of
Columbia, (ii) is a "citizen of the United State" as defined in
section 101(16) of the Act, (iii) is an air carrier (within the
meaning of section 101(3) of the Act) certificated under section
604(b) of the Act, (iv) executes and delivers to Lender an agreement,
in form and substance satisfactory to Lender, containing an assumption
by
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the Successor of the due and punctual performance and observance of
Borrower's obligations under the Basic Documents to which Borrower is
then a party, and (v) makes such filings and recordings, including any
filing or recording with the FAA pursuant to the Act or any filing
under the UCC, as are necessary to evidence such consolidation,
merger, conveyance, transfer, or lease with or to the Successor;
(c) immediately after giving effect to such transaction, (i)
no Default exists and (ii) Borrower's business, assets, operations,
condition (financial or otherwise), and financial and other ability to
perform its obligations under the Basic Documents will not be
adversely affected by such transaction in any material respect; and
(d) Borrower or the Successor delivers to Lender, promptly
upon consummation of such transaction, an Officer's Certificate
stating that the conditions precedent set forth in clauses (a) and (b)
have been complied with and an opinion of counsel to Borrower or the
Successor, in form and substance satisfactory to Lender, stating that
the agreements entered into to effect such consolidation, merger,
conveyance, transfer, or lease and such assumption agreements have
been duly authorized, executed, and delivered by the Successor and
that they (and the Basic Documents so assumed) constitute legal,
valid, and binding obligations of the Successor, enforceable in
accordance with their terms (to the same extent as the Basic Documents
so assumed were enforceable against Borrower); and that all conditions
precedent which are legal in nature provided for in this Agreement and
relating to such transactions have been fulfilled.
Upon any such consolidation, merger, conveyance, transfer, or
lease, the Successor shall succeed to, shall be substituted for, and may
exercise every right and power of Borrower under the Basic Documents to which
Borrower is a party, with the same effect as if the Successor had been named as
Borrower therein. No such conveyance, transfer, or lease of substantially all
Borrower's assets as an entirety shall have the effect of releasing Borrower
(or any Successor) from its liability under the Basic Documents to which it is
a party. Nothing in this section shall permit any lease, sublease, or other
arrangement for the use, operation, or possession of the Aircraft except in
compliance with the applicable provisions of this Agreement and the Mortgage.
SECTION 6.05 -- Citizenship and Air Carrier Status. Borrower
will at all times remain a "citizen of the United States" as defined in section
101(16) of the Act and an "air carrier" within the meaning of the Act.
SECTION 6.06 -- Compliance with ERISA.
(a) Borrower will, at all times, make prompt payment of
contributions that it is required to make to any employee benefit plan
to which it is a party as are necessary to meet the minimum funding
standards for such an employee benefit plan, as required by ERISA.
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(b) Within two Business Days after the occurrence of any event
or circumstance, including any event which is classified as a
"Reportable Event" under ERISA, in connection with any employee
benefit plan to which it is a party, that might constitute grounds for
termination of an employee benefit plan to which Borrower is a party
by the Pension Guaranty Benefit Corporation or might result in the
appointment of a trustee by a United States District Court under
section 4042 of ERISA to administer such employee benefit plan;
Borrower will provide Lender with an Officer's Certificate describing
the event or circumstance, stating the reasons for any such action by
the Pension Benefit Guaranty Corporation or a United States District
Court, and specifying the action Borrower proposes to take with
respect thereto.
SECTION 6.07 -- Disposition of Assets. Borrower will not
dispose of any of its assets, other than in the ordinary course of its
business, unless it receives full, fair, and reasonable consideration for such
assets; and Borrower will not during any twelve-month period dispose of assets,
other than in the ordinary course of its business, which have an aggregate book
value in excess of $5,000,000; provided, that Borrower shall have the right to
dispose of any aircraft for at least such aircraft's book value and such sale
of an aircraft for at least book value will not be included in the calculation
of the $5,000,000 of assets sold in a twelve-month period. The book value of an
aircraft shall be determined in accordance with GAAP. For avoidance of doubt,
the "ordinary course" of Borrower's business generally shall include (x)
acquisitions or dispositions of marketable securities (other than acquisitions
or dispositions exceeding 5% of any class of "equity security", as defined in
the Securities Exchange Act of 1934) and (y) the disposition of parts of
discontinued aircraft, engines, or propellers not constituting part of a
program to reduce Borrower's fleet in any material respect.
SECTION 6.08 -- Performance of Delta Agreement. Borrower shall
faithfully perform all obligations it has under the Delta Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASE OF NOTES
SECTION 7.01 -- Conditions Precedent to the Purchase of the
Initial Note. Lender's obligation to purchase the Note on the first Purchase
Date is subject to the satisfaction (or Lender's waiver) of the following
conditions precedent and Lender's receipt on or before such initial Purchase
Date of the following, in form and substance satisfactory to Lender:
(a) a certificate of Borrower's secretary, dated the
Purchase Date, certifying attached copies of the resolutions of
Borrower's board of directors evidencing approval of the transactions
contemplated by the Basic Documents to which it is (or is to become) a
party, and showing the names and specimen signature(s) (or copies
thereof) of Borrower's
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officer(s) authorized to sign this Agreement and the related documents
to which it is (or is to become) a party,
(b) an executed Finex Agreement,
(c) an executed Mortgage,
(d) an executed Guarantee,
(e) an Officer's Certificate certifying an attached copy
of the Purchase Agreement, and
(f) copies of the SEC Filings.
In addition, Borrower's obligation to close on the first Purchase Date
is subject to its receipt of an executed letter agreement between Borrower and
Lender, in form and substance satisfactory to each, concerning sections
4.02(d)(i) and 6.05 of the Mortgage.
SECTION 7.02 -- Conditions Precedent to the Purchase of All
Notes. Lender's obligation to purchase each Note (including the initial Note)
is subject to the additional conditions precedent that:
(a) Lender shall have received the following, each dated as of
the pertinent Purchase Date, in form and substance satisfactory to
Lender:
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(i) the Note for the relevant Aircraft, executed by
Borrower and endorsed by Vendor (without recourse) to the
order of Finex Bank who in turn has endorsed (without
recourse) to the order of Lender,
(ii) an executed Mortgage Supplement with respect to
the relevant Aircraft,
(iii) an executed Purchase Agreement Assignment, with
the related executed Consent, with respect to the relevant
Aircraft,
(iv) an Officer's Certificate to the effect that:
(1) Borrower's representations and warranties in Article V of
this Agreement and section 6 of the relevant Purchase
Agreement Assignment are true and accurate as though made on
the Purchase Date, and (2) no Default exists or will result
from Lender's purchase of such Note,
(v) a certificate of insurance describing the
insurance maintained by Borrower with respect to the Aircraft
being purchased and stating that such policies conform to the
requirements of the Mortgage,
(vi) an opinion from Borrower's counsel substantially
in the form of Exhibit F,
(vii) an opinion from Crowe & Dunlevy, special FAA
counsel, substantially in the form of Exhibit G, covering the
Aircraft that is the subject of the Note being purchased,
(viii) an opinion of counsel to Embraer,
substantially in the form of Exhibit H, and
(ix) such additional opinion(s) (including, if
requested, from Trotter Smith & Jacobs) and document(s) as
Lender requests;
(b) Lender shall have received copies of the necessary FAA
Application for Aircraft Registration and FAA Bill of Sale pertaining
to the Aircraft being purchased;
(c) Borrower's representations and warranties in the Basic
Documents shall be true and accurate as though made on and as of such
Purchase Date;
(d) no Default shall exist or shall result from Lender's
purchase of such Note;
(e) all filings, recordings, and other actions necessary to
establish, protect, preserve, and perfect Lender's interests under the
Mortgage shall have been duly made or taken;
(f) all necessary consents, approvals, licenses, permits,
declarations, or registrations then required in connection
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with the execution, delivery, performance, validity, and
enforceability of the Basic Documents and the transactions
contemplated thereby shall have been obtained;
(g) no change in the Finex Program shall have occurred or have
been officially proposed in writing by Banco Central do Brasil or
Cacex (or such other authority as, at the time, is competent to make
official proposals of changes to the Finex Program) after the date of
this Agreement if such change, if effective, could adversely affect
the economic benefits available to Lender or Finex Bank in connection
with the transactions contemplated by the Basic Documents (provided,
that this condition shall be excused if (x) Borrower substitutes for
the Note for that Aircraft a promissory note that is substantially
identical to Exhibit A except that the interest rate shall be a
floating rate, reset for each Interest Period, based on the six-month
LIBO rate that Lender from time to time establishes, plus 0.85% per
annum (based on a 360-day year and actual days elapsed), and (y) such
other changes are made to the Basic Documents, at Borrower's expense,
as Lender deems necessary to convert the financing hereunder to a
non-Finex basis (and Lender agrees that such changes shall include
appropriate provisions for Lender to use reasonable good faith efforts
to seek and to make available (including reasonable good faith efforts
to cause Finex Bank to seek and make available) to Borrower, promptly
after receipt, any Finex interest subsidies that Lender or Finex Bank
may become entitled to after the Purchase Date for that Aircraft, and
that the Finex Bank for that Aircraft shall be reasonably satisfactory
to Borrower));
(h) a copy of the approval of the application for coverage of
the purchase of the Aircraft by the Finex Program; and
(i) in Lender's reasonable judgment, since March 31, 1990,
there shall have occurred no materially adverse change in the
business, financial condition, or operations of Borrower.
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ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
SECTION 8.01 -- Events of Default. Each of the following shall
constitute an "Event of Default":
(a) Borrower fails to make any payment due from Borrower on
any Note or under any other Basic Document (including under section
4.04 hereof) when due;
(b) any representation or warranty made by Borrower in the
Basic Documents, or in any certificate or other document that it
furnishes pursuant to the Basic Documents, proves to have been
incorrect in any material respect when made;
(c) Borrower fails to maintain the insurance required by the
terms of the Mortgage;
(d) the Delta Agreement is voluntarily terminated, or is
amended to the detriment of Borrower;
(e) Borrower fails to provide Lender with the Officer's
Certificate required by section 6.01(c) or 6.06(b) within 10 days
after any of Borrower's officers obtains notice of a Default or the
ERISA-related event or circumstance occurs, respectively;
(f) Borrower fails to perform any other material covenant or
agreement in the Basic Documents, and (if remediable) such failure to
perform continues for 30 days after Borrower's receipt of notice of
such default from Lender;
(g) Borrower (1) applies for or consents to the appointment
of, or the taking of possession by, a receiver, custodian, trustee, or
liquidator of itself or of all or a majority of its property, (2)
makes a general assignment for the benefit of its creditors, (3)
commences a voluntary case under the federal Bankruptcy Code (as now
or hereafter in effect), (4) files a petition seeking to take
advantage (as debtor) of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment
of debts, or (5) fails to controvert in a timely manner, or acquiesces
in writing to, any petition filed against it in an involuntary case
under the federal Bankruptcy Code;
(h) a proceeding or case is commenced, without Borrower's
application or consent, in any court of competentjurisdiction, seeking
(1) its liquidation,reorganization, dissolution, or winding-up, or the
composition or readjustment of its debts,
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(2) the appointment of a trustee, receiver, custodian, liquidator, or
the like of Borrower or of all or a majority of its assets, or (3)
similar relief in respect of Borrower under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case continues
undismissed, or an order, judgment, or decree approving or ordering
any of the foregoing is entered and continues unstayed and in effect,
for a period of 60 days; or an order for relief against Borrower is
entered in an involuntary case under the federal Bankruptcy Code;
(i) loan, lease, or deferred purchase obligations of Borrower
totalling more than $1 million are in default after the expiration of
any applicable grace period, if the effect of such default is to
permit such obligations to be accelerated or otherwise declared to be
due and payable prior to their stated maturity, or Borrower defaults
in the payment when due of more than $1 million of loan, lease, or
deferred purchase obligations;
(j) one or more judgment(s) is/are rendered by one or more
court(s) of competent jurisdiction against Borrower for a total of
more than $1 million and is/are not stayed or discharged, or fully
bonded against, within 60 days of the date of entry;
(k) any "Reportable Event" under ERISA shall have
occurred, or any finding or determination shall be made with respect
to an employee benefit plan to which Borrower is a party under Section
4041(c) or (e) of ERISA, or any fact or circumstance shall occur with
respect to an employee benefit plan to which Borrower is a party,
that, in the opinion of Lender, provides grounds for the commencement
of any proceeding under Section 4042 of ERISA, or any proceeding shall
be commenced under Section 4042 of ERISA with respect to an employee
benefit plan to which Borrower is a party;
(l) one or more events, occurrences, or circumstances occur(s)
or exist(s) that, in Lender's reasonable good faith opinion (after
good faith consultation with Borrower), has or had a materially
adverse effect on the financial condition of Borrower and on the
ability of Borrower to perform any of its obligations under the Basic
Documents; or
(m) Borrower shall deny any further liability under any Note
or under any other Basic Document;
SECTION 8.02 -- Remedies. If an Event of Default (other than
under section 8.01 (g) or (h)) exists, Lender may declare all Notes to
be immediately due and payable, whereupon (i) all Notes shall become
and be immediately due and payable without presentment, demand,
protest, or other notice of any kind, all of which Borrower hereby
waives, and (ii) the Commitment shall terminate. If an Event of
Default under section 8.01(g) or (h) occurs, all Notes automatically
shall become immediately due and payable and the Commitment
automatically shall immediately
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terminate, without presentment, demand, protest, or notice of any kind, all of
which Borrower hereby waives.
ARTICLE IX
BORROWER'S INDEMNITIES
SECTION 9.01 -- General Indemnity. Borrower assumes liability
for, and agrees to indemnify each Indemnitee against, and on written demand to
pay, or to reimburse each Indemnitee for the payment of, any and all
liabilities, obligations, losses, damages, penalties, claims (including claims
involving strict liability in tort), suits, actions, costs, expenses, and
disbursements, including legal fees and expenses, of whatsoever kind and nature
(collectively, "Liabilities") imposed on, incurred by, or asserted against any
Indemnitee relating to or arising out of any Basic Document, the enforcement
against Borrower of any of the terms of the Basic Documents, or any lease or
relinquishment of possession of the Aircraft or any part thereof or any action
or inaction of Borrower or of any lessee, assignee, or transferee of Borrower
in connection therewith, the purchase of the Aircraft under the Purchase
Agreement, the ownership of the Aircraft, the acquisition, delivery,
nondelivery, acceptance, nonacceptance, rejection, registration,
deregistration, insuring, storage, manufacture, assembly, transportation,
importation, exportation, maintenance, condition, modification, testing,
repair, fitness for use, merchantability, sale, abandonment, lease, sublease,
assignment, transfer, transfer of title, possession, repossession, use,
operation, return, or other application or disposition of the Aircraft or any
component thereof, the condition upon return thereof after repossession
following the occurrence of an Event of Default or following the exercise of
remedies under the Mortgage, including latent or other defects, whether or not
discoverable, loss of or damage to any property or the environment, death or
injury of any person, and any claim for patent, trademark, copyright, or mask
work infringement and the violation or infringement by Borrower of any laws,
rules, or regulations, or (without limiting any of the foregoing) any breach by
Borrower of, noncompliance by Borrower with, or misrepresentation made or
deemed made by or on behalf of Borrower in, under, or in connection with the
Purchase Agreement or any Purchase Agreement Assignment or any warranty,
certificate, or agreement made or delivered in, under, or in connection with
the Purchase Agreement or any Purchase Agreement Assignment; provided, that
this section shall not require Borrower to pay or indemnify any Indemnitee
under this section (i) for any
Liability to the extent resulting from its acts of gross negligence or willful
misconduct; (ii)for any Taxes (Borrower's duties in respect of Taxes being set
forth in section 9.02) or for any cost or expense relating to the preparation,
execution, delivery, or enforcement of the Basic Documents (Borrower's duties
in respect of such costs and expenses being set forth in section 11.03); (iii)
for any Liability that such Indemnitee incurs to the extent resulting from its
breach of any of its representations, warranties, or covenants in any Basic
Document; (iv) for any Liability to the extent resulting from a claim against
such Indemnitee not related to any Aircraft, any action or inaction of Borrower
or any lessee, assignee, or transferee of Borrower, or any
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of the transactions contemplated by the Basic Documents; (v) for any Liability
with respect to transfer taxes or other expenses payable with respect to the
transfer of any Note, other than a transfer after the occurrence of an Event of
Default; or (vi) for any violation or purported violation of any law relating
to usury or the charging or collecting of excess interest or finance charges.
If any Indemnitee obtains knowledge of any claim or liability required to be
indemnified against under this section 9.01, such Indemnitee shall promptly
notify Borrower, but the failure to do so shall not relieve Borrower from any
liability that it otherwise would have to such Indemnitee under this section.
Upon an Indemnitee's request, the defense of any Liability for which Borrower
would be required to indemnify such Indemnitee hereunder shall be conducted by
Borrower, with counsel selected by Borrower and satisfactory to Lender.
However, if the defense of any such Liability is conducted by Lender, Lender
shall select the counsel to conduct it, but shall consult with Borrower as to
such selection; provided, that the decision as to which counsel to select shall
be and remain Lender's. Borrower shall be obligated under this section 9.01
irrespective of whether the Indemnitee is also indemnified with respect to the
same matter under any other Basic Document or other document by any other
Person, and the Indemnitee may proceed directly against Borrower under this
section 9.01 without first resorting to any such rights of indemnification.
Upon the payment in full of any indemnities due and owing under this section
9.01, Borrower shall be subrogated to any right of the Indemnitee in respect of
the matter against which indemnity has been given. Borrower's indemnities in
this section shall survive expiration or termination of the Mortgage and
payment in full of the Notes.
Any payment or indemnity pursuant to this section 9.01 shall
include the amount, if any, necessary to hold the Indemnitee harmless on an
after-tax basis from all taxes required to be paid by such recipient with
respect to such payment or indemnity under laws of any federal, state, or local
government or taxing authority in the United States or by any foreign
government or any political subdivision or taxing authority thereof. The amount
of any payment or indemnity required under this section shall be determined by
the Indemnitee reasonably and in good faith, and that determination shall be
conclusive. Upon Borrower's request and at Borrower's expense, the Indemnitee
will provide Borrower with a summary explanation of the basis for the
Indemnitee's computations.
SECTION 9.02 -- Taxes.
(a) Indemnity. Except as provided in section 9.02(b), Borrower
agrees to indemnify each Indemnitee against, and on written demand to pay or
reimburse each Indemnitee for the payment of, any and all Taxes imposed upon or
asserted against any Indemnitee, any Aircraft or any part thereof or interest
therein, any Basic Document, any lease of any Aircraft or any part thereof, or
the rentals received under such a lease, by any federal, state, or local
government or other taxing authority in the United States (including any
territory or possession of the United States) or by any foreign government or
any political subdivision or taxing authority thereof where any part of an
Aircraft is located, used, or registered ("Taxing Authorities") upon or with
respect to (i)
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the construction, mortgaging, financing, refinancing by or at the request of
Borrower, purchase, acquisition, acceptance, nonacceptance, rejection,
delivery, nondelivery, transport, insuring, ownership, registration,
deregistration, assembly, possession, repossession, operation, use condition,
maintenance, modification, repair, fitness for use, merchantability, testing,
return, abandonment, storage, manufacture, leasing, subleasing, importation,
exportation, sale, assignment, transfer, transfer of title, or other
application or disposition of, or the imposition of any Lien (other than a
Permitted Lien) or the incurrence of any liability to refund or pay over any
amount as a result of any Lien (other than a Permitted Lien) on any Aircraft or
any part thereof or interest therein, (ii) any amount paid or payable by
Borrower or Finex Bank under the Basic Documents or the receipts or earnings
arising from or received with respect to any Aircraft or any part thereof or
interest therein, (iii) any Aircraft or any part thereof or interest therein,
(iv) any of the Basic Documents and any other documents contemplated thereby or
the execution, sale, delivery, acquisition, or filing of the Basic Documents,
or (v) otherwise with respect to or in connection with the transactions
effected under the Basic Documents. The term "Taxes" shall mean any and all
fees, taxes, levies, imposts, duties, charges, assessments, or withholdings of
any nature whatsoever, together with any and all penalties, fines, additions to
tax, and interest thereon or computed by reference thereto.
(b) Exclusions from Indemnity. The provisions of section
9.02(a) shall not apply to:
(i) any Tax based on, or measured by, net income, capital,
franchise, or net worth Taxes (other than sales taxes), including
related surcharges and withholding taxes; provided, that the
provisions of this clause (b)(i) shall not apply to any Taxes imposed
in respect of the receipt or accrual of any indemnity payment made or
payable pursuant to this section 9.02;
(ii) any Tax based on or measured by the value of such
Indemnitee's interest in any Basic Document, except to the extent
imposed without regard to the presence of the Indemnitee, or any Note,
in the jurisdiction of the Taxing Authority imposing that Tax;
(iii) any Tax imposed on the Indemnitee as a result of a
transfer or other disposition, by such Indemnitee or any of its
predecessors in interest, of any interest in the Aircraft or any Basic
Document, unless such transfer or disposition occurs after the
occurrence of an Event of Default; or
(iv) any Tax in the nature of a penalty, an addition to tax,
interest, or fines resulting from the negligence or misconduct of the
Indemnitee in connection with the preparation or filing of (or failure
to prepare or file) tax returns, or the payment of or failure to pay
its taxes, but in each case not if in any way attributable to
Borrower's failure to notify such Indemnitee of its obligations to
prepare and file its returns in respect of Taxes indemnified pursuant
to this section 9.02 or to provide any information
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necessary for the preparation or filing of such returns or the conduct
of such proceedings or otherwise to perform its duties and
responsibilities pursuant to the Basic Documents.
(c) Calculation of General Tax Indemnity Payments. Any payment
which Borrower is required to make to or for the account of any Indemnitee with
respect to any Tax which is subject to indemnification under this section 9.02
shall be made on a net basis, taking into account offsetting credits or
deductions available to such Indemnitee as a result of the payment of such Tax,
and shall include the amount necessary to hold such Indemnitee harmless on an
after-tax basis from the net amount of all Taxes required to be paid by such
Indemnitee as the result of such payment (including any Taxes imposed on such
indemnity payment) pursuant to the laws of any Taxing Authority. The amount of
any payment or indemnity required under this section shall be determined by the
Indemnitee reasonably and in good faith, and that determination shall be
conclusive. Upon Borrower's request and at Borrower's expense, the Indemnitee
will provide Borrower with a summary explanation of the basis for the
Indemnitee's computations.
(d) Reports. If Borrower shall timely file any report, return,
or statement required to be filed with respect to any Tax which is subject to
indemnification under this section 9.02, except for any such report, return, or
statement which an Indemnitee has
notified Borrower that it intends to file. Borrower shall file such report,
return, or statement and send a copy to Lender and each Indemnitee affected by
such report, return, or statement. Each Indemnitee shall promptly forward to
Borrower any notice, bill, or advice received by it concerning any Tax.
ARTICLE X
YIELD PROTECTION
SECTION 10.01 -- Additional Costs.
(a) Borrower shall pay directly to Lender from time to time
such amounts as are necessary to compensate Lender, on an after-tax basis, for
any costs which are attributable to its purchase of or obligation to purchase
any Note hereunder, or any reduction in any amount receivable by Lender in
respect of any of such Notes (including payments under the Finex Agreement),
resulting from (i) any Regulatory Change which imposes or modifies any reserve,
special deposit, minimum capital, capital ratio, or similar requirements
relating to any extensions of credit or other assets of or any deposits with or
other liabilities of Lender, or the manner in which Lender funds (or allocates
funds, on its books, for) its investments in any of the Notes, or (ii) any tax
payable to any government or governmental authority outside the United States
and imposed with respect to, or withheld from, payments due to Lender from
Finex Bank or otherwise under the Finex Program (except to the extent that the
amounts withheld are applied or are to be applied to Lender's obligations
unrelated to the transactions contemplated by the Basic Documents).
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(b) Determinations and allocations for purposes of this
section 10.01 of the effect of any Regulatory Change pursuant to section
l0.01(a) on Lender's costs or rate of return of maintaining or its obligations
to purchase any Note, or on amounts receivable by it in respect of any Note,
and of amounts required to compensate Lender under this section 10.01, shall be
made by Lender reasonably and in good faith and shall be conclusive. Upon
Borrower's request and at Borrower's expense, Lender will provide Borrower with
a summary explanation of the basis for Lender's computations.
SECTION 10.02 -- Breakage Costs. Borrower shall pay to Lender,
upon Lender's request, such amount as is sufficient, in Lender's opinion, to
compensate it for any loss, cost, or expense which is attributable to:
(a) any payment, purchase, or conversion of any Note for any
reason (including the acceleration of the maturity of the Notes pursuant to
section 8.02 and the mandatory purchase of the Note
pursuant to section 4.04) on a date other than an Interest Payment Date; or
(b) any failure by Vendor for any reason (including the
failure of any of the conditions precedent specified in article VII to be
satisfied) to endorse and deliver any Note to Finex Bank on the Purchase Date
specified in the relevant notice to Lender given pursuant to section 2.02.
Such amount payable by Borrower (x) shall not include losses, costs, or
expenses attributable to any date more than 180 days after the date of such
payment, purchase, or conversion or such Purchase Date, and (y) shall be
determined by Lender reasonably and in good faith, which determination shall be
conclusive. Upon Borrower's request and at Borrower's expense, Lender will
provide Borrower with a summary explanation of the basis for Lender's
computations.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 -- No Waivers; Cumulative Remedies. No failure
or delay in exercising any power or right under any Basic Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power preclude other or further exercise thereof or the exercise
of any other right or power under any Basic Document. No notice to or demand on
any party in any case shall, of itself, entitle such party to any other or
further notice or demand in similar or other circumstances.
SECTION 11.02 -- Notices. All communications and notices
provided for under this Agreement shall be in writing (including telex,
telegraph, and telecopy), shall be in English, and shall be mailed by certified
mail (return receipt requested) or otherwise delivered to the parties at the
addresses set forth by their signatures hereto, or, as to each party, at such
other address as
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it designates by notice to each other party. Each such notice shall be
effective upon delivery.
SECTION 11.03 -- Transaction Expenses. Borrower will pay on
demand all out-of-pocket expenses in connection with the preparation,
execution, delivery, administration, and enforcement of the Basic Documents, or
in connection with any scheduled closing that is postponed or cancelled,
including (i) all fees and expenses of (x) Trotter Smith & Jacobs, special
counsel to Lender, (y) Castro, Barros, Sobral e Xavier, special Brazilian
counsel, and (z) Crowe & Dunlevy, special FAA counsel; (ii) all FAA and UCC
filing and lien search fees; (iii) all fees and expenses (including legal fees
and expenses) of Lender in connection with actual or proposed amendments,
waivers, or consents to or under this Agreement or the other Basic Documents
(except for such amendments, waivers, or consents initiated by Lender); and
(iv) all fees and expenses (including legal fees and expenses) of Lender in
connection with the actual or proposed enforcement of any Basic Document
against Borrower during the existence of any Default. The "legal fees and
expenses" of Lender referred to in clauses (iii) and (iv) may include those of
Lender's in-house counsel.
SECTION 11.04 -- Amendments. Any provision of the Basic
Documents, other than the Purchase Agreement, the Guarantee, or the Finex
Agreement, may be amended, terminated, waived, or otherwise modified only in
writing by Borrower and Lender.
SECTION 11.05 -- Successors and Assigns. This Agreement shall
bind and benefit Lender and Borrower and their successors and assigns, except
that Borrower may not assign or transfer its rights under this Agreement
without Lender's prior written consent. Lender may at any time with the
Borrower's consent (which consent shall not be unreasonably withheld) sell,
assign, grant participation(s) in, or otherwise transfer any Note, in whole or
in part.
SECTION 11.06 -- Lender's Representations and Warranties.
Lender represents and warrants that:
(a) it is a national banking association duly organized,
validly existing, and in good standing under the laws of the United States, and
has all corporate power, authority, and legal right under the laws of the
United States to execute, deliver, and carry out the terms of each of the Basic
Documents to which it is a party;
(b) it has duly authorized, executed, and delivered this
Agreement and the other Basic Documents to which it is a party; and
(c) neither it nor anyone authorized to act on its behalf has
directly or indirectly offered any beneficial interest in the Notes for sale
to, or solicited any offer to acquire any such interest in the Notes from, any
Person in such a manner as to require any of the Notes to be registered under
the Securities Act of 1933, as amended, or any state securities law; provided,
that the foregoing shall not be deemed to extend any such offer, sale, or
solicitation by or on behalf of Borrower or any other Person.
26
<PAGE> 31
SECTION 11.07 -- Governing Law. This Agreement shall be
governed by the laws of Georgia.
SECTION 11.08 -- Headings. Article and section headings used
in this Agreement are for convenience only and are not a substantive part of
this Agreement.
SECTION 11.09 -- Execution in Counterparts. This Agreement may
be executed in separate counterparts.
SECTION 11.10 -- Survival of Representations and Warranties.
All representations and warranties contained in this Agreement or made in
writing in connection with this Agreement shall survive the execution and
delivery of this Agreement and the Mortgage.
SECTION 11.11 -- Severability. If any part of any provision
contained in this Agreement, or any document contemplated hereby, is or becomes
invalid or unenforceable under applicable law, that part shall be ineffective
to the extent of such invalidity only, without in any way affecting the
remaining parts of that provision or the remaining provisions.
SECTION 11.12 -- Finex Agreement. Except to the extent
otherwise provided in article X and section 7.02(g), all risks and benefits of
the Finex Agreement are Lender's, not Borrower's. Except as so provided,
Borrower shall not have any responsibility for payments owed to Lender under
the Finex Agreement, regardless of whether or when they are paid, and Borrower
shall have no right to any such payments, regardless of any payment or
prepayment of any Note (including after an Event of Default or Event of Loss)
or any purchase of any Note by any Person.
[INTENTIONALLY LEFT BLANK]
27
<PAGE> 32
IN WITNESS WHEREOF, Borrower and Lender have executed this Credit Agreement.
ATLANTIC SOUTHEAST AIRLINES, INC.
1688 Phoenix Parkway
College Park, Georgia 30349
Attn: Ronald V. Sapp
Vice President-Finance
and Treasurer By: /s/ Ronald V. Sapp
Facsimile No.: (404) 991-0366 ------------------------------------
Title: Vice President-Finance
-------------------------------
BANK OF AMERICA NATIONAL
555 South Flower Street TRUST AND SAVINGS
ASSOCIATION
Los Angeles, California 90071
Attn: Airline Aerospace #5770
Facsimile No.: (213) 228-2756
By: /s/ Douglas I. Robinson
------------------------------------
Title: Vice President
-------------------------------
with a copy to:
1850 Gateway Blvd. #5693
Concord, California 94520
Attn: Corporate Service Center
Facsimile No.: (415) 675-7531
28
<PAGE> 1
EXHIBIT 10(i)
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of
December 1, 1990
between
ATLANTIC SOUTHEAST AIRLINES, INC.,
Borrower
and
BARCLAYS BANK PLC,
Lender.
Two Embraer Model EMB-120 Brasilia Aircraft
and Spare Parts
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
ARTICLE I
DEFINITIONS; REFERENCES
<S> <C> <C>
SECTION 1.01 -- Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 -- Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 1.03 -- Section and Exhibit References, etc. . . . . . . . . . . . . . . . 7
ARTICLE II
PURCHASE AND EXCHANGE OF FINEX NOTES; PAYMENTS 7
SECTION 2.01 -- Purchase and Exchange of Finex Notes . . . . . . . . . . . . . . . 7
SECTION 2.02 -- Procedure for Purchase and Exchange
of Finex Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.03 -- Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.04 -- Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
SECURITY FOR BORROWER'S OBLIGATIONS
SECTION 3.01 -- Security Interest in Collateral . . . . . . . . . . . . . . . 8
SECTION 3.02 -- Set-Off Rights . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
PAYMENTS UNDER THE NOTES
AND OTHER AMOUNTS PAYABLE BY BORROWER
SECTION 4.01 -- How Payments Are Made . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.02 -- Right to Prepay . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.03 -- Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.04 -- Mandatory Purchase . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.05 -- Amount of Prepayment . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.06 -- Interest on Past Due Amounts . . . . . . . . . . . . . . . . . . . 10
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES
SECTION 5.01 -- Corporate Standing . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5.02 -- Corporate Powers . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.03 -- Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.04 -- Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.05 -- Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.06 -- Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.07 -- Status as United States Citizen and Air
Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5.08 -- Location of Offices . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.09 -- Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.10 -- Condition of Aircraft . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.11 -- Absence of ERISA Liability . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.12 -- Delta Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.13 -- Subsidiaries; Stock Ownership . . . . . . . . . . . . . . . . . . . 13
SECTION 5.14 -- Investment Company Status . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI
AFFIRMATIVE COVENANTS
SECTION 6.01 -- Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6.02 -- Inspection of Collateral and Records . . . . . . . . . . . . . . . 14
SECTION 6.03 -- Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.04 -- Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.05 -- Citizenship and Air Carrier Status . . . . . . . . . . . . . . . . 17
SECTION 6.06 -- Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.07 -- Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.08 -- Performance of Delta Agreement . . . . . . . . . . . . . . . . . . 18
ARTICLE VII
CONDTIONS PRECEDENT TO THE PURCHASE
AND EXCHANGE OF FINEX NOTES
SECTION 7.01 -- Conditions Precedent to the Purchase and
Exchange of the Initial Finex
Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.02 -- Conditions Precedent to the Purchase
and Exchange of All Finex Notes . . . . . . . . . . . . . . . . 18
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
SECTION 8.01 -- Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.02 -- Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX
BORROWER'S INDEMNITIES
SECTION 9.01 -- General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 9.02 -- Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE X
ILLEGALITY AND YIELD PROTECTION
SECTION 10.01 -- Illegality and Increased Costs . . . . . . . . . . . . . . . . . . . 30
SECTION 10.02 -- Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
-ii-
<PAGE> 4
<TABLE>
ARTICLE XI
MISCELLANEOUS
<S> <C> <C>
SECTION 11.01 -- No Waivers; Cumulative Remedies . . . . . . . . . . . . . . . . . . 32
SECTION 11.02 -- Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 11.03 -- Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 11.04 -- Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 11.05 -- Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 11.06 -- Lender's Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 11.07 -- Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 11.08 -- Judicial Proceedings . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 11.09 -- Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 11.10 -- Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . 34
SECTION 11.11 -- Survival of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 11.12 -- Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 11.13 -- Finex Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Annex A Procedures for Purchasing Aircraft
and Notes; Documentation
Exhibit A-1 Form of Finex Note
Exhibit A-2 Form of Note
Exhibit B Form of Finex Agreement
Exhibit C Form of Mortgage
Exhibit D Form of Purchase Agreement Assignment
Exhibit E Form of Consent
Exhibit F Form of opinion of Borrower's counsel
Exhibit G Form of opinion of Crowe & Dunlevy
Exhibit H Form of opinion of counsel to Embraer
Exhibit I Form of Guarantee
</TABLE>
-iii-
<PAGE> 5
CREDIT AGREEMENT
This Credit Agreement is entered into as of December 1, 1990
by and between Atlantic Southeast Airlines, Inc. ("Borrower"), a Georgia
corporation, and Barclays Bank PLC ("Lender"), an English banking corporation.
Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS; REFERENCES
SECTION 1.01 -- Definitions. The following terms, when
capitalized as below, have the following meanings:
"Act": the Federal Aviation Act of 1958, as amended, or its
successor.
"Agreement": this Credit Agreement.
"Aircraft": two Embraer EMB-120 Brasilia aircraft to be
delivered under the Purchase Agreement and in each case designated by Borrower
(by notice to Lender at least three Business Days before the Purchase Date
therefor, and not revoked by notice to Lender before the Purchase Date
therefor) as an "Aircraft" to be financed under this Agreement.
"Bank LIBOR": for any Interest Period, a rate per annum
(calculated on the basis of a 360-day year and the actual number of days
elapsed) equal to the consensus rate at which 180 day deposits in Dollars
appears on the Reuters Screen LIBO Page at approximately 11:00 a.m. London,
England time, on the day that is two London business days preceding the
commencement of that Interest Period; provided, however, that if Bank LIBOR as
defined above, cannot be determined by reference to the Reuters Screen LIBO
Page, then Bank LIBOR shall be determined by reference to the date offered by
the principal London office of Barclays Bank PLC.
<PAGE> 6
-2-
"Basic Documents": this Agreement, the Purchase Agreement,
the Finex Agreement, the Guarantee, and the Mortgage; and each Note, Purchase
Agreement Assignment, Consent, and Mortgage Supplement as executed and
delivered.
"Borrower Interest Rate" for any Note with respect to any
Interest Period: an interest rate equal to Bank LIBOR for such Interest Period,
plus 87.5 basis points per annum (computed on the basis of a year of 360 days),
based on actual days elapsed.
"Business Day": any day, other than a Saturday or Sunday, on
which commercial banks are open for business in New York, New York, Atlanta,
Georgia and London, England, and if such day is a Purchase Date or Interest
Payment Date or relates to a notice by Borrower with respect to any Purchase
Date, which is also a day on which dealings in Dollar deposits are carried out
in the London interbank market.
"Collateral": the "Collateral" under the Mortgage.
"Commitment": Lender's commitment to purchase and exchange
the Finex Notes for an aggregate amount of the lesser of $11,000,000 and 85% of
Equipment Cost for both Equipment Portions; Borrower may reduce such amount
upon 30 days prior written notice to Lender. Upon the delivery of the second
Aircraft, any remaining commitment amount shall expire.
"Commitment Fee": the fee required to be paid to Lender
pursuant to section 2.03.
"Commitment Period": the period from the date of execution
of this Agreement to and including the earliest of (w) June 30, 1991, (x) the
date upon which the second Aircraft is delivered to and accepted by Borrower
pursuant to the Purchase Agreement, (y) the date on which the remaining
Commitment is terminated pursuant to section 8.02 or section 10.01, and (z) a
date set by Borrower pursuant to a notice sent to Lender at least 30 days prior
to such date.
"Consent": a Consent and Agreement, substantially in the
form of Exhibit E, relating to a Purchase Agreement Assignment and dated the
same date as that Purchase Agreement Assignment.
"Default": any event or condition that would become an Event
of Default upon the giving of notice or lapse of time or both, or any Event of
Default.
"Delta Agreement": that certain agreement between Delta Air
Lines, Inc. and Borrower dated June 1,
<PAGE> 7
-3-
1986 and relating to joint marketing or code sharing for interconnecting
flights.
"Dollars": and "$": United States dollars.
"Downpayment": for each Equipment Portion, the difference
between the Equipment Cost and the Financed Amount for such Equipment Portion,
provided that the Financed Amount shall be no more than 85% of such Equipment
Cost.
"Embraer": Embraer-Empresa Brasileira de Aeronautica S.A., a
Brazilian corporation, and its successors and assigns.
"Equipment Cost": the purchase price for an Equipment
Portion, as set forth in (and as adjusted pursuant to) the Purchase Agreement.
In no event will the total Equipment Cost for both Equipment Portions include
the invoice price of any Spare Parts in excess of 5% of the invoice price of
both Aircraft.
"Equipment Portion": an Aircraft and the Spare Parts
purchased with that Aircraft.
"ERISA": defined in section 5.11.
"Event of Default": defined in section 8.01.
"Event of Loss": defined in section 1.01 of the Mortgage.
"FAA": the Federal Aviation Administration of the United
States, or any instrumentality of the United States succeeding to its function.
"Facility Fee": the fee required to be paid to Lender
pursuant to section 2.04.
"Financed Amount": the face amount of the Note for an Aircraft
being purcahsed on a Purchase Date.
"Finex Agreement": an agreement by that name, substantially
in the form of Exhibit B.
"Finex Bank": Banco de Credito Nacional S.A., New York Branch,
a New York Branch of Banco de Credito Nacional S.A., a banking corporation
organized under the laws of the Federative Republic of Brazil (or any other
Person serving as a Finex bank under a Finex Agreement), in its capacity as
Finex bank under the Finex Agreement, and its successors in such capacity.
"Finex Interest Payments": defined in section 3.03 of the
Finex Agreement.
<PAGE> 8
-4-
"Finex Note": Borrower's promissory note, in the form of
Exhibit A-1, issued in connection with a designated Equipment Portion.
"Finex Program:" the export support program (Fundo de
Financiamento a Exportaceo) of the Federative Republic of Brazil as established
by Resolution No. 509 of January 24, 1979 of Banco Central do Brasil, and in
Circular Cacex/Finex No. 10 of the Carteira de Comercio Exterior (Cacex) of
Banco do Brasil S.A., dated September 21, 1982, as from time to time
supplemented or amended or any materially similar successor of such export
support program.
"GAAP": generally accepted accounting principles as in effect
in the United States and applied on a basis consistent with that used in the
preparation of the financial statements referred to in section 5.05, except for
charges therein with which Borrower's independent public accountants concur
that are disclosed in the notes to the relevant financial statements.
"Guarantee": the document by that name, executed by
Guarantor, in substantially the form of Exhibit I.
"Guarantor": ASA Investments, Inc.
"herein", "hereof", "hereunder", etc.: in, of, or under,
etc. this Agreement (and not merely in, of, under, etc. the section or
provision where that reference appears).
"including": containing, embracing, or involving the
enumerated item(s), but not necessarily limited to such item(s).
"Indemnitee": Lender, or any agent (other than Finex Bank),
employee, director, successor, or permitted assign of Lender.
"Interest Payment Date" for a Note: each 180 day anniversary
of the Purchase Date for that Note (determined without counting any Purchase
Date or previous Interest Payment Date); except that, for purposes of payment
and of determining the beginning and end of each Interest Period (but not for
the purpose of determining the following Interest Payment Date), any Interest
Payment Date that falls on a day which is not a Business Day shall instead
occur on the following Business Day, unless such Business Day falls in another
calendar month, in which case such Interest Payment Date shall occur on the
preceding Business Day.
"Interest Period" for a Note: each period beginning on the
day after an Interest Payment Date for
<PAGE> 9
-5-
that Note (or, in the case of the first Interest Period for that Note, beginning
on its Purchase Date) and ending on the following Interest Payment Date for that
Note.
"Lien": any mortgage, pledge, assignment, encumbrance, lien
(statutory or other), or other security interest of any kind or nature
whatsoever (including any conditional sale or other title retention agreement,
or any lease in the nature thereof).
"Mortgage": the Security Agreement and Chattel Mortgage
between Borrower and Lender, substantially in the form of Exhibit C.
"Mortgage Supplement": defined in section 3.01.
"Note": Borrower's promissory note, in the form of Exhibit
A-2, issued in connection with a designated Equipment Portion, or a note issued
in exchange or replacement for such a note.
"1989 10-K": Borrower's annual report on Form 10-K for the
year ended December 31, 1989.
"1990 10-Q": Borrower's quarterly report on Form 10-Q for the
quarter ended September 30, 1990.
"Officer's Certificate": a certificate signed in the name of
Borrower (or, with respect to section 6.04(b), of the Successor) by the
chairman of the board, the president, a vice president, or the treasurer of
Borrower (or the Successor).
"or": at least one, but not necessarily only one, of the
alternatives enumerated.
<PAGE> 10
-6-
"Permitted Lessee": defined in the Mortgage.
"Permitted Lien": defined in the Mortgage.
"Person": any individual, corporation, partnership, joint
venture, or other legal or governmental entity.
"Purchase Agreement": Purchase Agreement No. 162-COV/88
(including all attachments, exhibits, and letter agreements thereto) dated
November 21, 1988, between Vendor and Borrower.
"Purchase Agreement Assignment": a document by that name,
substantially in the form of Exhibit D, executed and delivered on a Purchase
Date with respect to the Aircraft then being delivered.
"Purchase Date": a date on which Borrower purchases an
Aircraft and, simultaneously, Lender purchases the related Note.
"Reuters Screen LIBO Page": the display designated as page
"LIBO" on the Reuter Monitor Money Rates Service (or such other page as may
replace the LIBO Page on that service for the purpose of displaying London
interbank offered rates for Dollar deposits).
"SEC Filings": the 1989 10-K and the 1990 10-Q.
"Spare Parts": the appliances, spare parts, and other items of
equipment purchased with Aircraft under the Purchase Agreement.
"Successor": defined in section 6.04(b).
"Taxes": defined in the last sentence of section 9.02(a).
"Taxing Authorities": defined in the first sentence of section
9.02(a).
"Vendor": Embraer.
SECTION 1.02 -- Use of Defined Terms. Any defined terms used
in the plural preceded by "the" encompasses all members of the relevant class.
Any defined term used in the singular preceded by "any" indicates any number of
the members of the relevant class. Any agreement or instrument referred to in
section 1.01 means such
<PAGE> 11
-7-
agreement or instrument as from time to time supplemented and amended.
SECTION 1.03 -- Section and Exhibit References, etc.
References to articles, sections, exhibits, and the like refer to those in or
attached to this Agreement unless otherwise specified.
ARTICLE II
PURCHASE AND EXCHANGE OF FINEX NOTES; PAYMENTS
SECTION 2.01 -- Purchase and Exchange of Finex Notes. Subject
to the satisfaction of the conditions precedent set forth in article VII, and
on the terms and conditions set forth in this article II, on the Purchase Date
for each Aircraft, Lender shall purchase the related Finex Note from Finex Bank
and Borrower will exchange with Lender a Note for such Finex Note. The
Financed Amount for each Aircraft shall be the Equipment Cost for the related
Equipment Portion less the Downpayment for such Equipment Portion, but in no
event shall the combined Financed Amount for both Equipment Portions exceed the
Commitment. Each Finex Note shall be purchased for its face amount and each
Note exchanged for such Finex Note shall have the same face amount as such
Finex Note. Lender's Commitment to purchase the Finex Notes pursuant to this
Agreement shall expire at 12:00 noon, New York City time, on the last day of
the Commitment Period.
SECTION 2.02 -- Procedure for Purchase and Exchange of Finex
Notes. The procedure to be followed in the purchase and exchange of Finex
Notes is described in Annex A. At Lender's offices at 75 Wall Street, New
York, New York 10265 (or such other location as the parties hereto agree upon),
not later than 12:00 noon (New York City time) on the appropriate Purchase
Date, upon fulfillment of the conditions set forth in article VII and in
compliance with the procedures set forth in Annex A, Lender will purchase the
related Finex Note from Finex Bank (who will have purchased that Finex Note
simultaneously from Vendor), with general corporate funds, in each case for a
purchase price equal to its face amount (as set forth in section 2.01).
Concurrently therewith, Borrower will exchange with Lender a Note for such
Finex Note, such Note to have the same face amount as the related Finex Note.
<PAGE> 12
-8-
SECTION 2.03 -- Commitment Fee. In partial consideration of
the Lender's agreement to purchase and exchange the Finex Notes, Borrower shall
pay to Lender a Commitment Fee (""Commitment Fee") for the Commitment Period,
payable in arrears on the first day of each quarter or partial quarter (for the
prior quarter or partial quarter) after the execution and delivery of this
Agreement during the Commitment Period with a final payment on the last day of
the Commitment Period, and computed at a rate per annum (calculated on the
basis of a 360-day year and actual days elapsed) of 1/8 of 1% of the average
daily unused portion of Lender's Commitment. The term "quarter" as used in
this Section shall mean the relevant calendar quarter ending on one of the
following dates: March 31, June 30, September 30, or December 31.
SECTION 2.04 -- Facility Fee. In partial consideration of the
Lender's agreement to purchase and exchange the Finex Notes, Borrower shall pay
to Lender a Facility Fee ("Facility Fee") on each Purchase Date in the amount
of 3/8 of 1% of the Financed Amount relating to such Purchase Date.
ARTICLE III
SECURITY FOR BORROWER'S OBLIGATIONS
SECTION 3.01 -- Security Interest in Collateral. To secure
Borrower's obligations to Lender under each Note and the other Basic Documents
to which it is or becomes a party, Borrower shall execute and deliver to
Lender, on each Purchase Date, a supplement to the Mortgage (a "Mortgage
Supplement"), substantially in the form of Schedule A to the Mortgage, granting
to Lender a perfected purchase money security interest in the Equipment Portion
being purchased from Vendor on such Purchase Date.
SECTION 3.02 -- Set-Off Rights. If Borrower becomes
insolvent, or any Event of Default occurs, any indebtedness that Lender then
owes to Borrower and any other property of Borrower that Lender then holds may
be offset and applied toward the payment of any obligation of Borrower to
Lender under the Basic Documents, whether or not any such other obligations is
then due.
<PAGE> 13
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ARTICLE IV
PAYMENTS UNDER THE NOTES
AND OTHER AMOUNTS PAYABLE BY BORROWER
SECTION 4.01 -- How Payments Are Made. Borrower shall make
its payments and prepayments of principal and interest due on the Notes, all
amounts due as Commitment Fees and Facility Fees hereunder, and all other
amounts payable by Borrower to Lender under the Basic Documents, to Lender at
the Federal Reserve Bank of New York, 1 Liberty Plaza, New York, New York,
Account: Barclays Bank PLC (ABA#02-600-2574), Reference: CLAD Account No. 050
01920-4, Attention: Aerospace Industries Unit/Atlantic Southeast Airlines Note
No. 1 or 2 [as appropriate] (or at such other place as Lender from time to time
notifies Borrower), in immediately available funds and in Dollars, no later
than 1:00 p.m. (New York City time) on the date when due. Any payment made by
Borrower to Lender after 1:00 p.m. (New York City time) on any day shall be
deemed to have been made on the following Business Day. If any payment due
under the Basic Documents comes due on a day which is not a Business Day, such
payment shall instead be made on the following Business Day, unless such
Business Day falls in another calendar month, in which case such payment shall
be made on the preceding Business Day, and interest, or Commitment Fees, as the
case may be, shall accrue at the applicable rate to the day of payment.
SECTION 4.02 -- Right to Prepay. Unless a Default exists,
Borrower shall have the right to prepay in full the outstanding principal
amount of the Note issued with respect to any designated Equipment Portion,
without premium or penalty. Borrower shall give to Lender at least 30 days'
prior written notice (which notice shall be irrevocable) of such prepayment.
Upon any prepayment of any Note under this section 4.02, Borrower shall pay all
accrued and unpaid interest on the principal of such Note to the date of
prepayment, together with all other amounts payable under section 10.02 with
respect to such prepayment.
SECTION 4.03 -- Mandatory Prepayments. Following the
occurrence of an Event of Loss with respect to any Aircraft, Borrower shall
prepay the Note executed in connection with that Aircraft, in accordance with
section 7.01(b) of the Mortgage, and shall pay all other amounts payable under
section 10.02 with respect to such prepayment. Upon acceleration of the Notes
pursuant to section 8.02, Borrower shall prepay such Notes, and shall
pay all other amounts payable under section 10.02 with respect to such
prepayment.
SECTION 4.04 -- Mandatory Purchase. Upon the occurrence of a
Prepayment Event, Lender shall have the
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right to require Borrower to purchase or cause the purchase of the relevant Note
for its then-outstanding principal amount, plus all accrued but unpaid interest
on such Note to the date of such purchase, together with all other amounts
payable under section 10.02 with respect to such prepayment. The payment
described in the preceding sentence shall be due 10 days after a Prepayment
Event has occurred (if that Prepayment Event has not been cured by then), and
shall be made in the manner prescribed by section 4.01. A "Prepayment Event"
shall occur if (a) Borrower fails to keep an Aircraft registered with the FAA;
or (b) Borrower fails to obtain an FAA standard airworthiness certificate for an
Aircraft within twenty days following the Purchase Date for such Aircraft.
