<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12649
AMERICA WEST HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 86-0847214
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
51 W. THIRD STREET (602) 693-0800
TEMPE, ARIZONA 85281 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) CODE)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
------------------- ------------------------------------------
<S> <C>
CLASS B COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
COMMISSION FILE NUMBER 1-10140
AMERICA WEST AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 86-0418245
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
4000 E. SKY HARBOR BOULEVARD (602) 693-0800
PHOENIX, ARIZONA 85034-3899 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) CODE)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
------------------- ------------------------------------------
<S> <C>
CLASS B COMMON STOCK WARRANT, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Senior Unsecured Notes Due 2005
(Title of Class)
Indicate by check mark whether each of the registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 under the Securities Exchange Act of 1934) is
not contained herein, and will not be contained, to the best of each of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 23, 1998, there were 44,561,732 shares of America West Holdings
Corporation Class B Common Stock, $.01 par value, and 5,456,934 warrants to
purchase America West Holdings Corporation Class B Common Stock, $.01 par value,
from America West Airlines, Inc., respectively, issued and outstanding. As of
such date, based on the closing sales price, 41,962,390 shares of Class B Common
Stock, having an aggregate market value of approximately $1,018,000,000 were
held by non-affiliates. For purposes of the above statement only, all directors
and executive officers of the registrants are assumed to be affiliates. As of
March 23, 1998, all outstanding equity securities of America West Airlines, Inc.
were owned by America West Holdings Corporation.
With respect to America West Airlines, Inc., indicate by check mark whether
the registrant has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes [X] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement related to America West Holdings
Corporation's 1998 annual meeting of stockholders, which proxy statement will be
filed under the Securities Exchange Act of 1934 within 120 days of the end of
America West Holdings Corporation's fiscal year ended December 31, 1997, are
incorporated by reference into Part III of this Form 10-K.
AMERICA WEST AIRLINES, INC., A WHOLLY OWNED SUBSIDIARY OF AMERICA WEST
HOLDINGS CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH REDUCED
DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION J(2).
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 16
PART II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Consolidated Financial Data........................ 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 8A. Consolidated Financial Statements and Supplementary
Data -- America West Holdings Corporation................... 28
Item 8B. Financial Statements and Supplementary Data -- America West
Airlines, Inc............................................... 50
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 68
PART III
Item 10. Directors and Executive Officers of the Registrants......... 68
Item 11. Executive Compensation...................................... 68
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 68
Item 13. Certain Relationships and Related Transactions.............. 68
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 68
</TABLE>
Note Concerning Forward-Looking Information
This Report contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in this document, the
words "anticipate," "estimate," "project," "expect" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Among the key factors that may have a direct bearing on the
Company's results are competitive practices in the airline and travel industries
generally and particularly in the Company's principal markets, the ability of
the Company to meet existing financial obligations in the event of adverse
industry or economic conditions or to obtain additional capital to fund future
commitments and expansion, the Company's relationship with employees and the
terms of future collective bargaining agreements and the impact of current and
future laws and governmental regulations affecting the airline and travel
industries and the Company's operations. For additional discussion of such risks
see "Business -- Risk Factors," included in Item 1 of this Report on Form 10-K.
Any forward-looking statements speak only as of the date such statements are
made.
2
<PAGE> 3
PART I
This combined Form 10-K is filed by each of America West Holdings
Corporation ("Holdings") and America West Airlines, Inc. ("AWA"). Information
contained herein relating to AWA is filed by each of Holdings and AWA on its own
behalf. Holdings is a Delaware corporation and became the holding company for
AWA effective midnight December 31, 1996. In January 1998, The Leisure Company,
a Delaware corporation ("Leisure Co."), began operations as a new leisure travel
subsidiary of Holdings to develop and grow the Company's vacation package tour
business. Holding's only material assets are the capital stock of AWA and
Leisure Co. Unless otherwise indicated, the term the "Company" refers
collectively to Holdings and AWA and Leisure Co., its wholly owned subsidiaries.
ITEM 1. BUSINESS
1997 IN REVIEW
Holdings reported record pretax income, net income and revenues for the
fourth quarter and full year 1997. Diluted earnings per share in 1997 rose 60%
to $1.63 compared with $1.02 in 1996 (excluding a non-cash, non-recurring
special charge of $65.1 million pretax incurred during the third quarter of
1996). See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OVERVIEW
Holdings is the parent company of AWA and Leisure Co. Management believes
that the holding company structure improves the Company's ability to manage
separate business segments effectively and that Holdings provides a platform for
further expansion of the Company's travel-related businesses. The Company
intends to continue to evaluate investment and expansion opportunities that
would allow the Company to capitalize on the key strengths and market positions
of AWA and Leisure Co.
AWA is the ninth largest commercial airline carrier in the United States,
operating through its principal hubs located in Phoenix, Arizona and Las Vegas,
Nevada, and a mini-hub located in Columbus, Ohio. AWA is the lowest cost major
airline in the United States. The Company's operating cost per available seat
mile ("CASM") for 1997 was 7.27 cents, which was approximately 23% less than the
average CASM of the other major domestic airlines. At December 31, 1997, AWA
served 60 destinations, including six destinations in Mexico and one in Canada,
with a fleet of 102 aircraft. AWA offered service to an additional 32
destinations through alliance arrangements with other airlines.
In January 1998, Holdings commenced operations of Leisure Co. to develop
and grow the Company's vacation package tour business. Leisure Co. arranges and
sells vacation packages that include hotel accommodations, airfare, ground
transportation and a variety of entertainment options. Leisure Co.'s most
recognizable brand is the America West Vacations product. Leisure Co. occupies a
substantial position in the Las Vegas destination market and arranges packages
for travel to other traditional vacation destinations including Arizona,
California, Florida, Canada and Mexico.
STRATEGY
The Company's strategy is to maximize profitability and cash flow by
capitalizing on the Company's key competitive strengths while maintaining
financial flexibility. The principal elements of the Company's strategy are to
grow the Company's existing lines of business, to maintain the Company's
strategic cost advantage and to ensure financial flexibility.
Grow the Company's Existing Lines of Business
AWA. The Company intends to grow its airline operation by continuing to
add service to new destinations and increasing frequency to existing
destinations from Phoenix and Las Vegas because it believes that significant
opportunities to grow those hubs exist. The Phoenix and Las Vegas markets are
among the fastest growing in the United States, and the Company believes that
its Phoenix hub is undersized relative to its potential. In execution of this
strategy, AWA has increased available seat miles ("ASMs") 21%
3
<PAGE> 4
over the past two years with the majority of this growth focused on
strengthening AWA's position at Phoenix. During this period, eight new cities
have been added to AWA's route network and frequencies to key business markets
have been increased.
The Company has expanded its reach outside of its core markets through
alliances. AWA has codesharing arrangements with Continental Airlines, Northwest
Airlines and British Airways as well as a commuter agreement with Mesa Airlines.
These alliances allow AWA to expand its passenger base without significant
increases in capital or operating expense and in some cases achieve cost savings
through the reduction of redundant labor and facilities. The Company believes
that alliances are an efficient means of developing new markets and increasing
travel opportunities for its customers and plans to continue to pursue such
relationships with both domestic and international carriers.
Leisure Co. The Company also believes that there are significant
opportunities to expand its profitable vacation package business. Historically,
AWA has packaged air travel with hotel rooms and ground transportation to
provide affordable vacation packages under the America West Vacations brand.
Over time, the Company has developed strong relationships in vacation markets,
particularly Las Vegas, created additional brands and developed a highly
efficient marketing and distribution operation. Effective January 1, 1998,
Leisure Co. began operations as a separate subsidiary of Holdings. Management
believes that there exist significant opportunities for Leisure Co. to grow
the volume and profitability of this line of business by broadening its client
base and available product line.
Maintain its Strategic Cost Advantage
The Company is committed to maintaining AWA's low cost structure, which
offers AWA a significant competitive advantage over other major airlines. AWA
has achieved this low cost structure primarily through employee productivity,
favorable labor costs per ASM and industry-leading aircraft utilization. In
1997, the Company widened its strategic cost advantage versus the industry
as AWA's CASM decreased 2.2% (excluding the $65.1 million charge in 1996
referenced above).
Ensure Financial Flexibility
The airline and travel industries are cyclical in nature. Because of this,
an important element of the Company's strategy is to maintain financial
flexibility as protection against a downturn in the business cycle. A key
component of this strategy is AWA's aircraft leasing plan. As of December 31,
1997 and through the end of 2001, leases for 24 aircraft will expire. As a
result, if economic conditions change adversely during that period,
AWA can delay the growth of its fleet and its aircraft-related financial
obligations by electing to not renew these aircraft leases and not replace these
aircraft. Another component of this strategy is the Company's compensation
system, which includes a variable pay element based largely on the
Company's performance. In December 1997, the Company further enhanced its
financial flexibility by establishing a $100 million senior secured revolving
credit facility with certain financial institutions.
AWA
Operations
AWA is the ninth largest commercial airline carrier in the United States,
operating through its principal hubs located in Phoenix, Arizona and Las Vegas,
Nevada, and a mini-hub located in Columbus, Ohio. AWA is the lowest cost major
airline in the United States. At December 31, 1997, AWA served 60 destinations,
including six destinations in Mexico and one in Canada, with a fleet of 102
aircraft. AWA offered service to an additional 32 destinations through alliance
agreements with other airlines.
AWA seeks to maximize its market share by operating primarily through its
hub airports. AWA is the leading airline serving Phoenix, Las Vegas and
Columbus, based upon revenue passenger miles. The Company believes that the
success of its operations in Phoenix and
4
<PAGE> 5
Las Vegas is in part due to those cities' airports being among the world's
largest 25 in passenger numbers and those cities being among the fastest
growing in the nation. In addition, the Company believes that its hubs are well
positioned for continued growth due to their geographically favorable locations
with strategic access to key Southwest and West Coast markets, relatively low
operating costs, year-round fair weather and modern, uncongested facilities.
AWA is committed to maintaining the airline's reliability and providing
quality customer service. During 1997, AWA initiated a Pride in All We Do
campaign aimed at improving the airline's baggage handling, on-time performance
and all other aspects of its customer service. As a result of initiatives
developed by this program, the Company's mishandled baggage rate, as recorded by
the Department of Transportation (the "DOT"), was the best in the industry
during 1997. In addition, AWA was ranked No. 1 in customer satisfaction among
the major United States airlines for short-haul flights in the 1997 Airline
Customer Satisfaction -- U.S. Flights study conducted by Frequent Flyer Magazine
and J.D. Power & Associates.
Alliances
AWA has alliance agreements with Continental Airlines, British Airways,
Northwest Airlines and Mesa Airlines ("Mesa"). AWA's alliance agreement with
Continental Airlines provides for codesharing arrangements, coordinating flight
schedules, sharing ticket counter space, linking frequent flyer programs and
membership clubs, and coordinating ground handling operations. Through
codesharing, each airline is able to offer additional destinations to its
customers without materially increasing operating expenses and capital
expenditures. AWA has achieved cost savings from the Continental Airlines
alliance primarily through the consolidation of airport facilities and resources
and the elimination of duplicative costs for labor and equipment at key
locations.
AWA's alliance agreement with British Airways includes codesharing
arrangements and reciprocal frequent flyer privileges and allows British Airways
to offer connecting service to and from British Airways' service to Phoenix, San
Francisco and Columbus to certain destinations served by AWA. AWA also provides
ground-handling services for British Airways at Phoenix. Through AWA's codeshare
agreement with Northwest Airlines, AWA provides connecting service from
Northwest Airlines' Pacific routes to Las Vegas and Phoenix.
AWA's codesharing agreement with Mesa establishes Mesa as a feeder
carrier for the Company at its Phoenix hub and adds 17 destinations in
the southwestern United States to the Company's route network. The codesharing
agreement with Mesa provides for coordinated flight schedules, passenger
handling and computer reservations under the AWA flight designator code,
thereby allowing passengers to purchase one airfare for their entire trip.
On codesharing flights, Mesa operates under the name "America West
Express" and has incorporated AWA's color scheme and commercial logo on certain
aircraft utilized on these routes.
In March 1998, as a result of certain breaches of the codesharing
agreement by Mesa, AWA delivered a notice advising Mesa of AWA's intent to
terminate the codesharing agreement. Subsequently, AWA and Mesa have
agreed to an interim arrangement whereby Mesa will continue to provide
codesharing services through June 30, 1998 and the parties are currently
negotiating for a new long term codesharing agreement. If the Company is unable
to reach an agreement with Mesa, it intends to negotiate with other
regional airlines to provide feeder service to the Company at its Phoenix hub.
5
<PAGE> 6
Aircraft
At December 31, 1997, AWA operated a fleet of 62 Boeing 737s, 26 Airbus
A320s and 14 Boeing 757s as follows:
<TABLE>
<CAPTION>
AVERAGE
REMAINING
NUMBER AVERAGE LEASE
AIRCRAFT TYPE STATUS(1) AIRCRAFT AGE (YRS.) TERM (YRS.)
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
B737-100................................. Owned 1 28.2 --
B737-200................................. Leased 14 17.1 3.5
B737-200................................. Owned 5 18.8 --
B737-300................................. Leased 31 10.8 4.8
B737-300................................. Owned 11 9.2 --
B757-200................................. Leased 12 11.4 7.4
B757-200................................. Owned 2 8.3 --
A320-200................................. Leased 26 6.7 10.4
--- ---- ----
102 11.0 6.7
--- ---- ----
</TABLE>
- ---------------
(1) Each of the aircraft that is designated as owned serves as collateral for a
loan pursuant to which the aircraft was acquired by AWA or serves as
collateral for a non-purchase money loan or is leased pursuant to a finance
lease.
As of December 31, 1997 and through December 2001, leases for 24 of AWA's
aircraft are scheduled to terminate. Two of such aircraft were returned to
lessors in January 1998. Also, the Company has agreed to lease three Airbus
A320s for delivery in the first half of 1998.
At December 31, 1997, AWA had firm commitments for a total of 22 Airbus
A319-100 and 12 Airbus A320-200 aircraft for delivery beginning in 1998.
Delivery of those aircraft are scheduled as follows: three in 1998, 13 in 1999,
11 in 2000 and seven in 2001. As a result of the leases for the three Airbus
A320s referenced above, AWA has a right to cancel the last three deliveries. AWA
also has an order for an additional 12 A320 aircraft, which AWA has the right to
cancel. AWA also has options to purchase an additional 40 A320 family aircraft
during 2001 through 2005 and certain rights to convert firmly ordered A319s to
A320s or larger A321 aircraft. See "Risk Factors -- Leverage; Future Capital
Requirements" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Frequent Flyer Program
All major United States airlines have established frequent flyer programs
to encourage travel on that particular carrier. AWA offers the FlightFund
program which allows members to earn mileage credits by flying AWA, by using the
services of other program participants such as hotels, car rental firms and
other specialty services and by flying certain partner carriers. Through AWA's
alliance agreement with both Continental Airlines and British Airways, each
airlines' frequent flyer members have reciprocal rights in the other airlines'
programs. When a FlightFund member accumulates mileage credits of 20,000 miles,
AWA issues mileage award certificates that can be redeemed for various travel
awards, including first class upgrades and tickets on AWA or other airlines
participating in AWA's frequent flyer program. Most travel awards are subject to
blackout dates and capacity controlled seating. Mileage award certificates
automatically expire after three years. Travel is valid up to one year from the
date of ticketing. FlightFund awards may also be redeemed for flights to certain
international destinations and Hawaii. AWA is required to purchase space on
other airlines to accommodate such award redemption.
The Company accounts for the FlightFund program under the incremental cost
method whereby travel awards are valued at the incremental cost of carrying one
additional passenger based on expected redemptions. Costs including passenger
food, beverages, supplies, fuel, liability insurance, purchased space on other
airlines and denied boarding compensation are accrued as frequent flyer program
participants accumulate mileage to their accounts. Such unit costs are based
upon expenses expected to be incurred on a per passenger basis. No profit or
overhead margin is included in the accrual for these incremental costs. The
number of FlightFund travel awards redeemed for round-trip travel for the years
ended December 31, 1997, 1996 and 1995, was 3.2%, 2.3% and 2.3% of total revenue
passenger miles, respectively. The Company does not believe that the usage of
free travel awards results in any significant displacement of revenue passengers
due to AWA's ability to manage frequent flyer travel.
LEISURE CO. OPERATIONS
Leisure Co. arranges and sells vacation packages that include hotel
accommodations, airfare, ground transportation and a variety of entertainment
options. Leisure Co.'s focus is to provide a customer-friendly combination of
low price and high quality vacation products by combining for sale packages that
6
<PAGE> 7
include hotel accommodations, rental cars and amenities such as amusement park
admissions, golf tee times and ski lift tickets. Leisure Co. has taken advantage
of the positive consumer recognition of its America West Vacations brand by
promoting two new products, America West Golf Vacations and America West Ski
Vacations. In 1997, while it was a division of AWA, America West Vacations
served approximately 551,000 customers, generated approximately $211 million in
gross package sales and sold approximately 828,000 room nights and
approximately 179,000 rental car days. During 1998, Leisure Co. expects to
introduce new lines of vacation products, consider acquisition opportunities
and enter into strategic alliances with airlines in addition to AWA to broaden
both its scope of services and its client base.
Leisure Co.'s charter business specializes in charter flights for sports
teams and large tour groups. The Company plans to report separate summary
financial data for Leisure Co. beginning in 1998.
EMPLOYEES
At January 1, 1998, the Company employed 8,921 full-time and 2,718
part-time employees, for an equivalent of 9,615 full-time employees. Of these,
AWA and Leisure Co. employed 8,607 and 314 full time employees, respectively.
The Company's businesses are labor intensive. Wages, salaries and benefits
represented approximately 24.4% of the Company's consolidated operating expenses
for the year ended December 31, 1997. To encourage increased productivity by its
workforce, the Company awards performance bonuses to eligible non-executive,
non-union employees provided certain annually established operating income and
operating performance targets are attained. AWA awards performance bonuses from
5% to 25% of base pay and Leisure Co. awards performance bonuses from 2.5% to
20% of base pay. In each case, eligibility is determined at the time of
distribution. In March 1998, the Company paid performance bonuses equal to 5%
of eligible employees' base pay in respect of 1997 performance to eligible
employees of AWA and Leisure Co.
LABOR RELATIONS
There have been numerous attempts by unions to organize AWA's employees,
and the Company expects such organization efforts to continue in the future.
Several groups of AWA's employees have selected union representation and
negotiations for initial collective bargaining agreements are in progress.
The Company cannot predict at this time the outcome or the terms of any future
collective bargaining agreement and therefore the effect, if any, on AWA's
operations or financial performance. None of Leisure Co.'s employees are
represented by unions. See "Risk Factors -- Labor Relations."
AWA's pilots are represented by the Airline Pilots Association. In May
1995, a five-year collective bargaining agreement with AWA's pilots became
effective. The terms of this contract are consistent with AWA's productivity
objectives and include a single pay scale for all aircraft type, flexible
work rules and AWA's right to enter into alliances.
In September 1994, the National Mediation Board ("NMB") certified the
Association of Flight Attendants ("AFA") as the collective bargaining
representative of AWA's flight attendants. In October 1997, AWA and AFA reached
a tentative agreement on a five-year collective bargaining agreement, but the
membership rejected that tentative agreement in December 1997. AWA and AFA
recommenced negotiations in March 1998.
In January 1996, the International Brotherhood of Teamsters ("IBT") filed
an application with the NMB seeking certification as the bargaining
representative for AWA's mechanics, including related personnel. Following a
representation election in April 1996, the NMB certified IBT as the
collective bargaining representative for that work group. The Company is
currently litigating the certification of IBT. To comply with a court
ruling, the Company has commenced negotiations with IBT.
In September 1996, the Transportation Workers Union ("TWU") was certified
to represent AWA's approximately 40 dispatchers. A tentative agreement was
reached by AWA and TWU in March 1998, but has not yet been ratified.
7
<PAGE> 8
Attempts by TWU to represent AWA's approximately 1,900 fleet service
workers and IBT to represent AWA's approximately 45 stock clerks were not
successful as those unions lost representation elections among those work groups
in 1997 and early 1998, respectively.
COMPETITION AND MARKETING
The airline industry is highly competitive. AWA competes with a number of
major airlines on medium-and long-haul routes through its hubs and with a number
of carriers for short-haul flights at its Phoenix and Las Vegas hubs and its
Columbus mini-hub. AWA competes with other major full service airlines based on
price and, due to its low cost structure, is able to compete with other low cost
carriers in its short haul local markets. The entry of additional carriers in
many of AWA's markets (as well as increased competition from or the introduction
of new services by established carriers) could negatively impact AWA's results
of operations.
Most tickets for travel on AWA are sold by travel agents. Travel agents
generally receive commissions based on the price of tickets sold. Airlines often
pay additional commissions in connection with special revenue programs.
Accordingly, airlines compete not only with respect to the price of tickets sold
but also with respect to the amount of commissions paid. Beginning September
30, 1997, AWA reduced the travel agency base commission rate from 10% to 8%
following similar reductions by most of its major competitors. Unlike the
majority of its competitors, AWA does not cap travel agency commissions at $50
per ticket.
Most tickets sold by travel agents are sold through computer reservations
systems that are controlled by airlines. Those computer reservations systems
have, from time to time, significantly increased the cost of making
reservations, which costs are borne by airlines, including AWA. To address these
issues, AWA has taken a number of actions. In early 1996, AWA implemented
electronic or paperless ticketing to respond to customer needs and to reduce
distribution costs for tickets booked directly through the Company, and during
1997, based on revenues approximately 29% of its tickets were processed
electronically. During 1997, AWA introduced the ability for customers to book
tickets directly through its Internet site located at www.americawest.com, thus
avoiding the more expensive computer reservations systems. While booking through
the Internet site was less than 1% of total 1997 bookings, growth in this
channel was dramatic, with December 1997 Internet bookings growing 120% over
June 1997 bookings. Federal regulations have been promulgated that are intended
to diminish preferential schedule displays and other practices with respect to
the computer reservation systems that place AWA and other similarly situated
users at a competitive disadvantage to the airlines controlling the systems.
Leisure Co.'s business is also highly competitive. Leisure Co. competes
with two types of vacation packagers, wholesalers, who use multiple airlines and
offer diversified product lines, and tour operators, who distribute their
product directly to the consumer as well as through travel agents. See "Risk
Factors -- Competition; Industry Conditions."
FACILITIES
Holding's, AWA's and Leisure Co.'s principal facilities include the
Company's corporate headquarters in Tempe, Arizona and facilities associated
with AWA's hub operations in Phoenix, Las Vegas and Columbus. The Company
currently leases approximately 369,000 square feet of general office and other
space in Phoenix and Tempe for its corporate administrative offices. In
November 1997, Holdings announced its plan to build a 225,000 square foot, nine
story corporate headquarters complex at the site of AWA's original headquarters
facility in Tempe. The new building will accommodate the headquarters
and administrative functions of Holdings, AWA and Leisure Co. and will allow the
Company to reduce occupancy and administrative costs by consolidating functions
currently housed in several leased buildings. Occupancy is scheduled for early
1999, which coincides with the expiration of leases for the Company's principal
existing office facilities.
AWA operates from Terminal 4 of Phoenix Sky Harbor International Airport
and leases 31 gates and administrative offices comprising an aggregate of
approximately 263,000 square feet of space at December 31, 1997. AWA also leases
an additional 39,000 square feet of space at the airport for pilot training and
cargo and ground service facilities. AWA also owns a 475,000 square foot
maintenance and technical support facility on land leased from the City of
Phoenix, which includes four hangar bays, hangar shops, two flight simulator
8
<PAGE> 9
bays, pilot training facilities and warehouse and commissary facilities. The
Company and Phoenix Sky Harbor International Airport expect to announce
in the near future plans to build a new concourse which will contain an
additional 14 gates and approximately 65,000 square feet of space to be leased
by AWA.
In Las Vegas, AWA leases approximately 79,000 square feet of space at
McCarran International Airport, which includes 13 gates and adjoining holding
room areas. At its Port Columbus International Airport mini-hub, AWA leases
30, 000 square feet and seven gates.
Space for ticket counters, gates and back offices has also been obtained at
each of the other airports served by AWA, either by lease from the airport
operator or by sublease from another airline. Pursuant to AWA's alliance
agreement with Continental Airlines, certain of the station operations for both
carriers have been consolidated in an effort to reduce operating expenses.
GOVERNMENT REGULATIONS
The airline industry is highly regulated as more fully described below.
Currently, the vacation package industry is substantially unregulated.
DOT Oversight
AWA operates under a certificate of public convenience and necessity issued
by the DOT. Although regulation of domestic routes and fares was abolished by
the Airline Deregulation Act of 1978, the DOT retains the authority to alter or
amend AWA's certificate or to revoke such certificate for intentional
failure to comply with the terms and conditions of the certificate. In addition,
the DOT has jurisdiction over international tariffs and pricing, international
routes, computer reservation systems, and economic and consumer protection
matters such as advertising, denied boarding compensation, smoking and codeshare
arrangements and has the authority to impose civil penalties for violation of
the United States Transportation Code or DOT regulations.
FAA Funding
On August 5, 1997, President Clinton signed into law new aviation ticket
taxes as part of larger tax legislation designed to balance the nation's budget,
provide targeted tax relief and fund air traffic control, other Federal Aviation
Administration ("FAA") programs and airport development. As enacted, these new
taxes will be imposed through September 30, 2007. Included in the new law is a
phase-in of a modified federal air transportation excise tax structure with a
system that includes: a domestic excise tax starting at 9%, declining to 7.5% by
1999; a domestic segment tax starting at $1.00 and increasing to $3.00 by 2003;
and an increase in taxes imposed on international travel that will be from $6.00
per international departure to an arrival and departure tax of $12.00 (each
way). Both the domestic segment tax and the international arrival and departure
tax are indexed for inflation. The legislation also includes a 7.5% excise tax
on certain amounts paid to an air carrier for the right to provide mileage and
similar awards (e.g., purchase of frequent flyer miles by a credit card
company). As a result of competitive pressures, AWA and other airlines have
been limited in their ability to pass on the cost of these taxes to passengers
through fare increases.
In December 1997, the National Civil Aviation Review Commission (the
"NCARC") completed its Report to Congress on FAA funding and recommended
implementation of a cost based user fee system for air carriers. Congress is
presently considering the recommendations of the NCARC, which may result in
enactment of a new funding mechanism. The Company cannot currently estimate the
effect the new combination of ticket and segment taxes, or any change in those
taxes as recommended by the NCARC, will have on its operating results. There can
be no assurance that the new taxes or such changes will not have a material
adverse effect on the Company's financial condition and results of operations.
Fuel Tax
In August 1993, the federal government increased taxes on fuel, including
aircraft fuel, by 4.3 cents per gallon. The Company's annual operating expenses
increased by approximately $16.2 million for 1997 because of such fuel tax
increases. Total fuel taxes paid by the Company in 1997 were $24.9 million.
9
<PAGE> 10
Passenger Facility Charges
During 1990, Congress enacted legislation to permit airport authorities,
with prior approval from the DOT, to impose passenger facility charges ("PFCs")
as a means of funding local airport projects. These charges, which are intended
to be collected by the airlines from their passengers, are limited to $3.00 per
enplanement, and to no more than $12.00 per round trip. Congress is currently
considering the reauthorization of airport funding programs, which could include
an increase in the current PFC cap. As a result of competitive pressure, AWA and
other airlines have been limited in their ability to pass on the cost of the
PFCs to passengers through fare increases.
Slot Restrictions
At New York City's John F. Kennedy Airport and LaGuardia Airport, Chicago's
O'Hare International Airport and Washington's Ronald Reagan Washington National
Airport, which have been designated "High Density Airports" by the FAA, there
are restrictions on the number of aircraft that may land and take off during
peak hours. In the future, these take-off and landing time slot restrictions and
other restrictions on the use of various airports and their facilities may
result in further curtailment of services by, and increased operating costs for,
individual airlines, including AWA, particularly in light of the increase in the
number of airlines operating at such airports. In general, the FAA rules
relating to allocated slots at the High Density Airports contain provisions
requiring the relinquishment of slots for nonuse and permit carriers, under
certain circumstances, to sell, lease or trade their slots to other carriers.
All slots must be used on 80% of the dates during each two-month reporting
period. Failure to satisfy the 80% use rate will result in loss of the slot
which would revert to the FAA and be reassigned through a lottery arrangement.
AWA currently utilizes two slots at Kennedy Airport, four slots at
LaGuardia Airport, four slots at O'Hare Airport and six slots at Washington
National Airport during the restricted periods. AWA utilizes these slots more
than the requisite 80% use rate. Four of the slots at Washington National
Airport are subject to expiration in December 1999, and AWA intends to file a
timely application for renewal. Approval of such application is discretionary
by the FAA. AWA has filed for special exemptions from the Secretary of
Transportation for additional slots at both O'Hare and LaGuardia Airports.
If these exemptions are granted, AWA would be able to increase its level of
service at both airports.
Noise Abatement and Other Restrictions
The Airport Noise and Capacity Act of 1990 provides, with certain
exceptions, that after December 31, 1999, no person may operate certain large
civilian turbo-jet aircraft in the United States that do not comply with Stage
III noise levels, which is the FAA designation for the quietest commercial jets.
These regulations require carriers to phase out their noisier jets or equip them
with hush kits to comply with noise abatement regulations. At December 31, 1997,
AWA's fleet consisted of 102 aircraft, all of which meet Stage III noise
reduction requirements except for 20 aircraft that meet the FAA's Stage II (but
not Stage III) noise reduction requirements and must be retired or significantly
modified prior to December 31, 1999. The Company has decided to install hush
kits on 14 aircraft to comply with Stage III requirements, and the required
capital expenditures for such modifications are currently estimated to be
approximately $1.2 million per aircraft although certain of these costs may be
borne by the lessors of such aircraft. All necessary modification work on the 14
aircraft will be completed in advance of the December 31, 1999 deadline. Two of
the remaining six aircraft were returned to lessors in 1998 and management
expects to retire the four remaining non-compliant aircraft.
Numerous airports served by AWA, including those at Boston, Burbank,
Denver, Long Beach, Los Angeles, Minneapolis-St. Paul, New York City, Orange
County, San Diego, San Francisco, San Jose and Washington, D.C. have imposed
restrictions such as curfews, limits on aircraft noise levels, mandatory flight
paths, runway restrictions and limits on the number of average daily departures,
which limit the ability of air carriers to provide service to or increase
service at such airports. AWA's Boeing 757-200s, Boeing 737-300s and Airbus
A320s all comply with the current noise abatement requirements of the airports
listed above.
10
<PAGE> 11
Aircraft Maintenance and Operations
AWA is subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, dispatch, communications,
training, flight personnel and other matters affecting air safety. The FAA has
the authority to issue new or additional regulations. To ensure compliance with
its regulations, the FAA conducts regular safety audits and requires AWA to
obtain operating, airworthiness and other certificates, which are subject to
suspension or revocation for cause. In addition, a combination of FAA and
Occupational Safety and Health Administration regulations on both federal and
state levels apply to all of AWA's ground-based operations. AWA is also subject
to the jurisdiction of the Department of Defense with respect to its voluntary
participation in their Commercial Passenger Airlift program administered by the
Air Force's Air Mobility Command.
Aging Aircraft Maintenance
The FAA issued several Airworthiness Directives ("ADs") in 1990 mandating
changes to the older aircraft maintenance programs. These ADs were issued to
ensure that the oldest portion of the nation's aircraft fleet remains airworthy
and require structural modifications to or inspections of those aircraft. All of
AWA's currently affected aircraft are in compliance with the aging aircraft
mandates. AWA constantly monitors its fleet of aircraft to ensure safety levels
that meet or exceed those mandated by the FAA and the DOT.
Additional Security and Safety Measures
In 1996 and 1997 the President's Commission on Aviation Safety and Security
issued recommendations and the U.S. Congress and the FAA adopted increased
safety and security measures designed to increase airline passenger safety and
security and protect against terrorist acts. Such measures have resulted in
additional operating costs to the airline industry. Examples of increased safety
and security measures include the introduction of a domestic passenger manifest
requirement, increased passenger profiling, enhanced pre-board screening of
passengers and carry-on baggage, positive bag match for profile selections,
continuous physical bag search at checkpoints, additional airport security
personnel, expanded criminal background checks for selected airport employees,
significantly expanded use of bomb-sniffing dogs, certification of screening
companies, aggressive testing of existing security systems, expansion of aging
aircraft inspections to include non-structural components, development of
objective methods for carriers to monitor and improve their own level of safety
and installation of new ground proximity warning systems on all commercial
aircraft. The Company cannot forecast, what additional security and safety
requirements may be imposed in the future or the costs or revenue impact that
would be associated with complying with such requirements.
Environmental Matters
The Company is subject to regulation under major environmental laws
administered by federal, state and local agencies, including laws governing air,
water and waste discharge activities. While the Company strives to comply with
environmental laws and regulations, the Company has incurred and may incur costs
to comply with applicable environmental laws, including soil and groundwater
cleanup and other related response costs. The Company believes, however, that
under current environmental laws and regulations these costs would not have a
material adverse effect on the Company's financial condition and results of
operations.
The Comprehensive Environmental Response Compensation and Liability Act of
1980, also known as Superfund, and comparable state laws impose liability
without regard to fault on certain classes of persons that may have contributed
to the release or threatened release of a "hazardous substance" into the
environment. These persons include the owner or operator of a facility and
persons that disposed or arranged for the disposal of hazardous substances. Many
airports in the United States, including Phoenix Sky Harbor International
Airport, are the subject of Superfund investigations or state implemented
groundwater investigations.
11
<PAGE> 12
Although AWA occupies facilities at some of these affected airports, the Company
does not believe that its operations have been included within the ambit of any
of these investigations.
The trend in environmental regulation is to place more restrictions and
limitations on activities that may affect the environment, and the Company
expects that the costs of compliance will continue to increase.
RISK FACTORS
Competition; Industry Conditions
The airline industry is highly competitive and industry earnings are
volatile. From 1990 to 1992, the airline industry experienced unprecedented
losses due to high fuel costs, general economic conditions, intense price
competition and other factors. Airlines compete on the basis of pricing,
scheduling (frequency and flight times), on-time performance, frequent flyer
programs and other services. The airline industry is susceptible to price
discounting, which involves the offering of discount or promotional fares to
passengers. Any such fares offered by one airline are normally matched by
competing airlines, which may result in lower industry yields without a
corresponding increase in traffic levels. Also, in recent years several new
carriers have entered the industry, typically with low cost structures. In some
cases, new entrants have initiated or triggered price discounting. The entry of
additional new carriers in many of AWA's markets, as well as increased
competition from or the introduction of new services by established carriers,
could negatively impact the Company's financial condition and results of
operations. In addition, the introduction of broadly available, deeply
discounted fares would result in lower yields for the entire industry
and could have a material adverse effect on the Company's financial condition
and results of operations.
Most of the AWA's markets are highly competitive and are served by larger
carriers with substantially greater financial resources than the Company. At its
Phoenix and Las Vegas hubs, the Company's principal competitor is Southwest
Airlines. A number of the Company's larger competitors have proprietary
reservation systems providing them with certain competitive advantages.
The results of operations in the air travel business historically fluctuate
in response to general economic conditions. The airline industry is sensitive to
changes in economic conditions that affect business and leisure travel and is
highly susceptible to unforeseen events, such as political instability, regional
hostilities, recession, fuel price escalation, inflation, adverse weather
conditions or other adverse occurrences that result in a decline in air travel.
Any event that results in decreased travel or increased competition among
airlines could have a material adverse effect on the Company's financial
condition and results of operations.
Leisure Co.'s business is also highly competitive. Leisure Co. competes
with wholesalers and tour operators, some of which have substantially greater
financial and other resources than Leisure Co.
The Company's results of operations for interim periods are not necessarily
indicative of those for an entire year, because the travel business is subject
to seasonal fluctuations. Due to the greater demand for air and leisure travel
during the summer months, revenues in the airline and leisure travel industries
in the second and third quarters of the year tend to be greater than revenues
in the first and fourth quarters of the year. See "Competition and Marketing."
Leverage; Future Capital Requirements
At December 31, 1997, the Company had $327 million of long-term
indebtedness (including current maturities). The Company does not have available
significant unencumbered assets and thus may be less able than certain of its
competitors to withstand adverse industry conditions or a prolonged economic
recession. In addition, at December 31, 1997, AWA had firm commitments for a
total of 22 Airbus A319-100 and 12 Airbus A320-200 aircraft for delivery
beginning in 1998. The aggregate net cost of such aircraft is based on formulae
that include certain price indices (including indices for various aircraft
components such as metal products) for periods preceding the various delivery
dates. Based on an assumed 3.5% annual price escalation, the Company estimates
such aggregate net cost to be approximately $1.2 billion. AWA has arranged for
financing for up to one-half of the commitment relating to such aircraft, but
will require substantial capital from external sources to meet its remaining
financial commitment. There can be no assurance that AWA will
12
<PAGE> 13
be able to obtain such capital in sufficient amounts or on acceptable terms, and
a default by AWA of its purchase commitments could have a material adverse
effect on the Company's financial condition and results of operations.
Labor Relations
There have been numerous attempts by unions to organize the employees of
AWA, and the Company expects such organization efforts to continue in the
future. Several groups of AWA's employees have selected union representation
and negotiations for initial collective bargaining agreements are in progress.
The Company cannot predict which, if any, other employee groups may seek union
representation or the outcome or the terms of any future collective bargaining
agreement and therefore the effect, if any, on the Company's financial condition
and results of operations. If negotiations with unions over collective
bargaining agreements prove to be unsuccessful, following specified "cooling
off" periods, the unions may initiate a work action, including a strike, which
could have a material adverse effect on the Company's financial condition and
results of operations. See "Labor Relations."
Concentration of Voting Power, Influence of Certain Principal Stockholders
TPG Partners, L.P. ("TPG") (together with its affiliates TPG Parallel I,
L.P. ("TPG Parallel") and Air Partners II, L.P. ("Air Partners II")) and
Continental Airlines collectively control approximately 57.4% of the total
voting power of Holdings. As a result, if such stockholders act in concert they
will be able to elect a majority of their designees to the Board of Directors
and otherwise control Holdings. Continental Airlines is engaged in the airline
industry and is a party to an alliance agreement with the Company. Each of TPG,
TPG Parallel and Air Partners II are controlled by TPG Advisors, Inc., a
Delaware corporation, whose executive officers and directors, through their
positions in Air Partners, L.P., a significant shareholder of Continental
Airlines, may be deemed to own beneficially a significant percentage of
Continental Airlines' common stock. There can be no assurance that the
controlling stockholders identified above will not seek to influence Holdings in
a manner that would favor their own personal interests over the interests of the
Company.
Aircraft Fuel
Aircraft fuel costs constitute approximately 14% of the Company's total
operating expenses during 1997. At current consumption levels, a one cent per
gallon change in the price of jet fuel would affect the Company's annual
operating results by approximately $3.9 million in 1998. Accordingly, a
substantial increase in the price of jet fuel or the lack of adequate fuel
supplies in the future would have an adverse effect on the Company's financial
condition and results of operations.
AWA purchases its fuel from petroleum refiners and suppliers on standard
trade terms under master agreements. Although the Company is currently able to
obtain adequate supplies of jet fuel, future supplies and price trends may
change as a result of geopolitical developments, regional production patterns,
environmental concerns and other unpredictable events.
In 1996, AWA implemented a fuel hedging program to manage the risk from
fluctuating jet fuel prices. The program's objectives are to provide some
protection against extreme, upward movements in the price of jet fuel and to
protect AWA's ability to meet its annual fuel expense budget. Under the program,
AWA may enter into certain protective cap and fixed price swap transactions with
approved counterparties for future periods generally not exceeding 12
months. This program will primarily address AWA's exposure associated with its
East Coast fuel requirements, which correlate well with risk management vehicles
having adequate market liquidity.
Due to the scope and nature of its route system, AWA purchases a
substantially greater share of jet fuel on the United States West Coast than its
larger competitors. West Coast jet fuel prices tend to be more volatile than jet
fuel prices in other domestic markets. Further, the propensity of West Coast jet
fuel prices to move independently from the other United States jet fuel markets
renders many conventional hedging techniques ineffective in managing this
portion of the Company's jet fuel price risk.
13
<PAGE> 14
Aviation Ticket Taxes
On August 5, 1997 President Clinton signed into law new aviation ticket
taxes to be imposed through September 30, 2007. As a result of competitive
pressures, AWA and other airlines have been limited in their ability to pass
on the cost of these taxes to passengers through fare increases.
Security and Safety Measures
Congress recently adopted increased safety and security measures designed
to increase airline passenger security and protect against terrorist acts. Such
measures have resulted in additional operating costs to the airline industry.
The Aviation Safety Commission's report recommends the adoption of further
measures aimed at improving the safety and security of air travel. The Company
cannot forecast what additional security and safety requirements may be imposed
in the future or the costs or revenue impact that would be associated with
complying with such requirements, although such costs and revenue impact could
be significant. See "Government Regulations -- Additional Security and Safety
Measures."
Other Regulatory Matters
Laws and regulations have been proposed from time to time that could
significantly increase the cost of airline operations by imposing additional
requirements or restrictions on operations. The Company cannot predict what laws
and regulations will be adopted or what changes to international air
transportation agreements will be effected, if any, or how they will affect the
Company, and there can be no assurance that laws or regulations currently
proposed or enacted in the future will not adversely affect the Company's
financial condition and results of operations. See "Government Regulations."
Substantial Restrictions and Covenants
Certain loan agreements and debt instruments of the Company contain
significant operating and financial restrictions on the Company. The terms of
such agreements and instruments affect, and in many cases significantly limit or
prohibit, among other things, the ability of the Company to repay indebtedness
prior to its stated maturity, sell assets or engage in mergers or acquisitions.
In addition, under certain of such agreements and instruments, the Company is
required to maintain specified levels of stockholder's equity and adjusted cash
and maintain certain specified financial ratios. While the Company is currently
in compliance with these restrictions and requirements, such restrictions and
requirements could also limit the ability of the Company to effect future
financings, make needed capital expenditures, withstand a future downturn in the
Company's business or the economy in general or otherwise conduct necessary
corporate activities. A failure by the Company to comply with these restrictions
and requirements could lead to a default under the terms of such indebtedness.
In the event of default, the holders of such indebtedness could elect to declare
all of the funds borrowed pursuant thereto due and payable together with accrued
and unpaid interest. In such event, there can be no assurance that the Company
would be able to make such payments or borrow sufficient funds from alternative
sources to make such payments. Even if additional financing could be obtained,
there can be no assurance that it would be on terms that are favorable or
acceptable to the Company.
In the event of certain changes of control, with respect to Holdings or
AWA, the Company will be required to offer to purchase certain amounts of
the indebtedness referred to above, in each case subject to certain conditions.
There can be no assurance that the Company will be able to raise sufficient
funds to meet its obligations in connection with such a change of control. In
addition, in the event of certain asset dispositions, the Company will be
required under certain circumstances to use the excess proceeds to offer to
purchase certain amounts of such indebtedness.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept two digit entries in the date code field. These date code fields will
need to accept four digit entries to distinguish 21st century dates from 20th
century dates. Any programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
the computer shutting down or performing incorrect computations. As a result, in
less than two years, computer systems and software used by many companies may
need to be upgraded to comply with such "Year 2000" requirements. Many of the
14
<PAGE> 15
Company's systems, including information and computer systems and automated
equipment, will be affected by the Year 2000 issue. The Company is also heavily
reliant on the FAA's management of the nation's air traffic control system,
local authorities' management of the airports at which AWA operates, and
vendors to provide goods (fuel, catering, etc.), services (telecommunications,
data networks, satellites, etc.) and data (frequent flyer partnerships,
alliances, etc.).
The Company is in the process of identifying the programs and
infrastructure that could be affected by the Year 2000 issue and is developing
an implementation plan to resolve the problem on a timely basis. The Company
anticipates that the plan will require the Company to devote a considerable
amount of internal resources and hire substantial external resources to assist
with the implementation and monitoring of the issue and require the replacement
of certain equipment and modification of certain software. The Company expects
that the costs to be incurred by the Company to deal with this issue will be
material and is currently in the process of quantifying such amount. If the
Company's plan is not successfully or timely developed or implemented,
additional costs may be incurred, and the Company may need to devote more
internal resources to the process, either of which could have a material adverse
effect on the Company's financial condition and results of operations. The
Company is also in the process of discussing with the FAA, airport authorities
and its vendors the potential impact the Year 2000 issue will have on their
systems. Problems encountered by the FAA, those airports and vendors in
connection with the Year 2000 issue may have a material adverse effect on the
Company's financial condition and results of operations.
Volatility of Stock Price
The stock market has experienced significant price and volume fluctuations
that have affected the market prices of equity securities of companies in the
airline industry and that often have been unrelated to the operating performance
of such companies. These broad market fluctuations may adversely affect the
market price of the Class B Common Stock of Holdings (the "Class B Common
Stock") and Warrants to purchase Class B Common Stock (the "Warrants"). In
addition, the market price of the Company's Class B Common Stock and Warrants is
volatile and subject to fluctuations in response to quarterly variations in
operating results, announcements of new services by the Company or its
competitors, changes in financial estimates by securities analysts or other
events or factors, many of which are beyond the Company's control. See "Item 5.
Market for Registrants' Common Equity and Related Stockholder Matters."
ITEM 2. PROPERTIES
For a description of the Company's properties, see Item 1 of Part I of this
Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
The Company leases six aircraft which may be subject to a claim in an
unspecified amount as a result of the Internal Revenue Service potentially
disallowing investment tax credits and accelerated depreciation claimed by the
lessor of such aircraft. Under the terms of indemnity agreements, if such tax
benefits were fully or partially disallowed, AWA's monthly payment obligation
under the agreements could be increased by up to approximately $15,000 per
aircraft (approximately $1,080,000 per year for all six aircraft) for the period
from 1991 to 2013. The payment increase applicable to periods prior to the
determination of an indemnity obligation would be payable monthly over a
24-month period, with interest calculated at a specified prime rate. AWA is
unable to predict whether the Internal Revenue Service will prevail in matters
asserted against the lessor and, consequently, whether AWA will incur any
liability in connection with such claims or the amount of any such liability, if
incurred. Based on information and relevant documents available to the Company,
however, management currently believes that it is unlikely that the disposition
of these matters will have a material adverse effect on the Company's financial
condition and results of operations.
Holdings and AWA are named defendants in a number of additional lawsuits
and proceedings arising in the ordinary course of business. While the outcome of
the contingencies, lawsuits or other proceedings cannot be predicted with
certainty, management currently expects that any liability arising from such
matters, to the
15
<PAGE> 16
extent not provided for through insurance or otherwise, will not have a material
adverse effect on the financial condition and results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information respecting the names, ages as of March 27,
1998, positions and offices with the Company of the executive officers of the
Company.
WILLIAM A. FRANKE, AGE 60. Chairman of the Board and Chief Executive Officer of
Holdings; Chairman of the Board of AWA -- (Executive Committee). Mr. Franke was
named Chairman of the Board of Directors of AWA in September 1992. From January
1, 1994 to February 4, 1997, Mr. Franke served as AWA's Chief Executive Officer
and from May 23, 1996 to February 4, 1997, he served as AWA's President. Mr.
Franke has served in his present capacities with Holdings since January 1, 1997.
In addition to his responsibilities at the Company, Mr. Franke serves as
president of Franke & Company, Inc., a financial services company he has owned
since May 1987 and as a managing partner of Newbridge Latin America L.P., a
private equity fund. Mr. Franke serves as a director of Phelps Dodge Corp.,
Central Newspapers Inc., the Air Transport Association of America, Beringer Wine
Estates, Inc., Mtel Latin America, Inc. and Alpargatas S.A.I.C. Mr. Franke
serves as a Director and Chairman of the Board of Airplanes Limited and is a
controlling trustee and chairman of Airplanes U.S. Trust, entities involved in
aircraft financing and leasing.
RICHARD R. GOODMANSON, AGE 50. President and Director of Holdings; President,
Chief Executive Officer and Director of AWA. Mr. Goodmanson joined AWA as
Executive Vice President and Chief Operating Officer in June 1996 and became a
member of the Company's Board of Directors effective on October 15, 1996. On
February 4, 1997, Mr. Goodmanson was elected President of Holdings and President
and Chief Executive Officer of AWA. From 1992 until 1996, Mr. Goodmanson
served as Senior Vice President of Operations at Frito-Lay, Inc. From 1980
until 1992, Mr. Goodmanson was a principal at the consulting firm of McKinsey
and Company, Inc.
RONALD A. ARAMINI, AGE 52. Senior Vice President -- Operations of AWA. Mr.
Aramini joined AWA in September 1996. From October 1993 until September 1996,
Mr. Aramini served as President and Chief Executive Officer of Allegheny
Airlines, a Pennsylvania-based regional airline subsidiary of US Air Group, Inc.
Before that, he served for three years at Air Wisconsin, including in positions
as Vice President -- Operations, Senior Vice President -- Operations and
President and Chief Executive Officer. Prior to his position at Air Wisconsin,
Mr. Aramini served in various positions at Continental Airlines.
JOHN R. GAREL, AGE 39. President and Chief Executive Officer of The Leisure
Company. Mr. Garel joined AWA in April 1995 as Senior Vice
President -- Marketing and Sales and was elected to his current position in July
1997. From 1993 until early 1995, Mr. Garel was the Chief Executive Officer of
Cadmus Journal Services, a division of Cadmus Communications. From 1990 until
1992, Mr. Garel served as Vice President, Financial Planning and Analysis of
Northwest Airlines and, thereafter, as Vice President, Market Development and
Area Marketing. Prior to that, Mr. Garel worked for American Airlines in several
management capacities.
BRUCE A. JOHNSON, AGE 41. Senior Vice President -- Human Resources of AWA. Mr.
Johnson joined AWA in July 1997. From 1993 until July 1997, Mr. Johnson
worked in a variety of capacities for Ryder Systems, including Vice President of
Human Resources. Prior to 1993, Mr. Johnson's work experience included senior
level human resource positions with IBM, SEQUA Corp., Frito-Lay and I.T.T.
STEPHEN L. JOHNSON, AGE 41. Senior Vice President -- Corporate Affairs of AWA
and Holdings. Mr. Johnson joined the Company in February 1995 as Vice
President -- Legal Affairs. In December 1995, Mr. Johnson was elected to the
position of Senior Vice President -- Legal Affairs and in December 1997, Mr.
Johnson was elected to his current positions. From 1993 to 1994, Mr. Johnson
served as Senior Vice
16
<PAGE> 17
President and General Counsel to GE Capital Aviation Services Limited. From 1989
to 1993, Mr. Johnson was employed by GPA Group plc, from 1991 to 1993 as Senior
Vice President and General Counsel to GPA's Leasing Division. Prior to joining
GPA, Mr. Johnson was engaged in the private practice of law.
W. DOUGLAS PARKER, AGE 36. Senior Vice President and Chief Financial Officer of
AWA and Holdings. Mr. Parker joined the Company in June 1995 as Chief Financial
Officer. In July 1997, Mr. Parker's responsibilities were expanded to include
oversight of AWA's schedule planning, pricing and yield management. From 1991
through June of 1995, Mr. Parker worked at Northwest Airlines, most recently as
Vice President -- Assistant Treasurer and Vice President -- Financial Planning
and Analysis. From 1986 through 1991, Mr. Parker served in various financial
management positions at American Airlines.
MICHAEL A. SMITH, AGE 44. Senior Vice President -- Marketing and Sales of AWA.
Mr. Smith joined AWA in November 1997. From 1977 through 1997, Mr. Smith served
in various management positions with American Airlines, most recently as
managing director -- European sales and marketing.
MICHAEL R. CARREON, AGE 44. Vice President and Controller of AWA. Mr. Carreon
joined AWA in December 1994 as Senior Director -- Corporate Audit and in January
1996 was elected to his current position. From 1986 to 1994, Mr. Carreon held
accounting and audit-related management positions at United Airlines. From 1981
through 1986, he served in the Audit Services Practice of Arthur Andersen & Co.
in Chicago.
C.A. HOWLETT, AGE 54. Vice President -- Public Affairs of AWA and Holdings. Mr.
Howlett joined AWA in January 1995. On January 1, 1997, he was appointed Vice
President -- Public Affairs of Holdings. Prior to 1995, Mr. Howlett maintained a
government relations practice as a principal at the law firm of Lewis and Roca
in Phoenix. Mr. Howlett's prior work experience included senior positions with
Salt River Project, the City of Phoenix and The White House where he served as
special assistant to President Ronald Reagan for intergovernmental affairs.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective midnight December 31, 1996, AWA became a direct wholly owned
subsidiary of Holdings. Each share of Class A Common Stock of AWA was exchanged
for one share of Class A Common Stock of Holdings and each share of Class B
Common Stock of AWA was exchanged for one share of Class B Common Stock of
Holdings. As a result, Holdings became the successor issuer to AWA of the Class
A and Class B Common Stock. Also, each Warrant, which previously entitled
holders to purchase from AWA one share of Class B Common Stock of AWA, now
entitles the holders to purchase from AWA one share of Class B Common Stock of
Holdings. The Class A Common Stock of Holdings, par value $.01 per share (the
"Class A Common Stock"), is not publicly traded. The Class B Common Stock, par
value $.01 per share, and Warrants have been traded on the New York Stock
Exchange under the symbol "AWA" and "AWAws," respectively, since August
26, 1994.
17
<PAGE> 18
The following table sets forth, for the periods indicated, the high and low
sales prices of the Class B Common Stock and the Warrants as reported on the New
York Stock Exchange.
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK WARRANTS
------------- -------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
First Quarter............................................ $22 1/4 $15 1/2 $11 7/8 $6 3/8
Second Quarter........................................... 23 3/4 18 3/4 13 7/8 9 3/8
Third Quarter............................................ 21 7/8 10 7/8 11 5/8 4 3/4
Fourth Quarter........................................... 16 3/8 11 8 1/8 5
Year Ended December 31, 1997
First Quarter............................................ 16 3/8 13 3/8 8 1/2 6 1/4
Second Quarter........................................... 16 1/2 14 3/8 7 5/8 4 5/8
Third Quarter............................................ 16 12 6 3 3/4
Fourth Quarter........................................... 18 15/16 13 1/2 7 11/16 4 1/2
</TABLE>
As of December 31, 1997, there were five record holders of Class A Common
Stock, approximately 12,529 record holders of Class B Common Stock and
approximately 11,727 record holders of Warrants.
Holdings has not paid cash dividends in any of the last two fiscal years
and does not anticipate paying cash dividends in the foreseeable future.
Holdings expects that it will retain all available earnings generated by the
Company's operations for the development and growth of its business. Any future
determination as to the payment of dividends will be made at the discretion of
the Board of Directors of Holdings and will depend upon the Company's operating
results, financial condition, capital requirements, general business conditions
and such other factors as the Board of Directors deems relevant. Certain debt
instruments of the Company restrict the Company's ability to pay cash dividends
on its Common Stock and make certain other restricted payments (as defined
therein). Under these restrictions, as of December 31, 1997, the Company's
ability to pay dividends, together with any other restricted payments, would be
limited to an aggregate of $118 million. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
In September 1995 the Company adopted a stock repurchase program. The
program was amended in December 1995 and August 1997. During 1995 through 1997,
the Company purchased approximately 1.5 million shares of Class B Common Stock
and 4.1 million Warrants. As of December 31, 1997, the program authorized the
Company to purchase approximately 2.3 million shares of issued and outstanding
Class B Common Stock and all of the remaining 6.2 million publicly-traded
Warrants. In January 1998, the Company repurchased 100,000 shares of Class A
Common Stock, 545,927 shares of Class B Common Stock and 799,767 Warrants.
AWA has 1,000 shares of Common Stock outstanding, all of which are owned by
Holdings. There is no established public trading market for AWA's Common Stock.
AWA has not paid any dividends to Holdings. AWA's ability to pay cash dividends
on its Common Stock is restricted by the debt instruments and in the manner
described above.
18
<PAGE> 19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated data presented below under the captions
"Consolidated Statements of Income Data" and "Consolidated Balance Sheet Data"
as of and for the years ended December 31, 1997, 1996 and 1995, the period
August 26 through December 31, 1994, and the period January 1 through August 25,
1994 and the year ended December 31, 1993 are derived from the consolidated
financial statements of the Company, which consolidated financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The selected consolidated data should be read in conjunction with
the consolidated financial statements for the respective periods, the related
notes and the independent auditors' report. The independent auditors' report as
of and for the years ended December 31, 1996, 1995 and the period August 26,
1994 through December 31, 1994, and the period January 1, 1994 through August
25, 1994 contains an explanatory paragraph that states the consolidated
financial statements of the Company upon its emergence from bankruptcy
reorganization in 1994 ("Reorganized Company") reflect the impact of adjustments
to reflect the fair value of assets and liabilities under fresh start reporting.
As a result, the consolidated financial statements of the Reorganized Company
are presented on a different basis than those of the predecessor company and,
therefore, are not comparable in all respects.
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------------------------------------- ----------------------------
AUGUST 26 TO JANUARY 1 TO YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, AUGUST 25, DECEMBER 31,
1997 1996 1995 1994 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of
Income Data:
Operating revenues .................... $ 1,874,956 $ 1,739,526 $ 1,550,642 $ 469,766 $ 939,028 $ 1,325,364
Operating expenses .................... 1,713,130 1,670,860 1,395,910 430,895 831,522 1,204,310
Operating income ...................... 161,826 68,666 154,732 38,871 107,506 121,054
Income (loss) before income taxes
and extraordinary items (a) ........ 140,001 34,493 108,378 19,736 (201,209) 37,924
Income taxes .......................... 65,031 24,883 53,608 11,890 2,059 759
Income (loss) before
extraordinary items ................ 74,970 9,610 54,770 7,846 (203,268) 37,165
Extraordinary gain (loss) (b) ......... -- (1,105) (984) -- 257,660 --
Net income ............................ 74,970 8,505 53,786 7,846 54,392 37,165
Earnings per share: (c)
Basic:
Before extraordinary items ..... 1.68 .21 1.21 .17 n.m. n.m.
Extraordinary items (b) ........ -- (.02) (.02) -- n.m. --
Net income ..................... 1.68 .19 1.19 .17 n.m. n.m.
Diluted:
Before extraordinary items ..... 1.63 .20 1.18 .17 n.m. n.m.
Extraordinary items (b) ........ -- (.02) (.02) -- n.m. --
Net income ..................... 1.63 .18 1.16 .17 n.m. n.m.
Shares used for computation
Basic ............................. 44,529 44,932 45,158 45,128 n.m. n.m.
Diluted ........................... 46,071 47,733 46,327 45,183 n.m. n.m.
Consolidated Balance Sheet Data
(at end of period):
Total assets .......................... $ 1,546,791 $ 1,597,650 $ 1,588,709 $ 1,545,092 $ -- $ 1,016,743
Long-term debt, less current
maturities (d) ..................... 272,760 330,148 373,964 465,598 -- 620,992
Total stockholders' equity (deficiency) 683,570 622,753 649,472 595,446 -- (254,262)
</TABLE>
- ------------------
19
<PAGE> 20
(a) Includes net expense incurred by the predecessor company in connection
with its reorganization of $273.7 million for the period January 1
through August 25, 1994, and $25.0 million for the year ended December
31, 1993, respectively.
(b) Includes (i) an extraordinary loss of $1.1 million in 1996 resulting
from the partial prepayment of its 10 3/4% Senior Unsecured Notes; (ii)
an extraordinary loss of $984,000 in 1995 resulting from the exchange
of debt by the Company; and (iii) an extraordinary gain of $257.7
million in 1994 resulting from the discharge of indebtedness pursuant
to the consummation of its plan of reorganization.
(c) Historical per share data for the predecessor company is not meaningful
because the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
(d) Includes certain balances reported as estimated liabilities subject to
Chapter 11 proceedings for the predecessor company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Holdings' primary business activity is ownership of all the capital
stock of AWA. Management's Discussion and Analysis of Financial Condition and
Results of Operations presented below relates to the consolidated financial
statements of Holdings presented in Item 8A. Financial statements for AWA,
Holdings' wholly owned subsidiary, are presented in Item 8B.
1997 IN REVIEW
Record Financial Results
In 1997 Holdings earned $75.0 million in consolidated net income, the
highest level of annual earnings in the Company's history. Diluted earnings per
share for the year were $1.63. The Company's EBITDAR (operating income before
depreciation, amortization, rent and non-recurring charges) margin for 1997 was
29.0%. The Company believes EBITDAR margin is the best measure of relative
airline operating performance. 1997 marks the third consecutive year the Company
has led major domestic airlines in this important financial measure.
Improved Revenue Performance
Total operating revenues increased 7.8% to $1.9 billion in 1997 from
the Company's previous record of $1.7 billion in 1996. On a year-over-year
comparative basis, passenger revenue per available seat mile ("RASM") was
depressed in 1997 by a shorter lapse of the 10% federal air transportation
excise tax and a 6.4% increase in stage length. Despite these effects, 1997 RASM
remained relatively flat when compared with 1996. Importantly, year-over-year
revenue performance in 1997 improved significantly as the year progressed. In
the third and fourth quarters of 1997, RASM grew by 1.4% and 4.2%, respectively,
when compared with the 1996 quarters. Factors contributing to these 1997 gains
included continued enhancement of the Company's 1996 revenue management
initiatives, improved operating performance and a rational industry pricing
environment.
Low Unit Costs
The Company widened its strategic cost advantage versus other major
domestic airlines. In 1997, the Company's operating cost per available seat mile
("CASM") was 7.27 cents. This reflects a 2.2% reduction when compared with 1996
(after adjusting for the third quarter $65.1 million nonrecurring special
charge) and was approximately 23% less than the average CASM of the other major
domestic airlines. CASM for the other domestic major airlines increased by 1.1%.
Factors contributing to this improvement included tight cost controls, stable
labor costs and the highest aircraft utilization in the industry (12.3 hours per
day for 1997, up from 11.8
20
<PAGE> 21
hours per day in 1996).
Debt Reduction/Expanded Liquidity
During 1997, the Company continued to improve its financial position
while implementing its strategic growth plan.
- - Cash flows provided by operating activities were used to reduce total
long-term debt (including current maturities) from $376 million at
December 31, 1996 to $327 million at December 31, 1997, a reduction of
13%. Over the last three years, the Company has reduced total debt by
approximately $204 million or 38%.
- - In December 1997, the Company established a two-year $100 million
revolving credit facility, which is secured by certain assets of the
airline. This facility provides financial flexibility in the event
economic conditions adversely change. (See Note 2, "Long-Term Debt" in
Notes to Consolidated Financial Statements.)
Equity Purchases
In August 1997, Holdings' Board of Directors approved the extension of
the Company's existing stock repurchase program through December 31, 1999. The
program authorizes the purchase of up to 2.5 million shares of the Company's
Class B Common Stock and all of AWA's publicly traded warrants, in private or
open market transactions as circumstances warrant. In 1997, the Company
purchased $16 million of equity as part of its program. Including a January 1998
transaction, the Company has purchased over $78 million of its equity in the
last two years.
SELECTED OPERATING DATA
The table below sets forth selected operating data for the Company.
<TABLE>
<CAPTION>
PERCENT PERCENT
YEAR ENDED DECEMBER 31, CHANGE CHANGE
1997 1996 1995 1997-1996 1996-1995
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Aircraft (end of period) ................. 102 101 93 1.0 8.6
Average daily aircraft utilization (hours) 12.3 11.8 11.4 4.2 3.5
Available seat miles (in millions) ....... 23,568 21,625 19,421 9.0 11.3
Block hours (in thousands) ............... 455 424 373 7.3 13.7
Average stage length (miles) ............. 779 732 686 6.4 6.7
Average passenger journey (miles) ........ 1,134 1,042 986 8.8 5.7
Revenue passenger miles (in millions) .... 16,204 15,321 13,313 5.8 15.1
Load factor (percent) .................... 68.8 70.9 68.5 (3.0) 3.5
Passenger enplanements (in thousands) .... 18,331 18,178 16,848 .8 7.9
Yield per revenue passenger mile (cents) . 10.89 10.69 10.91 1.9 (2.0)
Revenue per available seat mile:
Passenger (cents) .................... 7.49 7.57 7.48 (1.1) 1.2
Total (cents) ........................ 7.96 8.04 7.98 (1.0) .8
Fuel consumption (gallons in millions) ... 377 351 312 7.4 12.5
Fuel price (cents per gallon) ............ 64.56 66.49 55.82 (2.9) 19.1
Full-time equivalent employees
(end of period) ...................... 9,615 9,652 8,712 (0.4) 10.8
</TABLE>
21
<PAGE> 22
The table below sets forth the major components of operating expense
per available seat mile ("ASM") for the Company for the applicable years.
<TABLE>
<CAPTION>
PERCENT PERCENT
YEAR ENDED DECEMBER 31, CHANGE CHANGE
1997 1996 1995 1997-1996 1996-1995
---- ---- ---- --------- ---------
(in cents)
<S> <C> <C> <C> <C> <C>
Salaries and related costs ...................... 1.77 1.78 1.97 (0.6) (9.6)
Aircraft rents .................................. .95 .94 .89 1.1 5.6
Other rents and landing fees .................... .51 .52 .56 (1.9) (7.1)
Aircraft fuel ................................... 1.03 1.08 .90 (4.6) 20.0
Agency commissions .............................. .64 .62 .64 3.2 (3.1)
Aircraft maintenance materials and repairs ...... .62 .58 .34 6.9 70.6
Depreciation and amortization ................... .21 .24 .25 (12.5) (4.0)
Amortization of reorganization value in excess of
amounts applicable to identifiable assets ... .10 .12 .17 (16.7) (29.4)
Restructuring and other nonrecurring
special charges ............................. -- .30 .05 -- n.m.
Other ........................................... 1.44 1.55 1.42 (7.1) 9.2
---- ---- ----
7.27 7.73 7.19 (6.0) 7.5
==== ==== ====
</TABLE>
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results
of operations and reasons for material changes therein for the years ended
December 31, 1997, 1996 and 1995.
1997 COMPARED WITH 1996
In 1997, the Company realized consolidated net income of $75 million,
the highest in the Company's history. For 1996, the Company recognized net
income of $8.5 million which included a pretax, nonrecurring special charge of
$65.1 million (see Note 14, "Restructuring and Other Nonrecurring Special
Charges" in Notes to Consolidated Financial Statements). Excluding the
nonrecurring special charge, the Company would have recorded net income of $48.7
million in 1996.
Total operating revenues were $1.9 billion in 1997 as compared to $1.7
billion in 1996. Passenger revenues for 1997 were $1.8 billion, an increase of
7.7% over the prior year. Cargo and other revenues increased 8.8% to $110.8
million in 1997.
Capacity as measured by ASMs increased 9% in 1997 compared to 1996 as
the Company continued its strategic growth plan. Revenue passenger miles
("RPMs") increased 5.8% in 1997 to 16.2 billion RPMs. Load factor for the 1997
period decreased 2.1 points to 68.8% as the capacity increase of 9% more than
offset the 5.8% increase in RPMs. Revenue per passenger mile (yield) increased
1.9%, and RASM decreased 1.1% in 1997 from 1996.
CASM decreased to 7.27 cents in 1997 from 7.73 cents in 1996 primarily
due to the $65.1 million nonrecurring special charge incurred in 1996. Excluding
the nonrecurring special charge, CASM decreased 2.2% in 1997 from 1996. The
changes in the components of operating expense per available seat mile
(excluding the nonrecurring special charge) are explained as follows:
22
<PAGE> 23
- Aircraft rents per ASM increased 1.1% primarily due to the net
addition of one leased aircraft to the fleet in 1997 and higher
rental rates for replacement aircraft.
- Rentals and landing fees per ASM decreased 1.9% primarily due to
the 9% increase in ASMs.
- Aircraft fuel expense per ASM decreased 4.6% due to a 2.9% decrease
in the average price per gallon of fuel (64.56 cents vs 66.49
cents) and the 9% increase in ASMs which was offset in part by a
7.4% increase in fuel consumption.
- Agency commissions per ASM increased 3.2% primarily due to a higher
mix of commissionable revenue.
- Aircraft maintenance materials and repairs expense per ASM
increased 6.9% or $20.8 million due primarily to an increase in
capitalized maintenance cost which has increased capitalized
maintenance amortization expense by $26.5 million in 1997 compared
to 1996. The unamortized balance of capitalized maintenance grew to
$122.9 million as of December 31, 1997, an increase of $20.4
million from December 31, 1996.
- Depreciation and amortization expense per ASM decreased 12.5%
primarily due to the 9% increase in ASMs and certain ramp equipment
being depreciated to net realizable value in 1996.
- Amortization of reorganization value in excess of identifiable
assets expense per ASM decreased 16.7% primarily due to the 9%
increase in ASMs and to the reduction in the unamortized balance of
excess reorganization value due to the utilization of tax
attributes of the pre-reorganized Company, including net operating
loss carryforwards ("NOL"), amounting to $60 million in 1997 and
$16.7 million in 1996.
- Other operating expenses per ASM decreased 7.1% to 1.44 cents from
1.55 cents per ASM primarily due to the 9% increase in ASMs and a
decline in interrupted trip expense due to improved airline
operating performance.
Net nonoperating expenses decreased $12.4 million to $21.8 million in
1997 from $34.2 million in 1996. The 36.1% decrease in cost resulted primarily
from a net decrease in interest expense of $14.6 million due to reduced levels
of debt, and a $5 million reversal of previously accrued interest related to the
restructuring of the aircraft order with AVSA S.A.R.L., an affiliate of Airbus
Industrie ("AVSA").
Income tax expense for financial reporting purposes in 1997 increased
to $65 million from $24.9 million in 1996 due principally to higher pretax
income. Due to the Company's significant NOL, cash income taxes for 1997 are
estimated to be less than $6 million.
The Company incurred an extraordinary charge in 1996 of $1.1 million,
net of income tax benefit of $918,000, for the prepayment of $25 million of its
$75 million 10 3/4% Senior Unsecured Notes.
1996 COMPARED WITH 1995
In 1996, the Company realized net income of $8.5 million which included
a pretax, nonrecurring special charge of $65.1 million and income tax expense
for financial reporting purposes of $24.9 million. Excluding the nonrecurring
special charge, the Company would have recorded net income of $48.7 million.
Comparative amounts for 1995 were net income of $60.3 million (excluding a $10.5
million pretax restructuring charge), and income tax expense of $53.6 million.
The decline in pretax income (excluding the nonrecurring special charge
and before extraordinary item) for the 1996 period resulted from untimely
revenue decisions made in June and July of 1996, high jet fuel prices and
operating dependability difficulties encountered during the summer of 1996.
Industry capacity increases into Las Vegas and aggressive fare sale activity
also adversely impacted 1996.
Total operating revenues were $1.7 billion in 1996 compared to $1.6
billion in 1995. Passenger revenues for 1996 were $1.6 billion, an increase of
12.8% over the prior year. Cargo and other revenues increased 3.4%
23
<PAGE> 24
to $101.8 million in 1996.
Capacity, as measured by ASMs, increased 11.3% in 1996 compared to 1995
as the Company initiated its strategic growth plan. Revenue passenger miles
increased 15.1% in 1996. Load factor for the 1996 period increased by 3.5% (2.4
points) to a Company record of 70.9%, despite the 11.3% capacity increase. Yield
decreased 2.0%, and RASM increased by 1.2%, in 1996 from 1995.
CASM increased to 7.73 cents in 1996 from 7.19 cents in 1995 primarily
due to a nonrecurring special charge of $65.1 million and increases in jet fuel
prices. The changes in the components of operating expense per ASM (excluding
the nonrecurring special charge of .30 cents per ASM in 1997 and the
restructuring charge of .05 cents per ASM in 1995 ) are explained as follows:
- The 9.6% decrease in salaries and related costs per ASM was
primarily related to the $12.1 million reduction in salaries
related to the Company's outsourcing of its heavy aircraft
maintenance in December 1995 and a reduction in AWArd Pay and
incentive pay due to the Company's decline in income. In addition,
the Company continued to improve productivity as full-time
equivalent head count increased 10.8% versus an 11.3% increase in
ASMs.
- Aircraft rents per ASM increased 5.6% primarily due to a net
addition of eight leased aircraft to the fleet during 1996.
- Rentals and landing fees per ASM decreased primarily due to the
11.3% increase in ASMs.
- The average price per gallon of aircraft fuel increased 19.1% to
66.49 cents in 1996 from 55.82 cents in 1995. This increase in fuel
price increased 1996 operating expense by approximately $37.5
million.
- Aircraft maintenance materials and repairs expense per ASM
increased 70.6% due primarily to an increase in capitalized
maintenance which increased capitalized maintenance amortization
expense by $27.7 million in 1996 when compared with 1995. The
unamortized balance of capitalized maintenance grew to $102.5
million at December 31, 1996, an increase of $47.5 million from
December 31, 1995. In addition, maintenance expense per ASM
increased further in the 1996 period due to the classification for
accounting purposes of fees paid to outside vendors to complete
aircraft maintenance following the outsourcing of that work in late
1995. This increase in maintenance expense was substantially offset
by a reduction in maintenance payroll expense as discussed above.
- Amortization of reorganization value in excess of identifiable
assets expense per ASM decreased 29.4% primarily due to the
reduction in the unamortized balance of excess reorganization value
as the result of (i) utilization of tax attributes of the
pre-reorganization Company, including NOL, (such reduction
amounting to $16.7 million in 1996 and $50 million in 1995), and
(ii) recognition of a deferred tax asset of $74.7 million in 1995.
- Other operating expenses per ASM increased 9.2% primarily due to
the 4.3 cents per gallon federal fuel tax for which the Company
became liable commencing October 1, 1995, an increase in
interrupted trip expense due to the operating dependability
difficulties discussed above, and an increase in passenger traffic
related costs.
- Contributing to the increase in operating cost per ASM was the
effect of the first class installation program that was completed
in late 1995 which reduced 1996 ASMs by 2.6% but had no significant
effect on operating costs.
Net nonoperating expenses decreased $12.2 million to $34.2 million in
1996 from $46.4 million in 1995 due primarily to a net decrease in interest
expense resulting from reduced levels of debt and lower interest rates.
Income tax expense for financial reporting purposes in 1996 decreased
to $24.9 million from $53.6 million in 1995 due principally to lower pretax
income.
24
<PAGE> 25
The Company incurred extraordinary charges in 1996 and 1995 of $1.1
million and $984,000, respectively, for the partial prepayment of its 10 3/4%
Senior Unsecured Notes. These amounts were net of income tax benefit of $918,000
and $984,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash and cash equivalents and short-term investments
totaled $172.3 million at December 31, 1997 which was relatively unchanged from
December 31, 1996. Net cash provided by operating activities decreased to $206
million in 1997 from $230.3 million in 1996, due principally to the payment in
1997 of approximately $43 million in federal transportation excise taxes which
were collected in 1996. Net cash used in investing activities decreased to
$129.9 million in 1997 from $199.0 million in 1996, a decrease of $69.1 million,
primarily due to the change in short-term investments in 1997. Net cash used in
financing activities decreased to $41.3 million for the year ended December 31,
1997 from $118.2 million in the 1996 period. This was principally due to a $30
million draw-down of the revolving credit facility in December 1997, which was
subsequently repaid in February 1998, and a higher level of equity purchases and
a $25 million debt repayment in 1996.
Operating with a working capital deficiency is common in the airline
industry as tickets sold for transportation which has not yet been provided are
classified as a current liability while the related income producing assets, the
aircraft, are classified as non-current. The Company's working capital
deficiency at December 31, 1997 is $162 million, a decrease of 5% from December
31, 1996.
As of December 31, 1997, the Company had $327 million of long-term debt
(including current maturities) which consists primarily of principal
amortization of notes payable secured by certain of the Company's aircraft.
Management expects to fund these requirements with cash from operations or
refinance these obligations, subject to availability and market conditions at
such time.
At December 31, 1997, AWA had a commitment to AVSA to purchase a total
of 34 Airbus aircraft, with three to be delivered in 1998, and options to
purchase an additional 40 Airbus aircraft. An additional 12 Airbus aircraft are
subject to reconfirmation by AWA. (See Note 12, "Commitments and Contingencies"
in Notes to Consolidated Financial Statements.) The net cost of firm commitments
under the aircraft order is approximately $1.2 billion based on a 3.5% annual
price escalation.
Although the Company has arranged for financing for up to one-half of
such commitment, the Company will require substantial capital from external
sources to meet the remaining financial commitments. The Company intends to seek
additional financing (which may include public debt financing or private
financing) in the future when and as appropriate. There can be no assurance that
sufficient financing will be obtained for all aircraft. A default by the Company
under the AVSA purchase commitment could have a material adverse effect on the
Company.
As of December 31, 1997, the Company's fleet consisted of 102 aircraft
of which 20 aircraft met the FAA's Stage II (but not Stage III) noise reduction
requirements and must be retired or significantly modified prior to the year
2000. The Company has decided to install hush kits on 14 aircraft to comply with
Stage III requirements and the required capital expenditures for such
modifications are currently estimated to be approximately $1.2 million per
aircraft. Two aircraft have been returned in 1998 and management expects to
retire the four remaining non-compliant aircraft.
Capital expenditures for the years ended December 31, 1997, 1996 and
1995 were approximately $155 million, $155.7 million and $107.4 million,
respectively. Capital expenditures for capitalized maintenance were $86.5
million and $87.2 million for the years ended December 31, 1997 and 1996,
respectively. Capital expenditures for 1998 are expected to increase to
approximately $184 million due principally to an increase in capitalized
maintenance and expenditures for computer systems and equipment. The Company
currently intends
25
<PAGE> 26
to fund such expenditures with cash from operations.
OTHER INFORMATION
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. Any programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in the computer shutting down or performing incorrect computations. As a result,
in less than two years, computer systems and software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements. Many of
the Company's systems, including information and computer systems and automated
equipment, will be affected by the Year 2000 issue. The Company is also heavily
reliant on the FAA's management of the nation's air traffic control system,
local authorities' management of the airports at which AWA operates, and
vendors to provide goods (fuel, catering, etc.), services (telecommunications,
data networks, satellites, etc.) and data (frequent flyer partnerships,
alliances, etc.).
The Company is in the process of identifying the programs and
infrastructure that could be affected by the Year 2000 issue and is developing
an implementation plan to resolve the problem on a timely basis. The Company
anticipates that the plan will require the Company to devote a considerable
amount of internal resources and hire substantial external resources to assist
with the implementation and monitoring of the issue and require the replacement
of certain equipment and modification of certain software. The Company expects
that the costs to be incurred by the Company to deal with this issue will be
material and is currently in the process of quantifying such amount. If the
Company's plan is not successfully or timely developed or implemented,
additional costs may be incurred, and the Company may need to devote more
internal resources to the process, either of which could have a material adverse
effect on the Company's financial condition and results of operations. The
Company is also in the process of discussing with the FAA, airport authorities
and its vendors the potential impact the Year 2000 issue will have on their
systems. Problems encountered by the FAA, the airport authorities and vendors in
connection with the Year 2000 issue may have a material adverse effect on the
Company's financial condition and results of operations.
INCOME TAXES
At December 31, 1997, the Company had NOL general business tax credit
carryforwards and alternative minimum tax credit carryforwards of approximately
$376.8 million, $12.7 million and $3.8 million, respectively. Under Section 382
of the Internal Revenue Code of 1986, as amended, if a loss corporation has an
"ownership change" within a designated testing period, its ability to use its
NOL and credit carryforwards is subject to certain limitations. The Company is a
loss corporation within the meaning of Section 382. The issuance of certain
common stock by the Company pursuant to the plan of reorganization resulted in
an ownership change within the meaning of Section 382. This ownership change has
resulted in an annual limitation (the "Section 382 Limitation") upon the
Company's ability to offset any post-change taxable income with pre-change NOL.
Should the Company generate insufficient taxable income in any post-change
taxable year to utilize fully the Section 382 Limitation of that year, any
excess limitation will be carried forward to use in subsequent tax years,
provided the pre-change NOL has not been exhausted and the carryforward period
has not expired. The alternative minimum tax credit may be carried forward
indefinitely and is available to reduce future income tax payable.
The Company's reorganization and the associated implementation of fresh
start reporting in 1994 gave rise to significant items of expense for financial
reporting purposes that are not deductible for income tax purposes. In large
measure, it is these nondeductible expenses that result in an effective tax rate
(for financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, the
26
<PAGE> 27
Company's actual cash income tax liability (i.e., income taxes payable) is
considerably lower than income tax expense shown for financial reporting
purposes.
GOVERNMENT REGULATIONS
On August 5, 1997, President Clinton signed into law new aviation
ticket taxes as part of larger tax legislation designed to balance the nation's
budget, provide targeted tax relief and fund air traffic control, other FAA
programs and airport development. As enacted, these new taxes will be imposed
through September 30, 2007. Included in the new law is a phase-in of a modified
federal air transportation excise tax structure with a system that includes: a
domestic excise tax starting at 9%, declining to 7.5% by 1999; a domestic
segment tax starting at $1.00 and increasing to $3.00 by 2003; and an increase
in taxes imposed on international travel that will be from $6 per international
departure to an arrival and departure tax of $12 (each way). Both the domestic
segment tax and the international arrival and departure tax are indexed for
inflation. The legislation also includes a 7.5% excise tax on certain amounts
paid to an air carrier for the right to provide mileage and similar awards
(e.g., purchase of frequent flyer miles by a credit card company). As a result
of competitive pressures, AWA and other airlines have been limited in their
ability to pass on the cost of these taxes to passengers through fare increases.
In 1996 and 1997 the President's Commission on Aviation Safety and
Security issued recommendations and the U.S. Congress and the Federal Aviation
Administration adopted increased safety and security measures designed to
increase airline passenger safety and security and protect against terrorist
acts. Such measures have resulted in additional operating costs to the airline
industry. Examples of increased safety and security measures include the
introduction of a domestic passenger manifest requirement, increased passenger
profiling, enhanced pre-board screening of passengers and carry-on baggage,
positive bag match for profile selections, continuous physical bag search at
checkpoints, additional airport security personnel, expanded criminal background
checks for selected airport employees, significantly expanded use of
bomb-sniffing dogs, certification of screening companies, an aggressive testing
of existing security systems, expansion of aging aircraft inspections to include
non-structural components, development of objective methods for carriers to
monitor and improve their own level of safety and installation of new ground
proximity warning systems on all commercial aircraft. The Company cannot
forecast, what additional security and safety requirements may be imposed in the
future or the costs or revenue impact that would be associated with complying
with such requirements.
FORWARD LOOKING INFORMATION
This discussion contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "anticipate," "estimate," "project," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key factors that may have a direct
bearing on the Company's results are competitive practices in the airline and
travel industries generally and particularly in the Company's principal markets,
the ability of the Company to meet existing financial obligations in the event
of adverse industry or economic conditions or to obtain additional capital to
fund future commitments and expansion, the Company's relationship with employees
and the terms of future collective bargaining agreements and the impact of
current and future laws and governmental regulations affecting the airline and
travel industries and the Company's operations. For additional discussion of
such risks see "Business -- Risk Factors," included in Item 1 of this Report on
Form 10-K. Any forward-looking statements speak only as of the date such
statements are made.
ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST
HOLDINGS CORPORATION
Consolidated balance sheets of Holdings as of December 31, 1997 and
1996, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the years in the three-year period ended
December 31, 1997, together with the related notes and the report of KPMG Peat
Marwick LLP, independent certified public accountants, are set forth on the
following pages.
27
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
America West Holdings Corporation:
We have audited the accompanying consolidated balance sheets of America
West Holdings Corporation and subsidiary as of December 31, 1997 and 1996 and
the related consolidated statements of income, cash flows and stockholders'
equity for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of America West
Holdings Corporation and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 27, 1998
28
<PAGE> 29
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................................ $ 172,303 $ 137,499
Short-term investments ........................................................... -- 39,131
Accounts receivable, less allowance for doubtful accounts of
$3,850 in 1997 and $3,091 in 1996 ........................................... 87,538 106,215
Expendable spare parts and supplies, less allowance for obsolescence
of $2,495 in 1997 and $1,713 in 1996 ........................................ 27,135 21,423
Prepaid expenses ................................................................. 36,917 47,545
----------- -----------
Total current assets ................................................... 323,893 351,813
----------- -----------
Property and equipment:
Flight equipment ................................................................. 783,384 669,654
Other property and equipment ..................................................... 143,172 107,993
Equipment purchase deposits ...................................................... 45,246 56,665
----------- -----------
971,802 834,312
Less accumulated depreciation and amortization ................................... 276,430 163,718
----------- -----------
695,372 670,594
----------- -----------
Other assets:
Restricted cash .................................................................. 57,158 26,433
Reorganization value in excess of amounts allocable to identifiable assets, net .. 363,268 447,044
Deferred income taxes ............................................................ 74,700 74,700
Other assets, net ................................................................ 32,400 27,066
----------- -----------
527,526 575,243
----------- -----------
$ 1,546,791 $ 1,597,650
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ............................................. $ 54,000 $ 46,238
Accounts payable ................................................................. 140,908 115,458
Air traffic liability ............................................................ 173,149 214,056
Accrued compensation and vacation benefits ....................................... 37,267 30,085
Accrued taxes .................................................................... 36,064 72,047
Other accrued liabilities ........................................................ 44,554 44,836
----------- -----------
Total current liabilities ................................................... 485,942 522,720
----------- -----------
Long-term debt, less current maturities ............................................... 272,760 330,148
Deferred credits and other liabilities ................................................ 104,519 122,029
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued . -- --
Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and
outstanding 1,200,000 shares ................................................ 12 12
Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued and
outstanding 44,782,404 shares in 1997, and 44,626,056 shares in 1996 ........ 448 446
Additional paid-in capital ....................................................... 565,546 577,267
Retained earnings ................................................................ 145,107 70,137
----------- -----------
711,113 647,862
Less: Cost of Class B common stock in treasury, 1,486,168 shares in 1997
and 1,353,911 shares in 1996 ................................................ (27,543) (25,109)
----------- -----------
Total stockholders' equity ............................................. 683,570 622,753
----------- -----------
$ 1,546,791 $ 1,597,650
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Passenger ........................................... $ 1,764,206 $ 1,637,762 $ 1,452,261
Cargo ............................................... 51,699 46,519 44,425
Other ............................................... 59,051 55,245 53,956
----------- ----------- -----------
Total operating revenues ......................... 1,874,956 1,739,526 1,550,642
----------- ----------- -----------
Operating expenses:
Salaries and related costs .......................... 418,212 385,840 382,032
Aircraft rents ...................................... 223,423 202,237 173,571
Other rents and landing fees ........................ 119,470 111,947 108,264
Aircraft fuel ....................................... 243,423 233,522 174,195
Agency commissions .................................. 151,293 133,015 124,146
Aircraft maintenance materials and repairs .......... 146,618 125,768 65,925
Depreciation and amortization ....................... 48,590 52,937 49,083
Amortization of reorganization value in excess of
amounts allocable to identifiable assets ......... 23,776 25,263 31,958
Restructuring and other nonrecurring special charges -- 65,098 10,500
Other ............................................... 338,325 335,233 276,236
----------- ----------- -----------
Total operating expenses ......................... 1,713,130 1,670,860 1,395,910
----------- ----------- -----------
Operating income ....................................... 161,826 68,666 154,732
----------- ----------- -----------
Nonoperating income (expenses):
Interest income ..................................... 10,646 12,861 15,045
Interest expense, net ............................... (32,249) (46,866) (58,598)
Gain (loss) on disposition of property and equipment (1,710) 1,288 (2,734)
Other, net .......................................... 1,488 (1,456) (67)
----------- ----------- -----------
Total nonoperating expenses, net ................. (21,825) (34,173) (46,354)
----------- ----------- -----------
Income before income taxes and extraordinary items 140,001 34,493 108,378
Income taxes ........................................... 65,031 24,883 53,608
----------- ----------- -----------
Income before extraordinary items ................ 74,970 9,610 54,770
Extraordinary items, net of tax ........................ -- (1,105) (984)
----------- ----------- -----------
Net income ....................................... $ 74,970 $ 8,505 $ 53,786
=========== =========== ===========
Earnings per share:
Basic:
Income before extraordinary items ................ $ 1.68 $ .21 $ 1.21
Extraordinary items .............................. -- (.02) (.02)
----------- ----------- -----------
Net income ....................................... $ 1.68 $ .19 $ 1.19
=========== =========== ===========
Diluted:
Income before extraordinary items ................ $ 1.63 $ .20 $ 1.18
Extraordinary items .............................. -- (.02) (.02)
----------- ----------- -----------
Net income ....................................... $ 1.63 $ .18 $ 1.16
=========== =========== ===========
Shares used for computation:
Basic ............................................... 44,529 44,932 45,158
=========== =========== ===========
Diluted ............................................. 46,071 47,733 46,327
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 74,970 $ 8,505 $ 53,786
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................... 48,590 52,937 49,083
Amortization of capitalized maintenance ..................... 66,143 39,679 11,934
Amortization of reorganization value ........................ 23,776 25,263 31,958
Income taxes attributable to reorganization items and other . 59,444 23,091 52,913
Amortization of deferred credits ............................ (10,405) (11,563) (10,952)
Nonrecurring special charge ................................. -- 65,098 10,500
Extraordinary items and other ............................... 5,843 3,989 8,183
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net ............. 18,677 (37,121) (11,172)
Increase in expendable spare parts and supplies, net ........ (5,712) (3,793) (4,819)
Decrease (increase) in prepaid expenses ..................... 10,551 (2,252) (14,031)
Increase in other assets, net ............................... (32,464) (3,173) (7,312)
Increase in accounts payable ................................ 25,450 26,301 10,308
Increase (decrease) in air traffic liability ................ (40,907) 22,312 64,388
Increase (decrease) in accrued compensation
and vacation benefits ................................... 7,182 (11,531) 15,340
Increase (decrease) in accrued taxes ........................ (35,983) 37,688 7,298
Increase (decrease) in other accrued liabilities ............ (282) 8,315 (663)
Decrease in other liabilities ............................... (8,871) (13,411) (6,314)
--------- --------- ---------
Net cash provided by operating activities ................ 206,002 230,334 260,428
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment ......................... (154,969) (155,742) (107,387)
Sale (purchase) of short-term investments ................... 39,131 (39,131) --
Other ....................................................... (14,017) (4,082) (9)
--------- --------- ---------
Net cash used in investing activities .................... (129,855) (198,955) (107,396)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt .............................. 30,000 -- 29,300
Repayment of debt ........................................... (55,411) (79,216) (137,421)
Acquisition of treasury stock ............................... (2,434) (23,964) (1,540)
Acquisition of warrants ..................................... (13,342) (18,141) --
Other ....................................................... (156) 3,074 (1,585)
--------- --------- ---------
Net cash used in financing activities .................... (41,343) (118,247) (111,246)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ........... 34,804 (86,868) 41,786
--------- --------- ---------
Cash and cash equivalents at beginning of year ................. 137,499 224,367 182,581
--------- --------- ---------
Cash and cash equivalents at end of year ....................... $ 172,303 $ 137,499 $ 224,367
========= ========= =========
Cash, cash equivalents and short-term investments at end of year $ 172,303 $ 176,630 $ 224,367
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL CLASS B
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 ............ $ 12 $ 439 $ 587,149 $ 7,846 $ -- $ 595,446
--------- --------- --------- --------- --------- ---------
Issuance of 4,057 shares and
170,667 shares of common
stock pursuant to the
exercise of stock warrants
and stock options .................. -- 2 1,543 -- -- 1,545
Issuance of 30,334 shares
of restricted stock ................ -- -- 235 -- -- 235
Acquisition of 112,000 shares of
treasury stock ..................... -- -- -- -- (1,540) (1,540)
Net income ............................ -- -- -- 53,786 -- 53,786
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 .......... 12 441 588,927 61,632 (1,540) 649,472
--------- --------- --------- --------- --------- ---------
Issuance of 12,725 shares and
314,001 shares of common
stock pursuant to the exercise
of stock warrants and stock
options ............................ -- 3 3,071 -- -- 3,074
Issuance of 158,000 shares of
restricted stock ................... -- 2 2,761 -- -- 2,763
Purchase of 1,270,000 shares and return
of 21,911 shares of treasury stock . -- -- 293 -- (24,257) (23,964)
Issuance of 50,000 shares of
treasury stock ..................... -- -- 356 -- 688 1,044
Repurchase of 2,187,475
warrants at $8.29 per warrant ...... -- -- (18,141) -- -- (18,141)
Net income ............................ -- -- -- 8,505 -- 8,505
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996 .......... 12 446 577,267 70,137 (25,109) 622,753
--------- --------- --------- --------- --------- ---------
Issuance of 5,534 shares and
140,167 shares of common
stock pursuant to the exercise
of stock warrants and stock
options ............................ -- 2 1,452 -- -- 1,454
Issuance of 10,647 shares of
Class B common stock ............... -- -- 169 -- -- 169
Acquisition of 132,300 shares of
treasury stock ..................... -- -- -- -- (2,434) (2,434)
Issuance of 43 shares of treasury stock -- -- -- -- -- --
Repurchase of 1,911,523
warrants at $6.98 per warrant ...... -- -- (13,342) -- -- (13,342)
Net income ............................ -- -- -- 74,970 -- 74,970
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1997 .......... $ 12 $ 448 $ 565,546 $ 145,107 $ (27,543) $ 683,570
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
America West Holdings Corporation ("Holdings"), a Delaware corporation,
became the holding company for America West Airlines, Inc. ("AWA"), effective
midnight, December 31, 1996. Holdings' primary business activity is ownership of
all the capital stock of AWA, the ninth largest commercial airline carrier in
the United States serving 60 destinations in the U.S., Canada and Mexico.