SECTION 4.05 -- Amount of Prepayment. A Note shall be deemed
satisfied in full upon the prepayment of all principal of such Note, the
payment of the interest due on or with respect to such Note on such prepayment
date, and the payment of all past-due interest on or with respect to such Note
and the payment of all other amounts payable under section 10.02 with respect
to such prepayment.
SECTION 4.06 -- Interest on Past Due Amounts. Any amounts
past due (by acceleration or otherwise) and at any time outstanding under any
Note or from Borrower under any other Basic Document shall (to the extent
permitted by law) bear interest, payable on demand, from the due date until
payment in full, at a rate equal to 2% per annum above Borrower Interest Rate.
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
SECTION 5.01 -- Corporate Standing. Borrower is a duly
organized corporation existing in good standing under the laws of Georgia, has
the corporate power and legal authority to own or lease its properties and to
carry on its business as now conducted and as now proposed to be conducted, and
is duly qualified to do business in all jurisdictions wherein such
qualification is necessary
(except in any jurisdictions in which the failure to qualify would have no
materially adverse effect on its business or on its ability to carry out its
obligations under the Basic Documents to which it is (or is to become) a
party).
SECTION 5.02 -- Corporate Powers. Borrower's execution,
delivery, and performance of the Basic Documents to
<PAGE> 15
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which it is (or is to become) a party are within Borrower's corporate powers;
and the Basic Documents to which it is (or is to become) a party have been duly
authorized by all necessary corporate action on Borrower's part, and do not
contravene, result in a breach of, or require any consent under any law,
judgment, decree, order, or contractual restriction binding on Borrower or any
agreement or instrument to which Borrower is a party or to which it or any of
its property is subject.
SECTION 5.03 -- Binding Effect. The Basic Documents to which
Borrower is (or is to become) a party are (or will be when executed and
delivered) legal, valid, and binding obligations of Borrower in accordance with
their terms, except as may be limited by bankruptcy, insolvency, or other
similar laws affecting enforcement of creditors' rights generally.
SECTION 5.04 -- Litigation. Except as disclosed in the SEC
Filings, there are no pending or (to the best of Borrower's knowledge after due
inquiry) threatened actions or proceedings before any court or administrative
agency which may be expected to have a materially adverse effect on Borrower's
business or financial condition or which seek to question or set aside any of
the transactions herein contemplated.
SECTION 5.05 -- Financial Statements. The audited balance
sheet as of December 31, 1989 and unaudited balance sheet as of September 30,
1990 for Borrower and its consolidated subsidiaries, and the related results of
operations for the year and quarter then ended, have been prepared in
accordance with GAAP and correctly present Borrower's financial condition as of
such dates and results of operations for such periods, and since September 30,
1990, there has been no materially adverse change in Borrower's business,
assets, operations, or condition (financial or otherwise).
SECTION 5.06 -- Taxes. Borrower has filed all tax returns
which it is or was required to file, and has paid all taxes shown to be due and
payable on those returns
or on any assessment received by it, except such taxes of Borrower, if any, as
are being contested diligently in good faith, and by appropriate proceedings,
and as to which adequate reserves have been provided in accordance with GAAP.
SECTION 5.07 -- Status as United States Citizen and Air
Carrier. Borrower is a "citizen of the United States" as that term is used in
section 101(16) of the Act, and is a duly certified "air carrier" within the
meaning of the Act.
SECTION 5.08 -- Location of Offices. Borrower's chief
executive office and principal place of business, and the place where Borrower
keeps its financial records
<PAGE> 16
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concerning the Collateral, is located at its address referred to in section
11.02. The Spare Parts shall be located as set forth in Annex A to each
Mortgage Supplement, unless otherwise specified pursuant to section 4.05 of the
Mortgage.
SECTION 5.09 -- Governmental Consents. Neither the execution,
delivery, and performance of any of the Basic Documents (other than the Finex
Agreement), nor the consummation of any of the transactions contemplated
thereby by Borrower or Vendor (including the importation of the Aircraft into
the United States from Brazil), requires the consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
federal, state, or foreign governmental authority or agency (including any
judicial body) except for (a) the filing and recording of the Mortgage, and of
the FAA bill of sale, the FAA application for registration, and the Mortgage
Supplement for each Aircraft with the FAA; (b) the filing and recording of
UCC-1 financing statements for each Aircraft with the Superior Court Clerk
Offices in Bibb, Clayton, and Fulton County, Georgia, and in the appropriate
places in Texas and Arkansas; and (c) the registration of each Aircraft with
the FAA pursuant to the Act, and except for any necessary action with respect
to the Finex Program.
SECTION 5.10 -- Condition of Aircraft. On each Purchase Date,
the Aircraft to be delivered on such Purchase Date shall be in such condition
as is sufficient to enable Borrower to obtain a standard U.S. certificate of
airworthiness for such Aircraft and to enable such airworthiness certificate to
be maintained in good standing; and, to Borrower's knowledge (which shall be
based on acceptance tests by Borrower in accordance with its ususal practices,
to the extent permitted under the Purchase Agreement), such Aircraft shall
otherwise conform in all material respects to the specifications for such
Aircraft set forth in the Purchase Agreement.
SECTION 5.11 -- Absence of ERISA Liability. Each employee
pension benefit plan (as defined in section 3(2) of the Employee Retirement
Income Security Act of 1974, as from time to time amended ("ERISA")) of
Borrower is in compliance with the applicable provisions of ERISA and of the
Internal Revenue Code of 1986, as from time to time amended, in all respects,
except the extent that noncompliance would not be materially adverse to
Borrower's business, assets, financial condition, or ability to perform its
obligations under the Basic Documents.
SECTION 5.12 -- Delta Agreement. The Delta Agreement is (a)
the only agreement to which the Borrower is a party relating to joint marketing
or code sharing for interconnecting flights, and (b) in full force and effect.
There exists no default under the terms of the Delta Agreement and there has
not occurred any event that would
<PAGE> 17
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ripen into a default upon the giving of notice or passage of time.
SECTION 5.13 -- Subsidiaries; Stock Ownership. Borrower owns
100% of the outstanding stock of Guarantor and Borrower has no material stock
or other equity investment in any other corporation, partnership, or other
Person.
SECTION 5.14 -- Investment Company Status. The Borrower is
not an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Note, or any amount owed by Borrower under any
other Basic Document, remains outstanding or unpaid or Lender has any
Commitment hereunder;
SECTION 6.01 -- Financial Statements. Borrower shall furnish
to Lender:
(a) within 45 days after the end of each of the first
three quarters in each fiscal year, consolidated
statements of operations of Borrower and its consolidated
subsidiaries for the period from the beginning of the then-current
fiscal year to the end of such quarterly period, and balance sheets of
Borrower and its consolidated subsidiaries, on a consolidated basis,
as of the end of such quarter prepared in accordance with GAAP and
setting forth in each case in comparative form figures for the
corresponding period in the preceding year, all in reasonable detail
and certified by the Chief Financial Officer of Borrower, subject to
changes resulting from year-end adjustments, and Borrower's Form 10-Q
for such period;
(b) within 90 days after the end of each fiscal year,
consolidated statements of operations of Borrower and its consolidated
subsidiaries, for such year, and the balance sheets of Borrower and
its consolidated subsidiaries, on a consolidated basis, as of the end
of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in
reasonable detail, and certified to Borrower by its independent
certified public accountants and to Lender by Borrower's Chief
Financial Officer, as presenting fairly the financial position and
results of operations of Borrower and its
<PAGE> 18
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consolidated subsidiaries and as having been prepared in accordance
with GAAP, and Borrower's Form 10-K for such period;
(c) within two Business Days after any officer of
Borrower obtains knowledge of any Default, an Officer's Certificate
specifying its nature, the period of its existence, and what action
Borrower proposes to take with respect to it; and
(d) promptly upon request, such other data or information
(financial or otherwise) regarding Borrower or the Collateral as
Lender from time to time reasonably requests.
SECTION 6.02 -- Inspection of Collateral and Records.
Borrower shall permit any person(s) from time to time designated in writing by
Lender, at Lender's expense (or at Borrower's expense if a Default exists at
the time), to visit and inspect any of the Collateral and Borrower's (or any
Permitted Lessee's) records with respect to the Collateral, at such times as
Lender reasonably requests, and to discuss Borrower's affairs, finances, and
accounts with Borrower's officers. No such inspection shall
unreasonably interfere with Borrower's (or any Permitted Lessee's) operations
or maintenance. Lender shall have no duty to make any such inspection and
shall not incur any liability or obligation by reason of not making any such
inspection. Upon Lender's request, Borrower shall promptly notify Lender of
the maintenance operations then scheduled on the Aircraft for the six-month
period following such request.
SECTION 6.03 -- Corporate Existence. Except as permitted by
section 6.04, Borrower shall maintain its corporate existence in good standing
in the state of its incorporation and in all jurisdictions where qualification
is necessary (except in any jurisdiction in which the failure to qualify would
have no materially adverse effect on its business or on its ability to carry
out its obligations under the Basic Documents to which it is (or it to become)
a party). Borrower shall preserve and renew its rights (charter and
statutory), patents, and franchises, unless Borrower determines in good faith
that the preservation thereof is no longer necessary or desirable in the
conduct of its business and that the loss thereof will not adversely affect
Lender's rights or Borrower's business, assets, operations, condition
(financial or otherwise).
SECTION 6.04 -- Merger. Borrower shall not consolidate with
or merge into any other corporation, or convey, transfer, or lease all or
substantially all of its assets as an entirety to any Person, unless:
<PAGE> 19
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(a) the Borrower is the surviving corporation;
or
(b) the corporation formed by such consolidation or
merger or the Person who acquires by conveyance, transfer, or lease
all or substantially all of Borrower's assets as an entirety (the
"Successor") (i) is a corporation organized and existing under the
laws of the United States of America or any state or the District of
Columbia, (ii) is a "citizen of the United States" as defined in
section 101(16) of the Act, (iii) is an air carrier (within the
meaning of section 101(3) of the Act) certificated under section
604(b) of the Act, (iv) executes and delivers to Lender an agreement,
in form and substance satisfactory to Lender, containing an
assumption by the Successor of the due and punctual performance and
observance of Borrower's obligations under the Basic Documents to
which Borrower is then a party, and (v) makes such
filings and recordings, including any filing or recording with the FAA
pursuant to the Act or any filing under the UCC, as are necessary to
evidence such consolidation, merger, conveyance, transfer, or lease
with or to the Successor; and
(d) Borrower or the Successor delivers to Lender,
promptly upon consummation of such transaction, an Officer's
Certificate stating that the conditions precedent set forth in clauses
(a) and (b) have been complied with and an opinion of counsel to
Borrower or the Successor, in form and substance satisfactory to
Lender, stating that the agreements entered into to effect such
consolidation, merger, conveyance, transfer, or lease and such
assumption agreements have been duly authorized, executed, and
delivered by the Successor and that they (and the Basic Documents so
assumed) constitute legal, valid, and binding obligations of the
Successor, enforceable in accordance with their terms (to the same
extent as the Basic Documents so assumed were enforceable against
Borrower); and that all conditions precedent which are legal in nature
provided for in this Agreement and relating to such transactions have
been fulfilled.
Upon any such consolidation, merger, conveyance, transfer, or
lease, the Successor shall succeed to, shall be substituted for, and may
exercise every right and power of Borrower under the Basic Documents to which
Borrower is a party, with the same effect as if the Successor had been named as
Borrower therein. No such conveyance, transfer, or lease of substantially all
of Borrower's assets as an entirety shall have the effect of releasing Borrower
(or any Successor) from its liability under the Basic Documents to which it is
a party. Nothing in this section shall
<PAGE> 20
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permit any lease, sublease, or other arrangement for the use, operation, or
possession of the Aircraft except in compliance with the applicable provisions
of this Agreement and the Mortgage.
<PAGE> 21
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SECTION 6.05 -- Citizenship and Air Carrier Status. Borrower
will at all times remain a "citizen of the United States" as defined in section
101(16) of the Act and an "air carrier" within the meaning of the Act.
SECTION 6.06 -- Compliance with ERISA.
(a) Borrower will, at all times, make prompt payment of
contributions that it is required to make to any employee benefit plan
to which it is a party as are necessary to meet the minimum funding
standards for such an employee benefit plan, as required by ERISA.
(b) Within two Business Days after the occurrence of any
event or circumstance, including any event which is classified as a
"Reportable Event" under ERISA, in connection with any employee
benefit plan to which it is a party, that might constitute grounds for
termination of an employee benefit plan to which Borrower is a party
by the Pension Benefit Guaranty Corporation or might result in the
appointment of a trustee by a United States District Court under
section 4042 of ERISA to administer such employee benefit plan;
Borrower will provide Lender with an Officer's Certificate describing
the event or circumstance, stating the reasons for any such action by
the Pension Benefit Guaranty Corporation or a United States District
Court, and specifying the action Borrower proposes to take with
respect thereto.
SECTION 6.07 -- Disposition of Assets. Borrower will not
dispose of any of its assets, other than in the ordinary course of its
business, unless it receives full, fair, and reasonable consideration for such
assets; and Borrower will not during any twelve-month period dispose of assets,
other than in the ordinary course of its business, which have an aggregate book
value in excess of $5,000,000; provided, that Borrower shall have the right to
dispose of any aircraft for at least such aircraft's book value and such sale
of an aircraft for at least book value will not be included in the calculation
of the $5,000,000 of assets sold in a twelve-month period. The book value of
an aircraft shall be determined in accordance with GAAP. For avoidance of
doubt, the "ordinary course" of Borrower's business generally shall include (x)
acquisitions or dispositions of marketable securities (other than acquisitions
or dispositions exceeding 5% of any class of "equity security", as defined in
the Securities Exchange Act of 1934) and (y) the disposition of parts of
discontinued aircraft, engines, or propellers not constituting part of a
program to reduce Borrower's fleet in any material respect. Borrower will not
dispose of any Aircraft unless the Note issued in connection with such Aircraft
has been paid in full.
<PAGE> 22
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SECTION 6.08 -- Performance of Delta Agreement. Borrower
shall faithfully perform all obligations it has under the Delta Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASE
AND EXCHANGE OF FINEX NOTES
SECTION 7.01 -- Conditions Precedent to the Purchase and
Exchange of the Initial Finex Notes. Lender's obligation to purchase the Note
on the first Purchase Date is subject to the satisfaction (or Lender's waiver)
of the following conditions precedent and Lender's receipt on or before such
initial Purchase Date of the following, in form and substance satisfactory to
Lender:
(a) an executed Finex Agreement,
(b) an executed Mortgage,
(c) an executed Guarantee,
(d) an Officer's Certificate certifying an attached copy
of the Purchase Agreement,
(e) copies of the SEC Filings, and
(f) evidence of authority of the Finex Bank's
representatives executing the Finex Agreement, together with their
specimen signatures.
SECTION 7.02 -- Conditions Precedent to the Purchase and
Exchange of All Finex Notes. Lender's obligation to purchase each Note
(including the initial Note) is subject to the additional conditions precedent
that:
(a) Lender shall have received the following, each dated
as of the pertinent Purchase Date, in form and substance satisfactory
to Lender:
(i) the Note for the relevant Equipment Portion,
executed by Borrower, along with a copy of the related Finex Note,
executed by Borrower and endorsed by Vendor (without recourse) to the
order of Finex Bank who in turn has endorsed (without recourse) to the
order of Lender,
(ii) an executed Mortgage Supplement with respect
to the relevant Equipment Portion,
<PAGE> 23
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(iii) an executed Purchase Agreement Assignment, with
the related executed Consent, with respect to the relevant Equipment
Portion,
(iv) an Officer's Certificate to the effect that:
(1) Borrower's representations and warranties in Article V of this
Agreement and section 6 of the relevant Purchase Agreement Assignment
are true and accurate as though made on the Purchase Date and (2) no
Default exists or will result from Lender's purchase of such Note,
(v) a certificate of insurance describing the
insurance maintained by Borrower with respect to the Equipment Portion
being purchased and stating that such policies conform to the
requirements of the Mortgage,
(vi) an opinion from Borrower's counsel
substantially in the form of Exhibit F,
(vii) an opinion from Crowe & Dunlevy, special FAA
counsel, substantially in the form of Exhibit G, covering the
Equipment Portion that is the subject of the Note being purchased,
(viii) an opinion of counsel to Embraer,
substantially in the form of Exhibit H,
(ix) an opinion of special Brazilian counsel,
substantially in the form of Annex B to the Finex Agreement,
(x) a Full Warranty Bill of Sale from Vendor to
Borrower with respect to the relevant Aircraft,
(xi) A Certificate of Acceptance and Transfer of
Title and Risk of Borrower with respect to the relevant Aircraft,
(xii) a certificate of Embraer stating that the
relevant Aircraft is fully equipped to operate in commercial passenger
service,
(xiii) a certificate of an officer of Embraer as to
the authority of Embraer's representatives executing the documents
required by this Section 7.02, together with specimen signatures,
(xiv) a certificate of Borrower's secretary, dated
the Purchase Date, certifying attached copies of the Certificate of
Incorporation and By-Laws of Borrower, the resolutions of Borrower's
board of directors evidencing approval of the transactions
contemplated by the Basic Documents to which it is
<PAGE> 24
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(or is to become) a party, and showing the names and specimen
signature(s) (or copies thereof) of Borrower's officer(s) authorized
to sign this Agreement and the related documents to which it is
(or is to become) a party,
(xv) a Power of Attorney to Borrower empowering
one or more designated individuals to accept the relevant Aircraft on
behalf of Borrower, and
(xvi) such additional opinion(s) and document(s) as
Lender requests;
(b) Lender shall have received copies of the necessary
FAA Application for Aircraft Registration, FAA Bill of Sale and
Brazilian Export Certificate of Airworthiness pertaining to the
Aircraft being purchased;
(c) Borrower's representations and warranties in the
Basic Documents shall be true and accurate as though made on and as of
such Purchase Date;
(d) no Default shall exist or shall result from Lender's
purchase of such Note;
(e) all filings, recordings, and other actions necessary
to establish, protect, preserve, and perfect Lender's interests under
the Mortgage shall have been duly made or taken;
(f) all necessary consents, approvals, licenses, permits,
declarations, or registrations then required in connection with the
execution, delivery performance, validity, and enforceability of the
Basic Documents and the transactions contemplated thereby shall have
been obtained;
(g) Lender shall have received invoices from Vendor, each
countersigned by Borrower, specifying the purchase price of the
Equipment Portion, any payments theretofore made and the balance due
and owing;
(h) a copy of the approval of the application for
coverage of the purchase of the Aircraft by the Finex Program; and
(i) in Lender's reasonable judgment, since September 30,
1990, there shall have occurred no materially adverse change in the
business, financial condition, or operations of Borrower.
ARTICLE VIII
<PAGE> 25
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EVENTS OF DEFAULT; REMEDIES
SECTION 8.01 -- Events of Default. Each of the following
shall constitute an "Event of Default":
(a) Borrower fails to make any payment due from Borrower
on any Note or under any other Basic Document (including under section
4.04 hereof) when due;
(b) any representation or warranty made by Borrower or
Guarantor in the Basic Documents, or in any certificate or other
document that borrower or Guarantor furnishes pursuant to the Basic
Documents, proves to have been incorrect in any material respect when
made;
(c) Borrower fails to maintain the insurance required by
the terms of the Mortgage;
(d) the Delta Agreement is voluntarily terminated, or is
amended to the detriment of Borrower;
(e) Borrower fails to provide Lender with the Officer's
Certificate required by section 6.01(c) or 6.06(b) within 10 days
after any of Borrower's officers obtains notice of a Default or the
ERISA-related event or circumstance occurs, respectively;
(f) Borrower or Guarantor fails to perform any other
material covenant or agreement in the Basic Documents, and (if
remediable) such failure to perform continues for 30 days after
Borrower's or Guarantor's receipt of notice of such default from
Lender;
(g) either of the Borrower or the Guarantor (1) applies
for or consents to the appointment of, or the taking of possession by,
a receiver, custodian, trustee, or liquidator of itself or of all or a
majority of its property, (2) makes a general assignment for the
benefit of its creditors, (3) commences a voluntary case under the
federal Bankruptcy Code (as now or hereafter in effect), (4) files a
petition seeking to take advantage (as debtor) of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, or (5) fails to controvert in a
timely manner, or acquiesces in writing to, any petition filed against
it in an involuntary case under the federal Bankruptcy Code;
(h) a proceeding or case is commenced, without the
application or consent of Borrower or Guarantor, as the case may be,
in any court of competent jurisdiction, seeking (1) the liquidation,
<PAGE> 26
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reorganization, dissolution, or winding-up, or the composition or
readjustment of the debts of Borrower or Guarantor, (2) the
appointment of a trustee, receiver, custodian, liquidator, or the like
of Borrower or Guarantor or of all or a majority of the assets of
Borrower or Guarantor, or (3) similar relief in respect of Borrower or
Guarantor under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case continues undismissed, or an order, judgment,
or decree approving or ordering any of the foregoing is entered and
continues unstayed and in effect, for a period of 60 days; or an
order for relief against Borrower or Guarantor is entered in an
involuntary case under the federal Bankruptcy Code;
(i) loan, lease, or deferred purchase obligations of
Borrower or Guarantor totalling more than $5 million are in default
after the expiration of any applicable grace period, if the effect of
such default is to permit such obligations to be accelerated or
otherwise declared to be due and payable prior to their stated
maturity, or Borrower or Guarantor defaults in the payment when due of
more
than $5 million of loan, lease, or deferred purchase obligations;
(j) one or more judgment(s) is/are rendered by one or
more court(s) of competent jurisdiction against Borrower or Guarantor
for a total of more than $1 million and is/are not stayed or
discharged, or fully bonded against, within 60 days of the date of
entry;
(k) any "Reportable Event" under ERISA shall have
occurred, or any finding or determination shall be made with respect
to an employee benefit plan to which Borrower is a party under Section
4041(c) or (e) of ERISA, or any fact or circumstance shall occur with
respect to an employee benefit plan to which Borrower is a party,
that, in the opinion of Lender, provides grounds for the commencement
of any proceeding under Section 4042 of ERISA, or any proceeding shall
be commenced under Section 4042 of ERISA with respect to an employee
benefit plan to which Borrower is a party;
(l) Borrower shall deny any further liability under any
Note or under any other Basic Document or Guarantor shall deny any
further liability under the Guarantee; or
(m) Lender fails or ceases to have a perfected
first-priority interest in an Aircraft, or a Lien (other than a
Permitted Lien) on an Aircraft exists.
<PAGE> 27
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SECTION 8.02 -- Remedies. If an Event of Default (other than
under Section 8.01(g) or (h)) exists, Lender may declare all Notes to be
immediately due and payable, whereupon (i) all Notes shall become and be
immediately due and payable without presentment, demand, protest, or other
notice of any kind, all of which Borrower hereby waives, and (ii) the
Commitment shall terminate. If an Event of Default under section 8.01(g) or
(h) occurs, all Notes automatically shall become immediately due and payable
and the Commitment automatically shall immediately terminate, without
presentment, demand, protest, or notice of any kind, all of which Borrower
hereby waives.
<PAGE> 28
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ARTICLE IX
BORROWER'S INDEMNITIES
SECTION 9.01 -- General Indemnity. Borrower assumes liability
for, and agrees to indemnify each Indemnitee against, and on written demand to
pay, or to reimburse each Indemnitee for the payment of, any and all
liabilities, obligations, losses, damages, penalties, claims (including claims
involving strict liability in tort), suits, actions, costs, expenses, and
disbursements, including legal fees and expenses, of whatsoever kind and nature
(collectively, "Liabilities") imposed on, incurred by, or asserted against any
Indemnitee relating to or arising out of any Basic Document, the enforcement
against Borrower of any of the terms of the Basic Documents, or any lease or
relinquishment of possession of the Aircraft or any part thereof or any action
or inaction of Borrower or of any lessee, assignee, or transferee of Borrower
in connection therewith, the purchase of the Aircraft under the Purchase
Agreement, the ownership of the Aircraft, the acquisition, delivery,
nondelivery, acceptance, nonacceptance, rejection, registration,
deregistration, insuring, storage, manufacture, assembly, transportation,
importation, exportation, maintenance, condition, modification, testing,
repair, fitness for use, merchantability, sale, abandonment, lease, sublease,
assignment, transfer, transfer of title, possession, repossession, use,
operation, return, or other application or disposition of the Aircraft or any
component thereof, the condition upon return thereof after repossession
following the occurrence of an Event of Default or following the exercise of
remedies under the Mortgage, including latent or other defects, whether or not
discoverable, loss of or damage to any property or the environment, death or
injury of any person, and any claim for patent, trademark, copyright, or mask
work infringement and the violation or infringement by Borrower of any laws,
rules, or regulations, or (without limiting any of the foregoing) any breach by
Borrower of, noncompliance by Borrower with, or misrepresentation made or
deemed made by or on behalf of Borrower in, under, or in connection with the
Purchase Agreement or any Purchase Agreement Assignment or any warranty,
certificate, or agreement made or delivered in, under, or in connection with
the Purchase Agreement or any Purchase Agreement Assignment; provided, that
this section shall not require Borrower to pay or indemnify any Indemnitee
under this section (i) for any Liability to the extent resulting from its acts
of gross negligence or willful misconduct; (ii) for any Liability
with respect to Taxes (Borrower's duties in respect of Taxes being set forth in
section 9.02) or for any cost or expenses relating to the preparation,
execution, delivery, or enforcement of the Basic Documents (Borrower's duties
in respect of such costs and expenses being set forth in
<PAGE> 29
-25-
section 9.02) or for any cost or expenses relating to the preparation,
execution, delivery, or enforcement of the Basic Documents (Borrower's duties in
respect of such costs and expenses being set forth in section 11.03); (iii) for
any Liability that such Indemnitee incurs to the extent resulting from its
breach of any of its representations, warranties, or covenants in any Basic
Document; (iv) for any Liability to the extent resulting from a claim against
such Indemnitee not related to any Aircraft, any action or inaction of Borrower
or any lessee, assignee, or transferee of Borrower, or any of the transactions
contemplated by the Basic Documents; (v) for any Liability with respect to
transfer taxes or other expenses payable with respect to the transfer of any
Note, other than a transfer after the occurrence of an Event of Default; or (vi)
for any Liability with respect to any violation or purported violation of any
law relating to usury or the charging or collecting of excess interest or
finance charges. If any Indemnitee obtains knowledge of any claim or liability
required to be indemnified against under this section 9.01, such Indemnitee
shall promptly notify Borrower, but the failure to do so shall not relieve
Borrower from any liability that it otherwise would have to such Indemnitee
under this section. Upon an Indemnitee's request, the defense of any Liability
for which Borrower would be required to indemnify such Indemnitee hereunder
shall be conducted by Borrower, with counsel selected by Borrower and
satisfactory to Lender. However, if the defense of any such Liability is
conducted by Lender, Lender shall select the counsel to conduct it, but shall
consult with Borrower as to such selection; provided, that the decision as to
which counsel to select shall be and remain Lender's. Borrower shall be
obligated under this section 9.01 irrespective of whether the Indemnitee is also
indemnified with respect to the same matter under any other Basic Document or
other document by any other Person, and the Indemnitee may proceed directly
against Borrower under this section 9.01 without first reporting to any such
rights of indemnification. Upon the payment in full of any indemnities due and
owing under this section 9.01, Borrower shall be subrogated to any right of the
Indemnitee in respect of the matter against which indemnity has been given.
Borrower's indemnities in this section shall survive expiration or termination
of the Mortgage and payment in full of the Notes.
Any payment or indemnity pursuant to this section 9.01 shall
include the amount, if any, necessary to hold the Indemnitee harmless on an
after-tax basis from all
taxes required to be paid by such recipient with respect to such payment or
indemnity under laws of any federal, state, or local government or taxing
authority in the United States or by any foreign government or any political
subdivision or taxing authority thereof. The amount of any payment or
indemnity required under this section shall be determined by the Indemnitee
reasonably and in good faith, and that determination shall be conclusive. Upon
Borrower's request and at Borrower's expense, the
<PAGE> 30
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Indemnitee will provide Borrower with a summary explanation of the basis for the
Indemnitee's computations.
SECTION 9.02 -- Taxes.
(a) Indemnity. All payments by Borrower under this
Agreement and under any Note shall be free of withholdings of any nature
whatsoever (and at the time that Borrower is required to make any payment upon
which any withholding is required, Borrower shall pay an additional amount such
that the net amount actually received by the person entitled to receive such a
payment will, after such withholding, equal the full amount of the payment then
due) and shall be free of expense to each Indemnitee for collection or other
charges. In addition, except as provided in section 9.02(b), Borrower agrees
to indemnify each Indemnitee on a net after-tax basis against, and on written
demand to pay or reimburse each Indemnitee for the payment of, and shall
promptly pay and discharge when due except to the extent duly contested, any
and all Taxes imposed upon or asserted against any Indemnitee, any Aircraft or
any part thereof or interest therein, any Basic Document, any lease of any
Aircraft or any part thereof, or otherwise upon or with respect to or measured
by (i) the construction, mortgaging, financing, refinancing by or at the
request of Borrower, purchase, acquisition, acceptance, nonacceptance,
rejection, delivery, nondelivery, transport, insuring, ownership, registration,
deregistration, assembly, possession, repossession, operation, use, condition,
maintenance, modification, repair, fitness for use, merchantability, testing,
return, abandonment, storage, manufacture, leasing, subleasing, importation,
exportation, sale, assignment, transfer, transfer of title, or other
application or disposition of, or the imposition of any Lien (other than a
Permitted Lien) or the incurrence of any liability to refund or pay over any
amount as a result of any Lien other than a Permitted Lien) on any Aircraft or
any part thereof or interest therein, (ii) any amount paid or payable by
Borrower or Finex Bank under the Basic Documents or the receipts or earnings
arising from or received with respect to any Aircraft or any part thereof
or interest therein, (iii) any Aircraft or any part thereof or interest
therein, (iv) any of the Basic Documents and any other documents contemplated
thereby or the execution, sale, delivery, acquisition, or filing of the Basic
Documents, (v) any rentals or other payments made or received by Borrower under
any lease or sublease of any Aircraft or any part thereof or (vi) otherwise
with respect to or in connection with the transactions effected under the Basic
Documents. The term "Taxes" shall mean any and all fees, taxes, levies,
imposts, duties, charges, assessments, or withholdings of any nature
whatsoever, now or hereafter imposed, assessed or asserted by any federal,
state, local or foreign government or taxing authority
<PAGE> 31
-27-
together with any and all penalties, fines, additions to tax, and interest
thereon or computed by reference thereto.
(b) Exclusions from Indemnity. The provisions of section
9.02(a) shall not apply to:
(i) Taxes (other than sales, use or rental taxes
imposed as a result of any Indemnitee's interest in any Equipment
Portion or the Basic Documents) which are United States federal net
income taxes;
(ii) Taxes (other than sales, use or rental taxes
imposed as a result of any Indemnitee's interest in any Equipment
Portion or the Basic Documents) which are net income, capital, net
worth, franchise, or similar conduct of business taxes which are
imposed on an Indemnitee by the state or local government or taxing
authority in which such Indemnitee conducts any business other than
the transactions contemplated in the Basic Documents;
(iii) Taxes (other than sales, use or rental taxes
imposed as a result of any Indemnitee's interest in any Equipment
Portion of the Basic Documents) which are imposed by any foreign
government or taxing authority upon an Indemnitee if such Indemnitee
is otherwise subject to such taxes in such jurisdiction as a result of
activities or transactions unrelated to those contemplated by the
Basic Documents;
(iv) any Tax imposed on the Indemnitee as a result
of a transfer or other disposition, by such Indemnitee or any of its
predecessors in interest, of any interest in the Aircraft or any Basic
Document, unless such transfer or disposition occurs after the
occurrence of an Event of Default or at the request of Borrower;
(v) Taxes imposed on an Indemnitee as a direct
and primary result of such Indemnitee's gross negligence or willful
misconduct;
(vi) any Tax based on or measured by the value of
such Indemnitee's interest in any Basic Document (except for any such
Tax (1) imposed without regard to the existence or extent of the
Indemnitee's presence or activities, or the presence of a Note, in the
jurisdiction imposing such Tax or (2) imposed solely as a result of
the Indemnitee's execution of, or enforcement of rights under, the
Basic Documents); or
(vii) any Tax in the nature of a penalty, an
addition to tax, interest, or fine resulting from the negligence or
misconduct of the
<PAGE> 32
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Indemnitee in connection with the preparation or filing of (or
failure to prepare or file) tax returns, or the payment
of or failure to pay its taxes, but in each case not if an any way
attributable to reports and returns for which Borrower is responsible
pursuant to section 9.02(e) Borrower's failure to provide to any
Indemnitee any information necessary for the preparation or filing of
such returns or the conduct of such proceedings or otherwise to
perform its duties and responsibilities pursuant to the Basic
Documents.
(c) Certain Tax Payments. Notwithstanding anything to
the contrary in this section 9.02, if an Indemnitee pays or becomes liable for
any Tax that Borrower has agreed to pay under this section 9.02, Borrower shall
pay to such Indemnitee such amount or from time to time such amounts as, after
subtraction of all Taxes required to be paid by such Indemnitee in respect of
the receipt of such amounts from Borrower under this Section 9.02 and taking
into account any tax benefit or detriment actually realized (or to be realized)
by such Indemnitee as a result of such Indemnitee's receipt of such payment, is
equal to the sum of such Taxes payable by such Indemnitee from time to time.
All Taxes shall be paid when due and payable and all amounts payable as
indemnities pursuant to section 9.02(a) shall be payable in accordance with
this section 9.02(c), to the extent not theretofore paid, on written demand by
the appropriate Indemnitee. The amount of any payment or indemnity required
under this section shall be determined by the Indemnitee reasonably and in good
faith, and that determination shall be conclusive. Upon Borrower's request and
at Borrower's expense, the
Indemnitee will provide Borrower with a summary explanation of the basis for
the Indemnitee's computations.
(d) Refund of Withholding Taxes to Borrower. If,
pursuant to the first sentence of section 9.02(a) hereof, Borrower has withheld
any amount from any payment in respect of any withholding tax with respect to a
Tax not indemnifiable by Borrower pursuant to section 9.02(a) and Borrower has
paid over such withheld amount to the proper taxing authority for the account
of such Indemnitee, Borrower shall notify such Indemnitee of the amount of such
withholding and provide to such Indemnitee a receipt or other documentation
evidencing payment of the withheld amount. Upon receipt of the notice
described in the preceding sentence, such Indemnitee shall promptly repay to
Borrower, the amount withheld together with interest thereon from the date of
receipt of the notice to the date of repayment at the then current rate set by
the taxing jurisdiction for overpayments of such Tax.
(e) Reports. Borrower will, at its own expense, duly
prepare and file all required reports and returns
<PAGE> 33
-29-
respecting all Taxes for which Borrower is responsible pursuant to section
9.02(a) to the extent it is required by law to do so. With regard to any
reports and returns required to be filed by any Indemnitee covering any Taxes
for which Borrower is responsible pursuant to section 9.02(a), Borrower shall
upon request furnish such Indemnitee with such information and records (to the
extent Borrower has possession thereof or may obtain possession thereof upon
Borrower's exercise of reasonable efforts) relating thereto as is reasonably
required by Indemnitee to make such filing and funds in the amount required to
be submitted as reflected on such report or return. Borrower shall hold each
Indemnitee harmless from and against any liabilities, obligations, losses,
damages, penalties, claims, actions, suits and reasonable costs arising out of
any insufficiency or inaccuracy contained in any report or return (i) prepared
and filed by Borrower (but only to the extent not attributable to the
information provided to Borrower by such Indemnitee) or (ii) prepared and filed
by any Indemnitee (but only to the extent attributable to information provided
to such Indemnitee by Borrower). If, as a result of an audit, an Indemnitee
reasonably requests additional information, Borrower shall make available such
other information and records as it maintains in the ordinary course of
business.
ARTICLE X
ILLEGALITY AND YIELD PROTECTION
SECTION 10.01 -- Illegality and Increased Costs.
(a) Illegality. If, after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation, administration or enforcement thereof by
any governmental authority, central bank or other comparable authority or
compliance by Lender with any request, guideline or directive (whether or not
having the force of law) of any governmental authority, central bank or other
comparable authority shall, in the reasonable determination of Lender, make it
unlawful or impossible for Lender to issue, maintain or fund any Note or to
perform any obligation under this Agreement or any other Basic Document, Lender
shall so notify Borrower and, subject to the provision of section 10.01(c)
hereof, on the next Interest Payment Date (or such earlier date as Lender shall
specify in such notice after which it may not lawfully continue to maintain
such Note or its obligations under this Agreement), Borrower shall prepay such
Note, plus accrued interest thereon and the remaining Commitment, if any, of
Lender shall terminate.
<PAGE> 34
-30-
(b) Increased Cost. If, after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation, administration or
enforcement thereof by any governmental authority, central bank or other
comparable authority or compliance by Lender with any request, guideline or
directive (whether or not having the force of law, but with respect to which
Lender customarily complies and which is applied by Lender to all other loans
of similar type) of any governmental authority, central bank or other
comparable authority shall, in the reasonable determination of Lender:
(i) impose, modify or deem applicable any capital
adequacy, reserve, special deposit or similar requirement (including,
without limitation, a request or requirement which affects the manner
in which Lender allocates capital resources to its commitments,
including its obligations under this Agreement); or
(ii) impose on Lender any other condition or requirement
with respect to its issuing, maintaining
or funding any Note or its obligations under this Agreement;
and the result of any of the foregoing is to:
(x) increase the funding cost to Lender of making,
maintaining or funding or performing its obligations under this
Agreement; or
(y) reduce the amount of any payment (whether of
principal, interest or otherwise) received or receivable by Lender
hereunder; or
(z) reduce the rate of return to be earned by Lender with
respect to any Note;
Borrower shall pay to Lender within 15 days after demand such additional amount
or amounts as will compensate Lender for such increased cost or reduction. A
certificate of Lender as to any such additional amount or amounts, in the
absence of manifest error, shall be final and conclusive. In determining such
amount, Lender shall use any reasonable averaging and attribution methods.
Lender will promptly notify Borrower after Lender obtains knowledge of the
occurrence of an event which would entitle Lender to compensation hereunder.
(c) Change of Lending Office, Etc.
(a) If an event occurs which makes the provisions of
section 10.01(a) or 10.01(b) applicable, Lender will, if requested by
Borrower, use reasonable
<PAGE> 35
-31-
efforts to transfer the affected Notes and its obligations hereunder
with respect to such Notes to another branch or office of Lender to
which such event would not be applicable, provided that such transfer
would not, in the sole judgment of Lender, be disadvantageous to
Lender or contrary to Lender's policies.
(b) Lender may at any time and from time to time transfer
any Note or its obligations under this Agreement with respect to such
Note to another branch or office of Lender and shall give notice of
any such transfer to Borrower. Except in the case of a transfer made
at the request of Borrower, no such trasnfer shall make operable the
provisions of section 10.01(a) or entitle Lender to make a claim
under section 10.01(b) if the operability of such clause or such
claim results solely from such transfer and not
from subsequent change of the type referred to therein.
SECTION 10.02 -- Funding Losses. Borrower shall pay to
Lender, upon request, such amount or amounts as Lender determines are necessary
to compensate it for any loss, cost or expense incurred by it as a result of
(a) any payment or prepayment of any Note on a date other than the last day of
an Interest Period for such Note or (b) a Note for any reason not being
purchased on the date therefor determined in accordance with the applicable
provisions of this Agreement. Such amount payable by Borrower shall not
include any loss, cost or expense attributable to any date more than 180 days
after the date of such payment, prepayment or failure to purchase any Note. A
certificate of Lender as to the amount of such loss, cost or expense shall be
final and conclusive in the absence of manifest error.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 -- No Waivers; Cumulative Remedies. No failure
or delay in exercising any power or right under any Basic Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power preclude other or further exercise thereof or the exercise
of any other right or power under any Basic Document. No notice to or demand
on any party in any case shall, of itself, entitle such party to any other or
further notice or demand in similar or other circumstances.
SECTION 11.02 -- Notices. All communications and notices
provided for under this Agreement shall be in writing (including telex,
telegraph, and telecopy), shall
<PAGE> 36
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be in English, and shall be mailed by certified mail (return receipt requested)
or otherwise delivered to the parties at the addresses set forth by their
signatures hereto, or, as to teach party, at such other address as it designates
by notice to each other party. Each such notice shall be effective upon
delivery.
SECTION 11.03 -- Transaction Expenses. Borrower will pay on
demand all out-of-pocket expenses in connection with the preparation,
execution, delivery administration, and enforcement of the Basic Documents, or
in connection with any scheduled closing that is postponed or canceled,
including (i) all fees and expenses of, (x) Winthrop,
Stimson, Putnam & Roberts, special counsel to Lender, (y) Castro, Barros, Sobral
e Xavier, special Brazilian counsel and (z) Crowe & Dunlevy, special FAA
counsel; (ii) all FAA and UCC filing and lien search fees; (iii) all fees and
expenses (including legal fees and expenses) of Lender in connection with actual
or proposed amendments, waivers, or consents to or under this Agreement or the
other Basic Documents (except for such amendments, waivers, or consents
initiated by Lender); and (iv) all fees and expenses (including legal fees and
expenses) of Lender in connection with the actual or proposed enforcement of any
Basic Document against Borrower during the existence of any Default. The "legal
fees and expenses" of Lender referred to in clauses (iii) and (iv) may include
those of Lender's in-house counsel, provided that such legal fees and expenses
do not result from efforts which are duplicative of those of special counsel to
Lender.
SECTION 11.04 -- Amendments. Any provision of the Basic
Documents, other than the Purchase Agreement, the Guarantee, or the Finex
Agreement, may be amended, terminated, waived, or otherwise modified only in
writing by Borrower and Lender.
SECTION 11.05 -- Successors and Assigns. This Agreement shall
bind and benefit Lender and Borrower and their successors and assigns, except
that Borrower may not assign or transfer its rights under this Agreement
without Lender's prior written consent. Lender may at any time with the
Borrower's consent (which consent shall not be unreasonably withheld) sell,
assign, grant participation(s) in, or otherwise transfer any Note, in whole or
in part.
SECTION 11.06 -- Lender's Representations and Warranties.
Lender represents and warrants that:
(a) it is an English banking corporation duly organized,
validly existing, and in good standing under the laws of England, and has all
corporate power, authority, and legal right under the laws of England to
execute, deliver, and carry out the terms of each of the Basic Documents to
which it is a party;
<PAGE> 37
-33-
(b) it has duly authorized, executed, and delivered this
Agreement and the other Basic Documents to which it is a party; and
(c) neither it nor anyone authorized to act on its behalf
has directly or indirectly offered any beneficial interest in the Notes for
sale to, or solicited
any offer to acquire any such interest in the Notes from, any Person in such a
manner as to require any of the Notes to be registered under the Securities Act
of 1933, as amended, or any state securities law; provided, that the foregoing
shall not be deemed to extend to any such offer, sale, or solicitation by or on
behalf of Borrower or any other Person.
SECTION 11.07 -- Governing Law. THIS AGREEMENT AND THE NOTES
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK, EXCLUDING THOSE APPLICABLE TO CHOICE OF LAW BUT INCLUDING THOSE
APPLICABLE TO MAXIMUM ALLOWABLE RATES OF INTEREST (INCLUDING, FOR THIS
PURPOSE, AS AN "ALLOWABLE" RATE OF INTEREST ONE AS TO WHICH THE BORROWER MAY
NOT INTERPOSE THE DEFENSE OF USURY).
SECTION 11.08 -- Judicial Proceedings. BORROWER AND LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE BOTH
PARTIES INVOLVING DIRECTLY OR INDIRECTLY, ANY MANNER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT, THE MORTGAGE, THE NOTES OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
SECTION 11.09 -- Headings. Article and section headings used
in this Agreement are for convenience only and not a substantive part of this
Agreement.
SECTION 11.10 -- Execution in Counterparts. This Agreement
may be executed in separate counterparts.
SECTION 11.11 -- Survival of Representations and Warranties.
All representations and warranties contained in this Agreement or made in
writing in connection with this Agreement shall survive the execution and
delivery of this Agreement and the Mortgage.
SECTION 11.12 -- Severability. If any part of any provision
contained in this Agreement, or any document contemplated hereby, is or becomes
invalid or unenforceable under applicable law, that part shall be ineffective
to the extent of such invalidity only, without in any way affecting the
remaining parts of that provision or the remaining provisions.
SECTION 11.13 -- Finex Agreement. So long as no Event of
Default exists, all payments, if any, received
<PAGE> 38
-34-
under the Finex Agreement by Lender as Finex Interest Payments or interest
thereon, or as indemnification
payments for amounts which Lender has previously been indemnified by Borrower,
shall be forwarded by Lender to Borrower at First American Bank of Georgia N.A.,
2000 RiverEdge Parkway, Atlanta, Georgia 30328, Account: Atlantic Southeast
Airlines, Inc. (account #5100130970). Lender shall use its good faith efforts
to forward any such payments to Borrower on the Business Day following their
receipt by Lender. At the cost and expense of Borrower, Lender shall use its
good faith efforts to take such action with respect to the Finex Agreement as
Borrower shall reasonably request, provided that Lender shall not be required to
take any action which adversely affects its interests under the Finex
Agreement. However, all risks associated with the Finex Program are Borrower's
and Lender shall have no responsibility for any Finex Interest Payments not
actually received by Lender from Finex Bank. So long as no Event of Default
exists, Lender shall not amend the Finex Agreement without the consent of the
Borrower, such consent not to be unreasonably withheld.
<PAGE> 39
-35-
IN WITNESS WHEREOF, Borrower and Lender have executed this Credit Agreement.
ATLANTIC SOUTHEAST AIRLINES, INC.
1688 Phoenix Parkway
College Park, Georgia 30349
Att: Ronald V. Sapp
Vice President-Finance By: /s/ Ronald V. Sapp
and Treasurer ---------------------------------
Facsimile No.: (404) 991-0366 Name: Ronald V. Sapp
Title: Vice President-Finance
& Treasurer
BARCLAYS BANK PLC
75 Wall Street
New York, New York 10265
Att: Aerospace Industry Unit By: /s/ Les Bek
Facsimile No.: (212) 412-7580 ----------------------------------
Name: Les Bek
Title: Vice President
<PAGE> 1
EXHIBIT 10(j)
===============================================================================
CREDIT AGREEMENT
dated as of
February 25, 1991
between
ATLANTIC SOUTHEAST AIRLINES, INC.,
Borrower,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
Lender,
Four Embraer Model EMB-120 Brasilia Aircraft
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS; REFERENCES . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.03 Section and Exhibit References, etc. . . . . . . . . . . . . . . . . 7
ARTICLE II
PURCHASE OF NOTES; PAYMENTS . . . . . . . . . . . . . . . . . . . . . 7
Section 2.01 Purchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.02 Procedure for Purchase of Notes . . . . . . . . . . . . . . . . . . . 8
Section 2.03 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.04 Financing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
SECURITY FOR BORROWER'S OBLIGATIONS . . . . . . . . . . . . . . . . . 8
Section 3.01 Security Interest in Collateral . . . . . . . . . . . . . . . . . . . 8
Section 3.02 Set-Off Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
PAYMENTS UNDER THE NOTES AND OTHER
AMOUNTS PAYABLE BY BORROWER . . . . . . . . . . . . . . . . . . . . . 9
Section 4.01 How Payments Are Made . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.02 Right to Prepay . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.03 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.04 Mandatory Purchase . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.05 Amount of Prepayment . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.06 Interest on Past Due Amounts . . . . . . . . . . . . . . . . . . . . 10
Section 4.07 Payment of Accrued Interest Supplements . . . . . . . . . . . . . . . 10
Section 4.08 Reduction in Net Interest Payable . . . . . . . . . . . . . . . . . . 11
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 11
Section 5.01 Corporate Standing . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.02 Corporate Powers . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.03 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.04 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.05 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.06 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.07 Status as United States Citizen and
Air Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.08 Location of Offices . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.09 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.10 Condition of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<TABLE>
<S> <C> <C>
Section 5.11 Absence of ERISA Liability . . . . . . . . . . . . . . . . . . . . . 13
Section 5.12 Delta Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.13 Subsidiaries; Stock Ownership . . . . . . . . . . . . . . . . . . . . 13
Section 5.14 Investment Company Status . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.01 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.02 Inspection of Collateral and Records . . . . . . . . . . . . . . . . 14
Section 6.03 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.04 Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.05 Citizenship and Air Carrier Status . . . . . . . . . . . . . . . . . 16
Section 6.06 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.07 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.08 Performance of Delta Agreement . . . . . . . . . . . . . . . . . . . 17
Section 6.09 Financial Covenant . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASE OF
THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.01 Conditions Precedent to the Purchase
of the Initial Note . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.02 Conditions Precedent to the Purchase
of All Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . 21
Section 8.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX
BORROWER'S INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.01 General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.02 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE X
YIELD PROTECTION . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.02 Breakage Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.01 No Waivers; Cumulative Remedies . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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<TABLE>
<S> <C> <C>
Section 11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.03 Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.04 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.06 Lender's Representations and Warranties . . . . . . . . . . . . . . . 29
Section 11.07 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.08 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.09 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.10 Survival of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.12 Finex Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Annex A Procedures for Purchasing Aircraft
and Notes; Documentation
Exhibit A Form of Note
Exhibit B Form of Finex Agreement
Exhibit C Form of Mortgage
Exhibit D Form of Purchase Agreement Assignment
Exhibit E Form of Consent
Exhibit F Form of opinion of Borrower's counsel
Exhibit G Form of opinion of Crowe & Dunlevy (Aircraft)
Exhibit H Form of opinion of counsel to Embraer
Exhibit I Form of opinion of Castro Barros Sobral e Xavier
Exhibit J Form of Guarantee
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
This Credit Agreement is entered into as of February
25, 1991 by and between Atlantic Southeast Airlines, Inc. ("Borrower"), a
Georgia corporation, and Bank of America National Trust and Savings Association
("Lender"), a national banking association.
Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS; REFERENCES
SECTION 1.01 -- Definitions. The following terms,
when capitalized as below, have the following meanings:
"Act": the Federal Aviation Act of 1958, as amended,
or its successor.
"Agreement": this Credit Agreement.
"Alternate LIBO Rate": defined in section 3.02 of the
Finex Agreement.
"Aircraft": up to four Embraer EMB-120 Brasilia
aircraft to be delivered under the Purchase Agreement and in each case
designated by Borrower (by notice to Lender at least three Business Days before
the Purchase Date therefor, and not revoked by notice to Lender on or before
the Purchase Date therefor) as an "Aircraft" to be financed under this
Agreement.
"Bank LIBOR" for any Interest Period: a rate per
annum (calculated on the basis of a 360-day year and the actual number of days
elapsed) equal to the consensus rate at which 180-day deposits in Dollars
appear on the Reuters Screen LIBO Page at approximately 11:00 a.m. London,
England time, on the day that is two Business Days before the first day of that
Interest Period.