(a) Basis of Presentation
The consolidated financial statements include the accounts of
Holdings and its wholly owned subsidiary AWA (collectively, the "Company"). The
Company's consolidated financial statements give effect to the formation of the
holding company discussed above for all periods presented. All significant
inter-company balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year's presentation.
(b) Cash, Cash Equivalents and Short-term Investments
Cash equivalents consist of all highly liquid debt instruments
purchased with original maturities of three months or less. Short-term
investments consist of cash invested in certain debt securities with original
maturities greater than 90 days. The debt securities are classified as held to
maturity and are carried at amortized cost which approximates fair value.
(c) Expendable Spare Parts and Supplies
Flight equipment expendable spare parts and supplies are valued
at average cost. An allowance for obsolescence is provided, over the estimated
useful life of the related aircraft and engines, for spare parts expected to be
on hand at the date the aircraft are retired from service.
(d) Property and Equipment
Property and equipment are recorded at cost. Interest capitalized
on advance payments for aircraft acquisitions and on expenditures for aircraft
improvements are part of these costs. Interest capitalized for the years ended
December 31, 1997 and 1995 was $600,000 and $2.7 million, respectively. No
interest was capitalized for the year ended December 31, 1996. Property and
equipment is depreciated and amortized to residual values over the estimated
useful lives or the lease term, whichever is less, using the straight-line
method.
The estimated useful lives for the Company's ground property and
equipment range from three to 12 years for owned property and equipment and up
to 30 years for the reservation and training center and technical support
facilities. The estimated useful lives of the Company's owned aircraft, jet
engines, flight equipment and rotable parts range from 11 to 22 years. Leasehold
improvements relating to flight equipment and other property on operating leases
are amortized over the life of the lease or the life of the asset, whichever is
shorter.
(e) Restricted Cash
Restricted cash includes cash deposits securing certain letters
of credit.
33
<PAGE> 34
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(f) Aircraft Maintenance and Repairs
Routine maintenance and repairs are charged to expense as
incurred. The cost of major scheduled airframe, engine and certain component
overhauls are capitalized and amortized over the periods benefited and are
included in aircraft maintenance materials and repairs expense. Additionally, an
accrual for the estimated cost of scheduled airframe and engine overhauls
required to be performed on leased aircraft prior to their return to the lessors
has been recorded.
(g) Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets
Reorganization value in excess of amounts allocable to
identifiable assets is amortized on a straight line basis over 20 years.
Accumulated amortization at December 31, 1997 and 1996 was $92.1 million and
$68.4 million, respectively. The Company assesses the recoverability of this
asset based upon expected future undiscounted cash flows and other relevant
information.
(h) Frequent Flyer Awards
The Company maintains a frequent travel award program known as
"FlightFund" that provides a variety of awards to program members based on
accumulated mileage. The estimated cost of providing the free travel, using the
incremental cost method as adjusted for estimated redemption rates, is
recognized as a liability and charged to operations as program members
accumulate mileage.
(i) Deferred Credit-Operating Leases
Rents for operating leases were adjusted to fair market value
when the Company emerged from bankruptcy in 1994. The net present value of the
difference between the stated lease rates and the fair market rates has been
recorded as a deferred credit in the accompanying consolidated balance sheets.
The deferred credit will be increased through charges to interest expense and
decreased on a straight-line basis as a reduction in rent expense over the
applicable lease periods. At December 31, 1997 and 1996, the unamortized balance
of the deferred credit was $85.3 million and $95.6 million, respectively.
(j) Passenger Revenue
Passenger revenue is recognized when transportation is provided.
Ticket sales for transportation which has not yet been provided are recorded as
air traffic liability. Passenger traffic commissions and related fees are
expensed when the related revenue is recognized. Passenger traffic commissions
and related fees not yet recognized are included as a prepaid expense.
(k) Advertising Costs
The Company expenses the costs of advertising as incurred.
Advertising expense for the years ended December 31, 1997, 1996 and 1995 was
$25.8 million, $26.6 million and $25.2 million, respectively.
(l) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
34
<PAGE> 35
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(m) Stock Options
The Company accounts for its stock option plan in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, the Company provides pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and subsequent years as if the fair-value-based method defined in SFAS No.
123 had been applied. (See Note 4, "Stock Options and Awards".)
(n) Earnings Per Share ("EPS")
On December 15, 1997, the Company adopted SFAS No. 128, Earnings Per
Share, which standardizes the reporting for EPS into basic EPS and diluted EPS,
and has restated all prior period EPS data to conform to SFAS No. 128.
(o) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
2. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SECURED
Notes payable, primarily fixed interest rates of 7.06% to 10.79%, averaging
9.73%, installments due 1999 through 2008 ................................. $194,008 $234,494
Borrowings under lines of credit, floating interest rates of one month
LIBOR + 1.625%, averaging 7.59%, interest only due through 1999 (a) ....... 30,000 8,277
Industrial development revenue bonds, variable interest rate of 3.3% to 4.95%,
averaging 4.02%, due 2016 (b) ............................................. 29,300 29,300
-------- --------
253,308 272,071
-------- --------
UNSECURED
10 3/4% Senior Unsecured Notes, face amount of $50 million, interest
only payment until due in 2005 (c) ........................................ 48,197 48,197
Notes payable, interest rates of 6.5% to 90-day LIBOR +3%, averaging
7.99%, installments due through 2000 ...................................... 24,905 55,910
Other ........................................................................ 350 208
-------- --------
73,452 104,315
-------- --------
Total long-term debt ......................................................... 326,760 376,386
Less: current maturities .................................................... 54,000 46,238
-------- --------
$272,760 $330,148
======== ========
</TABLE>
- ----------
35
<PAGE> 36
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(a) In December 1997, AWA obtained a $100 million senior secured revolving
credit facility with a group of financial institutions that has a five
year term comprised of a two year revolving credit arrangement, with an
option to extend the expiration date for one additional year or convert
outstanding borrowings into a three year term loan. Borrowings under
this credit facility will accrue interest at either the "base rate"
(prime rate or the rate which is 1/2 of 1% in excess of the Federal
Funds Effective Rate) or the "adjusted eurodollar rate" (LIBOR rate
adjusted for certain reserve requirements in respect to "Eurodollar
liabilities") plus the applicable margin based on Moody's rating of
AWA's senior unsecured notes. The credit agreement is secured by
certain assets of AWA. As of December 31, 1997, AWA had drawn $29.9
million to pledge as cash collateral for the industrial development
revenue bonds letter of credit discussed in (b) below. This was
subsequently repaid in February 1998.
(b) The industrial development revenue bonds are backed by an irrevocable
direct pay letter of credit which is secured by $29.9 million in cash.
The interest rate on the bonds varies weekly and from January 1, 1997
to December 31, 1997 ranged from 3.3% to 4.95%. The bondholders have
the right to put the bonds back to the Company on a weekly basis if the
bonds bear interest at a weekly rate or monthly if the bonds bear
interest at a monthly rate. If the bonds are put back to the Company,
the remarketing agent or the transfer agent will, at the direction of
the Company, remarket such bonds. Any bonds not remarketed will be
retired utilizing the $29.9 million letter of credit which represents
the principal amount plus 60 days of interest at a maximum rate of 12%.
The letter of credit was extended in November 1997 for one year and is
subject to mandatory redemption under certain circumstances. The
estimated annual cost for the letter of credit is approximately
$192,000.
(c) The 10 3/4% Senior Unsecured Notes mature on September 1, 2005 and
interest is payable in arrears semi-annually commencing on March 1,
1996. The 10 3/4% Senior Unsecured Notes may be redeemed at the option
of the Company on or after September 1, 2001 at any time in whole or
from time to time in part, at a redemption price equal to the following
percentage of principal redeemed, plus accrued and unpaid interest to
the date of redemption, if redeemed during the 12-month period
beginning:
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
------------ ----------
<S> <C>
2000................................ 105.375%
2001................................ 103.583%
2002................................ 101.792%
2003 and thereafter................. 100.000%
</TABLE>
Secured financings totaling $253.3 million are collateralized by
assets, primarily aircraft and engines, with a net book value of $315.4 million
at December 31, 1997.
At December 31, 1997, the estimated maturities of long-term debt are as
follows:
<TABLE>
(IN THOUSANDS)
<S> <C>
1998................................ $ 54,000
1999................................ 64,832
2000................................ 19,898
2001................................ 19,805
2002................................ 19,632
Thereafter.......................... 148,593
---------
$ 326,760
=========
</TABLE>
36
<PAGE> 37
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Certain of the Company's long-term debt agreements contain minimum cash
balance requirements, leverage ratios, coverage ratios, limitations on
investments and restricted payments including cash dividends, and other
financial covenants with which the Company was in compliance at December 31,
1997.
3. CAPITAL STOCK
Effective midnight, December 31, 1996, AWA became a wholly-owned
subsidiary of Holdings and each share of AWA Class A and Class B Common Stock
was exchanged for one share of Holdings Class A or Class B Common Stock.
Holdings' Class B Common Stock is listed on the New York Stock Exchange.
On August 25, 1994, AWA issued approximately 10.4 million warrants to
purchase Class B Common Stock with an exercise price of $12.74 per share. The
warrants are exercisable by the holders any time before August 25, 1999 and 10.4
million shares of Class B Common Stock were reserved for the exercise of these
warrants. As of December 31, 1997, approximately 4.1 million warrants have been
repurchased by AWA for approximately $31 million. As of December 31, 1997,
22,588 warrants have been exercised at $12.74 per share. As part of the holding
company formation transaction, the AWA warrants became rights to acquire shares
of Holdings Class B Common Stock. AWA has made arrangements for the issuance of
Holdings Class B Common Stock upon the exercise of such warrants by purchasing
an option from Holdings to acquire such stock. AWA issued a $62.4 million note
payable to Holdings due December 31, 2005 with an interest rate of 11%.
Subsequently, Holdings made a capital contribution to AWA by issuing a note
payable to AWA for $62.4 million due December 31, 2045 with an interest rate of
10 7/8%.
Preferred Stock
The Company's Board of Directors by resolution may authorize the
issuance of the Preferred Stock as a class, in one or more series, having the
number of shares, designations, relative voting rights, dividend rights,
liquidation and other preferences and limitations that the Board of Directors
fixes, without any stockholder approval. No shares of Preferred Stock have been
issued.
Common Stock
The holders of Class A Common Stock are entitled to fifty votes per
share, and the holders of Class B Common Stock are entitled to one vote per
share, on all matters submitted to a vote of common stockholders except that
voting rights of non-U.S. citizens are limited. The Class A Common Stock is
convertible into an equal number of Class B shares at any time at the election
of the holders of the Class A Common Stock.
Holders of Common Stock of all classes participate equally as to any
dividends or distributions on the Common Stock, except that dividends payable in
shares of Common Stock, or securities to acquire Common Stock, will be made in
the same class of Common Stock as that held by the recipient of the dividend.
Holders of Common Stock have no right to cumulate their votes in the election of
directors. The Common Stock votes together as a single class, subject to the
right to a separate class vote in certain instances required by law.
Pursuant to a Stockholder's Agreement, the Company, TPG Partners, L.P.
("TPG"), TPG Parallel, Air Partners II and Continental Airlines, Inc.
("Continental") will vote all shares of the Common Stock owned by them in favor
of the reelection of the initially designated Independent Directors for as long
as such Independent Directors continue to serve or until the day before the
1998 Annual Meeting.
37
<PAGE> 38
4. STOCK OPTIONS AND AWARDS
Under the 1994 Incentive Equity Plan, as amended (the "Plan"), the
Company's Board of Directors may grant stock options to officers and key
employees. The maximum number of shares of Class B Common Stock authorized for
issuance under the Plan is 7.5 million shares of which 3.4 million shares are
available for grant. Stock options are granted with an exercise price equal to
the stock's fair market value at the date of grant, generally become exercisable
over a three-year period and expire if unexercised at the end of 10 years.
Stock option activity during the years indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at December 31, 1994: 1,147,000 $ 8.73
Granted ................................. 1,396,000 $12.39
Exercised ............................... (170,667) $ 8.75
Canceled ................................ (204,000) $ 9.30
---------- ------
Balance at December 31, 1995: 2,168,333 $11.03
Granted ................................. 2,058,000 $15.55
Exercised ............................... (314,001) $ 9.28
Canceled ................................ (374,332) $12.27
---------- ------
Balance at December 31, 1996: 3,538,000 $13.68
Granted ................................. 479,000 $15.54
Exercised ............................... (140,167) $ 9.87
Canceled ................................ (425,333) $13.74
---------- ------
Balance at December 31, 1997: 3,451,500 $14.09
========== ======
</TABLE>
At December 31, 1997, options outstanding and exercisable by price
range are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE WEIGHTED OPTIONS AVERAGE
RANGE OF OPTIONS REMAINING AVERAGE CURRENTLY EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 8.00 - $11.99 685,000 7.1 $ 8.85 606,334 $ 8.83
$12.00 - $12.00 842,500 8.8 $12.00 81,100 $12.00
$12.01 - $15.00 757,000 8.6 $13.43 319,333 $13.02
$15.01 - $19.63 759,000 9.0 $17.94 303,000 $17.51
$19.64 - $23.00 408,000 8.2 $21.24 161,998 $21.00
--------- --- ------ --------- ------
3,451,500 8.4 $14.09 1,471,765 $13.04
========= === ====== ========= ======
</TABLE>
The per share weighted-average fair value of stock options granted
during 1997, 1996 and 1995 was $5.39, $6.48 and $4.73, respectively, on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: 1997 - expected dividend yield of 0.0%, risk-free
interest rate of 5.7%, volatility of 44.8% and an expected life of four years;
1996 - expected dividend yield 0.0%, risk-free interest rate of 6.3%, volatility
of 43.13% and an expected life of four years; 1995 - expected dividend yield
0.0%, risk-free interest rate of 6.5%, volatility of 37%, and an expected life
of four years.
38
<PAGE> 39
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income: As reported $ 74,970 $ 8,505 $ 53,786
======== ======== ========
Pro forma $ 72,214 $ 6,343 $ 52,704
======== ======== ========
Earnings per share:
Basic As reported $ 1.68 $ 0.19 $ 1.19
======== ======== ========
Pro forma $ 1.62 $ 0.14 $ 1.17
======== ======== ========
Diluted As reported $ 1.63 $ 0.18 $ 1.16
======== ======== ========
Pro forma $ 1.57 $ 0.13 $ 1.14
======== ======== ========
</TABLE>
Pro forma net income reflects only options granted in 1997, 1996 and
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to January 1, 1995 is not
considered.
Under the Plan, the Company granted 158,000 shares and 30,334 shares of
Class B Common Stock as restricted stock to certain officers in 1996 and 1995,
respectively. There were no grants of restricted stock in 1997. The Company
recognized compensation expense of $944,000, $785,000 and $235,000 related to
restricted stock in 1997, 1996 and 1995, respectively. At December 31, 1997,
139,222 shares of restricted stock were vested.
The Plan also provides for the issuance of restricted stock and grant
of stock options to non-employee directors. The Company has granted options to
purchase 156,000 shares of Class B Common Stock to members of the Board of
Directors who are not employees of the Company. The options have a ten-year term
and are exercisable six months after the date of grant. As of December 31, 1997,
the options were exercisable at prices ranging from $8.00 to $19.75 per share.
On December 31, 1997, 819 shares of Class B Common Stock were granted to each
non-employee member of the Board of Directors (10,647 shares in total) pursuant
to the Plan.
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan, covering
essentially all employees of the Company. Participants may contribute from 1 to
15% of their pretax earnings to a maximum of $9,500 in 1997. The Company's
matching contribution is determined annually by the Board of Directors. The
Company's contribution expense to the plan totaled $6.1 million, $5.9 million
and $5.9 million in 1997, 1996 and 1995, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) Fair Value of Financial Instruments
Cash Equivalents, Short-term Investments and Receivables
The carrying amount approximates fair value because of the short-term
nature of these instruments.
39
<PAGE> 40
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Long-term Debt
At December 31, 1997 and 1996, the fair value of long-term debt was
approximately $330 million and $379 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.
(b) Fuel Price Risk Management
Under its fuel hedging program, the Company may enter into certain
protective cap and fixed price swap transactions with approved counterparties
for a period generally not exceeding twelve months. Gains and losses on such
transactions are recorded as adjustments to fuel expense when the underlying
fuel being hedged is used. As of December 31, 1997, the Company had entered into
cap and swap transactions hedging approximately 14% of its projected 1998 fuel
requirements. As of February 26, 1998, approximately 38% of the Company's 1998
fuel requirements are hedged.
The Company is exposed to credit risks in the event any counterparty
fails to meet its obligations. The Company does not anticipate such
non-performance as counterparties are selected based on credit ratings, exposure
to any one counterparty is limited based on formal guidelines and the relative
market positions with such counterparties are closely monitored.
(c) Concentration of Credit Risk
The Company does not believe it is subject to any significant
concentration of credit risk. Most of the Company's receivables result from
tickets sold to individual passengers through the use of major credit cards or
to tickets sold by other airlines and used by passengers on AWA. These
receivables are short-term, generally being settled shortly after the sale.
7. INCOME TAXES
The Company recorded income tax expense (exclusive of extraordinary
items) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Taxes:
Federal .............................. $ 2,483 $ 943 $ 505
State ................................ 3,104 849 190
------- ------- -------
Total current taxes ............ 5,587 1,792 695
------- ------- -------
Deferred taxes .......................... -- -- --
------- ------- -------
Income taxes attributable to
reorganization items and other ....... 59,444 23,091 52,913
------- ------- -------
Total income tax expense ................ $65,031 $24,883 $53,608
======= ======= =======
</TABLE>
The Company's emergence from bankruptcy reorganization in 1994 and the
associated implementation of fresh start reporting gave rise to significant
items of expense for financial reporting purposes that are not deductible for
income tax purposes. In large measure, it is these nondeductible (for income tax
purposes) expenses that result in an effective tax rate (for financial reporting
purposes) significantly greater than the current U.S. corporate statutory rate
of 35%. Nevertheless, the Company's actual cash income tax liability (i.e.,
income
40
<PAGE> 41
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
taxes payable) is considerably lower than income tax expense shown for financial
reporting purposes. This difference in financial expense compared to actual
income tax liability is in part attributable to the utilization of certain tax
attributes of the predecessor company that serve to reduce the Company's actual
income tax liability. The excess of financial expense over the Company's actual
income tax liability ($59.4 million for 1997) is applied to reduce the balance
of the Company's reorganization value in excess of amounts allocable to
identifiable assets.
For the years ended December 31, 1996 and 1995, the Company recognized
income tax benefits of $918,000 and $984,000, respectively, arising from
extraordinary charges.
Income tax expense, exclusive of extraordinary items, differs from
amounts computed at the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at U.S. statutory rate .. $ 49,000 $ 12,073 $ 37,932
State income taxes, net of federal income
tax benefit ............................. 5,655 1,984 4,505
Nondeductible amortization of reorganization
value in excess of amounts allocable
to identifiable assets .................. 8,322 8,842 11,188
Other, net ................................. 2,054 1,984 (17)
-------- -------- --------
Total ................................... $ 65,031 $ 24,883 $ 53,608
======== ======== ========
</TABLE>
As of December 31, 1997, the Company has available net operating loss
carryforwards ("NOL"), business tax credit carryforwards and alternative minimum
tax credit carryforwards for Federal income tax purposes of approximately $376.8
million, $12.7 million and $3.8 million, respectively. The NOL expire during the
years 2005 through 2009 while the business credit carryforwards expire during
the years 1998 through 2006. However, such carryforwards are not fully available
to offset federal (and in certain circumstances, state) alternative minimum
taxable income. Further, as a result of a statutory "ownership change" (as
defined for purposes of Section 382 of the Internal Revenue Code) that occurred
as a result of the Company's reorganization in 1994, the Company's ability to
utilize its NOL and business tax credit carryforwards may be restricted. The
alternative minimum tax credit may be carried forward without expiration and is
available to offset future income tax payable.
Composition of Deferred Tax Items:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of December
31, the significant components of the Company's deferred tax assets and
liabilities are a result of the temporary differences related to the items
described as follows:
41
<PAGE> 42
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities
Property and equipment, principally depreciation and "fresh start"
differences ...................................................... $(122,164) $(111,989)
--------- ---------
Deferred tax assets
Aircraft leases .................................................. 26,663 32,789
Net operating loss carryforwards ................................. 144,396 190,548
Tax credit carryforwards ......................................... 16,585 13,861
Other ............................................................ 37,768 37,924
--------- ---------
Total deferred tax assets ..................................... 225,412 275,122
--------- ---------
Valuation allowance ............................................. (28,548) (88,433)
--------- ---------
Net deferred tax asset ..................................... $ 74,700 $ 74,700
========= =========
</TABLE>
SFAS No. 109, Accounting for Income Taxes, requires a "more likely than
not" criterion be applied when evaluating the realizability of a deferred tax
asset. In 1997 the Company reduced the valuation allowance by $59.9 million from
its 1996 balance principally for the portion of its NOL (a predecessor company
tax attribute) that it anticipates will, more likely than not, be utilized. The
remaining valuation allowance of $28.5 million is necessary because at this time
the Company has not determined it is more likely than not that the balance of
the deferred tax assets will be fully realized. The Company continues to monitor
the valuation allowance and will make adjustments as appropriate. If in future
tax periods, the Company were to recognize additional tax benefits related to
items attributable to the predecessor company such as net operating loss and
other carryforwards, such benefits would be applied to reduce further
reorganization value in excess of amounts allocable to identifiable assets.
8. SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information and non-cash investing
and financing activities were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-cash transactions:
Notes payable issued for equipment purchase deposits $10,500 $26,112 $ 5,723
Cash transactions:
Interest paid, net of amounts capitalized .......... 30,830 37,555 50,293
Income taxes paid .................................. 205 498 795
</TABLE>
9. INVESTMENTS IN DEBT SECURITIES
Cash equivalents and short-term investments as of December 31 are
classified as follows:
42
<PAGE> 43
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Debt securities issued by the U.S. Treasury and other U.S. government agencies $ 39,214 $ 36,973
Corporate notes .............................................................. 132,275 90,418
Bankers acceptances .......................................................... -- 49,141
Other debt securities ........................................................ 149 98
-------- --------
171,638 176,630
Cash ......................................................................... 665 --
-------- --------
Total cash, cash equivalents and short-term investments ........... $172,303 $176,630
======== ========
</TABLE>
10. EXTRAORDINARY GAINS AND LOSSES
In June 1996, the Company had an extraordinary loss of $1.1 million net
of an income tax benefit of $918,000 for the write-off of debt issuance costs
relating to the prepayment of $25 million of its 10 3/4% Senior Unsecured Notes.
In August 1995, the Company had an extraordinary loss of $984,000, net of a tax
benefit of $984,000 for the write-off of debt issuance costs relating to the
prepayment of $48 million of its $123 million 11 1/4% Senior Unsecured Notes and
the exchange of the remaining $75 million of such notes for $75 million of 10
3/4% Senior Unsecured Notes.
11. EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income before extraordinary items .............. $ 74,970 $ 9,610 $ 54,770
Extraordinary items, net ....................... -- (1,105) (984)
------------ ------------ ------------
Income applicable to common stock .............. $ 74,970 $ 8,505 $ 53,786
============ ============ ============
Weighted average common shares outstanding ..... 44,528,575 44,931,953 45,158,433
Basic earnings per share:
Income before extraordinary items ............ $ 1.68 $ .21 $ 1.21
Extraordinary items .......................... -- (.02) (.02)
------------ ------------ ------------
Net income ................................... $ 1.68 $ .19 $ 1.19
============ ============ ============
DILUTED EARNINGS PER SHARE
Income before extraordinary items .............. $ 74,970 $ 9,610 $ 54,770
Extraordinary items, net ....................... -- (1,105) (984)
------------ ------------ ------------
Income applicable to common stock .............. $ 74,970 $ 8,505 $ 53,786
============ ============ ============
Share computation:
Weighted average common shares outstanding ... 44,528,575 44,931,953 45,158,433
Assumed exercise of stock options and warrants 1,542,375 2,800,982 1,168,742
------------ ------------ ------------
Weighted average common shares
outstanding as adjusted ................ 46,070,950 47,732,935 46,327,175
============ ============ ============
</TABLE>
43
<PAGE> 44
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Diluted earnings per share:
Income before extraordinary items ............ $ 1.63 $ .20 $ 1.18
Extraordinary items .......................... -- (.02) (.02)
------------ ------------ ------------
Net income ................................... $ 1.63 $ .18 $ 1.16
============ ============ ============
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, options of 1,089,016,
597,080 and 326,010, respectively, are not included in the computation of
diluted EPS because the option exercise prices were greater than the average
market price of common stock. (See Note 16, "Subsequent Events.")
12. COMMITMENTS AND CONTINGENCIES
(a) Leases
As of December 31, 1997, the Company had 83 aircraft under operating
leases with remaining terms ranging from one week to approximately 20 years. The
Company has options to purchase certain of the aircraft at fair market values at
the end of the lease terms. Certain of the agreements require security deposits,
minimum return provisions and maintenance reserve payments and provide the
aircraft lessors with the option during the lease term to reset their respective
rentals to the greater of the existing rentals being paid under the leases or
the then current fair market rates. The Company also leases certain terminal
space, ground facilities and computer and other equipment under noncancelable
operating leases.
At December 31, 1997, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998................................. $ 255,650
1999................................. 246,509
2000................................. 228,911
2001................................. 198,489
2002................................. 169,661
Thereafter........................... 834,413
-----------
$ 1,933,633
===========
</TABLE>
Rent expense (excluding landing fees) was approximately $308 million,
$281 million and $251 million for the years ended December 31, 1997, 1996 and
1995, respectively.
Collectively, the operating lease agreements require security deposits
with lessors of $12.1 million and bank letters of credit of $17.2 million. The
letters of credit are collateralized by $17.2 million of restricted cash as of
December 31, 1997.
(b) Revenue Bonds
Special facility revenue bonds issued by a municipality have been used
to fund the acquisition of leasehold improvements at the Phoenix Sky Harbor
International Airport in space which has been leased by the Company. Under the
operating lease agreements with the airport, the Company is required to make
rental payments sufficient to pay principal and interest when due on the bonds.
Payment of principal and interest at
44
<PAGE> 45
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8.3% on the Series 1994A Bonds ends on January 1, 2006 and payment of principal
and interest at 8.2% on the Series 1994B Bonds ends on January 1, 1999. At
December 31, 1997, the aggregate outstanding balance of Series 1994 Bonds was
$13.6 million.
(c) Aircraft Acquisitions
At December 31, 1997, AWA had firm commitments to AVSA for a total of
22 Airbus A319-100 and 12 Airbus A320-200 aircraft with delivery beginning in
1998 to 2001 at a net cost of approximately $1.2 billion based on a 3.5% annual
price escalation. An additional 12 A320s are scheduled for delivery in 2000 to
2002 and are subject to reconfirmation no later than 21 months prior to
delivery. The agreements with AVSA provide, subject to certain conditions,
aircraft and "backstop" financing assistance. The agreement also includes
options to purchase an additional 40 A320 family aircraft during 2001 through
2005, certain rights to convert firmly ordered A319s to A320s or larger A321
aircraft.
The Company has an agreement with International Aero Engines ("IAE")
which provides for the purchase by the Company of six new V2500-A5 spare engines
scheduled for delivery beginning in 1998 through 2000 for use on certain of the
A320 fleet. Such engines have an estimated aggregate cost of $42 million. One
engine was delivered in February 1998.
The following table reflects estimated cash payments under the aircraft
and engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include progress payments that will be made in cash, as opposed to
being financed under an existing progress payment financing facility.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.................................... $ 110,408
1999.................................... 466,457
2000.................................... 420,700
2001.................................... 167,990
-----------
$ 1,165,555
===========
</TABLE>
In June 1997, America West Airlines 1997-1 Pass Through Trusts issued
$93.9 million of Pass Through Trust Certificates in connection with the
refinancing of four Airbus A320 aircraft. The combined effective interest rate
on the financing is 7.41%. The proceeds of the transaction were used to
refinance the indebtedness incurred by the owners of the aircraft leased to AWA.
Under the arrangements, the financial benefits of the transactions are shared
among AWA, the equity investors in leverage leases covering the aircraft and
U.S. subsidiaries of GPA Group plc ("GPA"), the original lessees under the
restructured leases. Benefits to AWA include a reduction in rental expense
approximating $250,000 per year through 2013. The pass through certificates are
not direct obligations of, or guaranteed by, the Company, and the corresponding
debt and interest expense are not included in the Company's consolidated
financial statements.
(d) Contingent Legal Obligations
Holdings and AWA are named defendants in a number of additional lawsuits
and proceedings arising in the ordinary course of business. While the outcome of
the contingencies, lawsuits or other proceedings cannot be predicted with
certainty, management currently expects that any liability arising from such
matters, to the extent not provided for through insurance or otherwise, will not
have a material adverse effect on the financial condition and results of
operations of the Company.
45
<PAGE> 46
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. RELATED PARTY TRANSACTIONS
In March 1997, AWA purchased 1.91 million of its publicly traded
warrants from TPG and certain of its affiliates for approximately $13.3 million.
In February 1996, certain stockholders of the Company who held shares of Class B
Common Stock registered under the Company's shelf registration statement sold
7.2 million of such shares pursuant to an underwritten public offering. The
selling stockholders were affiliates of TPG, Mesa Air Group ("Mesa"),
Continental and Lehman Brothers Inc., ("Lehman"). The shares offered were
purchased by the selling stockholders in connection with AWA's emergence from
bankruptcy in August 1994.
The Company has entered into various aircraft leasing arrangements with
GPA at terms comparable to those obtained from third parties for similar
transactions. The Company currently leases four aircraft from GPA and the rental
payments for such leases amounted to $31.9 million, $62.4 million and $68
million for the years ended December 31, 1997, 1996 and 1995, respectively. As
of December 31, 1997, the Company was obligated to pay approximately $279
million under the GPA leases which expire at various dates through the year
2013. During 1996, GPA sold 900,000 shares of Class B Common Stock and the
Company repurchased 1.4 million warrants from GPA that GPA received when the
Company emerged from bankruptcy.
As part of the Company's reorganization in 1994, both Continental and
Mesa made an investment in the Company, and the Company entered into an alliance
agreement with Continental. Pursuant to a code-sharing agreement entered into
with Mesa in December 1992, the Company has collected a per-passenger charge for
facilities, reservations and other services from Mesa for enplanements in
Phoenix on the Mesa system. Such payments by Mesa to the Company totaled $3.5
million, $3.5 million and $2.9 million for the years ended December 31, 1997,
1996 and 1995, respectively. The Company is also a party to agreements with
Continental related to code-sharing arrangements and ground handling operations.
The Company paid Continental approximately $25.2 million, $21.7 million and $14
million and also received approximately $13.4 million, $13 million and $11
million in 1997, 1996 and 1995, respectively, from Continental pursuant to these
agreements.
Mr. John F. Fraser, a director of the Company, is chairman of the board
of Air Canada. The Company has entered into a maintenance contract with Air
Canada on terms comparable to those obtained from third parties for similar
transactions. The Company's payments in 1997 under the maintenance contract were
$5.9 million.
14. RESTRUCTURING AND OTHER NONRECURRING SPECIAL CHARGES
During the third quarter of 1996, the Company recorded a nonrecurring
special charge of approximately $65.1 million. Approximately $49.7 million of
the charge was associated with the Company's renegotiation of an aircraft
purchase agreement with AVSA, the re-evaluation of the Company's facilities, and
the completion of its plan for the disposition of certain aircraft inventories
and equipment. The charge included $18.8 million for cancellation penalty
payments and the write-off of capitalized interest on advance payments; a
provision for maintenance costs on certain leased aircraft currently scheduled
to be returned due to accelerated deliveries under the new AVSA agreement; $7.5
million to reduce the carrying value of certain under-utilized facilities and
$23.4 million to write-down certain aircraft related inventories and equipment
to estimated fair value. The remaining $15.4 million of the charge represented
loss contingencies based on estimated settlements of pending and threatened
litigation. The $65.1 million represented the Company's best estimate of the
expected charge.
In December 1995, the Company recorded a $10.5 million restructuring
charge. The amount included severance costs of approximately $9.5 million for
approximately 500 employees, and $1.0 million for other costs related to the
outsourcing of the heavy aircraft maintenance work.
46
<PAGE> 47
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 follows (in
thousands of dollars except per share amounts):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Operating revenues ......... 462,187 477,756 462,122 472,891
Operating income ........... 33,463 50,583 36,984 40,796
Nonoperating expense, net .. (7,526) (7,819) (1,343) (5,137)
Income tax expense ......... (11,983) (19,756) (17,719) (15,573)
Net income ................. 13,954 23,008 17,922 20,086
Earnings per share:
Basic .................... .31 .52 .40 .45
Diluted .................. .30 .50 .40 .43
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
Operating revenues ......... $413,150 $463,949 $422,518 $439,909
Operating income (loss) (a) 34,318 62,083 (53,143) 25,408
Nonoperating expense, net .. (8,898) (8,293) (8,377) (8,605)
Income tax (expense) benefit (11,693) (24,268) 15,813 (4,735)
Net income (loss) .......... 13,727 28,417 (45,707) 12,068
Earnings (loss) per share:
Basic .................... .30 .63 (1.03) .27
Diluted .................. .28 .57 (1.03) .27
</TABLE>
(a) During the third quarter of 1996, the Company recorded a nonrecurring
special charge of $65.1 million. (See Note 14, "Restructuring and Other
Nonrecurring Special Charges".)
16. SUBSEQUENT EVENTS
(a) Stock Buyback
In January 1998, Holdings paid $14.3 million for the repurchase of its
outstanding common stock and AWA repurchased $5.7 million of its publicly traded
warrants. The equity was acquired in a private transaction with Mesa and in a
series of open-market purchases. The private transaction involved the purchase
of all of the Company's equity held by Mesa including 100,000 shares of Class A
Common Stock, 200,727 shares of Class B Common Stock and 799,767 warrants. In
addition, the Company purchased 345,200 shares of Class B Common Stock on the
open market. The equity repurchases were made pursuant to the stock repurchase
program encompassing 2.5 million shares of Class B Common Stock and all
outstanding warrants.
47
<PAGE> 48
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(b) The Leisure Company ("Leisure Co")
In January, 1998, the Company transferred net assets of $32 million
from AWA to Leisure Co, a leisure travel subsidiary which will manage the former
America West Vacations division and its sports and ad hoc charter business. In
1997, the America West Vacations division, the predecessor to Leisure Co,
generated approximately $211 million in gross package sales and handled
approximately 551,000 passengers.
48
<PAGE> 49
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
ITEM 8B. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST AIRLINES,
INC. ("AWA")
Balance sheets of AWA as of December 31, 1997 and 1996, and the related
statements of income, cash flows and stockholder's equity for each of the years
in the three-year period ended December 31, 1997, together with the related
notes and the report of KPMG Peat Marwick LLP, independent certified public
accountants, are set forth on the following pages.
49
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
America West Airlines, Inc.:
We have audited the accompanying balance sheets of America West
Airlines, Inc. as of December 31, 1997 and 1996, and the related statements of
income, cash flows and stockholder's equity for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of America West
Airlines, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 27, 1998
50
<PAGE> 51
AMERICA WEST AIRLINES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 171,638 $ 137,499
Short-term investments .......................................................... -- 39,131
Accounts receivable, less allowance for doubtful accounts of
$3,850 in 1997 and $3,091 in 1996 ............................................ 88,138 106,215
Expendable spare parts and supplies, less allowance for obsolescence
of $2,495 in 1997 and $1,713 in 1996 ......................................... 27,135 21,423
Prepaid expenses ................................................................ 36,917 47,545
---------- ----------
Total current assets ......................................................... 323,828 351,813
---------- ----------
Property and equipment:
Flight equipment ................................................................ 783,384 669,654
Other property and equipment .................................................... 143,172 107,993
Equipment purchase deposits ..................................................... 45,246 56,665
---------- ----------
971,802 834,312
Less accumulated depreciation and amortization .................................. 276,430 163,718
---------- ----------
695,372 670,594
---------- ----------
Other assets:
Restricted cash ................................................................. 57,158 26,433
Reorganization value in excess of amounts allocable to identifiable assets, net . 363,268 447,044
Deferred income taxes ........................................................... 74,700 74,700
Other assets, net ............................................................... 33,005 27,093
---------- ----------
528,131 575,270
---------- ----------
$1,547,331 $1,597,677
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt ............................................ $ 54,000 $ 46,238
Accounts payable ................................................................ 140,908 115,458
Air traffic liability ........................................................... 173,149 214,056
Accrued compensation and vacation benefits ...................................... 37,277 30,085
Accrued taxes ................................................................... 36,376 72,047
Other accrued liabilities ....................................................... 43,574 44,836
---------- ----------
Total current liabilities .................................................... 485,284 522,720
---------- ----------
Long-term debt, less current maturities ............................................ 272,760 330,148
Deferred credits and other liabilities ............................................. 104,519 122,029
Commitments and contingencies
Stockholder's equity:
Class B common stock, $.01 par value. Authorized 1,000 shares; issued and
outstanding 1,000 shares ..................................................... -- --
Additional paid-in capital ...................................................... 539,301 552,643
Retained earnings ............................................................... 145,467 70,137
---------- ----------
Total stockholder's equity ............................................... 684,768 622,780
---------- ----------
$1,547,331 $1,597,677
========== ==========
</TABLE>
See accompanying notes to financial statements.
51
<PAGE> 52
AMERICA WEST AIRLINES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Passenger ........................................... $ 1,764,206 $ 1,637,762 $ 1,452,261
Cargo ............................................... 51,699 46,519 44,425
Other ............................................... 59,051 55,245 53,956
----------- ----------- -----------
Total operating revenues ....................... 1,874,956 1,739,526 1,550,642
----------- ----------- -----------
Operating expenses:
Salaries and related costs .......................... 418,212 385,840 382,032
Aircraft rents ...................................... 223,423 202,237 173,571
Other rents and landing fees ........................ 119,470 111,947 108,264
Aircraft fuel ....................................... 243,423 233,522 174,195
Agency commissions .................................. 151,293 133,015 124,146
Aircraft maintenance materials and repairs .......... 146,618 125,768 65,925
Depreciation and amortization ....................... 48,590 52,937 49,083
Amortization of reorganization value in excess of
amounts allocable to identifiable assets ......... 23,776 25,263 31,958
Restructuring and other nonrecurring special charges -- 65,098 10,500
Other ............................................... 337,578 335,233 276,236
----------- ----------- -----------
Total operating expenses ......................... 1,712,383 1,670,860 1,395,910
----------- ----------- -----------
Operating income ......................................... 162,573 68,666 154,732
----------- ----------- -----------
Nonoperating income (expenses):
Interest income ..................................... 17,432 12,861 15,045
Interest expense, net ............................... (39,110) (46,866) (58,598)
Gain (loss) on disposition of property and equipment (1,710) 1,288 (2,734)
Other, net .......................................... 1,488 (1,456) (67)
----------- ----------- -----------
Total nonoperating expenses, net ................. (21,900) (34,173) (46,354)
----------- ----------- -----------
Income before income taxes and extraordinary items 140,673 34,493 108,378
Income taxes ............................................. 65,343 24,883 53,608
----------- ----------- -----------
Income before extraordinary items ................... 75,330 9,610 54,770
Extraordinary items, net of tax .......................... -- (1,105) (984)
----------- ----------- -----------
Net income .......................................... $ 75,330 $ 8,505 $ 53,786
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
52
<PAGE> 53
AMERICA WEST AIRLINES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 75,330 $ 8,505 $ 53,786
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................. 48,590 52,937 49,083
Amortization of capitalized maintenance .................... 66,143 39,679 11,934
Amortization of reorganization value ....................... 23,776 25,263 31,958
Income taxes attributable to reorganization items and other 59,444 23,091 52,913
Amortization of deferred credits ........................... (10,405) (11,563) (10,952)
Nonrecurring special charge ................................ -- 65,098 10,500
Extraordinary items and other .............................. 5,674 3,989 8,183
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net .............. 18,077 (37,121) (11,172)
Increase in expendable spare parts and supplies, net ......... (5,712) (3,793) (4,819)
Decrease (increase) in prepaid expenses ...................... 10,551 (2,252) (14,031)
Increase in other assets, net ................................ (33,042) (3,173) (7,312)
Increase in accounts payable ................................. 25,450 26,301 10,308
Increase (decrease) in air traffic liability ................. (40,907) 22,312 64,388
Increase (decrease) in accrued compensation
and vacation benefits ..................................... 7,192 (11,531) 15,340
Increase (decrease) in accrued taxes ......................... (35,671) 37,688 7,298
Increase (decrease) in other accrued liabilities ............. (1,262) 8,315 (663)
Decrease in other liabilities ................................ (8,871) (13,411) (6,314)
--------- --------- ---------
Net cash provided by operating activities ................ 204,357 230,334 260,428
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment .......................... (154,969) (155,742) (107,387)
Sale (purchase) of short-term investments .................... 39,131 (39,131) --
Other ........................................................ (14,017) (4,082) (9)
--------- --------- ---------
Net cash used in investing activities .................... (129,855) (198,955) (107,396)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of debt ............................... 30,000 -- 29,300
Repayment of debt ............................................ (55,411) (79,216) (137,421)
Acquisition of warrants ...................................... (13,342) (18,141) --
Acquisition of treasury stock ................................ -- (23,964) (1,540)
Other ........................................................ (1,610) 3,074 (1,585)
--------- --------- ---------
Net cash used in financing activities ...................... (40,363) (118,247) (111,246)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ....... 34,139 (86,868) 41,786
--------- --------- ---------
Cash and cash equivalents at beginning of year ................. 137,499 224,367 182,581
--------- --------- ---------
Cash and cash equivalents at end of year ....................... $ 171,638 $ 137,499 $ 224,367
========= ========= =========
Cash, cash equivalents and short-term investments at end of year $ 171,638 $ 176,630 $ 224,367
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
53
<PAGE> 54
AMERICA WEST AIRLINES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL CLASS B
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 ................ $ 12 $ 439 $ 587,149 $ 7,846 $ -- $ 595,446
--------- --------- --------- --------- --------- ---------
Issuance of 4,057 shares and
170,667 shares of common
stock pursuant to the
exercise of stock warrants
and stock options ...................... -- 2 1,543 -- -- 1,545
Issuance of 30,334 shares
of restricted stock .................... -- -- 235 -- -- 235
Acquisition of 112,000 shares of
treasury stock ......................... -- -- -- -- (1,540) (1,540)
Net income ................................ -- -- -- 53,786 -- 53,786
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 .............. 12 441 588,927 61,632 (1,540) 649,472
--------- --------- --------- --------- --------- ---------
Issuance of 12,725 shares and
314,001 shares of common
stock pursuant to the exercise
of stock warrants and stock
options ................................ -- 3 3,071 -- -- 3,074
Issuance of 158,000 shares of
restricted stock ....................... -- 2 2,761 -- -- 2,763
Purchase of 1,270,000 shares and return
of 21,911 shares of treasury stock ..... -- -- 293 -- (24,257) (23,964)
Issuance of 50,000 shares of treasury stock -- -- 356 -- 688 1,044
Repurchase of 2,187,475
warrants at $8.29 per warrant .......... -- -- (18,141) -- -- (18,141)
Net income ................................ -- -- -- 8,505 -- 8,505
Purchase of stock option from
Holdings ............................... -- -- (62,373) -- -- (62,373)
Contribution of capital by
Holdings ............................... -- -- 62,400 -- -- 62,400
Reorganization as wholly-
owned subsidiary of Holdings ............ (12) (446) (24,651) -- 25,109 --
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996 .............. $ -- $ -- $ 552,643 $ 70,137 $ -- $ 622,780
--------- --------- --------- --------- --------- ---------
Repurchase of 1,911,523
warrants at $6.98 per warrant .......... -- -- (13,342) -- -- (13,342)
Net income ................................ -- -- -- 75,330 -- 75,330
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1997 .............. $ -- $ -- $ 539,301 $ 145,467 $ -- $ 684,768
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
54
<PAGE> 55
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
America West Holdings Corporation ("Holdings"), a Delaware corporation,
became the holding company for America West Airlines, Inc. ("AWA"), effective
midnight, December 31, 1996. Holdings' primary business activity is ownership of
all the capital stock of AWA, the ninth largest commercial airline carrier in
the United States serving 60 destinations in the U.S., Canada and Mexico.
(a) Cash, Cash Equivalents and Short-term Investments
Cash equivalents consist of all highly liquid debt instruments
purchased with original maturities of three months or less. Short-term
investments consist of cash invested in certain debt securities with original
maturities greater than 90 days. The debt securities are classified as held to
maturity and are carried at amortized cost which approximates fair value.
(b) Expendable Spare Parts and Supplies
Flight equipment expendable spare parts and supplies are valued at
average cost. An allowance for obsolescence is provided, over the estimated
useful life of the related aircraft and engines, for spare parts expected to be
on hand at the date the aircraft are retired from service.
(c) Property and Equipment
Property and equipment are recorded at cost. Interest capitalized on
advance payments for aircraft acquisitions and on expenditures for aircraft
improvements are part of these costs. Interest capitalized for the years ended
December 31, 1997 and 1995 was $600,000 and $2.7 million, respectively. No
interest was capitalized for the year ended December 31, 1996. Property and
equipment is depreciated and amortized to residual values over the estimated
useful lives or the lease term, whichever is less, using the straight-line
method.
The estimated useful lives for AWA's ground property and equipment
range from three to 12 years for owned property and equipment and up to 30 years
for the reservation and training center and technical support facilities. The
estimated useful lives of AWA's owned aircraft, jet engines, flight equipment
and rotable parts range from 11 to 22 years. Leasehold improvements relating to
flight equipment and other property on operating leases are amortized over the
life of the lease or the life of the asset, whichever is shorter.
(d) Restricted Cash
Restricted cash includes cash deposits securing certain letters of
credit.
(e) Aircraft Maintenance and Repairs
Routine maintenance and repairs are charged to expense as incurred. The
cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense. Additionally, an accrual for
the estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft prior to their return to the lessors has been
recorded.
55
<PAGE> 56
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(f) Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets
Reorganization value in excess of amounts allocable to identifiable
assets is amortized on a straight line basis over 20 years. Accumulated
amortization at December 31, 1997 and 1996 was $92.1 million and $68.4 million,
respectively. AWA assesses the recoverability of this asset based upon expected
future undiscounted cash flows and other relevant information.
(g) Frequent Flyer Awards
AWA maintains a frequent travel award program known as "FlightFund"
that provides a variety of awards to program members based on accumulated
mileage. The estimated cost of providing the free travel, using the incremental
cost method as adjusted for estimated redemption rates, is recognized as a
liability and charged to operations as program members accumulate mileage.
(h) Deferred Credit-Operating Leases
Rents for operating leases were adjusted to fair market value when AWA
emerged from bankruptcy in 1994. The net present value of the difference between
the stated lease rates and the fair market rates has been recorded as a deferred
credit in the accompanying balance sheets. The deferred credit will be increased
through charges to interest expense and decreased on a straight-line basis as a
reduction in rent expense over the applicable lease periods. At December 31,
1997 and 1996, the unamortized balance of the deferred credit was $85.3 million
and $95.6 million, respectively.
(i) Passenger Revenue
Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense.
(j) Advertising Costs
AWA expenses the costs of advertising as incurred. Advertising expense
for the years ended December 31, 1997, 1996 and 1995 was $25.8 million, $26.6
million and $25.2 million, respectively.
(k) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
(l) Use of Estimates
Management of AWA has made certain estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
56
<PAGE> 57
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(m) Reclassification
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
2. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SECURED
Notes payable, primarily fixed interest rates of 7.06% to 10.79%, averaging
9.73%, installments due 1999 through 2008 ................................. $194,008 $234,494
Borrowings under lines of credit, floating interest rates of one-month
LIBOR+ 1.625%, averaging 7.59%, installments due through 1999 (a) ........ 30,000 8,277
Industrial development revenue bonds, variable interest rate of 3.3% to 4.95%,
averaging 4.02%, due 2016 (b) ............................................. 29,300 29,300
-------- --------
253,308 272,071
-------- --------
UNSECURED
10 3/4% Senior Unsecured Notes, face amount of $50 million, interest
only payments until due in 2005 (c) ....................................... 48,197 48,197
Notes payable, interest rates of 6.5% to 90-day LIBOR +3%, averaging
7.99%, installments due through 2000 ...................................... 24,905 55,910
Other ........................................................................ 350 208
-------- --------
73,452 104,315
-------- --------
Total long-term debt ......................................................... 326,760 376,386
Less: current maturities .................................................... 54,000 46,238
-------- --------
$272,760 $330,148
======== ========
</TABLE>
- ----------
(a) In December 1997, AWA obtained a $100 million senior secured revolving
credit facility with a group of financial institutions that has a five
year term comprised of a two year revolving credit arrangement, with an
option to extend the expiration date for one additional year or convert
outstanding borrowings into a three year term loan. Borrowings under
this credit facility will accrue interest at either the "base rate"
(prime rate or the rate which is 1/2 of 1% in excess of the Federal
Funds Effective Rate) or the "adjusted eurodollar rate" (LIBOR rate
adjusted for certain reserve requirements in respect to "Eurodollar
liabilities") plus the applicable margin based on Moody's rating of
AWA's senior unsecured notes. The credit agreement is secured by
certain assets of AWA. As of December 31, 1997, AWA had drawn $29.9
million to pledge as cash collateral for the industrial development
revenue bonds letter of credit discussed in (b) below. This was
subsequently repaid in February 1998.
(b) The industrial development revenue bonds are backed by an irrevocable
direct pay letter of credit which is secured by $29.9 million in cash.
The interest rate on the bonds varies weekly and from January 1, 1997
to December 31, 1997 ranged from 3.3% to 4.95%. The bondholders have
the right to put the bonds back to AWA on a weekly basis if the bonds
bear interest at a weekly rate or monthly if the bonds bear interest at
a monthly rate. If the bonds are put back to AWA, the remarketing agent
or the transfer agent will, at the direction of AWA, remarket such
bonds. Any bonds not remarketed will be retired utilizing the $29.9
million letter of credit facility which represents the principal amount
plus 60 days of interest at a maximum rate of 12%. The letter of credit
was extended in November 1997 for one year
57
<PAGE> 58
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
and is subject to mandatory redemption under certain circumstances. The
estimated annual cost for the letter of credit is approximately
$192,000.
(c) The 10 3/4% Senior Unsecured Notes mature on September 1, 2005 and
interest is payable in arrears semi-annually commencing on March 1,
1996. The 10 3/4% Senior Unsecured Notes may be redeemed at the option
of AWA on or after September 1, 2001 at any time in whole or from time
to time in part, at a redemption price equal to the following
percentage of principal redeemed, plus accrued and unpaid interest to
the date of redemption, if redeemed during the 12-month period
beginning:
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
<S> <C>
2000................................... 105.375%
2001................................... 103.583%
2002................................... 101.792%
2003 and thereafter.................... 100.000%
</TABLE>
Secured financings totaling $253.3 million are collateralized by
assets, primarily aircraft and engines, with a net book value of $315.4 million
at December 31, 1997.
At December 31, 1997, the estimated maturities of long-term debt are as
follows:
<TABLE>
<S> <C>
1998................................... $ 54,000
1999................................... 64,832
2000................................... 19,898
2001................................... 19,805
2002................................... 19,632
Thereafter............................. 148,593
---------
326,760
=========
</TABLE>
Certain of AWA's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios, limitations on investments and
restricted payments including cash dividends, and other financial covenants with
which AWA was in compliance at December 31, 1997.
3. CAPITAL STOCK
Effective midnight, December 31, 1996, AWA became a wholly-owned
subsidiary of Holdings and each share of AWA Class A and Class B Common Stock
and options to purchase Class B Common Stock were exchanged for one share of
Holdings Class A or Class B Common Stock and options to purchase Class B Common
Stock. Holdings' Class B Common Stock is listed on the New York Stock Exchange.
Warrants
On August 25, 1994, AWA issued approximately 10.4 million warrants to
purchase Class B Common Stock with an exercise price of $12.74 per share. The
warrants are exercisable by the holders any time before August 25, 1999 and 10.4
million shares of Class B Common Stock were reserved for the exercise of these
warrants. As of December 31, 1997, approximately 4.1 million warrants have been
repurchased by AWA for approximately $31 million. As of December 31, 1997,
22,588 warrants have been exercised at $12.74 per share. As part of the holding
company formation transaction, the AWA warrants became rights to acquire shares
of Holdings Class B Common
58
<PAGE> 59
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Stock. AWA has made arrangements for the issuance of Holdings Class B Common
Stock upon the exercise of such warrants by purchasing an option from Holdings
to acquire such stock. AWA issued a $62.4 million note payable to Holdings due
December 31, 2005 with an interest rate of 11%.
Subsequently, Holdings made a capital contribution to AWA by issuing a
note payable to AWA for $62.4 million due December 31, 2045 with an interest
rate of 10 7/8%. AWA has the right on December 31, 2005 to repay all or a
portion of the then outstanding principal balance of its note payable by
offsetting by an equal amount the then outstanding principal balance of its note
receivable and thus, these notes have been offset in the accompanying financial
statements in accordance with applicable accounting standards.
Common Stock
The holders of common stock are entitled to one vote for each share of
stock held by the holder. Holders of common stock have no right to cumulate
their votes in the election of directors. The holders of common stock are
entitled to receive, when and if declared by the Board of Directors, out of the
assets of AWA which are by law available, dividends payable either in cash, in
stock or otherwise.
4. EMPLOYEE BENEFIT PLAN
AWA has a 401(k) defined contribution plan, covering essentially all
employees of AWA. Participants may contribute from 1 to 15% of their pretax
earnings to a maximum of $9,500 in 1997. The Company's matching contribution is
determined annually by the Board of Directors. AWA's contribution expense to the
plan totaled $6.1 million, $5.9 million and $5.9 million in 1997, 1996 and 1995,
respectively.
5. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) Fair Value of Financial Instruments
Cash Equivalents, Short-term Investments and Receivables
The carrying amount approximates fair value because of the short-term
nature of these instruments.
Long-term Debt
At December 31, 1997 and 1996, the fair value of long-term debt was
approximately $330 million and $379 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.
(b) Fuel Price Risk Management
Under its fuel hedging program, AWA may enter into certain protective
cap and fixed price swap transactions with approved counterparties for a period
generally not exceeding twelve months. Gains and losses on such transactions are
recorded as adjustments to fuel expense when the underlying fuel being hedged is
used. As of December 31, 1997, AWA had entered into cap and swap transactions
hedging approximately 14% of its projected 1998 fuel requirements. As of
February 26, 1998, approximately 38% of AWA's 1998 fuel requirements are hedged.
AWA is exposed to credit risks in the event any counterparty fails to
meet its obligations. AWA does not anticipate such non-performance as
counterparties are selected based on credit ratings, exposure to any one
counterparty is limited based on formal guidelines and the relative market
positions with such counterparties are
59
<PAGE> 60
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
closely monitored.
(c) Concentration of Credit Risk
AWA does not believe it is subject to any significant concentration of
credit risk. Most of AWA's receivables result from tickets sold to individual
passengers through the use of major credit cards or to tickets sold by other
airlines and used by passengers on AWA. These receivables are short-term,
generally being settled shortly after the sale.
6. INCOME TAXES
AWA recorded income tax expense (exclusive of extraordinary items) as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Taxes:
Federal .............................. $ 2,622 $ 943 $ 505
State ................................ 3,277 849 190
------- ------- -------
Total current taxes ............ 5,899 1,792 695
------- ------- -------
Deferred taxes .......................... -- -- --
------- ------- -------
Income taxes attributable to
reorganization items and other ....... 59,444 23,091 52,913
------- ------- -------
Total income tax expense ................ $65,343 $24,883 $53,608
======= ======= =======
</TABLE>
AWA's emergence from bankruptcy reorganization in 1994 and the
associated implementation of fresh start reporting gave rise to significant
items of expense for financial reporting purposes that are not deductible for
income tax purposes. In large measure, it is these nondeductible (for income tax
purposes) expenses that result in an effective tax rate (for financial reporting
purposes) significantly greater than the current U.S. corporate statutory rate
of 35%. Nevertheless, AWA's actual cash income tax liability (i.e., income taxes
payable) is considerably lower than income tax expense shown for financial
reporting purposes. This difference in financial expense compared to actual
income tax liability is in part attributable to the utilization of certain tax
attributes of the predecessor company that serve to reduce AWA's actual income
tax liability. The excess of financial expense over AWA's actual income tax
liability ($59.4 million for 1997) is applied to reduce the balance of AWA's
reorganization value in excess of amounts allocable to identifiable assets.
For the years ended December 31, 1996 and 1995, AWA recognized income
tax benefits of $918,000 and $984,000, respectively, arising from extraordinary
charges.
Income tax expense, exclusive of extraordinary items, differs from
amounts computed at the federal statutory income tax rate as follows:
60
<PAGE> 61
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at U.S. statutory rate . $ 49,000 $ 12,073 $ 37,932
State income taxes, net of federal income
tax benefit ............................ 5,967 1,984 4,505
Nondeductible amortization of
reorganization value in excess of amounts
allocable to identifiable assets........ 8,322 8,842 11,188
Other, net ................................ 2,054 1,984 (17)
-------- -------- --------
Total .................................. $ 65,343 $ 24,883 $ 53,608
======== ======== ========
</TABLE>
As of December 31, 1997, AWA has available net operating loss
carryforwards ("NOL"), business tax credit carryforwards and alternative minimum
tax credit carryforwards for Federal income tax purposes of approximately $376.8
million, $12.7 million and $3.8 million, respectively. The NOL expire during the
years 2005 through 2009 while the business credit carryforwards expire during
the years 1998 through 2006. However, such carryforwards are not fully available
to offset federal (and in certain circumstances, state) alternative minimum
taxable income. Further, as a result of a statutory "ownership change" (as
defined for purposes of Section 382 of the Internal Revenue Code) that occurred
as a result of AWA's reorganization in 1994, AWA's ability to utilize its NOL
and business tax credit carryforwards may be restricted. The alternative minimum
tax credit may be carried forward without expiration and is available to offset
future income tax payable.
Composition of Deferred Tax Items:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of December
31, the significant components of AWA's deferred tax assets and liabilities are
a result of the temporary differences related to the items described as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities
Property and equipment, principally depreciation and "fresh start"
differences ...................................................... $(122,164) $(111,989)
--------- ---------
Deferred tax assets
Aircraft leases .................................................. 26,663 32,789
Net operating loss carryforwards ................................. 144,396 190,548
Tax credit carryforwards ......................................... 16,585 13,861
Other ............................................................ 37,768 37,924
--------- ---------
Total deferred tax assets ..................................... 225,412 275,122
--------- ---------
Valuation allowance ............................................. (28,548) (88,433)
--------- ---------
Net deferred tax asset ..................................... $ 74,700 $ 74,700
========= =========
</TABLE>
Statement of Financial Accounting Standards ("SFAS"), No. 109,
Accounting for Income Taxes requires a "more likely than not" criterion be
applied when evaluating the realizability of a deferred tax asset. In 1997 AWA
reduced the valuation allowance by $59.9 million from its 1996 balance
principally for the portion of its NOL (a predecessor company tax attribute)
that it anticipates will, more likely than not, be utilized. The remaining
valuation allowance of $28.5 million is necessary because at this time AWA has
not determined it is
61
<PAGE> 62
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
more likely than not that the balance of the deferred tax assets will be fully
realized. AWA continues to monitor the valuation allowance and will make
adjustments as appropriate. If in future tax periods, AWA were to recognize
additional tax benefits related to items attributable to the predecessor company
such as net operating loss and other carryforwards, such benefits would be
applied to reduce further reorganization value in excess of amounts allocable to
identifiable assets.
7. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information and non-cash investing
and financing activities were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-cash transactions:
Notes payable issued for equipment purchase deposits $10,500 $26,112 $ 5,723
Cash transactions:
Interest paid, net of amounts capitalized .......... 30,830 37,555 50,293
Income taxes paid .................................. 205 498 795
</TABLE>
8. INVESTMENTS IN DEBT SECURITIES
Cash equivalents and short-term investments as of December 31 are
classified as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Debt securities issued by the U.S. Treasury and other U.S. government agencies $ 39,214 $ 36,973
Corporate notes .............................................................. 132,275 90,418
Bankers acceptances .......................................................... -- 49,141
Other debt securities ........................................................ 149 98
-------- --------
Total cash equivalents and short-term investments ................. $171,638 $176,630
======== ========
</TABLE>
9. EXTRAORDINARY GAINS AND LOSSES
In June 1996, AWA had an extraordinary loss of $1.1 million net of an
income tax benefit of $918,000 for the write-off of debt issuance costs relating
to the prepayment of $25 million of its 10 3/4% Senior Unsecured Notes. In
August 1995, AWA had an extraordinary loss of $984,000, net of a tax benefit of
$984,000 for the write-off of debt issuance costs relating to the prepayment of
$48 million of its $123 million 11 1/4% Senior Unsecured Notes and the exchange
of the remaining $75 million of such notes for $75 million of 10 3/4% Senior
Unsecured Notes.
10. COMMITMENTS AND CONTINGENCIES
(a) Leases
As of December 31, 1997, AWA had 83 aircraft under operating leases
with remaining terms ranging from one week to approximately 20 years. AWA has
options to purchase certain of the aircraft at fair market
62
<PAGE> 63
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
values at the end of the lease terms. Certain of the agreements require security
deposits, minimum return provisions and maintenance reserve payments and provide
the aircraft lessors with the option during the lease term to reset their
respective rentals to the greater of the existing rentals being paid under the
leases or the then current fair market rates. AWA also leases certain terminal
space, ground facilities and computer and other equipment under noncancelable
operating leases.
At December 31, 1997, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998................................... $ 255,650
1999................................... 246,509
2000................................... 228,911
2001................................... 198,489
2002................................... 169,661
Thereafter............................. 834,413
-----------
$ 1,933,633
===========
</TABLE>
Rent expense (excluding landing fees) was approximately $308 million,
$281 million and $251 million for the years ended December 31, 1997, 1996 and
1995, respectively.
Collectively, the operating lease agreements require security deposits
with lessors of $12.1 million and bank letters of credit of $17.2 million. The
letters of credit are collateralized by $17.2 million of restricted cash as of
December 31, 1997.
(b) Revenue Bonds
Special facility revenue bonds issued by a municipality have been used
to fund the acquisition of leasehold improvements at the Phoenix Sky Harbor
International Airport in space which has been leased by AWA. Under the operating
lease agreements with the airport, AWA is required to make rental payments
sufficient to pay principal and interest when due on the bonds. Payment of
principal and interest at 8.3% on the Series 1994A Bonds ends on January 1, 2006
and payment of principal and interest at 8.2% on the Series 1994B Bonds ends on
January 1, 1999. At December 31, 1997, the aggregate outstanding balance of
Series 1994 Bonds was $13.6 million.
(c) Aircraft Acquisitions
At December 31, 1997, AWA had firm commitments to AVSA for a total of
22 Airbus A319-100 and 12 Airbus A320-200 aircraft with delivery beginning in
1998 to 2001 at a net cost of approximately $1.2 billion based on a 3.5% annual
price escalation. An additional 12 A320s are scheduled for delivery in 2000 to
2002 and are subject to reconfirmation no later than 21 months prior to
delivery. The agreements with AVSA provide, subject to certain conditions,
aircraft and "backstop" financing assistance. The agreement also includes
options to purchase an additional 40 A320 family aircraft during 2001 through
2005, certain rights to convert firmly ordered A319s to A320s or larger A321
aircraft.
AWA has an agreement with International Aero Engines ("IAE") which
provides for the purchase by AWA of six new V2500-A5 spare engines scheduled for
delivery beginning in 1998 through 2000 for use on
63
<PAGE> 64
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
certain of the A320 fleet. Such engines have an estimated aggregate cost of $42
million. One engine was delivered in February 1998.
The following table reflects estimated cash payments under the aircraft
and engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include progress payments that will be made in cash, as opposed to
being financed under an existing progress payment financing facility.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.................................... $ 110,408
1999.................................... 466,457
2000.................................... 420,700
2001.................................... 167,990
-----------
$ 1,165,555
===========
</TABLE>
In June 1997, America West Airlines 1997-1 Pass Through Trusts issued
$93.9 million of Pass Through Trust Certificates in connection with the
refinancing of four Airbus A320 aircraft. The combined effective interest rate
on the financing is 7.41%. The proceeds of the transaction were used to
refinance the indebtedness incurred by the owners of the aircraft leased to AWA.
Under the arrangements, the financial benefits of the transactions are shared
among AWA, the equity investors in leverage leases covering the aircraft and
U.S. subsidiaries of GPA Group plc ("GPA"), the original lessees under the
restructured leases. Benefits to AWA include a reduction in rental expense
approximating $250,000 per year through 2013. The pass through certificates are
not direct obligations of, or guaranteed by, AWA, and the corresponding debt and
interest expense are not included in AWA's financial statements.
(d) Contingent Legal Obligations
Holdings and AWA are named defendants in a number of additional
lawsuits and proceedings arising in the ordinary course of business. While the
outcome of the contingencies, lawsuits or other proceedings cannot be predicted
with certainty, management currently expects that any liability arising from
such matters, to the extent not provided for through insurance or otherwise,
will not have a material adverse effect on the financial condition and results
of operations of AWA.
11. RELATED PARTY TRANSACTIONS
In March 1997, AWA purchased 1.91 million of its publicly traded
warrants from TPG Partners, L.P. and certain of its affiliates for approximately
$13.3 million. In February 1996, certain stockholders of AWA who held shares of
Class B Common Stock registered under AWA's shelf registration statement sold
7.2 million of such shares pursuant to an underwritten public offering. The
selling stockholders were affiliates of TPG Partners, L.P. ("TPG"), Mesa Air
Group ("Mesa"), Continental Airlines, Inc. ("Continental") and Lehman Brothers,
Inc. ("Lehman"). The shares offered were purchased by the selling stockholders
in connection with AWA's emergence from bankruptcy in August 1994.
AWA has entered into various aircraft leasing arrangements with GPA at
terms comparable to those obtained from third parties for similar transactions.
AWA currently leases four aircraft from GPA and the rental
64
<PAGE> 65
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
payments for such leases amounted to $31.9 million, $62.4 million and $68
million for the years ended December 31, 1997, 1996 and 1995, respectively. As
of December 31, 1997, AWA was obligated to pay approximately $279 million under
the GPA leases which expire at various dates through the year 2013. During 1996,
GPA sold 900,000 shares of Class B Common Stock and AWA repurchased 1.4 million
warrants from GPA that GPA received when AWA emerged from bankruptcy.
As part of AWA's reorganization in 1994, both Continental and Mesa made
an investment in AWA, and AWA entered into an alliance agreement with
Continental. Pursuant to a code-sharing agreement entered into with Mesa in
December 1992, AWA has collected a per-passenger charge for facilities,
reservations and other services from Mesa for enplanements in Phoenix on the
Mesa system. Such payments by Mesa to AWA totaled $3.5 million, $3.5 million and
$2.9 million for the years ended December 31, 1997, 1996 and 1995, respectively.
AWA is also a party to agreements with Continental related to code-sharing
arrangements and ground handling operations. AWA paid Continental approximately
$25.2 million, $21.7 million and $14 million and also received approximately
$13.4 million, $13 million and $11 million in 1997, 1996 and 1995, respectively,
from Continental pursuant to these agreements.
Mr. John F. Fraser, a director of AWA, is chairman of the board of Air
Canada. AWA has entered into a maintenance contract with Air Canada on terms
comparable to those obtained from third parties for similar transactions. AWA's
payments in 1997 under the maintenance contract were $5.9 million.
12. RESTRUCTURING AND OTHER NONRECURRING SPECIAL CHARGES
During the third quarter of 1996, AWA recorded a nonrecurring special
charge of approximately $65.1 million. Approximately $49.7 million of the charge
was associated with AWA's renegotiation of an aircraft purchase agreement with
AVSA, the re-evaluation of AWA's facilities, and the completion of its plan for
the disposition of certain aircraft inventories and equipment. The charge
included $18.8 million for cancellation penalty payments and the write-off of
capitalized interest on advance payments; a provision for maintenance costs on
certain leased aircraft currently scheduled to be returned due to accelerated
deliveries under the new AVSA agreement; $7.5 million to reduce the carrying
value of certain under-utilized facilities and $23.4 million to write-down
certain aircraft related inventories and equipment to estimated fair value. The
remaining $15.4 million of the charge represented loss contingencies based on
estimated settlements of pending and threatened litigation. The $65.1 million
represented AWA's best estimate of the expected charge.
In December 1995, AWA recorded a $10.5 million restructuring charge.
The amount included severance costs of approximately $9.5 million for
approximately 500 employees, and $1.0 million for other costs related to the
outsourcing of the heavy aircraft maintenance work.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 follows (in
thousands of dollars):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997
- ----
Operating revenues ...... $ 462,187 $ 477,756 $ 462,122 $ 472,891
Operating income ........ 33,463 50,583 36,984 41,543
Nonoperating expense, net (7,545) (7,837) (1,362) (5,156)
Income tax expense ...... (11,974) (19,749) (17,708) (15,912)
Net income .............. 13,944 22,997 17,914 20,475
</TABLE>
65
<PAGE> 66
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996
- ----
Operating revenues ...... $ 413,150 $ 463,949 $ 422,518 $ 439,909
Operating income (loss) (a) 34,318 62,083 (53,143) 25,408
Nonoperating expense, net (8,898) (8,293) (8,377) (8,605)
Income tax (expense) benefit (11,693) (24,268) 15,813 (4,735)
Net income (loss) ....... 13,727 28,417 (45,707) 12,068
</TABLE>
(a) During the third quarter of 1996, AWA recorded a nonrecurring special
charge of $65.1 million. (See Note 12, "Restructuring and Other
Nonrecurring Special Charges".)
14. SUBSEQUENT EVENTS
(a) Warrant Buyback
In January 1998, AWA repurchased 799,767 of its publicly traded
warrants for $5.7 million in a private transaction with Mesa.
66
<PAGE> 67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information respecting continuing directors and nominees of Holdings is
set forth under the caption "Election of Directors" in Holdings' Proxy Statement
relating to its 1998 Annual Meeting of Stockholders and is incorporated by
reference into this Form 10-K Report. The Proxy Statement will be filed with the
Securities and Exchange Commission in accordance with Rule 14a-6(c) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). With
the exception of the foregoing information and other information specifically
incorporated by reference into this Form 10-K Report, the Proxy Statement is not
being filed as a part hereof. Information respecting executive officers of
Holdings is set forth at Part I of this Report.
Information respecting compliance with Section 16(a) of the Exchange
Act is set forth under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement and is incorporated by references into this
Form 10-K Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation required by Item 11 is
set forth under the captions "Executive Compensation", "Stock Option Grants and
Exercises", "Employment Agreements" and "Compensation Committee Interlocks" in
the Proxy Statement and is incorporated by reference into this Form 10-K Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management required by Item 12 is set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement
and is incorporated by reference into this Form 10-K Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
required by Item 13 is set forth under the captions "Employment Agreements" and
"Certain Transactions" in the Proxy Statement and is incorporated by reference
into this Form 10-K Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements.
The following financial statements and the Independent Auditors'
Reports are filed in Part II, Item 8A and 8B of this report on the pages
indicated:
America West Holdings Corporation
Independent Auditors' Report -- page 28.
Consolidated Balance Sheets -- December 31, 1997 and 1996
-- page 29.
67
<PAGE> 68
Consolidated Statements of Income-Years ended December 31,
1997, 1996 and 1995 -- page 30.
Consolidated Statements of Cash Flows-Years ended December 31,
1997, 1996 and 1995 -- page 31.
Consolidated Statements of Stockholders' Equity-Years ended
December 31, 1997, 1996 and 1995 -- page 32.
Notes to Consolidated Financial Statements -- page 33.
America West Airlines, Inc.
Independent Auditors' Report -- page 50.
Balance Sheets -- December 31, 1997 and 1996 -- page 51.
Statements of Income -- Years ended December 31, 1997, 1996
and 1995 -- page 52.
Statements of Cash Flows -- Years ended December 31, 1997,
1996 and 1995 -- page 53.
Statements of Stockholder's Equity -- Years ended December
31, 1997, 1996 and 1995 -- page 54.
Notes to Financial Statements -- page 55.
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 31, 1997 announcing
the approval of a tentative collective bargaining agreement between AWA
and The Association of Flight Attendants, AFL-CIO. Current Report on
Form 8-K dated December 17, 1997 announcing the entering into by AWA of
a $100 million secured revolving credit facility and the vote against
the tentative collective bargaining agreement with The Association of
Flight Attendants, AFL-CIO by the flight attendants.
(c) Exhibits
EXHIBIT
NUMBER TITLE
------ -----
2.1 -- Plan of Reorganization of America West Airlines, Inc. ("AWA"), as
amended under Chapter 11 of the Bankruptcy Code, as amended --
Incorporated by reference to Exhibit 1 of AWA's Current Report on
Form 8-K dated August 25, 1994.
2.2 -- Agreement and Plan of Merger, dated as of December 19, 1996, by
and among America West Holdings -- Corporation ("Holdings"), AWA
and AWA Merger, Inc., with an effective date and time as of
midnight on December 31, 1996 -- Incorporated by reference to
Exhibit 2.1 to Holdings' Registration Statement on Form 8-B dated
January 13, 1997.
3.1 -- Restated Certificate of Incorporation of AWA (included in Exhibit
2.2 above).
3.2 -- Restated Bylaws of AWA -- Incorporated by reference to AWA's
Annual Report on Form 10-K dated December 31, 1994.
3.3 -- Section 4.18 of the Restated Bylaws of AWA (included in Exhibit
2.2 above).
68
<PAGE> 69
EXHIBIT
NUMBER TITLE
------ -----
3.4 -- Certificate of Incorporation of Holdings (filed with the
Secretary of State of the State of Delaware on December 13, 1996)
-- Incorporated by reference to Exhibit 3.1 of Holdings'
Registration Statement on Form 8-B dated January 13, 1997.
3.5 -- Bylaws of Holdings -- Incorporated by reference to Exhibit 3.2 to
Holdings' Registration Statement on Form 8-B dated January 13,
1997.
4.1 -- Indenture for 10 3/4% Senior Unsecured Notes due 2003 --
Incorporated by reference to AWA's Form S-4 (No. 33-61099).
4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).
4.3 -- Warrant Agreement dated August 25, 1994 between AWA and First
Interstate, N.A., as Warrant Agent -- Incorporated by reference
to Exhibit 4.3 to AWA's Current Report on Form 8-K dated August
25, 1994.
4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
4.5 -- Supplemental Warrant Agreement dated effective as of December 31,
1996 between AWA and Harris Trust Company of California, as
Warrant Agent -- Incorporated by reference to Exhibit 4.3 to
Holdings' Registration Statement on Form 8-B dated January 13,
1997.
4.6 -- Stockholders' Agreement for Holdings effective as of December 31,
1996 by and among TPG Partners, L.P., TPG Parallel I, L.P., Air
Partners II, L.P., Continental Airlines, Inc., Mesa Air Group,
Inc., Robert A. Ewert, David T. Obergfell, William A. Franke,
Holdings and AWA. -- Incorporated by reference to Exhibit 4.6 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
4.7 -- Stock Option Agreement dated effective as of December 31, 1996,
between Holdings and AWA " Incorporated by reference to Exhibit
4.5 to Holdings' Registration Statement on Form 8-B dated January
13, 1997.
4.8 -- Registration Rights Agreement dated August 25, 1994 among AWA,
AmWest Partners, L.P. and other holders -- Incorporated by
reference to Exhibit 4.6 to the AWA's Current Report on Form 8-K
dated August 25, 1994.
4.9 -- Assumption of Certain Obligations Under Registration Rights
Agreement executed by Holdings for the benefit of TPG Partners,
L.P., TPG Parallel I, L.P., Air Partners II, L.P., Continental
Airlines, Inc., Mesa Airlines, Inc., Lehman Brothers, Inc.,
Belmont Capital Partners II, L.P. and Belmont Fund, L.P. --
Incorporated by reference to Exhibit 4.7 to Holdings'
Registration Statement on Form 8-B dated January 13, 1997.
4.10 -- Form of Pass Through Trust Agreement, dated as of November 26,
1996, between AWA and Fleet National Bank, as Trustee --
Incorporated by reference to AWA's Report on Form 8-K dated
November 26, 1996.
4.11 -- Put Termination Agreement, dated as of November 26, 1996 among
GPA Group plc, GPA Leasing USA I, Inc., GPA Leasing USA Sub I,
Inc. and AWA. -- Incorporated by reference to Exhibit 4.11 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996.
69
<PAGE> 70
EXHIBIT
NUMBER TITLE
------ -----
10.1 -- Alliance Agreements dated August 25, 1994 between AWA and
Continental Airlines, Inc. including the Master Ground Handling
Agreement, the Reciprocal Frequent Flyer Participation Agreement,
the Code Sharing Agreement, the Cargo Special Pro-Rate Agreement,
the Reciprocal Club Usage Agreement and the Memorandum of
Understanding Concerning Technology Transfers -- Incorporated by
reference to Exhibit 10.12 to AWA's Current Report on Form 8-K
dated August 25, 1994.
10.2 -- Service Agreement dated September 4, 1992, as amended on March
31, 1993, July 31, 1993 and August 25, 1994, between AWA and Mesa
Airlines Inc. -- Incorporated by reference to Exhibit 10.12 to
AWA's Current Report on Form 8-K dated August 25, 1994.
10.3 -- Third Revised Investment Agreement dated April 21, 1994 between
AWA and AmWest Partners, L.P. -- Incorporated by reference to
Exhibit 10.A to AWA's Quarterly Report on Form 10-Q for the
period ended March 31, 1994.
10.4 -- Third Revised Interim Procedures Agreement dated April 21, 1994
between AWA's and AmWest Partners, L.P. -- Incorporated by
reference to AWA's Annual Report on Form 10-K for the year ended
December 31, 1993.
+10.6 -- America West Airlines Management Resignation Allowance
Guidelines, as amended, dated November 18, 1993 -- Incorporated
by Reference to AWA's Registration Statement on Form S-1 (No.
33-54243), as amended.
10.10 -- Official Statement dated August 11, 1986 for the $54,000,000
Variable Rate Airport Facility Revenue Bonds -- Incorporated by
reference to Exhibit 10.e to AWA's Quarterly Report on Form 10-Q
for the period ended September 30, 1986.
10.11 -- Airport Use Agreement dated July 1, 1989 among the City of
Phoenix, The Industrial Development Authority of the City of
Phoenix, Arizona and AWA -- Incorporated by reference to Exhibit
10-D(9) to AWA's Annual Report on Form 10-K for the year ended
December 31, 1989.
10.12 -- First Amendment dated August 1, 1990 to Airport Use Agreement
Incorporated by reference to -- Exhibit 10-(D) (9) to AWA's
Quarterly Report on Form 10-Q for the period ended September 30,
1990.
+10.18 -- Key Employee Protection Agreement dated as of June 27, 1994
between AWA and William A. Franke -- Incorporated by reference to
AWA's Registration Statement on Form S-1 (No. 33-54243), as
amended.
10.19 -- Management Rights Agreement dated August 25, 1994 between TPG
Partners L.P., TPG Genpar, L.P. and AWA -- Incorporated by
reference to AWA's Registration Statement on Form S-1 (No.
33-54243), as amended.
10.20 -- V2500-A5 Support Contract dated December 23, 1994 between AWA
and IAE International Aero Engines AG, as amended, together with
Side Letters Nos. 1 and 2 -- Incorporated by reference to AWA's
Annual Report on Form 10-K for the year ended December 31, 1994.
+10.21 -- America West 1994 Incentive Equity Plan, as restated on
December 19, 1996 -- Incorporated by reference to Exhibit 10.41
to Holdings' Registration Statement on Form 8-B dated January 13,
1997.
70
<PAGE> 71
EXHIBIT
NUMBER TITLE
------ -----
+10.22 -- First Amendment to America West 1994 Incentive Equity Plan,
as restated, dated January 1, 1997. -- Incorporated by reference
to Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
+10.23 -- Employment Agreement dated as of February 15, 1997 among
Holdings, AWA and William A. Franke. -- Incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
+10.24 -- Employment Agreement dated as of February 15, 1997 among
Holdings, AWA and Richard R. Goodmanson. -- Incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.25 -- Airbus A320/A319 Purchase Agreement dated September 12, 1997
between AVSA S.A.R.L and AWA including Letter Agreements Nos.
1-10 -- Incorporated by reference to Exhibit 10-26 to Holdings'
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
*10.26 -- Revolving Credit Agreement dated as of December 12, 1997
among AWA and The Industrial Bank of -- Japan, Limited, Los
Angeles Agency as Agent for the Banks.
*11.1 -- Statement regarding computation of net income per common share.
*21.1 -- Subsidiaries of Holdings
23.1 -- Consent of KPMG Peat Marwick LLP included on page 76 of the
Annual Report on Form 10-K.
24.1 -- Power of Attorney, pursuant to which amendments to this Annual
Report on Form 10-K may be filed, is included on the signature
pages of this Annual Report on Form 10-K.
*27.1 -- Financial Data Schedule.
*27.2 -- Restated Financial Data Schedule.
- ----------
* Filed herewith.
+ Represents a management contract or compensatory plan or arrangement.
(d) Financial Statement Schedules.
America West Holdings Corporation
Independent Auditors' Report on Schedule and Consent -- page 76.
Schedule II: Valuation and Qualifying Accounts -- page 77.
America West Airlines, Inc.
Independent Auditors' Report on Schedule -- page 78.
Schedule II: Valuation and Qualifying Accounts -- page 79.
All other information and schedules have been omitted as not
applicable or because the required information is included in the
financial statements or notes thereto.
71
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, America West Holdings Corporation
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICA WEST HOLDINGS CORPORATION
Date: March 31, 1998 By: /s/ William A. Franke
---------------------------------
William A. Franke,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned, directors and officers of America West
Holdings Corporation, do hereby severally constitute and appoint William A.
Franke, W. Douglas Parker and Stephen L. Johnson and each or any of them, our
true and lawful attorneys and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, and to file the
same with all exhibits thereto, and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys and
agents, and each or any of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys and agents, and each of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed by the following persons on behalf
of the registrant and in the capacities indicated on March 31, 1998.
Signature Title
--------- -----
/s/ William A. Franke Chairman of the Board and Chief Executive Officer
- -------------------------- (Principal Executive Officer)
William A. Franke
/s/ Richard R. Goodmanson President and Director
- --------------------------
Richard R. Goodmanson
/s/ W. Douglas Parker Senior Vice President and Chief Financial Officer
- -------------------------- (Principal Financial and Accounting Officer)
W. Douglas Parker
/s/ Julia Chang Bloch Director
- --------------------------
Julia Chang Bloch
/s/ Stephen F. Bollenbach Director
- --------------------------
Stephen F. Bollenbach
72
<PAGE> 73
/s/ Frederick W. Bradley, Jr. Director
- -----------------------------
Frederick W. Bradley, Jr.
/s/ James G. Coulter Director
- -----------------------------
James G. Coulter
/s/ John F. Fraser Director
- -----------------------------
John F. Fraser
/s/ John L. Goolsby Director
- -----------------------------
John L. Goolsby
/s/ Richard C. Kraemer Director
- -----------------------------
Richard C. Kraemer
Director
- -----------------------------
John R. Power, Jr.
/s/ Frank B. Ryan Director
- -----------------------------
Frank B. Ryan
/s/ Richard P. Schifter Director
- -----------------------------
Richard P. Schifter
/s/ John F. Tierney Director
- -----------------------------
John F. Tierney
73
<PAGE> 74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, America West Airlines, Inc. has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICA WEST AIRLINES, INC.
Date: March 31, 1998 By: /s/ William A. Franke
-------------------------------
William A. Franke,
Chairman of the Board
POWER OF ATTORNEY
We, the undersigned, directors and officers of America West
Airlines, Inc., do hereby severally constitute and appoint William A. Franke, W.
Douglas Parker and Stephen L. Johnson and each or any of them, our true and
lawful attorneys and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, and to file the same with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys and agents, and
each or any of them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys and agents, and each of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed by the following persons on behalf
of the registrant and in the capacities indicated on March 31, 1998.
Signature Title
--------- -----
/s/ William A. Franke Chairman of the Board
- -----------------------------
William A. Franke
/s/ Richard R. Goodmanson President and Director and Chief Executive Officer
- -----------------------------
Richard R. Goodmanson
/s/ W. Douglas Parker Senior Vice President and Chief Financial Officer
- ----------------------------- (Principal Financial Officer)
W. Douglas Parker
/s/ Michael R. Carreon Vice President and Controller
- ----------------------------- (Principal Accounting Officer)
Michael R. Carreon
/s/ Julia Chang Bloch Director
- -----------------------------
Julia Chang Bloch
74
<PAGE> 75
Signature Title
--------- -----
/s/ Stephen F. Bollenbach Director
- -----------------------------
Steven F. Bollenbach
/s/ Frederick W. Bradley, Jr. Director
- -----------------------------
Frederick W. Bradley, Jr.
/s/ James G. Coulter Director
- -----------------------------
James G. Coulter
/s/ John F. Fraser Director
- -----------------------------
John F. Fraser
/s/ John L. Goolsby Director
- -----------------------------
John L. Goolsby
/s/ Richard C. Kraemer Director
- -----------------------------
Richard C. Kraemer
Director
- -----------------------------
John R. Power, Jr.
/s/ Frank B. Ryan Director
- -----------------------------
Frank B. Ryan
/s/ Richard P. Schifter Director
- -----------------------------
Richard P. Schifter
/s/ John F. Tierney Director
- -----------------------------
John F. Tierney
75
<PAGE> 76
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors and Stockholders
America West Holdings Corporation:
The audits referred to in our report dated February 27, 1998,
included the related consolidated financial statement schedule as listed in Item
14(d) for the years ended December 31, 1997, 1996 and 1995, included herein. The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
We consent to incorporation by reference in the Registration
Statements (Form S-8 No. 33-60555) and (Form S-3 No. 333-02129) of America West
Holdings Corporation of our report dated February 27, 1998, relating to the
consolidated balance sheets of America West Holdings Corporation and subsidiary
as of December 31, 1997 and 1996, and the related consolidated statements of
income, cash flows and stockholders' equity for each of the years in the
three-year period ended December 31, 1997 and the related consolidated financial
statement schedule, which report appears in the December 31, 1997, annual report
on Form 10-K of America West Holdings Corporation.