"Basic Documents": this Agreement, the Purchase
Agreement, the Finex Agreement(s), the Guarantee, and the Mortgage; and each
Note, Purchase Agreement Assignment, Consent, and Mortgage Supplement as
executed and delivered.
"Book Net Worth": defined in section 6.09.
"Borrower Interest Rate": with respect to any
Interest Period: an interest rate equal to Bank LIBOR for such Interest Period,
plus 0.85% per annum (computed on the basis of a year of 360 days), based on
actual days elapsed.
"Business Day": any day, other than a Saturday or
Sunday, on which commercial banks are open for business in New York, New York,
London, England, Seo Paulo, Brazil, and Atlanta, Georgia, and Lender is open
for business in Los Angeles, California, and if such day is a Purchase Date or
Interest Payment Date or relates to a notice by Borrower with respect to any
Purchase Date, which is also a day on which dealings with Dollar deposits are
carried out in the London interbank market.
<PAGE> 6
"Capitalized Lease": a capitalized lease of any
tangible real or personal property, as determined pursuant to GAAP.
"Collateral": the "Collateral" under the Mortgage.
"Commitment": Lender's commitment to purchase the
Notes, for an aggregate amount of up to $22,000,000; Borrower may reduce such
amount upon 30 days' prior written notice to Lender.
"Commitment Fee": the fee required to be paid by
Borrower to Lender pursuant to section 2.03.
"Commitment Period": the period from the date of
execution of this Agreement to and including the earliest of (w) July 30, 1991,
(x) the date upon which the fourth Aircraft is delivered to and accepted by
Borrower pursuant to the Purchase Agreement, (y) the date on which the
remaining Commitment is terminated pursuant to section 8.02, and (z) a date set
by Borrower pursuant to a notice sent to Lender at least 30 days prior to such
date.
"Consent": a Consent and Agreement, substantially in
the form of Exhibit E, relating to a Purchase Agreement Assignment and dated
the same date as that Purchase Agreement Assignment.
"Default": any event or condition that would become
an Event of Default upon the giving of notice or lapse of time or both, or any
Event of Default.
"Delta Agreement": that certain agreement between
Delta Air Lines, Inc. and Borrower dated June 1, 1986 and relating to joint
marketing or code sharing for interconnecting flights.
"Dollars": and "$": United States dollars.
"Downpayment": 15% of Equipment Cost for the first
$6,470,588.00 of Equipment Cost, and 100% of Equipment Cost in excess of
$6,470,588.00,for an Equipment Portion, minus any amounts that Borrower paid to
Vendor before the relevant Purchase Date (including deposits applied to such
Equipment Portion), pursuant to the Purchase Agreement, relating to such
Equipment Portion.
"Embraer": Embraer-Empresa Brasileira de Aeronautica
S.A., a Brazilian corporation, and its successors and assigns.
"Equipment Cost": the purchase price for an Equipment
Portion, as set forth in (and as adjusted pursuant to) the Purchase Agreement.
"Equipment Portion": an Aircraft and the Spare Parts
purchased with that Aircraft.
"ERISA": defined in section 5.11.
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<PAGE> 7
"Event of Default": defined in section 8.01.
"Event of Loss": defined in section 1.01 of the
Mortgage.
"FAA": the Federal Aviation Administration of the
United States, or any instrumentality of the United States succeeding to its
function.
"Financed Amount": the amount determined pursuant to
the second sentence of section 2.01.
"Financing Fee": defined in section 2.04.
"Finex Agreement": an agreement substantially in the
form of Exhibit B.
"Finex Bank": MultiBanco S.A. (or any other Person
selected by Borrower to serve as a Finex bank under a Finex Agreement), in its
capacity as Finex bank under the Finex Agreement, and its successors in such
capacity.
"Finex Interest Payments": the Finex Interest
Payments described in section 3.01 of the Finex Agreement.
"Finex Interest Rate" for a Note: a fixed interest
rate equal to the Finex LIBO Rate for its Purchase Date, minus 2% per annum
(computed on the basis of a year of 360 days), based on actual days elapsed, or
such other interest rate as Borrower is actually required to pay on such Note
under the Finex Program.
"Finex LIBOR" or "Finex LIBO Rate" for any Purchase
Date or Interest Period: (x) the interest rate for such Purchase Date or
Interest Period, published by Banco Central do Brasil two Business Days before
that Purchase Date or the beginning of that Interest Period, respectively, as
the 180-day interest rate applicable to transactions under the Finex Program,
or (y) when applicable, the Alternate LIBO Rate for such Interest Period
established pursuant to section 3.02 of the Finex Agreement.
"Finex Program": the export support program (Fundo de
Financiamento a Exportaceo) of the Federative Republic of Brazil, as
established by Resolution No. 509 of January 24, 1979 of Banco Central do
Brasil and in Circular Cacex/Finex No. 10 of the Carteira de Comercio Exterior
(Cacex) of Banco do Brasil S.A., dated September 21, 1982, as from time to time
supplemented or amended.
"GAAP": generally accepted accounting principles as
in effect in the United States and applied on a basis consistent with that used
in the preparation of the financial statements referred to in section 5.05,
except for changes therein with which Borrower's independent public accountant
concur that are disclosed in the notes to the relevant financial statements.
"Guarantee": the document by that name, executed by
ASA Investments, Inc., in substantially the form of Exhibit J.
3
<PAGE> 8
"herein", "hereof", "hereunder", etc.: in, of, or
under, etc. this Agreement (and not merely in, of, under, etc. the section or
provision where the reference appears).
"including": containing, embracing, or involving the
enumerated item(s), but not necessarily limited to such item(s).
"Indemnitee": Lender, or any agent (other than Finex
Bank), employee, director, successor, or permitted assign of Lender.
"Indebtedness": (a) total liabilities (as determined
pursuant to GAAP) of Borrower and its subsidiaries on a consolidated basis plus
(b) any debt of a Person that is not included in clause (a) above and that is
guaranteed by Borrower or one or more of its subsidiaries, plus (c) 70% of all
Operating Lease Obligations.
"Interest Payment Date" for a Note: each date
occurring after the Purchase Date for that Note is a "180-day anniversary" of
such Purchase Date; except that, for purposes of payment and of determining the
beginning and end of each Interest Period (but not for the purpose of
determining the following Interest Payment Date), any Interest Payment Date
that falls on a day which is not a Business Day shall instead occur on the
following Business Day. For avoidance of doubt, the "180-day anniversary" of a
date shall be the 180th day after that date.
"Interest Period" for a Note: each period beginning
on the day after an Interest Payment Date for that Note (or, in the case of the
first Interest Period for that Note, beginning on its Purchase Date) and ending
on the following Interest Payment Date for that Note.
"Interest Supplement" for a Note during an Interest
Period: (a) the amount of principal of that Note outstanding during such
Interest Period multiplied by (b) the Borrower Interest Rate for such Interest
Period minus the Finex Interest Rate for that Note multiplied by (c) the actual
number of days in such Interest Period divided by 360; provided that if the
Borrower Interest Rate for such Interest Period is equal to or less than the
Finex Interest Rate for that Note, the Interest Supplement for that Interest
Period shall be zero.
"Liabilities": defined in section 9.01.
"Lien": any mortgage, pledge, assignment,
encumbrance, lien (statutory or other), or other security interest of any kind
or nature whatsoever (including any conditional sale or other title retention
agreement, or any lease in the nature thereof).
"Mortgage": the Security Agreement and Chattel
Mortgage between Borrower and Lender, substantially in the form of Exhibit C.
4
<PAGE> 9
"Mortgage Supplement": defined in section 3.01.
"Note": Borrower's promissory note, in the form of
Exhibit A, issued in connection with a designated Aircraft, or a note issued in
exchange or replacement for such a note.
"1988 Purchase Agreement": Purchase Agreement No.
162-COV/88 (including all attachments, exhibits, and letter agreements thereto)
dated November 21, 1988, between Vendor and Borrower.
"1989 10-K": Borrower's annual report on Form 10-K
for the year ended December 31, 1989.
"1990 Purchase Agreement": Purchase Agreement No.
154-DOC/AC/90 (including all attachments, exhibits, and letter agreements
thereto) dated August 27, 1990, between Vendor and Borrower.
"1990 10-Qs": Borrower's quarterly reports on Form
10-Q for the quarters ended March 31, 1990, June 30, 1990, and September 30,
1990.
"Officer's Certificate": a certificate signed in the
name of Borrower (or, with respect to section 6.04(c), of the Successor) by the
chairman of the board, the president, a vice president, or the treasurer of
Borrower (or the Successor).
"Operating Lease": a lease of tangible real or
personal property, other than a Capitalized Lease, involving aggregate payments
of $100,000 or more during the fiscal year of the lessee.
"Operating Lease Obligations": the amount equal to
the aggregate of all scheduled lease payments that will become due under the
terms of all Operating Leases.
"or": at least one, but not necessarily only one, of
the alternatives enumerated.
"Permitted Lessee": defined in the Mortgage.
"Permitted Lien": defined in the Mortgage.
"Person": any individual, corporation, partnership,
joint venture, or other legal or governmental entity.
"Prepayment Event": defined in section 4.04.
"Purchase Agreement": when used in connection with a
specific Aircraft or Equipment Portion, either the 1988 Purchase Agreement or
the 1990 Purchase Agreement, depending on which agreement the Aircraft or
Equipment Portion was purchased under; when otherwise used, the 1988 Purchase
Agreement and 1990 Purchase Agreement, collectively.
5
<PAGE> 10
"Purchase Agreement Assignment": a document by that
name, substantially in the form of Exhibit D, executed and delivered on a
Purchase Date with respect to the Aircraft then being delivered.
"Purchase Date": a date on which Borrower purchases
an Aircraft and, simultaneously, Lender purchases the related Note.
"Reference Rate": the rate of interest publicly
announced from time to time by Lender in San Francisco, California, as its
reference rate. It is a rate that Lender sets based upon various factors,
including Lender's costs and desired return, general economic conditions, and
other factors, and is used as a reference point for pricing some loans.
Interest is payable for the actual number of days elapsed computed on the basis
of a 360-day year on the unpaid principal amount. Lender may price loans at,
above, or below its reference rate. Any change in the Reference Rate shall
take effect on the day specified in the public announcement of such change.
"Regulatory Change": any change after the date of
this Agreement in federal, state, or foreign law or regulations or the adoption
or making after such date of any interpretations or directives applying to a
class of banks including Lender of or under any federal, state, or foreign law
or mandatory regulations by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Reuters Screen LIBO Page": the display designated as
page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as
may replace the LIBO Page on that service for the purpose of displaying London
interbank offered rates for Dollar deposits).
"SEC Filings": the 1989 10-K and the 1990 10-Qs.
"Spare Parts": the appliances, spare parts, and other
items of equipment purchased with the Aircraft under the Purchase Agreement.
"Successor": defined in section 6.04(a).
"Tangible Net Worth": defined in section 6.09.
"Taxes": defined in the last sentence of section
9.02(a).
"Taxing Authorities": defined in the first sentence
of section 9.02(a).
"Vendor": Embraer.
SECTION 1.02 -- Use of Defined Terms. Any defined
term used in the plural preceded by "the" encompasses all members of the
relevant class. Any defined term used in the singular
6
<PAGE> 11
preceded by "any" indicates any number of the members of the relevant class.
Any agreement or instrument referred to in section 1.01 means such agreement or
instrument as from time to time supplemented and amended.
SECTION 1.03 -- Section and Exhibit References, etc.
References to articles, sections, exhibits, and the like refer to those in or
attached to this Agreement unless otherwise specified.
ARTICLE II
PURCHASE OF NOTES; PAYMENTS
SECTION 2.01 -- Purchase of Notes. Subject to the
satisfaction of the conditions precedent set forth in article VII, and on the
terms and conditions set forth in this article II, on the Purchase Date for
each Aircraft, Borrower shall issue the related Note to Vendor (who will
simultaneously sell that Note to Finex Bank), and Lender shall purchase that
Note from Finex Bank. The Financed Amount for each Aircraft shall be 85% of
the Equipment Cost for the related Equipment Portion, so that such total
Equipment Cost shall be paid 15% by Borrower and 85% by the related Note,
provided, that the Financed Amount for an Aircraft shall not exceed 85% of
$6,470,588.00 and Borrower shall pay 100% of Equipment Cost in excess of
$6,470,588.00 for any Equipment Portion. Each Note shall be purchased by Lender
from Finex Bank for its face amount, which shall equal the Financed Amount for
the related Aircraft. Lender's Commitment to purchase the Notes pursuant to
this Agreement shall expire at 12:00 noon, New York City time, on the last day
of the Commitment Period.
SECTION 2.02 -- Procedure for Purchase of Notes. The
procedure to be followed in the purchase of Notes is described in Annex A. At
Lender's offices at 555 South Flower Street, Los Angeles, California 90071 (or
such other location as the parties hereto agree upon), not later than 12:00
noon (New York City time) on the appropriate Purchase Date, upon fulfillment of
the conditions set forth in article VII and compliance with the procedures set
forth in Annex A, Lender will purchase the related Note from Finex Bank (who
will have purchased that Note simultaneously from Vendor), with general
corporate funds, in each case for a purchase price equal to its face amount (as
determined pursuant to section 2.01).
SECTION 2.03 -- Commitment Fee. In partial consideration of
the Lender's agreement to purchase the Notes, Borrower shall pay to Lender a
Commitment Fee ("Commitment Fee" ) during the Commitment Period, payable in
arrears on the first day of each quarter or partial quarter (for the prior
quarter or partial quarter) after the execution and delivery of this Agreement,
with a final payment on the last day of the Commitment Period, and computed at
a rate per annum (calculated on the basis of a 360-day year and actual days
elapsed) of 0.25% of the average daily unused portion of Lender's Commitment.
The term "quarter" as used in this section shall mean the relevant calendar
quarter ending on one of
7
<PAGE> 12
the following dates: March 31, June 30, September 30, or December 31.
SECTION 2.04 -- Financing Fee. In partial consideration of
Lender's agreement to finance the Aircraft pursuant to this Agreement, Borrower
shall pay Lender a fee ("Financing Fee") of $25,000 on the first Purchase Date
and an additional $25,000 on the Purchase Date for the third Aircraft financed
under this Agreement.
ARTICLE III
SECURITY FOR BORROWER'S OBLIGATIONS
SECTION 3.01 -- Security Interest in Collateral. To secure
Borrower's obligations to Lender under each Note and the other Basic Documents
to which Borrower is or becomes a party, Borrower shall execute and deliver to
Lender, on each Purchase Date, a supplement to the Mortgage (a "Mortgage
Supplement"), substantially in the form of Schedule A to the Mortgage, granting
to Lender a perfected purchase money security interest in the Aircraft being
purchased from Vendor on such Purchase Date.
SECTION 3.02 -- Set-Off Rights. If Borrower becomes insolvent,
or any Event of Default occurs, any indebtedness that Lender then owes to
Borrower and any other property of Borrower that Lender then holds may be
offset and applied toward the payment of any obligation of Borrower to Lender
under the Basic Documents, whether or not any such other obligation is then
due.
ARTICLE IV
PAYMENTS UNDER THE NOTES
AND OTHER AMOUNTS PAYABLE BY BORROWER
SECTION 4.01 -- How Payments Are Made. Borrower shall make
its payments and prepayments of principal and interest due on the Notes, all
amounts due as Interest Supplements or as Commitment Fees hereunder, and all
other amounts payable by Borrower to Lender under the Basic Documents, to
Lender (ABA # 121-000-358 S.F.) at 1850 Gateway Blvd., Concord, California
94520, Attention: Dana Henderson for credit to PSO Account Administration
#5693, Reference: Atlantic Southeast Airlines Note No. 4, 5, 6, or 7 [as
appropriate] (or at such other place as Lender from time to time notifies
Borrower), in immediately available funds and in Dollars, no later than 10:00
a.m. (San Francisco time) on the date when due. Borrower agrees to pay to
Lender, on each Interest Payment Date, the Interest Supplement for each Note
for the Interest Period then ending. Any payment made by Borrower to Lender
after 10:00 a.m. (San Francisco time) on any day shall be deemed to have been
made on the following Business Day. If any payment due under the Basic
Documents comes due on a day which is not a Business Day, such payment shall
instead be made on the following Business Day, and interest, Interest
Supplements, or Commitment Fees, as the case may be, shall accrue at the
applicable rate to the day of payment.
8
<PAGE> 13
SECTION 4.02 -- Right to Prepay. Unless a Default exists,
Borrower shall have the right to prepay in full the outstanding principal
amount of the Note issued with respect to any designated Aircraft, without
premium or penalty. Any prepayment under this section 4.02 of the Note issued
with respect to a designated Aircraft shall be made only on an Interest Payment
Date for such Note, and Borrower shall give to Lender at least 60 days' prior
written notice (which notice shall be irrevocable) of such prepayment. Upon any
prepayment of any Note under this section 4.02, Borrower shall pay all accrued
and unpaid interest on the principal of such Note to the date of prepayment,
together with all other amounts payable under section 10.02 with respect to
such prepayment.
SECTION 4.03 -- Mandatary Prepayments. Following the
occurrence of an Event of Loss with respect to any Aircraft, Borrower shall
prepay the Note executed in connection with that Aircraft, in accordance with
section 7.01 of the Mortgage, and shall pay all other amounts payable under
section 10.02 with respect to such prepayment. Upon acceleration of the Notes
pursuant to section 8.02, Borrower shall prepay such Notes, and shall pay all
other amounts payable under section 10.02 with respect to such prepayment.
SECTION 4.04 -- Mandatory Purchase. Upon the occurrence of a
Prepayment Event, Lender shall have the right to require Borrower to purchase
or cause the purchase of the Note for (a) the Note's then-outstanding principal
amount, plus all accrued but unpaid interest on the Note to the date of such
purchase, and (b) all amounts payable under section 10.02 with respect to such
purchase. The payment described in the preceding sentence shall be due 10 days
after Lender notifies Borrower that a Prepayment Event has occurred (if that
Prepayment Event has not been cured by then), and shall be made in the manner
prescribed by section 4.O1. A "Prepayment Event" shall occur if (a) Borrower
fails to keep an Aircraft registered with the FAA, or Lender fails or ceases to
have a perfected first-priority interest in an Aircraft, or a Lien (other than
a Permitted Lien) on an Aircraft exists; or (b) Borrower fails to obtain an FAA
standard airworthiness certificate for an Aircraft within four weeks following
the Purchase Date for such Aircraft.
SECTION 4.05 -- Amount of Prepayment. A Note shall be deemed
satisfied in full upon the prepayment of all principal of such Note, the
payment of the interest due on or with respect to such Note on such prepayment
date, the payment of all past-due interest on or with respect to such Note, and
the payment of all amounts payable under section 10.02 with respect to such
prepayment.
SECTION 4.06 -- Interest on Past Due Amounts. Any amounts past
due (by acceleration or otherwise) and at any time outstanding under any Note
or from Borrower under any other Basic Document shall (to the extent permitted
by law) bear interest, payable on demand, from the due date until payment in
full, at a rate equal to 2% per annum above the Reference Rate.
9
<PAGE> 14
SECTION 4.07 -- Payment of Accrued Interest Supplements. Upon
the occurrence of the prepayment or mandatory purchase of a Note under section
4.02, 4.03, or 4.04, Borrower shall pay to Lender all past due Interest
Supplements, and any accrued portion of an Interest Supplement, relating to
such Note, with interest on pastdue Interest Supplements computed in accordance
with section 4.06.
SECTION 4.08 -- Reduction in Net Interest Payable by Borrower.
If the Finex Interest Rate for a Note exceeds the Borrower Interest Rate for an
Interest Period for that Note, the amount of interest due from Borrower under
that Note for such Interest Period shall be automatically reduced by an amount
equal to (a) the amount of principal of that Note outstanding during such
Interest Period multiplied by (b) the Finex Interest Rate for that Note minus
the Borrower Interest Rate for such Interest Period multiplied by (c) the
actual number of days in such Interest Period divided by 360.
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
SECTION 5.01 -- Corporate Standing. Borrower is a duly
organized corporation existing in good standing under the laws of Georgia, has
the corporate power and legal authority to own or lease its properties and to
carry on its business as now conducted and as now proposed to be conducted, and
is duly qualified to do business in all jurisdictions wherein such
qualification is necessary (except in any jurisdictions in which the failure to
qualify would have no materially adverse effect on its business or on its
ability to carry out its obligations under the Basic Documents to which it is
(or is to become) a party).
SECTION 5.02 -- Corporate Powers. Borrower's execution,
delivery, and performance of the Basic Documents to which it is (or is to
become) a party are within Borrower's corporate powers; and the Basic Documents
to which it is (or is to become) a party have been duly authorized by all
necessary corporate action on Borrower's part, and do not contravene, result in
a breach of, or require any consent under any law, judgment, decree, order, or
contractual restriction binding on Borrower or any agreement or instrument to
which Borrower is a party or to which it or any of its property is subject,
except that the legality and validity of each Purchase Agreement Assignment is
subject to the execution and delivery of the related Consent.
SECTION 5.03 -- Binding Effect. The Basic Documents to which
Borrower is (or is to become) a party are (or will be when executed and
delivered) legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with their 4.02 terms, except as may be limited
by bankruptcy, insolvency, or other similar laws affecting enforcement of
creditors' rights generally.
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SECTION 5.04 -- Litigation. Except as disclosed n the SEC
Filings, there are no pending or (to the best of Borrower's knowledge after due
inquiry) threatened actions or proceedings before any court or administrative
agency which may be expected to have a materially adverse effect on Borrower's
business or financial condition or which seek to question or set aside any of
the transactions herein contemplated.
SECTION 5.05 -- Financial Statements. The audited balance
sheet as of December 31, 1989 and unaudited balance sheet as of September 30,
l990 for Borrower and its consolidated subsidiaries, and the related results of
operations for the year and quarter then ended, have been prepared in
accordance with GAAP and correctly present Borrower's financial condition as of
such dates and results of operations for such periods, and since September 30,
1990, there has been no materially adverse change in Borrower's business,
assets, operations, or condition (financial or otherwise).
SECTION 5.06 -- Taxes. Borrower has filed all tax returns
which it is or was required to file, and has paid all taxes shown to be due and
payable on those returns or on any assessment received by it, except such taxes
of Borrower, if any, as are being contested diligently in good faith, and by
appropriate proceedings, and as to which adequate reserves have been provided
in accordance with GAAP.
SECTION 5.07 -- Status as United States Citizen and Air
Carrier. Borrower is a "citizen of the United States" as that term is used in
section 101(16) of the Act, and is a duly certified "air carrier" within the
meaning of the Act.
SECTION 5.08 -- Location of Offices. Borrower's chief
executive office and principal place of business, and the place where Borrower
keeps its financial records concerning the Collateral, is located at its
address referred to in section 11.02.
SECTION 5.09 -- Governmental Consents. Neither the execution,
delivery, and performance of any of the Basic Documents (other than the Finex
Agreement), nor the consummation of any of the transactions contemplated
thereby by Borrower or Vendor (including the importation of the Aircraft into
the United States from Brazil), requires the consent or approval of, giving of
notice to, registration with, or taking of any other action in respect too any
federal, state, or foreign governmental authority or agency (including any
judicial body) except for (a) the filing and recording of the Mortgage, and of
the FAA bill of sale, the FAA application for registration, and the Mortgage
Supplement for each Aircraft with the FAA; (b) the filing and recording of
UCC-1 financing statements for each Aircraft with the Superior Court Clerk
Offices in Bibb, Clayton, and Fulton County, Georgia, and in the appropriate
places in Texas and Arkansas; (c) the registration of each Aircraft with the
FAA pursuant to the Act; (d) the filing of any necessary documents with customs
officials; and (e) any necessary action with respect to the Finex Program.
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SECTION 5.10 -- Condition of Aircraft. On each Purchase Date,
the Aircraft to be delivered on such Purchase Date shall be in such condition
as is sufficient to enable Borrower to obtain a standard U.S. certificate of
airworthiness for such Aircraft and to enable such airworthiness certificate to
be maintained in good standing; and, to Borrower's knowledge (which shall be
based on acceptance tests by Borrower in accordance with its usual practices,
to the extent permitted under the Purchase Agreement), such Aircraft shall
otherwise conform in all material respects to the specifications for such
Aircraft set forth in the Purchase Agreement.
SECTION 5.11 -- Absence of ERISA Liability. Each employee
pension benefit plan (as defined in section 3(2) of the Employee Retirement
Income Security Act of 1974, as from time to time amended ("ERISA")) of
Borrower is in compliance with the applicable provisions of ERISA and of the
Internal Revenue Code of 1986, as from time to time amended, in all respects,
except to the extent that noncompliance would not be materially adverse to
Borrower's business, assets, financial condition, or ability to perform its
obligations under the Basic Documents.
SECTION 5.12 -- Delta Agreement. The Delta Agreement is (a)
the only agreement between Delta Air Lines, Inc. and Borrower relating to joint
marketing or code sharing for interconnecting flights, and (b) in full force
and effect. There exists no default under the terms of the Delta Agreement and
there has not occurred any event that would ripen into a default upon the
giving of notice or passage of time.
SECTION 5.13 -- Subsidiaries; Stock Ownership. Borrower owns
100% of the outstanding stock of ASA Investments, Inc. and Borrower has no
material stock or other equity investment in any other corporation,
partnership, or other Person.
SECTION 5.14 -- Investment Company Status. The Borrower is not
an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Note, or any amount owed by Borrower under any
other Basic Document, remains outstanding or unpaid or Lender has any
Commitment hereunder:
SECTION 6.01 -- Financial Statements. Borrower shall furnish
to Lender:
(a) within 45 days after the end of each of the first three
quarters in each fiscal year, consolidated statements of operations of
Borrower and its consolidated subsidiaries for the period from the
beginning of the then-current fiscal year to the end of such quarterly
period, and balance sheets of Borrower and its consolidated
subsidiaries, on a consolidated
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basis, as of the end of such quarter prepared in accordance with GAAP
and setting forth in each case in comparative form figures for the
corresponding period in the preceding year, all in reasonable detail
and certified by the Chief Financial Officer of Borrower, subject to
changes resulting from year-end adjustments, and Borrower's Form 10-Q
for such period;
(b) within 90 days after the end of each fiscal year,
consolidated statements of operations of Borrower and its consolidated
subsidiaries, for such year, and the balance sheets of Borrower and
its consolidated subsidiaries, on a consolidated basis, as of the end
of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in
reasonable detail, and certified to Borrower by its independent
certified public accountants and to Lender by Borrower's Chief
Financial Officer, as presenting fairly the financial position and
results of operations of Borrower and its consolidated subsidiaries
and as having been prepared in accordance with GAAP, and Borrower's
Form 10-K for such period;
(c) within two Business Days after any officer of Borrower
obtains knowledge of any Default, an Officer's Certificate specifying
its nature, the period of its existence, and what action Borrower
proposes to take with respect to it; and
(d) promptly upon request, such other data or information
(financial or otherwise) regarding Borrower or the Collateral as
Lender from time to time reasonably requests.
SECTION 6.02 -- Inspection of Collateral and Records.
Borrower shall permit any person(s) from time to time designated in writing by
Lender, at Lender's expense (or at Borrower's expense if a Default exists at
the time), to visit and inspect any of the Collateral and Borrower's (or any
Permitted Lessee's) records with respect to the Collateral, at such times as
Lender reasonably requests, and to discuss Borrower's affairs, finances, and
accounts with Borrower's officers. No such inspection shall unreasonably
interfere with Borrower's (or any Permitted Lessee's) operations or
maintenance. Lender shall have no duty to make any such inspection and shall
not incur any liability or obligation by reason of not making any such
inspection. Upon Lender's request, Borrower shall promptly notify Lender of the
maintenance operations then scheduled on the Aircraft for the six-month period
following such request.
SECTION 6.03 -- Corporate Existence. Except as permitted by
section 6.04, Borrower shall maintain its corporate existence in good standing
in the state of its incorporation and in all jurisdictions where qualification
is necessary (except in any jurisdiction in which the failure to qualify would
have no materially adverse effect on its business or on its ability to carry
out its obligations under the Basic Documents to which it is (or is to become)
a party). Borrower shall preserve and renew its rights (charter and statutory),
patents, and franchises, unless Borrower determines in good faith that the
preservation thereof is
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no longer necessary or desirable in the conduct of its business and that the
loss thereof will not adversely affect Lender's rights or Borrower's business,
assets, operations, condition (financial or otherwise).
SECTION 6.04 -- Merger, etc. Borrower shall not consolidate
with or merge into any other corporation, or convey, transfer, or lease all or
substantially all of its assets as an entirety to any person, unless:
(a) the corporation formed by such consolidation or the Person
who acquires by conveyance, transfer, or lease all or Substantially
all of Borrower's assets as an entirety (the "Successor") or, in
the case of a merger, Borrower (as the surviving corporation),
(i) is a corporation organized and existing under the laws of the
United States of America or any state or the District of Columbia,
(ii) is a "citizen of the United States" as defined in section 101(16)
of the Act, and (iii) is an air carrier (within the meaning of section
101(3) of the Act) certificated under section 604(b) of the Act; and,
in the case of such a consolidation, conveyance, transfer or lease,
the Successor: (iv) executes and delivers to Lender an agreement, in
form and substance satisfactory to Lender, containing an assumption by
the Successor of the due and punctual performance and observance of
Borrower's obligations under the Basic Documents to which Borrower is
then a party, and (v) makes such filings and recordings, including any
filing or recording with the FAA pursuant to the Act or any filing
under the UCC, as are necessary to evidence such consolidation,
merger, conveyance, transfer, or lease with or to the Successor;
(b) immediately after giving effect to such transaction, (i)
no Default exists and (ii) Borrower's or the Successor's, as the case
may be, business, assets, operations, condition (financial or
otherwise), and financial and other ability to perform its obligations
under the Basic Documents will not be adversely affected by such
transaction in any material respect; and
(c) Borrower or the Successor delivers to Lender, promptly
upon consummation of such transaction, an Officer's Certificate
stating that the conditions precedent set forth in clause (a) have
been complied with and an opinion of counsel for Borrower or for the
Successor, in form and substance satisfactory to Lender, stating that
the agreements entered into to effect such consolidation, merger,
conveyance, transfer, or lease and such assumption agreements have
been duly authorized, executed, and delivered by the Successor (or in
the case of a merger, by Borrower) and that they (and the Basic
Documents so assumed) constitute legal, valid, and binding obligations
of the Successor (or in the case of a merger, of Borrower),
enforceable in accordance with their terms (to the same extent as the
Basic Documents so assumed were enforceable against Borrower
immediately prior to such transaction); and that all conditions
precedent which are
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legal in nature provided for in this Agreement and relating to such
transaction have been fulfilled.
Upon any such consolidation, conveyance, transfer, or lease,
the Successor shall succeed to, shall be substituted for, and may exercise
every right and power of Borrower under the Basic documents to which Borrower
is a party, with the same effect as if the Successor had been named as Borrower
therein. No such conveyance, transfer, or lease of substantially all Borrower's
assets as an entirety shall have the effect of releasing Borrower (or any
Successor) from its liability under the Basic Documents to which it is a party.
Nothing in this section shall permit any lease, sublease, or other arrangement
for the use, operation, or possession of the Aircraft except in compliance with
the applicable provisions of this Agreement and the Mortgage.
Borrower shall not become a subsidiary of a holding company
without Lender's prior written consent.
SECTION 6.05 -- Citizenship and Air Carrier Status. Borrower
will at all times remain a "citizen of the United States" as defined in section
101(16) of the Act and an "air carrier" within the meaning of the Act.
SECTION 6.06 -- Compliance with ERISA.
(a) Borrower will, at all times, make prompt payment of
contributions that it is required to make to any employee benefit plan
to which it is a party as are necessary to meet the minimum funding
standards for such an employee benefit plan, as required by ERISA.
(b) Within two Business Days after the occurrence of any event
or circumstance, including any event which is classified as a
"Reportable Event" under ERISA, in connection with any employee
benefit plan to which it is a party, that might constitute grounds for
termination of an employee benefit plan to which Borrower is a party
by the Pension Benefit Guaranty Corporation or might result in the
appointment of a trustee by a United States District Court under
section 4042 of ERISA to administer such employee benefit plan;
Borrower will provide Lender with an Officer's Certificate describing
the event or circumstance, stating the reasons for any such action by
the Pension Benefit Guaranty Corporation or a United States District
Court, and specifying the action Borrower proposes to take with
respect thereto.
SECTION 6.07 -- Disposition of Assets. Borrower will not
dispose of any of its assets, other than in the ordinary course of its
business, unless it receives full, fair, and reasonable consideration for such
assets; and Borrower will not during any twelve-month period dispose of assets,
other than in the ordinary course of its business, which have an aggregate book
value in excess of $5,000,000; provided, that Borrower shall have the right to
dispose of any aircraft for at least such aircraft's book value and such sale
of an aircraft for at least book value will not be
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<PAGE> 20
included in the calculation of the $5,000,000 of assets sold in a twelve-month
period. The book value of an aircraft shall be determined in accordance with
GAAP. For avoidance of doubt, the "ordinary course" of Borrower's business
generally shall include (x) acquisitions or dispositions of marketable
securities (other than acquisitions or dispositions exceeding 5% of any class
of "equity security", as defined in the Securities Exchange Act of 1934) and
(y) the disposition of parts of discontinued aircraft, engines, or propellers
not constituting part of a program to reduce Borrower's fleet in any material
respect.
SECTION 6.08 -- Performance of Delta Agreement. Borrower
shall faithfully perform all obligations it has under the Delta Agreement.
SECTION 6.09 -- Financial Covenant. Borrower shall not permit
at any time on a consolidated basis (consolidating Borrower and its
subsidiaries) its ratio of Indebtedness to Tangible Net Worth to exceed 3.25 to
1. "Tangible Net Worth" shall mean Book Net Worth minus (a) the amount, if
any, of Borrower's and its subsidiaries' assets which would be treated as
intangibles under generally accepted accounting principles; (b) any write-up in
the book value of any fixed asset resulting from a revaluation thereof; and (c)
the amount, if any, at which shares of stock of Borrower appear on the asset
side of the Borrower's balance sheet. "Book Net Worth" shall mean the book
value of Borrower's and its subsidiaries' total assets located in the United
States of America (exclusive of any indebtedness owed to Borrower or its
subsidiaries by any affiliate of Borrower) minus Borrower's and its
subsidiaries' total liabilities. For avoidance of doubt, the phrase "total
assets located in the United States of America" shall include marketable
securities and commercial paper issued by a foreign entity but held in the
United States of America by Borrower or any of its subsidiaries.
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASE OF NOTES
SECTION 7.01 -- Conditions Precedent to the Purchase of the
Initial Note. Lender's obligation to purchase the initial Note on the first
Purchase Date is subject to the satisfaction (or Lender's waiver) of the
following conditions precedent and Lender's receipt on or before such initial
Purchase Date of the following, in form and substance satisfactory to Lender:
(a) a certificate of Borrower's secretary, dated the Purchase
Date, certifying attached copies of the resolutions of Borrower's
board of directors evidencing approval of the transactions
contemplated by the Basic Documents to which it is (or is to become) a
party, and showing the names and specimen signature(s) (or copies
thereof) of Borrower's officer(s) authorized to sign this Agreement
and the related documents to which it is (or is to become) a party,
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(b) an executed Finex Agreement,
(c) an executed Mortgage,
(d) an executed Guarantee,
(e) an Officer's Certificate certifying an attached copy of
the 1988 Purchase Agreement, and
(f) copies of the SEC Filings,
In addition, Borrower's obligation to close on the first Purchase Date
is subject to its receipt of an executed letter agreement between Borrower and
Lender, in form and substance satisfactory to each, concerning sections
4.02(d)(i) and 6.05 of the Mortgage, and concerning the availability of the
Finex Program and potential future changes in the terms of the Finex Agreement.
SECTION 7.02 -- Conditions Precedent to the Purchase of All
Notes. Lender's obligation to purchase each Note (including the initial Note)
is subject to the additional conditions precedent that:
(a) Lender shall have received the following, each dated as of
the pertinent Purchase Date, in form and substance satisfactory to
Lender:
(i) the Note for the relevant Aircraft, executed by
Borrower and endorsed by Vendor (without recourse) to the
order of Finex Bank who in turn has endorsed (without
recourse) to the order of Lender,
(ii) an executed Mortgage Supplement with respect to
the relevant Aircraft,
(iii) an executed Purchase Agreement Assignment, with
the related executed Consent, with respect to the relevant
Aircraft,
(iv) an Officer's Certificate to the effect that: (1)
Borrower's representations and warranties in Article V of this
Agreement and section 6 of the relevant Purchase Agreement
Assignment are true and accurate as though made on the
Purchase Date, and (2) no Default exists or will result from
Lender's purchase of such Note,
(v) a certificate of insurance describing the
insurance maintained by Borrower with respect to the Aircraft
being purchased and stating that such policies conform to the
requirements of the Mortgage,
(vi) an opinion from Borrower's counsel substantially
in the form of Exhibit F,
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(vii) an opinion from Crowe & Dunlevy, special FAA
counsel, substantially in the form of Exhibit G, covering the
Aircraft that is the subject of the Note being purchased,
(viii) an opinion of counsel to Embraer,
substantially in the form of Exhibit H,
(ix) an opinion of Brazilian counsel substantially in
the form of Exhibit I,
(x) such additional opinion(s) (including, if
requested, from Trotter Smith & Jacobs) and document(s) as
Lender requests, and
(xi) as to the first Aircraft financed under this
Agreement that is purchased pursuant to the 1990 Purchase
Agreement, an Officer's Certificate certifying an attached
copy of the 1990 Purchase Agreement;
(b) Lender shall have received copies of the necessary
FAA Application for Aircraft Registration and FAA Bill of Sale
pertaining to the Aircraft being purchased;
(c) Borrower's representations and warranties in the
Basic Documents shall be true and accurate as though made on and as of
such Purchase Date;
(d) no Default shall exist or shall result from Lender's
purchase of such Note;
(e) all filings, recordings, and other actions necessary
to establish, protect, preserve, and perfect Lender's interests under
the Mortgage shall have been duly made or taken;
(f) all necessary consents, approvals, licenses, permits,
declarations, or registrations then required in connection with the
execution, delivery, performance, validity, and enforceability of the
Basic Documents and the transactions contemplated thereby shall have
been obtained;
(g) Lender shall have received a copy of the approval of
the application for coverage of the purchase of the Aircraft by the
Finex Program; and
(h) in Lender's reasonable judgment, since September 30,
1990, there shall have occurred no materially adverse change in the
business, financial condition, or operations of Borrower.
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ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
SECTION 8.01 -- Events of Default. Each of the following shall
constitute an "Event of Default":
(a) Borrower fails to make any payment due from Borrower on
any Note or under any other Basic Document (including any Interest
Supplement and any amount due under section 4.04 hereof) when due;
(b) any representation or warranty made by Borrower in the
Basic Documents, or in any certificate or other document that it
furnishes pursuant to the Basic Documents, proves to have been
incorrect in any material respect when made;
(c) Borrower fails to maintain the insurance required by the
terms of the Mortgage;
(d) the Delta Agreement is voluntarily terminated, or is
amended to the detriment of Borrower;
(e) Borrower fails to provide Lender with the Officer's
Certificate required by section 6.01(c) or 6.06(b) within 10 days
after any of Borrower's officers obtains notice of a Default or the
ERISA-related event or circumstance occurs, respectively;
(f) Borrower fails to perform any other material covenant or
agreement in the Basic Documents (including section 6.09 hereof), and
(if remediable) such failure to perform continues for 30 days after
Borrower's receipt of notice of such default from Lender;
(g) Borrower (1) applies for or consents to the appointment
of, or the taking of possession by, a receiver, custodian, trustee, or
liquidator of itself or of all or a majority of its property, (2)
makes a general assignment for the benefit of its creditors, (3)
commences a voluntary case under the federal Bankruptcy Code (as now
or hereafter in effect), (4) files a petition seeking to take
advantage (as debtor) of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment
of debts, or (5) fails to controvert in a timely manner, or acquiesces
in writing to, any petition filed against it in an involuntary case
under the federal Bankruptcy Code;
(h) a proceeding or case is commenced, without Borrower's
application or consent, in any court of competent jurisdiction,
seeking (l) its liquidation, reorganization, dissolution, or
winding-up, or the composition or readjustment of its debts (2) the
appointment of a trustee, receiver, custodian, liquidator, or the like
of Borrower or of all or a majority of its assets, or (3) similar
relief in respect of Borrower under any law relating to bankruptcy,
insolvency,
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reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case continues undismissed, or an order, judgment,
or decree approving or ordering any of the foregoing is entered and
continues unstayed and in effect, for a period of 60 days; or an order
for relief against Borrower is entered in an involuntary case under
the federal Bankruptcy Code;
(i) loan, lease, or deferred purchase obligations of Borrower
totaling more than $1 million are in default after the expiration of
any applicable grace period, if the effect of such default is to
permit such obligations to be accelerated or otherwise declared to be
due and payable prior to their stated maturity, or Borrower defaults
in the payment when due of more than $l million of loan, lease, or
deferred purchase obligations;
(j) one or more judgment(s) is/are rendered by one or more
court(s) of competent jurisdiction against Borrower for a total of
more than $1 million and is/are not stayed or discharged, or fully
bonded against, within 60 days of the date or entry;
(k) any "Reportable Event" under ERISA shall have occurred, or
any finding or determination shall be made with respect to an employee
benefit plan to which Borrower is a party under section 4041(c) or (e)
of ERISA, or any fact or circumstance shall occur with respect to an
employee benefit plan to which Borrower is a party, that, in the
opinion of Lender, provides grounds for the commencement of any
proceeding under Section 4042 of ERISA, or any proceeding shall be
commenced under Section 4042 of ERISA with respect to an employee
benefit plan to which Borrower is a party; or
(l) Borrower shall deny any further liability under any Note
or under any other Basic Document.
SECTION 8.02 -- Remedies. If an Event of Default (other than
under section 8.01 (g) or (h)) exists, Lender may declare all Notes to be
immediately due and payable, whereupon (i) all Notes shall become and be
immediately due and payable without presentment, demand, protest, or other
notice of any kind, all of which Borrower hereby waives, (ii) the Interest
Supplement for any partial Interest Period will become immediately due and
payable, and (iii) the Commitment shall terminate. If an Event of Default under
section 8.01(g) or (h) occurs, all Notes automatically shall become immediately
due and payable and the Commitment automatically shall immediately terminate,
without presentment, demand, protest, or notice of any kind, all of which
Borrower hereby waives.
ARTICLE IX
BORROWER'S INDEMNITIES
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SECTION 9.01 -- General Indemnity. Borrower assumes liability
for, and agrees to indemnify each Indemnitee against, and on written demand to
pay, or to reimburse each Indemnitee for the payment of, any and all
liabilities, obligations, losses, damages, penalties, claims (including claims
involving strict liability in tort), suits, actions, costs, expenses, and
disbursements, including legal fees and expenses, of whatsoever kind and nature
(collectively, "Liabilities") imposed on, incurred by, or asserted against any
Indemnitee relating to or arising out of any Basic Document, the enforcement
against Borrower of any of the terms of the Basic Documents, or any lease or
relinquishment of possession of the Aircraft or any part thereof or any action
or inaction of Borrower or of any lessee, assignee, or transferee of Borrower
in connection therewith, the purchase of the Aircraft under the Purchase
Agreement, the ownership of the Aircraft, the acquisition, delivery,
nondelivery, acceptance, nonacceptance, rejection, registration,
deregistration, insuring, storage, manufacture, assembly, transportation,
importation, exportation, maintenance, condition, modification, testing,
repair, fitness for use, merchantability, sale, abandonment, lease, sublease,
assignment, transfer, transfer of title, possession, repossession, use,
operation, return, or other application or disposition of the Aircraft or any
component thereof, the condition upon return thereof after repossession
following the occurrence of an Event of Default or following the exercise of
remedies under the Mortgage, including latent or other defects, whether or not
discoverable, loss of or damage to any property or the environment, death or
injury of any person, and any claim for patent, trademark, copyright, or mask
work infringement and the violation or infringement by Borrower of any laws,
rules, or regulations, or (without limiting any of the foregoing) any breach by
Borrower of, noncompliance by Borrower with, or misrepresentation made or
deemed made by or on behalf of Borrower in, under, or in connection with the
Purchase Agreement or any Purchase Agreement Assignment or any warranty,
certificate, or agreement made or delivered in, under, or in connection with
the Purchase Agreement or any Purchase Agreement Assignment; provided, that
this section shall not require Borrower to pay or indemnify any Indemnitee
under this section (i) for any Liability to the extent resulting from such
Indemnitee's acts of gross negligence or willful misconduct; (ii) for any Taxes
(Borrower's duties in respect of Taxes being set forth in section 9.02) or for
any cost or expense relating to the preparation, execution, delivery, or
enforcement of the Basic Documents (Borrower's duties in respect of such costs
and expenses being set forth in section 11.03); (iii) for any Liability that
such Indemnitee incurs to the extent resulting from its breach of any of its
representations, warranties, or covenants in any Basic Document; (iv) for any
Liability to the extent resulting from a claim against such Indemnitee not
related to any Aircraft, any action or inaction of Borrower or any lessee,
assignee, or transferee of Borrower, or any of the transactions contemplated by
the Basic Documents; (v) for any Liability with respect to transfer taxes or
other expenses payable with respect to the transfer of any Note, other than a
transfer after the occurrence of an Event of Default; or (vi) for any violation
or purported violation of any law relating to usury or the charging or
collecting of excess interest or finance charges. If any Indemnitee obtains
knowledge of
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any claim or liability required to be indemnified against under this section
9.01, such Indemnitee shall promptly notify Borrower, but the failure to do so
shall not relieve Borrower from any liability that it otherwise would have to
such Indemnitee under this section. Upon an Indemnitee's request, the defense
of any Liability for which Borrower would be required to indemnify such
Indemnitee hereunder shall be conducted by Borrower, with counsel selected by
Borrower and satisfactory to Lender. However, if the defense of any such
Liability is conducted by Lender, Lender shall select the counsel to conduct
it, but shall consult with Borrower as to such selection; provided, that the
decision as to which counsel to select shall be and remain Lender's. Borrower
shall be obligated under this section 9.01 irrespective of whether the
Indemnitee is also indemnified with respect to the same matter under any other
Basic Document or other document by any other Person, and the Indemnitee may
proceed directly against Borrower under this section 9.01 without first
resorting to any such rights of indemnification. Upon the payment in full of
any indemnities due and owing under this section 9.01, Borrower shall be
subrogated to any right of the Indemnitee in respect of the matter against
which indemnity has been given. Borrower's indemnities in this section shall
survive expiration or termination of the Mortgage and payment in full of the
Notes.
Any payment or indemnity pursuant to this sect on 9.01 shall
include the amount, if any, necessary to hold the Indemnitee harmless on an
after-tax basis from all taxes required to be paid by such recipient with
respect to such payment or indemnity under laws of any federal, state, or local
government or taxing authority in the United States or by any foreign
government or any political subdivision or taxing authority thereof. The amount
of any payment or indemnity required under this section shall be determined by
the Indemnitee reasonably and in good faith, and that determination shall be
conclusive. Upon Borrower's request and at Borrower's expense, the Indemnitee
will provide Borrower with a summary explanation of the basis for the
Indemnitee's computations.
SECTION 9.02 -- Taxes.
(a) Indemnity. Except as provided in section 9.02(b), Borrower
agrees to indemnify each Indemnitee against, and on written demand to pay or
reimburse each Indemnitee for the payment of, any and all Taxes imposed upon or
asserted against any Indemnitee, any Aircraft or any part thereof or interest
therein, any Basic Document, any lease of any Aircraft or any part thereof, or
the rentals received under such a lease, by any federal, state, or local
government or other taxing authority in the United States (including any
territory or possession of the United States) or by any foreign government or
any political subdivision or taxing authority thereof where any part of an
Aircraft is located, used, or registered ( "Taxing Authorities") upon or with
respect to (i) the construction, mortgaging, financing, refinancing by or at
the request of Borrower, purchase, acquisition, acceptance, nonacceptance,
rejection, delivery, nondelivery, transport, insuring, ownership, registration,
deregistration, assembly, possession, repossession, operation, use, condition,
maintenance, modification, repair, fitness for use, merchantability, testing,
22
<PAGE> 27
return, abandonment, storage, manufacture, leasing, subleasing, importation,
exportation, sale, assignment, transfer, transfer of title, or other
application or disposition of, or the imposition of any Lien (other than a
Permitted Lien) or the incurrence of any liability to refund or pay over any
amount as a result of any Lien (other than a Permitted Lien) on any Aircraft or
any part thereof or interest therein, (ii) any amount paid or payable by
Borrower or Finex Bank under the Basic Documents or the receipts or earnings
arising from or received with respect to any Aircraft or any part thereof or
interest therein, (iii) any Aircraft or any part thereof or interest therein,
(iv) any of the Basic Documents and any other documents contemplated thereby or
the execution, sale, delivery, acquisition, or filing of the Basic Documents,
or (v) otherwise with respect to or in connection with the transactions
effected under the Basic Documents. The term "Taxes" shall mean any and all
fees, taxes, levies, imposts, duties, charges, assessments, or withholdings of
any nature whatsoever, together with any and all penalties, fines, additions to
tax, and interest thereon or computed by reference thereto.
(b) Exclusions from Indemnity. The provisions of section
9.02(a) shall not apply to:
(i) any Tax based on, or measured by, net income, capital,
franchise, or net worth (other than sales taxes), including related
surcharges and withholding taxes; provided, that the provisions of
this clause (b)(i) shall not apply to any Taxes imposed in respect of
the receipt or accrual of any indemnity payment made or payable
pursuant to this section 9.02;
(ii) any Tax based on or measured by the value of such
Indemnitee's interest in any Basic Document, except to the extent
imposed without regard to the presence of the Indemnitee, or any Note,
in the jurisdiction of the Taxing Authority imposing that Tax;
(iii) any Tax imposed on the Indemnitee as a result of a
transfer or other disposition, by such Indemnitee or any of its
predecessors in interest, of any interest in the Aircraft or any Basic
Document, unless such transfer or disposition occurs after the
occurrence of an Event of Default; or
(iv) any Tax in the nature of a penalty, an addition to tax,
interest, or fines resulting from the negligence or misconduct of the
Indemnitee in connection with the preparation or filing of (or failure
to prepare or file) tax returns, or the payment of or failure to pay
its taxes, but in each case not if in any way attributable to
Borrower's failure to notify such Indemnitee of its obligations to
prepare and file its returns in respect of Taxes indemnified pursuant
to this section 9.02 or to provide any information necessary for the
preparation or filing of such returns or the conduct of such
proceedings or otherwise to perform its duties and responsibilities
pursuant to the Basic Documents.