KPMG Peat Marwick LLP
Phoenix, Arizona
March 30, 1998
76
<PAGE> 77
AMERICA WEST HOLDINGS CORPORATION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
Year ended December 31, 1997 ....... $3,091 $3,000 $2,241 $3,850
====== ====== ====== ======
Year ended December 31, 1996 ....... $2,515 $2,950 $2,374 $3,091
====== ====== ====== ======
Year ended December 31, 1995 ....... $3,531 $2,600 $3,616 $2,515
====== ====== ====== ======
Allowance for obsolescence:
Year ended December 31, 1997 ....... $1,713 $1,159 $ 377 $2,495
====== ====== ====== ======
Year ended December 31, 1996 ....... $2,115 $1,523 $1,925 $1,713
====== ====== ====== ======
Year ended December 31, 1995 ....... $ 483 $1,664 $ 32 $2,115
====== ====== ====== ======
</TABLE>
77
<PAGE> 78
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholder
America West Airlines, Inc.:
The audits referred to in our report dated February 27, 1998,
included the related financial statement schedule as listed in Item 14(d) for
the years ended December 31, 1997, 1996 and 1995, included herein. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Phoenix, Arizona
March 30, 1998
78
<PAGE> 79
AMERICA WEST AIRLINES, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
Year ended December 31, 1997 ....... $3,091 $3,000 $2,241 $3,850
====== ====== ====== ======
Year ended December 31, 1996 ....... $2,515 $2,950 $2,374 $3,091
====== ====== ====== ======
Year ended December 31, 1995 ....... $3,531 $2,600 $3,616 $2,515
====== ====== ====== ======
Allowance for obsolescence:
Year ended December 31, 1997 ....... $1,713 $1,159 $ 377 $2,495
====== ====== ====== ======
Year ended December 31, 1996 ....... $2,115 $1,523 $1,925 $1,713
====== ====== ====== ======
Year ended December 31, 1995 ....... $ 483 $1,664 $ 32 $2,115
====== ====== ====== ======
</TABLE>
79
<PAGE> 80
EXHIBIT INDEX
EXHIBIT
NUMBER TITLE
------ -----
2.1 -- Plan of Reorganization of America West Airlines, Inc. ("AWA"), as
amended under Chapter 11 of the Bankruptcy Code, as amended --
Incorporated by reference to Exhibit 1 of AWA's Current Report on
Form 8-K dated August 25, 1994.
2.2 -- Agreement and Plan of Merger, dated as of December 19, 1996, by
and among America West Holdings -- Corporation ("Holdings"), AWA
and AWA Merger, Inc., with an effective date and time as of
midnight on December 31, 1996 -- Incorporated by reference to
Exhibit 2.1 to Holdings' Registration Statement on Form 8-B dated
January 13, 1997.
3.1 -- Restated Certificate of Incorporation of AWA (included in Exhibit
2.2 above).
3.2 -- Restated Bylaws of AWA -- Incorporated by reference to AWA's
Annual Report on Form 10-K dated December 31, 1994.
3.3 -- Section 4.18 of the Restated Bylaws of AWA (included in Exhibit
2.2 above).
<PAGE> 81
EXHIBIT
NUMBER TITLE
------ -----
3.4 -- Certificate of Incorporation of Holdings (filed with the
Secretary of State of the State of Delaware on December 13, 1996)
-- Incorporated by reference to Exhibit 3.1 of Holdings'
Registration Statement on Form 8-B dated January 13, 1997.
3.5 -- Bylaws of Holdings -- Incorporated by reference to Exhibit 3.2 to
Holdings' Registration Statement on Form 8-B dated January 13,
1997.
4.1 -- Indenture for 10 3/4% Senior Unsecured Notes due 2003 --
Incorporated by reference to AWA's Form S-4 (No. 33-61099).
4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).
4.3 -- Warrant Agreement dated August 25, 1994 between AWA and First
Interstate, N.A., as Warrant Agent -- Incorporated by reference
to Exhibit 4.3 to AWA's Current Report on Form 8-K dated August
25, 1994.
4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
4.5 -- Supplemental Warrant Agreement dated effective as of December 31,
1996 between AWA and Harris Trust Company of California, as
Warrant Agent -- Incorporated by reference to Exhibit 4.3 to
Holdings' Registration Statement on Form 8-B dated January 13,
1997.
4.6 -- Stockholders' Agreement for Holdings effective as of December 31,
1996 by and among TPG Partners, L.P., TPG Parallel I, L.P., Air
Partners II, L.P., Continental Airlines, Inc., Mesa Air Group,
Inc., Robert A. Ewert, David T. Obergfell, William A. Franke,
Holdings and AWA. -- Incorporated by reference to Exhibit 4.6 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
4.7 -- Stock Option Agreement dated effective as of December 31, 1996,
between Holdings and AWA " Incorporated by reference to Exhibit
4.5 to Holdings' Registration Statement on Form 8-B dated January
13, 1997.
4.8 -- Registration Rights Agreement dated August 25, 1994 among AWA,
AmWest Partners, L.P. and other holders -- Incorporated by
reference to Exhibit 4.6 to the AWA's Current Report on Form 8-K
dated August 25, 1994.
4.9 -- Assumption of Certain Obligations Under Registration Rights
Agreement executed by Holdings for the benefit of TPG Partners,
L.P., TPG Parallel I, L.P., Air Partners II, L.P., Continental
Airlines, Inc., Mesa Airlines, Inc., Lehman Brothers, Inc.,
Belmont Capital Partners II, L.P. and Belmont Fund, L.P. --
Incorporated by reference to Exhibit 4.7 to Holdings'
Registration Statement on Form 8-B dated January 13, 1997.
4.10 -- Form of Pass Through Trust Agreement, dated as of November 26,
1996, between AWA and Fleet National Bank, as Trustee --
Incorporated by reference to AWA's Report on Form 8-K dated
November 26, 1996.
4.11 -- Put Termination Agreement, dated as of November 26, 1996 among
GPA Group plc, GPA Leasing USA I, Inc., GPA Leasing USA Sub I,
Inc. and AWA. -- Incorporated by reference to Exhibit 4.11 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996.
<PAGE> 82
EXHIBIT
NUMBER TITLE
------ -----
10.1 -- Alliance Agreements dated August 25, 1994 between AWA and
Continental Airlines, Inc. including the Master Ground Handling
Agreement, the Reciprocal Frequent Flyer Participation Agreement,
the Code Sharing Agreement, the Cargo Special Pro-Rate Agreement,
the Reciprocal Club Usage Agreement and the Memorandum of
Understanding Concerning Technology Transfers -- Incorporated by
reference to Exhibit 10.12 to AWA's Current Report on Form 8-K
dated August 25, 1994.
10.2 -- Service Agreement dated September 4, 1992, as amended on March
31, 1993, July 31, 1993 and August 25, 1994, between AWA and Mesa
Airlines Inc. -- Incorporated by reference to Exhibit 10.12 to
AWA's Current Report on Form 8-K dated August 25, 1994.
10.3 -- Third Revised Investment Agreement dated April 21, 1994 between
AWA and AmWest Partners, L.P. -- Incorporated by reference to
Exhibit 10.A to AWA's Quarterly Report on Form 10-Q for the
period ended March 31, 1994.
10.4 -- Third Revised Interim Procedures Agreement dated April 21, 1994
between AWA's and AmWest Partners, L.P. -- Incorporated by
reference to AWA's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.6 -- America West Airlines Management Resignation Allowance
Guidelines, as amended, dated November 18, 1993 -- Incorporated
by Reference to AWA's Registration Statement on Form S-1 (No.
33-54243), as amended.
10.10 -- Official Statement dated August 11, 1986 for the $54,000,000
Variable Rate Airport Facility Revenue Bonds -- Incorporated by
reference to Exhibit 10.e to AWA's Quarterly Report on Form 10-Q
for the period ended September 30, 1986.
10.11 -- Airport Use Agreement dated July 1, 1989 among the City of
Phoenix, The Industrial Development Authority of the City of
Phoenix, Arizona and AWA -- Incorporated by reference to Exhibit
10-D(9) to AWA's Annual Report on Form 10-K for the year ended
December 31, 1989.
10.12 -- First Amendment dated August 1, 1990 to Airport Use Agreement
Incorporated by reference to -- Exhibit 10-(D) (9) to AWA's
Quarterly Report on Form 10-Q for the period ended September 30,
1990.
+10.18 -- Key Employee Protection Agreement dated as of June 27, 1994
between AWA and William A. Franke -- Incorporated by reference to
AWA's Registration Statement on Form S-1 (No. 33-54243), as
amended.
10.19 -- Management Rights Agreement dated August 25, 1994 between TPG
Partners L.P., TPG Genpar, L.P. and AWA -- Incorporated by
reference to AWA's Registration Statement on Form S-1 (No.
33-54243), as amended.
10.20 -- V2500-A5 Support Contract dated December 23, 1994 between AWA
and IAE International Aero Engines AG, as amended, together with
Side Letters Nos. 1 and 2 -- Incorporated by reference to AWA's
Annual Report on Form 10-K for the year ended December 31, 1994.
+10.21 -- America West 1994 Incentive Equity Plan, as restated on
December 19, 1996 -- Incorporated by reference to Exhibit 10.41
to Holdings' Registration Statement on Form 8-B dated January 13,
1997.
<PAGE> 83
EXHIBIT
NUMBER TITLE
------ -----
+10.22 -- First Amendment to America West 1994 Incentive Equity Plan,
as restated, dated January 1, 1997. -- Incorporated by reference
to Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
+10.23 -- Employment Agreement dated as of February 15, 1997 among
Holdings, AWA and William A. Franke. -- Incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
+10.24 -- Employment Agreement dated as of February 15, 1997 among
Holdings, AWA and Richard R. Goodmanson. -- Incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
*10.25 -- Revolving Credit Agreement dated as of December 12, 1997
among AWA and The Industrial Bank of -- Japan, Limited, Los
Angeles Agency as Agent for the Banks.
*10.26 -- Airbus A320/A319 Purchase Agreement dated September 12, 1997
between AVSA S.A.R.L and AWA including Letter Agreements Nos.
1-10 -- Incorporated by reference to Exhibit 10-26 to Holdings'
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
*11.1 -- Statement regarding computation of net income per common share.
*21.1 -- Subsidiaries of Holdings
23.1 -- Consent of KPMG Peat Marwick LLP included on page 76 of the
Annual Report on Form 10-K.
24.1 -- Power of Attorney, pursuant to which amendments to this Annual
Report on Form 10-K may be filed, is included on the signature
pages of this Annual Report on Form 10-K.
*27.1 -- Financial Data Schedule.
*27.2 -- Restated Financial Data Schedule.
- ----------
* Filed herewith.
+ Represents a management contract or compensatory plan or arrangement.
<PAGE> 1
Exhibit 10.25
Execution Copy
REVOLVING CREDIT AGREEMENT
DATED AS OF DECEMBER 12, 1997
AMONG
AMERICA WEST AIRLINES, INC.
AS THE COMPANY,
THE LENDERS LISTED HEREIN,
AS THE LENDERS,
AND
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY,
AS ARRANGER, INITIAL ISSUING BANK AND THE AGENT
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
SECTION 1. DEFINITIONS.................................................. 1
1.1 CERTAIN DEFINED TERMS.................................. 1
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR
PURPOSES OF CALCULATIONS UNDER AGREEMENT............... 30
1.3 OTHER DEFINITIONAL PROVISIONS.......................... 30
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS................... 30
2.1 COMMITMENTS; MAKING OF REVOLVING LOANS AND
CONVERSION INTO TERM LOANS; NOTES; REGISTER............ 30
A. COMMITMENTS........................................ 30
B. BORROWING MECHANICS................................ 32
C. DISBURSEMENT OF FUNDS.............................. 32
D. NOTES.............................................. 33
E. THE REGISTER....................................... 34
2.2 INTEREST ON THE LOANS................................... 34
A. RATE OF INTEREST................................... 34
B. INTEREST PERIODS................................... 35
C. INTEREST PAYMENTS.................................. 36
D. CONVERSION OR CONTINUATION......................... 36
E. DEFAULT RATE....................................... 37
COMPUTATION OF INTEREST................................ 37
2.3 FEES.................................................... 38
A. COMMITMENT FEES.................................... 38
B. CONVERSION FEE..................................... 38
C. LETTER OF CREDIT FEES.............................. 38
D. AGENT'S FEES....................................... 38
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN
REVOLVING LOAN COMMITMENTS; GENERAL
PROVISIONS REGARDING PAYMENTS.......................... 39
A. SCHEDULED TERM LOAN PRINCIPAL PAYMENTS............. 39
B. PREPAYMENTS AND UNSCHEDULED REDUCTIONS
IN REVOLVING LOAN COMMITMENTS...................... 39
C. GENERAL PROVISIONS REGARDING PAYMENTS.............. 45
2.5 USE OF PROCEEDS......................................... 46
A. GENERAL CORPORATE PURPOSES......................... 46
B. MARGIN REGULATIONS................................. 46
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE
LOANS.................................................. 47
A. DETERMINATION OF APPLICABLE INTEREST RATE.......... 47
B. INABILITY TO DETERMINE APPLICABLE
INTEREST RATE...................................... 47
C. ILLEGALITY OR IMPRACTICABILITY OF
EURODOLLAR RATE LOANS.............................. 47
D. COMPENSATION FOR BREAKAGE OR
NON-COMMENCEMENT OF INTEREST PERIODS............... 48
E. BOOKING OF EURODOLLAR RATE LOANS................... 49
F. ASSUMPTIONS CONCERNING FUNDING OF
EURODOLLAR RATE LOANS.............................. 49
G. EURODOLLAR RATE LOANS AFTER DEFAULT................ 49
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY................ 49
A. COMPENSATION FOR INCREASED COSTS AND
TAXES.............................................. 49
B. WITHHOLDING OF TAXES............................... 50
C. CAPITAL ADEQUACY ADJUSTMENT........................ 52
D. SUBSTITUTE LENDERS................................. 53
2.8 OBLIGATION OF LENDERS TO MITIGATE....................... 53
2.9 LETTERS OF CREDIT....................................... 54
2.10 BORROWING BASE.......................................... 61
A. BORROWING BASE..................................... 61
B. COLLATERAL......................................... 61
C. APPROVED APPRAISAL AND APPRAISERS.................. 63
D. BORROWING BASE CERTIFICATE......................... 64
SECTION 3. CONDITIONS TO LOANS AND CONVERSION OF LOANS.................. 65
3.1 CONDITIONS TO CLOSING DATE.............................. 65
A. COMPANY DOCUMENTS.................................. 65
B. NECESSARY CONSENTS................................. 66
C. FINANCIAL CONDITION CERTIFICATE.................... 66
D. OPINIONS OF COMPANY'S COUNSEL...................... 66
E. OPINIONS OF GENERAL COUNSEL........................ 66
F. OPINIONS OF ARIZONA COUNSEL........................ 66
G. OPINIONS OF FAA COUNSEL............................ 66
H. FEES............................................... 67
I. EVIDENCE OF INSURANCE.............................. 67
J. REPRESENTATIONS AND WARRANTIES;
PERFORMANCE OF AGREEMENTS.......................... 67
K. COMPLIANCE CERTIFICATE............................. 67
L. COMPLETION OF PROCEEDINGS.......................... 67
M. APPRAISAL AND BORROWING BASE
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
CERTIFICATE........................................ 67
N. ELIGIBLE ASSETS.................................... 67
O. SECURITY AGREEMENTS................................ 68
P. CONSENTS........................................... 68
3.2 CONDITIONS TO ALL LOANS................................. 68
A. CONDITIONS TO ALL LOANS............................ 68
B. ADDITIONAL COLLATERAL.............................. 70
3.3 CONDITIONS TO CONVERSION OF REVOLVING LOANS
INTO TERM LOANS......................................... 70
SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES..................... 72
4.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD
STANDING, BUSINESS AND SUBSIDIARIES.................... 72
A. ORGANIZATION AND POWERS............................ 72
B. QUALIFICATION AND GOOD STANDING; AIR
CARRIER CERTIFICATION.............................. 72
C. SUBSIDIARIES....................................... 72
4.2 AUTHORIZATION OF BORROWING, ETC......................... 73
A. AUTHORIZATION OF BORROWING......................... 73
B. NO CONFLICT........................................ 73
C. GOVERNMENTAL CONSENTS.............................. 73
D. BINDING OBLIGATION................................. 74
4.3 FINANCIAL CONDITION..................................... 74
4.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED
PAYMENTS................................................ 74
4.5 TITLE TO PROPERTIES; LIENS.............................. 75
4.6 LITIGATION; ADVERSE FACTS............................... 75
4.7 PAYMENT OF TAXES........................................ 75
4.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE
AGREEMENTS.............................................. 76
4.9 GOVERNMENTAL REGULATION................................. 76
4.10 SECURITIES ACTIVITIES................................... 76
4.11 EMPLOYEE BENEFIT PLANS.................................. 76
4.12 ENVIRONMENTAL PROTECTION................................ 77
4.13 SOLVENCY................................................ 78
4.14 DISCLOSURE.............................................. 78
SECTION 5. COMPANY'S AFFIRMATIVE COVENANTS.............................. 79
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.................. 79
5.2 CORPORATE EXISTENCE..................................... 84
5.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.......... 84
5.4 MAINTENANCE OF PROPERTIES; INSURANCE.................... 84
5.5 INSPECTION.............................................. 85
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
5.6 COMPLIANCE WITH LAWS, ETC............................... 85
5.7 COMPANY'S REMEDIAL ACTION REGARDING HAZARDOUS
MATERIALS............................................... 85
5.8 FURTHER ASSURANCES...................................... 86
5.9 EMPLOYEE BENEFIT PLANS.................................. 86
5.10 FAA MATTERS; CITIZENSHIP................................. 86
5.11 CHANGES IN GAAP.......................................... 87
SECTION 6. COMPANY'S NEGATIVE COVENANTS................................. 87
6.1 RESERVED................................................. 87
6.2 LIENS AND RELATED MATTERS............................... 87
A. PROHIBITION ON LIENS............................... 87
B. NO RESTRICTIONS ON SUBSIDIARY
DISTRIBUTIONS TO COMPANY OR OTHER
SUBSIDIARIES....................................... 88
6.3 INVESTMENTS............................................. 88
6.4 RESTRICTED PAYMENTS..................................... 88
6.5 FINANCIAL COVENANTS..................................... 89
A. [*] ................ 89
B. [*] ................ 89
C. [*] ................ 89
D. [*] ................ 89
E. [*] ................ 89
6.6 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET
SALES AND ACQUISITIONS; NEW SUBSIDIARIES............... 90
6.7 SALES AND LEASE-BACKS................................... 91
6.8 TRANSACTIONS WITH AFFILIATES............................ 91
6.9 CONDUCT OF BUSINESS..................................... 92
6.10 MERGER OR CONSOLIDATION................................. 92
6.11 LIMITATION ON ASSET SALES............................... 93
6.12 LIMITATION ON ISSUANCES AND DISPOSITIONS OF
CAPITAL STOCK OF SUBSIDIARIES........................... 93
6.13 LIMITATION ON CREATION OF NEW SUBSIDIARIES............... 94
SECTION 7. EVENTS OF DEFAULT............................................ 94
7.1 FAILURE TO MAKE PAYMENTS WHEN DUE....................... 94
7.2 DEFAULT IN OTHER AGREEMENTS............................. 94
7.3 BREACH OF CERTAIN COVENANTS............................. 95
7.4 BREACH OF WARRANTY...................................... 95
7.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS..................... 95
7.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF
RECEIVER, ETC........................................... 95
</TABLE>
[*] Confidential Treatment Requested
-iv-
<PAGE> 6
<TABLE>
<S> <C> <C>
7.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF
RECEIVER, ETC........................................... 96
7.8 JUDGMENTS AND ATTACHMENTS............................... 96
7.9 DISSOLUTION............................................. 96
7.10 RESERVED................................................ 96
7.11 FAILURE OF SECURITY..................................... 96
SECTION 8. AGENT........................................................ 97
8.1 APPOINTMENT............................................. 97
8.2 POWERS AND DUTIES; GENERAL IMMUNITY..................... 98
A. POWERS; DUTIES SPECIFIED........................... 98
B. NO RESPONSIBILITY FOR CERTAIN MATTERS.............. 98
C. EXCULPATORY PROVISIONS............................. 98
D. AGENT ENTITLED TO ACT AS LENDER.................... 99
8.3 REPRESENTATIONS AND WARRANTIES; NO RELIANCE............. 99
8.4 RIGHT TO INDEMNITY...................................... 99
8.5 SECURITY AGREEMENTS..................................... 100
8.6 SUCCESSOR AGENT......................................... 100
SECTION 9. MISCELLANEOUS................................................ 101
9.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS................. 101
A. GENERAL............................................ 101
B. ASSIGNMENTS........................................ 101
C. PARTICIPATIONS..................................... 103
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS............... 103
E. INFORMATION........................................ 103
9.2 EXPENSES................................................ 104
9.3 INDEMNITY............................................... 104
9.4 SET-OFF................................................. 105
9.5 RATABLE SHARING......................................... 105
9.6 AMENDMENTS AND WAIVERS.................................. 106
9.7 INDEPENDENCE OF COVENANTS............................... 107
9.8 NOTICES................................................. 108
9.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.............................................. 108
9.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES
CUMULATIVE.............................................. 108
9.11 MARSHALLING; PAYMENTS SET ASIDE......................... 108
9.12 SEVERABILITY............................................ 109
9.13 OBLIGATIONS SEVERAL; INDEPENDENT
NATURE OF LENDERS' RIGHTS............................... 109
</TABLE>
-v-
<PAGE> 7
<TABLE>
<S> <C> <C>
9.14 HEADINGS............................................... 109
9.15 APPLICABLE LAW......................................... 109
9.16 SUCCESSORS AND ASSIGNS................................. 110
9.17 CONSENT TO JURISDICTION AND SERVICE OF
PROCESS................................................ 110
9.18 WAIVER OF JURY TRIAL................................... 110
9.19 CONFIDENTIALITY........................................ 111
9.20 COUNTERPARTS; EFFECTIVENESS............................ 111
9.21 INTEGRATION............................................ 111
</TABLE>
-vi-
<PAGE> 8
AMERICA WEST AIRLINES, INC.
REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT is dated as of December 12, 1997 and
entered into by and among AMERICA WEST AIRLINES, INC., a Delaware corporation
(the "COMPANY"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF
(each individually referred to herein as a "LENDER" and collectively, together
with the other institutions that become lenders pursuant to subsection 9.1, as
the "LENDERS"), THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY, as
initial issuing bank (the "INITIAL ISSUING BANK") and as Arranger and Agent for
the Lenders (in such last capacity, the "AGENT").
R E C I T A L S
WHEREAS, the Lenders and the Agent wish to provide the Company a
revolving and term loan facility under and subject to the terms provided herein;
NOW THEREFORE, in consideration of the premises and agreements,
provisions and covenants herein contained, the Company, the Issuing Bank, the
Lenders and the Agent hereby agree as follows:
SECTION 1.
DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
The following terms used in this Agreement shall have the following
meanings:
"ACT" means Subtitle VII of Title 49 of the United States Code, and the
rules and regulations promulgated thereunder, as in effect on the date hereof,
and as modified or amended hereafter, or any subsequent legislation that
supplements or supersedes such Subtitle.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any Person for any
period, the aggregate net income (or loss) of such Person and its consolidated
Subsidiaries for such period determined in accordance with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of any Person (other
than a Subsidiary of such first Person) in which any other Person (other than
such first Person or any of its Subsidiaries) has a joint or shared interest,
except to the extent of the amount of cash dividends or other distributions
actually paid to, and received by, such first Person or any of its Subsidiaries
during such period out of funds legally available therefor; (ii) the net income
(or loss) of any Person accrued prior to the date
-1-
<PAGE> 9
it becomes a Subsidiary of such first Person or any of its Subsidiaries or all
or substantially all of the property and assets of such Person are acquired by
such first Person or any of its Subsidiaries; (iii) the net income (or loss) of
any Subsidiary of such first Person which Subsidiary is subject to a Payment
Restriction, except (A) such exclusion shall not apply to the extent of the
amount of cash dividends or other distributions actually paid to, and received
by, such first Person or any of its Subsidiaries during such period from such
Subsidiary in compliance with such Payment Restriction out of funds legally
available therefor and (B) such exclusion shall apply only while such Payment
Restriction is in effect, and upon the elimination or reduction of such Payment
Restriction, the previously excluded net income (or loss) shall be added back
retroactively; (iv) any gains or losses (on an after-tax basis) attributable to
Asset Sales; and (v) all net extraordinary gains and extraordinary losses.
"ADJUSTED DEBT" of any Person means at any date Indebtedness (including
Guarantees) plus (without duplication) the net present value of all remaining
future minimum aircraft lease payments under noncancelable Operating Leases
discounted at an annual rate of ten percent.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination
Date, the rate per annum obtained by dividing (i) the numeric average of the
quotes (expressed as a rate per annum and rounded upward to the nearest l/16 of
one percent) appearing on the Reuters LIBO Screen (or such other screen as may,
in the opinion of the Agent, replace such screen on that system for the purpose
of displaying such rate) at or about 11:00 a.m. (London time) on such Interest
Rate Determination Date for U.S. dollar deposits of amounts in same day funds
comparable to the principal amount of the Eurodollar Rate Loans for which the
Adjusted Eurodollar Rate is then being determined with maturities comparable to
the Interest Period for which such Adjusted Eurodollar Rate will apply by (ii) a
percentage equal to 100% minus the stated maximum rate of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) applicable on such Interest Rate
Determination Date to any member bank of the Federal Reserve System in respect
of "Eurodollar liabilities" as defined in Regulation D (or any successor
category of liabilities under Regulation D) for such Interest Period, and if
such rate quotation cannot be obtained by the Agent, the rate per annum obtained
by dividing (i) the arithmetic average (rounded upward to the nearest l/16 of
one percent) of the offered quotation, if any, to first class banks in the
London interbank Eurodollar market by each of the Reference Lenders for U.S.
dollar deposits of amounts in same day funds comparable to the principal amount
of the Eurodollar Rate Loans for which the Adjusted Eurodollar Rate is then
being determined with maturities comparable to such Interest Period as of
approximately 10:00 A.M. (New York time) on such Interest Rate Determination
Date by (ii) a percentage equal to 100% minus the stated maximum rate of all
reserve requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) applicable on such Interest Rate
Determination Date to any member bank of the Federal Reserve System in respect
of "Eurocurrency liabilities" as defined in Regulation D (or any successor
category of liabilities under Regulation D) for such Interest Period; provided
that if any Reference Lender fails to
-2-
<PAGE> 10
provide the Agent with its aforementioned quotation then the Adjusted Eurodollar
Rate shall be determined based on the quotation provided by the Agent, and that,
if any, provided to the Agent by the other Reference Lender.
"ADJUSTMENT EVENT" means any event of loss or damage to Rotables which
causes a reduction in the book value of Rotables, as reasonably determined by
the Company, in excess of $5,000,000.
"AFFECTED LENDER" has the meaning assigned to that term in subsection
2.6C.
"AFFECTED LOANS" has the meaning assigned to that term in subsection 2.6C.
"AFFILIATE" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"AGENT" has the meaning assigned to that term in the introduction to this
Agreement and also means and includes any successor Agent appointed pursuant to
subsection 8.6.
"AGREEMENT" means this Revolving Loan Agreement dated as of December 12,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
"AIRCRAFT" means an Airframe together with the Engines identified
therewith in Schedule I of, or a supplement to, an Aircraft Security Agreement,
whether or not any of such Engines may at any time of determination be installed
on such Airframe or installed on any other airframe.
"AIRCRAFT RENTAL EXPENSE" means, for any period, the aggregate amount of
all rents expensed by the Company under all Operating Leases of aircraft and
spare aircraft engines to which the Company is a party.
"AIRCRAFT SECURITY AGREEMENT" means an Aircraft Security Agreement
substantially in the form of Exhibit A hereto, as such Aircraft Security
Agreement may be amended, restated, supplemented or otherwise modified from time
to time in accordance with the terms hereof and thereof.
"AIRFRAME" means each Airframe as defined in and from time to time subject
to the Aircraft Security Agreement.
-3-
<PAGE> 11
"ALLIANCE AGREEMENTS" means those certain business alliance agreements
among the Company, Continental Airlines, Inc. and Mesa Airlines, Inc. that
include, but are not limited to, code-sharing, frequent flyer, ground handling
and marketing agreements.
"AMENDED AND RESTATED NOTES" means (i) the promissory notes of the Company
amended and restated pursuant to subsection 2.1D(i) on the Conversion Date with
respect to the Term Loans and (ii) any promissory notes issued by the Company
pursuant to the last sentence of subsection 9.1B(i) in connection with
assignments of the Term Loan Commitments or Term Loans of any Lenders, in each
case substantially in the form of Exhibit III-B annexed hereto, as they may be
amended, supplemented or otherwise modified from time to time.
"APPLICABLE MARGIN" for each Base Rate Loan and Eurodollar Rate Loan shall
be the percentage set forth below for that type of Loan for the periods set
forth below, subject to adjustment, upward or downward, as shown below,
effective one Business Day following the announcement by Moody's or S&P of the
change in such agency's rating of the Company's senior unsecured debt
obligations giving rise to such adjustment:
<TABLE>
<CAPTION>
Revolving Period
Rating LIBOR Margin/Base Rate Margin
------ -----------------------------
<S> <C>
B3 or below by Moody's or [*]
B- or below by S&P
B 2 by Moody's or [*]
B by S&P
B 1 by Moody's or [*]
B+ by S&P
Ba3 by Moody's or [*]
BB- by S&P
Ba2 by Moody's or [*]
BB by S&P
Ba1 by Moody's or [*]
BB+ by S&P
Baa3 by Moody's or [*]
BBB- by S&P
Baa2 or higher by Moody's or [*]
BBB or higher by S&P
</TABLE>
[*] Confidential Treatment Requested
-4-
<PAGE> 12
<TABLE>
<CAPTION>
Term Period
Rating LIBOR Margin/Base Rate Margin
------ -----------------------------
<S> <C>
B3 or below by Moody's or [*]
B- or below by S&P
B2 by Moody's or [*]
B by S&P
B1 by Moody's or [*]
B+ by S&P
Ba3 by Moody's or [*]
BB- by S&P
Ba2 by Moody's or [*]
BB by S&P
Ba1 by Moody's or [*]
BB+ by S&P
Baa3 by Moody's or [*]
BBB- by S&P
Baa2 or higher by Moody's or [*]
BBB by S&P
</TABLE>
Upon a change in the rating of the Company's senior unsecured debt obligations
by Moody's or S&P, the Agent shall determine if there is a split rating. If so,
the more creditworthy of the two ratings shall be used to determine if the
rating of such obligations has changed in order to determine if an adjustment
shall be made, except that if the less creditworthy of the two ratings is two or
more rating categories below the more creditworthy rating, the applicable rating
shall be deemed to be the rating category which is one rating category below the
more creditworthy rating.
Notwithstanding the foregoing, the Applicable Margin shall equal the Commitment
Fee Rate for the portion of the Loans collateralized with Cash under the terms
of the Cash and Cash Equivalents Security Agreement.
"APPROVED APPRAISAL" has the meaning given such term in subsection 2.10.
"APPROVED APPRAISER" has the meaning given such term in subsection 2.10.
"ASSET SALE" means any sale, transfer or other disposition (including by
way of merger, consolidation, exchange of assets or sale-leaseback
transactions), in one transaction or a series of related transactions, by the
Company or any of its Subsidiaries to any Person other than the Company or any
of its Subsidiaries of (i) all or any of the Capital Stock of any Subsidiary of
the Company, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any
[*] Confidential Treatment Requested
-5-
<PAGE> 13
of its Subsidiaries or (iii) any other property and assets of the Company or any
of its Subsidiaries outside the ordinary course of business of the Company or
such Subsidiary and, in each case, that is not governed by the provisions of
subsection 6.08; provided that none of (A) sales or other dispositions of
inventory, receivables and other current assets, (B) sale or other dispositions
of surplus equipment, spare parts, expendable inventories, furniture or fixtures
in an aggregate amount not to exceed $10,000,000 in any Fiscal Year of the
Company, (C) sale leasebacks of aircraft (including aircraft engines installed
thereon) in the Company's fleet, spare aircraft engines, aircraft parts,
simulators and passenger loading bridges or other flight or ground equipment or
the Company's office building located at 222 South Mill Avenue, Tempe, Arizona
or (D) $20,000,000 of other sales in any Fiscal Year of the Company shall be
included within the meaning of "Asset Sale."
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the
form of Exhibit VI annexed hereto.
"BANKRUPTCY CODE" means Title 11 of the United States Code as now and
hereafter in effect, or any successor statute.
"BASE RATE" means, at any time, the higher of (x) the Prime Rate or (y)
the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate.
"BASE RATE LOANS" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in subsection 2.2A.
"BORROWING BASE" means --
(i) at any time before the Conversion Date, an aggregate amount equal to:
(A) [*] of the Dollar amount of Cash and Permitted Cash
Equivalents held by the Agent at such time in the Cash Collateral
Account, plus
(B) [*] of the Fair Market Value of all Stage III Aircraft as
stated in the then most recently delivered Approved Appraisal thereof,
plus
(C) [*] of the Fair Market Value of all Stage II Aircraft as
stated in the then most recently delivered Approved Appraisal thereof,
plus
(D) with respect to Rotables, [*] of the lower of (x) the then
Adjusted Fair Market Value of the Rotables (as hereinafter defined) and
(y) the book value of the Rotables as certified by the Company in the
then most recently delivered Borrowing Base Certificate; the "Adjusted
Fair Market Value of the Rotables" (1) on any date from and after the
date of the then most recently delivered Approved Appraisal (an
"Appraisal Date") and prior to the next succeeding date on which the
Company shall deliver a Borrowing Base Certificate, shall equal the
Fair Market Value of the Rotables as set forth in such Approved
Appraisal and
[*] Confidential Treatment Requested
-6-
<PAGE> 14
(2) on any date thereafter and prior to the date of the next succeeding
Approved Appraisal, shall equal the product of (x) the book value of
the Rotables, as set forth in the then most recently delivered
Borrowing Base Certificate, multiplied by (y) a fraction, of which the
numerator shall be the Fair Market Value of the Rotables, as of the
Appraisal Date referred to in clause (1) above, and the denominator
shall be the book value of the Rotables, as set forth in the Borrowing
Base Certificate delivered on or next preceding such Appraisal Date
provided, however, that for the period from and after the Closing Date
to the first Appraisal Date to occur thereafter, the fraction described
in (2)(y) above (expressed as a decimal) shall be [*], plus
(E) [*] of the Fair Market Value of the Hangar as stated in
the most recently delivered Approved Appraisal thereof, plus
(F) [*] of the Fair Market Value of the Simulators as stated
in the then most recently delivered Approved Appraisal, plus
(G) [*] of the Fair Market Value of the Spare Engines as
stated in the then most recently delivered Approved Appraisal; and
(ii) on and after the Conversion Date, an aggregate amount equal to:
(A) [*] of the Dollar amount of Cash and Permitted Cash
Equivalents held by the Agent at such time in the Cash Collateral
Account, plus
(B) [*] of the Fair Market Value of all Stage III Aircraft as
stated in the then most recently delivered Approved Appraisal thereof,
plus
(C) [*] of the Fair Market Value of all Stage II Aircraft as
stated in the then most recently delivered Approved Appraisal thereof,
plus
(D) with respect to Rotables, [*] of the lower of (x) the then
Adjusted Fair Market Value of the Rotables (as defined in clause (i)(D)
above) and (y) the book value of the Rotables as certified by the
Company in the then most recently delivered Borrowing Base Certificate,
plus
(E) [*] of the Fair Market Value of the Hangar as stated in
the most recently delivered Approved Appraisal thereof, plus
(F) [*] of the Fair Market Value of the Simulators as stated
in the then most recently delivered Approved Appraisal, plus
(G) [*] of the Fair Market Value of the Spare Engines as
stated in the then most recently delivered Approved Appraisal.
[*] Confidential Treatment Requested
-7-
<PAGE> 15
"BORROWING BASE CERTIFICATE" means a certificate substantially in the
form of Exhibit IX annexed hereto delivered by the Company pursuant to Section
2.10 with respect to the calculation of the Borrowing Base.
"BORROWING BASE COLLATERAL" means, at any time, Eligible Assets that
are subject to the Lien of a Security Agreement at such time.
"BORROWING BASE DEFICIENCY" means, at any time when the Borrowing Base,
as calculated in the Borrowing Base Certificate then most recently delivered, is
less than Outstanding Amounts, the amount of such deficiency.
"BORROWING BASE VALUE" means, with respect to any Borrowing Base
Collateral, the value attributed to such Borrowing Base Collateral from time to
time pursuant to the definition of Borrowing Base.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of New York, California or
Arizona or is a day on which banking institutions located in any such state are
authorized or required by law or other governmental action to close and, if the
applicable Business Day relates to any Eurodollar Rate Loan, on which dealings
are carried on in the London interbank market.
"CAPITAL LEASE", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is required to be accounted for as a capital lease on the
balance sheet of that Person, and the amount of Indebtedness represented by such
lease shall be the capitalized amount of the obligations evidenced thereby
determined in accordance with GAAP.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's capital stock, whether now outstanding or
issued after the date of this Agreement, including, without limitation, all
Common Stock.
"CASH" means money, currency or a credit balance.
"CASH AND CASH EQUIVALENT SECURITY AGREEMENT" means a Cash and Cash
Equivalent Security Agreement substantially in the form of Exhibit B hereto, as
such Cash and Cash Equivalent Security Agreement may be amended, restated,
supplemented or otherwise modified from time to time in accordance with the
terms hereof and thereof.
"CASH COLLATERAL ACCOUNT" has the meaning given such term in the Cash
and Cash Equivalent Security Agreement.
-8-
<PAGE> 16
"CASH COLLATERALIZED L/C FEE RATE" shall be the percentage set forth
below, subject to adjustment, upward or downward, as shown below, effective one
Business Day following the announcement by Moody's or S&P of the change in such
agency's rating of the Company's senior unsecured debt obligations giving rise
to such adjustment:
<TABLE>
<CAPTION>
Rating Rate
- ------ ----
<S> <C>
B3 or below by Moody's or [*]
B- or below by S&P
B2 by Moody's or [*]
B by S&P
B1 by Moody's or [*]
B+ by S&P
Ba3 by Moody's or [*]
BB- by S&P
Ba2 by Moody's or [*]
BB by S&P
Ba1 by Moody's or [*]
BB+ by S&P
Baa3 by Moody's or [*]
BBB- by S&P
Baa2 or higher by Moody's or [*]
BBB or higher by S&P
</TABLE>
Upon a change in the rating of the Company's senior unsecured debt obligations
by Moody's or S&P, the Agent shall determine if there is a split rating. If so,
the more creditworthy of the two ratings shall be used to determine if the
rating of such obligations has changed in order to determine if an adjustment
shall be made, except that if the less creditworthy of the two ratings is two or
more rating categories below the more creditworthy rating, the applicable rating
shall be deemed to be the rating category which is one rating category below the
more creditworthy rating.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency or instrumentality of the United States the obligations of which are
backed by the full faith and credit of the United States, in each case maturing
within one year after such
[*] Confidential Treatment Requested
-9-
<PAGE> 17
date; (ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
instrumentality thereof, in each case maturing within one year after such date
and having, at the time of the acquisition thereof, the highest rating
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than one year after such date and having, at the time of the acquisition
thereof, a rating of at least A-2 from S&P or at least P-2 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year after
such date and issued or accepted by any Lender or by any commercial bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia that (a) is at least "adequately capitalized" (as
defined in the regulations of its primary Federal banking regulator) and (b) has
Tier 1 capital (as defined in such regulations) of not less than $100,000,000;
and (v) shares of any money market mutual fund that (a) has at least 95% of its
assets invested continuously in the types of investments referred to in clauses
(i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c)
has the highest rating obtainable from either S&P or Moody's.
"CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of Cash and Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not the interest component thereof) when received in the form of
Cash or Cash Equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Subsidiary of the Company) and proceeds
from the conversion of other property received when converted to Cash or Cash
Equivalents.
"CERTIFICATE RE NON-BANK STATUS" means, as to any Lender, a certificate
as to such Lender's exemption from U.S. withholding tax, substantially in the
form of Exhibit VII annexed hereto delivered by such Lender to the Agent
pursuant to subsection 2.7B(iii).
"CHANGE OF CONTROL" means (i) the acquisition at any time by any Person
(other than TPG, L.P.) or two or more Persons acting in concert of "beneficial
ownership" (within the meaning of Section 13(d) under the Exchange Act and the
rules and regulations promulgated thereunder) in excess of 25% of the total
voting power of the Voting Stock of the Company; (ii) the sale, lease, transfer
or other disposition, of all or substantially all of the assets of the Company
to any Person (other than TPG, L.P.) or two or more Persons acting in concert as
an entirety or substantially as an entirety in one transaction or a series of
related transactions; (iii) the merger or consolidation of the Company, with or
into another corporation, or the merger of another corporation into the Company,
or any other transaction, with the effect that a Person (other than TPG, L.P.)
or two or more Persons acting in concert has "beneficial ownership" (within the
meaning of Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) in excess of 25% of the Voting Stock of the Company, or
(if the Company is not the surviving corporation in such transaction) such other
corporation, as the case may be (including indirect ownership through another
Person other than TPG, L.P. or through two or more Persons acting
-10-
<PAGE> 18
in concert); or (iv) the liquidation or dissolution of the Company. For purposes
of this definition, the term Person includes a "person" within the meaning of
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.
"CLOSING DATE" means the date when the conditions of Section 3.1 hereof
have been satisfied and this Agreement has become effective.
"COLLATERAL" means all of the properties and assets that are from time
to time subject to the Liens purported to be granted by the Security Agreements.
"COMMERCIAL LETTER OF CREDIT" means any letter of credit or similar
instrument issued for the purpose of providing the primary payment mechanism in
connection with the purchase of any materials, goods or services by the Company
in the ordinary course of its business.
"COMMITMENT FEE RATE" shall be the percentage set forth below, subject
to adjustment, upward or downward, as shown below, effective one Business Day
following the announcement by Moody's or S&P of the change in such agency's
rating of the Company's senior unsecured debt obligations giving rise to such
adjustment:
<TABLE>
<CAPTION>
Rating Rate
- ------ ----
<S> <C>
B3 or below by Moody's or [*]
B- or below by S&P
B2 by Moody's or [*]
B by S&P
B1 by Moody's or [*]
B+ by S&P
Ba3 by Moody's or [*]
BB- by S&P
Ba2 by Moody's or [*]
BB by S&P
Ba1 by Moody's or [*]
BB+ by S&P
Baa3 by Moody's or [*]
BBB- by S&P
Baa2 or higher by Moody's or [*]
BBB or higher by S&P
</TABLE>
Upon a change in the rating of the Company's senior unsecured debt
obligations by Moody's or S&P, the Agent shall determine if there is a split
rating. If so, the more creditworthy of the two ratings shall be used to
determine if the rating of such
[*] Confidential Treatment Requested
-11-
<PAGE> 19
obligations has changed in order to determine if an adjustment shall be made,
except that if the less creditworthy of the two ratings is two or more rating
categories below the more creditworthy rating, the applicable rating shall be
deemed to be the rating category which is one rating category below the more
creditworthy rating.
"COMMITMENTS" means the commitments of the Lenders to make and convert
Loans as set forth in subsection 2.1A and to issue Letters of Credit set forth
in subsection 2.9.
"COMMODITY AGREEMENT" means any agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in the
prices of commodities used by the Company or any of its Subsidiaries in the
ordinary course of its business.
"COMMON STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of this Agreement, including, without limitation, all
series and classes of such common stock.
"COMPANY" has the meaning assigned to that term in the introduction to
this Agreement and its permitted successors and assigns.
"COMPANY COMMON STOCK" means the Common Stock of the Company, par value
$0.01 per share.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of Exhibit IV annexed hereto delivered to the Agent and the Lenders by the
Company pursuant to subsection 5.1(iv).
"CONDEMNATION PROCEEDS" has the meaning assigned to that term in
subsection 2.4B(iii)(c).
"CONFIDENTIAL INFORMATION" means information that the Company furnishes
to the Agent or any Lender in a writing designated as confidential, but does not
include any such information that is or becomes generally available to the
public or that is or becomes available to the Agent or such Lender from a source
other than the Company.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision
of any equity security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other material
instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject.
-12-
<PAGE> 20
"CONVERSION DATE" means the date on which Revolving Loans are converted
to Term Loans pursuant to subsection 2.1A(ii).
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangement designed to protect the Company or any of its
Subsidiaries against fluctuations in currency values.
"DEFAULTED ADVANCE" means, with respect to any Lender at any time, the
portion of any Revolving Loan or Term Loan required to be made to the Company by
such Lender pursuant to Section 2.1 or 2.9, as the case may be, at or prior to
such time which has not been made by such Lender or by the Agent for the account
of such Lender pursuant to Section 2.1C or 2.9C, as the case may be, at such
time.
"DEFAULTED AMOUNT" means, with respect to any Lender at any time, any
amount required to be paid by such Lender to the Agent or any other Lender
hereunder or under any other Loan Document at or prior to such time which has
not been so paid as of such time, including, without limitation, any amount
required to be paid by such Lender to (i) the Issuing Bank pursuant to Section
2.9 to purchase a participation in a Letter of Credit made by such Issuing Bank,
(ii) the Agent pursuant to Section 2.1 to reimburse the Agent for the amount of
any Loan made by the Agent for the account of such Lender or (iii) any other
Lender pursuant to Section 2.1 to purchase any participation in Loans owing to
such other Lender.
"DEFAULTING LENDER" means, at any time, any Lender that, at such time,
owes a Defaulted Advance or a Defaulted Amount.
"DESIGNATED LOCATIONS" has the meaning given such term in the Spare
Parts Security Agreement.
"DOLLARS" and the sign "$" mean the lawful money of the United States
of America.
"EBITDA" means, with respect to the Company, for any period, the sum of
the amounts for such period of (i) Adjusted Consolidated Net Income, (ii)
Interest Expense, (iii) provisions for taxes based on income including state
franchise taxes based on income, (iv) total consolidated depreciation expense,
(v) total consolidated amortization expense, and (vi) other non-cash items
reducing Adjusted Consolidated Net Income less other non-cash items increasing
Adjusted Consolidated Net Income.
"ELIGIBLE ASSETS" has the meaning given such term in Subsection 2.10.
"ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized under the
laws of the United States or any state thereof and having total assets on a
consolidated basis in excess of $1,000,000,000; (ii) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof and having total
-13-
<PAGE> 21
assets on a consolidated basis in excess of $1,000,000,000; (iii) a commercial
bank organized under the laws of any other country or a political subdivision
thereof and having total assets on a consolidated basis in excess of
$1,000,000,000; provided that (x) such bank is acting through a branch or agency
located in the United States or (y) such bank is organized under the laws of a
country that is a member of the Organization for Economic Cooperation and
Development or a political subdivision of such country; and (iv) any other
institutional investor organized under the laws of the United States or any
state thereof and having total assets on a consolidated basis in excess of
$1,000,000,000 which extends credit or buys loans as one of its businesses
including, but not limited to, investment banks, insurance companies, mutual
funds and lease financing companies, in each case (under clauses (i) through
(iv) above) that is reasonably acceptable to the Agent and the Company; and (B)
any Lender and any Affiliate of any Lender; provided that neither the Company
nor any Affiliate of the Company shall be an Eligible Assignee.
"ELIGIBLE SIMULATOR" means a flight simulator of the type described in
Schedule 2.10.
"ELIGIBLE SPARE ENGINE" means an aircraft engine of the type described
in Schedule 2.10.
"ELIGIBLE STAGE II AIRCRAFT" means an aircraft, including engines, that
meets the "Stage II" noise standards of the Federal Aviation Regulations either
at the time it becomes subject to the Lien of the Aircraft Security Agreement or
at the time it was originally manufactured and delivered and is of the type
described on Schedule 2.10.
"ELIGIBLE STAGE III AIRCRAFT" means an aircraft, including engines,
that meets the "Stage III" noise standards of the Federal Aviation Regulations,
has met such standards since it was originally manufactured and delivered and is
of the type described on Schedule 2.10.
"ENGINE" means each aircraft engine from time to time subject to the
Lien of the Aircraft Security Agreement.
"ENVIRONMENTAL CLAIM" means any material investigation, notice, claim,
suit, proceeding, demand or order, by any governmental authority or any Person
arising in connection with any alleged or actual material violation of
Environmental Laws or with any Hazardous Material, or any actual or alleged
damage, or harm to health, safety or the environment.
"ENVIRONMENTAL INDEMNITY AGREEMENT" means that certain Environmental
Indemnity Agreement dated of even date herewith between the Company and the
Agent, as such Environmental Indemnity Agreement may be amended, restated,
supplemented or otherwise modified from time to time in accordance with the
terms hereof or thereof.
-14-
<PAGE> 22
"ENVIRONMENTAL LAWS" means any and all current or future statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
governmental authorizations, or any other requirement of governmental
authorities relating to (a) the prevention or control of pollution or protection
of the environment, (b) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal, discharge, release, emission or transportation, or
(c) exposure to Hazardous Materials. "Environmental Laws" shall include, but not
be limited to, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. 9601 et seq.), the Resource Conservation and Recovery
Act (42 U.S.C. 6901 et seq.), the National Environmental Policy Act (42 U.S.C.
4321 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. 1801 et
seq.), the Toxic Substances Control Act (49 U.S.C. 2601 et seq.), the Clean Air
Act (42 U.S.C. 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
1251 et seq.), the Safe Drinking Water Act (42 U.S.C. 3007 et seq.), the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. 11001 et seq.),
the Occupational Safety and Health Act (29 U.S.C. 641 et seq.), and the State of
Arizona Environmental Quality Act (A.R.S. 49-101 et seq.).
"EQUITY PROCEEDS" means the cash proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith) from
the issuance of any equity securities of the Company including, without
limitation, additional issuances of Company Common Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA AFFILIATE" means, as applied to the Company, (i) any corporation
which is, or was at any time, a member of a controlled group of corporations
within the meaning of Section 414(b) of the Internal Revenue Code of which the
Company is a member; (ii) any trade or business (whether or not incorporated)
which is a member of a group of trades or businesses under common control within
the meaning of Section 414(c) of the Internal Revenue Code of which the Company
is a member; and (iii) any member of an affiliated service group within the
meaning of Section 414(m) or (o) of the Internal Revenue Code of which the
Company, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is a member.
"EURODOLLAR RATE LOANS" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"EVENT OF DAMAGE" with respect to any Borrowing Base Collateral (other
than Rotables) means any damage to such Borrowing Base Collateral the repair of
which is reasonably estimated by the Company to cost more than 50% of the Fair
Market Value of such Borrowing Base Collateral.
"EVENT OF DEFAULT" means each of the events set forth in Section 7.
-15-
<PAGE> 23
"EVENT OF LOSS" with respect to any Borrowing Base Collateral (other
than Cash and Cash Equivalents) has the meaning given in the Security Agreement
to which such Borrowing Base Collateral is subject.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"FACILITIES" means any and all real property now, hereafter or
heretofore owned, leased, operated or used by the Company or any of its
Subsidiaries and any of their respective predecessors.
"FAIR MARKET VALUE" for any Borrowing Base Collateral means the value
of such Borrowing Base Collateral, as determined by an Approved Appraiser in the
most recently delivered Approved Appraisal thereof, obtainable by a seller at
the time of determination in an arm's-length transaction between an informed and
willing seller under no compulsion to sell and an informed and willing
buyer-user (other than a lessee or other Person currently in possession and a
used equipment dealer or broker) under no compulsion to buy and based on the
then condition of such Borrowing Base Collateral.
"FEDERAL AVIATION ADMINISTRATION" or "FAA" means the United States
Federal Aviation Administration or any successor thereto administering the
functions of the Federal Aviation Administration under the Act.
"FEDERAL AVIATION REGULATIONS" means regulations issued by the FAA.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day on which is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"FISCAL YEAR" means with respect to the financial statements to be
delivered by the Company pursuant to subsection 5.1, the Company's fiscal year
referenced in such financial statements; provided, that the Company will not
change its Fiscal Year if such change will cause an unreasonable delay in the
production of the financial statements required by subsection 5.1(ii).
"FUNDING AND PAYMENT OFFICE" means the office of the Agent located at
350 South Grand Avenue, Suite 1500, Los Angeles, California 90071.
"FUNDING DATE" means the date of the funding of a Revolving Loan or
issuance of a Letter of Credit.
-16-
<PAGE> 24
"GAAP" means, subject to the limitations on the application thereof set
forth in subsection 1.2, generally accepted accounting principles set forth in
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession. Financial statements and other information required to be delivered
by the Company to the Lenders pursuant to clauses (ii), (iii) and (xiii) of
subsection 5.1 shall be prepared in accordance with GAAP as in effect at the
time of such preparation (and delivered together with the reconciliation
statements provided for in subsection 5.1(v)).
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such first Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of such other Person (whether arising
by virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part). The term "Guarantee" used as a verb has a corresponding
meaning.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"HANGAR" means an aircraft hangar, all right, title and interest of the
Company in and to the real property on which the hangar is located and the other
improvements on such real property, in each case that have been made subject to
the Lien of the Hangar Security Agreement.
"HANGAR SECURITY AGREEMENT" means a Leasehold Deed of Trust, Security
Agreement, Assignment of Rents, Financing Statement and Fixture Filing,
substantially in the form of Exhibit C hereto, as such Hangar Security Agreement
may be amended, restated, supplemented or otherwise modified from time to time
in accordance with the terms hereof and thereof.
"HAZARDOUS MATERIALS" means any chemical or other material or
substance, exposure to which or Release of is now or hereafter prohibited,
limited or regulated under any law.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed, or
threatened use, storage, release, generation, treatment, remediation or
transportation of any Hazardous Material (i) from, under, in, into or on the
Facilities or surrounding
-17-
<PAGE> 25
property; and (ii) caused by, or undertaken by or on behalf of, the Company, any
of its Subsidiaries or any of their respective predecessors.
"HOLDINGS" means America West Holdings Corporation.
"INDEBTEDNESS" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money; (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments; (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto); (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables; (v) all Capitalized Lease obligations of
such Person (the amount of the Indebtedness in respect thereof to be determined
as provided in the definition of Capitalized Lease in this subsection 1.1); (vi)
all Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided that the
amount of such Indebtedness shall be the lesser of (A) the fair market value of
such asset at such date of determination and (B) the stated principal amount of
such Indebtedness; (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person; and (viii)
to the extent not otherwise included in this definition and to the extent
treated as a liability under GAAP, obligations under Currency Agreements,
Interest Rate Agreements and Commodity Agreements. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date; provided that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"INDEMNITEE" has the meaning assigned to that term in subsection 9.3.
"INITIAL ISSUING BANK" has the meaning specified in the recital of
parties at the head of this Agreement.
"INSURANCE PROCEEDS" has the meaning assigned to that term in
subsection 2.9B(iii)(c).
"INTEREST EXPENSE" means, for any period (i) total interest expense
(including that portion attributable to Capital Leases in accordance with GAAP)
plus (ii) without duplication, capitalized interest, in each case, of the
Company and its Subsidiaries with respect to all of their outstanding
Indebtedness, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to
-18-
<PAGE> 26
letters of credit and bankers' acceptance financing and net costs under Interest
Rate Agreements.
"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan,
the last day of each month of each year, commencing on the first such date to
occur after the Closing Date, and (ii) with respect to any Eurodollar Rate Loan,
the last day of each Interest Period applicable to such Loan; provided that in
the case of each Interest Period of six months, "Interest Payment Date" shall
also include the date that is three months after the commencement of such
Interest Period.
"INTEREST PERIOD" has the meaning assigned to that term in subsection
2.2B.
"INTEREST RATE AGREEMENT" means any interest rate future agreement,
interest rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement designed to protect the Company or any of
its Subsidiaries against fluctuations in interest rates or under which the
Company or any of its Subsidiaries is a party or a beneficiary on the date of
this Agreement or becomes a party or a beneficiary thereafter.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest
Period, the second Business Day prior to the first day of such Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"INVESTMENT" means with respect to any Person, any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business consistent with past practices that are recorded as accounts receivable
on the balance sheet of such Person or its Subsidiaries) or other extension of
credit or capital contribution by such Person to any other Person (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others; provided, that any transfer of
aircraft to a limited partnership or other entity in connection with the
transaction in which the aircraft are leased to the Company shall not be an
Investment), or any purchase or acquisition by such person of Capital Stock,
bonds, notes, debentures or other similar instruments issued by any other
Person.
"ISSUING BANK" means, on the Closing Date, the Initial Issuing Bank and
thereafter each Lender that becomes an Issuing Bank pursuant to subsection
9.1B(iii) (which such Lender (or such Lender's parent) shall have commercial
paper having a rating of at least A-1 from S&P or P-1 from Moody's or shall be
otherwise by approved by the Agent and the Company, such approvals not to be
unreasonably withheld or delayed) to which a Commitment to issue Letters of
Credit hereunder has been assigned pursuant to subsection 9.1B(iii), as issuer
of Letters of Credit.
-19-
<PAGE> 27
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"LENDER" and "LENDERS" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to subsection 9.1.
"LETTER OF CREDIT" means each Standby Letter of Credit and Commercial
Letter of Credit that may be issued by the Issuing Bank under the terms of
subsection 2.9.
"LETTERS OF CREDIT USAGE" means, as of any date of determination, the
sum of (i) the maximum aggregate amount which is or at any time thereafter may
become available to be drawn under all Letters of Credit then outstanding (after
giving effect to all contingencies thereunder including, without limitation,
contingencies that increase the amount available to be drawn under certain terms
and conditions, without regard to whether such conditions have in fact been
satisfied and including any drafts drawn thereunder but not yet honored) and
(ii) the aggregate amount of all drawings under Letters of Credit honored by the
Agent and not theretofore reimbursed by the Company. Letters of Credit Usage of
each Lender shall be determined as if the Lenders had bought the participations
referred to in subsection 2.9A with respect to all then outstanding Letters of
Credit.
"LIEN" means any lien, mortgage, pledge, assignment, security interest,
charge, hypothecation, preference, priority, privilege, lease or encumbrance of
any kind (including any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any security interest);
provided, that neither negative pledges nor covenants to abstain from granting
liens on or security interests in assets of the Company or any of its
Subsidiaries shall constitute Liens.
"LOAN" or "LOANS" means one or more of the Revolving Loans, Term Loans
or Letters of Credit or any combination thereof.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Environmental
Indemnity Agreement, the Security Agreements and any letter agreement between
the Company and the Agent establishing fees payable by the Company to the Agent
in connection with this Agreement.
"MARGIN STOCK" has the meaning assigned to that term in Regulation G,
T, U or X of the Board of Governors of the Federal Reserve System as in effect
from time to time.
"MOODY'S" means Moody's Investors Service, Inc.
-20-
<PAGE> 28
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the Cash
Proceeds of such Asset Sale, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale without regard to the consolidated results of operations of the
Company and its Subsidiaries, take as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required by its own terms to be paid as a result of such Asset Sale, and (iv)
appropriate amounts to be provided by the Company or any Subsidiary of the
Company as a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP.
"NET WORTH" means, as at any date of determination, the sum of the
capital stock and additional paid-in capital plus retained earnings (or minus
accumulated deficits) of the Company on a consolidated basis determined in
conformity with GAAP.
"NON-US LENDER" has the meaning assigned to that term in subsection
2.7B(iii)(a).
"NOTES" means one or more of the Revolving Notes or the Amended and
Restated Notes, as the context requires.
"NOTICE OF BORROWING" means a notice substantially in the form of
Exhibit I annexed hereto delivered by the Company to the Agent pursuant to
subsection 2.1B with respect to a proposed borrowing.
"NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in the
form of Exhibit II annexed hereto delivered by the Company to the Agent pursuant
to subsection 2.2D with respect to a proposed conversion or continuation of the
applicable basis for determining the interest rate with respect to the Loans
specified therein.
"OBLIGATIONS" means all payment and performance obligations of every
nature of the Company from time to time owed to the Agent, the Lenders or any of
them under the Loan Documents, whether for principal, interest, fees, expenses,
indemnification or otherwise.
"OFFICER'S CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the board
(if an officer), president, one of its vice presidents, chief financial officer,
controller, treasurer or assistant treasurer or an assistant secretary; provided
that every Officer's Certificate with respect to the compliance with a condition
precedent to the making of any Loans hereunder shall include (i) a statement
that the officer acting in such capacity making
-21-
<PAGE> 29
or giving such Officer's Certificate has read such condition and any definitions
or other provisions contained in this Agreement relating thereto, (ii) a
statement that, in the opinion of the signer, s/he has made or has caused to be
made such examination or investigation as is necessary to enable her/him to
express an informed opinion as to whether or not such condition has been
complied with, and (iii) a statement as to whether, in the opinion of the
signer, such condition has been complied with.
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) under which such
Person is Lessee, that is not a Capital Lease.
"OUTSTANDING AMOUNTS" means, as of any date of determination, the sum
of the then outstanding principal amount of the Loans and the Letters of Credit
Usage.
"PARTS COLLATERAL" has the meaning given such term in the Spare Parts
Security Agreement.
"PAYMENT RESTRICTION" means, with respect to a Subsidiary of any
Person, any encumbrance, restriction or limitation, whether by operation of the
terms of its charter or by reason of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation, on the ability of (i)
such Subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to such
Person or any other Subsidiary of such Person, (b) make loans or advances to
such Person or any other Subsidiary of such Person, or (c) transfer any of its
property or assets to such Person or any other Subsidiary of such Person, or
(ii) such Person or any other Subsidiary of such Person to receive or retain any
such (a) dividend, distributions or payments, (b) loans or advances, or (c)
property or assets.
"PERMITTED CASH EQUIVALENTS" means, at any date of determination, (i)
certificates of deposit or bankers' acceptances maturing within one year after
such date and issued or accepted by the Agent and (ii) subject to agreement of
the Agent and the Company to mutually satisfactory custodial arrangements, other
Cash Equivalents (except that commercial paper described in clause (b)(iii) of
the definition of Cash Equivalents shall have a rating of at least A-1 from S&P
or P-1 from Moody's).
"PERMITTED ENCUMBRANCES" means the following types of Liens (other than
any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA) as applied to property not constituting Collateral:
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by subsection
5.3;
(ii) statutory Liens of landlords and Liens of carriers,
vendors, warehousemen, repairmen, mechanics and materialmen and other
Liens imposed
-22-
<PAGE> 30
by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in faith by appropriate proceedings that
do not involve imminent danger of the sale, forfeiture or loss of any
Collateral, if such reserve or other appropriate provision, if any, as
shall required by GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds, reimbursement obligations and chargeback rights
of Persons performing services for the Company or any of its
Subsidiaries and other similar obligations (exclusive of obligations
for the payment of borrowed money);
(iv) easements, rights-of-way, restrictions, minor defects,
encroachments or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
(v) Liens arising from filing effective Uniform Commercial
Code financing statements relating solely to leases not prohibited by
this Agreement;
(vi) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(vii) Liens described in Schedule 6.2 annexed hereto;
(viii) Liens granted pursuant to the Security Agreements;
(ix) judgment and attachment Liens not giving rise to an Event
of Default;
(x) Liens on the assets of any entity or asset existing at the
time such entity is acquired by the Company or any Subsidiary, whether
by merger, consolidation, purchase of assets or otherwise; provided
that such Liens (i) are not created, incurred or assumed by such entity
in contemplation of such entity's being acquired by the Company or any
Subsidiary; (ii) do not extend to any other assets of the Company or
any Subsidiary; and (iii) the Indebtedness secured by such Lien is
permitted pursuant to this Agreement;
(xi) leases or subleases granted to others not interfering in
any material respect with the business of the Company or any
Subsidiary;
-23-
<PAGE> 31
(xii) any interest or title of a lessor in property subject to
any Capital Lease obligation or Operating Lease which, in each case, is
not prohibited under this Agreement (disregarding for this purpose
subsection 6.2);
(xiii) Liens in favor of collecting or payor banks having a
right of setoff, revocation, refund or chargeback with respect to money
or instruments of the Company or any Subsidiary on deposit with or in
possession of such bank;
(xiv) any renewal of or substitution for any Lien permitted by
any of the preceding clauses; provided that the debt secured is not
increased nor the Lien extended to any additional assets; and
(xv) Liens of creditors of any Person to whom any of the
Company's assets are consigned for sale.
"PERMITTED LIEN" with respect to any Collateral, has the meaning given
such term in the Security Agreement to which such Collateral is subject.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, limited liability
companies, Joint Ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"PLAN" means any "employee benefit plan" as defined in Section 3(3) of
ERISA which is, or was at any time, maintained or contributed to by the Company
or any of its ERISA Affiliates, other than a multiemployer plan, within the
meaning of Section 4001(a)(3) of ERISA.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or the passage of time or both, would constitute an Event of Default.
"PRICING CERTIFICATE" has the meaning assigned to that term in
subsection 5.1(xvi).
"PRIME RATE" means the rate that the Agent announces from time to time
as its prime lending rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. The Agent or any Lender may make commercial
loans or other loans at rates of interest at, above or below the Prime Rate.
"PRO FORMA BASIS" means, with respect to compliance with any covenant
hereunder, compliance with such covenant after giving effect to any proposed
incurrence of Indebtedness by the Company or any of its Subsidiaries and the
application of the proceeds thereof, the acquisition (whether by purchase,
merger or
-24-
<PAGE> 32
otherwise) or disposition (whether by sale, merger or otherwise) of any company,
entity or business or any asset by the Company or any of its Subsidiaries or any
other related action which requires compliance on a Pro Forma Basis. In making
any determination of compliance on a Pro Forma Basis, such determination shall
be performed after good faith consultation with the Agent using the consolidated
financial statements of the Company and its Subsidiaries which shall be
reformulated as if any such incurrence of Indebtedness and the application of
proceeds, acquisition, disposition or other related action had been consummated
at the beginning of the period specified in the covenant with respect to which
Pro Forma Basis compliance is required.
"PRO RATA SHARE" means, with respect to each Lender, (i) prior to the
Conversion Date (if any) the percentage obtained by dividing the Revolving Loan
Exposure of that Lender by the aggregate Revolving Loan Exposure of all Lenders,
and (ii) on and after the Conversion Date, the percentage obtained by dividing
the Term Loan Exposure of that Lender by the aggregate Term Loan Exposure of all
Lenders, in each case as such percentage may be adjusted by assignments
permitted pursuant to subsection 9.1. The initial Pro Rata Share of each Lender
is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto.
"PROCEEDINGS" has the meaning assigned to that term in subsection
5.1(x).
"REDEEMABLE STOCK" means any class or series of Capital Stock of any
Person that by its terms or otherwise (i) is required to be redeemed prior to
the Term Loan Termination Date, (ii) may be required to be redeemed at the
option of the holder of such class or series of Capital Stock at any time prior
to the Term Loan Termination Date, or (iii) is convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having
a scheduled maturity prior to the Term Loan Termination Date; provided that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof offering holders thereof the right to require the Company to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" occurring
prior to the Term Loan Termination Date shall not constitute Redeemable Stock if
the asset sale provisions contained in such Capital Stock specifically provide
that in respect of any particular asset sale proceeds, the Company will not
repurchase or redeem any such Capital Stock pursuant to such provisions prior to
the Company's permanent reduction of the aggregate Commitment of the Lenders by
an amount at least equal to such asset sale proceeds (net of associated taxes
and transaction costs).
"REFERENCE LENDERS" means the Agent, Citicorp USA, Inc. and The Fuji
Bank, Limited, Los Angeles Agency.
"REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
applied entirely to substantially concurrently repay, refinance, refund or
replace, outstanding Indebtedness of the Company or any of its Subsidiaries (the
"Refinanced Indebtedness"), to the extent such Indebtedness:
-25-
<PAGE> 33
(a) is issued in a principal amount (or if such Indebtedness
is issued at an original issue discount, is issued at an original issue
price) not exceeding the outstanding principal amount (or, if such
Refinanced Indebtedness was issued at an original issue discount, not
exceeding the outstanding accreted principal amount) of such Refinanced
Indebtedness; and
(b) if the Refinanced Indebtedness is Indebtedness of the
Company and ranks by contract, by its terms or otherwise junior in
right of payment to the Obligations, (i) does not have a final
scheduled maturity and is not subject to any principal payments,
including but not limited to payments upon mandatory or optional
redemption prior to the dates of analogous payments under the
Refinanced Indebtedness, and (ii) has subordination provisions
effective to subordinate such Indebtedness to the Obligations at least
to the extent that such Refinanced Indebtedness is subordinated to the
Obligations: and
(c) if the Refinanced Indebtedness is Indebtedness of the
Company which is pari passu in right of payment with the Obligations,
(i) is pari passu or subordinated in right of payment to the
Obligations, (ii) does not have a final scheduled maturity and is not
subject to any principal payments, including but not limited to,
payments upon mandatory or optional redemption, prior to the final
scheduled maturity date of the Refinanced Indebtedness, and (iii) is
not secured by any Lien on any property of the Company or any
Subsidiary in addition to Liens securing the Refinanced Indebtedness.
"REGISTER" has the meaning assigned to that term in subsection 2.1.E.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facilities, including the movement of any
Hazardous Material through the air, soil, surface water, groundwater or
property.
"REPAIRABLE DAMAGE" with respect to any Borrowing Base Collateral
(other than Rotables) means any damage to such Borrowing Base Collateral the
repair of which is reasonably estimated by the Company to cost 50% or less of
the Fair Market Value of such Borrowing Base Collateral.
"REQUISITE LENDERS" means at any time Lenders owed or holding a
majority in interest of (i) prior to the Conversion Date (if any), the aggregate
Revolving Loan Exposure of all Lenders and (ii) thereafter, the aggregate Term
Loan Exposure of all Lenders; provided, however, that if any Lender shall be a
Defaulting Lender at such
-26-
<PAGE> 34
time, there shall be excluded from the determination of Requisite Lenders at
such time the Revolving Loan Exposure or Term Loan Exposure, as the case may be,
attributable to such Defaulting Lender(s).
"RESPONSIBLE OFFICER" means, with respect to the Company, its
controller, treasurer, president or any vice president.
"RESTRICTED PAYMENT" means (i) any declaration or payment of dividends
on or making of any distributions in respect of the Capital Stock of the Company
(other than dividends or distributions payable solely in shares of Capital Stock
(other than Redeemable Stock) or in options, warrants, or other rights to
purchase Capital Stock (other than Redeemable Stock)) to holders of Capital
Stock of the Company, (ii) any purchase, redemption or other acquisition or
retirement for value (other than through the issuance solely of Capital Stock
(other than Redeemable Stock) or options, warrants or other rights to purchase
Capital Stock (other than Redeemable Stock)) of any Capital Stock or warrants,
rights (other than exchangeable or convertible Indebtedness of the Company not
prohibited under clause (iii) below) or options to acquire Capital Stock of the
Company; and (iii) any redemption, repurchase, defeasance (including, but not
limited to, in substance or legal defeasance), or other acquisition or
retirement for value (other than through the issuance solely of Capital Stock
(other than Redeemable Stock) or warrants, rights or options to acquire Capital
Stock (other than Redeemable Stock)) (collectively, a "prepayment"), directly or
indirectly (including by way of amendment of the terms of any Indebtedness in
connection with any retirement or acquisition of such Indebtedness), other than
at any scheduled maturity thereof or by any scheduled repayment or scheduled
sinking fund payment, of any Indebtedness of the Company which is subordinated
in right of payment to the Obligations or which matures after the Term Loan
Termination Date (except out of the proceeds of Refinancing Indebtedness).
"REVOLVING LOAN COMMITMENT" means the commitment of a Lender to make
Revolving Loans to the Company pursuant to subsection 2.1A, and "REVOLVING LOAN
COMMITMENTS" means such commitments of all Lenders in the aggregate.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" has the meaning assigned
such term in subsection 2.1A.
"REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of any
date of determination prior to the termination of the Revolving Loan
Commitments, that Lender's Revolving Loan Commitment (whether used or unused).
"REVOLVING LOANS" means the Loans made by the Lenders to the Company
pursuant to subsection 2.1A(i) or 2.9C.
"REVOLVING NOTES" means (i) the promissory notes of the Company issued
pursuant to subsection 2.1D and (ii) any promissory notes issued by the Company
pursuant to the last sentence of subsection 9.1B(i) in connection with
assignments of
-27-
<PAGE> 35
the Revolving Loan Commitments and Revolving Loans of any Lenders, in each case
substantially in the form of Exhibit III-A annexed hereto, as they may be
amended, supplemented or otherwise modified from time to time.
"ROTABLES" means Parts Collateral at Designated Locations.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
"SECURITY AGREEMENTS" means the Aircraft Security Agreement, Spare
Engine Security Agreement, Cash and Cash Equivalent Security Agreement, Hangar
Security Agreement, and Spare Parts Security Agreement.
"SIMULATORS" means each Eligible Simulator from time to time subject to
the Lien of the Spare Engine Security Agreement.
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (A) (i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believes that it will not incur, debts beyond its ability to pay such
debts as they become due; and (B) such Person is "solvent" within the meaning
given that term and similar terms under applicable laws relating to fraudulent
transfers and conveyances. For purposes of this definition, the amount of any
contingent liability at any time shall be computed as the amount that, in light
of all of the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.
"SPARE ENGINE" means each Eligible Spare Engine from time to time
subject to the Lien of the Spare Engine Security Agreement.
"SPARE ENGINE SECURITY AGREEMENT" means the Spare Engine and Simulator
Security Agreement substantially in the form of Exhibit D hereto, as such Spare
Engine Security Agreement may be amended, restated, supplemented or otherwise
modified from time to time in accordance with the terms hereof and thereof.
"SPARE PARTS SECURITY AGREEMENT" means the Spare Parts Security
Agreement substantially in the form of Exhibit E hereto, as such Spare Parts
Security Agreement may be amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms hereof and thereof.
-28-
<PAGE> 36
"STAGE II AIRCRAFT" means each Eligible Stage II Aircraft that is an
Aircraft.
"STAGE III AIRCRAFT" means each Eligible Stage III Aircraft that is an
Aircraft.
"STANDBY LETTER OF CREDIT" means any letter of credit or similar
instrument other than Commercial Letters of Credit.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, association, limited liability company, trust or estate, joint
venture or other business entity of which more than 50% of the issued and
outstanding shares of Voting Stock at the time of determination are owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"TAX" or "TAXES" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided that "TAX ON THE OVERALL NET INCOME" of a Person shall be
construed as a reference to a tax imposed by the jurisdiction in which that
Person's principal office (and/or, in the case of a Lender, its lending office)
is located.
"TERM LOAN COMMITMENT" means the commitment of a Lender to convert
Revolving Loans into Term Loans pursuant to subsection 2.1A(ii), and "TERM LOAN
COMMITMENTS" means such commitments of all Lenders in the aggregate.
"TERM LOAN EXPOSURE" means, with respect to any Lender as of any date
of determination (i) prior to the Conversion Date (if any), that Lender's Term
Loan Commitment and (ii) thereafter, the outstanding principal amount of the
Term Loan of that Lender.
"TERM LOANS" means the Loans converted into Term Loans pursuant to
subsection 2.1A(ii).
"TERM LOAN TERMINATION DATE" means the date three years following the
Conversion Date.
"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, at any date of
determination, the sum of (i) the aggregate outstanding principal amount of all
Revolving Loans and (ii) the Letter of Credit Usage.
"TRADE PAYABLES" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries and
arising in the ordinary course or business in connection with the acquisition of
goods or services.
-29-
<PAGE> 37
"UNITED STATES CITIZEN" has the meaning assigned to that term in
subsection 4.1B.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees of any
Person (or Persons performing similar functions) irrespective of whether or not
at the time stock of any class or classes will have or might have such voting
power by the reason of the happening of any contingency.
"WHOLLY OWNED" denotes a Subsidiary all of the Voting Stock of which
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned directly or indirectly by the Company.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS
UNDER AGREEMENT.
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Each reference to a consolidated balance sheet
or other financial statement of the Company shall, at any time or for any period
during which the Company has no Subsidiaries, be deemed to mean and refer to a
balance sheet or other financial statement of the Company alone.
1.3 OTHER DEFINITIONAL PROVISIONS.
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference.
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENTS; MAKING OF REVOLVING LOANS AND CONVERSION
INTO TERM LOANS; NOTES; REGISTER.
A. COMMITMENTS. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of the Company herein
set forth, each Lender hereby severally agrees to make the Revolving Loans and
to convert such Revolving Loans into Term Loans, all as described in this
subsection 2.1A.
(i) Revolving Loans. From and after the Closing Date, each
Lender severally agrees, subject to the conditions set forth in Section 3 and
subject to the limitations set forth below, to make Revolving Loans to the
Company from time to time
-30-
<PAGE> 38
during the period from the Closing Date to and including the Revolving Loan
Commitment Termination Date (as defined below) in an aggregate amount, not
exceeding its Pro Rata Share of the aggregate amount of the Revolving Loan
Commitments to be used for the purposes identified in subsection 2.5A. The
amount of each Lender's Revolving Loan Commitment on the date hereof is set
forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount
of the Revolving Loan Commitments on the date hereof is $100,000,000, provided
that: (1) at no time shall the Total Utilization of Revolving Loan Commitments
exceed the least of (x) $100,000,000, (y) the Borrowing Base at such time and
(z) the aggregate Revolving Loan Commitments as such Revolving Loan Commitments
shall have been reduced from time to time pursuant to subsections 2.4B(ii) and
2.4B(iii)(2); (2) the Revolving Loan Commitments of Lenders shall be adjusted to
give effect to any assignments of the Revolving Loan Commitments pursuant to
subsection 9.1B; and (3) the amount of the Revolving Loan Commitments shall be
reduced from time to time by the amount of any reductions thereto made pursuant
to subsections 2.4B(ii) and 2.4B(iii)(2). Each Lender's Revolving Loan
Commitment shall expire at 5:00 p.m. (Los Angeles time) on the Revolving Loan
Commitment Termination Date (unless earlier terminated pursuant to this
Agreement) and all Revolving Loans and all other amounts owed hereunder with
respect to the Revolving Loans and the Revolving Loan Commitments shall be paid
in full, unless such Revolving Loans are converted to Term Loans pursuant to
subsection 2.1A(ii). Amounts borrowed under this subsection 2.1A(i) may be
repaid and reborrowed to and including the Revolving Loan Commitment Termination
Date. On or before the Revolving Loan Commitment Termination Date, the Company
shall provide cash collateral in the amount of, and as security for, all
outstanding Letters of Credit under arrangements satisfactory in form and
substance to the Issuing Bank and use its best efforts to replace and terminate
such Letters of Credit as soon thereafter as possible.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means the second anniversary
of the Closing Date, except that (i) such date shall be extended one year if (a)
the Company has requested such extension by notice to the Agent not later than
the date ninety days prior to the first anniversary of the Closing Date and (b)
all Lenders have consented in writing to such extension and (ii) the Lenders
will consider in good faith at the sole discretion of each Lender any request by
the Company for additional one-year extensions, it being agreed by the parties
that there is no commitment to grant any such additional extension and that any
such additional extension shall not be granted without the written consent of
all of the Lenders.
(ii) Term Loans. Each Lender severally agrees, at the request of the
Company, to convert all of the Company's Revolving Loans outstanding on the
Revolving Loan Commitment Termination Date into Term Loans upon the terms and
conditions set forth in this Agreement. Any request by the Company for a
conversion of Revolving Loans to Term Loans shall be made at least 30 days prior
to the Revolving Loan Commitment Termination Date and shall be accompanied by an
Officer's Certificate stating that no Potential Event of Default or Event of
Default has occurred and is continuing.
-31-
<PAGE> 39
B. BORROWING MECHANICS. Revolving Loans made on any Funding Date shall be
in an aggregate minimum amount of $3,000,000 in increments of $100,000 (except
for such lesser amounts as may be required pursuant to subsection 2.9C).
Whenever the Company desires that the Lenders make Revolving Loans it shall
deliver (which delivery may be made by telecopier, promptly followed by delivery
by overnight courier) to the Agent a Notice of Borrowing no later than 9:00 a.m.
(Los Angeles time) at least three Business Days in advance of the proposed
Funding Date (in the case of Eurodollar Rate Loans) or on the proposed Funding
Date (in the case of Base Rate Loans). The Notice of Borrowing shall specify (i)
the proposed Funding Date (which shall be a Business Day), (ii) the amount of
Revolving Loans requested, (iii) whether such Revolving Loans shall be Base Rate
Loans or Eurodollar Rate Loans and (iv) in the case of any loans requested to be
made as Eurodollar Rate Loans, the initial Interest Period requested therefor.
Revolving Loans and Term Loans may be continued as or converted into Base Rate
Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D.
Neither the Agent nor any Lender shall incur any liability to the Company
in acting upon any notice referred to above that Agent believes in good faith to
have been given by a Responsible Officer or other person authorized to borrow on
behalf of the Company or for otherwise acting in good faith under this
subsection 2.1B, and upon funding of Revolving Loans by the Lenders to the Agent
and the funding of such Revolving Loans by the Agent to the Company in
accordance with this Agreement pursuant to any such notice the Company shall
have effected the borrowing of Revolving Loans hereunder.
The Company shall notify the Agent prior to the funding of any Loans in
the event that any of the matters to which the Company is required to certify in
the applicable Notice of Borrowing is no longer true and correct as of the
applicable Funding Date, and the acceptance by the Company of the proceeds of
any Revolving Loans shall constitute a re-certification by the Company, as of
the applicable Funding Date, as to the matters to which the Company is required
to certify in the applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Borrowing for a Eurodollar Rate Loan shall be irrevocable on and after the
related Interest Rate Determination Date, and the Company shall be bound to make
a borrowing in accordance therewith.
C. DISBURSEMENT OF FUNDS. All Revolving Loans under this Agreement shall
be made by the Lenders simultaneously and in proportion to their respective Pro
Rata Shares, it being understood that no Lender shall be responsible for any
default by any Defaulting Lender in that Defaulting Lender's obligation to make
a Revolving Loan requested hereunder nor shall the Commitment of any Lender to
make the particular type of Loan requested be increased or decreased as a result
of a default by any Defaulting Lender in that Defaulting Lender's obligation to
make a Loan requested hereunder. Promptly after receipt by the Agent of a Notice
of Borrowing pursuant to
-32-
<PAGE> 40
subsection 2.1B, the Agent shall notify each Lender of the proposed borrowing.
Each Lender shall make the amount of its Revolving Loan available to the Agent
not later than 11:00 a.m. (Los Angeles time) on the applicable Funding Date, in
each case in same day funds in Dollars, at the Funding and Payment Office. After
the Agent's receipt of proceeds of the Revolving Loans from the Lenders and
satisfaction of the applicable conditions precedent set forth in Section 3, the
Agent shall make such proceeds available to the Company on the applicable
Funding Date by transferring same day funds equal to such proceeds received by
the Agent to the account of the Company designated in writing by the Company to
the Agent.
Unless the Agent shall have been notified by any Lender prior to the
Funding Date for any Revolving Loans that such Lender does not intend to make
available to the Agent the amount of such Lender's Revolving Loan requested on
such Funding Date, the Agent may assume that such Lender has made such amount
available to the Agent on such Funding Date and the Agent may, in its sole
discretion, but shall not be obligated to, make available to the Company a
corresponding amount on such Funding Date. If all or part of such corresponding
amount is not in fact made available to the Agent by such Lender, the Agent
shall be entitled to recover such Defaulted Amount on demand from such
Defaulting Lender together with interest thereon, for each day from such Funding
Date until the date such Defaulted Amount is paid to the Agent at the Federal
Funds Effective Rate for three Business Days, and thereafter at the Base Rate.
If such Defaulting Lender does not pay such Defaulted Amount forthwith upon the
Agent's demand therefor, the Agent shall promptly notify the Company and the
Company shall immediately pay such Defaulted Amount to the Agent together with
interest thereon, for each day from such Funding Date until the date such
Defaulted Amount is paid to the Agent, at the Base Rate. If such Lender pays to
the Agent the Defaulted Amount, such amount so paid shall constitute a Revolving
Loan, and the Agent shall promptly return to the Company such corresponding
amount in same day funds. Nothing in this subsection 2.1C shall be deemed to
relieve any Lender from its obligation to fulfill its Revolving Loan Commitment
hereunder or to prejudice any rights that the Company may have against any
Lender as a result of any default by such Lender hereunder.
D. NOTES. On the Closing Date, the Company shall execute and deliver to
each Lender (or to the Agent for each Lender) a Revolving Note substantially in
the form of Exhibit IIIA annexed hereto to evidence that Lender's Revolving
Loans in the principal amount of the lesser of the Revolving Loan Commitment of
such Lender or the amount of Revolving Loans from time to time outstanding and
evidenced thereby and with other appropriate insertions. The Company shall
execute and deliver to each Lender on the Revolving Loan Commitment Termination
Date, if such date is also the Conversion Date and the Company shall then
convert the Revolving Loans into Term Loans, an Amended and Restated Note
substantially in the form of Exhibit IIIB annexed hereto amending and restating
the Revolving Note payable to such Lender, to evidence that Lender's Term Loans
in the principal amount then outstanding under such Revolving Note and with
other appropriate insertions.
-33-
<PAGE> 41
E. THE REGISTER.
(i) The Agent shall maintain, at its address referred to in
subsection 9.8, a register for the registration of the names and addresses
of the Lenders and the Commitments and Loans of each Lender from time to
time (the "REGISTER"). The Register shall be available for inspection by
the Company or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(ii) The Agent shall record in the Register the Revolving Loan
Commitment and the Term Loan Commitment and the Revolving Loans and Term
Loans from time to time of each Lender and each repayment or prepayment in
respect of the principal amount of the Revolving Loans and Term Loans. Any
such recordation shall be conclusive and binding on the Company and each
Lender, absent manifest error; provided that failure to make any such
recordation, or any error in such recordation, shall not affect the
Company's Obligations in respect of the applicable Loans.
(iii) Each Lender shall record on its internal records (including,
without limitation the applicable Notes held by such Lender) the amount of
each Revolving Loan and Term Loan made by it and each payment or other
reduction in respect thereof. Any such recordation shall be conclusive and
binding on the Company, absent manifest error; provided that failure to
make any such recordation, or any error in such recordation, shall not
affect the Company's Obligations in respect of the applicable Revolving
Loans and Term Loans; and provided, further, that in the event of any
inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern.
(iv) The Company, the Agent and the Lenders shall deem and treat the
Persons listed as Lenders in the Register as the holders and owners of the
corresponding Commitments and Revolving Loans and Term Loans listed
therein for all purposes hereof, and no assignment or transfer of any such
Commitment or Revolving Loans or Term Loans shall be effective, in each
case unless and until an Assignment Agreement effecting the assignment or
transfer thereof shall have been accepted by the Agent and recorded in the
Register as provided in subsection 9.1B(ii). Prior to such recordation,
all amounts owed with respect to the applicable Commitment, Revolving
Loans or Term Loans shall be owed to the Lender listed in the Register as
the owner thereof, and any request, authority or consent of any Person
who, at the time of making such request or giving such authority or
consent, is listed in the Register as a Lender shall be conclusive and
binding on any subsequent holder, assignee or transferee of the
corresponding Commitments or Loans.
2.2 INTEREST ON THE LOANS.
A. RATE OF INTEREST. Subject to the provisions of subsections 2.6 and 2.7,
each Revolving Loan and each Term Loan shall bear interest on the unpaid
principal
-34-
<PAGE> 42
amount thereof from the date made through maturity (whether by acceleration or
otherwise) at a rate determined by reference to the Base Rate or the Adjusted
Eurodollar Rate, as the case may be. The applicable basis for determining the
rate of interest with respect to any Revolving Loan shall be selected by the
Company initially at the time a Notice of Borrowing is given with respect to
such Loan pursuant to subsection 2.1B. The basis for determining the interest
rate with respect to any Revolving Loan or any Term Loan may be changed from
time to time pursuant to subsection 2.2D. If on any day a Revolving Loan or a
Term Loan is outstanding with respect to which notice has not been delivered to
the Agent in accordance with the terms of this Agreement specifying the
applicable basis for determining the rate of interest, then for that day that
Loan shall bear interest determined by reference to the Base Rate.
Subject to the provisions of subsection 2.2E and 2.7, each Revolving Loan
and each Term Loan shall bear interest through maturity as follows:
(i) if a Base Rate Loan, then at a rate per annum equal to the sum
of the Base Rate plus the Applicable Margin; or
(ii) if a Eurodollar Rate Loan, then at a rate per annum equal to
the sum of the Adjusted Eurodollar Rate plus the Applicable Margin.
B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan, the
Company may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall
be, at the Company's option, either a one- , two- , three- or six-month period;
provided that:
(i) the initial Interest Period for any Eurodollar Rate Loan shall
commence on the Funding Date in respect of such Loan, in the case of a
Loan initially made as a Eurodollar Rate Loan, or on the date specified in
the applicable Notice of Conversion/Continuation, in the case of a Loan
converted to a Eurodollar Rate Loan;
(ii) each Interest Period shall commence on the day on which the
next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
-35-
<PAGE> 43
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on the
last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the Term Loans
shall extend beyond the Term Loan Termination Date;
(vi) no Interest Period with respect to any portion of the Term
Loans shall extend beyond a date on which the Company is required to make
a scheduled payment of principal of the Term Loans unless the sum of (a)
the aggregate principal amount of Term Loans that are Base Rate Loans plus
(b) the aggregate principal amount of Term Loans that are Eurodollar Rate
Loans with Interest Periods expiring on or before such date equals or
exceeds the principal amount required to be paid on the Term Loans on such
date;
(vii) there shall be no more than ten (10) Interest Periods
outstanding at any time; and
(viii) in the event the Company fails to specify an Interest Period
for any Eurodollar Rate Loan in the applicable Notice of Borrowing or
Notice of Conversion/Continuation, the Company shall be deemed to have
selected an Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to, but not including,
each Interest Payment Date applicable to that Loan, upon any prepayment of that
Loan (to the extent accrued on the amount being prepaid) and at maturity
(including final maturity).
D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.6, the Company shall have the option (i) to convert at any time all or any
part of its outstanding Revolving Loans or Term Loans equal to $3,000,000 and
integral multiples of $100,000 in excess of that amount from Loans bearing
interest at a rate determined by reference to one basis to Loans bearing
interest at a rate determined by reference to an alternative basis or (ii) upon
the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to
continue all or any portion of such Loan equal to $3,000,000 and integral
multiples of $100,000 in excess of that amount as a Eurodollar Rate Loan;
provided, however, that a Eurodollar Rate Loan may only be converted into a Base
Rate Loan on the last day of an Interest Period applicable thereto.