23
<PAGE> 28
(c) Calculation of General Tax Indemnity Payments. Any payment
which Borrower is required to make to or for the account of any Indemnitee with
respect to any Tax which is subject to indemnification under this section 9.02
shall be made on a net basis, taking into account offsetting credits or
deductions available to such Indemnitee as a result of the payment of such Tax,
and shall include the amount necessary to hold such Indemnitee harmless on an
after-tax basis from the net amount of all Taxes required to be paid by such
Indemnitee as the result of such payment (including any Taxes imposed on such
indemnity payment) pursuant to the laws of any Taxing Authority. The amount of
any payment or indemnity required under this section shall be determined by the
Indemnitee reasonably and in good faith, and that determination shall be
conclusive. Upon Borrower's request and at Borrower's expense, the Indemnitee
will provide Borrower with a summary explanation of the basis for the
Indemnitee's computations.
(d) Records. If Borrower shall timely file any report, return,
or statement required to be filed with respect to any Tax which is subject to
indemnification under this section 9.02, except for any such report, return, or
statement which an Indemnitee has notified Borrower that it intends to file.
Borrower shall file such report, return, or statement and send a copy to Lender
and each Indemnitee affected by such report, return, or statement. Each
Indemnitee shall promptly forward to Borrower any notice, bill, or advice
received by it concerning any Tax.
ARTICLE X
YIELD PROTECTION
SECTION 10.01 -- Additional Costs.
(a) Borrower shall pay directly to Lender from time to time
such amounts as are necessary to compensate Lender, on an after-tax basis, for
any costs which are attributable to its purchase of or obligation to purchase
any Note hereunder, or any reduction in any amount receivable by Lender in
respect of such Notes (excluding payments under the Finex Agreement), resulting
from any Regulatory Change which imposes or modifies any reserve, special
deposit, minimum capital, capital ratio, or similar requirements relating to
any extensions of credit or other assets of or any deposits with or other
liabilities of Lender, or the manner in which Lender funds (or allocates funds,
on its books, for) its investments in any of the Notes.
(b) Determinations and allocations for purposes of this
section 10.01 of the effect of any Regulatory Change pursuant to section
10.01(a) on Lender's costs or rate of return of maintaining or its obligations
to purchase any Note, or on amounts receivable by it in respect of any Note,
and of amounts required to compensate Lender under this section 10.01, shall be
made by Lender reasonably and in good faith and shall be conclusive. Upon
Borrower's request
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<PAGE> 29
and at Borrower's expense, Lender will provide Borrower with a summary
explanation of the basis for Lender's computations.
SECTION 10.02 -- Breakage Costs. Borrower shall pay to
Lender, upon Lender's request, such amount as is sufficient, in Lender's
opinion, to compensate it for any loss, cost, or expense which is attributable
to:
(a) any payment, purchase, or conversion of any Note for any
reason (including the acceleration of the maturity of the Notes pursuant to
section 8.02 and the mandatory purchase of the Note pursuant to section 4.04)
on a date other than an Interest Payment Date; or
(b) any failure by Vendor for any reason (including the
failure of any of the conditions precedent specified in article VII to be
satisfied) to endorse and deliver any Note to Finex Bank on the Purchase Date
specified in the relevant notice to Lender given pursuant to section 2.02.
Such amount payable by Borrower (x) shall not include losses, costs, or
expenses attributable to any date more than 180 days after the date of such
payment, purchase, or conversion or such Purchase Date, and (y) shall be
determined by Lender reasonably and in good faith, which determination shall be
conclusive. Upon Borrower's request and at Borrower's expense, Lender will
provide Borrower with a summary explanation of the basis for Lender's
computations.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 -- No Waivers: Cumulative Remedies. No failure
or delay in exercising any power or right under any Basic Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power preclude other or further exercise thereto, or the exercise
of any other right or power under any Basic Document. No notice to or demand on
any party in any case shall, of itself, entitle such party to any other or
further notice or demand in similar or other circumstances.
SECTION 11.02 -- Notices. All communications and notices
provided for under this Agreement shall be in writing (including telex,
telegraph, and telecopy), shall be in English, and shall be mailed by certified
mail (return receipt requested) or otherwise delivered to the parties at the
addresses set forth by their signatures hereto, or, as to each party, at such
other address as it designates by notice to each other party. Each such notice
shall be effective upon delivery.
SECTION 11.03 -- Transaction Expenses. Borrower will pay on
demand all out-of-pocket expenses in connection with the preparation,
execution, delivery, administration, and enforcement of the Basic Documents, or
in connection with any scheduled closing
25
<PAGE> 30
that is postponed or cancelled, including (i) all fees and expenses of (x)
Trotter Smith & Jacobs, special counsel to Lender, (y) Castro, Barros, Sobral e
Xavier, special Brazilian counsel, and (z) Crowe & Dunlevy, special FAA
counsel; (ii) all FAA and UCC filing and lien search fees; (iii) all fees and
expenses (including legal fees and expenses) of Lender in connection with
actual or proposed amendments, waivers, or consents to or under this Agreement
or the other Basic Documents (except for such amendments, waivers, or consents
initiated by Lender); and (iv) all fees and expenses (including legal fees and
expenses) of Lender in connection with the actual or proposed enforcement of
any Basic Document against Borrower during the existence of any Default. The
"legal fees and expenses" of Lender referred to in clauses (iii) and (iv) may
include those of Lender's in-house counsel.
SECTION 11.04 -- Amendments. Any provision of the Basic
Documents, other than the Purchase Agreement, the Guarantee, or the Finex
Agreement, may be amended, terminated, waived, or otherwise modified only in
writing by Borrower and Lender.
SECTION 11.05 -- Successors and Assigns. This Agreement shall
bind and benefit Lender and Borrower and their successors and assigns, except
that Borrower may not assign or transfer its rights under this Agreement
without Lender's prior written consent. Lender may at any time with the
Borrower's consent (which consent shall not be unreasonably withheld) sell,
assign, grant participation(s) in, or otherwise transfer any Note and Lender's
rights (including the right to receive Interest Supplements) relating to such
Note, in whole or in part.
SECTION 11.06 -- Lender's Representations and Warranties.
Lender represents and warrants that:
(a) it is a national banking association duly organized,
validly existing, and in good standing under the laws of the United States, and
has all corporate power, authority, and legal right under the laws of the
United States to execute, deliver, and carry out the terms of each of the Basic
Documents to which it is a party;
(b) it has duly authorized, executed, and delivered this
Agreement and the other Basic Documents to which it is a party; and
(c) neither it nor anyone authorized to act on its behalf has
directly or indirectly offered any beneficial interest in the Notes for sale
to, or solicited any offer to acquire any such interest in the Notes from, any
Person in such a manner as to require any of the Notes to be registered under
the Securities Act of 1933, as amended, or any state securities law; provided,
that the foregoing shall not be deemed to extend any such offer, sale, or
solicitation by or on behalf of Borrower or any other Person.
SECTION 11.07 -- Governing Law. This Agreement shall be
governed by the laws of Georgia.
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SECTION 11.08 -- Headings. Article and section headings used
in this Agreement are for convenience only and are not a substantive part of
this Agreement.
SECTION 11.09 -- Execution in Counterparts. This Agreement may
be executed in separate counterparts.
SECTION 11.10 -- Survival of Representations and Warranties.
All representations and warranties contained in this Agreement or made in
writing in connection with this Agreement shall survive the execution and
delivery of this Agreement and the Mortgage.
SECTION 11.11 -- Severability. If any part of any provision
contained in this Agreement, or any document contemplated hereby, is or becomes
invalid or unenforceable under applicable law, that part shall be ineffective
to the extent of such invalidity only, without in any way affecting the
remaining parts of that provision or the remaining provisions.
SECTION 11.12 -- Finex Agreement. So long as no Default
exists, Lender shall forward any payments that it receives under the Finex
Agreement as Finex Interest Payments, or interest thereon, or as
indemnification or reimbursement under the Finex Agreement and not relating to
any loss or expense suffered by Lender, to Borrower at First American Bank of
Georgia N.A., 2000 RiverEdge Parkway, Atlanta, Georgia 30328, Account: Atlantic
Southeast Airlines, Inc. (account #5100130970). Lender shall use its good faith
efforts to forward any such payments to Borrower on the Business Day following
their receipt by Lender. At the cost and expense of Borrower, Lender shall use
its good faith efforts to take such action with respect to the Finex Agreement
as Borrower shall reasonably request, provided that Lender shall not be
required to take any action which adversely affects its interests; provided
that a reduction in the amount of Finex Interest Payments resulting from the
guarantee of such Finex Interest Payments by Finex Bank shall not be considered
an action adversely affecting Lender's interest; provided , further, that any
bank having offices in New York City and in Brazil, and authorized to act as a
Finex agent bank under the Finex Program, shall be presumed to be acceptable to
Lender as to identity. However, all risks associated with the Finex Program are
Borrower's, and Lender shall have no responsibility for any Finex Interest
Payments not actually received by Lender from Finex Bank. So long as no Default
exists, Lender shall not enter into any amendment of the Finex Agreement
without Borrower's consent, such consent not to be unreasonably withheld.
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<PAGE> 32
IN WITNESS WHEREOF, Borrower and Lender have executed this
Credit Agreement.
ATLANTIC SOUTHEAST AIRLINES, INC.
1688 Phoenix Parkway
College Park, Georgia 30349
Attn: Ronald V. Sapp
Vice President-Finance By: /s/ R.V. Sapp
and Treasurer -------------------------------
Facsimile No.: (404) 991-0366 Title: Vice President - Finance
--------------------------
BANK OF AMERICA NATIONAL
555 South Flower Street TRUST AND SAVINGS ASSOCIATION
Los Angeles, California 90071
Attn: Airline Aerospace #5770
Facsimile No.: (213) 228-2756
By: /s/ Douglas I. Robinson
-------------------------------
Title: Vice President
-------------------------
with a copy to:
1850 Gateway Blvd. #5693
Concord, California 94520
Attn: Corporate Service Center
Facsimile No.: (415) 675-7531
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<PAGE> 1
EXHIBIT 10(K)
===============================================================================
CREDIT AGREEMENT
dated as of
April 19, 1991
among
ATLANTIC SOUTHEAST AIRLINES, INC.,
Borrower,
THE FIRST NATIONAL BANK OF ATLANTA,
Agent,
and
THE FIRST NATIONAL BANK OF ATLANTA and
THE BANK OF TOKYO, LTD., ATLANTA AGENCY,
Lenders.
Up to Four Embraer Model EMB-120 Brasilia Aircraft
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
DEFINITIONS; REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 1.03 Section and Exhibit References, etc. . . . . . . . . . . . . . . . . . . . . 11
ARTICLE II
PURCHASE OF NOTES AND CERTIFICATES;
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.01 Purchase of Notes and Certificates . . . . . . . . . . . . . . . . . . . . . 11
Section 2.02 Procedure for Purchase of Notes
and Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.03 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.04 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.05 Payments by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III
SECURITY FOR BORROWER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . 13
Section 3.01 Security Interest in Collateral . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.02 Set-Off Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV
PAYMENTS UNDER THE NOTES AND OTHER
AMOUNTS PAYABLE BY BORROWER . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.01 How Payments Are Made . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.02 Right to Prepay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.03 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.04 Mandatory Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.05 Amount of Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.06 Interest on Past Due Amounts . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.07 Payment of Accrued Interest Supplements . . . . . . . . . . . . . . . . . . 16
Section 4.08 Reduction in Net Interest Payable
by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
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<TABLE>
<S> <C> <C>
ARTICLE V
BORROWER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 17
Section 5.01 Corporate Standings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.02 Corporate Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.03 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.04 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.05 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.06 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.07 Status as United States Citizen and
Air Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.08 Location of Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.09 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.10 Condition of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.11 Absence of ERISA Liability . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.12 Delta Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.13 Subsidiaries; Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.14 Investment Company Status . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.15 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.01 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.02 Inspection of Collateral and Records . . . . . . . . . . . . . . . . . . . . 21
Section 6.03 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.04 Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.05 Citizenship and Air Carrier Status . . . . . . . . . . . . . . . . . . . . . 23
Section 6.06 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.07 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.08 Performance of Delta Agreement . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.09 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.10 Certificate of No Default . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.11 Insurance on Fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VII
CONDITIONS OF PRECEDENT TO THE PURCHASE OF THE
NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.01 Conditions Precedent to the Purchase
of the Initial Note . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.02 Conditions Precedent to the Purchase
of All Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
ii
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<TABLE>
<S> <C> <C>
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IX
BORROWER'S INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.01 General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.02 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.03 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE X
YIELD PROTECTION; ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.02 Breakage Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XI
AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.01 Appointment; Powers and Indemnities;
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.02 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.04 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.05 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.06 Nonreliance on Agent or Lenders . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.07 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 11.08 Resignation of Agent; Successor Agent . . . . . . . . . . . . . . . . . . . 40
Section 11.09 Investment of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 11.10 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.11 No Claims Against Agent, etc. . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.12 Form of Certificates; Issuance, Transfer, and
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.13 Action Upon Written Instructions . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.14 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.15 Procedures for Disposing of Collateral . . . . . . . . . . . . . . . . . . . 46
</TABLE>
iii
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<TABLE>
<S> <C> <C>
ARTICLE XII
RECEIPT, DISTRIBUTION, AND APPLICATION
OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 12.01 Payment by Agent Generally . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 12.02 Application of Payments After
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 12.03 Payments After Event of Default . . . . . . . . . . . . . . . . . . . . . . 47
Section 12.04 Application of Indemnity and
Certain Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 12.05 Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12.06 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12.07 Payments From Proceeds From Borrower . . . . . . . . . . . . . . . . . . . . 50
Section 12.08 Termination of Certificates . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE XIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 13.01 No Waivers; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . 50
Section 13.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 13.03 Transaction Expenses; Agent's Fees . . . . . . . . . . . . . . . . . . . . . 50
Section 13.04 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 13.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 13.06 First Atlanta's Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 13.07 Bank of Tokyo's Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 13.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.09 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.10 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.11 Survival of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.13 Finex Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.14 Agent Not Acting in Individual Capacity . . . . . . . . . . . . . . . . . . 56
Annex A Procedures for Purchasing Aircraft,
Notes, and Certificates; Documentation
Exhibit A Form of Note
Exhibit B Form of Finex Agreement
Exhibit C Form of Mortgage
Exhibit D Form of Purchase Agreement Assignment
Exhibit E Form of Consent
Exhibit F Form of opinion of Borrower's counsel
Exhibit G Form of opinion of Crowe & Dunlevy (Aircraft)
Exhibit H Form of opinion of counsel to Embraer
Exhibit I Form of opinion of Castro Barros Sobral e Xavier
Exhibit J Form of Guarantee
Exhibit K Forms of Certificates
</TABLE>
iv
<PAGE> 6
CREDIT AGREEMENT
This Credit Agreement is entered into as of April 19, 1991 among (i)
Atlantic Southeast Airlines, Inc. ("Borrower"), a Georgia corporation, (ii)
The first National Bank of Atlanta, a national banking association, in its
individual capacity, and The Bank of Tokyo, Ltd., Atlanta Agency, a Georgia
agency of a Japanese banking corporation, as lenders (the "Lenders"), and (iii)
The First National Bank of Atlanta, a national banking association, not in its
individual capacity (except as otherwise expressly stated) but solely as agent
(in such representative capacity "Agent").
Borrower, the Lenders, and Agent agree as follows:
Article I
DEFINITIONS; REFERENCES
Section 1.01 -- Definitions. The following terms, when capitalized as
below, have the following meanings:
"Act": the Federal Aviation Act of 1958, as amended, or its
successor.
"Agent": The First National Bank of Atlanta, not in its individual
capacity but solely in its capacity as agent for Lenders, or the successor
agent pursuant to section 11.08 hereof.
"Agreement": this Credit Agreement.
"Alternative LIBO Rate": defined in section 3.02 of the Finex
Agreement.
"Aircraft": up to four Embraer EMB-120 Brasilia aircraft to be
delivered under the Purchase Agreement and in each case designated by Borrower
(by notice to Agent (which Agent agrees to the Purchase Date therefor, and not
revoked by notice to Agent (which Agent agrees to relay promptly to each
Lender) on or before the Purchase Date therefor) as an "Aircraft" to be
financed under this Agreement.
"Bank LIBOR" for any Interest Period: a rate per annum (calculated
on the basis of a 360-day year and the actual number of days elapsed) equal to
the consensus rate at which 180-day deposits in Dollars appear on the Reuters
Screen LIBO Page at approximately 11:00 a.m. London, England time, on the day
that is two Business Days before the first day of that Interest Period.
<PAGE> 7
"Bank of Tokyo": The Bank of Tokyo, Ltd., Atlanta Agency.
"Basic Documents": this Agreement, the Purchase Agreement, the Finex
Agreement(s), the Guarantee, and the Mortgage; and each Certificate, Note,
Purchase Agreement Assignment, Consent, and Mortgage Supplement as executed and
delivered.
"Book Net Worth": defined in section 6.09.
"Borrower Interest Rate" with respect to any Interest Period: an
interest rate equal to Bank LIBOR for such Interest Period, plus (x) 0.60% per
annum from the Purchase Date to the fifth Interest Payment Date for the related
Note, (6) 0.875% per annum after the fifth Interest Payment Date through the
tenth Interest Payment Date for the related Note, and (z) 1.05% for the
remainder of the term of the related Note (computed on the basis of a year of
360 days), based on actual days elapsed.
"Business Day": any day, other than a Saturday or Sunday, on which
commercial banks are open for business in New York, New York, London, England,
and Sao Paulo, Brazil, and Agent is open for business in Atlanta, Georgia, and
if such day is a Purchase Date or Interest Payment Date or relates to a notice
by Borrower with respect to any Purchase Date, which is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Capitalized Lease": a capitalized lease of any tangible real or
personal property, as determined pursuant to GAAP.
"Certificate": a Long-Term Certificate, Medium-Term Certificate, or
Short-Term Certificate.
"Change in Control": the acquisition by any Person (other than Delta
Air Lines, Inc., directly or indirectly) or group (within the meaning of Rule
13d-5 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934), or by two or more Persons acting in concert,
of beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Securities and Exchange Act of
1934) of either (i) 33-1/3% or more of the outstanding shares of voting stock
of Borrower or (ii) the power to direct or cause the direction of the
management and policies of Borrower, whether through the ownership of voting
securities, by contract, or otherwise.
"Code": the Internal Revenue Code of 1986, as amended from time to
time, including effective date and transition rules (whether or not codified).
Any reference to a specific section of
2
<PAGE> 8
the Code shall be deemed to include a reference to any corresponding provision
of future law.
"Collateral": the "Collateral" under the Mortgage.
"Commitment": Agent's commitment to purchase the Notes, and each
Lender's commitment to participate, through the purchase of Certificates, in
the Agent's purchase of notes, in the amount set forth opposite each Lender's
name in section 2.01, for an aggregate amount of up to $21,250,000; Borrower
may reduce such amount upon 30 days' prior written notice to Agent (which Agent
agrees to relay promptly to each Lender) and in the event of such reduction in
the total commitment, each Lender's commitment will be reduced pro rata based
on the relation of each Lender's commitment to the total commitment.
"Commitment Fee": the fee required to be paid by Borrower to Agent,
for the benefit of the Lenders, pursuant to section 2.03.
"Commitment Period": the period from the date of execution of this
Agreement to and including the earliest of (w) September 30, 1991, (x) the date
upon which the fourth Aircraft is delivered to and accepted by Borrower
pursuant to the Purchase Agreement, (y) the date on which the remaining
Commitment is terminated pursuant to section 8.02, and (z) a date set by
Borrower pursuant to a notice sent to Agent (which Agent agrees to relay
promptly to each Lender) at lease 30 days prior to such date.
"Consent": a Consent and Agreement, substantially in the form of
Exhibit E, relating to a Purchase Agreement Assignment and dated the same date
as that Purchase Agreement Assignment.
"Current Maturities of Long-Term Debt": the amounts due, within the
12-month period following any fiscal quarter end of Borrower, under long-term
debt instruments of Borrower, as determined pursuant to GAAP.
"Default": any event or condition that would become an Event of
Default upon the giving of notice or lapse so time or both, or any Event of
Default.
"Delta Agreement": the agreement between Delta Air Lines, Inc. and
Borrower, dated June 1, 1986, relating to joint marketing or code sharing for
interconnecting flights.
"Depreciation and Amortization Expense": the total expenses for
depreciation and amortization incurred by Borrower in the 12-month period
preceding any fiscal quarter end of Borrower, as determined pursuant to GAAP.
"Dollars" and "S": United States dollars.
3
<PAGE> 9
"Downpayment": as to the first Aircraft financed under this
Agreement, 15% of Equipment Cost for the first $6,400,000 of Equipment Cost,
and 100% of Equipment Cost in excess of $6,400,000, for an Equipment Portion
and, as to the other Aircraft financed under this Agreement, 15% of the
Equipment Cost for the first 6,200,000 of Equipment Cost, and 100% of Equipment
Cost in excess of $6,200,000, for an Equipment Portion, minus, in any case, any
amounts that Borrower paid to Vendor before the relevant Purchase Date
(including deposits applied to such Equipment Portion), pursuant to the
Purchase Agreement, relating to such Equipment Portion.
"Earnings Before Tax": the total earnings from all sources, excluding
extraordinary items, of Borrower in the 24-month period preceding any fiscal
quarter end of Borrower, prior to any deduction for federal and state income
taxes, as determined pursuant to GAAP, divided by 2.
"Embraer": Embraer-Empresa Brasileira de Aeronautica S. A., a
Brazilian corporation, and its successors and assigns.
"Environmental Complaint": any complaint, proceeding, or order under
any federal, state, or local statutes, laws, ordinances, codes, rules, or
regulations (including consent decrees and administrative orders) relating to
public health and safety and protection of the environment.
"Equipment Cost": the purchase price for an Equipment Portion, as set
forth in (and as adjusted pursuant to) the Purchase Agreement.
"Equipment Portion": as to the first Aircraft financed under this
Agreement, the Aircraft and the Spare Parts purchased with that Aircraft and,
as to each of the other Aircraft financed under this Agreement, the Aircraft
but not the Spare Parts, if any, purchased with that Aircraft.
"ERISA": defined in section 5.11.
"Event of Default": defined in section 8.01.
"Event of Loss": defined in section 1.01 of the Mortgage.
"FAA": the Federal Aviation Administration of the United States, or
any instrumentality of the United States succeeding to its function.
"Facility Fee": defined in section 2.04.
4
<PAGE> 10
"Financed Amount": the amount determined pursuant to the second
sentence of section 2.01.
"Finex Agreement": an agreement substantially in the form of Exhibit
B.
"Finex Bank": Banco de Credito Nacional S.A., New York Branch (or any
other Person selected by Borrower and accepted by Agent in accordance with
section 13.13 to serve as a Finex bank under a Finex Agreement), in its
capacity as Finex bank under the Finex Agreement, and its successors in such
capacity.
"Finex Interest Payments": the Finex Interest Payments described in
section 3.01 of the Finex Agreement.
"Finex Interest Rate" for a Note: a fixed interest rate equal to the
Finex LIBO Rate for its Purchase Date, minus 2% per annum (computed on the
basis of a year of 360 days), based on actual days elapsed, or such other
interest rate as Borrower is actually required to pay on such Note under the
Finex Program.
"Finex LIBOR" or "Finex LIBO Rate" for any Purchase Date: (x) the
interest rate for such Purchase Date, published by Banco Central do Brasil two
Business Days before that Purchase Date, as the 180-day interest rate
applicable to transactions under the Finex Program, or (y) when applicable, the
Alternative LIBO Rate established pursuant to section 3.02 of the Finex
Agreement.
"Finex Program": the export support program (Fundo de Financiamento a
Exportaceo) of the Federative Republic of Brazil, as established by Resolution
No. 509 of January 24, 1979 of Banco Central do Brasil and in Circular
Cacex/Finex No. 10 of the Carteira de Comercio Exterior (Cacex) of Banco do
Brasil S.A., dated September 21, 1982, as from time to time supplemented or
amended.
"First Atlanta": The First National Bank of Atlanta, in its
individual capacity and not as agent.
"GAAP": generally accepted accounting principles as in effect in the
United States and applied on a basis consistent with that used in the
preparation of the financial statements referred to in section 5.05, except for
changes therein with which Borrower's independent public accountants concur
that are disclosed in the notes to the relevant financial statements.
"Guarantee": the document by that name, executed by ASA Investments,
Inc., in substantially the form of Exhibit J.
5
<PAGE> 11
"Hazardous Substance": (a) any "hazardous substance", as defined by
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as in effect from time to time; (b) any "hazardous waste", as defined by
the Resource Conservation and Recovery Act, as in effect from time to time; (c)
any petroleum product; or (d) any pollutant or contaminant or hazardous,
dangerous, or toxic chemical, material, or substance within the meaning of any
other applicable federal, state, or local law, regulation, ordinance, or
requirement (including consent decrees and administrative orders) relating to
or imposing liability or standards of conduct concerning any hazardous, toxic,
or dangerous waste, substance, or material, all as amended or hereafter
amended.
"herein", "hereof", "hereunder", etc.: in, of, or under, etc. this
Agreement (and not merely in, of, under, etc. the section or provision where
that reference appears)
"Illegality Event": defined in section 10.03.
"including": containing, embracing, or involving the enumerated
items(s), but not necessarily limited to such item(s).
"Indemnitee": Agent (individually and in its agency capacity) or a
Lender, or any agent (other than Finex Bank), employee, director, successor, or
permitted assign of any of the foregoing.
"Indebtedness": (a) total liabilities (as determined pursuant to
GAAP) of Borrower and its subsidiaries on a consolidated basis plus (b) any
debt of a Person that is not included in clause (a) above and that is
guaranteed by Borrower or one or more of its subsidiaries, plus (c) 70% of all
Operating Lease Obligations.
"Interest Expense": amounts paid by or due from Borrower for interest
accrued on Borrower's debts during the 12-month period preceding any fiscal
quarter end of Borrower, as determined pursuant to GAAP.
"Interest Payment Date" for a Note: each date occurring after the
Purchase Date for that Note that is a "180-day anniversary" of such Purchase
Date; except that, for purposes of payment and of determining the beginning and
end of each Interest Period (but not for the purpose of determining the
following Interest Payment Date), any Interest Payment Date), any Interest
Payment Date that falls on a day which is not a Business Day shall instead
occur on the following Business Day, unless payment on such Business Day would
cause such payment to be made in the next calendar month, in which case such
Interest Payment date shall occur on the preceding
6
<PAGE> 12
Business Day. For avoidance of doubt, the "180-day anniversary" of a date
shall be the 180th day after that date.
"Interest Period" for a Note: each period beginning on the day after
an Interest Payment Date for that Note (or, in the case of the first Interest
Period for that Note, beginning on its Purchase Date) and ending on the
following Interest Payment Date for that Note.
"Interest Supplement" for a Note during an Interest Period: (a) the
amount of principal of that Note outstanding during such Interest Period
multiplied by (b) the Borrower Interest Rate for such Interest Period minus the
Finex Interest Rate for that Note multiplied by (c) the actual number of days
in such Interest Period divided by 360; provided that if the Borrower Interest
Rate for such Interest Period is equal to or less than the Finex Interest Rate
for that Note, the Interest Supplement for that Interest Period shall be zero.
"Lender": First Atlanta or Bank of Tokyo, or a successor or assign
of either.
"Liabilities": defined ins section 9-01.
"Lien": any mortgage, pledge, assignment, encumbrance, lien
(statutory or other), or other security interest of any kind or nature
whatsoever (including any conditional sale or other title retention agreement,
or any lease in the nature thereof).
"Long-Term Certificate": a Certificate substantially in the form of
Exhibit K-1, or any loan certificate issued in exchange or replacement for such
Certificate.
"Majority Lenders": Lenders who, at the pertinent time, have a
66-2/3% or more interest in the sum of (x) all outstanding Certificates and (4)
the unused Commitments outstanding of all Lenders, excluding any Certificates
then held by, or in which a participation has been granted to, Borrower or any
affiliate of Borrower.
"Materially Adverse Change" or "Materially Adverse Effect": any
event, act, condition, or occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding) that, singly or in conjunction with any other event(s), act(s),
conditions(s), occurrence(s), whether or not related, results in a materially
adverse change in, or has a materially adverse effect upon, any of (a) the
financial condition, operations, business,
7
<PAGE> 13
properties or prospects of Borrower, (b) the rights and remedies of Agent or
any Lender under the Basic Documents, or Borrower's ability to perform its
obligations under the Basic Documents; or (c) the legality, validity, or
enforceability of any Basic Document.
"Medium-Term Certificate": a Certificate substantially in the form of
Exhibit K-2, or any loan certificate issued in exchange or replacement of such
Certificate.
"Mortgage": the Security Agreement and Chattel Mortgage between
Borrower and Agent, substantially in the form of Exhibit C.
"Mortgage Supplement": defined in section 3.01.
"Note": Borrower's promissory note, in the form of Exhibit A, issued
in connection with a designated Aircraft, or a note issued in exchange or
replacement for such a note.
"1988 Purchase Agreement": Purchase Agreement No. 162-COV/88
(including all attachments, exhibits, and letter agreements thereto) dated
November 21, 1988, between Vendor and Borrower.
"1990 Purchase Agreement": Purchase Agreement No. 154-DOC/AC/90
(including all attachments, exhibits, and letter agreements thereto) dated
August 27, 1990, between Vendor and Borrower.
"1990 10-K": Borrower's annual report on Form 10-K for the year
ended December 31, 1990.
"1990 10-Q": Borrower's quarterly report on Form 10-Q for the quarter
ended September 30, 1990.
"Officer's Certificate": a certificate signed in the name of Borrower
(or, with respect to section 6.04(c), of the Successor) by the chairman of the
board, the president, a vice president, or the treasurer of Borrower (or the
Successor).
"Operating Lease": a lease of tangible real or personal property,
other than a Capitalized Lease, requiring aggregate payments of $100,000 or
more during the fiscal year of the lessee.
"Operating Lease Obligations": the amount equal to the aggregate of
all scheduled lease payments (that will become due after any fiscal quarter end
of Borrower for purposes of the term "Indebtedness" as used in section 6.09(a),
but that were due during the 12-month period preceding any fiscal quarter end
of Borrower
8
<PAGE> 14
for purposes of section 6.09(b)) under the terms of all of Borrower's Operating
Leases.
"or": at lease one, but not necessarily only one, of the alternatives
enumerated.
"Participation Percentage": a particular Lender's Commitment as a
percentage of the total Commitment of Lenders, as set forth opposite such
Lender's name in section 2.01.
"Permitted Lessee": defined in the Mortgage.
"Permitted Lien": defined in the Mortgage.
"Person": any individual, corporation, partnership, joint venture, or
other legal or governmental entity.
"Prepayment Event": the occurrence of any of the following events
(with respect to the specific Aircraft involved in the case of clauses (a),
(b), (c), or (d) below):
(a) Borrower fails to keep each Aircraft registered with the FAA;
(b) Agent fails or cease to have a perfected first-priority
security interest in each Aircraft, except when the Note
relating to such Aircraft has been fully paid;
(c) a Lien, other than a Permitted Lien, on an Aircraft exits;
(d) Borrower fails to obtain an FAA standard airworthiness
certificate for an Aircraft within four weeks following the
Purchase Date for such Aircraft;
(e) the expiration of 120 days after a Change in Control, provided
that (subject to confidentiality requirements under the
securities laws) Borrower shall notify Agent as soon as it
becomes aware of an actual or impending Change in Control
event, and Agent, acting in good faith, will notify Borrower
promptly after Agent reaches a tentative conclusion that it
will exercise its rights under section 4.04 (and this
Prepayment Event shall be separate and distinct from and does
not affect the affirmative covenant regarding merger described
in section 6.04 hereof);
9
<PAGE> 15
(f) the expiration of 120 days after both (i) the Delta Agreement
is fundamentally amended or terminated (other than a
termination that is an Event of Default under section 8.01(d))
and (ii) Delta Air Lines, Inc. and its affiliates transfer all
or substantially all of their beneficial ownership of the
Borrower to a Person not affiliated with Delta Air Lines,
Inc., provided, that Borrower shall notify Agent as soon as
it becomes aware of any of the events described in (i) or
(ii), and Agent, acting in good faith, will notify Borrower
promptly after Agent reaches a tentative conclusion
that it will exercise its rights under section 4.04; or
(g) Borrower ceases to be an "air carrier" within the meaning of
the Act.
"Prime Rate": the interest rate so denominated and set by First
Atlanta from time to time as an interest rate basis for borrowings. The Prime
Rate is one of several interest rate bases used by First Atlanta. First
Atlanta lends at interest rates above and below the Prime Rate.
"Purchase Agreement": when used in connection with a specific
Aircraft or Equipment Portion, either the 1988 Purchase Agreement or the 1990
Purchase Agreement, depending on which agreement the Aircraft or Equipment
Portion was purchased under; when otherwise used, the 1988 Purchase Agreement
and 1990 Purchase Agreement, collectively.
"Purchase Agreement Assignment": a document by that name,
substantially in the form of Exhibit D, executed and delivered on a Purchase
Date with respect to the Aircraft then being delivered.
"Purchase Date": a date on which Borrower purchases an Aircraft and,
simultaneously, the Lenders purchase the related Certificates and Agent
purchases the related Note.
"Regulatory Change": any change after the date of this Agreement in
federal, state, or Japanese law or regulations or the adoption or making after
such date of any interpretations or directives applying to a class of banks
including any Lender of or under any federal, state, or Japanese law or
mandatory regulations by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Reuters Screen LIBO Page": the display designated as page "LIBO" on
the Reuter Monitor Money Rates Service (or such other
10
<PAGE> 16
page as may replace the LIBO Page on that service for the purpose of displaying
London interbank offered rates for Dollar deposits).
"SEC Filings": the 1990 10-K and the 1990 10-Q.
"Secured Obligations": defined in section 1.01 of the Mortgage.
"Series of Certificates": the Certificates issued in connection with
an Aircraft, or (if the context so requires) two or more Aircraft.
"Short-Term Certificate": a Certificate substantially in the form of
Exhibit K-3, or any loan certificate issued in exchange or replacement for such
Certificate.
"Spare Parts": the appliances, spare parts, and other items of
equipment purchased with the Aircraft under the Purchase Agreement.
"Successor": defined in section 6.04(a).
"Tangible Net Worth": defined in section 6.09.
"Taxes": defined in the last sentence of section 9.02(a).
"Taxing Authorities": defined in the first sentence of section
9.02(a).
"Vendor": Embraer.
Section 1.02 -- Use of Defined Terms. Any defined term used in the
plural preceded by "the" encompasses all members of the relevant class. Any
defined term used in the singular preceded by "any" indicates any number of the
members of the relevant class. Any agreement or instrument referred to in
section 1.01 means such agreement or instrument as from time to time
supplemented and amended. A definition in singular form applies to the plural
form of the term, and vice versa.
Section 1.03 -- Section and Exhibit References, etc.
References to Articles, sections, exhibits, and the like refer to those in or
attached to this Agreement unless otherwise specified.
Article II
PURCHASE OF NOTES AND CERTIFICATES; PAYMENTS
11
<PAGE> 17
Section 2.01 -- Purchase of Notes and Certificates. Subject to the
satisfaction of the conditions precedent set forth in Article VII, and on the
terms and conditions set forth in this Article II, on the Purchase Date for
each Aircraft, (i) Borrower shall issue the related Note to Vendor (who will
simultaneously sell that Note to Finex Bank), (ii) Agent shall purchase that
Note from Finex Bank, (iii) First Atlanta will purchase from Agent a Long-Term
Certificate, equal in face amount to 50% of the related Note, Term Certificate,
equal in face amount to 50% of the related Note, and (iv) Bank of Tokyo will
purchase from Agent a Medium-Term Certificate and a Short-Term Certificate,
each equal in face amount to 25% of the related Note. The Financed Amount for
each Aircraft shall be 85% of the Equipment Cost for the related Equipment
Portion, so that the total Equipment Cost for such Aircraft shall be paid 15%
by Borrower and 85% by the related Note, provided, that the Financed Amount for
the first Aircraft financed under this Agreement shall not exceed 85% of
$6,400,000 (and Borrower shall pay 100% of Equipment Cost in excess of
$6,400,000) and that the 100% of Equipment Cost in excess of $6,400,000) and
that the Financed Amount for the other Aircraft shall not exceed 85% of
$6,200,000 (and Borrower shall pay 100% of Equipment Cost for any such Aircraft
in excess of $6,200,000). Each Note and each Series of Certificates shall be
purchased for its face amount, and the total face amount of each Series of
Certificates, and the face amount of each Note, each shall equal the Financed
Amount for the related Aircraft. Each Lender's Commitment, pro rata share of
such Financed Amount in accordance with its Participation Percentage, and pro
rata share of Equipment Cost (x) for the first Aircraft financed under this
Agreement shall be as set forth below:
<TABLE>
<CAPTION>
Commitment for Participation Percentage of
Name of Lender First Aircraft Percentage Equipment Cost
- - ------------- -------------- ---------- --------------
<S> <C> <C> <C>
Bank of Tokyo $2,720,000.00 50% 42.5%
First Atlanta $2,720,000.00 50% 42.5%
</TABLE>
and, (y) for each other Aircraft shall be as set forth below:
<TABLE>
<CAPTION>
Commitment Participation Percentage of
Name of Lender Per Aircraft Percentage Equipment Cost
- - ------------- -------------- ------------- --------------
<S> <C> <C> <C>
Bank of Tokyo $2,635,000.00 50% 42.5
First Atlanta $2,635,000.00 50% 42.5%
</TABLE>
Agent's and each Lender's Commitment shall expire at 3:00 p.m., Atlanta,
Georgia time, on the last day of the Commitment Period.
12
<PAGE> 18
Section 2.02 -- Procedure for Purchase of Notes and Certificates. The
procedure to be followed in the purchase of Notes and Certificates is described
in Annex A. Neither Agent nor any Lender shall have any duty to pay the pro
rata share of the Financed Amount on any Purchase Date for any Lender who fails
to provide its pro rata share of such Financed Amount. At Agent's offices at 2
Peachtree Street, N.W., Atlanta, Georgia 30383 (or such other location as
Agent shall designate in writing), not later than 2:00 p.m. (Atlanta, Georgia
time) on the appropriate Purchase Date, upon fulfillment of the conditions set
forth in Article VII and compliance with the procedures set forth in Annex A,
Agent will purchase from Finex Bank (who will have purchased such Note
simultaneously from Vendor) the Note related to the Aircraft that Borrower
purchased on that date, and each Lender will purchase from Agent the
appropriate related Certificate(s), in each case for a purchase price equal to
the face amount thereof (as set forth in section 2.01).
Section 2.03 -- Commitment Fee. In partial consideration of the
Lenders' agreement to fund Agent's purchase of the Notes, Borrower shall pay to
Agent, for the benefit of the Lenders, a Commitment Fee ("Commitment Fee")
during the Commitment Period, payable in arrears on the first day of each
quarter or partial quarter (for the prior quarter or partial quarter) after the
execution and delivery of this Agreement, with a final payment on the last day
of the Commitment Period, and computed at a rate per annum (calculated on the
basis of a 360-day year and actual days elapsed) of 0.25% of the average daily
unused portion of the Lenders' Commitment. The term "quarter" as used in this
section shall mean the relevant calendar quarter ending on one of the following
dates: March 31, June 30, September 30, or December 31.
Section 2.04 -- Facility Fee. In partial consideration of the
Lenders' agreement to finance the Aircraft pursuant to this Agreement, Borrower
shall pay to Agent, for the benefit of the Lenders, a fee ("Facility Fee") of
$13,281.25 (.0625% of the Commitment) within three days after the date of the
execution of this Agreement.
Section 2.05 -- Payments by Agent. Agent shall hold and disburse all
amounts that it receives under the Basic Documents in accordance with the terms
of this Agreement, including Article XII.
Article III
SECURITY FOR BORROWER'S OBLIGATIONS
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Section 3.01 -- Security Interest in Collateral. To secure Borrower's
obligations to Agent (in its individual and agency capacities) and the Lenders
under each Note and the other Basic Documents to which Borrower is or becomes a
party, Borrower shall execute and deliver to Agent, on each Purchase Date, a
supplement to the Mortgage (a "Mortgage Supplement"), substantially in the form
of Schedule A to the Mortgage, granting to Agent, for the benefit of Agent (in
its individual and agency capacities) and the Lenders, a perfected purchase
money security interest in the Aircraft being purchased from Vendor on such
Purchase Date.
Section 3.02 -- Set-Off Rights. If Borrower becomes insolvent, or any
Event of Default occurs, any indebtedness that any Lender then owes to Borrower
and any other property of Borrower that any Lender then holds may be offset and
applied toward the payment of any principal of or interest on any Note to the
extent of such Lender's beneficial interest therein represented by
Certificate(s), or any obligation of Borrower to such Lender under the Basic
Documents, whether or not any such other obligation is then due. Any Lender
exercising its rights under this section shall promptly notify Borrower and
Agent thereof, provided, that such Lender's failure to give such notice shall
not affect the validity thereof. Each Lender agrees that if it shall obtain
payment, pursuant to the exercise of its rights under this section, of a
proportion of Borrower's aggregate indebtedness to it hereunder and under the
Notes beneficially owned by such Lender which is greater than such Lender's
proportion of the aggregate indebtedness hereunder and under the Notes
beneficially owned by it, (a) it shall simultaneously purchase from any other
Lender for cash an interest in such indebtedness beneficially held by such
other Lender so that the aggregate unpaid amount of such indebtedness and
interest thereon beneficially held by each such Lender shall be proportionate
to the aggregate unpaid amount of such indebtedness and interest thereon
beneficially held by each such Lender shall be proportionate to the aggregate
unpaid indebtedness beneficially owing to it by Borrower immediately before
such payment and (b) such other adjustments shall be made from time to time as
shall be equitable to ensure that each Lender shares such payment pro rata in
accordance with the principal outstanding under the Certificates which it has
purchased hereunder; provided, that if all or any portion of such payment is
thereafter recovered from such purchasing Lender, the purchase shall be
rescinded and the purchasing Lender restored to the extent of such recovery,
but without interest; provided further, that nothing in this section shall in
any way affect the right of any Lender to obtain payment of indebtedness other
than indebtedness hereunder or under the Notes or Certificates. Borrower
consents to the foregoing arrangements and participation in Borrower's
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indebtedness may, to the extent permitted by applicable law, exercise any and
all rights of set-off as fully as if such holder were a beneficial holder of
such indebtedness in the amount of such interest or other participation. If,
under any bankruptcy, insolvency, or other similar law, any Lender receives a
secured claim in lieu of a set-off to which this section 3.02 applies, such
Lender shall, to the extent practicable, exercise its rights in respect to such
secured claim in a manner consistent with the rights of the Lenders entitled
under this section 3.02 to share in the benefits of any recovery on such
secured claim.
Article IV
PAYMENTS UNDER THE NOTES
AND OTHER AMOUNTS PAYABLE BY BORROWER
Section 4.01 -- How Payments Are Made. Borrower shall make its
payments and prepayments of principal and interest due on the Notes, all
amounts due as Interest Supplements or as Commitment Fees or a Facility Fee
hereunder, and all other amounts payable by Borrower to Agent or any Lender
under the Basic Documents, to Agent, (ABA # 0610-0001-0) at 2 Peachtree
Street, N.W., Atlanta, Georgia 30382, for credit to account no. 17069749,
Reference: Atlantic Southeast Airlines/Georgia Corporate Division (or at such
other place or account as Agent from time to time notifies Borrower), in
immediately available funds and in Dollars, no later than 12:00 noon (Atlanta,
Georgia time) on the date when due. In addition to the payments that Borrower
is obligated to make under each Note, Borrower agrees to pay to Agent, on each
Interest Payment Date, the Interest Supplement for each Note for the Interest
Period then ending. Any payment made by Borrower to Agent after 12:00 noon
(Atlanta, Georgia time) on any day shall be deemed to have been made on the
following Business Day. If any payment due under the Basic Documents comes due
on a day which is not a Business Day, such payment shall instead be made on the
following Business Day, and interest, Interest Supplements, or Commitment Fees,
as the case may be, shall accrue at the applicable rate to the day of payment.
As between Borrower and the Lenders, any payment made to Agent shall be deemed
to be payment to the Lenders. Agent will distribute to each Lender its
distributable share of each such payment in accordance with Article XII hereof.
Section 4.02 -- Right to Prepay. Unless a Default exists, Borrower
shall have the right to prepay in full (but not in part) the outstanding
principal amount of the Note issued with respect to any designated Aircraft,
without premium or penalty, and upon such prepayment pursuant to this section,
Agent shall prepay in full the
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Certificates issued with respect to such Aircraft in the manner set forth in
Article XII hereof. Any prepayment under this section 4.02 of the Note issued
with respect to a designated Aircraft shall be made only on an Interest Payment
Date for such Note, and Borrower shall give to Agent (which Agent agrees to
relay promptly to each Lender) at least 15 days' prior written notice (which
notice shall be irrevocable) of such prepayment. Upon any prepayment of any
Note under this section 4.02, Borrower shall pay all accrued and unpaid
interest on the principal of such Note to the date of prepayment, together with
all other amounts payable under section 10.02 with respect to such prepayment.
Section 4.03 -- Mandatory Prepayments. Following the occurrence of an
Event of Loss with respect to any Aircraft, Borrower shall prepay the Note
executed in connection with that Aircraft, in accordance with section 7.01 of
the Mortgage, and shall pay all other amounts payable under section 10.02 with
respect to such prepayment. Upon acceleration of the Notes pursuant to section
8.02, Borrower shall prepay such Notes, and shall pay all other amounts payable
under section 10.02 with respect to such prepayment.
Section 4.04 -- Mandatory Purchase. Upon the occurrence of a
Prepayment Event, Agent shall have the right to require Borrower to purchase or
cause the purchase of (x) in the case of a Prepayment Event described in
clauses (a) through (d) of the definition of such term in section 1.01, the
Series of Certificates related to the Aircraft to which such Prepayment Event
relates and (y) in the case of any other Prepayment Event, all outstanding
Certificates, in either case, for a purchase price equal to (a) the cumulative
then-outstanding principal amount of such Series of Certificates, plus all
accrued but unpaid interest on such Series of Certificates to the date of such
purchase, plus (b) all amounts payable under section 10.02 with respect to such
purchase. The payment described in the preceding sentence and the payment
described in section 4.07 shall be due 10 days after Agent notifies Borrower
that a Prepayment Event has occurred (if that Prepayment Event has not been
cured by then), and shall be made in the manner prescribed by section 4.01.
Upon such a purchase of a Series of Certificates, Agent shall endorse the
related Note in favor of the purchaser and deliver it to such purchaser.
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Section 4.05 -- Amount of Prepayment. Subject to section 4.07, a Note
shall be deemed satisfied in full upon the prepayment of all principal of such
Note, the payment of the interest due on or with respect to such Note on such
prepayment date, the payment pf all past-due interest on or with respect to
such Note, and the payment of all amounts payable under section 10.02 with
respect to such prepayment.
Section 4.06 -- Interest on Past Due Amounts. Any amounts past due
(by acceleration or otherwise) and at any time outstanding under any Note or
from Borrower under any other Basic Document shall (to the extent permitted by
law) bear interest, payable on demand, from the due date until payment in full,
at a rate equal to 2% per annum above the Prime Rate.
Section 4.07 -- Payment of Accrued Interest Supplements. Upon the
occurrence of the prepayment or mandatory purchase of a Note under section
4.02, 4.03, or 4.04, Borrower shall pay to Agent, for the benefit of the
Lenders, all past due Interest Supplements, and any accrued portion of an
Interest Supplement, relating to such Note, with interest on past-due Interest
Supplements computed in accordance with section 4.06.
Section 4.08 -- Reduction in Net Interest Payable by Borrower. If the
Finex Interest Rate for a Note exceeds the Borrower Interest Rate for an
Interest Period for that Note, the amount of interest due from Borrower under
that Note for such Interest Period shall be automatically reduced by an amount
equal to (a) the amount of principal of that Note outstanding during such
Interest Period multiplied by (b) the Finex Interest Rate for that Note minus
the Borrower Interest Rate for such Interest Period multiplied by (c) the
actual number of days in such Interest Period divided by 360.
Article V
BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
Section 5.01 -- Corporate Standing. Borrower is a duly organized
corporation existing in good standing under the laws of Georgia, has the
corporate power and legal authority to own or lease its properties and to carry
on its business as now conducted and as now proposed to be conducted, and is
duly qualified to do business in all jurisdictions wherein such qualification
is necessary (except in any jurisdictions in which the failure to qualify would
have no materially adverse effect on its business or
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on its ability to carry out its obligations under the Basic Documents to which
it is (or is to become) a party).
Section 5.02 -- Corporate Powers. Borrower's execution, delivery, and
performance of the Basic Documents to which it is (or is to become) a party are
within Borrower's corporate powers; and the Basic Documents to which it is (or
is to become) a party have been duly authorized by all necessary corporate
action on Borrower's part, and do not contravene, result in a breach of, or
require any consent under any law, judgment, decree, order, or contractual
restriction binding on Borrower or any agreement or instrument to which
Borrower is a party or to which it or any of its property is subject, except
that the legality and validity of each Purchase Agreement Assignment is subject
to the execution and delivery of the related Consent.
Section 5.03 -- Binding Effect. The Basic Documents to which Borrower
is (or is to become) a party are (or will be when executed and delivered)
legal, valid, and binding obligations of Borrower enforceable against Borrower
in accordance with their terms, except as may be limited by bankruptcy,
insolvency, or other similar laws affecting enforcement of creditors' rights
generally.
Section 5.04 -- Litigation. Except as disclosed in the SEC Filings,
there are no pending or (to the best of Borrower's knowledge after due inquiry)
threatened actions or proceedings before any court or administrative agency
which may be expected to have a Materially Adverse Effect or which seek to
question or set aside any of the transactions herein contemplated.
Section 5.05 -- Financial Statements. The audited balance sheet as of
December 31, 1990 and unaudited balance sheet as of September 30, 1990 for
Borrower and its consolidated subsidiaries, and the related results of
operations for the year and quarter then ended, have been prepared in
accordance with GAAP and correctly present Borrower's financial condition as of
such dates and results of operations for such periods, and since December 31,
1990, there has been no Materially Adverse Change.
Section 5.06 -- Taxes. Borrower has filed all tax returns which it is
or was required to file, and has paid all taxes shown to be due and payable on
those returns or on any assessment received by it, except such taxes of
Borrower, if any, as are being contested diligently in good faith, and by
appropriate proceedings, and as to which adequate reserves have been provided
in accordance with GAAP.
Section 5.07 -- Status as United States Citizen and Air Carrier.
Borrower is a "citizen of the United States" as that term is used in section
1010(16) of the Act, and is a duly certified "air carrier" within the meaning
of the Act.
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Section 5.08 -- Location of Offices. Borrower's chief executive
office and principal place of business, and the place where Borrower keeps its
financial records concerning the Collateral, is located at its address referred
to in section 13.02.
Section 5.09 -- Governmental Consents. Neither the execution,
delivery, and performance of any of the Basic Documents (other than the Finex
Agreement), nor the consummation of any of the transactions contemplated
thereby by Borrower or Vendor (including the importation of the Aircraft into
the United States from Brazil), requires the consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
federal, state, or foreign governmental authority or agency (including any
judicial body) except for (a) the filing and recording of the Mortgage, and of
the FAA bill of sale, the FAA application for registration, and the Mortgage
Supplement for each Aircraft with the FAA: (b) the filing and recording of
UCC-1 financing statements for each Aircraft with the Superior Court Clerk
Offices in Bibb, Clayton, and Fulton County, Georgia, and in the appropriate
places in Texas and Arkansas; (c) the registration of each Aircraft with the
FAA pursuant to the Act; (d) the filing of any necessary documents with customs
officials; and (e) any necessary action with respect to the Finex Program.
Section 5.10 -- Condition of Aircraft. On each Purchase Date, the
Aircraft to be delivered on such Purchase Date shall be in such condition as is
sufficient to enable Borrower to obtain a standard U.S. certificate of
airworthiness for such Aircraft and to enable such airworthiness certificate to
be maintained in good standing; and, to Borrower's knowledge (which shall be
based on acceptance tests by Borrower in accordance with it usual practices, to
the extent permitted under the Purchase Agreement), such Aircraft shall
otherwise conform in all material respects to the specifications for such
Aircraft set forth in the Purchase Agreement.
Section 5.11 -- Absence of ERISA Liability. Each employee pension
benefit plan (as defined in section 3(2) of the Employee Retirement Income
Security Act of 1974, as from time to time amended ("ERISA")) of Borrower is in
compliance with the applicable provisions of ERISA and of the Internal Revenue
Code of 1986, as from time to time amended, in all respects, except to the
extent that noncompliance would not be materially adverse to Borrower's
business, assets, financial condition, or ability to perform its obligations
under the Basic Documents.
Section 5.12 -- Delta Agreement. The Delta Agreement is (a) the only
agreement between Delta Air Lines, Inc. and Borrower relating to joint
marketing or code sharing for interconnecting
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flights, and (b) in full force and effect. There exists no default under the
terms of the Delta Agreement and there has not occurred any event that would
ripen into a default upon the giving of notice or passage of time.
Section 5.13 -- Subsidiaries; Stock Ownership. Borrower owns 100% of
the outstanding stock of ASA Investments, Inc. and Borrower has no material
stock or other equity investment in any other corporation, partnership, or
other Person.
Section 5.14 -- Investment Company Status. Borrower is not an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
Section 5.15 -- Solvency. Borrower (i) has sufficient capital to
carry on all businesses and transactions in which it engages or is about to
engage, (ii) owns property having a value both at fair valuation and at present
fair salable value greater than the amount required to pay Borrower's debts,
(iii) is solvent, (iv) will continue to be solvent after the creation of the
security interests in the Collateral by the Basic Documents, and after assuming
all obligations related to the Basic Documents, and (v) is able to pay its
debts as they mature.
Article VI
AFFIRMATIVE COVENANTS
So long as any Note, or any amount owed by Borrower under any other
Basic Document, remains outstanding or unpaid or Agent or any Lender has any
Commitment hereunder:
Section 6.01 -- Financial Statements. Borrower shall furnish to Agent
and each Lender:
(a) within 45 days after the end of each of the first
three quarters in each fiscal year, consolidated statements of
operations of Borrower and its consolidated subsidiaries for the
period from the beginning of the then-current fiscal year to the end
of such quarterly period, and balance sheets of Borrower and its
consolidated subsidiaries, on a consolidated basis, as of the end of
such quarter prepared in accordance with GAAP and setting forth in
each case in comparative form figures for the corresponding period in
the preceding year, all in reasonable detail and certified by the
Chief Financial Officer of Borrower, subject to changes resulting from
year-end adjustments, and Borrower's Form 10-Q for such period;
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(b) within 90 days after the end of each fiscal year,
consolidated statements of operations of Borrower and its consolidated
subsidiaries, for such year, and the balance sheets of Borrower and
its consolidated subsidiaries, on a consolidated basis, as of the end
of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in
reasonable detail, and certified to Borrower by its independent
certified public accountants and to each Lender by Borrower's Chief
Financial Officer, as presenting fairly the financial position and
results of operations of Borrower and its consolidated subsidiaries
and as having been prepared in accordance with GAAP, and Borrower's
Form 10-K for such period;
(c) within two Business Days after any officer of
Borrower obtains knowledge of any Default, an Officer's Certificate
specifying its nature, the period of its existence, and what action
Borrower proposes to take with respect to it; and
(d) promptly upon request, such other data or information
(financial or otherwise) regarding Borrower or the Collateral as Agent
from time to time reasonably requests.
Section 6.02 -- Inspection of Collateral and Records. Borrower shall
permit any person(s) from time to time designated in writing by Agent, at the
Lenders' expense (or at Borrower's expense if a Default exists at the time), to
visit and inspect any of the Collateral and Borrower's (or any Permitted
Lessee's) records with respect to the Collateral, at such times as Agent
reasonably requests, and to discuss Borrower's affairs, finances, and accounts
with Borrower's officers. No such inspection shall unreasonably interfere with
Borrower's (or any Permitted Lessee's) operations or maintenance. The Lenders
and Agent shall have no duty to make any such inspection and shall not incur
any liability or obligation by reason of not making any such inspection. Upon
Agent's request, Borrower shall promptly notify Agent of the maintenance
operations then scheduled on the Aircraft for the six-month period following
such request.
Section 6.03 -- Corporate Existence. Except as permitted by section
6.04, Borrower shall maintain its corporate existence in good standing in the
state of its incorporation and in all jurisdictions where qualification is then
necessary (except in any jurisdiction in which the failure to qualify would
have no materially adverse effect on its business or on its ability to carry
out its obligations under the Basic Documents to which it is (or is to become)
a party). Borrower shall preserve and renew its
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rights (charter and statutory), patents, and franchises, unless Borrower
determines in good faith that the preservation thereof is no longer necessary
or desirable in the conduct of its business and that the loss thereof will not
adversely affect Agent's or the Lenders' rights or Borrower's business, assets,
operations, condition (financial or otherwise).
Section 6.04 -- Merger, etc. Without limiting the requirements
regarding mandatory purchase of Certificates contained in Section 4.04 hereof,
Borrower shall not consolidate with or merge into any other corporation, or
convey, transfer, or lease all or substantially all of its assets as an
entirety to any Person, unless:
(a) the corporation formed by such consolidation or the
Person who acquires by conveyance, transfer, or lease all or
substantially all of Borrower's assets as an entirety (the
"Successor") or, in the case of a merger, Borrower (as the surviving
corporation), (i) is a corporation organized and existing under the
laws of the United States of America or any state or the District of
Columbia, (ii) is a "citizen of the United States" as defined in
section 101(16) of the Act, and (iii) is an air carrier (within the
meaning of section 101(3) of the Act) certificated under section
604(b) of the Act; and, in the case of such a consolidation,
conveyance, transfer, or lease, the Successor, (x) executes and
delivers to Agent and the Lenders an agreement, in form and substance
satisfactory to Majority Lenders containing an assumption by the
Successor of the due and punctual performance and observance of
Borrower's obligations under the Basic Documents to which Borrower is
then a party, and (y) makes such filings and recordings, including any
filing or recording with the FAA pursuant to the Act or any filing
under the UCC, as are necessary to evidence such consolidation,
merger, conveyance, transfer, or lease with or to the Successor;
(b) immediately after giving effect to such transaction, (i)
no Default exists and (ii) Borrower's or the Successor's, as the
case may be, business, assets, operations, condition (financial
or otherwise), and financial and other ability to perform its
obligations under the Basic Documents will not be adversely affected
by such transaction in any material respect; and
(c) Borrower or the Successor delivers to Agent and each
Lender, promptly upon consummation of such transaction, an Officer's
Certificate stating that the conditions precedent set forth in clause
(a) have been complied with and an opinion
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of counsel for Borrower or for the Successor, in form and
substance satisfactory to Majority Lenders, stating that the
agreements entered into to effect such consolidation, merger,
conveyance, transfer, or lease and such assumption agreements have
been duly authorized, executed, and delivered by the Successor (or in
the case of a merger, by Borrower) and that they (and the Basic
Documents so assumed) constitute legal, valid an binding obligations
of the Successor (or in the case of a merger, of Borrower),
enforceable in accordance with their terms (to the same extent as the
Basic Documents so assumed were enforceable against Borrower
immediately prior to such transaction); and that all conditions
precedent which are legal in nature provided for in this Agreement and
relating to such transaction have been fulfilled.
Upon any such consolidation, conveyance, transfer, or lease, the
Successor shall succeed to, shall be substituted for, and may exercise every
right and power of Borrower under the Basic Documents to which Borrower is a
party, with the same effect as if the successor had been named as Borrower
therein. No such conveyance, transfer, or lease of substantially all
Borrower's assets as an entirety shall have the effect of releasing Borrower
(or any Successor) from its liability under the Basic Document to which it is a
party. Nothing in this section shall permit any lease, sublease, or other
arrangement for the use, operation, or possession of the Aircraft except in
compliance with the applicable provisions of this Agreement and the Mortgage.
Section 6.05 -- Citizenship and Air Carrier Status. Borrower will at
all times remain a "citizen of the United States" as defined in section 101(16)
of the Act and an "air carrier" within the meaning of the Act.
Section 6.06 -- Compliance with ERISA.
(a) Borrower will, at all times, make prompt payment of
contributions that it is required to make to any employee benefit plan
to which it is a party as are necessary to meet the minimum funding
standards for such an employee benefit plan, as required by ERISA.
(b) Within two Business Days after the occurrence of any
event or circumstance, including any event which is classified as a
"Reportable Event" under ERISA, in connection with any employee
benefit plan to which it is a party, that might constitute grounds for
termination of an employee benefit plan to which Borrower is a party
by the Pension Benefit Guaranty Corporation or might result in the
appointment of a trustee by a United States District Court under
section 4042 of ERISA to administer such employee benefit plan,
Borrower will provide Agent and each Lender with an Officer's
Certificate describing the event or circumstance, stating the reasons
for any such action by the Pension Benefit Guaranty Corporation or a
United States District Court, and specifying the action Borrower
proposes to take with respect thereto.
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Section 6.07 -- Disposition of Assets. Borrower will not dispose of
any of its assets, other than in the ordinary course of its business, unless it
receives full, fair, and reasonable consideration for such assets; and Borrower
will not during any twelve-month period dispose of assets, other than in the
ordinary course of its business, which have an aggregate book value in excess
of $5,000,000; provided, that Borrower shall have the right to dispose of any
aircraft for at least such aircraft's book value and such sale of an aircraft
for at least book value will not be included in the calculation of the
$5,000,000 of assets sold in a twelve-month period. The book value of an
aircraft shall be determined in accordance with GAAP. For avoidance of doubt,
the "ordinary course" of Borrower's business generally shall include (x)
acquisitions or dispositions of marketable securities (other than acquisitions
or dispositions exceeding 5% of any class of "equity security", as defined in
the Securities Exchange Act of 1934) and (y) the disposition of parts of
discontinued aircraft, engines, or propellers not constituting part of a
program to reduce Borrower's fleet in any material respect.
Section 6.08 -- Performance of Delta Agreement. Borrower shall
faithfully perform all obligations it has under the Delta Agreement.
Section 6.09 -- Financial Covenants.
(a) Borrower shall not permit at any fiscal quarter end
of Borrower on a consolidated basis (consolidating Borrower and its
subsidiaries) its ratio of Indebtedness to Tangible Net Worth to
exceed 3.25 to 1. "Tangible Net Worth" shall mean Book Net Worth
minus (a) the amount, if any, of Borrower's and its subsidiaries'
assets which would be treated as intangibles under generally accepted
accounting principles, (b) any write-up in the book value of any fixed
asset resulting from a revaluation thereof, and (c) the amount, if
any, at which shares of stock of Borrower appear on the asset side of
the Borrower's balance sheet. "Book Net Worth" shall mean the book
value of Borrower's and its subsidiaries' total assets located in the
United States of America (exclusive) of an indebtedness owed to
Borrower or its subsidiaries by any affiliate of Borrower) minus
Borrower's and its subsidiaries' total liabilities. For avoidance of
doubt, the phrase "total assets located in the United States of
America" shall include marketable securities and commercial paper
issued by a foreign entity but held in the United States of America by
Borrower or any of its subsidiaries.
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(b) Borrower shall not permit at any fiscal quarter end
of Borrower, on a consolidated basis (consolidating Borrower and its
consolidated subsidiaries), its ratio of (i) Earnings Before Tax plus
Interest Expense plus Depreciation and Amortization Expense plus
Operating Lease Obligations to (ii) Interest Expense plus Current
Maturities of Long-Term Debt plus Operating Lease Obligations, to be
less than 1.55 to 1.
Section 6.10 -- Certificate of No Default. Along with Borrower's
delivery of the quarterly financial statements and annual financial statements
required by sections 6.01(a) and 6.01(b), Borrower shall furnish to each Lender
a certificate of Borrower's Chief Financial Officer certifying that to the best
of his or her knowledge no Default exists (or, if a Default does exist, a
statement as to its nature and the action that Borrower proposes to take with
respect to it.
Section 6.11 -- Insurance on Fleet. Borrower will at all times
maintain, with insurers of recognized responsibility, insurance on each
aircraft in its fleet substantially similar (as to type, amounts, and risks
covered) to the insurance Borrower is required to maintain on the Aircraft
under the terms of sections 6.01 and 6.05 of the Mortgage, provided, that
Borrower shall not be required to carry hull insurance for any aircraft (other
than an Aircraft) that has a fair market value of less than $1,000,000.
Article VII
CONDITIONS PRECEDENT TO THE PURCHASE OF NOTES
Section 7.01 -- Conditions Precedent to the Purchase of the Initial
Note. Each Lender's obligation and Agent's obligation to purchase the initial
Series of Certificates and the initial Note on the first Purchase Date are
subject to the satisfaction of the following conditions precedent and Agent's
receipt on or before such initial Purchase Date of the following, in form and
substance satisfactory to Agent:
(a) a certificate of Borrower's secretary, dated the
Purchase Date, certifying attached copies of the resolutions of
Borrower's board of directors evidencing approval of the
transactions contemplated by the Basic Documents to which it is (or is
to become) a party, and showing the names and specimen signature(s)
(or copies thereof) of Borrower's officer(s) authorized to sign this
Agreement and the related documents to which it is (or is to become) a
party.
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(b) an executed Finex Agreement,
(c) an executed Mortgage,
(d) an executed Guarantee,
(e) an Officer's Certificate certifying attached copies
of the 1990 Purchase Agreement and the 1990 Purchase
Agreement, and
(f) copies of the SEC Filings,
In addition, Borrower's obligation to close on the first Purchase Date
is subject to its receipt of an executed letter agreement among Borrower, the
Lenders, and Agent, in form and substance satisfactory to each, concerning
sections 4.02(d)(i) and 6.05 of the Mortgage, and concerning the availability
of the Finex Program and potential future changes in the terms of the Finex
Agreement.
Section 7.02 -- Conditions Precedent to the Purchase of All Notes.
Each Lender's obligation and Agent's obligation to purchase each Series of
Certificates and each related Note (including the initial Series of
Certificates and the initial Note) is subject to the additional conditions
precedent that:
(a) Agent shall have received the following, each dated
as of the pertinent Purchase Date, in form and substance satisfactory
to Agent:
(i) the Note for the relevant Aircraft, executed
by Borrower and endorsed by Vendor (without recourse) to the
order of Finex Bank who in turn has endorsed (without
recourse) to the order of Agent,
(ii) an executed Mortgage Supplement with respect
to the relevant Aircraft,
(iii) an executed Purchase Agreement Assignment,
with the related executed Consent, with respect to the
relevant Aircraft,
(iv) an Officer's Certificate to the effect that:
(1) Borrower's representations and warranties in Article V of
this Agreement and section 6 of the relevant Purchase
Agreement Assignment are true and accurate as though made on
the Purchase Date, and (2) no Default exists or will result
from Agent's purchase of such Note,
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(v) a certificate of insurance describing the
insurance describing the insurance maintained by Borrower with
respect to the Aircraft being purchased and stating that such
policies conform to the requirements of the Mortgage,
(vi) an opinion from Borrower's counsel
substantially in the form of Exhibit F,
(vii) an opinion from Crowe & Dunlevy, special FAA
counsel, substantially in the form of Exhibit G, covering the
Aircraft that is the subject of the Note being purchased,
(viii) an opinion of counsel to Embraer,
substantially in the form of Exhibit H,
(ix) an opinion of Brazilian counsel
substantially in the form of Exhibit I, and
(x) such additional opinion(s) (including, if
requested, from Trotter Smith & Jacobs) and document(s) as
Agent requests.
(b) Agent shall have received copies of the necessary FAA
Application for Aircraft Registration and FAA Bill of Sale pertaining
to the Aircraft being purchased;
(c) Borrower's representations and warranties in the
Basic Documents shall be true and accurate as though made on and as of
such Purchase Date;
(d) no Default shall exist or shall result from Agent's
purchase of such Note;
(e) all filings, recordings, and other actions necessary
to establish, protect, preserve, and perfect Agent's and the Lenders'
interests under the Mortgage shall have been duly made or taken;
(f) all necessary consents, approvals, licenses, permits,
declarations, or registrations then required in connection with the
execution, delivery, performance, validity, and enforceability of the
Basic Documents and the transactions contemplated thereby shall have
been obtained;
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(g) Agent shall have received a copy of the approval of
the application for coverage of the purchase of the Aircraft by the
Finex Program;
(h) in Agent's reasonable judgment, since December 31,
1990, no Materially Adverse Change shall have occurred;
(i) each Lender shall have made available the amount of
its Participations Percentage of the Financed Amount for the relevant
Aircraft in accordance with Article II hereof; and
(j) each Lender shall have received (c/o Trotter Smith &
Jacobs) the following, each dated as of the pertinent Purchase Date,
in form and substance reasonably satisfactory to each Lender;
(i) the Certificate(s) issuable to it with
respect to the relevant Aircraft, duly executed by Agent, and
(ii) an executed copy of each document referred
to in section 7.02(a)(ii) through (x).
Article VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.01 -- Events of Default. Each of the following shall
constitute an "Event of Default":
(a) Borrower fails to make any payment due from Borrower
on any Note or under any other Basic Document (including any Interest
Supplement and any amount due under section 4.04 hereof) when due;
(b) any representation or warranty made by Borrower in
the Basic Documents, or in any certificate or other document that it
furnishes pursuant to the Basic Documents, proves to have been
incorrect in any material respect when made;
(c) Borrower fails to maintain the insurance required by
the terms of the Mortgage;
(d) the Delta Agreement is voluntarily terminated by
Borrower, or is amended to the detriment of Borrower (this Event of
Default being separate and distinct from and not affect the Prepayment
Event relating to the Delta Agreement
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described in clause (f) of the definition of "Prepayment Event");
(e) Borrower fails to provide Agent and each Lender with
the Officer's Certificate required by section 6.01(c) or 6.06(b)
within 10 days after any of Borrower's officers obtains notice of a
Default or the ERISA-related event or circumstance occurs,
respectively;
(f) Borrower fails in any material respect to perform any
other covenant or agreement in the Basic Documents (including section
6.09 hereof), and (if remediable) such failure to perform continues
for 30 days after Borrower's receipt of notice of such default from
Agent or any Lender;
(g) Borrower (1) applies for or consents to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, or liquidator of itself or of all or a majority of its
property, (2) makes a general assignment for the benefit of its
creditors, (3) commences a voluntary case under the federal Bankruptcy
Code (as now or hereafter in effect), (4) files a petition seeking to
take advantage (as debtor) of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment
of debts, or (5) fails to controvert in a timely manner, or
acquiesces in writing to, any petition filed against it in an
involuntary case under the federal Bankruptcy Code;
(h) a proceeding or case is commenced, without Borrower's
application or consent, in any court of competent jurisdiction,
seeking (1) its liquidation, reorganization, dissolution, or
winding-up, or the composition or readjustment of its debts, (2) the
appointment of a trustee, receiver, custodian, liquidator, or the like
of Borrower or of all or a majority of all its assets, or (3) similar
relief in respect of Borrower under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment
of debts, and such proceeding or case continues undismissed, or an
order, judgment, or decree approving or ordering any of the foregoing
is entered and continues unstayed and in effect, for a period of 60
days; or an order for relief against Borrower is entered in an
involuntary case under the federal Bankruptcy Code;
(i) loan, lease, or deferred purchase obligations of
Borrower totalling more than $1 million are in default after the
expiration of any applicable grace period, if the effect of such
default is to permit such obligations to be
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accelerated or otherwise declared to be due and payable prior
to their stated maturity, or Borrower defaults in the payment when due
of more than $1 million of loan, lease, or deferred purchase
obligations, or Borrower defaults in the payment of any amount when
due under the terms of any financing with any Lender, provided such
financing was, at any time, for an amount in excess of $1 million;
(j) one or more judgment(s) is/are rendered by one or
more court(s) of competent jurisdiction against Borrower for a total
of more than $1 million and is/are not stayed or discharged, or fully
bonded against, within 60 days of the date of entry;
(k) any "Reportable Event" under ERISA shall have
occurred, or any finding or determination shall be made with respect
to an employee benefit plan to which Borrower is a party under section
4041(c) or (e) of ERISA, or any fact or circumstance shall occur with
respect to an employee benefit plan to which Borrower is a party,
that, in the opinion of Majority Lenders, provides grounds for
the commencement of any proceeding under section 4042 of ERISA, or any
proceeding shall be commenced under section 4042 of ERISA with respect
to an employee benefit plan to which Borrower is a party; or
(l) Borrower shall deny any further liability under any
Note or under any other Basic Document.
Section 8.02 -- Remedies. If an Event of Default (other than
under section 8.01 (g) or (h) exists, Agent may (and upon its receipt of
written request by Majority Lenders shall) declare all Notes to be immediately
due and payable, whereupon (i) all Notes shall become and be immediately due
and payable without presentment, demand, protest, or other notice of any kind,
all of which Borrower hereby waives, (ii) the Interest Supplement for any
partial Interest Period will become immediately due and payable, and (iii) the
Commitment shall terminate. If an Event of Default under section 8.01(g) or
(h) occurs, all Notes automatically shall become immediately due and payable
and the Commitment automatically shall immediately terminate, without
presentment, demand, protest, or notice of any kind, all of which Borrower
hereby waives. Upon the occurrence of any Event of Default, Agent may (and
upon its receipt of written request by Majority Lenders shall) exercise any of
its rights and remedies under the Basic Documents, including the Mortgage.
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Article IX
BORROWER'S INDEMNITIES
Section 9.01 -- General Indemnity. Borrower assumes liability for,
and agrees to indemnify each Indemnitee against, and on written demand to
pay, or to reimburse each Indemnitee for the payment of, any and all
liabilities.
"Liabilities" means any and all liabilities, obligations, losses,
damages, penalties, claims (including claims involving strict liability in
tort), suits, actions, costs, expenses, and disbursements, including legal fees
and expenses, of whatsoever kind and nature imposed on, incurred by, or
asserted against any Indemnitee relating to or arising out of any Basic
Document, the enforcement against Borrower of any of the terms of the Basic
Documents, or any lease or relinquishment of possession of the Aircraft or any
part thereof or any action or inaction of Borrower or of any lessee, assignee,
or transferee of Borrower in connection therewith, the purchase of the Aircraft
and the Spare Parts under the Purchase Agreement, the ownership of the
Aircraft, the acquisition, delivery, nondelivery, acceptance, nonacceptance,
rejection, registration, deregistration, insuring, storage, manufacture,
assembly, transportation, importation, exportation, maintenance, condition,
modification, testing, repair, fitness for use, merchantability, sale,
abandonment, lease, sublease, assignment, transfer, transfer of title,
possession, repossession, use, operation, return or other application or
disposition of the Aircraft and the Spare Parts or any component thereof, the
condition upon return thereof after repossession following the occurrence of an
Event of Default or following the exercise of remedies under the Mortgage,
including latent or other defects, whether or not discoverable, loss of or
damage to any property or the environment, death or injury of any person, and
any claim for patent, trademark, copyright, or mask work infringement and the
violation or infringement by Borrower of any laws, rules, or regulations, or
(without limiting any of the foregoing) any breach by Borrower of,
noncompliance by Borrower with, or misrepresentation made or deemed made by or
on behalf of Borrower in, under, or in connection with the Purchase Agreement
or an Purchase Agreement Assignment or any warranty, certificate, or agreement
made or delivered in, under, or in connection with the Purchase Agreement or
any Purchase Agreement Assignment without limiting the generality of the
foregoing, "Liabilities" shall in any event include any and all losses, damages
(including all foreseeable and unforeseeable consequential damages), costs,
claims, liabilities, penalties, fees, injuries, or expenses of whatever kind or
nature (including reasonable counsel fees and
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costs) that an Indemnitee sustains or incurs in connection with: any
Environmental Complaint, any Hazardous Substance release, disposal, recycling,
storage, handling, treatment or exposure, or response action) in connection
with or relating to (i) any property that Borrower or any of its affiliates now
or in the past or future shall own, operate or use, or (ii) any operations of
Borrower or any of its affiliates, whether such operations took place before or
after the date of this Agreement.
However, this section 9.01 shall not require Borrower to pay or
indemnify any Indemnitee under this section (i) for any Liability to the extent
resulting from such Indemnitee's acts of gross negligence or willful
misconduct; (ii) for any Taxes (Borrower's duties in respect of Taxes being set
forth in section 9.02) or for any cost or expense relating to the preparation,
execution, delivery, or enforcement of the Basic Documents (Borrower's duties
in respect of such costs and expenses being set forth in section 13.03); (iii)
for any Liability that such Indemnitee incurs to the extent resulting from its
breach of any of its representations, warranties, or covenants in any Basic
Document; (iv) for any Liability to the extent resulting from a claim against
such Indemnitee not related to (x) any Equipment Portion; (y) any action or
inaction of Borrower or any lessee, assignee, or transferee of Borrower, or (z)
any of the transactions contemplated by the Basic Document; (v) for any
Liability with respect to transfer taxes or other expenses payable with respect
to the transfer of any Note or any Certificate, other than a transfer after the
occurrence of an Event of Default; or (vi) for any violation or purported
violation of any law relating to usury or the charging or collecting of excess
interest or finance charges.
If any Indemnitee obtains knowledge of any claim or liability required
to be indemnified against under this section 9.01, such Indemnitee shall
promptly notify Borrower, but the failure to do so shall not relieve Borrower
from any liability that it otherwise would have to such Indemnitee under this
section. Upon an Indemnitee's request, the defense of any Liability for which
Borrower would be required to indemnify such Indemnitee hereunder shall be
conducted by Borrower, with counsel selected by Borrower and satisfactory to
Lender. However, if the defense of any such Liability is conducted by Agent or
any Lender, Agent or such Lender shall select the counsel to conduct it, but
shall consult with Borrower as to such selection; provided, that the decision
as to which counsel to select shall be and remain Agent or such Lender's.
Borrower shall be obligated under this section 9.01 irrespective of
whether the Indemnitee is also indemnified with
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respect to the same matter under any other Basic Document or other document by
any other Person, and the Indemnitee may proceed directly against Borrower
under this section 9.01 without first resorting to any such rights of
indemnification. Upon the payment in full of any indemnities due and owing
under this section 9.01, Borrower shall be subrogated to any right of the
Indemnitee in respect of the matter against which indemnity has been given.
Borrower's indemnities in this section shall survive expiration or termination
of the Mortgage and payment in full of the Notes.
Any payment or indemnity pursuant to this section 9.01 shall include
the amount, if any, necessary to hold the Indemnitee harmless on an after-tax
basis from all taxes required to be paid by such recipient with respect to such
payment or indemnity under laws of any federal, state, or local government or
taxing authority in the United States or by any foreign government or any
political subdivision or taxing authority thereof. The amount of any payment
or indemnity required under this section shall be determined by the Indemnitee
reasonably and in good faith, and that determination shall be conclusive. Upon
Borrower's request and at Borrower's expense, the Indemnitee will provide
Borrower with a summary explanation of the basis for the Indemnitee's
computations.
Section 9.02 -- Taxes.
(a) Indemnity. Except as provided in section 9.02(b), Borrower
agrees to indemnify each Indemnitee against, and on written demand to pay or
reimburse each Indemnitee for the payment of, any and all Taxes imposed upon or
asserted against any Indemnitee, any equipment Portion or any part thereof or
interest therein, any Basic Document, any lease of any Aircraft or any part
thereof, or the rentals received under such a lease, by any federal, state, or
local government or other taxing authority in the United States (including any
territory or possession of the United States)or by any foreign government or
any political subdivision or taxing authority thereof where any part of an
Equipment Portion is located, used, or registered ("Taxing Authorities") upon
or with respect to (i) the construction, mortgaging, financing, refinancing by
or at the request of Borrower, purchase, acquisition, acceptance,
nonacceptance, rejection, delivery, nondelivery, transport, insuring,
ownership, registration, deregistration, assembly, possession, repossession,
operation, use, condition, maintenance, modification, repair, fitness for use,
merchantability, testing, return, abandonment, storage, manufacture, leasing,
subleasing, importation, exportation, sale, assignment, transfer, transfer of
title, or other application or disposition of, or the imposition of any Lien
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(other than a Permitted Lien) or the incurrence of any liability to refund or
pay over any amount as a result of any Lien (other than a Permitted Lien) on
any Equipment Portion or any part thereof or interest therein, (ii) any amount
paid or payable by Borrower or Finex Bank under the Basic Documents or the
receipts for earnings arising from or received with respect to any Equipment
Portion or any part thereof or interest therein, (iii) any Equipment Portion or
any part thereof or interest therein, (iv) any of the Basic Documents and any
other documents contemplated thereby or the execution, sale, delivery,
acquisition, or filing of the Basic Documents, or (v) otherwise with respect to
or in connection with the transactions effective under the Basic Documents.
The term "Taxes" shall mean any and all fees, taxes, levies, imposts, duties,
charges, assessments, or withholdings of any nature whatsoever, together with
any and all penalties, fines, additions to tax, and interest thereon or
computed by reference thereto.
(b) Exclusions from Indemnity. The provisions of section 9.02(a)
shall not apply to:
(i) any Tax based on, or measured by, net income,
capital, franchise, or net worth (other than sales taxes), including
related surcharges and withholding taxes, or any withholding taxes on
an Indemnitee's gross income, to the extent that such withholding
taxes are imposed solely because that Indemnitee has a place of
business outside the United States or holds its Certificate(s) outside
the United States; provided, that the provisions of this clause (b)(i)
shall not apply to any Taxes imposed in respect of the receipt or
accrual of any indemnity payment made or payable pursuant to this
Section 9.02;
(ii) any Tax based on or measured by the value of such
Indemnitee's interest in any Basic Document, except to the extent
imposed without regard to the presence of the Indemnitee, or any Note,
in the jurisdiction of the Taxing Authority imposing that Tax;
(iii) any Tax imposed on the Indemnitee as a result of a
transfer or other disposition, by such Indemnitee or any of its
predecessors in interest, of any interest in the Aircraft or any Basic
Document, unless such transfer or disposition occurs after the
occurrence of an Event of Default; or
(iv) any Tax in the nature of a penalty, an addition to
tax, interest, or fines resulting from the negligence or
misconduct of the Indemnitee in connection with the preparation or
filing of (or failure to prepare or file) tax returns, or the payment
of or failure to pay its taxes, but in each case not if in any way
attributable to Borrower's failure to notify
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such Indemnitee of its obligations to prepare and file its
returns in respect of Taxes indemnified pursuant to this section 9.02
or to provide any information necessary for the preparation or filing
of such returns or the conduct of such proceedings or otherwise to
perform its duties and responsibilities pursuant to the Basic
Documents.
(c) Calculation of General Tax Indemnity Payments. Any payment
which Borrower is required to make to or for the account of any Indemnitee with
respect to any Tax which is subject to indemnification under this section 9.02
shall be made on a net basis, taking into account offsetting credits or
deductions available to such Indemnitee as a result of the payment of such Tax,
and shall include the amount necessary to hold such Indemnitee harmless on an
after-tax basis from the net amount of all Taxes required to be paid by such
Indemnitee as the result of such payment (including any Taxes imposed on such
indemnity payment) pursuant to the laws of any Taxing Authority. The amount of
any payment or indemnity required under this section shall be determined by the
Indemnitee reasonably and in good faith, and that determination shall be
conclusive. Upon Borrower's request and at Borrower's expense, the Indemnitee
will provide Borrower with a summary explanation of the basis for the
Indemnitee's computations.
(d) Reports. If Borrower shall timely file any report, return, or
statement required to be filed with respect to any Tax which is subject to
indemnification under this section 9.02, except for any such report, return, or
statement which an Indemnitee has notified Borrower that it intends to file.
Borrower shall file such report, return, or statement and send a copy to Agent
and each Indemnitee affected by such report, return, or statement. Each
Indemnitee shall promptly forward to Borrower any notice, bill, or advice
received by it concerning any Tax.
Section 9.03 -- Survival. The requirements in this Article IX shall
survive termination of this Agreement and the other Basic Documents and the
payment of the Notes and the Certificates.
Article X
YIELD PROTECTION; ILLEGALITY
Section 10.01 -- Additional Costs.
(a) Borrower shall pay directly to each Lender from time to time
such amounts as are necessary to compensate such Lender, on an after-tax basis,
for any costs which are attributable to its
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purchase of or obligation to purchase any Certificates hereunder, or any
reduction in any amount receivable by such Lender in respect of any of such
Certificates or such obligation (excluding payments under the Finex Agreement),
resulting from any Regulatory Change which imposes or modifies any reserve,
special deposit, minimum capital, capital ratio, or similar requirements
relating to any extensions of credit or other assets of, or any deposits with
or other liabilities of, such Lender, or the manner in which such Lender funds
(or allocates funds, on its books, for) its investments in any of the
Certificates.
(b) Determinations and allocations by any Lender for purposes of
this section 10.01 of the effect of any Regulatory Change pursuant to section
10.01(a) on such Lender's costs or rate of return of maintaining or its
obligations to purchase any Certificate, or on amounts receivable by it in
respect of any Certificate, and of amounts required to compensate such Lender
under this section 10.01, shall be made by such Lender reasonably and in good
faith and shall be conclusive. Upon Borrower's request and at Borrower's
expense, such Lender will provide Borrower with a summary explanation of the
basis for such Lender's computations.
Section 10.02 -- Breakage Costs. Borrower shall pay to each Lender,
upon such Lender's request, such amount as is sufficient, in such Lender's
opinion, to compensate it for any loss, cost, or expense which is attributable
to:
(a) any payment, purchase, or conversion of any Note or
Certificate in which such Lender has any interest for any reason (including the
acceleration of the maturity of the Notes pursuant to section 8.02 and the
mandatory purchase of Certificates pursuant to section 4.04 or 10.03, but
excluding any other transfer of a Certificate by any Lender) on a date other
than an Interest Payment Date; or
(b) any failure by Vendor for any reason (including the failure of
any of the conditions precedent specified in Article VII to be satisfied) to
endorse and deliver any Note to Finex Bank on the Purchase Date specified in
the relevant notice to Agent given pursuant to section 2.02.
Such amount payable by Borrower (x) shall not include losses, costs, or
expenses attributable to any date more than 180 days after the date of such
payment, purchase, or conversion or such Purchase Date, and (y) shall be
determined by the affected Lender reasonably and in good faith, which
determination shall be conclusive. Upon Borrower's request and at Borrower's
expense, such affected Lender
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will provide Borrower with a summary explanation of the basis for such Lender's
computations.
Section 10.03 -- Illegality. If at any time, any change in any
applicable state, federal or Japanese law or in any interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency in the United States or Japan charged with the interpretation
or administration thereof, or any reversal by any such entity of an
interpretation thereof by any Lender or any compliance by any Lender with any
official request or directive in respect of or constituting such a change
(whether or not having the force of law) of any such entity, shall make it
unlawful or contrary to such interpretation or administration for any Lender to
make, fund, maintain or hold its Certificate(s) in the method described herein
or to give effect to all or any part of its obligations with respect thereto
under this Agreement or any of the other Basic Documents (each such event being
an "Illegality Event"), then such Lender shall promptly notify Borrower thereof
in writing, and Borrower shall purchase or cause a Person to purchase such
Lender's Certificates for an amount determined in accordance with section 4.04,
on or prior to the earlier of (i) the Business Day immediately prior to the
last day such Lender is allowed to take corrective action with respect to such
Illegality Event, or (ii) the first Interest Payment Date to occur at least 60
days after the date of notice of the Illegality Event has been sent to the
Borrower by such Lender.
Article XI
AGENT
Section 11.01 -- Appointment; Powers and Indemnities; Compensation
(a) Each Lender hereby irrevocably appoints and authorizes Agent
to act as agent hereunder and in respect of the other Basic Documents, with the
power to execute and deliver this Agreement and the other Basic Documents to
which it is a party, including the Certificates, and any other agreements,
instruments, or documents (including UCC-1 financing statements) in which Agent
is shown as a party in the forms delivered from time to time by the Lenders to
Agent for execution and delivery and, subject to the terms of this Agreement,
to exercise its rights and perform its duties under such documents in
accordance with their terms, and with such other powers as are reasonably
incidental thereto. Except with respect to any representation, warranty, or
covenant expressly made by Agent in any Basic Document, Agent shall have not
duties or responsibilities except those expressly set forth in this Agreement,
and shall not,
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by reason of this Agreement or any other Basic Document, be a trustee for any
Lender. Agent shall not be responsible to any Lender (or to any other party)
for any recitals, statements, representations, or warranties contained in this
Agreement or any other Basic Document, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement or any other Basic Document, or for the value, validity,
effectiveness, genuineness, enforceability, or sufficiency of this Agreement or
any other Basic Document, or any other document referred to or provided for
herein or therein or for any failure by Borrower or any third party to perform
any of its obligations hereunder or thereunder. Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
Neither Agent nor any of its directors, officers, employees, or agents shall be
liable or responsible for any action taken or omitted to be taken by it or them
hereunder or under any other Basic Document, or in connection herewith or
therewith, except for its or their own gross negligence or willful misconduct.
(b) Agent shall not be obligated to take any action or refrain
from taking any action under any Basic Document that might in its reasonable
judgment involve it in any expense or liability unless it is indemnified, in
form and substance satisfactory to Agent, which indemnity may be furnished by
any Lender.
(c) Agent shall not have any duty or obligation to manage,
control, use, operate, store, lease, sell, dispose of, or otherwise deal with
the Aircraft or any part of the Collateral, or otherwise to take or refrain
from taking any action under, or in connection with, any Basic Document to
which Agent is a party, except as expressly provided by the terms hereof or any
other Basic Document, or as specified in written instructions from Majority
Lenders.
Section 11.02 -- Reliance by Agent. Agent may rely upon, and shall
not be bound or obligated to make any investigation into the facts or matters
stated in, any certificate, notice, or other communication (including any
thereof by telephone, telex, telegram, or cable) believed by it to be genuine
and correct and to have been made, signed, or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of outside legal
counsel, independent accountants, and other experts selected by Agent, (and
Agent shall not be liable for anything that it does, suffers, or omits in good
faith in accordance with the advise or opinion of any such counsel,
accountants, or experts within such Person's or Persons' particular area of
competence, provided that Agent has exercised due care in selecting such
counsel, accountants, or other experts). As to any matters not expressly
provided for by this
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Agreement, Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by
Majority Lenders and such instructions of Majority Lenders and any action taken
or failure to act pursuant thereto shall be binding on all Lenders.
Section 11.03 -- Defaults. Agent shall not be deemed to have
knowledge of the occurrence of a Default unless Agent has received actual
written notice from a Lender or from Borrower, specifying such Default and
stating that such notice is a "Notice of Default". If Agent receives actual
notice of the occurrence of a Default, Agent shall give prompt notice thereof
to each Lender and to Borrower. Agent shall (subject to section 11.07) take
action with respect to such Default as directed by Majority Lenders; provided,
that, unless and until Agent receives such directions, Agent may take such
action, or refrain from taking such action, with respect to such Default as it
deems advisable in the best interest of the Lenders.
Section 11.04 -- Rights as a Lender. With respect to its Commitment
and the loans made by it, First Atlanta, in its capacity as a Lender hereunder,
shall have the same rights, powers, and obligations hereunder as any other
Lender and may exercise the same as though it were not acting as Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise requires,
include First Atlanta in its individual capacity. First Atlanta and its
affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money (on a secured or unsecured basis) to, and generally
engage in any kind of banking, trust, or other business with Borrower, and any
of Borrower's affiliates, as if First Atlanta were not acting as agent
hereunder, and First Atlanta may accept fees and other consideration from
Borrower or any of its affiliates for services in connection with other loan
agreements or otherwise without having to account for same to any Lender.
Section 11.05 -- Indemnification. Each Lender shall indemnify Agent
(to the extent not reimbursed under Article IX hereof but without limiting the
obligations under Article IX), ratably in accordance with the aggregate
principal amount of the Certificates held by such Lender, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses, or disbursements of any kind and nature whatsoever that
may be imposed on, incurred by, or asserted against Agent in any way relating
to or arising out of this Agreement or any other document contemplated by or
referred to herein or the transactions contemplated hereby or the enforcement
of any of the terms hereof or of any such other documents; provided, that no
Lender shall be
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liable for any of the foregoing to the extent they arise from Agent's gross
negligence or willful misconduct.
Section 11.06 -- Nonreliance on Agents or Lenders. Each Lender agrees
that it has, independently and without reliance on Agent or any other Lender
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of Borrower and its own decision to become a lender
under the Basic Documents and that such Lender will, independently and without
reliance upon Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking action under this Agreement and the Basic
Documents to which it is a party. Agent shall not be required to keep itself
informed as to the performance or observance by Borrower of any other document
referred to (directly or indirectly) or provided for herein or therein or to
inspect the properties or books of any such entity. Except for notices,
reports, and other documents and information expressly required to be furnished
to the Lenders by Agent hereunder, Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition, or business of Borrower or any of
its affiliates that may come into the possession of Agent or any of its
affiliates. Except as otherwise specifically required herein, Agent shall not
be required to forward to the Lenders any notices, reports, or other documents
and information otherwise required to be forwarded to the Lenders by any other
party to the Basic Documents.
Section 11.07 -- Failure to Act. Except for action expressly required
of Agent hereunder, Agent shall in all cases by fully justified in failing or
refusing to act unless it is indemnified to its satisfaction by the Lenders
against any and all liability and expenses which may be incurred by it by
reason of taking or continuing to take any such action.
Section 11.08 -- Resignation of Agent; Successor Agent. Subject to
the appointment and acceptance of a successor Agent as provided below, Agent
may resign at any time by giving notice thereof to the Lenders and Borrower,
provided, that Agent shall not, at the time of such resignation, take any
actions to impair the rights or obligations of any party to the Finex
Agreement. Upon any such resignation, Majority Lenders shall have the right to
appoint a successor Agent, who shall be either an affiliate of First Atlanta or
a Person reasonably acceptable to Borrower, and who shall be a bank having a
combined capital, surplus, and undivided profits of not less than $100,000,000
and having its principal office in the United States of America. If, within 30
calendar days after the retiring Agent's giving of notice of resignation, a
successor Agent
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is not so appointed or does not accept such appointment, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, who shall be
either an affiliate of First Atlanta or a Person reasonably acceptable to
Borrower and who shall be a bank having combined capital, surplus, and
undivided profits of not less than $100,000,000 and having its principal office
in the United States of America. Upon the acceptance of any appointment as
agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges, and
duties of the retiring Agent and the retiring Agent shall be discharged from
its duties and obligations hereunder. If no Person meeting the foregoing
qualifications is willing to accept such appointment, any Lender or Agent may
apply to a court of competent jurisdiction to appoint such a successor or to
relieve Agent of its duties as agent hereunder.
Section 11.09 -- Investment of Funds.
(a) Except as otherwise provided in section 7.03 of the Mortgage,
any money held by Agent hereunder as part of the Collateral shall, until paid
out by Agent as herein provided, be held by Agent in a collateral account for
the purposes for which held, and Agent shall not have any liability for
interest upon any such money, and such money need not be invested or reinvested
except as provided in section 11.09(b) below.
(b) Any amounts held by Agent pursuant to this section 11.09 shall
be invested by Agent from time to time (unless the costs of the investment
would exceed the gains reasonably anticipated therefrom) in obligations of, or
fully secured by, the United States government maturing in not more than 30
calendar days; provided, that if Majority Lenders so request of Agent in
writing and no Default exists, Agent shall invest such amounts in (i)
marketable direct obligations of the United States of America or marketable
obligations directly guaranteed by the United States of America maturing, in
each case, not later than 30 days from the date of acquisition thereof, (ii)
repurchase obligations maturing not later than 30 days from the date of
acquisition thereof, collateralized by obligations of the nature referred to in
clause (i) of this paragraph issued by any Lender, or any other commercial bank
organized and existing under the laws of the United States of America or any
state thereof, in either case having combined capital, surplus, and undivided
profits of not less than $100,000,000, if Agent holds such obligations, or has
written evidence from the holder of such obligations, that such obligations are
held by a Federal Reserve bank or a commercial bank with combined capital,
surplus, and undivided profits of no less than $100,000,000 and a perfected
security interest under the Uniform
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Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq.
or 31 C.F.R. 305.0 et seq. in such obligations, is created for the benefit of
Agent; (iii) certificates of deposit and bankers' acceptances issued by any
Lender, or by any commercial bank organized and existing under the laws of the
United States of America or any state thereof, in either case having combined
capital, surplus, and undivided profits of not less than $100,000,000, or
commercial paper (other than any issued by Borrower, any Lender, or an
affiliate of either) rated A-1 by Standard & Poor's Corporation, Inc. and P-1
by Moody's Investors Service, Inc., if (in any such case specified above in
this proviso) Agent receives a written agreement of Majority Lenders
satisfactory to Agent that Majority Lenders will be liable for and will pay to
Agent on demand an amount equal to any expense or loss (including any loss on
such investment after taking into account any gain) incurred in connection with
any investment of funds pursuant to this proviso; and provided, further, that
so long as a Default exists, Agent may invest such amounts only in investments
described in clause (i) of this section on 11.09. Agent shall have no liability
for any loss resulting from any such investment. Agent may sell any such
investment (without regard to maturity date) whenever necessary to make any
distribution required by any provisions of Article XII. Except as otherwise
provided in section 7.03 of the Mortgage, Agent shall hold and apply any income
realized as a result of any investment pursuant to this section 11.09 in the
same manner as the payments held by Agent pursuant to Article XII.
Section 11.10 -- Representations and Warranties.
(a) Neither any Lender nor Agent makes any representations or
warranty as to the sufficiency, validity, legality, or enforceability of any
Basic Document, or as to the correctness of any statement contained in any
thereof, except as expressly set forth in this Agreement. Neither any Lender
nor Agent makes any representation as to the value or condition of the
Collateral or any part thereof, or as to the title thereto or as to the
security afforded thereby or hereby, or as to the validity or genuineness of
any security at any time pledged and deposited with Agent hereunder.
(b) Neither Agent nor anyone authorized to act on its behalf has
directly or indirectly offered any beneficial interest or security interest
relating to any Aircraft or any interest in any Note or Certificate for sale
to, or solicited any offer to acquire any such interest or security from, any
Persons other than the Lenders in such a manner as to require any of the Notes,
Certificates, or documents signifying security interests to be registered under
the Securities Act of 1933, as amended, or any state securities law; provided,
that the foregoing shall not be deemed to impose responsibility with respect to
any such offer, sale, or solicitation by any other Person.
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(c) Agent is a national banking association duly organized,
validly existing, and in good standing under the laws of the United States, and
has all corporate power, authority, and legal right under the laws of the
United States to execute, deliver, and carry out the terms of each of the Basic
Documents to which it is a party.
(d) Agent has duly authorized, executed, and delivered this
Agreement and the other Basic Documents to which it is a party in its capacity
as Agent.
(e) First Atlanta is a "citizen of the United States" within the
meaning of section 101(16) of the Act and will, subject to the provisions of
this Agreement, resign as agent hereunder promptly after an officer having
direct responsibility for administering this Agreement obtains actual knowledge
that Agent has ceased to be such a citizen.
(f) The execution and delivery by Agent, in its capacity as agent,
of this Agreement and each other Basic Document to which it is a party will not
result in any violation of, or be in conflict with, or constitute a default
under, any of the provisions of its charter or by-laws, or of any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract, lease,
note or bond purchase agreement, license, bank loan, credit agreement, or other
agreement to which it is a party or by which it is bound, or any law, judgment,
governmental rule, regulation, or order of any federal government or
governmental authority or agency governing the banking or trust powers of
Agent.
(g) Neither the execution and delivery by Agent, in its capacity
as agent, of this Agreement or the Basic Documents to which it is a party, nor
the consummation of any of the transactions contemplated thereby, requires the
consent or approval of, giving of notice to, or registration with any federal
governmental authority or agency pursuant to any federal governmental law
governing the banking or trust powers of Agent.
Section 11.11 -- No Claims Against Agent, etc. Nothing contained in
this Agreement shall constitute any consent or request by Agent or any Lender,
express or implied, for the performance of any labor or services or the
furnishing of any materials or other property, nor be deemed to give Borrower
any right, power, or authority to contract for or permit the performance of any
labor or services or the furnishing of any materials or other property in such
fashion as would permit the making of any claim against Agent or the Lenders in
respect thereof or any claim that any Lien (other than any Permitted Lien that
is not a Lien resulting from an action of Agent or a Lender for which neither
Agent nor any Lender is
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entitled to be indemnified under any Basic Document) based on the performance
of any such labor or services or the furnishing of any such materials or other
property is prior to the Lien of the Mortgage, except as expressly permitted in
the Basic Documents; provided, that if any such claim is made against Agent or
any Lender, Borrower shall obtain the release of such claim within 30 calendar
days after the claim is made.
Section 11.12 -- Form of Certificates; Issuance, Transfer, and
Exchange of Certificates.
(a) Authorization. The Lenders hereby authorize and direct Agent
to do the following, and Agent agrees for the benefit of the Lenders that Agent
will do the following, on the Purchase Date for each Aircraft, subject to due
compliance with the terms of paragraph (b) below:
(i) to the extent received by Agent from the Lenders,
transfer the Financed Amount for such Aircraft to Vendor on Borrower's
behalf;
(ii) upon receipt of each Lender's Commitment for such
Aircraft, issue to First Atlanta the Long-Term Certificate in the
full amount of First Atlanta's Commitment for such Aircraft and issue
to Bank of Tokyo the Medium-Term and Short-Term Certificates each in
one-half of the full amount of Bank of Tokyo's Commitment for such
Aircraft; and
(iii) execute and deliver all such other instruments,
documents, or certificates, and take all such other actions in
accordance with the directions of Majority Lenders, as Majority
Lenders deem necessary or advisable in connection with the
transactions contemplated hereby, such execution and delivery or the
taking of any such action by Agent in the presence of Majority Lenders
to evidence, conclusively, the direction of Majority Lenders.
(b) Conditions Precedent. Agent's right and obligation to take
the actions required by paragraph (a) on the Purchase Date shall be subject to
each Lender's having made the full amount of its Commitment available to Agent
in immediately available funds in accordance with sections 2.01 and 2.02 and
Annex A of this Agreement, and to the satisfaction or waiver of the conditions
set forth or referred to in section 2.02 and Annex A of this Agreement.