The Company shall deliver a Notice of Conversion/Continuation to the Agent
no later than 9:00 a.m.(Los Angeles time) on the proposed conversion date (in
the case of a conversion to a Base Rate Loan) and at least three Business Days
in advance of the proposed conversion/continuation date (in the case of a
conversion to, or a continuation
-36-
<PAGE> 44
of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify
(i) the proposed conversion/continuation date (which shall be a Business Day),
(ii) the amount and type of the Loan to be converted/continued, (iii) the nature
of the proposed conversion/continuation, (iv) in the case of a conversion to, or
a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and
(v) in the case of a conversion to, or a continuation of, a Eurodollar Rate
Loan, that no Potential Event of Default or Event of Default has occurred and is
continuing.
Neither the Agent nor any Lender shall incur any liability to the Company
in acting upon any notice referred to above that the Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to act on behalf of the Company or for otherwise acting in good faith under this
subsection 2.2D, and upon conversion or continuation of the applicable basis for
determining the interest rate with respect to any Revolving Loans or Term Loans
in accordance with this Agreement pursuant to any such notice the Company shall
have effected a conversion or continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Conversion/Continuation for conversion to, or continuation of, a Eurodollar
Rate Loan shall be irrevocable on and after the related Interest Rate
Determination Date, and the Company shall be bound to effect a conversion or
continuation in accordance therewith.
E. DEFAULT RATE. Any amounts not paid when due hereunder or under any
other Loan Document, including, but not limited to, outstanding principal of a
Loan and, to the extent permitted by applicable law, any interest payments
thereon and any fees and other amounts, shall thereafter bear interest payable
upon demand from the date when due until the date of payment at a rate which is
2% per annum in excess of the interest rate otherwise payable under this
Agreement with respect to the applicable Loans (or, in the case of any such fees
and other amounts, at a rate which is 2% per annum in excess of the interest
rate otherwise payable under this Agreement for Base Rate Loans); provided that,
in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period
in effect at the time any such increase in interest rate is effective such
Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall
thereafter bear interest payable upon demand at a rate which is 2% per annum in
excess of the interest rate otherwise payable under this Agreement for Base Rate
Loans. Payment or acceptance of the increased rates of interest provided for in
this subsection 2.2E is not a permitted alternative to timely payment and shall
not constitute a waiver of any Event of Default or otherwise prejudice or limit
any rights or remedies of the Agent or any Lender.
F. COMPUTATION OF INTEREST. Interest on each Loan shall be computed on the
basis of a 360-day year, in each case for the actual number of days elapsed in
the period during which it accrues, unless such Loan is a Base Rate Loan with a
Base Rate based upon the Prime Rate, in which event interest shall be computed
on the basis of a year of 365 or 366 days, as the case may be, for the actual
number of days elapsed in the period during which it accrues. In computing
interest on any Loan, the date of the
-37-
<PAGE> 45
making of such Loan or the first day of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate
Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate
Loan, as the case may be, shall be included, and the date of payment of such
Loan or the expiration date of an Interest Period applicable to such Loan or,
with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the
date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the
case may be, shall be excluded provided that if a Loan is repaid on the same day
on which it is made, one day's interest shall be paid on that Loan.
2.3 FEES.
A. COMMITMENT FEES. The Company agrees to pay to the Agent, for
distribution to each Lender in proportion to that Lender's Pro Rata Share,
commitment fees for the period from and including the Closing Date to and
excluding the Revolving Loan Commitment Termination Date equal to the average of
the daily excess of the Revolving Loan Commitments over the sum of the aggregate
principal amount of Revolving Loans outstanding and the Letter of Credit Usage
multiplied by the Commitment Fee Rate, such commitment fees to be calculated on
the basis of a 360-day year and the actual number of days elapsed and to be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing on the first such date to occur after the Closing Date,
and ending on the Revolving Loan Commitment Termination Date; provided, however,
that any commitment fee accrued with respect to the Revolving Loan Commitment of
a Defaulting Lender during the period prior to the time such Lender became a
Defaulting Lender and unpaid at such time shall not be payable by the Company so
long as such Lender shall be a Defaulting Lender; and provided further that no
commitment fee shall accrue on any of the Revolving Loan Commitment of a
Defaulting Lender so long as such Lender shall be a Defaulting Lender.
B. CONVERSION FEE. If the Company elects to convert the Revolving Loans
into Term Loans on the Revolving Loan Commitment Termination Date under the
terms of Section 2.1A(ii), on such date the Company will pay to the Agent for
the account of the Lenders a conversion fee of [*] which the Agent shall
distribute to each Lender in proportion to that Lender's Pro Rata Share.
C. LETTER OF CREDIT FEES. The Company agrees to pay (i) the fee set
forth in subsection 2.9E(2) and (ii) the fee set forth in subsection
2.9E(1)(ii).
D. AGENT'S FEES. The Company and the Agent shall enter into one or more
letter agreements establishing administrative fees payable by the Company to the
Agent for its administrative services hereunder which fees shall be for the
account of the Agent and not the Lenders.
[*] Confidential Treatment Requested
-38-
<PAGE> 46
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS;
GENERAL PROVISIONS REGARDING PAYMENTS
A. SCHEDULED TERM LOAN PRINCIPAL PAYMENTS. The Company shall make
principal payments on the Term Loans in installments the last day of each fiscal
quarter commencing on the first such day that is on or after the date three
months following the Conversion Date in an amount equal to 1/12th of the
principal amount of Term Loans outstanding on the Conversion Date; provided that
such scheduled installments of principal of the Term Loans shall be reduced in
connection with any voluntary or mandatory prepayments of the Term Loans in
accordance with subsection 2.4B; and provided, further, that the Term Loans and
all other amounts owed hereunder with respect to the Term Loans shall be paid in
full no later than the Term Loan Termination Date, and the final installment
payable by the Company in respect of the Term Loans on such date shall be in an
amount sufficient to repay all amounts owing by the Company under this Agreement
with respect to the Term Loans. Any payment pursuant to this subsection 2.4A
will be applied ratably among the Notes.
B. PREPAYMENTS AND UNSCHEDULED REDUCTIONS IN REVOLVING LOAN
COMMITMENTS.
(i) Voluntary Prepayments. The Company may, upon not less than three
Business Days' prior written notice given to the Agent by 9:00 a.m. (Los
Angeles time) on the date required, at any time and from time to time
prepay, without premium or penalty (other than pursuant to subsection
2.6D, if applicable), any Term Loans or Revolving Loans on any Business
Day in whole or in part in an aggregate minimum amount of $3,000,000 and
integral multiples of $100,000 in excess of that amount; provided,
however, that a Eurodollar Rate Loan may only be prepaid prior to the
expiration date of the Interest Period applicable thereto upon compliance
with subsection 2.6D. Notice of prepayment having been given as aforesaid,
the principal amount of the Loans specified in such notice shall become
due and payable on the prepayment date specified therein. Any such
voluntary prepayment shall be applied as specified in subsection 2.4B(iv).
(ii) Voluntary Reductions of Revolving Loan Commitments. The Company
may, upon not less than three Business Days' prior written notice to the
Agent, at any time and from time to time terminate in whole or permanently
reduce in part, without premium or penalty (other than pursuant to
subsection 2.6D), the Revolving Loan Commitments in an amount up to the
amount by which the Revolving Loan Commitments exceed the Total
Utilization of Revolving Loan Commitments at the time of such proposed
termination or reduction (as reduced by the amount, if any, of any
voluntary prepayment of such outstanding Revolving Loans effected under
subsection 2.4B(i) on the date of such termination or reduction); provided
that any such partial reduction of the Revolving Loan Commitments shall be
in an aggregate minimum amount of $3,000,000 (including any such partial
reduction resulting from any voluntary prepayment pursuant to subsection
2.4B(i) as aforesaid) and integral multiples
-39-
<PAGE> 47
of $100,000 in excess of that amount. The Company's notice to the Agent
shall designate the date (which shall be a Business Day) of such
termination or reduction and the amount of any partial reduction, and such
termination or reduction of the Revolving Loan Commitments shall be
effective on the date specified in the Company's notice and shall reduce
the Revolving Loan Commitment of each Lender proportionately to its Pro
Rata Share.
(iii) Mandatory Prepayments and Mandatory Reductions of Loans.
(1) Prepayments Due to Reductions in Borrowing Base.
(a) The Company shall from time to time prepay, without
premium or penalty (other than pursuant to subsection 2.6D),
amounts outstanding under the Commitments equal in the
aggregate to the amount of any Borrowing Base Deficiency at
such time. Such prepayment shall be effected by the Company
prepaying the outstanding principal of Revolving Loans or Term
Loans (as the case may be) in the amount of such Borrowing
Base Deficiency, provided, however, that if such prepayment is
insufficient to reduce the Outstanding Amounts to the amount
of the Borrowing Base, concurrently therewith the Company
shall also provide collateral for any outstanding Letters of
Credit by depositing Cash or Permitted Cash Equivalents into
the Cash Collateral Account (which collateral when in the Cash
Collateral Account shall be includable in the Borrowing Base)
in such additional amounts as shall be sufficient to increase
the Borrowing Base to the Outstanding Amounts. Such prepayment
(and collateral arrangements, if any) shall be made not later
than three (3) Business Days following the delivery of (x) a
regularly scheduled monthly Borrowing Base Certificate
delivered pursuant to subsection 2.10D and/or subsection
2.4B(iii)(1)(c) showing a Borrowing Base Deficiency or (y) an
updated Borrowing Base Certificate delivered pursuant to
subsection 2.4B(iii)(1)(b), 2.4B(iii)(1)(d), 3.3(vii) or 7.11
showing a Borrowing Base Deficiency.
(b) In addition to any notice required by subsection
5.1(xii), if an event occurs that could reasonably be expected
to cause loss of or substantial damage to Borrowing Base
Collateral (excluding Rotables) the Fair Market Value of which
exceeds $5,000,000, the Company shall deliver to the Agent a
written notice within three (3) Business Days after a
Responsible Officer of the Company obtains actual knowledge of
such event. Such notice shall identify the specific item(s) of
such Borrowing Base Collateral subject to such event of loss
or damage, describe the nature of the event of loss or damage
and include an estimate of whether such loss or
-40-
<PAGE> 48
damage can reasonably be expected to exceed $10,000,000. As
soon as it can reasonably determine whether such event is an
Event of Loss, Event of Damage or Repairable Damage with
respect to the affected Borrowing Base Collateral but in any
event not later than 60 days after the Company's notice with
respect to such event, the Company shall deliver to the Agent
an updated Borrowing Base Certificate in which the Company
shall certify that such event is either an Event of Loss,
Event of Damage or Repairable Damage, with respect to the
item(s) of affected Borrowing Base Collateral. If the Company
fails to deliver such updated Borrowing Base Certificate by
such date, it shall be deemed to have delivered an updated
Borrowing Base Certificate as provided in this subsection
2.4B(iii)(1)(b) certifying that such event is an Event of Loss
of the affected Borrowing Base Collateral. Such updated
Borrowing Base Certificate shall exclude from the Borrowing
Base any such Borrowing Base Collateral subject to an Event of
Loss, Event of Damage or Repairable Damage, provided, however,
that (1) any such Borrowing Base Collateral other than the
Hangar that has suffered Repairable Damage shall not be
excluded if (A) such Repairable Damage is covered by insurance
which will pay proceeds in at least the amount of the repair
costs (net of any permitted self-insurance and deductibles)
and the Agent is the loss payee of such insurance pursuant to
the terms of the relevant Security Agreement, each as
certified by the Company in the updated Borrowing Base
Certificate and (B) the Company elects to repair such
Borrowing Base Collateral as certified in the updated
Borrowing Base Certificate and (2) Borrowing Base Collateral
comprising the Hangar that has suffered Repairable Damage
shall not be excluded and the Borrower shall repair the Hangar
unless (A) the cost of such repair is likely to exceed
$10,000,000 as reasonably estimated by the Company, as
certified by the Company in such updated Borrowing Base
Certificate, or by the Agent (following consultation, in the
case of the Agent, with an Approved Appraiser) by notice
delivered by the Agent to the Company and (B) the Repairable
Damage is not covered by insurance which will pay proceeds to
the Agent, as loss payee, in at least the amount of the repair
costs (net of any permitted self-insurance and deductibles),
as certified by the Company in such updated Borrowing Base
Certificate. If such updated Borrowing Base Certificate shows
a Borrowing Base Deficiency, the Company shall make a
prepayment (and/or provide collateral) as provided in
subsection 2.4B(iii)(1)(a).
(c) If an event occurs that could reasonably be expected
to cause loss of or substantial damage to Borrowing Base
Collateral (excluding Rotables) the Fair Market Value of which
is equal to or
-41-
<PAGE> 49
less than $5,000,000, the Company shall report such event in
the first regularly scheduled monthly Borrowing Base
Certificate delivered pursuant to subsection 2.10D following
actual knowledge of such event by a Responsible Officer of the
Company. Such Borrowing Base Certificate shall identify the
specific item(s) of Borrowing Base Collateral subject to such
event of loss or damage, and describe the event of loss or
damage. The Company shall determine whether such event is an
Event of Loss, Event of Damage or Repairable Event with
respect to the affected Borrowing Base Collateral as soon as
reasonably practicable and shall so certify in the next
succeeding monthly Borrowing Base Certificate if possible but,
in any event, not later than the second next succeeding
monthly Borrowing Base Certificate, provided, however, that
the failure to so certify in such second succeeding Borrowing
Base Certificate shall be deemed to be a certification by the
Company in such certificate that such event is an Event of
Loss of the affected Borrowing Base Collateral. The Borrowing
Base Certificate that makes such certification shall exclude
from the Borrowing Base any Borrowing Base Collateral subject
to an Event of Loss, Event of Damage or Repairable Damage,
provided, however, that Borrowing Base Collateral that has
suffered Repairable Damage shall not be excluded if (A) such
Borrowing Base Collateral is covered by insurance which will
pay proceeds in at least the amount of the repair costs (net
of any permitted self-insurance or deductibles) and the Agent
is the loss payee of such insurance pursuant to the terms of
the relevant Security Agreement, each as certified by the
Company in such Borrowing Base Certificate, and (B) the
Company elects to repair such Borrowing Base Collateral as
certified in such Borrowing Base Certificate. If such
Borrowing Base Certificate shows a Borrowing Base Deficiency,
the Company shall make a prepayment (and/or provide
collateral) as provided in subsection 2.4B(iii)(1)(a).
(d) If an event occurs that could reasonably be expected
to cause an Adjustment Event (as reasonably determined by the
Company), the Company shall deliver to the Agent a written
notice within three (3) Business Days after a Responsible
Officer of the Company obtains actual knowledge of such event.
Such notice shall identify the location and type (to the
extent reasonably possible) of the affected Rotables, describe
the event of loss or damage and include an estimate of whether
such loss or damage can reasonably be expected to exceed
$10,000,000. As soon as it can reasonably determine whether
such event is an Adjustment Event but in any event not later
than 60 days after the Company's notice of such event, the
Company shall deliver to the Agent an updated Borrowing Base
Certificate in which the Company shall certify
-42-
<PAGE> 50
whether or not such event is an Adjustment Event. If the
Company fails to deliver such updated Borrowing Base
Certificate by such date, it shall be deemed to have delivered
an updated Borrowing Base Certificate certifying that such
event is an Adjustment Event of the affected Rotables. If such
updated Borrowing Base Certificate certifies that an
Adjustment Event has occurred, it shall exclude from the
Borrowing Base the book value of the Rotables subject to the
Adjustment Event and shall specify the amount of such book
value excluded for purposes of calculating the Borrowing Base
Value of the Rotables. If such updated Borrowing Base
Certificate certifies that an Adjustment Event has not
occurred, it shall make an appropriate adjustment in the book
value of the affected Rotables, as certified in such Borrowing
Base Certificate, to take into account the loss or damage to
the affected Rotables and shall specify the amount of such
adjustment for purposes of calculating the Borrowing Base
Value of the Rotables. (For the avoidance of doubt, the
Company shall make or not make adjustments to the book value
of Rotables subject to events of loss or damage not covered by
this subsection 2.4B(iii)(1)(d) in accordance with its normal
accounting procedures as applied without regard to the
procedures established in this subsection). If such updated
Borrowing Base Certificate shows a Borrowing Base Deficiency,
the Company shall make a prepayment (and/or provide
collateral) as provided in subsection 2.4B(iii)(1)(a).
(e) If either (A) a notice of loss or damage delivered
by the Company pursuant to subsection 2.4B(iii)(1)(b) or (d)
estimates that the applicable loss or damage can reasonably be
expected to exceed $10,000,000 or (B) following receipt of
notice of loss or damage pursuant to such subsection and
consultation with an Approved Appraiser, the Agent reasonably
estimates that such loss or damage can reasonably be expected
to exceed $10,000,000 and so notifies the Company, the
affected Borrowing Base Collateral shall be excluded from the
Borrowing Base on an interim basis until delivery of an
updated Borrowing Base Certificate pursuant to subsection
2.4B(iii)(1)(b) or (d) determines whether such exclusion shall
be permanent, provided, however, that such interim exclusion
shall be reversed and not applied in the calculation of any
Borrowing Base Deficiency requiring any prepayment under this
Agreement and shall be solely for purposes of determining
whether the Borrowing Base is sufficient to support the making
of additional Revolving Loans or the issuance of Letters of
Credit pursuant to the terms of this Agreement.
(f) If the Company elects to repair any Borrowing Base
Collateral (other than the Hangar) subject to Repairable
Damage
-43-
<PAGE> 51
and so certifies in any Borrowing Base Certificate or, in the
case of the Hangar only, is required to repair Repairable
Damage to the Hangar, the Company shall complete such repair
as soon as reasonably practicable.
(g) In any Borrowing Base Certificate delivered as
provided in subsection 2.4B(iii)(1)(b) or (c) which requires
the exclusion of any Borrowing Base Collateral pursuant to the
terms of such subsection, the Company may also request the
release of the Lien of the Security Agreement to which such
Borrowing Base Collateral is subject and, provided that no
Potential Event of Default or Event of Default then exists, as
certified by the Company in such Borrowing Base Certificate,
and any Borrowing Base Deficiency certified in such Borrowing
Base Certificate is timely paid and additional Collateral (if
any) is provided as required by subsection 2.4B(iii)(1)(a),
the Agent shall release such Lien on such Borrowing Base
Collateral simultaneously with the satisfaction of the
conditions contained in this subsection 2.4B(iii)(1)(g) by
executing and delivering such releases as may be reasonably
requested by the Company.
(2) Prepayments and Termination of Commitments Due to Change
of Control. Within five Business Days after the occurrence of a
Change of Control, the Company will notify the Agent of such Change
of Control (the giving of such notice not being a prerequisite to
the Agent's giving its notice as provided in this subsection
2.4B(iii)(2)). The Agent shall, upon receipt of the notice from the
Company required by the preceding sentence, give the Company and the
Lenders notice delivered not more than 60 (sixty) days following the
occurrence of a Change of Control or, if later, not more than 60
(sixty) days following delivery of the notice set forth in the
immediately preceding sentence, except as provided in the last
sentence of this subsection 2.4B(iii)(2), that (A) the Company will
be required to prepay all amounts outstanding under the Commitments
on a date specified by the Agent in such notice (which shall be not
less than ten (10) days after the date of delivery of such notice)
and (B) the Lenders' Commitments to make and convert Loans and issue
Letters of Credit shall terminate on the date so specified by the
Agent. On the date specified in such notice, except as provided in
the last sentence of this subsection 2.4B(iii)(2), the Company shall
(A) pay all outstanding principal and interest on all Loans and all
other fees and amounts payable under any Loan Document, including,
without limitation, with respect to Letter of Credit Usage, and (B)
provide cash collateral in the amount of, and as security for, all
outstanding Letters of Credit under arrangements satisfactory in
form and substance to the Issuing Bank and use its best efforts to
replace and terminate such Letters of Credit as soon thereafter as
possible. Notwithstanding the foregoing terms of this subsection
-44-
<PAGE> 52
2.4B(iii)(2), by notice to the Company and the Agent within five
Business Days after receipt by a Lender of a notice by the Agent as
provided in this clause, such Lender may elect not to have its
portion of the Commitments prepaid as provided in this clause, in
which case such portion shall not be prepaid nor its Commitment
terminated and its Pro Rata Share shall be adjusted in relationship
to the other remaining outstanding Commitments, provided, however,
that if the Commitment of the Issuing Bank has been so terminated,
all outstanding Letters of Credit shall be cash collateralized or
terminated and replaced as provided in clause (B) of the preceding
sentence of this subsection 2.4B(iii)(2).
(iv) Application of Prepayments.
(a) Application of Voluntary Prepayments by Type of Loans and
Order of Maturity. Any voluntary prepayments pursuant to subsection
2.4B(i) shall be applied ratably among the Notes. Any voluntary
prepayments of the Term Loans pursuant to subsection 2.4B(i) shall
be applied to ratably reduce the remaining scheduled installments of
principal of the Term Loans set forth in subsection 2.4A.
(b) Application of Mandatory Prepayments of Loans. Any
mandatory prepayments of the Loans pursuant to subsection 2.4B(iii)
shall be applied ratably among the Notes and in the case of Term
Loans, to ratably reduce the remaining scheduled installments of
principal of the Term Loans set forth in subsection 2.4A.
(c) Application of Prepayments to Base Rate Loans and
Eurodollar Rate Loans. Any prepayment of Loans shall be applied
first to Base Rate Loans to the full extent thereof before
application to Eurodollar Rate Loans, in each case in a manner which
minimizes the amount of any payments required to be made by the
Company pursuant to subsection 2.6D.
C. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by the Company of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in Dollars in same day funds, without defense, set-off
or counterclaim, free of any restriction or condition, and delivered to
the Agent not later than 10:30 a.m. (Los Angeles time) on the date due at
the Funding and Payment Office for the account of Lenders; funds received
by the Agent after that time on such due date shall be deemed to have been
paid by the Company on the next succeeding Business Day.
(ii) Application of Payments to Principal and Interest. All payments
in respect of the principal amount of any Loan shall include payment of
accrued
-45-
<PAGE> 53
interest on the principal amount being repaid or prepaid, and all such
payments shall be applied to the payment of interest before application to
principal.
(iii) Apportionment of Payments. Except as otherwise provided in
subsection 2.4B(iii)(2), aggregate principal and interest payments in
respect of Term Loans and Revolving Loans shall be apportioned among all
outstanding Loans to which such payments relate, in each case
proportionately to each Lender's respective Pro Rata Share. The Agent
shall promptly distribute to each Lender, at its primary address set forth
below its name on the appropriate signature page hereof or at such other
address as such Lender may request, its Pro Rata Share of all such
payments received by the Agent and the commitment fees of such Lender when
received by the Agent pursuant to subsection 2.3. Notwithstanding the
foregoing provisions of this subsection 2.4C(iii), if, pursuant to the
provisions of subsection 2.6C, any Notice of Conversion/Continuation is
withdrawn as to any Affected Lender or if any Affected Lender makes Base
Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, the
Agent shall give effect thereto in apportioning payments received
thereafter.
(iv) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may
be.
(v) Notation of Payment. Each Lender agrees that before disposing of
any Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Loans evidenced by that Note and all principal payments previously made
thereon and of the date to which interest thereon has been paid; provided
that the failure to make (or any error in the making of) a notation of any
Loan made under such Note shall not limit or otherwise affect the
Obligations of the Company hereunder or under such Note with respect to
any Loan or any payments of principal or interest on such Note.
2.5 USE OF PROCEEDS.
A. GENERAL CORPORATE PURPOSES. The proceeds of Revolving Loans shall
be used by the Company for its general corporate purposes.
B. MARGIN REGULATIONS. No portion of the proceeds of any borrowing under
this Agreement shall be used by the Company or any of its Subsidiaries in any
manner that might cause the borrowing or the application of such proceeds to
violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board or
to violate Section 7(c) of the Exchange Act, in each case as in effect on the
date or dates of such borrowing and such use of proceeds.
-46-
<PAGE> 54
2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to Eurodollar Rate Loans as to
the matters covered:
A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable after
10:00 a.m. (Los Angeles time) on each Interest Rate Determination Date, the
Agent shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) the interest rate that shall
apply to the Eurodollar Rate Loans for which an interest rate is then being
determined for the applicable Interest Period and shall promptly give notice
thereof (in writing or by telephone confirmed in writing) to the Company and
each Lender.
B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that the
Agent shall have determined (which determination shall be final and conclusive
and binding upon all parties hereto), on any Interest Rate Determination Date
with respect to any Eurodollar Rate Loans, that by reason of circumstances
affecting the interbank Eurodollar market adequate and fair means do not exist
for ascertaining the interest rate applicable to such Loans on the basis
provided for in the definition of Adjusted Eurodollar Rate, the Agent shall on
such date give notice by telefacsimile to the Company and each Lender of such
determination, whereupon (i) no Loans may be made as, or converted to,
Eurodollar Rate Loans until such time as the Agent notifies the Company and
Lenders that the circumstances giving rise to such notice no longer exist and
(ii) any Notice of Borrowing or Notice of Conversion/Continuation given by the
Company with respect to the Loans in respect of which such determination was
made shall be deemed to be rescinded by the Company.
C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the event
that on any date any Lender shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto but shall be made only
after consultation with the Company and the Agent) that the making, maintaining
or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result
of compliance by such Lender in good faith with any law, treaty, governmental
rule, regulation, guideline or order (or would conflict with any such treaty,
governmental rule, regulation, guideline or order enacted, entered into or
promulgated after the date of this Agreement not having the force of law even
though the failure to comply therewith would not be unlawful) or (ii) has become
impracticable, or would cause such Lender material hardship, as a result of
contingencies occurring after the date of this Agreement which materially and
adversely affect the interbank Eurodollar market or the position of such Lender
in that market, then, and in any such event, such Lender shall be an "AFFECTED
LENDER" and it shall on that day give notice (by telefacsimile) to the Company
and the Agent of such determination (which notice the Agent shall promptly
transmit to each other Lender). Thereafter (a) the obligation of the Affected
Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans
-47-
<PAGE> 55
shall be suspended until such notice shall be withdrawn by the Affected Lender,
(b) to the extent such determination by the Affected Lender relates to a
Eurodollar Rate Loan then being requested by the Company pursuant to a Notice of
Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make
such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c)
the Affected Lender's obligation to maintain its outstanding Eurodollar Rate
Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the
expiration of the Interest Period then in effect with respect to the Affected
Loans or when required by law, and (d) the Affected Loans shall automatically
convert into Base Rate Loans on the date of such termination. Notwithstanding
the foregoing, to the extent a determination by an Affected Lender as described
above relates to a Eurodollar Rate Loan then being requested by the Company
pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the
Company shall have the option, subject to the provisions of subsection 2.6D, to
rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all
Lenders by giving notice (by telefacsimile) to the Agent of such rescission on
the date on which the Affected Lender gives notice of its determination as
described above (which notice of rescission the Agent shall promptly transmit to
each other Lender). Except as provided in the immediately preceding sentence,
nothing in this subsection 2.6C shall affect the obligation of any Lender other
than an Affected Lender to make or maintain Loans as, or to convert Loans to,
Eurodollar Rate Loans in accordance with the terms of this Agreement.
In the event any Affected Lender shall give a notice to the Company
pursuant to this subsection 2.6C, the Company may give notice to such Lender
(with copies to the Agent) that it wishes to seek one or more Eligible Assignees
to assume the Commitments of such Lender and to purchase its outstanding Loans,
Obligations and Notes. Each Lender giving a notice to the Company pursuant to
this subsection 2.6C agrees to sell its Commitments, Loans, Obligations, Notes
and interest in this Agreement and the other Loan Documents pursuant to
subsection 9.1B to any such Eligible Assignee for an amount equal to the sum of
the outstanding unpaid principal of and accrued interest on such Loans,
Obligations and Notes plus all other fees and amounts due such Lender hereunder
calculated, in each case, to the date such Commitment, Loans, Obligations, Notes
and interest are purchased, whereupon such Lender shall have no further
Commitment hereunder.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS. The
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including, without limitation, any
interest paid by that Lender to lenders of funds borrowed by it to make or carry
its Eurodollar Rate Loans and any loss, expense or liability sustained by that
Lender in connection with the liquidation or re-employment of such funds) which
that Lender may sustain: (i) if for any reason (other than a default by that
Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date
specified therefor in a Notice of Borrowing, or a conversion to or continuation
of any Eurodollar Rate Loan does not occur on a date specified therefor in a
Notice of Conversion/Continuation, (ii)
-48-
<PAGE> 56
if any prepayment or other principal payment or any conversion of any of its
Eurodollar Rate Loans occurs on a date prior to the last day of an Interest
Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar
Rate Loans is not made on any date specified in a notice of prepayment given by
the Company, or (iv) as a consequence of any other default by the Company in the
repayment of its Eurodollar Rate Loans when required by the terms of this
Agreement.
E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender; provided that such action
does not increase the Company's liability under subsection 2.7.
F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation of
all amounts payable to a Lender under this subsection 2.6 and under subsection
2.7A shall be made as though that Lender had actually funded each of its
relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of that
Lender to a domestic office of that Lender in the United States of America;
provided, however, that each Lender may fund each of its Eurodollar Rate Loans
in any manner it sees fit and the foregoing assumptions shall be utilized only
for the purposes of calculating amounts payable under this subsection 2.6 and
under subsection 2.7A.
G. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of and during
the continuation of a Potential Event of Default or an Event of Default, (i) the
Company may not elect to have a Revolving Loan or a Term Loan be made or
maintained as, or converted to, a Eurodollar Rate Loan after the expiration of
any Interest Period then in effect for that Loan and (ii) subject to the
provisions of subsection 2.6D, any Notice of Borrowing or Notice of
Conversion/Continuation given by the Company with respect to a requested
borrowing or conversion/continuation that has not yet occurred shall be deemed
to be rescinded by the Company.
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions
of subsection 2.7B, in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
-49-
<PAGE> 57
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such
Lender) with respect to this Agreement or any of its obligations hereunder
or any payments to such Lender (or its applicable lending office) of
principal, interest, fees or any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or
for the account of, or advances or loans by, or other credit extended by,
or any other acquisition of funds by, any office of such Lender (other
than any such reserve or other requirements with respect to Eurodollar
Rate Loans that are reflected in the definition of Adjusted Eurodollar
Rate); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder or the interbank Eurodollar market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, the Company shall promptly pay to such
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to the Company (with a copy to the Agent) a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to such Lender under this subsection 2.7A, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.
B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. All sums payable by the Company
under this Agreement and the other Loan Documents shall be paid free and
clear of and (except to the extent required by law) without any deduction
or withholding on account of any Tax (other than a Tax on the overall net
income of any Lender or tax in lieu thereof) imposed, levied, collected,
withheld or assessed by any governmental authority, domestic or foreign.
(ii) Grossing-up of Payments. If the Company or any other Person is
required by law to make any deduction or withholding on account of any
such Tax from any sum paid or payable by the Company to the Agent or any
Lender under any of the Loan Documents:
-50-
<PAGE> 58
(a) the Company shall notify the Agent or such Lender of any
such requirement or any change in any such requirement as soon as the
Company becomes aware of it;
(b) the Company shall remit any such Tax before the date on
which penalties attach thereto, such remittance to be made (if the
liability is imposed on the Company) for its own account or (if that
liability is imposed on the Agent or such Lender, as the case may be) on
behalf of and in the name of the Agent or such Lender;
(c) the sum payable by the Company in respect of which the
relevant deduction, withholding or payment is required shall be increased
to the extent necessary to ensure that, after the making of that
deduction, withholding or payment, the Agent or such Lender, as the case
may be, receives on the due date a net sum equal to what it would have
received had no such deduction, withholding or payment been required or
made; and
(d) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30 days
after the due date of remittance of any Tax which it is required by clause
(b) above to remit, the Company shall deliver to the Agent evidence
satisfactory to the other affected parties of such deduction, withholding
or payment and of the remittance thereof to the relevant taxing or other
authority.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other political
subdivision thereof (for purposes of this subsection 2.7B(iii), a "NON-US
LENDER") shall deliver to the Agent for transmission to the Company, on or
prior to the Closing Date (in the case of each Lender listed on the
signature pages hereof) or on the date of the Assignment Agreement
pursuant to which it becomes a Lender (in the case of each other Lender),
and at such other times as may be necessary in the determination of the
Company or the Agent (each in the reasonable exercise of its discretion),
(1) two original copies of Internal Revenue Service Form 1001 or 4224 (or
any successor forms), properly completed and duly executed by such Lender,
together with any other certificate or statement of exemption required
under the Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or withholding of
United States federal income tax with respect to any payments to such
Lender of principal, interest, fees or other amounts payable under any of
the Loan Documents or (2) if such Lender is not a "bank" or other Person
described in Section 881(c)(3) of the Internal Revenue Code and cannot
deliver either Internal Revenue Service Form 1001 or 4224 pursuant to
clause (1) above, a Certificate re: Non-Bank Status together with two
original copies of Internal Revenue Service Form W-8 (or any successor
form), properly completed and duly
-51-
<PAGE> 59
executed by such Lender, together with any other certificate or statement
of exemption required under the Internal Revenue Code or the regulations
issued thereunder to establish that such Lender is not subject to
deduction or withholding of United States federal income tax with respect
to any payments to such Lender of interest payable under any of the Loan
Documents.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees
that, from time to time after the initial delivery by such Lender of such
forms, certificates or other evidence, whenever a lapse in time or change
in circumstances renders such forms, certificates or other evidence
obsolete or inaccurate in any material respect, such Lender shall (l)
deliver to the Agent for transmission to the Company two new original
copies of Internal Revenue Service Form 1001 or 4224, or a Certificate re:
Non-Bank status and two original copies of Internal Revenue Service Form
W-8, as the case may be, properly completed and duly executed by such
Lender, together with any other certificate or statement of exemption
required in order to confirm or establish that such Lender is not subject
to deduction or withholding of United States federal income tax with
respect to payments to such Lender under the Loan Documents or (2)
immediately notify the Agent and the Company of its inability to deliver
any such forms, certificates or other evidence.
(c) The Company shall not be required to pay any additional
amount to any Non-US lender under clause (c) of subsection 2.7B(ii) if
such Lender shall have failed to satisfy the requirements of subsection
2.7B(iii)(a); provided that if such Lender shall have satisfied such
requirements on the Closing Date (in the case of each Lender listed on the
signature pages hereof) or on the date of the Assignment Agreement
pursuant to which it became a Lender (in the case of each other Lender),
nothing in this subsection 2.7B(iii)(c) shall relieve the Company of its
obligation to pay any additional amounts pursuant to clause (c) of
subsection 2.7B(ii) in the event that, as a result of any change in any
applicable law, treaty or governmental rule, regulation or order, or any
change in the interpretation, administration or application thereof, such
Lender is no longer properly entitled to deliver forms, certificates or
other evidence at a subsequent date establishing the fact that such Lender
is not subject to withholding as described in subsection 2.7B(iii)(a).
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined that
the adoption, effectiveness, phase-in or applicability after the date hereof of
any law, rule or regulation (or any provision thereof) regarding capital
adequacy, or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its applicable lending office) with any guideline, request or directive
regarding capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or
-52-
<PAGE> 60
comparable agency, has or would have the effect of reducing the rate of return
on the capital of such Lender or any corporation controlling such Lender as a
consequence of, or with reference to, such Lender's Loans or Commitments or
other obligations hereunder to a level below that which such Lender or such
controlling corporation could have achieved but for such adoption,
effectiveness, phase-in, applicability, change or compliance (taking into
consideration the policies of such Lender or such controlling corporation with
regard to capital adequacy), then from time to time, within five Business Days
after receipt by the Company from such Lender of the statement referred to in
the next sentence, the Company shall pay to such Lender such additional amount
or amounts as will compensate such Lender or such controlling corporation on an
after-tax basis for such reduction. Such Lender shall deliver to the Company
(with a copy to the Agent) a written statement, setting forth in reasonable
detail the basis of the calculation of such additional amounts, which statement
shall be conclusive and binding upon all parties hereto absent manifest error.
D. SUBSTITUTE LENDERS. In the event the Company is required under the
provisions of this subsection 2.7 to make payments in a material amount to any
Lender or in the event any Lender fails to lend to the Company in accordance
with this Agreement, the Company may, so long as no Event of Default or
Potential Event of Default shall have occurred and be continuing, elect to
terminate such Lender as a party to this Agreement; provided that, concurrently
with such termination, (i) the Company shall pay that Lender all principal,
interest and fees and other amounts (including without limitation, amounts, if
any, owed under this subsection 2.7) owed to such Lender through such date of
termination, (ii) either the Company shall elect to reduce the Commitment by
such Lender's portion thereof or an Eligible Assignee shall agree, as of such
date, to become a Lender for all purposes under this Agreement (whether by
assignment or amendment) and to assume all obligations of such Lender to be
terminated as of such date, and (iii) all documents and supporting materials
necessary, in the judgment of the Agent (or if the Agent is also the Lender to
be terminated, the successor Agent) to evidence the substitution of such Lender
(if applicable) shall have been received and approved by the Agent as of such
date.
2.8 OBLIGATION OF LENDERS TO MITIGATE.
Each Lender agrees that, as promptly as practicable after the officer of
such Lender responsible for administering the Loans of such Lender becomes aware
of the occurrence of an event or the existence of a condition that would cause
such Lender to become an Affected Lender or that would entitle such Lender to
receive payments under subsection 2.7, it will, to the extent not inconsistent
with the internal policies of such Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, issue, fund or maintain the
Commitments of such Lender or the affected Loans of such Lender through another
lending office of such Lender, or (ii) take such other measures as such Lender
may deem reasonable, if as a result thereof the circumstances which would cause
such Lender to be an Affected Lender would cease to exist or the additional
amounts which would otherwise be required to be paid to such Lender pursuant to
subsection 2.7 would be materially reduced and if, as determined
-53-
<PAGE> 61
by such Lender in its sole discretion, the making, issuing, funding or
maintaining of such Commitments or Loans through such other lending office or in
accordance with such other measures, as the case may be, would not otherwise
materially adversely affect such Commitments or Loans or the interests of such
Lender; provided that such Lender will not be obligated to utilize such other
lending office pursuant to this subsection 2.8 unless the Company agrees to pay
all incremental expenses incurred by such Lender as a result of utilizing such
other lending office as described in clause (i) above. A certificate as to the
amount of any such expenses payable by the Company pursuant to this subsection
2.8 (setting forth in reasonable detail the basis for requesting such amount)
submitted by such Lender to the Company (with a copy to the Agent) shall be
conclusive absent manifest error.
2.9 LETTERS OF CREDIT.
A. Subject to the terms and conditions of this Agreement and in reliance
upon the representations and warranties set forth herein, in addition to
requesting that Lenders make Revolving Loans, the Company may request, in
accordance with the provisions of this subsection 2.9, that the Issuing Bank
issue Letters of Credit for the account of the Company (alone, or with one or
more Subsidiaries); provided that (i) in no event shall the Issuing Bank issue
(a) any Standby Letter of Credit having an expiration date more than 2 years
after its date of issuance or (b) any Commercial Letter of Credit having an
expiration date more than 180 days after its date of issuance and (ii) the
Issuing Bank will not issue any Letter of Credit (a) on or after the Revolving
Loan Commitment Termination Date or (b) if, after giving effect to such
issuance, the Letters of Credit Usage would exceed $20,000,000 or the Total
Utilization of Revolving Loan Commitments would exceed the least of (x)
$100,000,000, (y) the Borrowing Base and (z) the aggregate amount of the
Revolving Loan Commitments, as such Revolving Loan Commitments shall have been
reduced from time to time pursuant to subsection 2.4B(ii). The Company shall, if
such Letter of Credit is issued, be an account party in respect of such Letter
of Credit. The issuance of any Letter of Credit shall require the satisfaction
of each condition set forth in Section 3. All Letters of Credit shall be in U.S.
dollars.
Immediately upon the issuance of each Letter of Credit, each Lender with a
Revolving Loan Commitment shall be deemed to, and hereby agrees to, have
irrevocably purchased from the Issuing Bank a participation in such Letter of
Credit and any drawing thereunder in an amount equal to such Lender's Pro Rata
Share of the maximum amount which is or at any time may become available to be
drawn thereunder.
If an Event of Default has occurred and is continuing, the Issuing Bank
may provide for the deposit by the Issuing Bank or the other Lenders of funds in
a segregated account to secure payment to the beneficiaries thereof of the
maximum amount available to be drawn (after giving effect to all contingencies
under such Letters of Credit including, without limitation, contingencies that
increase the amount available to be drawn under certain terms and conditions,
without regard to whether such
-54-
<PAGE> 62
conditions have in fact been satisfied) under any outstanding undrawn Letters of
Credit, if any, and any funds so deposited shall be (i) paid to such
beneficiaries thereof if the conditions to such drawings are satisfied or (ii)
upon expiry of one or more such Letters of Credit, to the extent drawings have
not been made thereunder, returned to the Issuing Bank to be returned to the
Lenders making such deposit. Each payment or deposit of funds by the Lenders and
the Issuing Bank as provided in this paragraph shall (without duplication) be
treated for all purposes of this Agreement as a drawing duly honored by the
Issuing Bank under the related Letter of Credit, unless and until returned as
provided in clause (ii) of the next preceding sentence.
B. Whenever the Company desires the issuance of a Letter of Credit, it
shall deliver to the Agent and the Issuing Bank a written notice no later than
10:00 A.M. (Los Angeles time) at least 5 Business Days (or such shorter period
as may be acceptable to the Issuing Bank; provided that the Issuing Bank will
act as soon as practicable) prior to the proposed date of issuance. That notice
shall be deemed a representation by the Company that all conditions precedent to
such issuance have been satisfied and shall specify (i) the proposed date of
issuance (which shall be a Business Day), (ii) the face amount of the Letter of
Credit, (iii) the expiration date of the Letter of Credit, (iv) the name and
address of the beneficiary and the name and telephone number of a contact at the
beneficiary, (v) the name and address of the recipient and the name and address
of a contact at the recipient, if other than the beneficiary and (vi) the
requested text and a precise description of the documents and the proposed
verbatim text of any certificate to be presented by the beneficiary of such
Letter of Credit which, if presented by such beneficiary prior to the expiration
date of such Letter of Credit, would require the Issuing Bank to make payment
under the Letter of Credit; provided that the Issuing Bank, in its reasonable
judgment, may require changes in any such text, documents and certificates. In
determining whether to pay under any Letter of Credit, to the extent permitted
by applicable law, the Issuing Bank shall be responsible only to determine that
the documents and certificates required to be delivered under that Letter of
Credit have been delivered and that they comply on their face with the
requirements of that Letter of Credit. Promptly after receipt of a notice of
issuance of a Letter of Credit, the Issuing Bank shall notify each Lender of the
proposed issuance and the amount of each such other Lender's respective
participation therein, determined in accordance with the terms of subsection
2.9A.
If the Issuing Bank has been notified that a Lender is unable, due solely
to a bankruptcy, insolvency, receivership or similar event with respect to such
Lender or compliance by such Lender with orders of regulatory authorities
applicable to it, to participate in a Letter of Credit and any drawings
thereunder, the Issuing Bank shall notify the Company promptly following receipt
of notice of such inability and in any event shall, within two Business Days
after receipt of the notice requesting the issuance of a Letter of Credit,
notify the Company of such Defaulting Lender's Pro Rata Share of the maximum
amount which may become available to be drawn thereunder. The Company shall, on
the Business Day the Letter of Credit is issued, unless it shall then have
replaced the Defaulting Lender with an Eligible Assignee as contemplated by the
next sentence, deposit Cash equal to such Pro Rata Share into a segregated
account
-55-
<PAGE> 63
maintained by the Agent which Cash shall be invested, as the Company may direct,
in Permitted Cash Equivalents). At any time after receipt of the Issuing Bank's
notice of the Defaulting Lender's Pro Rata Share, the Company may at its
election replace the Defaulting Lender with an Eligible Assignee pursuant to and
in compliance with the terms and conditions of subsection 2.7D and such
replacement Lender shall pay funds equal to such Pro Rata Share to the Issuing
Bank. The amount so deposited shall be (i) paid to the Issuing Bank on the same
day the Issuing Bank honors a drawing under the Letter of Credit if the
conditions to a drawing are satisfied or (ii) to the extent that any such
deposit has been made by the Company, provided that no Potential Event of
Default or Event of Default has occurred and is continuing, returned to the
Company together with earnings thereon (a) if no payment to such beneficiary has
been made and the final date available for drawings under the Letter of Credit
has passed or such Letter of Credit has otherwise expired by its terms or is
returned by the beneficiary thereof for cancellation and is so canceled or (b)
upon the Company's replacement of the Defaulting Lender with an Eligible
Assignee pursuant to and in compliance with the terms and conditions of
subsection 2.7D and the purchase by such replacement Lender of a participation
in outstanding Letters of Credit in compliance with subsections 2.9A and 2.9B.
C. In the event of any request for drawing under any Letter of Credit by
the beneficiary thereof, the Issuing Bank shall give written notice by facsimile
to the Company (x) confirming receipt of such request and (y) of the date on
which the Issuing Bank intends to honor such drawing, and the Company shall
reimburse the Issuing Bank on the day on which such drawing is honored in an
amount in U.S. dollars in same day funds equal to the amount of such drawing;
provided that, anything contained in this Agreement to the contrary
notwithstanding, in the case of any drawing under any Letter of Credit on or
prior to the Revolving Credit Commitment Termination Date, unless the Company
shall have deposited funds equal to the amount of such drawing with the Issuing
Bank prior to such drawing, the Company shall be deemed to have timely given a
Notice of Borrowing to the Agent requesting the Lenders to make Revolving Loans
which are Base Rate Loans on the date on which such drawing is honored in an
amount equal to the amount of such drawing and (ii) the Lenders shall, on the
date of such drawing, make Revolving Loans which are Base Rate Loans in the
amount of such drawing, the proceeds of which shall be applied directly by the
Agent to reimburse the Issuing Bank for the amount of such drawing; and
provided, further, that, if for any reason, proceeds of Revolving Loans are not
received by the Issuing Bank on such date in an amount equal to the amount of
such drawing (less the Issuing Bank's share of Revolving Loans), the Company
shall reimburse the Issuing Bank, on the Business Day immediately following the
date on which the Company receives notification from the Issuing Bank that it
has not received such amount of proceeds, in an amount in same day funds equal
to the excess of the amount of such drawing over the amount of such Revolving
Loans which are so received (less the Issuing Bank's share thereof, as
aforesaid), plus accrued interest on such amount at the rate set forth in
subsection 2.9(E)(1)(i). The Company shall, promptly upon obtaining notice or
knowledge thereof by any Responsible Officer, give prompt notice to the Agent
and the Issuing Bank of an impending drawing on any Letter of Credit.
-56-
<PAGE> 64
D. In the event that the Issuing Bank shall not be reimbursed by the
Company for any drawing under any Letter of Credit issued by it as provided in
subsection 2.9C, other than as a result of a default by a Lender in making a
Revolving Loan as provided in subsection 2.9C, the Issuing Bank shall promptly
notify each Lender of the unreimbursed amount of such drawing and of such
Lender's respective participation therein. Each Lender shall make available to
the Issuing Bank an amount equal to its respective participation in same day
funds, at the office of the Issuing Bank specified in such notice, not later
that 10:00 a.m. (Los Angeles time) on the Business Day after the date notified
by the Issuing Bank. In the event that any Lender fails to make available to the
Issuing Bank the amount of such Defaulting Lender's participation in such Letter
of Credit as provided in this subsection 2.9D, the Issuing Bank shall be
entitled to recover such amount on demand from such Defaulting Lender together
with interest at the Federal Funds Effective Rate for three Business Days and
thereafter at the Base Rate. Nothing in this subsection 2.9D shall be deemed to
prejudice the right of any Lender to recover from the Issuing Bank any amounts
made available by such Lender to the Issuing Bank pursuant to this subsection
2.9D in the event that it is determined by a court of competent jurisdiction
that the payment with respect to a Letter of Credit by the Issuing Bank in
respect of which payment was made by such Lender constituted gross negligence or
willful misconduct on the part of the Issuing Bank. The Issuing Bank shall
distribute to each Lender which has paid all amounts payable by it under this
subsection 2.9D with respect to any Letter of Credit issued by the Issuing Bank,
such Lender's Pro Rata Share of all payments received by the Issuing Bank from
the Company in reimbursement of drawings honored by the Issuing Bank under such
Letter of Credit when such payments are received.
E. (1) The Company agrees to pay the following amounts to the Issuing Bank
with respect to each Letter of Credit issued by the Issuing Bank:
(i) with respect to drawings made under any Letter of Credit,
interest, payable on demand on the amount paid by the Issuing Bank in
respect of each such drawing from the date of the drawing to the date such
amount is reimbursed by the Company (including any such reimbursement out
of the proceeds of Revolving Loans pursuant to subsection 2.9C) at a rate
which is at all times equal to [*] in excess of the rate of interest
otherwise payable under this Agreement for Revolving Loans for
distribution to the Lenders on a pro rata basis; and
(ii) with respect to the issuance, amendment or transfer of each
Letter of Credit and each drawing made thereunder, a [*] fee or such
other documentary and processing charges in accordance with the Issuing
Bank's standard schedule for such charges in effect at the time of such
issuance, amendment, transfer or drawing, as the case may be.
(2) The Company agrees to pay to the Issuing Bank a fee on all
outstanding Letters of Credit equal to the product of (i) the daily average
maximum amount available to be drawn (after giving effect to all contingencies
under such Letters
[*] Confidential Treatment Requested
-57-
<PAGE> 65
of Credit including, without limitation, contingencies that increase the amount
available to be drawn under certain terms and conditions, without regard to
whether such conditions have in fact been satisfied) under such outstanding
Letters of Credit and (ii) the Applicable Margin (except as provided below in
this clause (3)) for Eurodollar Rate Loans, payable in arrears on March 31, June
30, September 30, and December 31 of each year. The Issuing Bank shall retain an
amount of each such fee payment equal to the product of (A) the daily average
maximum amount available to be drawn under such outstanding Letters of Credit
(after giving effect to all contingencies under such Letters of Credit
including, without limitation, contingencies that increase the amount available
to be drawn under certain terms and conditions, without regard to whether such
conditions have in fact been satisfied) and (B) [*] (such retained amount, the
"L/C Front Fee") and shall distribute the remainder of such fee payment to each
Lender (including the Issuing Bank) in proportion to its Pro Rata Share. For any
Letter of Credit collateralized with Cash, for purposes of the fee calculation
described in the first sentence of this clause (2), the Applicable Margin shall
be replaced with (i) before the Revolving Loan Commitment Termination Date, the
Commitment Fee Rate, and (ii) on and after the Revolving Loan Commitment
Termination Date, the Cash Collateralized L/C Fee Rate. No Lender which has
notified the Agent pursuant to subsection 2.9B that it is unable to participate
in a Letter of Credit shall be entitled to receive any payment of fees pursuant
to this subsection 2.9E(2), accrued with respect to any period prior to the time
such Lender became a Defaulting Lender and unpaid at such time, so long as such
Lender shall be a Defaulting Lender; and so long as any Lender shall be a
Defaulting Lender (x) to the extent that the Company shall have paid such
Defaulting Lender's Pro Rata Share of the maximum amount available to be drawn
under undrawn outstanding Letters of Credit pursuant to subsection 2.9B, the
daily maximum amount available to be drawn under all outstanding Letters of
Credit, as used in calculating the daily average maximum amount available to be
drawn under all outstanding Letters of Credit for purposes of the first sentence
of this subsection 2.9E(2), shall be calculated by deducting therefrom an amount
equal to such payment by the Company, and (y) no payment of fees accrued under
this subsection 2.9E(2) accrued with respect to any period while such Lender was
a Defaulting Lender shall be made to such Defaulting Lender.
F. The obligation of the Company to reimburse the Issuing Bank for
drawings paid in good faith under the Letters of Credit issued by the Issuing
Bank shall be unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances (except as
required by applicable law), including, without limitation (except as required
by applicable law), the following circumstances:
(1) any lack of validity or enforceability of any Letter of Credit;
(2) the existence of any claim, setoff, defense or other right which
the Company or any of its Affiliates may have at any time against a beneficiary
or any transferee of any such Letter of Credit (or any persons or entities for
whom any such beneficiary or transferee may be acting), the Issuing Bank, or any
other Person,
[*] Confidential Treatment Requested
-58-
<PAGE> 66
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction;
(3) any draft, demand, certificate or any other document presented
under any such Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect; provided that the payment under such Letter of Credit shall not
have constituted gross negligence or willful misconduct of the Issuing Bank;
(4) payment by the Issuing Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply on its face with the terms of such Letter of Credit; provided that the
payment under such Letter of Credit shall not have constituted gross negligence
or willful misconduct of the Issuing Bank;
(5) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing; provided that such other circumstance or
happening shall not have been the result of the Issuing Bank's gross negligence
or willful misconduct; or
(6) the fact that a Default or an Event of Default shall have
occurred and be continuing.
G. If by reason of (x) any change after the Closing Date in applicable
law, regulation, rule, decree or regulatory requirement or any change in the
interpretation or application by any judicial or regulatory authority of any
law, regulation, rule, decree or regulatory requirement (including any change
whether or not proposed or published prior to the Closing Date) or (y)
compliance by the Issuing Bank or any Lender with any direction, request or
requirement (whether or not having the force of law) issued after the Closing
Date by any governmental authority or monetary authority (including any change
whether or not proposed or published prior to the Closing Date), including,
without limitation, Regulation D:
(i) any reserve, deposit or similar requirement is or shall be
applicable, imposed or modified in respect of any Letter of Credit or
participations therein purchased by any Lender; or
(ii) there shall be imposed on the Issuing Bank or any Lender any
other condition regarding this Subsection 2.9 or any Letter of Credit or
participation therein;
and the result of the foregoing is to directly or indirectly increase the cost
to the Issuing Bank or any Lender of issuing, making or maintaining any Letter
of Credit or of purchasing or maintaining any participation therein or to reduce
the amount receivable in respect thereof by the Issuing Bank or any Lender, then
and in any such case the Issuing Bank or any Lender may, at any time, notify the
Company and the
-59-
<PAGE> 67
Company shall pay on demand such amounts as the Issuing Bank or such Lender may
specify to be necessary to compensate the Issuing Bank or such Lender for such
additional cost or reduced receipt. The Issuing Bank or any Lender, upon
determining that any additional amounts are due under this subsection 2.9G,
shall promptly notify the Company of the amount of any costs covered by the
preceding sentence. The determination by the Issuing Bank or such Lender of any
amount due pursuant to this subsection 2.9G as set forth in a certificate
setting forth the calculation thereof in reasonable detail, shall, in the
absence of manifest error, be final, conclusive and binding on all of the
parties hereto.
H. In addition to amounts payable as elsewhere provided in this subsection
2.9, the Company hereby agrees to protect, indemnify, pay and save the Issuing
Bank harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable attorneys'
fees and allocated costs of internal counsel) which the Issuing Bank may incur
or be subject to as a consequence, direct or indirect, of (i) the issuance of
the Letter of Credit, other than as a result of the gross negligence or willful
misconduct of the Issuing Bank or (ii) the failure of the Issuing Bank to honor
a drawing under any Letter of Credit as a result of any act or omission, whether
rightful or wrongful, or any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called "Government
Acts").
As between the Company and the Issuing Bank, the Company assumes all risks
of the acts and omissions of, or misuse of such Letter of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, to the extent permitted by applicable law, the
Issuing Bank shall not be responsible: (i) for the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of or any drawing under such
Letters of Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity
or sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
any such Letter of Credit to comply fully with conditions required in order to
draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) for errors in
interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; and (viii) for any consequences
arising from causes beyond the control of the Issuing Bank. None of the above
shall affect, impair, or prevent the vesting of any of the Issuing Bank's rights
or powers hereunder.
-60-
<PAGE> 68
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by the Issuing
Bank under or in connection with the Letters of Credit issued by it or the
related certificates, if taken or omitted in good faith and in accordance with
applicable law, shall not put the Issuing Bank under any resulting liability to
the Company.
Notwithstanding anything to the contrary contained in this subsection
2.9H, the Company shall have no obligation to indemnify the Issuing Bank in
respect of any liability incurred by the Issuing Bank to the extent such
liability arises out of the gross negligence or willful misconduct of the
Issuing Bank. The right of indemnification in this subsection 2.9G shall not
prejudice any rights that the Company otherwise have against the Issuing Bank
with respect to a Letter of Credit issued hereunder.
2.10 BORROWING BASE.
A. BORROWING BASE. The Borrowing Base shall be calculated based upon the
Eligible Assets that from time to time are subject to the Liens of the Security
Agreements and constitute Borrowing Base Collateral. The Borrowing Base shall
exclude any Borrowing Base Collateral that has suffered loss or damage and is
required to be excluded by subsection 2.4B(iii)(1). In addition, if the portion
of the Borrowing Base attributable to the Rotables exceeds fifty percent (50%)
of all Borrowing Base Collateral as determined in any monthly calculation of the
Borrowing Base contained in a Borrowing Base Certificate, such excess amount
shall be excluded from the calculation of the Borrowing Base for such month.
B. COLLATERAL.
(i) Eligible Assets. The Eligible Assets may from time to time
include the property of the types listed on Schedule 2.10 hereto, which
schedule shall include, without limitation, (a) Cash and Permitted Cash
Equivalents from time to time in the Cash Collateral Account, (b) Eligible
Stage III Aircraft, (c) Eligible Stage II Aircraft, (d) the Hangar, (e)
Eligible Simulators, (f) Eligible Spare Engines and (g) Rotables
(collectively, the Collateral identified in clauses (a) through (g) and on
Schedule 2.10, the "Eligible Assets"). Initially the Borrowing Base
Collateral shall include the Hangar, the Simulators and the Spare Engines
specified in Schedule 2.10A hereto and the Rotables and the Company shall
cause all such Collateral to be subject to the Liens of Security
Agreements on the Closing Date. Thereafter, subject to subsection
2.10B(ii), the Borrowing Base Collateral may include the Hangar,
Simulators, Spare Engines, Rotables and other Eligible Assets which the
Company elects from time to time to make subject to the Liens of Security
Agreements, provided, however, that no Eligible Assets shall be included
in the monthly calculation of the Borrowing Base unless the Lien of a
Security Agreement has been perfected in such Collateral and such
Collateral constitutes Borrowing Base Collateral.
(ii) Release and Addition of Eligible Assets.
-61-
<PAGE> 69
(1) Release. Except under the circumstances set forth in the
penultimate sentence of this subsection 2.10B(ii)(1), the Agent shall not
release the Liens of the Security Agreements on the Hangar and the Parts
Collateral until payment in full of all outstanding Loans and all other amounts
owed to the Lenders and the Agent under the Notes and other Loan Documents, the
termination of the Commitments and the termination of all outstanding Letters of
Credit (unless such Letters of Credit have been cash collateralized pursuant to
subsection 2.1(a) or 2.4B(iii)(2). The Agent shall from time to time release the
Lien of the applicable Security Agreement from Borrowing Base Collateral other
than the Hangar and the Rotables, provided that, prior to such release, (i) the
Company shall make any prepayment and furnish additional collateral (if any)
required by subsection 2.4B(iii)(1) if a Borrowing Base Deficiency would result
from the reduction in the Borrowing Base that such release of such Lien would
cause as calculated by the Borrowing Base Certificate delivered pursuant to
clause (iv) below, (ii) no Event of Default or Potential Event of Default has
occurred and is continuing, (iii) the Company has requested such release in
writing and certified that it is entitled to such release under the applicable
Security Agreement and this subsection 2.10 and (iv) the Company shall have
delivered an updated Borrowing Base Certificate giving pro forma effect to such
release and certifying that no Borrowing Base Deficiency will result therefrom
(after taking into account any additional Eligible Assets added to the Borrowing
Base pursuant to, and in compliance with, subsection 2.10B(ii)(2) concurrently
with or prior to release of such Lien). Notwithstanding anything in this
subsection 2.10B(ii)(1) to the contrary, the Agent acknowledges that (I) the
Lien of the Spare Parts Security Agreement will be released from the Parts
Collateral (as defined therein) in accordance with the terms thereof, and (II)
the Hangar may be released from the Lien of the Hangar Security Agreement if an
Event of Loss or an Event of Damage has occurred with respect to the Hangar and
the Company complies with the requirements set forth in clauses (i) through (iv)
of the second sentence of this subsection 2.10B(ii)(1). Following the release of
the Lien of a Security Agreement on any Borrowing Base Collateral pursuant to
the terms of this subsection 2.10B(ii)(1), unless and until such Borrowing Base
Collateral is again subjected to the Lien of a Security Agreement, such
Borrowing Base Collateral shall no longer be included in the calculation of the
Borrowing Base or in a future Borrowing Base Certificate.
(2) Addition. The Company may from time to time subject
Eligible Assets (other than Rotables) to the Lien of the relevant Security
Agreements upon written notice thereof to the Agent and such additional
Collateral shall be included in the next calculation of the Borrowing Base
delivered in a Borrowing Base Certificate after (A) except in the case of Cash
and Cash Equivalents in the Cash Collateral Account, an Approved Appraisal has
been delivered to the Agent for such Eligible Assets, (B) the Lien of the
relevant Security Agreement has been perfected in such Eligible Assets, (C)
appropriate filings have been made to protect the Lien and rights of the Agent
in any such Eligible Assets as are deemed necessary by the Agent, (D) the Agent
shall have received such opinions as it shall reasonably request with respect to
any such Eligible Assets, (E) the Agent shall have received insurance
certificates and other documents required by the relevant Security Agreement and
all other documents
-62-
<PAGE> 70
and actions required by the terms of such Security Agreement shall have been
delivered or shall have occurred to the satisfaction of the Agent, (F) the
Company shall have delivered all other documents and taken all other actions
reasonably requested by the Agent with respect to any such Eligible Assets, (G)
the Agent has satisfied itself that such Eligible Assets are "Aircraft", "Spare
Engines" or "Simulators", as the case may be, within the meaning of this
Agreement and as described in Schedule 2.10 hereof and (H) the Agent shall
notify the Company in writing that it is satisfied that the conditions of this
Section 2.10B(ii)(2) have been satisfied. Rotables shall become subject to the
Lien of the Spare Parts Security Agreement as provided therein, without also
being required to satisfy any of the requirements of this subsection applicable
to Eligible Assets of other types.
(3) Expenses. The Company shall pay all expenses of the Agent
in connection with the release and addition of Eligible Assets to the Borrowing
Base and the release or granting and perfection of Liens of Security Agreements
in connection therewith, including, but not limited to, reasonable fees and
expenses of counsel for the Agent, fees and expenses of special FAA counsel and
filing fees.
C. APPROVED APPRAISAL AND APPRAISERS.
(1) Approved Appraisal. An Approved Appraisal for any
Borrowing Base Collateral shall mean (A) an appraisal and inspection report
satisfactory to the Agent delivered to the Agent by an Approved Appraiser not
later than the time that such Borrowing Base Collateral becomes subject to the
perfected Lien of a Security Agreement, (B) a desk top appraisal (except, in the
case of Rotables and Spare Engines only, an appraisal and inspection report)
satisfactory to the Agent delivered annually thereafter to the Agent by an
Approved Appraiser not later than the anniversary of the delivery date of the
first appraisal, (C) an appraisal and inspection report or desk top appraisal
satisfactory to the Agent delivered to the Agent no earlier than three months
nor later than nine months after delivery of the initial or most recent regular
Approved Appraisal or at any time after the Company has notified the Agent that
such Borrowing Base Collateral has been damaged, and (D) in the case of Rotables
only, an appraisal and inspection report satisfactory to the Agent delivered to
the Agent by an Approved Appraiser at the written request of the Company at any
time. In the case of Rotables only, an inspection of the Rotables conducted as
part of an Approved Appraisal shall mean an inspection of a sample of the
Rotables by the Approved Appraiser for the purpose of determining the accuracy
of the inventory reports maintained by the Company for the Rotables. The
Approved Appraiser delivering any Approved Appraisal shall be selected by the
Agent. The Company shall pay the fees and expenses of the Approved Appraiser in
connection with delivery of an Approved Appraisal, except for an Approved
Appraisal delivered pursuant to clause (C) of the first sentence of this
subsection (unless such Approved Appraisal has been delivered following notice
by the Company delivered pursuant to subsection 2.4B(iii)(1)(b) of loss or
damage to Borrowing Base Collateral which the Company estimates in such notice
or the Agent estimates in a notice delivered pursuant to subsection
2.4B(iii)(1)(e) may exceed $10,000,000, in which case the Company shall pay the
fees and expenses in connection
-63-
<PAGE> 71
with such Approved Appraisal). Any inspection of Borrowing Base Collateral by an
Approved Appraiser shall be conducted in compliance with the inspection
provisions of the relevant Security Agreement.
(2) Approved Appraisers. Approved Appraisers for
Borrowing Base Collateral shall mean AVITAS, Inc. and Simat Hellieson &
Eichner Inc. or any other appraiser for such Eligible Assets approved in
writing by the Agent and consented to by the Company, such consent not to be
unreasonably withheld or delayed.
D. BORROWING BASE CERTIFICATE. On the Closing Date and no later than the
25th day of each month thereafter until payment of all Loans outstanding
hereunder and all other amounts payable to the Lenders and the Agent under the
Notes and other Loan Documents, termination or expiry of all outstanding Letters
of Credit and termination of the Commitments of the Lenders, the Company shall
deliver a Borrowing Base Certificate to the Agent relating to the then most
recently ended month (except solely in the case of the Borrowing Base
Certificate delivered on the Closing Date, which such Borrowing Base Certificate
shall, except for Fair Market Values of any Eligible Assets determined by
Approved Appraisers as at any other dates, relate to October 31, 1997);
provided, however, that in addition to such regular monthly certificates, the
Company shall also deliver Borrowing Base Certificates when required, pursuant
to subsection 2.4B(iii)(1), 2.10B(ii)(1) or 3.3(vii). Each Borrowing Base
Certificate shall replace and supersede for all purposes of this Agreement the
Borrowing Base Certificate then most recently delivered. Such Borrowing Base
Certificate shall (1) state each component of Borrowing Base Collateral then
subject to perfected Liens of the Security Agreements, (2) state the portion of
the Borrowing Base established by each component Borrowing Base Collateral by
the formula stated in the definition of Borrowing Base, (3) state the Borrowing
Base by aggregating each of the values stated pursuant to the preceding clause
(2), and (4) state the then Outstanding Amounts and the amount of any Borrowing
Base Deficiency. The Borrowing Base Certificate shall (A) certify that none of
the Borrowing Base Collateral included in the calculation of the Borrowing Base
is subject to an Event of Loss, Event of Damage, Repairable Event or Adjustment
Event or, if any of such Borrowing Base Collateral is subject to an Event of
Loss, Event of Damage, Repairable Damage or Adjustment Event, such Borrowing
Base Certificate shall contain the relevant exclusions for any such Borrowing
Base Collateral subject to such Event of Loss, Event of Damage, Repairable
Damage or Adjustment Event as required by subsections 2.4B(iii)(1) and 2.10A
hereof, (B) certify that no reduction in the Borrowing Base is required pursuant
to subsection 2.4B(iii)(1)(e) or, if the Company cannot so certify, contain the
exclusion required by such subsection and (C) certify that the portion of the
Borrowing Base attributable to Rotables stated in the Borrowing Base Certificate
does not exceed fifty percent (50%) of the aggregate Borrowing Base stated in
such certificate or that, if the portion of the Borrowing Base attributable to
the Rotables does exceed fifty percent (50%) of the aggregate Borrowing Base,
the portion of the Borrowing Base attributable to the Rotables in such
certificate for purposes of calculating the Borrowing Base excludes such excess
amount. In determining the book value of Rotables in any Borrowing Base
Certificate, the Company shall use its normal accounting procedures except to
the
-64-
<PAGE> 72
extent that the timing of such procedures may be shortened pursuant to
subsection 2.4B(iii)(1)(d). The Borrowing Base Certificate shall be certified to
be true and accurate by a Responsible Officer of the Company. Notwithstanding
any Borrowing Base Certificate delivered by the Company, in the event of any
dispute between the Company and the Agent regarding the then Outstanding
Amounts, the records of the Agent shall determine such Outstanding Amounts,
absent manifest error.
SECTION 3.
CONDITIONS TO LOANS AND CONVERSION OF LOANS
The obligations of the Agent and the Lenders to make and maintain
Revolving Loans and Term Loans and of the Issuing Bank to issue any Letter of
Credit, and of the Lenders to convert Revolving Loans into Term Loans, hereunder
are subject to the satisfaction of the following conditions:
3.1 CONDITIONS TO CLOSING DATE.
The obligations of the Lenders to make Loans (including the obligation of
the Issuing Bank to issue Letters of Credit) on or after the Closing Date are,
in addition to the conditions precedent specified in subsection 3.2, subject to
prior or concurrent satisfaction of the following conditions:
A. COMPANY DOCUMENTS. The Company shall deliver or cause to be delivered
to the Lenders (or to the Agent for the Lenders with sufficient originally
executed copies, where appropriate, for each Lender) the following, each, unless
otherwise noted, dated or certified on, as the case may be, the Closing Date:
(i) certified copies of its Certificate of Incorporation, together
with a good standing certificate from the Secretary of State of the State
of Delaware and each other state in which it is qualified as a foreign
corporation to do business and, to the extent generally available, a
certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing
authority of each of such states, each dated a recent date prior to the
Closing Date;
(ii) copies of its Bylaws, certified by its corporate secretary or
an assistant secretary;
(iii) resolutions of its Board of Directors approving and
authorizing the execution, delivery and performance of this Agreement and
the other Loan Documents, certified by its corporate secretary or an
assistant secretary as being in full force and effect without modification
or amendment;
(iv) signature and incumbency certificates of its officers executing
this Agreement and the other Loan Documents;
-65-
<PAGE> 73
(v) executed originals of this Agreement, the Revolving Notes (duly
executed in accordance with subsection 2.1D, drawn to the order of each
Lender and with appropriate insertions) and the other Loan Documents; and
(vi) such other documents as the Agent may reasonably request.
B. NECESSARY CONSENTS. The Company shall have obtained all consents
necessary or advisable in connection with the transactions contemplated by the
Loan Documents, and each of the foregoing shall be in full force and effect and
in form and substance satisfactory to the Agent.
C. FINANCIAL CONDITION CERTIFICATE. The Company shall have delivered to
the Agent a Financial Condition Certificate dated the Closing Date,
substantially in the form annexed hereto as Exhibit VIII, with appropriate
attachments demonstrating that, after giving effect to the consummation of the
financing transactions contemplated hereby, the Company and its Subsidiaries,
taken as a whole, are Solvent.
D. OPINIONS OF COMPANY'S COUNSEL. The Agent and its counsel shall have
received (i) executed copies of a favorable written opinion of Andrews & Kurth
L.L.P., counsel for the Company, in form and substance reasonably satisfactory
to the Agent and its counsel, dated as of the Closing Date and setting forth
substantially the matters in the opinions designated in Exhibit V-A annexed
hereto and (ii) executed copies of a favorable written opinion of Andrews &
Kurth L.L.P. regarding Section 1110 of the Bankruptcy Code, dated the Closing
Date and setting forth substantially the matters in the opinions designated in
Exhibit V-B annexed hereto.
E. OPINIONS OF GENERAL COUNSEL. The Agent and its counsel shall have
received executed copies of one or more favorable written opinions of Stephen L.
Johnson, Esq., Senior Vice President, Legal Affairs of the Company, in form and
substance reasonably satisfactory to the Agent and its counsel, dated the
Closing Date, and setting forth substantially the matters in the opinions
designated in Exhibit V-C annexed hereto.
F. OPINIONS OF ARIZONA COUNSEL. The Agent and its counsel shall have
received executed copies of one or more favorable written opinions of local
Arizona counsel regarding perfection of the Agent's security interest in the
Collateral, in form and substance satisfactory to the Agent and its counsel,
dated the Closing Date, and stating forth substantially the matters in the
opinions designated in Exhibit V-D annexed hereto.
G. OPINIONS OF FAA COUNSEL. The Agent and its counsel shall have received
executed copies of a favorable written opinion of William C. Boston & Associates
regarding perfection of the security interests in certain of the Collateral
established by the Security Agreements filed with the FAA on the Closing Date.
-66-
<PAGE> 74
H. FEES. The Company shall have paid to the Agent, for distribution (as
appropriate) to the Agent and Lenders, the fees payable on the Closing Date
referred to in subsections 2.3A and D.
I. EVIDENCE OF INSURANCE. The Company shall have delivered to the Agent
certificates of insurance with respect to Borrowing Base Collateral subject to
Security Agreements as of the Closing Date, naming the Agent (on behalf of the
Agent, the Issuing Bank and the Lenders) as loss payee under the casualty
insurance policies and as additional insured under the liability policies of the
Company and a broker's report from the Company's insurance broker evidencing
compliance with the requirements of each Security Agreement, all as required
pursuant to subsection 5.4 hereof or pursuant to the Security Agreements.
J. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. The
representations and warranties of the Company contained herein and in the other
Loan Documents are true, correct and complete in all material respects on and as
of the Closing Date to the same extent as though made on and as of that date
(except to the extent the same expressly relate to an earlier date, in which
case such representations and warranties were true, correct and complete in all
material respects as of such date) and that the Company shall have performed in
all material respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before the
Closing Date.
K. COMPLIANCE CERTIFICATE. The Company shall have delivered to the Agent a
Compliance Certificate dated the Closing Date as of September 30, 1997,
substantially in the form annexed hereto as Exhibit IV.
L. COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto shall be satisfactory in form and substance to the
Agent and its counsel, and the Agent and such counsel shall have received all
such counterpart originals or certified copies of such documents as the Agent
may reasonably request.
M. APPRAISAL AND BORROWING BASE CERTIFICATE. The Company shall have
delivered to the Agent one or more Approved Appraisals of all Borrowing Base
Collateral (other than Cash and Cash Equivalents) subject to the Lien of a
Security Agreement on the Closing Date, each by an Approved Appraiser in form
and substance satisfactory to the Agent. The Company shall have delivered to the
Agent the Borrowing Base Certificate contemplated to be delivered on the Closing
Date by the terms of subsection 2.10.
N. ELIGIBLE ASSETS. The Collateral as of the Closing Date shall include
the Eligible Assets listed in Schedule 2.10A hereto which is scheduled to be
included in the Borrowing Base by the Closing Date as certified in the Borrowing
Base Certificate
-67-
<PAGE> 75
delivered on the Closing Date and, without limitation of the foregoing, such
Eligible Assets shall be subject to the perfected Liens of the applicable
Security Agreements.
O. SECURITY AGREEMENTS. All documents required to be delivered, filings
required to be made and action required to be taken by the terms of any Security
Agreement referred to in subsection 3.1N shall have been accomplished in
accordance with such terms.
P. CONSENTS. All consents required to be delivered in connection with the
Hangar Security Agreement and the Spare Engine and Simulator Security Agreement,
including, without limitation, the execution and delivery of the consent of the
City of Phoenix to the Hangar Security Agreement.
3.2 CONDITIONS TO ALL LOANS.
A. CONDITIONS TO ALL LOANS. The obligations of the Lenders to make Loans
and of the Issuing Bank to issue any Letter of Credit on any Funding Date are
subject to the Closing Date having occurred and the satisfaction of the
following additional conditions:
(i) The amount of such Loan or Letter of Credit, together with the
amounts outstanding on all other Loans and the Letter of Credit Usage made
to such Funding Date, shall not exceed the least of (x) $100,000,000, (y)
the Borrowing Base and (z) the aggregate amount of the Revolving Loan
Commitments as such Revolving Loan Commitments shall have been reduced
from time to time pursuant to subsections 2.4B(ii) and 2.4B(iii)(2);
(ii) Any Eligible Assets which are scheduled to be added to the
Borrowing Base on or before the Funding Date of such Loan or Letter of
Credit pursuant to Schedule 2.10B shall in fact have been added to the
Borrowing Base by such Funding Date as certified in a Borrowing Base
Certificate delivered by such Funding Date and shall be subject to
perfected Liens of the relevant Security Agreements;
(iii) The Company shall have delivered to the Agent such other
documents as may reasonably request and all such documents shall be in
form and substance reasonably satisfactory to the Agent;
(iv) As a condition to the making of a Loan on such Funding Date,
the Agent shall have received before that Funding Date, in accordance with
the provisions of subsection 2.1B, a Notice of Borrowing, in each case
signed by a Responsible Officer of the Company;
(v) As a condition to the issuance of a Letter of Credit on such
Funding Date, the Agent shall have received before that Funding Date, in
accordance with the provisions of subsection 2.9B, an originally executed
written notice from the
-68-
<PAGE> 76
Company, in accordance with the provisions of subsection 2.9B, in each
case signed by a Responsible Officer of the Company;
(vi) As of that Funding Date, if a Loan is being made or a Letter of
Credit issued:
(a) the representations and warranties of the Company
contained herein and in the other Loan Documents and in the
applicable Borrowing Base Certificate shall be true, correct and
complete in all material respects on and as of that Funding Date to
the same extent as though made on and as of that date (except to the
extent the same expressly relate to an earlier date, in which case
such representations and warranties were true, correct and complete
in all material respects as of such date), and the Company shall be
deemed to have represented to the Agent, the Issuing Bank and the
Lenders to such effect and as to the matters set forth in clauses
(b) through (e) of this subsection 3.2A(vi);
(b) no event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such
Notice of Borrowing that would constitute an Event of Default or a
Potential Event of Default;
(c) no injunction or other restraining order shall have been
issued and no hearing to cause an injunction or other restraining
order to be issued shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent
the consummation of, or to recover any damages or obtain relief as a
result of, the transactions contemplated by this Agreement or the
making of Loans and issuing Letters of Credit hereunder;
(d) no Change of Control shall have occurred (other than a
Change of Control in respect of which (x) the date specified in the
notice sent from the Agent to the Company and the Lenders pursuant
to subsection 2.4B(iii)(2) for prepayment of the Loans and
termination of the Commitments shall have occurred and (y) any
Lender shall have elected to have its Commitment continue pursuant
to subsection 2.4B(iii)(2)); and
(e) if a Letter of Credit is being issued on such Funding
Date, the Company shall have paid the fee required by subsection
2.9E (1)(ii) with respect to such Letter of Credit and the fees
required by subsection 2.9E(2) when due.
-69-
<PAGE> 77
B. ADDITIONAL COLLATERAL. The obligations of the Lenders to make Revolving
Loans and of the Issuing Bank to issue any Letter of Credit on any Funding Date
subsequent to the Closing Date are subject to satisfaction on or before such
Funding Date of the following conditions with respect to any Eligible Assets
added to the Borrowing Base after the Closing Date:
(i) Each such item of such Collateral shall be subject to the
perfected Lien of a Security Agreement;
(ii) Such filings shall have been made as are deemed
reasonably necessary by the Agent to perfect such Liens and the
rights and interests of the Agent under such Security Agreement;
(iii) The Agent shall have received such opinions as it shall
reasonably request with respect to such Security Agreement (to the
extent not previously the subject of opinions of the counsel
referred to in clauses (1) and (2) referred below) and Eligible
Assets, including, but not limited to (1) an opinion of FAA counsel
with respect to Collateral perfected by a filing at the FAA and (2)
a Section 1110 opinion from counsel reasonably satisfactory to the
Agent in form and substance satisfactory to the Agent with respect
to such Collateral as has Section 1110 protection;
(iv) The Agent shall have received insurance certificates and
other documents required by such Security Agreement with respect to
such Collateral and all other documents and actions required by the
terms of such Security Agreement shall have been delivered or shall
have occurred; and
(v) The Company shall have delivered all other documents and
taken all other actions reasonably requested by the Agent with
respect to such Additional Collateral and Security Agreement.
3.3 CONDITIONS TO CONVERSION OF REVOLVING LOANS INTO TERM LOANS.
The obligations of the Lenders to convert Revolving Loans into Term Loans
on the Revolving Loan Commitment Termination Date are subject to the following
conditions precedent:
(i) the representations and warranties of the Company
contained herein and in the other Loan Documents and in the
applicable Borrowing Base Certificate shall be true, correct and
complete in all material respects on and as of that Funding Date to
the same extent as though made on and as of that date (except to the
extent the same expressly relate to an earlier date, in which case
such representations and warranties were true, correct and complete
in all material respects as of such date), and the
-70-
<PAGE> 78
Company shall be deemed to have represented to the Agent and the
Lenders to such effect and as to the matters set forth in clauses
(ii), (iv) and (ix) of this subsection 3.3;
(ii) no event shall have occurred and be continuing or would
result from such conversion that would constitute an Event of
Default or a Potential Event of Default;
(iii) the Company shall have provided the notice and Officer's
Certificate required pursuant to subsection 2.1A(ii) on or before
such Conversion Date;
(iv) no injunction or other restraining order shall have been
issued and no hearing to cause an injunction or other restraining
order to be issued shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent
the consummation of, or to recover any damages or obtain relief as a
result of, the transactions contemplated by this Agreement;
(v) the Company shall have delivered to the Lenders (or to the
Agent for the Lenders) executed originals of the Amended and
Restated Notes, duly executed in accordance with subsection 2.1D,
drawn to the order of each Lender and with appropriate insertions;
(vi) the Agent and its counsel shall have received executed
copies of one or more favorable written opinions of counsel for the
Company (who may be the Company's chief legal officer) in form and
substance reasonably satisfactory to the Agent and its counsel,
dated as of the Conversion Date, setting forth substantially the
matters in the opinion designated in Exhibit V-C annexed hereto,
including, but not limited to, the issuance of the Amended and
Restated Notes;
(vii) the Company shall have delivered a Borrowing Base
Certificate on the Conversion Date, which Borrowing Base Certificate
shall make pro forma adjustments to the then most recently delivered
Borrowing Base Certificate to reflect the decreased percentages set
forth in the definition of Borrowing
Base;
(viii) the Company shall have paid the fee set forth in
subsection 2.3B;
(ix) no Change of Control shall have occurred (other than a
Change of Control in respect of which (x) the date specified in the
notice sent from the Agent to the Company and the Lenders pursuant
to subsection 2.4B(iii)(2) for prepayment of the Loans and
termination of the
-71-
<PAGE> 79
Commitments shall have occurred and (y) any Lender shall have
elected to have its Commitment continue pursuant to subsection
2.4B(iii)(2)); and
(x) the Agent shall have received copies of such other
documents as the Agent may reasonably request and all such documents
shall be in form and substance reasonably satisfactory to the Agent.
SECTION 4.
COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and to make
the Revolving and Term Loans and to induce the Issuing Bank to issue the Letters
of Credit, the Company represents and warrants to the Agent, the Issuing Bank
and each Lender, as of the date of this Agreement, the Closing Date and each
Funding Date, that the following statements are true, correct and complete:
4.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.
A. ORGANIZATION AND POWERS. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into the Loan Documents and to carry out the transactions
contemplated hereby and thereby.
B. QUALIFICATION AND GOOD STANDING; AIR CARRIER CERTIFICATION. The Company
is qualified to do business and in good standing in every jurisdiction where its
assets are located and wherever necessary to carry out its business and
operations, except in jurisdictions where the failure to be so qualified or in
good standing would not in the reasonable determination of the Company be
expected to impair the ability of the Company to perform its payment or other
material obligations under the Loan Documents. The Company is an "air carrier"
within the meaning of the Act and holds a certificate under Sections 41102(a)(1)
and 41103 of the Act. The Company is a "citizen of the United States" as defined
in Section 40102(a)(15) of the Act (a "UNITED STATES CITIZEN") and holds an air
carrier operating certificate issued pursuant to Chapter 447 under the Act for
aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of
cargo. The Company possesses all necessary certificates, franchises, licenses,
permits, rights and concessions and consents which are material to the operation
of the routes flown by it and the conduct of its business and operations as
currently conducted.
C. SUBSIDIARIES. All of the Subsidiaries of the Company as of the Closing
Date are identified in Schedule 4.1 annexed hereto, as said Schedule 4.1 may be
supplemented from time to time pursuant to the provisions of subsection 5.1(xi).
The
-72-
<PAGE> 80
Capital Stock of each of the Subsidiaries of the Company identified in Schedule
4.1 annexed hereto (as so supplemented) is duly authorized, validly issued,
fully paid and nonassessable and none of such Capital Stock constitutes Margin
Stock. Each of the Subsidiaries of the Company identified in Schedule 4.1
annexed hereto (as so supplemented) is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation set forth therein, has all requisite corporate power and authority
to own and operate its properties and to carry on its business as now conducted
and as proposed to be conducted, and is qualified to do business and in good
standing in every jurisdiction where its assets are located and wherever
necessary to carry out its business and operations, in each case except where
failure to be so qualified or in good standing or a lack of such corporate power
and authority would not in the reasonable determination of the Company be
expected to impair the ability of the Company to perform its payment or other
material obligations under the Loan Documents. Schedule 4.1 annexed hereto (as
so supplemented) correctly sets forth the ownership interest of the Company and
each of its Subsidiaries in each of the Subsidiaries of the Company identified
therein.
4.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING. The execution, delivery and
performance of the Loan Documents have been duly authorized by all necessary
corporate action on the part of the Company.
B. NO CONFLICT. The execution, delivery and performance by the Company of
the Loan Documents and the consummation of the transactions contemplated by the
Loan Documents do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to the Company or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of the
Company or any of its Subsidiaries or any order, judgment or decree of any court
or other agency of government binding on the Company or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any Contractual Obligation of the Company
or any of its Subsidiaries, (iii) result in or require the creation or
imposition of any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries (other than any Liens created under any of the Loan
Documents in favor of the Agent on behalf of Lenders), or (iv) require any
approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of the Company or any of its Subsidiaries, except for
such approvals or consents which will be obtained on or before the Closing Date
and disclosed in writing to Lenders.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by the
Company of the Loan Documents and the consummation of the transactions
contemplated by the Loan Documents do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body which has not
been obtained or made
-73-
<PAGE> 81
on or prior to the date required to be obtained or made except for such matters
relating to performance as would ordinarily be done in the ordinary course of
business after the Closing Date or if not made or obtained would materially
affect such performance.
D. BINDING OBLIGATION. Each of the Loan Documents has been duly executed
and delivered by the Company and is the legally valid and binding obligation of
the Company, enforceable against the Company in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws relating to or affecting
the enforcement of creditors' rights generally, including materiality,
reasonableness, good faith and fair dealing, and by general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
4.3 FINANCIAL CONDITION.
The Company has heretofore delivered to the Lenders, at the Lenders'
request, the following financial statements and information: (i) the audited
balance sheets of the Company as at December 31, 1996, and the related
statements of income, stockholders' equity and cash flows of the Company for the
Fiscal Year then ended and (ii) the unaudited balance sheet of the Company as at
September 30, 1997 and the related unaudited statements of income, stockholders'
equity and cash flows of the Company for the nine months then ended. All such
statements were prepared in conformity with GAAP and fairly present the
financial position of the Company as at the respective dates thereof and the
results of operations and cash flows of the Company for each of the periods then
ended subject, in the case of the unaudited statements, to year-end audit and
adjustments. Except as disclosed in writing to the Agent after the date of this
Agreement, the Company does not (and will not following the funding of the
initial Loans) have any material contingent liability or liability for taxes,
long-term lease or unusual forward or long-term commitment that is not reflected
in the foregoing financial statements (or in the most recently delivered
financial statements delivered pursuant to subsection 5.1((i) or (ii)) or the
notes thereto and which in any such case is material in relation to the
business, operations, properties, assets, condition (financial or otherwise) or,
with respect to the initial borrowing hereunder only, the prospects of the
Company.
4.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED PAYMENTS.
Since December 31, 1996, no material adverse change has occurred in the
financial condition or operations of the Company. For purposes of the previous
sentence, the term "material adverse change" shall mean the material impairment
of the Company's ability to perform its payment and other material obligations
under the Loan Documents; this sentence is intended to pertain to substantial
economic events such as (1) any actual or imminent regulatory or judicial order
revoking or materially restricting the Company's ability to operate as an
airline or to operate any of the aircraft types in its fleet that is not subject
to judicial stay or (2) any labor strike action that causes operations to be
substantially suspended for a period exceeding three weeks.
-74-
<PAGE> 82
Since December 31, 1996, neither the Company nor any of its Subsidiaries has
directly or indirectly declared, ordered, paid or made, or set apart any sum or
property for, any Restricted Payment or agreed to do so except as would have
been permitted by subsection 6.4, as if such subsection was in effect at all
times after December 31, 1996.
4.5 TITLE TO PROPERTIES; LIENS.
Except for any property covered by any Security Agreement (the terms of
which shall govern such property to the extent provided therein), the Company
and its Subsidiaries have (i) good, sufficient and legal title to (in the case
of fee interests in real property), (ii) valid leasehold interests in (in the
case of leasehold interests in real or personal property), or (iii) good title
to (in the case of all other personal property), all of the properties and
assets reflected in the financial statements referred to in subsection 4.3 or in
the most recent financial statements delivered pursuant to subsection 5.1, in
each case except for assets disposed of since the date of such financial
statements in the ordinary course of business or as otherwise permitted under
subsection 6.6. Except as not prohibited by this Agreement, to the actual
knowledge of the Company, all such properties and assets are free and clear of
Liens.
4.6 LITIGATION; ADVERSE FACTS.
There are no actions, suits, proceedings, arbitrations or governmental
investigations (whether or not purportedly on behalf of the Company or any of
its Subsidiaries) at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any property of the Company or any of its Subsidiaries that, individually or
in the aggregate, if adversely determined could in the reasonable determination
of the Company be expected to impair the ability of the Company to perform its
payment or other material obligations under the Loan Documents. Neither the
Company nor any of its Subsidiaries is (i) in violation of any applicable laws
that, individually or in the aggregate, could in the reasonable determination of
the Company be expected to impair the ability of the Company to perform its
payment or other material obligations under the Loan Documents or (ii) subject
to or in default with respect to any final judgments, writs, injunctions,
decrees, rules or regulations of any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that, individually or in the aggregate,
could in the reasonable determination of the Company be expected to impair the
ability of the Company to perform its payment or other material obligations
under the Loan Documents.
4.7 PAYMENT OF TAXES.
Except to the extent permitted by subsection 5.3, all federal income tax
returns and other material tax returns and reports of the Company and its
Subsidiaries required to be filed by any of them have been timely filed (or
extensions have been
-75-
<PAGE> 83
obtained with respect thereto), and all federal income taxes and material Taxes
upon the Company and its Subsidiaries and upon their respective properties,
assets, income, businesses and franchises which are due and payable have been
paid when before any penalty, fine or interest accrues thereon. Except as
disclosed in writing to the Agent after the Closing Date, there are no
agreements with respect to Taxes between the Company and any taxing agency or
authority.
4.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.
A. Neither the Company nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any of its Contractual