(c) Form of Certificates. The Long-Term Certificate shall be
substantially in the form of Exhibit K-1 and the Medium-Term and Short-Term
Certificates shall be substantially in the form of
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Exhibits K-2 and K-3, respectively. Interest and principal on each Certificate
shall be payable by Agent, upon receipt of the corresponding amounts from
Borrower, as set forth in such Certificates.
(d) Terms of the Certificates. In connection with each Aircraft,
(a) Agent shall issue to First Atlanta a Long-Term Certificate in a principal
amount equal to its Commitment for that Aircraft, bearing interest at the rate
stated in such Long-Term Certificate, designated as having been issued in
connection with that Aircraft, and otherwise in the form of Exhibit K-1; and
(b) Agent shall issue to Bank of Tokyo a Medium-Term Certificate and a
Short-Term Certificate each in a principal amount equal to one-half of its
Commitment for that Aircraft, bearing interest at the rates stated on each such
Certificate, designated as having been issued in connection with that Aircraft,
and otherwise in the forms of Exhibits K-2 and K-3, respectively.
(e) Lost or Damaged Certificates. If any Certificate becomes
mutilated, defaced, lost, stolen, or destroyed, then on the terms set forth in
this section (and not otherwise), and upon the written request of the holder
thereof, Agent shall execute and deliver a new Certificate of the same series,
principal amount, and terms as the mutilated, defaced, lost, stolen, or
destroyed Certificate, in exchange and substitution for and upon cancellation
of the mutilated or defaced Certificate, or in lieu of and in substitution for
the lost, stolen, or destroyed Certificate. The applicant for a new
Certificate shall furnish to Agent evidence to Agent's reasonable satisfaction
of the loss, theft, or destruction of such Certificate alleged to have been
lost, stolen, or destroyed, and of the ownership and authenticity of such
mutilated, defaced, lost, stolen, or destroyed Certificate, and also such
security and indemnity as Agent reasonably requires (provided, that the written
undertaking of one of the original Lenders, or any other institutional holder
of a Certificate having a net worth (or in the case of a bank, having combined
capital, surplus, and undivided profits) of at least $50,000,000 shall be
sufficient security and indemnity), and shall pay all expenses and charges of
such substitution or exchange. All Certificates shall be issued, held, and
owned upon the express condition that the foregoing provisions are exclusive in
respect of the replacement of mutilated, defaced, lost, stolen, or destroyed
Certificates and shall preclude (to the extent lawful) any and all other rights
and remedies, any present or future law or statute to the contrary
notwithstanding.
SECTION 11.13 -- Action Upon Written Instructions. Subject to the
terms of sections 11.03, 11.14, and 11.15, upon the written instructions at any
time and from time to time of Majority Lenders,
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Agent will take such actions as are specified in such instructions, including
the following actions: (1) give such notice or direction or exercise such
right, remedy, or power hereunder or under any of the Basic Documents to which
Agent is a party, or in respect of all or any part of the Collateral, or take
such other action as is specified in such instructions; (ii) take such action
to preserve or protect the Collateral (including the discharge of any Liens) as
is specified in such instructions; and (iii) approve as satisfactory to it all
matters required by the terms of the Basic Documents to be satisfactory to
Agent, it being understood that, except as otherwise provided in Section 11.03
or in the last sentence of this section 11.13, without written instructions of
Majority Lenders, Agent shall not approve any such matter as satisfactory to
it. Upon the written instructions of Majority Lenders, Agent will execute and
file any financing statement (and any continuation statement with respect to
any such financing statement) or similar document relating to the security
interests and assignments created by the Basic Documents as is specified in
such instructions and accompanies such instructions (and Agent shall have no
duty to execute or file any financing statement, continuation statement, or any
other documents of the type referred to in this sentence unless it receives
such written instructions and an execution form of such statement or document).
If Agent is unsure of the application of any provision of this Agreement or any
other agreement relating to the transactions contemplated hereby, Agent may
request and rely upon instructions of Majority Lenders, but if Agent does not
receive instructions from Majority Lenders within 20 days after the date of
such request, until instructed otherwise Agent may, but shall be under no duty
to, take or refrain from taking such action as it deems advisable in the best
interests of Majority Lenders.
SECTION 11.14 -- Expenses.
(a) Expenses After Default. While an Event of Default exists,
Agent shall not be under any obligation to take any action under any of the
Basic Documents (including action under section 11.15) if Agent reasonably
determines, or is advised by independent counsel, that such action is contrary
to the terms of the Basic Documents to which Agent is a party, or is otherwise
contrary to law, unless and until requested in writing to do so by Majority
Lenders and furnished, from time to time as it may require, with reasonable
security and indemnity, satisfactory to Agent, from such Majority Lenders
against the costs, expenses, and liabilities which it might incur in compliance
with such requests or direction.
(b) Expenses for Actions Upon Written Instructions. Agent shall
not be required to take any action under sections 11.03 or 11.13 unless Agent
shall have been furnished, from time to time as
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it may require, with reasonable security and indemnity, satisfactory to Agent,
from Majority Lenders directing Agent to take or refrain from taking action
under section 11.03 or 11.13, against the costs, expenses, and liabilities
which it might incur in complying with sections 11.03 or 11.13.
SECTION 11.15 -- Procedures for Disposing of Collateral.
(a) If an Event of Default exists, Agent shall, upon written
instructions from Majority Lenders, declare all the Secured Obligations due and
payable as provided in section 9.02 of the Mortgage. Thereafter, Majority
Lenders shall have the sole responsibility for directing Agent in the
enforcement of rights and remedies, pursuant to the Basic Documents, including
the time and manner of repossessing and remarketing of the Collateral.
(b) If Agent obtains an offer from a third party for the purchase
of the Collateral for a purchase price that is less than the amount necessary
to pay in full (i) the aggregate principal amount of the Certificates, (ii)
accrued but unpaid interest on such unpaid principal amount to the date of
distribution, (iii) interest on overdue principal and, to the extent permitted
by applicable law, overdue interest, and (iv) all other sums due and owing to
Agent or any Lender pursuant to any Basic Document, then before accepting any
such offer, Agent shall notify the Lenders and shall sell such Collateral for
such price only after obtaining the written consent of Majority Lenders.
(c) Any assignment, sale, transfer, or other conveyance of the
Collateral by Agent made pursuant to the terms hereof or of the other Basic
Documents to which it is a party shall bind the Lenders and shall be effective
to assign, sell, transfer, or convey all right, title and interest of Agent and
the Lenders that it purports to assign, sell, transfer, or otherwise convey in
and to the Collateral. No purchaser or other grantee shall be required to
inquire as to the authorization, necessity, expediency, or regularity of such
assignment, sale, transfer, or conveyance or as to the application of any sale
or other process with respect thereto by Agent.
Article XII
RECEIPT, DISTRIBUTION, AND APPLICATION OF INCOME
Section 12.01 -- Payment by Agent Generally. Subject to sections
12.02, 12.03, 12.04, and 12.05 hereof, all payments (including prepayments
under section 4.02 and the first sentence of 4.03 of this Agreement) of
principal of and interest on any Note,
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and of Interest Supplements, received by Agent shall be paid to the holders of
the Certificates related to such Note pro rata in accordance with the principal
and interest then due on such Certificates; the payment of the Facility Fee
received by Agent shall be paid one-half to each Lender; and all payments of
the Commitment Fee received by Agent shall be paid to the Lenders pro rata in
accordance with the outstanding Commitment of each.
Section 12.02 -- Application of Payments After Default. During the
continuance of a Default that is not an Event of Default, any amounts that, but
for this section 12.02, would be payable under section 12.01 by Agent to the
Lenders shall be held by Agent until the occurrence of one of the following
events: (i) all Defaults shall have been cured, in which event such amounts
shall, to the extent not theretofore applied as provided herein, be applied as
provided in section 12.01 hereof, (ii) an Event of Default shall have occurred
and be continuing, in which event such amounts shall be applied as provided in
section 12.03 hereof, or (iii) such amounts shall have been continuously held
for a period in excess of 90 days (during which period Agent or the Lenders
shall not have been stayed or otherwise precluded by operation of law from
taking action to accelerate the Notes or to declare this Agreement in default
or to exercise any remedies hereunder or under the Mortgage), in which event
such amounts shall, to the extent not theretofore applied as provided herein,
be distributed as provided in section 12.01 hereof.
Section 12.03 -- Payments After Event of Default. During the
continuance of any Event of Default, all payments received by Agent and all
amounts then held by Agent on behalf of Lenders shall be applied in the
following order of priority:
First, to pay all proper fees, charges, expenses, or advances
made or incurred by Agent in the collection or distribution of such
payment or otherwise in accordance with the provisions of this
Agreement or the Mortgage, and of any and all other sums then owing to
Agent by Borrower under the Basic Documents (including any amount
payable by or for the account of Agent under section 9.04(b) of the
Mortgage);
Second, to pay to the then-existing and prior holders of the
Certificates all proper fees, charges, expenses (including expenses
under Section 13.03 hereof, and all amounts payable under Article IX
hereof), and advances made or incurred by such then-existing and prior
holders of Certificates and for which Borrower is responsible pursuant
to the Basic Documents (to the extent not previously reimbursed),
without priority of one such then-existing or prior holder of
Certificates over any other,
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in the proportion of the aggregate amount of such fees,
charges, expenses and advances made or incurred by each such
then-existing or prior holder of Certificates bears to the aggregate
amount of such fees, charges, expenses, and advances made or incurred
by all such then-existing and prior holders of Certificates;
Third, to pay in full the unpaid interest on the Certificates
due to the date of distribution (as well as interest on overdue
principal and, to the extent permitted by applicable law, overdue
interest at the rate set forth in section 4.06 hereof), and the
then-outstanding principal of the Certificates, without
priority of one Lender over any other, in the proportion that the
outstanding principal of each Lender's Certificate(s) on such date of
application bears to the outstanding principal of all the Certificates
outstanding on such date of application;
Fourth, to pay all other amounts then due by Borrower to the
Lenders under the Basic Documents;
Fifth, the balance, if any, of such payments remaining
thereafter shall be distributed to Borrower.
Section 12.04 -- Application of Indemnity and Certain Other Payments.
(a) Any indemnity payment under Article IX hereof received by Agent
shall, if owed to Agent, be applied to any such indemnity amounts owing to it,
but if owed to another Indemnitee, be paid to the appropriate Indemnitee.
(b) Except as otherwise provided in this Article XII, any payment
received by Agent for which provision as to the application thereof is made in
this Credit Agreement or the Mortgage, other than in this Article XII, shall be
forthwith applied as provided in such other provision of this Credit Agreement
or the Mortgage.
(c) If a Default exists when Agent receives any payment referred
to in section 12.04(b) or (d), Agent may hold such payment as part of the
Collateral, and Agent shall cease to hold such payment and shall apply and
distribute it as provided in such section if and when no Default exists.
(d) If an Indemnitee receives a refund of any amount that Borrower
indemnified such Indemnitee for, that Indemnitee shall pay to Borrower an
amount equal to that refund; provided, that any
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subsequent loss of that refund by the Indemnitee shall be treated as a loss
subject to indemnification by Borrower.
Section 12.05 -- Other Payments.
(a) Provided no Default exists, any money that Agent receives with
respect to any right or obligation contained in the Basic Documents, and that
the Basic Documents do not specify how to apply, shall be applied to any
Secured Obligations then due, and the balance shall be distributed to Borrower.
(b) Any payments received and amounts realized by Agent with
respect to the Aircraft or otherwise to the extent received or realized, or
remaining, at any time after payment in full of the Secured Obligations, as
well as any other amounts remaining as part of the Collateral after payment in
full of the Secured Obligations, shall be distributed to Borrower.
Section 12.06 -- Method of Payment. Agent shall make distributions or
cause distributions to be made to the Lenders and Borrower by wire transfer of
immediately available funds, to the respective bank accounts specified in
writing to Agent by such Persons, not later than 2:00 p.m. (Atlanta, Georgia
time) on the date they are received by Agent (if received by 12:00 noon
(Atlanta, Georgia time), or, if received later, as soon as practicable but not
later than 11:00 a.m. (Atlanta, Georgia time) on the next Business Day), or
with commercially reasonably promptness after receipt in the case of payments
to bank accounts located outside the United States.
Section 12.07 -- Payments From Proceeds from Borrower. All payment to
be made by Agent under the Certificates and this Agreement shall be made only
from the proceeds received by Agent under the Basic Documents. Each holder of
a Certificate, by its acceptance of such Certificate, agrees that it will look
solely to the proceeds received by Agent under the Basic Documents to the
extent available for distribution to such holder as herein provided, and that
Agent is not personally liable to the holder of any Certificate under such
Certificate or this Agreement.
Section 12.08 -- Termination of Certificates. A holder of a
Certificate shall have no further interest in, or other right with respect to,
the proceeds received by Agent under the Basic Documents when and if all
Secured Obligations payable to such holder have been paid in full.
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Article XIII
MISCELLANEOUS
Section 13.01 -- No Waivers; Cumulative Remedies. No failure or delay
in exercising any power or right under any Basic Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude other or further exercise thereof or the exercise of any other
right or power under any Basic Document. No notice to or demand on any party
in any case shall, of itself, entitle such party to any other or further notice
or demand in similar or other circumstances.
Section 13.02 -- Notices. All communications and notices provided for
under this Agreement shall be in writing (including telex, telegraph, and
telecopy), shall be in English, and shall be mailed by certified mail (return
receipt requested) or otherwise delivered to the parties at the addresses set
forth by their signatures hereto, or, as to each party, at such other address
as it designates by notice to each other party. Each such notice shall be
effective upon delivery.
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Section 13.03 -- Transaction Expenses; Agent's Fees.
(a) Borrower will pay on demand all out-of-pocket expenses in
connection with the preparation, execution, delivery, administration, and
enforcement of the Basic Documents, or in connection with any scheduled closing
that is postponed or cancelled, including (i) all fees and expenses of (x)
Trotter Smith & Jacobs, special counsel to the Lenders, (y) Castro, Barros,
Sobral e Xavier, special Brazilian counsel, and (z) Crowe & Dunlevy, special
FAA counsel; (ii) all FAA and UCC filing and lien search fees; (iii) all fees
and expenses (including legal fees and expenses)of each Lender and Agent in
connection with actual or proposed amendments, waivers, or consents to or under
this Agreement or the other Basic Documents (except for such amendments,
waivers, or consents initiated by any Lender or Agent; provided that any such
amendment, waiver, or consent initiated by Agent or the Lenders in connection
with a matter relating to the Finex Program, Finex Agent, or Finex Interest
Payments that is initiated for the benefit of Borrower or at the request of
Borrower shall not be included in this exception); and (iv) all fees and
expenses (including legal fees and expenses) of each Lender and Agent in
connection with the actual or proposed enforcement of any Basic Document
against Borrower during the existence of any Default. The "legal fees and
expenses" of the Lenders and Agent referred to in clauses (iii) and (iv) may
not include those of a Lender's or Agent's in-house counsel.
(b) Agent shall be entitled to receive reimbursement, within five
Business Days after its request, for all reasonable expenses incurred or made
by it in accordance with this Agreement or any other Basic Document. Under
section 2.01 of the Mortgage, Agent is granted, and such obligations are
secured by, a Lien on the Collateral entitling Agent to priority as to payment
thereof (by virtue of section 12.03 of this Agreement) over payment to any
other Person under this Agreement. Borrower shall pay to Agent, in its
individual capacity, the amounts to which Agent is entitled under this section
13.03(b).
Section 13.04 -- Amendments. Any provision of the Basic Documents,
other than the Purchase Agreement, the Guarantee, or the Finex Agreement, may
be amended, terminated, waived, or otherwise modified only in writing by
Borrower and Majority Lenders, and any such amendment, termination, waiver, or
other modification shall bind all of the Lenders to the same extent and with
the same effect as if each Lender had joined therein; provided, that no
provision of the Finex Agreement shall be amended, modified, or waived except
as permitted therein; provided, further, that the written consent of Agent in
its individual capacity shall be required to effect any amendment, termination,
waiver, or other modification of the Basic
52
<PAGE> 58
Documents that affects the rights or duties of Agent (as agent or in its
individual capacity (but not in its capacity as Lender)). Notwithstanding the
foregoing, no amendment, modification, or waiver of the Basic Documents shall,
unless in writing and signed by each Lender, be effective to (a) increase such
Lender's Commitment or subject such Lender to any additional obligation, (b)
reduce the principal of or interest on the Notes or such Lender's Certificates,
or any fees or other amounts payable to such Lender hereunder (whether under
Article IX or otherwise), or change the ratable distribution of funds received
by Agent for account of the Lenders hereunder (including under Article IV
hereof), (c) postpone any date fixed for any payment of the principal of, or
interest on, the Notes or such Lender's Certificates or any fees or other
amounts payable to such Lender hereunder, (d) change the definition of
"Majority Lenders" as set for in section 1.01, or amend, modify, or waive this
section 13.04, (e) change section 11.13 of this Agreement, (f) increase the
Financed Amount to be secured by the Collateral under the Mortgage, (g) alter
the right of any Lender to transfer any Certificate or add or alter
restrictions upon such transfer, or (h) the release of any Lien with respect to
the Collateral other than in accordance with the Basic Documents.
Section 13.05 -- Successors and Assigns.
(a) Binding Effect; Consent to Assignment. This Agreement shall
bind and benefit each Lender, Agent, and Borrower and their successors and
assigns, except that Borrower may not assign or transfer its rights under this
Agreement without Agent's prior written consent.
(b) Limitations on Transfers. No Lender shall assign, convey, or
otherwise transfer any of its interest in the Basic Documents, or offer to do
any of the foregoing, (i) in any manner that would result in a violation of the
Act, the Securities Act of 1933, ERISA, or any other law, or (ii) if, as a
result of such assignment, conveyance, or other transfer, more than two Persons
other than Bank of Tokyo and affiliates of First Atlanta would have
Certificates issued with respect to any particular Aircraft.
(c) Transfer. Agent shall maintain at its office a register for
the purpose of registering transfers and exchanges of registered Certificates
and in which shall be entered the names and addresses of the owners of such
registered Certificates and particulars of the registered Certificates owned by
them. The holder of any registered Certificate wishing to transfer such
Certificate shall, in person or by a duly authorized attorney, surrender to
Agent at its office such Certificate, duly endorsed by the registered holder or
such attorney, or accompanied by a written instrument of transfer duly
53
<PAGE> 59
executed by the registered holder or by such attorney, in form reasonably
satisfactory to Agent. Upon presentation to Agent of any Certificate for
transfer, Agent will execute and deliver to the transferee thereof in exchange
therefor a new Certificate or Certificates of the same series and in the same
aggregate principal amount and with the same terms as the Certificate so
surrendered, in registered form and in any domination of $100,000 or more (or
the aggregate principal amount of all Certificates of such series held by such
transferee, whichever is less) as is specified in such instrument of transfer.
Nothing in this paragraph shall be interpreted as (i) giving Bank of Tokyo the
right or power to transfer one or more of its Certificates or to transfer any
right or interest in such Certificates to another Person, other than First
Atlanta or Borrower, without the prior written consent of First Atlanta and
Borrower (which shall not be unreasonably withheld) or (ii) giving First
Atlanta the right or power to transfer one or more of its Certificates or to
transfer any right or interest in such Certificates to any Person other than an
affiliate of First Atlanta, without the prior written consent of Borrower
(which shall not be unreasonably withheld).
(d) Exchange. The holder of one or more Certificates may at any
time surrender such Certificate or Certificates for exchange at Agent's office
and shall be entitled to receive in exchange therefor a new Certificate or
Certificates, of the same series and in the same aggregate principal amount
with the same terms as the Certificate or Certificates surrendered, in
registered form and in any denomination of $100,000 or more (or the aggregate
principal amount of all such Certificates of the same series held by such
holder, whichever is less).
(e) Effect of Transfer or Exchange. All Certificates issued upon
any transfer or exchange of Certificates shall be the valid obligations of
Agent evidencing the same respective obligations, and entitled to the same
security and benefits under this Agreement, as the Certificates surrendered
upon such transfer or exchange. Agent shall make a notation on each new
Certificate of the date to which interest on the replaced Certificate(s) has
been paid.
(f) Evidence of Ownership. Agent and Borrower shall deem and
treat the Person in whose name any registered Certificate is registered as the
absolute owner and holder of such Certificate for the purpose of mailing
payment of all amounts payable by Agent or Borrower with respect to such
Certificate and for all other purposes, and Agent and Borrower shall not be
affected by any notice to the contrary.
54
<PAGE> 60
(g) Expenses, Taxes, etc. The transferring or exchanging Lender
shall pay all expenses incurred in connection with the transfer or exchange of
a Certificate, including Agent's expenses (including legal fees), stamp taxes,
transfer taxes, sales taxes, governmental fees and charges, broker's fees and
commissions, any other fees and charges of the same or similar type as any of
the foregoing, and other fees and expenses associated with amendments,
supplements, waivers, or consents required as a result of any transfer or sale
of a Certificate after the Purchase Date. In addition, for any transfer or
exchange of a Certificate, Agent may require the transferor to pay a sum
sufficient to cover any stamp tax or other governmental charge connected
therewith.
(h) No Transfer Within Three Days Before Payment Date. Agent
shall not be required to transfer or exchange any Certificate during the
three-day period preceding the due date of any payment on such Certificate.
Section 13.06 -- First Atlanta's Representations and Warranties.
First Atlanta represents and warrants that:
(a) it is a national banking association duly organized, validly
existing, and in good standing under the laws of the United States, and has all
corporate power, authority, and legal right under the laws of the United States
to execute, deliver, and carry out the terms of each of the Basic Documents to
which it is a party either individually or as Agent;
(b) it has duly authorized, executed, and delivered this Agreement and
the other Basic Documents to which it is a party either individually or as
Agent;
(c) neither it nor anyone authorized to act on its behalf has
directly or indirectly offered any beneficial interest in the Notes or the
Certificates for sale to, or solicited any offer to acquire any such interest
in the Notes or the Certificates from, any Person in such a manner as to
require any of the Notes or the Certificates to be registered under the
Securities Act of 1933, as amended, or any state securities law; provided, that
the foregoing shall not be deemed to extend any such offer, sale, or
solicitation by or on behalf of Borrower or any other Person; and
(d) no part of the funds used by it to purchase its Certificates
hereunder constitutes the assets of any "employee benefit plan" within the
meaning of ERISA or any "plan" as such a term is defined in Section 406 of
ERISA or Section 4975 of the Code.
Section 13.07 -- Bank of Tokyo's Representations and Warranties.
(a) it is an agency licensed under Georgia law of a Japanese
banking corporation and in good standing under the laws of Georgia, and has all
corporate power, authority, and legal right under the laws of the United States
to execute, deliver, and carry out the terms of each of the Basic Documents to
which it is a party;
(b) it has duly authorized, executed, and delivered this Agreement
and the other Basic Documents to which it is a party;
55
<PAGE> 61
(c) neither it nor anyone authorized to act on its behalf has
directly or indirectly offered any beneficial interest in the Notes or the
Certificates for sale to, or solicited any offer to acquire any such interest
in the Notes or the Certificates from, any Person in such a manner as to
require any of the Notes or the Certificates to be registered under the
Securities Act of 1933, as amended, or any state securities law; provided, that
the foregoing shall not be deemed to extend any such offer, sale, or
solicitation by or on behalf of Borrower or any other Person; and
(d) no part of the funds used by it to purchase its Certificates
hereunder constitutes the assets of any "employee benefit plan" within the
meaning of ERISA or any "plan" as such a term is defined in Section 406 of
ERISA or Section 4975 of the Code.
Section 13.08 -- Governing Law. This Agreement shall be governed by
the laws of Georgia.
Section 13.09 -- Headings. Article and section headings used in this
Agreement are for convenience only and are not a substantive part of this
Agreement.
Section 13.10 -- Execution in Counterparts. This Agreement may be
executed in separate counterparts.
Section 13.11 -- Survival of Representations and Warranties. All
representations and warranties contained in this Agreement or made in writing
in connection with this Agreement shall survive the execution and delivery of
this Agreement and the Mortgage.
Section 13.12 -- Severability. If any part of any provision contained
in this Agreement, or any document contemplated hereby, is or becomes invalid
or unenforceable under applicable law, that part shall be ineffective to the
extent of such invalidity only, without in any way affecting the remaining
parts of that provision of the remaining provisions.
Section 13.13 -- Finex Agreement. So long as no Default exists, Agent
shall forward any payments that it receives under the Finex Agreement as Finex
Interest Payments, or interest thereon, or as indemnification or reimbursement
under the Finex Agreement, and not relating to any loss or expense suffered by
Agent or any Lender, to Borrower at First American Bank of Georgia, N.A., 2000
Riveredge Airlines, Inc. (account #5100130970). Agent shall use its good faith
efforts to forward any such payments to Borrower on the Business Day following
their receipt by Agent. At the cost and expense of Borrower, Agent or any
Lender shall use its
56
<PAGE> 62
good faith efforts to take such action with respect to the Finex Agreement as
Borrower shall reasonably request, provided that Agent and the Lenders shall
not be required to independently solicit offers from any bank to guarantee
Finex Interest Payments or to take any action which adversely affects the
interests of any of them; provided that a reduction in the amount of Finex
Interest Payments resulting from the guarantee of such Finex Interest Payments
by Finex Bank shall not be considered an action adversely affecting Agent's or
any Lender's interest; provided, further, that the replacement of the Finex
Bank with another bank shall not be considered an action adversely affecting
Agent's or any Lender's interest if (a) the Agent consents in writing to such
replacement bank acting as the Finex bank under the Finex Agreement or (b) such
replacement bank meets the following qualifications; (i) it is a bank having
offices in New York City and Brazil; (ii) it is authorized to act as a Finex
agent under the Finex Program; and (iii) it is a bank with which Agent has the
capability to transact business in the ordinary course through Agent's
then-existing correspondent banking relationships. However, all risks
associated with the Finex Program are Borrower's, and Agent and the Lenders
shall have not responsibility for any Finex Interest Payments not actually
received by Agent or any Lender from Finex Bank. So long as no Default exists,
Agent and Lenders shall not enter into any amendment of the Finex Agreement
without Borrower's consent, such consent not to be unreasonably withheld.
Section 13.14 -- Agent Not Acting in Individual Capacity. In acting
hereunder, unless otherwise expressly provided, The First National Bank of
Atlanta, when referred to as "Agent", acts solely as agent and not in its
individual capacity; and, except as otherwise provided herein or in any other
Basic Document to which The First National Bank of Atlanta, as "Agent", is a
party, all Persons having any claim against The First National Bank of Atlanta,
as "Agent", by reason of the transactions contemplated hereby shall look only
to the Collateral for payment or satisfaction thereof.
57
<PAGE> 63
IN WITNESS WHEREOF, Agent, Borrower, and Lenders have executed
this Credit Agreement.
"BORROWER"
ATLANTIC SOUTHEAST AIRLINES, INC.
1688 Phoenix Parkway
College Park, Georgia 30349
Attn: Ronald V. Sapp
Vice President-Finance By: /s/ Ronald V. Sapp
and Treasurer -----------------------------------------
Facsimile No.: (404) 991-0366 Title: Vice President - Finance & Treasurer
--------------------------------------
"AGENT"
THE FIRST NATIONAL BANK OF
ATLANTA, not in its individual
capacity but solely as agent
2 Peachtree St., N.W.
Atlanta, Georgia 30383
Attn: Georgia Corporate Division
Reference: Atlantic Southeast By: /s/ (illegible)
Airlines, Inc. ----------------------------------------
Facsimile No.: (404) 332-5016 Title: Vice President
-------------------------------------
"LENDERS"
THE FIRST NATIONAL BANK OF
ATLANTA, in its individual capacity
2 Peachtree St., N.W. By: /s/ (illegible)
Atlanta, Georgia 30383 ----------------------------------------
Attn: Georgia Corporate Division Title: Vice President
Reference: Atlantic Southeast -------------------------------------
Airlines, Inc.
Facsimile No.: (404) 332-5016
THE BANK OF TOKYO, LTD.,
ATLANTA AGENCY
5050 Georgia Pacific Center
133 Peachtree Street, N.E.
Atlanta, Georgia 30303 By: /s/ Gary L. England
Attn: David L. Mason ----------------------------------------
Facsimile No.: (404) 577-1155 Title: Vice President and Manager
-------------------------------------
58
<PAGE> 1
EXHIBIT 10(l)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of
June 1, 1992
among
ATLANTIC SOUTHEAST AIRLINES, INC.,
Borrower,
HOVIA BANK OF GEORGIA, N.A.
Agent,
and
WACHOVIA BANK OF GEORGIA, N.A., and
THE BANK OF TOKYO, LTD., ATLANTA AGENCY,
Lenders.
Eight Embraer EMB-120 Brasilia Aircraft
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Article I DEFINITIONS; REFERENCES........................................................ 1
Section 1.01-- Definitions.................................................................. 1
Section 1.02-- Use of Defined Terms......................................................... 10
Section 1.03-- Section and Exhibit References, etc.......................................... 10
Articel II PURCHASE OF NOTES AND CERTIFICATES; PAYMENTS;
REPLACEMENT NOTES........................................................................... 10
Section 2.01-- Purchase of Notes and Certificates........................................... 10
Section 2.02 -- Procedures for Purchase of Notes and
Certificates................................................................... 11
Section 2.03-- Commitment Fee............................................................... 11
Section 2.04-- Facility Fee................................................................. 11
Section 2.05-- Replacement Notes............................................................ 12
Article III SECURITY FOR BORROWER'S OBLIGATIONS............................................ 12
Section 3.01-- Security Interest in Collateral.............................................. 12
Section 3.02-- Set-Off Rights............................................................... 12
Article IV PAYMENTS UNDER THE NOTES AND CERTIFICATES
AND OTHER AMOUNTS PAYABLE BY BORROWER AND AGNET......................................... 13
Section 4.01-- How Payments Are Made........................................................ 13
Section 4.02-- Right to Prepay.............................................................. 14
Section 4.03-- Mandatory Prepayments........................................................ 14
Section 4.04-- Mandatory Purchase........................................................... 14
Section 4.05-- Amount of Prepayment......................................................... 14
Section 4.06-- Interest on Past Due Amounts................................................. 15
Section 4.07-- Limit on Interest Payable.................................................... 15
Section 4.08-- Lender's Call Rights......................................................... 15
Section 4.09 - Payments by Agent............................................................ 16
Section 4.10-- Interest Rate Notices........................................................ 16
Article V BORROWER'S REPRESENTATIONS AND WARRANTIES...................................... 16
Section 5.01-- Corporate Standing........................................................... 16
Section 5.02-- Corporate Powers............................................................. 16
Section 5.03-- Binding Effect............................................................... 16
Section 5.04-- Litigation................................................................... 16
Section 5.05-- Financial Statements......................................................... 17
Section 5.06-- Taxes........................................................................ 17
Section 5.07 -- Status as United States Citizen and
Air Carrier.................................................................... 17
Section 5.08-- Location of Offices.......................................................... 17
Section 5.09-- Governmental Consents........................................................ 17
Section 5.10-- Condition of Aircraft........................................................ 17
Section 5.11-- Absence of ERISA Liability................................................... 18
Section 5.12-- Delta Agreement.............................................................. 18
Section 5.13-- Subsidiaries; Stock Ownership................................................ 18
Section 5.14-- Investment Company Status.................................................... 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 5.15-- Solvency..................................................................... 18
Article VI AFFIRMATIVE COVENANTS.......................................................... 19
Section 6.01-- Financial Statements......................................................... 19
Section 6.02-- Inspection of Collateral and Records......................................... 20
Section 6.03-- Corporate Existence.......................................................... 20
Section 6.04-- Merger, etc.................................................................. 20
Section 6.05-- Citizenship and Air Carrier Status........................................... 21
Section 6.06-- Compliance with ERISA........................................................ 22
Section 6.07-- Disposition of Assets........................................................ 22
Section 6.08-- Performance of Delta Agreement............................................... 22
Section 6.09-- Financial Covenants.......................................................... 22
Section 6.10-- Certificate of No Default.................................................... 23
Section 6.11-- Insurance on Fleet........................................................... 23
Article VII CONDITIONS PRECEDENT TO THE PURCAHSE OF NOTES 24
Section 7.01 -- Conditions Precedent to the Purchase
of the Initial Note............................................................ 24
Section 7.02-- Conditions Precedent to the Purchase
of All Notes................................................................... 24
Article VIII EVENTS OF DEFAULT; REMEDIES............................................................. 26
Section 8.01-- Events of Default............................................................ 26
Section 8.02-- Remedies..................................................................... 28
Article IX BORROWER'S INDEMNITIES......................................................... 29
Section 9.01-- General Indemnity............................................................ 29
Section 9.02-- Taxes........................................................................ 31
Section 9.03-- Survival..................................................................... 33
Article X YIELD PROTECTION; ILLEGALITY................................................... 33
Section 10.01-- Additional Costs............................................................ 33
Section 10.02-- Breakage Costs.............................................................. 34
Section 10.03-- Illegality.................................................................. 34
Article XI AGENT.......................................................................... 35
Section 11.01-- Appointment; Powers and Indemnities;
Compensation................................................................... 35
Section 11.02-- Reliance by Agent........................................................... 36
Section 11.03-- Defaults.................................................................... 36
Section 11.04-- Rights as a Lender.......................................................... 36
Section 11.05-- Indemnification............................................................. 37
Section 11.06-- Nonreliance on Agent or Lenders............................................. 37
Section 11.07-- Failure to Act.............................................................. 37
Section 11.08-- Resignation of Agent; Successor Agent 38
Section 11.09-- Investment of Funds......................................................... 38
Section 11.10-- Representations and Warrantes............................................... 39
Section 11.11-- No Claims Against Agent, etc................................................ 41
Section 11.12 -- Form of Certificates; Issuance,
Transfer, and Exchange of Certificates......................................... 41
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 11.13-- Action Upon Written Instructions............................................ 42
Section 11.14-- Expenses.................................................................... 43
Section 11.15-- Procedures for Disposing of Collateral 43
Article XII RECEIPT, DISTRIBUTION, AND APPLICATION OF
INCOME ............................................................................... 44
Section 12.01-- Payment by Agent Generally.................................................. 44
Section 12.02-- Application of Payments After Default 44
Section 12.03-- Payments After Event of Default............................................. 45
Section 12.04-- Application of Indemnity and Certain
Other Payments................................................................. 46
Section 12.05-- Other Payments.............................................................. 46
Section 12.06-- Method of Payment........................................................... 46
Section 12.07-- Payments From Proceeds from Borrower........................................ 47
Section 12.08-- Termination of Certificates................................................. 47
Article XII MISCELLANEOUS.................................................................. 47
Section 13.01-- No Waivers; Cumulative Remedies............................................. 47
Section 13.02-- Notices..................................................................... 47
Section 13.03-- Transaction Expenses; Agent's Fees.......................................... 47
Section 13.04-- Amendments.................................................................. 48
Section 13.05-- Successors and Assigns...................................................... 49
Section 13.06-- Wachovia's Representations and
Warranties..................................................................... 51
Section 13.08-- Governing Law............................................................... 52
Section 13.09-- Headings.................................................................... 52
Section 13.10-- Execution in Counterparts................................................... 52
Section 13.11-- Survival of Representations and
Warranties..................................................................... 52
Section 13.12-- Severability................................................................ 52
Section 13.13-- Proex Agreement............................................................. 52
Section 13.14-- Agent Not Acting in Individual
Capacity....................................................................... 53
Annex A Procedures for Purchasing Aircraft,
Notes, and Certificates; Documentation
Exhibit A Form of Note
Exhibit B Form of Proex Agreement
Exhibit C Form of Mortgage
Exhibit D Form of Purchase Agreement Assignment
Exhibit E Form of Consent
Exhibit F Form of opinion of Borrower's counsel
Exhibit G Form of opinion of Crowe & Dunlevy
Exhibit H Form of opinion of counsel to Embraer
Exhibit I Form of opinion of Castro Barros Sobral e Xavier
Exhibit J Form of Guarantee
Exhibit K Form of Certificate
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
This Credit Agreement is entered into as of June 1, 1992 among (i) Atlantic
Southeast Airlines, Inc. ("Borrower"), a Georgia corporation, (ii) Wachovia Bank
of Georgia, N.A., a national banking association, in its individual capacity,
and The Bank of Tokyo, Ltd., Atlanta Agency, a Georgia agency of a Japanese
banking corporation, as lenders (the "Lenders"), and (iii) Wachovia Bank of
Georgia, N.A., a national banking association, not in its individual capacity
(except as otherwise expressly stated) but solely as agent (in such
representative capacity ("Agent").
Borrower, the Lenders, and Agent agree as follows:
Article I
DEFINITIONS; REFERENCES
Section 1.01 -- Definitions. The following terms, when
capitalized as below, have the following meanings:
"Act": the Federal Aviation Act of 1958, as amended, or
its successor.
"Agent": Wachovia Bank of Georgia, N.A., not in its
individual capacity but solely in its capacity as agent for Lenders, or the
successor agent pursuant to section 11.08 hereof.
"Agreement": This Credit Agreement.
"Aircraft": up to eight Embraer EMB-120 Brasilia aircraft to
be delivered under the Purchase Agreement and in each case designated by
Borrower as an "Aircraft" to be financed under this Agreement. Borrower shall
make each such designation by giving notice to Agent (which Agent agrees to
relay promptly to each Lender) at least three Business Days before the Purchase
Date therefor, which notice is not revoked by notice to Agent (which Agent
agrees to relay promptly to each Lender) on or before the Purchase Date
therefor.
"Bank LIBOR": for any Interest Period: a rate per annum
(calculated on the basis of a 360-day year and the actual number of days
elapsed) equal to the consensus rate at which 180-day deposits in Dollars appear
on the Reuters Screen LIBO Page at approximately 11:00 a.m. London, England
time, on the day that is two Business Days before the first day of that Interest
Period. Agent shall establish and maintain procedures designed to remind each
Lender of
<PAGE> 6
the interest reset three Business Days before the first day of each Interest
Period and to notify each Lender of the reset rate two Business Days before the
first day of each Interest Period.
"Bank of Tokyo": The Bank of Tokyo, Ltd., Atlanta Agency.
"Basic Documents": this Agreement, the Purchase
Agreement, the Proex Agreement, the Guarantee, and the Mortgage; and each
Certificate, Note, Purchase Agreement Assignment, Consent, Proex Supplement, and
Mortgage Supplement as executed and delivered.
"Book Net Worth": defined in section 6.09.
"Borrower Interest Rate" with respect to any Interest Period:
an interest rate equal to Bank LIBOR for such Interest Period, plus 0.625% per
annum (computed on the basis of a year of 360 days), based on actual days
elapsed.
"Business Day": any day, other than a Saturday or Sunday, on
which commercial banks are open for business in New York, New York, London,
England, and Sao Paulo, Brazil, and Agent is open for business in Atlanta,
Georgia, and if such day is a Purchase Date or Interest Payment Date or relates
to a notice by Borrower with respect to any Purchase Date, which is also a day
on which dealings in Dollar deposits are carried out in the London interbank
market.
"Call Dates": June 30, 1996, December 31, 1998, and June
30, 2001.
"Capitalized Lease": a capitalized lease of any tangible
real or personal property, as determined pursuant to GAAP.
"Certificate": a loan certificate substantially in the
form of Exhibit K, or a loan certificate issued in exchange or replacement for
such a certificate.
"Change in Control": the acquisition by any Person (other than
Delta Air Lines, Inc., directly or indirectly) or group (within the meaning of
Rule 13d-5 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934), or by two or more Persons acting in concert,
of beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Securities and Exchange Act of
1934) of either (i) 33-1/3% or more of the outstanding shares of voting stock of
Borrower or (ii) the power to direct or cause the direction of the management
and policies of Borrower, whether through the ownership of voting securities, by
contract, or
2
<PAGE> 7
otherwise. A reorganization of Borrower into a holding company structure, in
which Borrower's shareholders' beneficial ownership (as so defined) of Borrower
and its Affiliates immediately after the reorganization is identical to such
beneficial ownership immediately before the reorganization, shall not by itself
be a "Change in Control".
"Closing Date": June 1, 1992 (the execution date for this
Agreement).
"Code": the Internal Revenue Code of 1986, as amended
from time to time, including effective date and transition rules (whether or not
codified). Any reference to a specific section of the Code shall be deemed to
include a reference to any corresponding provision of future law.
"Collateral": the "Collateral" under the Mortgage.
"Commitment": Agent's commitment to purchase the Notes, and
each Lender's commitment to participate, through the purchase of Certificates,
in the Agent's purchase of Notes, in the amount set forth opposite each Lender's
name in section 2.01, for an aggregate amount of up to $43,000,000; Borrower may
reduce such amount upon 30 days' prior written notice to Agent (which Agent
agrees to relay promptly to each Lender) and in the event of such reduction in
the total commitment, each Lender's commitment will be reduced pro rata based on
the relation of each Lender's commitment to the total commitment.
"Commitment Fee": the fee required to be paid by Borrower
to Agent, for the benefit of the Lenders, pursuant to section 2.03.
"Commitment Period": the period from the Closing Date through
the earliest of (w) March 31, 1993, (x) the date upon which the eighth Aircraft
is delivered to and accepted by Borrower pursuant to the Purchase Agreement, (y)
the date on which the remaining Commitment is terminated pursuant to section
8.02, and (z) a date set by Borrower pursuant to a notice sent to Agent (which
Agent agrees to relay promptly to each Lender) at least 30 days prior to such
date.
"Consent": a Consent and Agreement, substantially in the
form of Exhibit E, relating to a Purchase Agreement Assignment and dated the
same date as that Purchase Agreement Assignment.
"Current Maturities of Long-Term Debt": the amounts due,
within the 12-month period following any fiscal quarter end of
3
<PAGE> 8
Borrower, under long-term debt instruments of Borrower, as determined pursuant
to GAAP.
"Default": any event or condition that would become an
Event for Default upon the giving of notice or lapse of time or both, or any
Event of Default.
"Delta Agreement": the agreement between Delta Air Lines,
Inc. and Borrower, dated June 1, 1986, relating to joint marketing or code
sharing for interconnecting flights.
"Depreciation and Amortization Expense": the total
expenses of depreciation and amortization incurred by Borrower in the 12-month
period preceding any fiscal quarter end of Borrower, as determined pursuant to
GAAP.
"Dollars" and "$": United States dollars.
"Downpayment": 15% of Equipment Cost for the first $6,500,000
of Equipment Cost, and 100% of Equipment Cost in excess of $6,500,000, for an
Equipment Portion, minus any amounts that Borrower paid to Vendor before the
relevant Purchase Date (including deposits or letter-of-credit proceeds applied
to such Equipment Portion), pursuant to the Purchase Agreement, relating to such
Equipment Portion.
"Earnings Before Tax": the total earnings from all
sources, excluding extraordinary items, of Borrower in the 12-month period
preceding any fiscal quarter end of Borrower, prior to any deduction for federal
and state income taxes, as determined pursuant to GAAP.
"Embraer": Embraer-Empresa Brasileira de Aeronautica
S.A., a Brazilian corporation, and its successors and assigns.
"Environmental Complaint": any complaint, proceeding, or
order under any federal, state, or local statutes, laws, ordinances, codes,
rules, or regulations (including consent decrees and administrative orders)
relating to public health and safety and protection of the environment.
"Equipment Cost": the purchase price for an Equipment
Portion, as set forth in (and as adjusted pursuant to) the Purchase Agreement.
"Equipment Portion": an Aircraft and any Spare Parts
purchased with that Aircraft.
4
<PAGE> 9
"ERISA": defined in section 5.11.
"Event of Default": defined in section 8.01.
"Event of Loss": defined in the Mortgage.
"FAA": the Federal Aviation Administration of the United
States, or any instrumentality of the United States succeeding to its function.
"Facility Fee": defined in section 2.04.
"Financed Amount": the amount determined pursuant to the
second sentence of section 2.01.
"GAAP": generally accepted accounting principles as in effect
in the United States and applied on a basis consistent with that used in the
preparation of the financial statements referred to in section 5.05, except for
changes therein with which Borrower's independent public accountants concur that
are disclosed in the notes to the relevant financial statements.
"Guarantee": the document by that name, executed by ASA
Investments, Inc., in substantially the form of Exhibit J.
"Hazardous Substance": (a) any "hazardous substance", as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as in effect form time to time; (b) any "hazardous waste", as
defined by the Resource Conservation and Recovery Act, as in effect from time to
time; (c) any petroleum product; or (d) any pollutant or contaminant or
hazardous, dangerous, or toxic chemical, material, or substance within the
meaning of any other applicable federal, state, or local law, regulation,
ordinance, or requirement (including consent decrees and administrative orders)
relating to or imposing liability or standards of conduct concerning any
hazardous, toxic, or dangerous waste, substance, or material, all as amended or
hereafter amended.
"herein", "hereof", "hereunder", etc.: in, of, or under,
etc. this Agreement (and not merely in, of, under, etc. the section or provision
where that reference appears).
"Illegality Event": defined in section 10.03.
"including": containing, embracing, or involving the
enumerated item(s), but not necessarily limited to such item(s).
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"Indemnitee": Agent (individually and in its agency
capacity) or a Lender, or any agent (other than Proex Bank), employee, director,
successor, or permitted assign of any of the foregoing.
"Indebtedness": (a) total liabilities (as determined
pursuant to GAAP) of Borrower and its subsidiaries on a consolidated basis plus
(b) any debt of a Person that is not included in clause (a) above and that is
guaranteed by Borrower or one or more of its subsidiaries, plus (c) 70% of all
Operating Lease Obligations.
"Interest Expense": amounts paid by or due from Borrower
for interest accrued on Borrower's debts during the 12-month period preceding
any fiscal quarter end of Borrower, as determined pursuant to GAAP.
"Interest Payment Date": for a Note: each June 30 and
December 31 after the Purchase Date for that Note, through December 31, 2002;
except that any Interest Payment Date that falls on a day which is not a
Business Day shall instead occur on the following Business Day.
"Interest Period": for a Note: each period beginning on
an Interest Payment Date for that Note (or, in the case of the first Interest
Period for that Note, beginning on its Purchase Date) and ending on (but
excluding, for purposes of computing interest) the following Interest Payment
Date for that Note.
"Lender": Wachovia or Bank of Tokyo, or a successor or
assign of either.
"Liabilities": defined in section 9.01.
"Lien": any mortgage, pledge, assignment, encumbrance,
lien (statutory or other), or other security interest of any kind or nature
whatsoever (including any conditional sale or other title retention agreement,
or any lease in the nature thereof).
"Majority Lenders": Lenders who, at the pertinent time, have a
66-2/3% or more interest in the sum of (x) all outstanding Certificates and (y)
the unused Commitments outstanding of all Lenders, excluding any Certificates
then held by, or in which a participation has been granted to, Borrower or any
affiliate of Borrower.
"Materially Adverse Change" or "Materially Adverse
Effect": any event, act, condition, or occurrence of whatever
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<PAGE> 11
nature (including any adverse determination in any litigation, arbitration, or
governmental investigation or proceeding) that, singly or in conjunction with
any other event(s), act(s), condition(s), occurrence(s), whether or not related,
results in a materially adverse change in, or has a materially adverse effect
upon, any of (a) the financial condition, operations, business, properties, or
prospects of Borrower, (b) the rights and remedies of Agent or any Lender under
the Basic Documents, or Borrower's ability to perform its obligations under the
Basic Documents, or (c) the legality, validity, or enforceability of any Basic
Document, giving due consideration to any insurance coverage available to
Borrower for such event, act, condition, or occurrence.
"Mortgage": the Security Agreement and Chattel Mortgage
between Borrower and Agent, substantially in the form of Exhibit C.
"Mortgage Supplement": defined in section 3.01.
"Note": Borrower's promissory note, in the form of
Exhibit A, issued in connection with a designated Aircraft, or a note issued in
exchange or replacement for such a note.
"1991 10-K": Borrower's annual report on Form 10-K for
the year ended December 31, 1991.
"Officer's Certificate": a certificate signed in the name of
Borrower (or, with respect to section 6.04(c), of the Successor) by the chairman
of the board, the president, a vice president, or the treasurer of Borrower (or
the Successor).
"Operating Lease": a lease of tangible real or personal
property, other than a Capitalized Lease, requiring aggregate payments of
$100,000 or more during the fiscal year of the lessee.
"Operating Lease Obligations": the amount equal to the
aggregate of all scheduled lease payments (that will become due after any fiscal
quarter end of Borrower for purposes of the term "Indebtedness" as used in
section 6.09(a), but that were due during the 12-month period preceding any
fiscal quarter end of Borrower for purposes of section 6.09(b)) under the terms
of all of Borrower's Operating Leases.
"or": at least one, but not necessarily only one, of the
alternatives enumerated.
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"Participation Percentage": a particular Lender's
Commitment as a percentage of the total Commitment of Lenders, as set forth
opposite such Lender's name in section 2.01.
"Permitted Lessee": defined in the Mortgage
"Permitted Lien": defined in the Mortgage.
"Person": any individual, corporation, partnership, joint
venture, or other legal or governmental entity.
"Prepayment Event": the occurrence of any of the
following events (with respect to the specific Aircraft involved in the case of
clauses (a), (b), (c), or (d) below):
(a) Borrower fails to keep each Aircraft registered with the
FAA;
(b) Agent fails or ceases to have a perfected first-priority
security interest in each Aircraft, except when the Note
relating to such Aircraft has been fully paid;
(c) a Lien (other than a Permitted Lien) on an Aircraft exists
(and, if such Lien is subordinate in priority to Agent's
security interest in the Aircraft, has existed for at least
six months after a financial officer of Borrower becomes
aware of its existence).
(d) Borrower fails to obtain an FAA standard airworthiness
certificate for an Aircraft within four weeks following the
Purchase Date for such Aircraft;
(e) the expiration of 120 days after a Change in Control,
provided that (subject to confidentiality requirements under
the securities laws) Borrower shall notify Agent as soon as
it becomes aware of an actual or impending Change in Control
event, and Agent, acting in good faith, will notify Borrower
promptly after Agent reaches a tentative conclusion that it
will exercise its rights under section 4.04 (and this
Prepayment Event shall be separate and distinct from and
does not affect the affirmative covenant regarding merger
described in section 6.04 hereof);
(f) the expiration of 120 days after both (i) the Delta
Agreement is fundamentally amended or terminated (other than
a termination that is an Event of Default under section
8.01(d)) and (ii) Delta Air Lines, Inc. and its
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affiliates transfer all or substantially all of their
beneficial ownership of the Borrower to a Person not
affiliated with Delta Air Lines, Inc., provided, that
Borrower shall notify Agent as soon as it becomes aware of
any of the events described in (i) or (ii), and Agent,
acting in good faith, will notify Borrower promptly after
Agent reaches a tentative conclusion that it will exercise
its rights under section 4.04; or
(g) Borrower ceases to be an "air carrier" within the meaning
of the Act.
"Prime Rate": the interest rate so denominated and set by
Wachovia from time to time as an interest rate basis for borrowings. The Prime
Rate is one of several interest rate bases used by Wachovia. Wachovia lends at
interest rates above and below the Prime Rate.
"Proex Agreement": an agreement substantially in the form
of Exhibit B, or a substantially similar agreement entered into between Agent
and a Proex Bank.
"Proex Bank": Banco de Credito Nacional S.A., New York Branch
(or any other Person selected by Borrower and accepted by Agent in accordance
with section 13.13 to serve as a Proex bank under a Proex Agreement), in its
capacity as Proex bank under the Proex Agreement, and its successors in such
capacity.
"Proex Interest Payments": the Proex Interest Payments
described in section 3.01 of the Proex Agreement.
"Proex Program": the export support program (Programa de
Financiamento as Exportacoes - Proex) of the Federative Republic of Brazil, as
established by Law no. 8.187 of June 1, 1991, Resolution 1.845 of July 31, 1991,
as amended by Resolution 1.905 of February 18, 1992, of the Central Bank of
Brazil, Ordinance nos. 745 of August 1, 1991, and 133 of February 18, 1992, of
the Minister of Economy, Treasury, and Planning, and Ordinance no. 18 of
September 27, 1991, of the Department of Foreign Trade - Decex, and Circular
DIRIN/PROEX No. 1 of November 8, 1991, of Banco do Brasil, S.A., as from time to
time supplemented or amended.
"Proex Supplement": a document by that name,
substantially in the form of Schedule A to the Proex Agreement, executed and
delivered on a Purchase Date with respect to the Equipment Portion then being
delivered.
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"Purchase Agreement": Purchase Agreement No. 154-DCO/AC/90
(including all attachments, exhibits, and letter agreements thereto) dated
August 27, 1990, between Vendor and Borrower.
"Purchase Agreement Assignment": a document by that name,
substantially in the form of Exhibit D, executed and delivered on a Purchase
Date with respect to the Aircraft then being delivered.
"Purchase Date": a date on which Borrower purchases an
Aircraft and, simultaneously, the Lenders purchase the related Certificates and
Agent purchases the related Note.
"Regulatory Change": any change after the date of this
Agreement in federal, state, or Japanese law or regulations or the adoption or
making after such date of any interpretations or directives applying to a class
of banks including any Lender of or under any federal, state, or Japanese law or
mandatory regulations by any court or governmental or monetary authority charged
with the interpretation or administration thereof.
"Reuters Screen LIBO Page": the display designated as page
"LIBO" on the Reuter Monitor Money Rates Service (or such other page as may
replace the LIBO Page on that service for the purpose of displaying London
interbank offered rates for Dollar deposits).
"SEC Filings": the 1991 10-K.
"Secured Obligations": defined in section 1.01 of the
Mortgage.
"Series of Certificates": the Certificates issued in
connection with an Aircraft, or (if the context so requires) two or more
Aircraft.
"Spare Parts": the appliances, spare parts, and other
items of equipment purchased with the Aircraft under the Purchase Agreement.
"Successor": defined in section 6.04(a).
"Tangible Net Worth": defined in section 6.09.
"Taxes": defined in the last sentence of section 9.02(a).
"Taxing Authorities": defined in the first sentence of
section 9.02(a).
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"Vendor": Embraer.
"Wachovia": Wachovia Bank of Georgia, N.A., in its
individual capacity and not as agent.
Section 1.02 -- Use of Defined Terms. Any defined term used in
the plural preceded by the "the" encompasses all members of the relevant class.
Any defined term used in the singular preceded by "any" indicates any number of
the members of the relevant class. Any agreement or instrument as from time to
time supplemented and amended. A definition in singular form applies to the
plural form of the term, and vice versa.
Section 1.03 -- Section and Exhibit References, etc.
References to Articles, sections, exhibits, and the like refer to those in or
attached to this Agreement unless otherwise specified.
Article II
PURCHASE OF NOTES AND CERTIFICATES; PAYMENTS; REPLACEMENT NOTES
Section 2.01 -- Purchase of Notes and Certificates. Subject to the
satisfaction of the conditions precedent set forth in Article VII, and on the
terms and conditions set forth in this Article II, on the Purchase Date for
each Aircraft, (i) Borrower shall issue the related Note to Agent, and
Agent shall purchase that Note from Borrower, and (ii) Wachovia and Bank of
Tokyo each will purchase from Agent a Certificate, equal in face amount to
62.5% and 37.5%, respectively, of the related Note. The Financed Amount for
each Aircraft shall be 85% of the Equipment Cost for the related Equipment
Portion, so that the total Equipment Cost for such Aircraft shall be paid 15%
by Borrower and 85% by the Related Note, provided, that the Financed Amount
for any Aircraft financed under this Agreement shall not exceed 85% of
$6,500,000 (and Borrower shall pay 100% of Equipment Cost for any such Aircraft
in excess of $6,500,000) and the Financed Amount for all Aircraft financed
under this Agreement shall not exceed $47,000,000. Each Note and each Series
of Certificates shall be purchased for its face amount, and the total face
amount of each Series of Certificates, and the face amount of each Note,
each shall equal the Financed Amount for the related Aircraft. The term,
interest rate, and amortization schedule for each Note shall be as set forth
in the form of Note in Exhibit A, with the first Interest Payment Date
thereon being the first Interest Payment Date after the date of that Note, and
principal amortization being in 20 equal payments (with cents being rounded).
Each Lender's
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Commitment, pro rata share of such Financed Amount in accordance with its
Participation Percentage, and pro rata share of Equipment Cost for each Aircraft
financed under this Agreement shall be as follows:
Commitment Participation Percentage of
Name of Lender Per Aircraft Percentage Equipment Cost
- - -------------- ------------ ------------- --------------
Bank of Tokyo $2,071,875.00 37.5% 31.875%
Wachovia $3,453,125.00 62.5% 53.125%
Agent's and each Lender's Commitment shall expire at 3:00 p.m., Atlanta, Georgia
time, on the last day of the Commitment Period.
Section 2.02 -- Procedure for Purchase of Notes and
Certificates. The procedure to be followed in the purchase of Notes and
Certificates is described in Annex A. Neither Agent nor any Lender shall have
any duty to pay the pro rata share of the Financed Amount on any Purchase Date
for any Lender who fails to provide its pro rata share of such Financed Amount.
At Agent's offices at 191 Peachtree Street, N.E., Atlanta, Georgia 30303 (or
such other location as Agent shall designate in writing), not later than 2:00
p.m. (Atlanta, Georgia time) on the appropriate Purchase Date, upon fulfillment
of the conditions set forth in Annex A, Agent will purchase from Borrower the
Note related to the Aircraft that Borrower purchased on that date, and each
Lender will purchase from Agent the appropriate related Certificate, in each
case for a purchase price equal to the face amount thereof (as set forth in
section 2.01).
Section 2.03 -- Commitment Fee. In partial consideration of
the Lenders' agreement to fund Agent's purchase of the Notes, Borrower shall pay
to Agent, for the benefit of the Lenders, a Commitment Fee ("Commitment Fee")
during the Commitment Period, payable in arrears on the first day of each
quarter or partial quarter (for the prior quarter or partial quarter) after the
Closing Date, with a final payment on the last day of the Commitment Period, and
computed at a rate per annum (calculated on the basis of a 360-day year and
actual days elapsed) of 0.125% of the average daily unused portion of the
Lenders' Commitment. The term "quarter" as used in this section shall mean the
relevant calendar quarter ending on one of the following dates: March 31, June
30, September 30, or December 31.
Section 2.04 -- Facility Fee. In partial consideration
of the Lenders' agreement to finance the Aircraft pursuant to this Agreement,
Borrower shall pay to Agent, for the benefit of the
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<PAGE> 17
Lenders, a fee ("Facility Fee") of $26,875 (.0625% of the Commitment) within
three days after the Closing Date.
Section 2.05 -- Replacement Notes. If (a) any Note becomes
mutilated, defaced, lost, stolen, or destroyed, (b) a successor Agent is
appointed under section 11.08, (c) a Lender's Certificate(s) is/are purchased
under section 4.08, or (d) Borrower, Agent, or a Lender otherwise reasonably
requests, then, upon the request of Borrower, Agent, or any Lender, (x) Borrower
shall promptly execute and deliver to Lender a replacement Note for each such
Note as to which such a request is made, and (y) Agent shall surrender to
Borrower, in exchange for such replacement Note, the Note being replaced (if not
lost, stolen, or destroyed). Each replacement Note shall have terms as the Note
that it replaces, except for such changes as Borrower, Agent, and the Lenders
agree upon (such agreement not to be unreasonably withheld) following a request
by any of them for such a change.
Article III
SECURITY FOR BORROWER'S OBLIGATIONS
Section 3.01 -- Security Interest in Collateral. To secure
Borrower's obligations to Agent (in its individual and agency capacities) and
the Lenders under each Note and the other Basic Documents to which Borrower is
or becomes a party, Borrower shall execute and deliver to Agent, on each
Purchase Date, a supplement to the Mortgage (a "Mortgage Supplement"),
substantially in the form of Schedule A to the Mortgage, granting to Agent, for
the benefit of Agent (in its individual and agency capacities) and the Lenders,
a perfected purchase money security interest in the Aircraft being purchased
from Vendor on such Purchase Date.
Section 3.02 -- Set-Off Rights. If Borrower becomes insolvent,
or any Event of Default occurs, any indebtedness that any Lender then owes to
Borrower and any other property of Borrower that any Lender then holds may be
offset and applied toward the payment of any principal of or interest on any
Note to the extent of such Lender's beneficial interest therein represented by
Certificate(s), or any obligation of Borrower to such Lender under the Basic
Documents, whether or not any such other obligation is then due. Any Lender
exercising its rights under this section shall promptly notify Borrower and
Agent thereof, provided, that such Lender's failure to give such notice shall
not affect the validity thereof. Each Lender agrees that if it shall obtain
payment, pursuant to the exercise of its rights and under this
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<PAGE> 18
section, of a proportion of Borrower's aggregate indebtedness to it hereunder
and under the Notes beneficially owned by such Lender which is greater than
such Lender's proportion of the aggregate indebtedness hereunder and under the
Notes beneficially owned by it, (a) it shall simultaneously purchase from any
other Lender for cash an interest in such indebtedness beneficially held by
such other Lender so that the aggregate unpaid amount of such indebtedness and
interest thereon beneficially held by each Lender shall be proportionate to the
aggregate unpaid indebtedness beneficially owing to it by Borrower immediately
before such payment and (b) such other adjustments shall be made from time to
time as shall be equitable to ensure that each Lender shares such payment pro
rata in accordance with the principal outstanding under the Certificates which
it has purchased hereunder; provided, that if all or any portion of such
payment is thereafter recovered from such purchasing Lender, the purchase shall
be rescinded and the purchasing Lender restored to the extent of such recovery,
but without interest; provided further, that nothing in this section shall in
any way affect the right of any Lender to obtain payment of indebtedness other
than indebtedness hereunder or under the Notes or Certificates. Borrower
consents to the foregoing arrangements and agrees that any beneficial holder of
any such interest or other participation in Borrower's indebtedness may, to the
extent permitted by applicable law, exercise any and all rights of set-off as
fully as if such holder were a beneficial holder of such indebtedness in the
amount of such interest or other participation. If, under any bankruptcy,
insolvency, or other similar law, any Lender receives a secured claim in lieu
of a set-off to which this section 3.02 applies, such Lender shall, to the
extent practicable, exercise it rights in respect to such secured claim in a
manner consistent with the rights of the Lenders entitled under this section
3.02 to share in the benefits of any recovery on such secured claim.
Article IV
PAYMENTS UNDER THE NOTES AND CERTIFICATES
AND OTHER AMOUNTS PAYABLE BY BORROWER AND AGENT
Section 4.01 -- How Payments Are Made. Borrower shall
make its payments and prepayments of principal and interest due on the Notes,
all amounts due as Commitment Fees or a Facility Fee hereunder, and all other
amounts payable by Borrower to Agent or any Lender under the Basic Documents, to
Agent (ABA # 0610-0001-0) at 191 Peachtree Street, N.E., Atlanta, Georgia 30303,
for credit to account no. 17069749, Reference: Atlantic Southeast Airlines
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(1992 Financings)/Georgia Corporate Division, Attention: Gay Winters, ext. 4055
(or at such other place or account as Agent from time to time notifies
Borrower), in immediately available funds and in Dollars, no later than 12:00
noon (Atlanta, Georgia time) on the date when due. Any payment made by Borrower
to Agent after 12:00 noon (Atlanta, Georgia time) on any day shall be deemed to
have been made on the following Business Day. If any payment due under the Basic
Documents comes due on a day which is not a Business Day, such payment shall
instead be made on the following Business Day, and interest or Commitment Fees,
as the case may be, shall accrue at the applicable rate to the day of payment.
As between Borrower and the Lenders, any payment made to Agent shall be deemed
to be payment to the Lenders. Agent will distribute to each Lender its
distributable share of each such payment in accordance with Article XII hereof.
Section 4.02 -- Right to Prepay. Unless a Default exists,
after the first anniversary of the Closing Date, Borrower shall have the right
to prepay in full (but not in part) the outstanding principal amount of the Note
issued with respect to any designated Aircraft, without premium or penalty, and
upon such prepayment pursuant to this section, Agent shall prepay in full the
Certificates issued with respect to such Aircraft in the manner set forth in
Article XII hereof. Borrower shall give to Agent at least 15 days prior written
notice (which notice shall be irrevocable) of such prepayment, and Agent shall
relay that notice promptly to each Lender. Upon any prepayment of any Note under
this section 4.02, Borrower shall pay all accrued and unpaid interest on the
principal of such Note to the date of prepayment, together with all amounts
payable under section 10.02 with respect to such prepayment.
Section 4.03 -- Mandatory Prepayments. Following the
occurrence of an Event of Loss with respect to any Aircraft, Borrower shall
prepay the Note executed in connection with that Aircraft, in accordance with
section 7.01 of the Mortgage, and shall pay all amounts payable under section
10.02 with respect to such prepayment. Upon acceleration of the Notes pursuant
to section 8.02, Borrower shall prepay such Notes, and shall pay all amounts
payable under section 10.02 with respect to such prepayment.
Section 4.04 -- Mandatory Purchase. Upon the occurrence of a
Prepayment Event, Agent shall have the right to require Borrower to purchase or
cause the purchase of (x) in the case of a Prepayment Event described in clauses
(a) through (d) of the definition of such term in section 1.01, the Series of
Certificates related to the Aircraft to which such Prepayment Event relates and
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(y) in the case of any other Prepayment Event, all outstanding Certificates, in
either case, for a purchase price equal to (a) the cumulative then-outstanding
principal amount of such Series of Certificates, plus all accrued but unpaid
interest on such Series of Certificates to the date of such purchase, plus (b)
all amounts payable under section 10.02 with respect to such purchase. The
payment described in the preceding sentence shall be due 10 days after Agent
notifies Borrower that a Prepayment Event has occurred (if that Prepayment Event
has not been cured by then), and shall be made in the manner prescribed by
section 4.01. Upon such a purchase of a Series of Certificates, Agent shall
endorse the related Note in favor of the purchaser and deliver it to such
purchaser.
Section 4.05 -- Amount of Prepayment. Subject to section 4.07,
a Note shall be deemed satisfied in full upon the prepayment of all principal of
such Note, the payment of the interest due on or with respect to such Note on
such prepayment date, the payment of all past-due interest on or with respect to
such Note, and the payment of all amounts payable under section 10.02 with
respect to such prepayment.
Section 4.06 -- Interest on Past Due Amounts. Any amounts past
due (by acceleration or otherwise) and at any time outstanding under any Note or
from Borrower under any other Basic Document shall (to the extent permitted by
law) bear interest, payable on demand, from the due date until payment in full,
at a rate equal to 2% per annum above the Prime Rate.
Section 4.07 -- Limit on Interest Payable. The amount of
interest due or payable under this Agreement, any Note, or any Certificate shall
not in any event exceed the maximum allowable by applicable law, and this
sentence shall override any contrary provision in this Agreement, any Note, or
any Certificate.
Section 4.08 -- Lenders' Call Rights. Each Lender shall have
the right, in its sole discretion, to require Borrower to purchase or cause the
purchase of such Lender's Certificates on any Call Date, for a purchase price
equal to the then-outstanding principal amount of such Certificates, plus all
accrued but unpaid interest on such Certificates to the date of such purchase.
The purchase price shall be paid in the manner prescribed by section 4.01. To
exercise this right, a Lender must so notify Borrower (a "Call Notice") at least
18 months before the Call Date involved. After receiving a Lender's Call Notice,
Borrower may purchase or cause the purchase of such Lender's Certificates on any
Business Day before the Call Date, if it so notifies such Lender at least 10
Business Days before such purchase date (which such notice must
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<PAGE> 21
specify), for the purchase price specified in the first sentence of this
section. After a Lender gives a Call Notice, the interest rate on such Lender's
Certificates shall be increased to Bank LIBOR plus 3% per 360-day period
starting one year before the Call Date, and Borrower shall pay to Agent, on each
Interest Payment Date, for distribution on such Lender's Certificates, an amount
equal to such additional interest accrued through such Interest Payment Date.
Any purchaser of Certificates under this section (other than Borrower) must be
approved by Agent (such approval not to be unreasonable withheld), except for
any purchaser of Certificates from Wachovia. A Lender's Call Notice may include
(or be accompanied with) such Lender's proposal for changed terms or conditions
(including a change in interest rate) for the financing described in the Basic
Documents, which, if accepted by Borrower and consented to by Agent and the
other Lender(s), would result in such Lender's revoking its Call Notice. In
connection with any purchase of Certificates under this section, Agent and the
Lenders shall co-operate, at Borrower's expense, with Borrower's reasonable
instructions designed to preserve (or attempt to preserve) the Proex Interest
Payments with respect to the Note and Equipment Portion that relate to such
Certificates.
Section 4.09 -- Payments by Agent. Agent shall hold and
disburse all amounts that it receives under the Basic Documents in accordance
with the terms of this Agreement, including Article XII.
Section 4.10 -- Interest Rate Notices. Agent shall notify
Borrower of the actual Bank LIBOR for each Interest Period promptly after
determining it. Agent's failure to do so shall not affect Borrower's obligations
under the Basic Documents unless Agent fails to do so after receives notice of
that failure from Borrower, and Borrower is thereafter damaged by such failure.
ARTICLE V
BORROWER'S REPRESENTATION AND WARRANTIES
Borrower represents and warrants as follows:
Section 5.01 -- Corporate Standing. Borrower is a duly
organized corporation existing in good standing under the laws of Georgia, has
the corporate power and legal authority to own or lease its properties and to
carry on its business as now conducted and as now proposed to be conducted, and
is duly qualified to do business in all jurisdictions wherein such qualification
is necessary (except in any jurisdictions in which the failure to
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<PAGE> 22
qualify would have no materially adverse effect on its business or on its
ability to carry out its obligations under the Basic Documents to which it is
(or is to become) a party.
Section 5.02 -- Corporate Powers. Borrower's execution,
delivery, and performance of the Basic Documents to which it is (or is to
become) a party are within Borrower's corporate powers; and the Basic Documents
to which it is (or is to become) a party have been duly authorized by all
necessary corporate action on Borrower's part, and do not contravene, result in
a breach of, or require any consent under any law, judgment, decree, order, or
contractual restriction binding on Borrower or any agreement or instrument to
which Borrower is a party or to which it or any of its property is subject,
except that the legality and validity of each Purchase Agreement Assignment is
subject to the execution and delivery of the related Consent.
Section 5.03 -- Binding Effect. The Basic Documents to which
Borrower is (or is to become) a party are (or will be when executed and
delivered) legal, valid, and binding obligations of Borrower enforceable against
Borrower in accordance with their terms, except as may be limited by bankruptcy,
insolvency, or other similar laws affecting enforcement or creditors' rights
generally.
Section 5.04 -- Litigation. Except as disclosed in the SEC
Filings, there are no pending or (to the best of Borrower's knowledge after due
inquiry) threatened actions or proceedings before any court or administrative
agency which may be expected to have a Materially Adverse Effect or which seek
to question or set aside any of the transactions herein contemplated.
Section 5.05 -- Financial Statements. The audited balance
sheet as of December 31, 1991 for Borrower and its consolidated subsidiaries,
and the related results of operations for the year then ended, have been
prepared in accordance with GAAP and correctly present Borrower's financial
condition as of such date and results of operations for such period, and since
December 31, 1991, there has been no Materially Adverse Change.
Section 5.06 -- Taxes. Borrower has filed all tax returns
which it is or was required to file, and has paid all taxes shown to be due and
payable on those returns or on any assessment received by it, except such taxes
of Borrower, if any, as are being contested diligently in good faith, and by
appropriate proceedings, and as to which adequate reserves have been provided in
accordance with GAAP.
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Section 5.07 -- Status as United States Citizen and Air
Carrier. Borrower is a "citizen of the United States" as that term is used in
section 101(16) of the Act, and is a duly certified "air carrier" within the
meaning of the Act.
Section 5.08 -- Location of Offices. Borrower's chief
executive office and principal place of business, and the place where Borrower
keeps it financial records concerning the Collateral, is located at its address
referred to in section 13.02.
Section 5.09 -- Governmental Consents. Neither the execution,
delivery, and performance of any of the Basic Documents (other than the Proex
Agreement), nor the consummation of any of the transactions contemplated thereby
by Borrower or Vendor (including the importation of the Aircraft into the United
States from Brazil), requires the consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any federal,
state, or foreign governmental authority or agency (including any judicial body)
except for (a) the filing and recording of the Mortgage, and of the FAA bill of
sale, the FAA application for registration, and the Mortgage Supplement for each
Aircraft with the FAA; (b) the filing and recording of UCC-1 financing
statements for each Aircraft with the Superior Court Clerk Offices in Bibb,
Clayton, and Fulton County, Georgia, and in the appropriate places in Texas and
Arkansas; (c) the registration of each Aircraft with the FAA pursuant to the
Act; (d) the filing of any necessary documents with customs officials; and (e)
any necessary action with respect to the Proex Program.
Section 5.10 -- Condition of Aircraft. On each Purchase Date,
the Aircraft to be delivered on such Purchase Date shall be in such condition as
is sufficient to enable Borrower to obtain a standard U.S. certificate of
airworthiness for such Aircraft and to
enable such airworthiness certificate to be maintained in good standing; and, to
Borrower's knowledge (which shall be based on acceptance tests by Borrower in
accordance with its usual practices, to the extent permitted under the Purchase
Agreement), such Aircraft shall otherwise conform in all material respects to
the specifications for such Aircraft set forth in the Purchase Agreement.
Section 5.11 - Absence of ERISA Liability. Each employee
pension benefit plan (as defined in section 3(2) of the Employee Retirement
Income Security Act of 1974, as from time to time amended ("ERISA")) of Borrower
is in compliance with the applicable provisions of ERISA and of the Internal
Revenue Code of 1986, as from time to time amended, in all respects, except to
the extent
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that noncompliance would not be materially adverse to Borrower's business,
assets, financial condition, or ability to perform its obligations under the
Basic Documents.
Section 5.12 -- Delta Agreement. The Delta Agreement is (a)
the only agreement between Delta Air Lines, Inc. and Borrower relating to joint
marketing or code sharing for interconnecting flights, and (b) in full force and
effect. There exists no default under the terms of the Delta Agreement and there
has not occurred any event that would ripen into a default upon the giving of
notice or passage of time.
Section 5.13 -- Subsidiaries; Stock Ownership. Borrower owns
100% of the outstanding stock of ASA Investments, Inc. and Borrower has no
material stock or other equity investment in any other corporation, partnership,
or other Person.
Section 5.14 -- Investment Company Status. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
Section 5.15 -- Solvency. Borrower (i) has sufficient capital
to carry on all businesses and transactions in which it engages or is about to
engage, (ii) owns property having a value both at fair valuation and at present
fair salable value greater than the amount required to pay Borrower's debts
(iii) is solvent, (iv) will continue to be solvent after the creation of the
security interests in the Collateral by the Basic Documents, and after assuming
all obligations related to the Basic Documents, and (v) is able to pay its debts
as they mature.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Note, or any amount owed by Borrower under any
other Basic Document, remains outstanding or unpaid or Agent or any Lender has
any Commitment hereunder:
Section 6.01 -- Financial Statements. Borrower shall furnish
to Agent and each Lender:
(a) within 45 days after the end of each of the first three
quarters in each fiscal year, consolidated statements of operations of
Borrower and its consolidated subsidiaries for
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the period from the beginning of the then-current fiscal year to the
end of such quarterly period, and balance sheets of Borrower and its
consolidated subsidiaries, on a consolidated basis, as of the end of
such quarter prepared in accordance with GAAP and setting forth in
each case in comparative form figures for the corresponding period in
the preceding year, all in reasonable detail and certified by the
Chief Financial Officer of Borrower, subject to changes resulting from
year-end adjustments, and Form 10-Q for Borrower (or, if Borrower is
not a SEC-reporting company because of having been reorganized into a
subsidiary of a holding company, then for such holding company) for
such period;
(b) within 90 days after the end of each fiscal year,
consolidated statements of operations of Borrower and its consolidated
subsidiaries, for such year, and the balance sheets of Borrower and
its consolidated subsidiaries, on a consolidated basis, as of the end
of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in
reasonable detail, and certified to Borrower by its independent
certified public accountants and to each Lender by Borrower's Chief
Financial Officer, as presenting fairly the financial position and
results of operations of Borrower and its consolidated subsidiaries
and as having been prepared in accordance with GAAP, and Form 10-K for
Borrower (or, if Borrower is not a SEC-reporting company because of
having been reorganized into a subsidiary of a holding company, then
for such holding company) for such period;
(c) within two Business Days after any officer of Borrower
obtains knowledge of any Default, an Officer's Certificate specifying
its nature, the period of its existence, and what action Borrower
proposes to take with respect to it; and
(d) promptly upon request, such other data or information
(financial or otherwise) regarding Borrower or the Collateral as Agent
from time to time reasonably requests.
Section 6.02 -- Inspection of Collateral and Records. Borrower
shall permit any person(s) from time to time designated in writing by Agent, at
the Lenders' expense (or at Borrower's expense if a Default exists at the time),
to visit and inspect any of the Collateral and Borrower's (or any Permitted
Lessee's) records with respect to the Collateral, at such times as Agent
reasonably requests, and to discuss Borrower's affairs, finances, and accounts
with Borrower's officers. No such inspection shall unreasonably
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interfere with Borrower's (or any Permitted Lessee's) operations or maintenance.
Neither the Lenders nor Agent shall have any duty to make any such inspection,
and the Lenders and Agent shall not incur any liability or obligation by reason
of not making any such inspection. Upon Agent's request, Borrower shall promptly
notify Agent of the maintenance operations then scheduled on the Aircraft for
the six-month period following such request.
Section 6.03 -- Corporate Existence. Except as permitted by
section 6.04, Borrower shall maintain its corporate existence in good standing
in the state of its incorporation and in all jurisdictions where qualification
is then necessary (except in any jurisdiction in which the failure to qualify
would have no materially adverse affect on its business or on its ability to
carry out its obligations under the Basic Documents to which it is (or is to
become) a party). Borrower shall preserve and renew its rights (charter and
statutory), patents, and franchises, unless Borrower determines in good faith
that the preservation thereof is no longer necessary or desirable in the conduct
of its business and that the loss thereof will not adversely affect Agent's or
the Lenders' rights or Borrower's business, assets, operations, condition
(financial or otherwise).
Section 6.04 -- Merger, etc. Without limiting the requirements
regarding mandatory purchase of Certificates contained in section 4.04 hereof,
Borrower shall not consolidate with or merge into any other corporation, or
convey, transfer, or lease all or substantially all of its assets as an entirety
to any Person, unless:
(a) the corporation formed by such consolidation or the Person
who acquires by conveyance, transfer, or lease all or substantially
all of Borrower's assets as an entirety (the "Successor") (i) is a
corporation organized and existing under the laws of the United States
of America or any state or the District of Columbia, (ii) is a
"citizen of the United States" as defined in section 101(16) of the
Act, and (iii) is an air carrier (within the meaning of section 101(3)
of the Act) certificated under section 604(b) of the Act; and, in the
case of such a consolidation, conveyance, transfer or lease, the
Successor, (x) executes and delivers to Agent and the Lenders an
agreement, in form and substance satisfactory to Majority Lenders,
containing an assumption by the Successor of the due
and punctual performance and observance of Borrower's obligations
under the Basic Documents to which Borrower is then a party, and (y)
makes such filings and recordings,
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including any filing or recording with the FAA pursuant to the Act or
any filing under the UCC, as are necessary to evidence such
consolidation, merger, conveyance, transfer, or lease with or to the
Successor;
(b) immediately after giving effect to such transaction,(i) no
Default exists and (ii) Borrower's or the Successor's, as the case may
be, business, assets, operations, condition (financial or otherwise),
and financial and other ability to perform its obligations under the
Basic Documents will not be adversely affected by such transaction in
any material respect; and
(c) Borrower or the Successor delivers to Agent and each
Lender, promptly upon consummation of such transaction, an Officer's
Certificate stating that the conditions precedent set forth in clause
(a) have been compiled with an opinion of counsel for Borrower or for
the Successor, in form and substance satisfactory to Majority Lenders,
stating that the agreements entered into to effect such consolidation,
merger, conveyance, transfer, or lease and such assumption agreements
have been duly authorized, executed, and delivered by the Successor
(or in the case of a merger, by Borrower) and that they (and the Basic
Documents so assumed) constitute legal, valid, and binding obligations
of the Successor (or in the case of a merger, or Borrower),
enforceable in accordance with their terms (to the same extent as the
Basic Documents so assumed were enforceable against Borrower
immediately prior to such transaction); and that all conditions
precedent which are legal in nature provided for in this Agreement and
relating to such transaction have been fulfilled.
Upon any such consolidation, conveyance, transfer, or lease, the
Successor shall succeed to, shall be substituted for, and may exercise every
right and power of Borrower under the Basic Documents to which Borrower is a
party, with the same effect as if the Successor had been named as Borrower
therein. No such conveyance, transfer, or lease of substantially all Borrower's
assets as an entirety shall have the effect of releasing Borrower (or any
Successor) from its liability under the Basic Documents to which it is a party.
Nothing in this section shall permit any lease, sublease, or other arrangement
for the use, operation, or possession of the Aircraft except in compliance with
the applicable provisions of this Agreement and the Mortgage.
Section 6.05 -- Citizenship and Air Carrier Status. Borrower
will at all times remain a "citizen of the United States"
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as defined in section 101(6) of the Act and an "air carrier" within the
meaning of the Act.
Section 6.06 -- Compliance with ERISA.
(a) Borrower will, at all times, make prompt payment of
contributions that it is required to make to any employee benefit plan
to which it is a party as are necessary to meet the minimum funding
standards for such an employee benefit plan, as required by ERISA.
(b) Within two Business Day after the occurrence of any event
or circumstance, including any event which is classified as a
"Reportable Event" under ERISA, in connection with any employee
benefit plan to which it is a party, that might constitute grounds for
termination of an employee benefit plan to which Borrower is a party
by the Pension Benefit Guaranty Corporation or might result in the
appointment of a trustee by a United States District Court under
section 4042 of ERISA to administer such employee benefit plan,
Borrower will provide Agent and each Lender with an Officer's
Certificate describing the event or circumstance, stating the reasons
for any such action by the Pension Benefit Guaranty Corporation or a
United States District Court, and specifying the action Borrower
proposes to take with respect thereto.
Section 6.07 -- Disposition of Assets. Borrower will not
dispose of any its assets, other than in the ordinary course of its business,
unless it receives full, fair, and reasonable consideration for such assets; and
Borrower will not during any twelve-month period dispose of assets, other than
in the ordinary course of its business, which have an aggregate book value in
excess of $5,000,000; provided, that Borrower shall have the right to dispose of
any aircraft for at least such aircraft's book value and such sale of an
aircraft for at least book value will not be included in the calculation of the
$5,000,000 of assets sold in a twelve-month period. The book value of an
aircraft shall be determined in accordance with GAAP. For avoidance of doubt,
the "ordinary course" of Borrower's business generally shall include (x)
acquisitions or dispositions of marketable securities (other than acquisitions
or dispositions exceeding 5% of any class of "equity security", as defined in
the Securities Exchange Act of 1934) and (y) the disposition of parts of
discontinued aircraft, engines, or propellers not constituting part of a program
to reduce Borrower's fleet in any material respect.
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Section 6.08 -- Performance of Delta Agreement. Borrower shall
faithfully perform all obligations it has under the Delta Agreement.
Section 6.09 -- Financial Covenants. Borrower shall not permit
at any fiscal quarter end of Borrower on a consolidated basis (consolidating
Borrower and its subsidiaries) for any reason (including a Lender's exercise of
its rights under section 4.08):
(a) Debt to TNW. its ratio of Indebtedness to Tangible Net
Worth to exceed 3.5 to 1. "Tangible Net Worth" shall mean Book Net
Worth minus (x) the amount, if any, of Borrower's and its
subsidiaries' assets which would be treated as intangibles under
generally accepted accounting principles, (y) any writeup in the book
value of any fixed asset resulting from a revelation thereof, and (z)
the amount, if any, at which shares of stock of Borrower appear on the
asset side of the Borrower's balance sheet. "Book Net Worth" shall
mean the book value of Borrower's and its subsidiaries' total assets
located in the United States of America (exclusive of any indebtedness
owed to Borrower or its subsidiaries by an affiliate of Borrower)
minus Borrower's and its subsidiaries' total liabilities. For
avoidance of doubt, the phrase "total assets located in the United
States of America" shall include marketable securities and commercial
paper issued by a foreign entity but held in the United States of
America by Borrower or any of its subsidiaries.
(b) Fixed Charge Coverage. its ratio of (i) Earnings Before
Tax plus Interest Expense plus Depreciation and Amortization Expense
plus Operating Lease Obligations to (ii) Interest Expense plus Current
Maturities of Long-Term Debt plus Operating Lease Obligations, to be
less than 1.4 to 1.
(c) Minimum TNW. its Tangible Net Worth to be less than (i)
$75 million for any fiscal quarter ending in 1992, (ii) $80 million
for any fiscal quarter ending in 1993, (iii) $85 million for any
fiscal quarter ending in 1994, and (iv) $90 million for any fiscal
quarter ending in 1995 or after.
(d) Current Ratio. its ratio of (i) current assets
(determined in accordance with GAAP), other than amounts due from
affiliates, to (ii) current liabilities (determined in accordance with
GAAP), to be less than 1 to 1.
Section 6.10 -- Certificate of No Default. Along with
Borrower's delivery of the quarterly financial statements and
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annual financial statements required by sections 6.01(a) and 6.01(b), Borrower
shall furnish to each Lender a certificate of Borrower's Chief Financial Officer
certifying that to the best of his or her knowledge no Default exists (or, if a
Default does exist, a statement as to its nature and the action that Borrower
proposes to take with respect to it).
Section 6.11 -- Insurance on Fleet. Borrower will at all times
maintain, with insurers of recognized responsibility, insurance on each aircraft
in its fleet substantially similar (as to type, amounts, and risks covered) to
the insurance Borrower is required to maintain on the Aircraft under the terms
of sections 6.01 and 6.05 of the Mortgage, provided, that Borrower shall not be
required to carry hull insurance for any aircraft (other than an Aircraft) that
has a fair market value of less than $1,000,000.
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASE OF NOTES
Section 7.01 -- Conditions Precedent to the Purchase of the
Initial Note. Each Lender's obligation and Agent's obligation to purchase a
Certificate or Note on the first Purchase Date are subject to the satisfaction
of the following conditions precedent and Agent's receipt on or before such
initial Purchase Date of the following, in form and substance satisfactory to
Agent:
(a) a certificate of Borrower's secretary, dated the Purchase
Date, certifying attached copies of the resolutions of Borrower's
board of directors evidencing approval of the transactions
contemplated by the Basic Documents to which it is (or is to become) a
party, and showing the names and specimen signature(s) (or copies
thereof) of Borrower's officer(s) authorized to sign this Agreement
and the related documents to which it is (or is to become) a party,
(b) an executed Proex Agreement,
(c) an executed Mortgage,
(d) an executed Guarantee,
(e) an Officer's Certificate certifying an attached
copy of the Purchase Agreement, and
(f) copies of the SEC Filings.
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In addition, Borrower's obligation to close on the first Purchase Date is
subject to its receipt of an executed letter agreement among Borrower, the
Lenders, and Agent, in form and substance satisfactory to each, concerning
sections 4.02(d)(i) and 6.05 of the Mortgage.
Section 7.02 -- Conditions Precedent to the Purchase of All
Notes. Each Lender's obligation and Agent's obligation to purchase each
Certificate and Note (including each initial Certificate and the Initial Note)
is subject to the additional conditions precedent that:
(a) Agent shall have received the following, each dated as of
the pertinent Purchase Date, in form and substance satisfactory to
Agent:
(1) the Note for the relevant Aircraft,
executed by Borrower,
(2) an executed Mortgage Supplement with
respect to the relevant Aircraft,
(3) an executed Purchase Agreement Assignment,
with the related executed Consent, with respect to the
relevant Aircraft,
(4) an executed Proex Supplement with respect to
the relevant Aircraft,
(5) an Officer's Certificate to the effect that: (x)
Borrower's representations and warranties in Article V of this
Agreement and section 6 of the relevant Purchase Agreement
Assignment are true and accurate as though made on the
Purchase Date, and (y) no Default exists or will result from
Agent's purchase of such Note,
(6) a certificate of insurance describing the
insurance maintained by Borrower with respect to the Aircraft
being purchased, and stating that such insurance conforms to
the requirements of the Mortgage,
(7) an opinion from Borrower's counsel,
substantially in the form of Exhibit F,
(8) an opinion from Crowe & Dunlevy, special FAA
counsel, substantially in the form of Exhibit G, covering
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the Aircraft that is the subject of the Note being purchased,
(9) an opinion of counsel to Embraer,
substantially in the form of Exhibit H,
(10) an opinion of Brazilian counsel,
substantially in the form of Exhibit I, and
(11) such additional opinion(s) (including, if
requested, from Troutman, Sanders, Lockerman & Ashmore) and
document(s) as Agent requests;
(b) Agent shall have received copies of the necessary FAA
Application for Aircraft Registration and FAA Bill of Sale pertaining
to the Aircraft being purchased;
(c) Borrower's representations and warranties in the
Basic Documents shall be true and accurate as though made on and as of
such Purchase Date,
(d) no Default shall exist or shall result from Agent's
purchase of such Note;
(e) all filings, recordings, and other actions necessary to
establish, protect, preserve, and perfect Agent's and the Lenders'
interests under the Mortgage shall have been duly made or taken;
(f) all necessary consents, approvals, licenses, permits,
declarations, or registrations then required in connection with the
execution, delivery, performance, validity, and enforceability of the
Basic Documents and the transactions contemplated thereby shall have
been obtained;
(g) Agent shall have received a copy of the approval of
the application for coverage of the Purchase of the Aircraft by the
Proex Program;
(h)in Agent's reasonable judgment, since December 31, 1991, no
Materially Adverse Change shall have occurred;
(i) each Lender shall have made available the amount of its
Participation Percentage of the Financed Amount for the relevant
Aircraft in accordance with Article II hereof; and
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(j) each Lender shall have received (c/o Troutman, Sanders,
Lockerman & Ashmore) the following, each dated as of the pertinent
Purchase Date, in form and substance reasonably satisfactory to each
Lender:
(1) the Certificate issuable to it with respect
to the relevant Aircraft, duly executed by Agent, and
(2) an executed copy of each document referred
to in section 7.02(a)(2) through (10).
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.01 -- Events of Default. Each of the following shall
constitute an "Event of Default":
(a) Borrower fails to make any payment due from
Borrower on any Note or under any other Basic Document (including any
on any Note or under any other Basic Document (including any amount
due under section 4.04 hereof) when due, and such failure continues
for five Business Days after Borrower's receipt of notice of such
failure from Agent or any Lender;
(b) any representation or warranty made by Borrower in
the Basic Documents, or in any certificate or other document
that is furnishes pursuant to the Basic Documents, proves to
have been incorrect in any material respect when made;
(c) Borrower fails to maintain the insurance required by
the terms of the Mortgage;
(d) the Delta Agreement is voluntarily terminated by
Borrower, or is amended so as to have a Materially Adverse Effect on
Borrower (this Event of Default being separate and distinct from and
not affecting the Prepayment Event relating to the Delta Agreement
described in clause (f) of the definition of "Prepayment Event");
(e) Borrower fails to provide Agent and each Lender with
the Officer's Certificate required by section 6.01(c) or 6.06(b)
within 10 days after any of Borrower's officers obtains notice of a
Default or the ERISA-related event or circumstance occurs,
respectively;
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(f) Borrower fails in any material respect to perform any
other covenant or agreement in the Basic Documents (including section
6.09 hereof), and (if remediable) such failure to perform continues
for 30 days after Borrower's receipt of notice of such default from
Agent or any Lender;
(g) Borrower (1) applies for or consents to the appointment
of, or the taking of possession by, a receiver, custodian, trustee, or
liquidator of itself or of all or a majority of its property, (2)
makes a general assignment for the benefit of its creditors, (3)
commences a voluntary case under the federal Bankruptcy Code (as now
or hereafter in effect), (4) files a petition seeking to take
advantage (as debtor) of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment
of debts, or (5) fails to controvert in a timely manner, or acquiesces
in writing to, any petition filed against it in an involuntary case
under the federal Bankruptcy Code;
(h) a proceeding or case is commenced, without Borrower's
application or consent, in any court of competent jurisdiction,
seeking (1) its liquidation, reorganization, dissolution, or
winding-up, or the composition or readjustment of its debts, (2) the
appointment of a trustee, receiver, custodian, liquidator, or the like
of Borrower or of all or a majority of its assets, or (3) similar
relief in respect of Borrower under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment
of debts, and such proceeding or case continues undismissed, or an
order, judgment, or decree approving or ordering any of the foregoing
is entered and continues unstayed and in effect, for a period of 60
days; or an order for relief against Borrower is entered in an
involuntary case under the federal Bankruptcy Code;
(i) loan, lease, or deferred purchase obligations of Borrower
totalling more than $1 million are in default after the expiration of
any applicable grace period, if the effect of such default is to
permit such obligations to be accelerated or otherwise declared to be
due and payable prior to their stated maturity, or Borrower defaults
in the payment when due of more than $1 million of loan, lease, or
deferred purchase obligations, or Borrower defaults in the payment of
any amount when due under the terms of any financing with any Lender,
provided such financing was, at any time, for an amount in excess of
$1 million;
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(j) one or more judgment(s) is/are rendered by one or more
court(s) of competent jurisdiction against Borrower for a total of
more than $1 million and is/are not stayed or discharged, or fully
bonded against, within 60 days of the date of entry;
(k) any "Reportable Event" under ERISA shall have occurred, or
any finding or determination shall be made with respect to an employee
benefit plan to which Borrower is a party under section 4041(c) or (e)
of ERISA, or any fact or circumstance shall occur with respect to an
employee benefit plan to which Borrower is a party, that, in the
opinion of Majority Lenders, provides grounds for the commencement of
any proceeding under section 4042 of ERISA, or any proceeding shall be
commenced under section 4042 of ERISA with respect to an employee
benefit plan to which Borrower is a party; or
(l) Borrower shall deny any further liability under any
Note or under any other Basic Document.
Section 8.02 -- Remedies. If an Event of Default (other than
under section 8.01 (g) or (h)) exists, Agent may (and upon its receipt of
written request by Majority Lenders shall) declare all Notes to be immediately
due and payable, whereupon all Notes shall become and be immediately due and
payable without presentment, demand, protest, or other notice of any kind, all
of which Borrower hereby waives, and all Commitments shall terminate. If an
Event of Default under section 8.01(g) or (h) occurs, all Notes automatically
shall become immediately due and payable and all Commitments automatically shall
immediately terminate, without presentment, demand, protest, or notice of any
kind, all of which Borrower hereby waives. Upon the occurrence of any Event of
Default, Agent may (and upon its receipt of written request by Majority Lenders
shall) exercise any of its rights and remedies under the Basic Documents,
including the Mortgage.
ARTICLE IX
BORROWER'S INDEMNITIES
Section 9.01 -- General Indemnity. Borrower assumes liability
for, and agrees to indemnify each Indemnitee against, and on written demand to
pay, or to reimburse each Indemnitee for the payment of, any and all
Liabilities.
"Liabilities" means any and all liabilities, obligations, losses,
damages, penalties, claims (including claims involving
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strict liability in tort), suits, actions, costs, expenses, and disbursements,
including legal fees and expenses, of whatsoever kind and nature imposed on,
incurred by, or asserted against any Indemnitee relating to or arising out of
any Basic Document, the enforcement against Borrower of any of the terms of the
Basic Documents, or any lease or relinquishment of possession of the Aircraft or
any part thereof or any action or inaction of Borrower or of any lessee,
assignee, or transferee of Borrower in connection therewith, the purchase of the
Aircraft and the Spare Parts under the Purchase Agreement, the ownership of the
Aircraft, the acquisition, delivery, nondelivery, acceptance, nonacceptance,
rejection, registration, deregistration, insuring, storage, manufacture,
assembly, transportation, importation, exportation, maintenance, condition,
modification, testing, repair, fitness for use, merchantability, sale,
abandonment, lease, sublease, assignment, transfer, transfer of title,
possession, repossession, use, operation, return, or other application or
disposition of the Aircraft and the Spare Parts or any component thereof, the
condition upon return thereof after repossession following the occurrence of an
Event of Default or following the exercise of remedies under the Mortgage,
including latent or other defects, whether or not discoverable, loss of or
damage to any property or the environment, death or injury of any person, and
any claim for patent, trademark, copyright, or mask work infringement and the
violation or infringement by Borrower of any laws, rules, or regulations, or
(without limiting any of the foregoing) any breach by Borrower of, noncompliance
by Borrower with, or misrepresentation made or deemed made by or on behalf of
Borrower in, under, or in connection with the Purchase Agreement or any Purchase
Agreement Assignment or any warranty, certificate, or agreement made or
delivered in, under, or in connection with the Purchase Agreement or any
Purchase Agreement Assignment. Without limiting the generality of the foregoing,
"Liabilities" shall in any event include any and all losses, damages (including
all foreseeable and unforeseeable consequential damages), costs, claims,
liabilities, penalties, fees, injuries, or expenses of whatever kind or nature
(including reasonable counsel fees and costs) that an Indemnitee sustains or
incurs in connection with: any Environmental Complaint, any Hazardous Substance
release, disposal, recycling, storage, handling, treatment or exposure, or any
environmental clean-up (including any remedial, removal, or response action) in
connection with or relating to (i) any property
that Borrower or any of its affiliates now or in the past or future shall own,
operate or use, or (ii) any operations of Borrower or
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any of its affiliates, whether such operations took place before or after the
date of this Agreement.
However, this section 9.01 shall not require Borrower to pay or indemnify
any Indemnitee under this section (i) for any Liability to the extent resulting
from such Indemnitee's acts of gross negligence or willful misconduct; (ii) for
any Taxes (Borrower's duties in respect of Taxes being set forth in section
9.02) or for any cost or expense relating to the preparation, execution,
delivery, or enforcement of the Basic Documents (Borrower's duties in respect of
such costs and expenses being set forth in section 13.03); (iii) for any
Liability that such Indemnitee incurs to the extent resulting from its breach of
any of its representations, warranties, or covenants in any Basic Document; (iv)
for any Liability to the extent resulting from a claim against such Indemnitee
not related to (x) any Equipment Portion, (y) any action or inaction of Borrower
or any lessee, assignee, or transferee of Borrower, or (z) any of the
transactions contemplated by the Basic Documents; (v) for any Liability with
respect to transfer taxes or other expenses payable with respect to the transfer
of any Note or any Certificate, other than a transfer after the occurrence of an
Event of Default; or (vi) for any violation or purported violation of any law
relating to usury or the charging or collecting of excess interest or finance
charges.
If any Indemnitee obtains knowledge of any claim or liability required to
be indemnified against under this section 9.01, such Indemnitee shall promptly
notify Borrower, but the failure to do so shall not relieve Borrower from any
liability that it otherwise would have to such Indemnitee under this section.
Upon an Indemnitee's request, the defense of any Liability for which Borrower
would be required to indemnify such Indemnitee hereunder shall be conducted by
Borrower, with counsel selected by Borrower and satisfactory to Lender. However,
if the defense of any such Liability is conducted by Agent or any Lender, Agent
or such Lender shall select the counsel to conduct it, but shall consult with
Borrower as to such selection; provided, that the decision as to which counsel
to select shall be and remain Agent or such Lender's.
Borrower shall be obligated under this section 9.01 irrespective of whether
the Indemnitee is also indemnified with respect to the same matter under any
other Basic Document or other document by any other Person, and the Indemnitee
may proceed directly against Borrower under this section 9.01 without first
resorting to any such rights of indemnification. Upon the payment in full of any
indemnities due and owing under this section 9.01, Borrower shall be subrogated
to any right of the Indemnitee in respect of the matter against which indemnity
has been given.
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Borrower's indemnities in this section shall survive expiration or termination
of the Mortgage and payment in full of the Notes.
Any payment or indemnity pursuant to this section 9.01 shall include the
amount, if any, necessary to hold the Indemnitee harmless on an after-tax basis
from all taxes required to be paid by such recipient with respect to such
payment or indemnity under laws of any federal, state, or local government or
taxing authority in the United States or by any foreign government or any
political subdivision or taxing authority thereof. The amount of any payment or
indemnity required under this section shall be determined by the Indemnitee
reasonably and in good faith, and that determination shall be conclusive. Upon
Borrower's request and at Borrower's expense, the Indemnitee will provide
Borrower with a summary explanation of the basis for the Indemnitee's
computations.
Section 9.02 -- Taxes.
(a) Indemnity. Except as provided in section 9.02(b), Borrower agrees
to indemnify each Indemnitee against, and on written demand to pay or reimburse
each Indemnitee for the payment of, any and all Taxes imposed upon or asserted
against any Indemnitee, any Equipment Portion or any part thereof or interest
therein, any Basic Document, any lease of any Aircraft or any part thereof, or
the rentals received under such a lease, by any federal, state, or local
government or other taxing authority in the United States (including any
territory or possession of the United States) or by any foreign government or
any political subdivision or taxing authority thereof where any part of an
Equipment Portion is located, used, or registered ("Taxing Authorities") upon or
with respect to (1) the construction, mortgaging, financing, refinancing by or
at the request of Borrower, purchase, acquisition, acceptance, nonacceptance,
rejection, delivery, nondelivery, transport, insuring, ownership, registration,
deregistration, assembly, possession, repossession, operation, use, condition,
maintenance, modification, repair, fitness for use, merchantability, testing,
return, abandonment, storage, manufacture, leasing, subleasing, importation,
exportation, sale, assignment, transfer, transfer of title, or other application
or disposition of, or the imposition of any Lien (other than a Permitted Lien)
or the incurrence of any liability to refund or pay over any amount as a result
of any Lien (other than a Permitted Lien) on any Equipment Portion or any part
thereof or interest therein, (2) any amount paid or payable by Borrower or Proex
Bank under the Basic Documents or the receipts or earnings arising from or
received with respect to any Equipment Portion or any part thereof or interest
therein, (3) any Equipment Portion or any part thereof or interest therein, (4)
any of the Basic
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Documents and any other documents contemplated thereby or the execution, sale,
delivery, acquisition, or filing of the Basic Documents, or (5) otherwise with
respect to or in connection with the transactions effected under the Basic
Documents. The term "Taxes" shall mean any and all fees, taxes, levies, imposts,
duties, charges, assessments, or withholdings of any nature
whatsoever, together with any and all penalties, fines, additions to tax, and
interest thereon or computed by reference thereto.
(b) Exclusions from Indemnity. The provisions of
section 9.02(a) shall not apply to:
(1) any Tax based on, or measured by, net income, capital,
franchise, or net worth (other than sales taxes), including related
surcharges and withholding taxes, or any withholding taxes on an
Indemnitee's gross income, to the extent that such withholding taxes
are imposed solely because that Indemnitee has a place of business
outside the United States or holds its Certificates(s) outside the
United States; provided, that the provisions of this clause (b)(1)
shall not apply to any Taxes imposed in respect of the receipt or
accrual of any indemnity payment made or payable pursuant to this
section 9.02;
(2) any tax based on or measured by the value of such
Indemnitee's interest in any Basic Document, except to the extent
imposed without regard to the presence of the Indemnitee, or any Note,
in the jurisdiction of the Taxing Authority imposing that Tax;
(3) any Tax imposed on the Indemnitee as a result of a
transfer or other disposition, by such Indemnitee or any of its
predecessors in interest, of any interest in the Aircraft or any Basic
Document, unless such transfer or disposition occurs after the
occurrence of an Event of Default; or
(4) any Tax in the nature of a penalty, an addition to tax,
interest, or fines resulting from the negligence or misconduct of the
Indemnitee in connection with the preparation or filing of (or failure
to prepare or file) tax returns, or the payment of or the failure to
pay its taxes, but in each case not if in any way attributable to
Borrower's failure to notify such Indemnitee of its obligations to
prepare and file its returns in respect of Taxes indemnified pursuant
to this section 9.02 or to provide any information necessary for the
preparation or filing of such returns or the
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conduct of such proceedings or otherwise to perform its duties and
responsibilities pursuant to the Basic Documents.
(c) Calculation of General Tax Indemnity Payments. Any
payment which Borrower is required to make to or for the account of
any Indemnitee with respect to any Tax which is subject to
indemnification under this section 9.02 shall be made on a net basis,
taking into account offsetting credits or deductions available to such
Indemnitee as a result of the payment of such Tax, and shall include
the amount necessary to hold such Indemnitee harmless on an after-tax
basis from the net amount of all Taxes required to be paid by such
Indemnitee as the result of such payment (including any Taxes imposed
on such indemnity payment) pursuant to the laws of any Taxing
Authority. The amount of any payment or indemnity required under this
section shall be determined by the Indemnitee reasonably and in good
faith, and that determination shall be conclusive. Upon Borrower's
request and at Borrower's expense, the Indemnitee will provide
Borrower with a summary explanation of the basis for the Indemnitee's
computations.
(d) Reports. Borrower shall timely file any report, return, or
statement required to be filed with respect to any Tax which is
subject to indemnification under this section 9.02, except for any
such report, return, or statement which an Indemnitee has notified
Borrower that it intends to file. Borrower shall file such report,
return, or statement and send a copy to Agent and each Indemnitee
affected by such report, return, or statement. Each Indemnitee shall
promptly forward to Borrower any notice, bill, or advice received by
it concerning any Tax.
Section 9.03 -- Survival. The requirements in this Article IX
shall survive termination of this Agreement and the other Basic Documents and
the payment of the Notes and the Certificates.
Article X
YIELD PROTECTION; ILLEGALITY
Section 10.01 -- Additional Costs.
(a) Borrower shall pay directly to each Lender from time to
time such amounts as are necessary to compensate such Lender, on an after-tax
basis, for any costs which are attributable to its purchase of or obligation to
purchase any Certificates hereunder,
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or any reduction in any amount receivable by such Lender in respect of any of
such Certificates or such obligation (excluding payments under the Proex
Agreement), resulting from any Regulatory Change which imposes or modifies any
reserve, special deposit, minimum capital, capital ratio, or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, such Lender, or the manner in which such
Lender funds (or allocates funds, on its books, for) its investments in any of
the Certificates.
(b) Determinations and allocations by any Lender for purposes
of this section 10.01 of the effect of any Regulatory Change pursuant to section
10.01(a) on such Lender's costs or rate of return of maintaining or its
obligations to purchase any Certificate, or on amounts receivable by it in
respect of any Certificate, and of amounts required to compensate such Lender
under this section 10.01, shall be made by such Lender reasonably and in good
faith and shall be conclusive. Upon Borrower's request and at Borrower's
expense, such Lender will provide Borrower with a summary explanation of the
basis for such Lender's computations.
Section 10.02 -- Breakage Costs. Borrower shall pay to each
Lender, upon such Lender's request, such amount as is sufficient, in such
Lender's opinion, to compensate it for any loss, cost, or expense which is
attributable to:
(a) any payment, purchase, or conversion of any Note or
Certificate in which such Lender has any interest for any reason (including the
acceleration of the maturity of the Notes pursuant to section 8.02, the
prepayment of a Note pursuant to section 4.03, and the mandatory purchase of
Certificates pursuant to section 4.04 or 10.03, but excluding any other transfer
of a Certificate by any Lender) on a date other than an Interest Payment Date;
or
(b) any failure by Agent (because of a nonsatisfaction of any
of the conditions precedent specified n Article VII) to purchase a Note on a
putative Purchase Date specified by Borrower to Agent; or
(c) any failure by Borrower to purchase or cause the purchase
of any Lender's Certificates that Borrower is required to purchase or cause the
purchase of under section 4.08, whether such purchase is scheduled for a Call
Date or for another date.
Such amount payable by Borrower (x) shall not include losses, costs, or expenses
attributable to any date more than 180 days after the date of such payment,
purchase, or conversion or such Purchase Date, and (y) shall be determined by
the affected Lender
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reasonably and in good faith, which determination shall be conclusive. Upon
Borrower's request and at Borrower's expense, such affected Lender will provide
Borrower with a summary explanation of the basis for such Lender's computations.
Section 10.03 -- Illegality. If at any time, any change in any
applicable state, federal or Japanese law or in any interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency in the United States or Japan charged with the interpretation
or administration thereof, or any reversal by any such entity of an
interpretation thereof by any Lender or any compliance by any Lender with any
official request or directive in respect of or constituting such a change
(whether or not having the force of law) of any such entity, shall make it
unlawful or contrary to such interpretation or administration for any Lender to
make, fund, maintain or hold its Certificate(s) in the method described herein
or to give effect to all or any part of its obligations with respect thereto
under this Agreement or any of the other Basic Documents (each such event being
an "Illegality Event"), then such Lender shall promptly notify Borrower thereof
in writing, and Borrower shall purchase or cause a Person to purchase such
Lender's Certificates for an amount determined in accordance with section 4.04,
on or prior to the earlier of (i) the Business Day immediately prior to the last
day such Lender is allowed to take corrective action with respect to such
Illegality Event, or (ii) the first Interest Payment Date to occur at least 60
days after the date of notice of the Illegality Event has been sent to the
Borrower by such Lender.
Article XI
AGENT
Section 11.01 -- Appointment; Powers and Indemnities;
Compensation.
(a) Each Lender hereby irrevocably appoints and authorizes Agent to act
as agent hereunder and in respect of the other Basic Documents, with the power
to execute and deliver this Agreement and the other Basic Documents to which it
is to be a party, including the Certificates, and any other agreements,
instruments, or documents (including UCC-1 financing statements) in which Agent
is shown as a party in the forms delivered from time to time by the Lenders to
Agent for execution and delivery and, subject to the terms of this Agreement, to
exercise its rights and perform its duties under such documents in accordance
with their terms, and with such other powers as are reasonably incidental
thereto.
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Except with respect to any representation, warranty, or covenant expressly made
by Agent in any Basic Document, Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement, and shall not, by reason of
this Agreement or any other Basic Document, be a trustee for any Lender. Agent
shall not be responsible to any Lender (or to any other party) for any recitals,
statements, representations, or warranties contained in this Agreement or any
other Basic Document, or in any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or any other
Basic Document, or for the value, validity, effectiveness, genuineness,
enforceability, or sufficiency of this Agreement or any other Basic Document, or
any other document referred to or provided for herein or therein or for any
failure by Borrower or any third party to perform any of its obligations
hereunder or thereunder. Agent may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither Agent nor any of
its directors, officers, employees, or agents shall be liable or responsible for
any action taken or omitted to be taken by it or them hereunder or under any
other Basic Document, or in connection herewith or therewith, except for its or
their own gross negligence or willful misconduct.
(b) Agent shall not be obligated to take any action or refrain from
taking any action under any Basic Document that might in its reasonable judgment
involve it in any expense or liability unless it is indemnified, in form and
substance satisfactory to Agent, which indemnity may be furnished by any Lender.
(c) Agent shall not have any duty or obligation to manage, control,
use, operate, store, lease, sell, dispose of, or otherwise deal with the
Aircraft or part of the Collateral, or otherwise to take or refrain from taking
any action under, or in connection with, any Basic Document to which Agent is a
party, except as expressly provided by the terms hereof or any other Basic
Document, or as specified in written instructions from Majority Lenders.
Section 11.02 -- Reliance by Agent. Agent may rely upon, and
shall not be bound or obligated to make any investigation into the facts or
matters stated in, any certificate, notice, or other communication (including
any thereof by telephone, telex, telegram or cable) believed by it to be genuine
and correct and to have been made, signed, or sent by or on behalf of the proper
Person or
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Persons, and upon advice and statements of outside legal counsel, independent
accountants, and other experts selected by Agent, (and Agent shall not be liable
for anything that it does, offers, or omits in good faith in accordance with the
advice or opinion of any such counsel, accountants, or experts within such
Person's or Persons' particular area of competence, provided that Agent has
exercised due care in selecting such counsel, accountants, or other experts). As
to any matters not expressly provided for by this Agreement, Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions signed by Majority Lenders and such instructions of
Majority Lenders and any action taken or failure to act pursuant thereto shall
be binding on all Lenders.
Section 11.03 -- Defaults. Agent shall not be deemed to have
knowledge of the occurrence of a Default unless Agent has received actual
written notice from a Lender or from Borrower, specifying such Default and
stating that such notice is a "Notice of Default". If Agent receives actual
notice of the occurrence of a Default, Agent shall give prompt notice thereof to
each Lender and to Borrower. Agent shall (subject to section 11.07) take action
with respect to such Default as directed by Majority Lenders; provided, that,
unless and until Agent receives such directions, Agent may take such action, or
refrain from taking such action, with respect to such Default as it deems
advisable in the best interest of the Lenders.
Section 11.04 -- Rights as a Lender. With respect to its
Commitment and the loans made by it, Wachovia, in its capacity as a Lender
hereunder, shall have the same rights, powers, and obligations hereunder as any
other Lender and may exercise the same as though it were not acting as Agent,
and the term "Lender" or "Lenders" shall, unless the context otherwise requires,
include Wachovia in its individual capacity. Wachovia and its affiliates may
(without having to account therefor to any Lender) accept deposits from, lend
money (on a secured or unsecured basis) to, and generally engage in any kind of
banking, trust, or other business with Borrower, and any of Borrower's
affiliates, as if Wachovia were not acting as agent hereunder, and Wachovia may
accept fees and other consideration from Borrower or any of its affiliates for
services in connection with other loan agreements or otherwise without having to
account for same to any Lender.
Section 11.05 -- Indemnification. Each Lender shall indemnify
Agent (to the extent not reimbursed under Article IX hereof but without limiting
the obligations under Article IX), ratably in accordance with the aggregate
principal amount of the
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Certificates held by such Lender, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements of any kind and nature whatsoever that may be imposed on, incurred
by, or asserted against Agent in any way relating to or arising out of this
Agreement or any other document contemplated by or referred to herein or the
transactions contemplated hereby or the enforcement of any of the terms hereof
or of any such other documents; provided, that no Lender shall be liable for any
of the foregoing to the extent they arise from Agent's gross negligence or
willful misconduct.
Section 11.06 -- Nonreliance on Agent or Lenders. Each Lender
agrees that it has, independently and without reliance on Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit analysis of Borrower and its own decision to become a lender
under the Basic Documents and that such Lender will, independently and without
reliance upon Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking action under this Agreement and the Basic
Documents to which it is a party. Agent shall not be required to keep itself
informed as to the performance or observance by Borrower of any other document
referred to (directly or indirectly) or provided for herein or therein or to
inspect the properties or books of any such entity. Except for notices, reports,
and other documents and information expressly required to be furnished to the
Lenders by Agent hereunder, Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition, or business of Borrower or any of its affiliates that may
come into the possession of Agent or any of its affiliates. Except as otherwise
specifically required herein, Agent shall not be required to forward to the
Lenders any notices, reports, or other documents and information otherwise
required to be forwarded to the Lenders by any other party to the Basic
Documents.
Section 11.07 -- Failure to Act. Except for action expressly
required of Agent hereunder, Agent shall in all cases be fully justified in
failing or refusing to act unless it is indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
Section 11.08 -- Resignation of Agent; Successor Agent.
Subject to the appointment and acceptance of a successor Agent as provided
below, Agent may resign at any time (and, if Wachovia is acting as Agent at a
time when Wachovia has disposed of all its
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Certificates, shall promptly resign) by giving notice thereof to the Lenders and
Borrowers, provided, that Agent shall not, at the time of such resignation, take
any actions to impair the rights or obligations of any party to the Proex
Agreement. Upon any such resignation, Majority Lenders shall have the right to
appoint a successor Agent, who shall be either an affiliate of Wachovia or a
Person reasonably acceptable to Borrower, and who shall be a bank having a
combined capital, surplus, and undivided profits of not less than $100,000,000
and having its principal office in the United States of America. If, within 30
calendar days after the retiring Agent's giving of notice of resignation, a
successor Agent is not so appointed or does not accept such appointment, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, who
shall be either an affiliate of Wachovia or a Person reasonably acceptable to
Borrower and who shall be a bank having combined capital, surplus, and undivided
profits of not less than $100,000,000 and having its principal office in the
United States of America. Upon the acceptance of any appointment as agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges, and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties and
obligations hereunder. If no Person meeting the foregoing qualifications is
willing to accept such appointment, any Lender or Agent may apply to a court of
competent jurisdiction to appoint such a successor or to relieve Agent of its
duties as agent hereunder.
Section 11.09 -- Investment of Funds.
(a) Except as otherwise provided in section 7.03 of the Mortgage, any
money held by Agent hereunder as part of the Collateral shall, until paid out by
Agent as herein provided, be held by Agent in a collateral account for the
purposes for which held, and Agent shall not have any liability for interest
upon any such money, and such money need not be invested or reinvested except as
provided in section 11.09(b) below.
(b) Any amounts held by Agent pursuant to this section 11.09 shall be
invested by Agent from time to time (unless the costs of the investment would
exceed the gains reasonably anticipated therefrom) in obligations of, or fully
secured by, the United States government maturing in not more than 30 calendar
days; provided, that if Majority Lenders so request of Agent in writing and no
Default exists, Agent shall invest such amounts in (i) marketable direct
obligations of the United States of America or marketable obligations directly
guaranteed by the United States of America maturing, in each case, not later
than 30 days from the
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date of acquisition thereof, (ii) repurchase obligations maturing not later than
30 days from the date of acquisition thereof, collateralized by obligations of
the nature referred to in clause (i) of this paragraph issued by any Lender, or
any other commercial bank organized and existing under the laws of the United
States of America or any state thereof, in either case having combined capital,
surplus, and undivided profits of not less than $100,000,000, if Agent holds
such obligations, or has written evidence from the holder of such obligations,
that such obligations are held by a Federal Reserve bank or a commercial bank
with combined capital, surplus, and undivided profits of no less than
$100,000,000 and a perfected security interest under the Uniform Commercial
Code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31
C.F.R. 305.0 et seq. in such obligations, is created for the benefit of Agent;
(iii) certificates of deposit and bankers' acceptances issued by any Lender, or
by any commercial bank organized and existing under the laws of the United
States of America or any state thereof, in either case having combined capital,
surplus, and undivided profits of not less than $100,000,000, or commercial
paper (other than any issued by Borrower, any Lender, or an affiliate of either)
rated A-1 by Standard & Poor's Corporation, Inc. and P-1 by Moody's Investors
Services, Inc., if (in any such case specified above in this proviso) Agent
receives a written agreement of Majority Lenders satisfactory to Agent that
Majority Lenders will be liable for and will pay to Agent on demand an amount
equal to any expense or loss (including any loss on such investment after taking
into account any gain) incurred in connection with any investment of funds
pursuant to this proviso; and provided, further, that so long as a Default
exists, Agent may invest such amounts only in investments described in clause
(i) of this section 11.09. Agent shall have no liability for any loss resulting
from any such investment. Agent may sell any such investment (without regard to
maturity date) whenever necessary to make any distribution required by any
provisions of Article XII. Except as otherwise provided in section 7.03 of the
Mortgage, Agent shall hold and apply any income realized as a result of any
investment pursuant to this section 11.09 in the same manner as the payments
held by Agent pursuant to Article XII.
Section 11.10 -- Representations and Warranties.
(a) Neither any Lender nor Agent makes any representation or warranty
as to the sufficiency, validity, legality, or enforceability of any Basic
Document, or as to the correctness of any statement contained in any thereof,
except as expressly set forth in this Agreement. Neither any Lender nor Agent
makes any representation as to the value or condition of the Collateral or
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any part thereof, or as to the title thereto or as to the security afforded
thereby or hereby, or as to the validity or genuineness of any security at any
time pledged and deposited with Agent hereunder.
(b) Wachovia represents and warrants that:
(1) neither Agent nor anyone authorized to act on its behalf
has directly or indirectly offered any beneficial interest or security interest
relating to any Aircraft or any interest in any Note or Certificate for sale to,
or solicited any offer to acquire any such interest or security from, any
Persons other than the Lenders in such a manner as to require any of the Notes,
Certificates, or documents signifying security interests to be registered under
the Securities Act of 1933, as amended, or any state securities law; provided,
that the foregoing shall not be deemed to impose responsibility with respect to
any such offer, sale, or solicitation by any other Person;
(2) it is a national banking association duly organized,
validly existing, and in good standing under the laws of the United States, and
has all corporate power, authority, and legal right under the laws of the United
States to execute, deliver, and carry out the terms of each of the Basic
Documents to which Agent is a party;
(3) Agent has duly authorized, executed, and delivered this
Agreement and the other Basic Documents to which it is a party;
(4) it is a "citizen of the United States" within the meaning
of section 101(16) of the Act and will, subject to the provisions of this
Agreement, resign as agent hereunder promptly after an officer having direct
responsibility for administering this Agreement obtains actual knowledge that it
has ceased to be such a citizen;
(5) Agent's execution and delivery, of this Agreement and each
other Basic Document to which it is a party will not result in any violation of,
or be in conflict with, or constitute a default under, any of the provisions of
its charter or by-laws, or of any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, lease, note or bond purchase agreement,
license, bank loan, credit agreement, or other agreement to which it is a party
or by which it is bound, or any law, judgment, governmental rule, regulation, or
order of any federal government or governmental authority or agency governing
the banking or trust powers of Agent; and
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(6) neither Agent's execution and delivery of this Agreement
or the Basic Documents to which it is a party, nor Agent's consummation of any
of the transactions contemplated thereby, requires the consent or approval of,
giving of notice to, or registration with any federal governmental authority or
agency pursuant to any federal governmental law governing the banking of trust
powers of Agent.
Section 11.11 - No Claims Against Agent, etc. Nothing
contained in this Agreement shall constitute any consent or request by Agent or
any Lender, express or implied, for the performance of any labor or services or
the furnishing of any materials or other property, nor be deemed to give
Borrower any right, power, or authority to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against Agent
or the Lenders in respect thereof or any claim that any Lien (other than any
Permitted Lien that is not a Lien resulting from an action of Agent or a Lender
for which neither Agent nor any Lender is entitled to be indemnified under any
Basic Document) based on the performance of any such labor or services or the
furnishing of any such materials or other property is prior to the Lien of the
Mortgage, except as expressly permitted in the Basic Document; provided, that if
any such claim is made against Agent or any Lender, Borrower shall obtain the
release of such claim within 30 calendar days after the claim is made.
Section 11.12 -- Form of Certificates; Issuance, Transfer,
and Exchange of Certificates.
(a) Authorization. The Lenders hereby authorize and direct Agent to do
the following, and Agent agrees for the benefit of the Lenders that Agent will
do the following, on the Purchase Date for each Aircraft, subject to due
compliance with the terms of paragraph (b) below:
(1) to the extent received by Agent from the Lenders, transfer
the Financed Amount for such Aircraft to Proex Bank for it to
retransfer to Vendor on Borrower's behalf;
(2) upon receipt of each Lender's Commitment for such
Aircraft, issue to Wachovia a Certificate in the full amount of
Wachovia's Commitment for such Aircraft and issue to Bank of Tokyo a
Certificate in the full amount of Bank of Tokyo's Commitment for such
Aircraft; and
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(3) execute and deliver all such other instruments, documents,
or certificates, and take all such other actions in accordance with the
directions of Majority Lenders, as Majority Lenders deem necessary or
advisable in connection with the transactions contemplated hereby, such
execution and delivery or the taking of any such action by Agent in the
presence of Majority Lenders to evidence, conclusively, the direction
of Majority Lenders.
(b) Conditions Precedent. Agent's right and obligation to take the
actions required by paragraph (a) on the Purchase Date shall be subject to each
Lender's having made the full amount of its Commitment available to Agent in
immediately available funds in accordance with sections 2.01 and 2.02 and Annex
A of this Agreement, and to the satisfaction or waiver of the conditions set
forth or referred to in section 2.02 and Annex A of this Agreement.
(c) Form of Certificates. Each Certificate shall be substantially in
the form of Exhibit K. Interest and principal on each Certificate shall be
payable by Agent, upon receipt of the corresponding amounts from Borrower, as
set forth in such Certificates.
(d) Terms of the Certificates. In connection with each Aircraft, Agent
shall issue to each Lender a Certificate in a principal amount equal to its
Commitment for that Aircraft, bearing interest at the Borrower Interest Rate,
designated as having been issued in connection with that Aircraft, and otherwise
in the form of Exhibit K.
(e) Lost or Damaged Certificate. If any Certificate becomes mutilated,
defaced, lost, stolen, or destroyed, then on the terms set forth in this section
(and not otherwise), and upon the written request of the holder thereof, Agent
shall execute and deliver a new Certificate of the same series, principal
amount, and terms as the mutilated, defaced, lost, stolen, or destroyed
Certificate, in exchange and substitution for and upon cancellation of the
mutilated or defaced Certificate, or in lieu of and in substitution for the
lost, stolen, or destroyed Certificate. The applicant for a new Certificate
shall furnish to Agent evidence to Agent's reasonable satisfaction of the loss,
theft, or destruction of such Certificate alleged to have been lost, stolen, or
destroyed, and of the ownership and authenticity of such mutilated, defaced,
lost, stolen, or destroyed Certificate, and also such security and indemnity as
Agent reasonably requires (provided, that the written undertaking of one of the
original Lenders, or any other institutional holder of a Certificate having a
net worth (or in the
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case of a bank, having combined capital, surplus, and undivided profits) of at
least $50,000,000 shall be sufficient security and indemnity), and shall pay all
expenses and charges of such substitution or exchange. All Certificates shall be
issued, held, and owned upon the express condition that the foregoing provisions
are exclusive in respect of the replacement of mutilated, defaced, lost, stolen,
or destroyed Certificates and shall preclude (to the extent lawful) any and all
other rights and remedies, any present or future law or statute to the contrary
notwithstanding.
Section 11.13 -- Action Upon Written Instructions. Subject to the terms
of sections 11.03, 11.14, and 11.15, upon the written instructions at any time
and from time to time of Majority Lenders, Agent will take such actions as are
specified in such instructions, including the following actions: (1) give such
notice or direction or exercise such right, remedy, or power hereunder or under
any of the Basic Documents to which Agent is a party, or in respect of all or
any part of the Collateral, or take such other action as is specified in such
instructions; (ii) take such action to preserve or protect the Collateral
(including the discharge of any Liens) as is specified in such instructions;
and (iii) approve as satisfactory to it all matters required by the terms of
the Basic Documents to be satisfactory to Agent, it being understood that,
except as otherwise provided in section 11.03 or in the last sentence of this
section 11.13, without written instructions of Majority Lenders, Agent shall
not approve any such matter as satisfactory to it. Upon the written
instructions of Majority Lenders, Agent will execute and file any financing
statement (and any continuation statement with respect to any such financing
statement) or similar document relating to the security interests and
assignments created by the Basic Documents as is specified in such instructions
and accompanies such instructions (and Agent shall have no duty to execute or
file any financing statement, continuation statement, or any other documents of
the type referred to in this sentence unless it receives such written
instructions and an execution form of such statement or document). If Agent is
unsure of the application of any provision of this Agreement or any other
agreement relating to the transactions contemplated hereby, Agent may request
and rely upon instructions of Majority Lenders within 20 days after the date of
such request, until instructed otherwise Agent may, but shall be under no duty
to, take or refrain from taking such action as it deems advisable in the best
interests of Majority Lenders.
Section 11.14 -- Expenses.
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(a) Expenses After Default. While an Event of Default exists, Agent
shall not be under any obligation to take any action under any of the Basic
Documents (including action under section 11.15) if Agent reasonably determines,
or is advised by independent counsel, that such action is contrary to the terms
of the Basic Documents to which Agent is a party, or is otherwise contrary to
law, unless and until requested in writing to do so by Majority Lenders and
furnished, from time to time as it may require, with reasonable security and
indemnity, satisfactory to Agent, from such Majority Lenders against the costs,
expenses, and liabilities which it might incur in compliance with such requests
or direction.
(b) Expenses for Actions Upon Written Instructions. Agent shall not be
required to take any action under sections 11.03 or 11.13 unless Agent shall
have been furnished, from time to time as it may require, with reasonable
security and indemnity, satisfactory to Agent, from Majority Lenders directing
Agent to take or refrain from taking action under section 11.03 or 11.13,
against the costs, expenses, and liabilities which it might incur in complying
with sections 11.03 or 11.13.
Section 11.15 -- Procedures for Disposing of Collateral.
(a) If an Event of Default exists, Agent shall, upon written
instruction from Majority Lenders, declare all the Secured Obligations due and
payable as provided in section 9.02 of the Mortgage. Thereafter, Majority
Lenders shall have the sole responsibility for directing Agent in the
enforcement of rights and remedies, pursuant to the Basic Documents, including
the time and manner of repossessing and remarketing of the Collateral.
(b) If Agent obtains an offer from a third party for the purchase of
the Collateral for a purchase price that is less than the amount necessary to
pay in full (i) the aggregate principal amount of the Certificates, (ii) accrued
but unpaid interest on such unpaid principal amount to the date of distribution,
(iii) interest on overdue principal and, to the extent permitted by applicable
law, overdue interest, and (iv) all other sums due and owing to Agent or any
Lender pursuant to any Basic Document, then before accepting any such offer,
Agent shall notify the Lenders and shall sell such Collateral for such price
only after obtaining the written consent of Majority Lenders.
(c) Assignment, sale, transfer, or other conveyance of the Collateral
by Agent made pursuant to the terms hereof or of the other Basic Documents to
which it is a party shall bind the Lenders and shall be effective to assign,
sell, transfer, or convey all
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right, title and interest of Agent and the Lenders that it purports to assign,
sell, transfer, or otherwise convey in and to the Collateral. No purchaser or
other grantee shall be required to inquire as to the authorization, necessity,
expediency, or regularity of such assignment, sale, transfer, or conveyance or
as to the application of any sale or other proceeds with respect thereto by
Agent.
Article XII
RECEIPT, DISTRIBUTION, AND APPLICATION OF INCOME
Section 12.01 -- Payment by Agent Generally. Subject to sections 12.02,
12.03, 12.04, and 12.05 hereof, all payments (including prepayments under
section 4.02 and the first sentence of 4.03 of this Agreement) of principal of
and interest on any Note received by Agent shall be paid to the holders of the
Certificates related to such Note pro rata in accordance with the principal and
interest then due on such Certificates; the payment of the Facility Fee received
by Agent shall be paid one-half to each Lender; and all payments of the
Commitment Fee received by Agent shall be paid to the Lenders pro rata in
accordance with the outstanding Commitment of each.
Section 12.02 -- Application of Payments After Default. During the
continuance of a Default that is not an Event of Default, any amounts that, but
for this section 12.02, would be payable under section 12.01 by Agent to the
Lenders shall be held by Agent until: (i) all Defaults shall have been cured,
in which event such amounts shall, to the extent not theretofore applied as
provided herein, be applied as provided in section 12.01 hereof, (ii) an Event
of Default shall exist, in which event such amounts shall be applied as
provided in section 12.03 hereof, or (iii) such amounts shall have been
continuously held for a period in excess of 90 days (during which period Agent
or the Lenders shall not have been stayed or otherwise precluded by operation
of law from taking action to accelerate the Notes or to declare this Agreement
in default or to exercise any remedies hereunder or under the Mortgage), in
which event such amounts shall, to the extent not theretofore applied as
provided herein, be distributed as provided in section 12.01 hereof.
Section 12.03 -- Payments After Event of Default. During the
continuance of any Event of Default, all payments received by Agent and all
amounts then held by Agent on behalf of Lenders shall be applied in the
following order of priority:
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First, to pay all proper fees, charges, expenses, or advances
made or incurred by Agent in the collection or distribution of such
payment or otherwise in accordance with the provisions of this
Agreement or the Mortgage, and of any and all other sums then owing to
Agent by Borrower under the Basic Documents (including any amount
payable by or for the account of Agent under section 9.04(b) of the
Mortgage);
Second, to pay to the then-existing and prior holders of the
Certificates all proper fees, charges, expenses (including expenses
under Section 13.03 hereof, and all amounts payable under Article IX
hereof), and advances made or incurred by such then-existing and prior
holders of Certificates and for which Borrower is responsible pursuant
to the Basic Documents (to the extent not previously reimbursed),
without priority of one such then-existing or prior holder of
Certificates over any other, in the proportion of the aggregate amount
of such fees, charges, expenses, and advances made or incurred by each
such then-existing or prior holder of Certificates bears to the
aggregate amount of such fees, charges, expenses, and advances made or
incurred by all such then-existing and prior holders of Certificates;
Third, to pay in full the unpaid interest on the Certificates
due to the date of distribution (as well as interest on overdue
principal and, to the extent permitted by applicable law, overdue
interest at the rate set forth in section 4.06 hereof), and the
then-outstanding principal of the Certificates, without priority of one
Lender over any other, in the proportion that the outstanding principal
of each Lender's Certificate(s) on such date of application bears to
the outstanding principal of all the Certificates outstanding on such
date of application;
Fourth, to pay all other amounts then due by Borrower to
the Lenders under the Basic Documents;
Fifth, the balance, if any, of such payments remaining
thereafter shall be distributed to Borrower.
Section 12.04 -- Application of Indemnity and Certain
Other Payments.
(a) Any indemnity payment under Article IX hereof received by Agent
shall, if owed to Agent, be applied to any such indemnity amounts owing to it,
but if owed to another Indemnitee, be paid to the appropriate Indemnitee.
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(b) Except as otherwise provided in this Article XII, any payment
received by Agent for which provision as to the application thereof is made in
this Credit Agreement or the Mortgage, other than in this Article XII, shall be
forthwith applied as provided in such other provision of this Credit Agreement
or the Mortgage.
(c) If a Default exists when Agent receives any payment referred to in
section 12.04(b) or (d), Agent may hold such payment as part of the Collateral,
and Agent shall cease to hold such payment and shall apply and distribute it as
provided in such section if and when no Default exists.
(d) If an Indemnitee receives a refund of any amount that Borrower
indemnified such Indemnitee for, that Indemnitee shall pay to Borrower an amount
equal to that refund; provided, that any subsequent loss of that refund by the
Indemnitee shall be treated as a loss subject to indemnification by Borrower.
(e) The additional interest (2.375% per 360-day period) payable under
section 4.08 for the year before a Call Date shall be paid to the Lender(s) to
whose Note(s) it relates.
Section 12.05 -- Other Payments.
(a) Provided no Default exists, any money that Agent receives with
respect to any right or obligation contained in the Basic Documents, and that
the Basic Documents do not specify how to apply, shall be applied to any Secured
Obligations then due, and the balance shall be distributed to Borrower.
(b) Any payments received and amounts realized by Agent with respect to
the Aircraft or otherwise to the extent received or realized, or remaining, at
any time after payment in full of the Secured Obligations, as well as any other
amounts remaining as part of the Collateral after payment in full or the Secured
Obligations, shall be distributed to Borrower.
Section 12.06 -- Method of Payment. Agent shall make distributions
or cause distributions to be made to the Lenders and Borrower by wire transfer
of immediately available funds, to the respective bank accounts specified in
writing to Agent by such Persons, not later than 2:00 p.m. (Atlanta, Georgia
time) on the date they are received by Agent (if received by 12:00 noon
(Atlanta, Georgia time), or, if received later, as soon as practicable but not
later than 11:00 a.m. (Atlanta, Georgia time) on the next Business Day), or the
commercially reasonably
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promptness after receipt in the case of payments to bank accounts located
outside the United States.
Section 12.07 -- Payments From Proceeds from Borrower. All
payments to be made by Agent under the Certificates and this Agreement shall be
made only from the proceeds received by Agent under the Basic Documents. Each
holder of a Certificate, by its acceptance of such Certificate, agrees that it
will look solely to the proceeds received by Agent under the Basic Documents to
the extent available for distribution to such holder as herein provided, and
that Agent is not personally liable to the holder of any Certificate under such
Certificate or this Agreement.
Section 12.08 -- Termination of Certificates. A holder of a
Certificate shall have no further interest in, or other right with respect to,
the proceeds received by Agent under the Basic Documents when and if all Secured
Obligations payable to such holder have been paid in full.
Article XIII
MISCELLANEOUS
Section 13.01 -- No Waivers; Cumulative Remedies. No
failure or delay in exercising any power or right under any Basic Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power preclude other or further exercise thereof or the exercise
of any other right or power under any Basic Document. No notice to or demand on
any party in any case shall, of itself, entitle such party to any other or
further notice or demand in similar or other circumstances.
Section 13.02 -- Notices. All communications and notices
provided for under this Agreement shall be in writing (including telex,
telegraph, and telecopy), shall be in English, and shall be mailed by certified
mail (return receipt requested) or otherwise delivered to the parties at the
addresses set forth by their signatures hereto, or, as to each party, at such
other address as it designates by notice to each other party. Each such notice
shall be effective upon delivery.
Section 13.03 -- Transaction Expenses; Agent's Fees.
(a) Borrower will pay on demand all out-of-pocket expenses in
connection with the preparation, execution, delivery,
administration, and enforcement of the Basic Documents, or in
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connection with any scheduled closing that is postponed or cancelled, including
(i) all fees and expenses of (x) Troutman, Sanders, Lockerman & Ashmore, special
counsel to Agent and the Lenders, (y) Castro, Barros, Sobral e Xavier, special
Brazilian counsel, and (z) Crowe & Dunlevy, special FAA counsel (ii) all FAA and
UCC filing and lien search fees; (iii) all fees and expenses (including legal
fees and expenses) of each Lender and Agent in connection with actual or
proposed amendments, waivers, or consents to or under this Agreement or the
other Basic Documents (except for such amendments, waivers, or consents
initiated by any Lender or Agent; provided that any such amendment, waiver, or
consent initiated by Agent or the Lenders in connection with a matter relating
to the Proex Program, Proex Bank, or Proex Interest Payments that is initiated
for the benefit of Borrower or at the request of Borrower shall not be included
in this exception); and (iv) all fees and expenses (including legal fees and
expenses) of each Lender and Agent in connection with the actual or proposed
enforcement of any Basic Document against Borrower during the existence of any
Default. The "legal fees and expenses" of the Lenders and Agent referred to in
clauses (iii) and (iv) may not include those of a Lender's or Agent's in-house
counsel.
(b) Agent shall be entitled to receive reimbursement, within five
Business Days after its request, for all reasonable expenses incurred or made by
it in accordance with this Agreement or any other Basic Document. Under section
2.01 of the Mortgage, Agent is granted, and such obligations are secured by, a
Lien on the Collateral entitling Agent to priority as to payment thereof (by
virtue of section 12.03 of this Agreement) over payment to any other Person
under this Agreement. Borrower shall pay to Agent, in its individual capacity,
the amounts to which Agent is entitled under this section 13.03(b).
Section 13.04 -- Amendments. Any provision of the Basic
Documents, other than the Purchase Agreement, the Guarantee, or the Proex
Agreement, may be amended, terminated, waived, or otherwise modified only in
writing by Borrower and Majority Lenders, and any such amendment, termination,
waiver, or other modification shall bind all of the Lenders to the same extent
and with the same effect as if each Lender had joined therein; provided, that no
provision of the Proex Agreement shall be amended, modified, or waived except as
permitted therein; provided, further, that the written consent of Agent in its
individual capacity shall be required to effect any amendment, termination,
waiver, or other modification of the Basic Documents that affects the rights or
duties of Agent (as agent or in its individual capacity (but not in its capacity
as Lender)). Notwithstanding the foregoing, no amendment, modification, or
waiver of the Basic Documents shall, unless in writing and signed
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by each Lender, be effective to (a) increase such Lender's Commitment or subject
such Lender to any additional obligation, (b) reduce the principal of or
interest on the Notes or such Lender's Certificates, or any fees or other
amounts payable to such Lender hereunder (whether under Article IX or
otherwise), or change the ratable distribution of funds received by Agent for
account of the Lenders hereunder (including under Article IV hereof), (c)
postpone any date fixed for any payment of the principal of, or interest on, the
Notes or such Lender's Certificates or any fees or other amounts payable to such
Lender hereunder, (d) change the definition of "Majority Lenders" as set for in
section 1.01, or amend, modify, or waive this section 13.04, (e) change section
11.13 of this Agreement, (f) increase the Financed Amount to be secured by the
Collateral under the Mortgage, (g) alter the right of any Lender to transfer any
Certificate or add or alter restrictions upon such transfer, or (h) the release
of any Lien with respect to the Collateral other than in accordance with the
Basic Documents.
Section 13.05 -- Successors and Assigns.
(a) Binding Effect; Consent to Assignment. This Agreement shall bind
and benefit each Lender, Agent, and Borrower and their successors and assigns,
except that Borrower may not assign or transfer its rights under this Agreement
without Agent's prior written consent.
(b) Limitations on Transfers. No Lender shall assign, convey, or
otherwise transfer any of its interest in the Basic Documents, or offer to do
any of the foregoing, (i) in any manner that would result in a violation of the
Act, the Securities Act of 1933, ERISA, or any other law, or (ii) if, as a
result of such assignment, conveyance, or other transfer, more than two Persons
other than Bank of Tokyo and affiliates of Wachovia would have Certificates
issued with respect to any particular Aircraft.
(c) Transfer. Agent shall maintain at its office a register for the
purpose of registering transfers and exchanges of registered Certificates and in
which shall be entered the names and addresses of the owners of such registered
Certificates and particulars of the registered Certificates owned by them. The
holder of any registered Certificate wishing to transfer such Certificate shall,
in person or by a duly authorized attorney, surrender to Agent at its office
such Certificate, duly endorsed by the registered holder or such attorney, or
accompanied by a written instrument of transfer duly executed by the registered
holder or by such attorney, in form reasonably satisfactory to Agent. Upon
representation to Agent of any Certificate for transfer, Agent will
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execute and deliver to the transferee thereof in exchange therefor a new
Certificate or Certificates of the same series and in the same aggregate
principal amount and with the same terms as the Certificate so surrendered, in
registered form and in any denomination of $100,000 or more (or the aggregate
principal amount of all Certificates of such series held by such transferee,
whichever is less) as is specified in such instrument of transfer. Nothing in
this paragraph shall be interpreted as (i) giving Bank of Tokyo the right or
power to transfer one or more of its Certificates or to transfer any right or
interest in such Certificates to another Person, other than Wachovia or
Borrower, without the prior written consent of Wachovia and Borrower (which
shall not be unreasonably withheld) or (ii) giving Wachovia the right or power
to transfer one or more of its Certificates or to transfer any right or interest
in such Certificates to any Person other than an affiliate of Wachovia, without
the prior written consent of Borrower (which shall not be unreasonably
withheld).
(d) Exchange. The holder of one or more Certificates may at any time
surrender such Certificate or Certificates for exchange at Agent's office and
shall be entitled to receive in exchange therefor a new Certificate or
Certificates, of the same series and in the same aggregate principal amount with
the same terms as the Certificate or Certificates surrendered, in registered
form and in any denomination of $100,000 or more (or the aggregate principal
amount of all such Certificates of the same series held by such holder,
whichever is less).
(e) Effect of Transfer or Exchange. All Certificates issued upon any
transfer or exchange of Certificates shall be the valid obligations of Agent
evidencing the same respective obligations, and entitled to the same security
and benefits under this Agreement, as the Certificates surrendered upon such
transfer or exchange. Agent shall make a notation on each new Certificate of the
date to which interest on the replaced Certificate(s) has been paid.
(f) Evidence of Ownership. Agent and Borrower shall deem and treat the
Person in whose name any registered Certificate is registered as the absolute
owner and holder of such Certificate for the purpose of mailing payment of all
amounts payable by Agent or Borrower with respect to such Certificate and for
all amounts payable by Agent or Borrower with respect to such Certificate and
for all other purposes, and Agent and Borrower shall not be affected by any
notice to the contrary.
(g) Expenses, Taxes, etc. The transferring or exchanging Lender
shall pay all expenses incurred in connection with the
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transfer or exchange of a Certificate, including Agent's expenses (including
legal fees), stamp taxes, transfer taxes, sales taxes, governmental fees and
charges, broker's fees and commissions, any other fees and charges of the same
or similar type as any of the foregoing, and other fees and expenses associated
with amendments, supplements, waivers, or consents required as a result of any
transfer or sale of a Certificate after the Purchase Date. In addition, for any
transfer or exchange of a Certificate, Agent may require the transferor to pay a
sum sufficient to cover any stamp tax or other governmental charge connected
therewith.
(h) No Transfer Within Three Days Before Payment Date. Agent
shall not be required to transfer or exchange any Certificate during the
three-day period preceding the due date of any payment on such Certificate.
Section 13.06 -- Wachovia's Representations and Warranties.
Wachovia represents and warrants that:
(a) it is a national banking association duly organized,
validly existing, and in good standing under the laws of the United States, and
has all corporate power, authority, and legal right under the laws of the United
States to execute, deliver, and carry out the terms of each of the Basic
Documents to which it is a party as Lender;
(b) it has duly authorized, executed, and delivered this
Agreement and the other Basic Documents to which it is a party as
Lender;
(c) neither it nor anyone authorized to act on its behalf has
directly or indirectly offered any beneficial interest in the Notes or the
Certificates for sale to, or solicited any offer to acquire any such interest in
the Notes or the Certificates from, any Person in such a manner as to require
any of the Notes or the Certificates to be registered under the Securities Act
of 1933, as amended, or any state securities law; provided, that the foregoing
shall not be deemed to extend any such offer, sale, or solicitation by or on
behalf of Borrower or any other Person; and
(d) no part of the funds used by it to purchase its
Certificates hereunder shall constitute the assets of any "employee benefit
plan" within the meaning of ERISA or any "plan" as such a term is defined in
section 406 of ERISA or section 4975 of the Code.
Section 13.07 -- Bank of Tokyo's Representations and
Warranties. Bank of Tokyo represents and warrants that:
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(a) it is an agency licensed under Georgia law of a Japanese
banking corporation and in good standing under the laws of Georgia, and has all
corporate power, authority, and legal right under the laws of the United States
to execute, deliver, and carry out the terms of each of the Basic Documents to
which it is a party;
(b) it has duly authorized, executed, and delivered this
Agreement and the other Basic Documents to which it is a party;
(c) neither it nor anyone authorized to act on its behalf has
directly or indirectly offered any beneficial interest in the Notes or the
Certificates for sale to, or solicited any offer to acquire any such interest n
the Notes or the Certificates from, any Person in such a manner as to require
any of the Notes or the Certificates to be registered under the Securities Act
of 1933, as amended, or any state securities law; provided, that the foregoing
shall not be deemed to extend any such offer, sale, or solicitation by or on
behalf of Borrower or any other Person; and
(d) no part of the funds used by it to purchase its
Certificates hereunder shall constitute the assets of any "employee benefit
plan" within the meaning of ERISA or any "plan" as such a term is defined in
section 406 of ERISA or section 4975 of the Code.
Section 13.08 -- Governing Law. This Agreement shall be
governed by the laws of Georgia (excluding any conflict-of-laws rule that would
apply the laws of any other jurisdiction).
Section 13.09 -- Headings. Article and section headings used
in this Agreement are for convenience only and are not a substantive part of
this Agreement.
Section 13.10 -- Execution in Counterparts. This Agreement may
be executed in separate counterparts.
Section 13.11 -- Survival of Representations and Warranties.
All representations and warranties contained in this Agreement or made in
writing in connection with this Agreement shall survive the execution and
delivery of this Agreement and the Mortgage.
Section 13.12 -- Severability. If any part of any provision
contained in this Agreement, or any document contemplated hereby, is or becomes
invalid or unenforceable under applicable law, that part shall be ineffective to
the extent of such
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invalidity only, without in any way affecting the remaining parts of that
provision or the remaining provisions.
Section 13.13 -- Proex Agreement. So long as no Default
exists, Agent shall forward any payments that it receives under the Proex
Agreement as Proex Interest Payments, or interest thereon, or as indemnification
or reimbursement under the Proex Agreement and not relating to any loss or
expense suffered by Agent or any Lender, to Borrower at Wachovia Bank of
Georgia, N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303 (ABA #
0610-0001-0), Account: Atlantic Southeast Airlines, Inc. (account # 18645444).
Agent shall use its good faith efforts to forward any such payments to Borrower
on the Business Day following their receipt by Agent. At Borrower's cost and
expense, Agent or any Lender shall use its good faith efforts to take such
action with respect to the Proex Agreement as Borrower shall reasonably request,
provided that Agent and the Lenders shall not be required to solicit offers
independently from any bank to guarantee Proex Interest Payments or to take any
action which adversely affects the interests of any of them; provided that a
reduction in the amount of Proex Interest Payments resulting from the guarantee
of such Proex Interest Payments by Proex Bank shall not be considered an action
adversely affecting Agent's or any Lender's interest; provided, further, that
the replacement of the bank acting as Proex Bank with another bank shall not be
considered an action adversely affecting Agent's or any Lender's interest if (a)
Agent consents in writing to such replacement bank's acting as the Proex bank
under the Proex Agreement or (b) such replacement bank meets the following
qualifications: (i) it is a bank having offices in New York City and Brazil,
(ii) it is authorized to act as a Proex agent under the Proex Program; and (iii)
it is a bank with which Agent has the capability to transact business in the
ordinary course through Agent's then-existing correspondent banking
relationships. However, all risks associated with the Proex Program are
Borrower's, and Agent and the Lenders shall have no responsibility for an Proex
Interest Payments not actually received by Agent or any Lender from Proex Bank.
So long as no Default exists, Agent and Lenders shall not enter into any
amendment of the Proex Agreement without Borrower's consent, such consent not to
be unreasonably withheld.
Section 13.14 -- Agent Not Acting in Individual Capacity. In
acting hereunder, unless otherwise expressly provided, Wachovia Bank of
Georgia, N.A., when referred to as "Agent", acts solely as agent and not in its
individual capacity; and, except as otherwise provided herein or in any other
Basic Document to which Wachovia Bank of Georgia, N.A., as "Agent", is a party,
all Persons having any claim against Wachovia Bank of Georgia, N.A., as
"Agent", by reason of the transactions contemplated hereby shall look only to
the Collateral for payment or satisfaction thereof.
58
<PAGE> 63
IN WITNESS WHEREOF, Agent, Borrower, and Lenders have executed
this Credit Agreement.
<TABLE>
<CAPTION>
ATLANTIC SOUTHEAST AIRLINES, INC.
<S> <C>
100 Hartsfield Centre Parkway
Atlanta, Georgia 30354-1356
Attn: Ronald V. Sapp
Vice President - Finance By: /s/ Ronald V. Sapp
and Treasurer --------------------------------------
Facsimile No.: (404) 209-0162 Title: Vice President - Finance & Treasurer
-------------------------------------------
WACHOVIA BANK OF GEORGIA, N.A.,
not in its individual capacity
but solely as agent
191 Peachtree St., N.E.
Atlanta, Georgia 30303
Attn: Georgia Corporate Division By: /s/ Mark Bole
Reference: Atlantic Southeast -------------------------------------
Airlines (1992 Financings) Title: Commercial Officer
Facsimile No.: (404) 332-5016 ----------------------------------
WACHOVIA BANK OF GEORGIA, N.A.,
in its individual capacity
191 Peachtree St., N.E.
Atlanta, Georgia 30303
Attn: Georgia Corporate Division By: /s/ Mark Bole
Reference: Atlantic Southeast -------------------------------------
Airlines (1992 Financings) Title: Commercial Officer
Facsimile No.: (404) 332-5016 ---------------------------------
THE BANK OF TOKYO, LTD.,
ATLANTA AGENCY
5050 Georgia-Pacific Center
133 Peachtree Street, N.E.
Atlanta, Georgia 30303 By: /s/ Gary L. England
Attn: Gary L. England ------------------------------------
Facsimile No.: (404) 577-1155 Title: Vice President and Manager
---------------------------------
</TABLE>
59
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Net Income $56,612,720 $51,137,417 $52,655,748
=========== =========== ============
Earnings per share $1.83 $1.55 $1.54
=========== =========== ============
Weighted average number of shares
outstanding 30,990,599 32,964,138 34,187,833
=========== =========== ============
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Atlantic Southeast Airlines, Inc., a Georgia corporation, is 100% owned by ASA
Holdings, Inc.
ASA Investments, Inc., a Delaware corporation, is 100% owned by ASA Holdings,
Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-94852-99) pertaining to the Atlantic Southeast Airlines, Inc.
Investment Savings Plan, and the Registration Statement (Form S-8 No.
33-37304-99) pertaining to the Company's Stock Appreciation Rights
Plan, of our report dated January 31, 1997, with respect to the consolidated
financial statements and schedules of ASA Holdings, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Atlanta, Georgia
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ASA HOLDINGS, INC. FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 137,469
<SECURITIES> 52,653
<RECEIVABLES> 6,757
<ALLOWANCES> (204)
<INVENTORY> 8,145
<CURRENT-ASSETS> 207,724
<PP&E> 472,461
<DEPRECIATION> 203,181
<TOTAL-ASSETS> 486,237
<CURRENT-LIABILITIES> 60,005
<BONDS> 94,618
0
0
<COMMON> 2,999
<OTHER-SE> 257,217
<TOTAL-LIABILITY-AND-EQUITY> 486,237
<SALES> 0
<TOTAL-REVENUES> 375,300
<CGS> 0
<TOTAL-COSTS> 290,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (25)
<INTEREST-EXPENSE> 5,863
<INCOME-PRETAX> 91,107
<INCOME-TAX> 34,494
<INCOME-CONTINUING> 56,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,613
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
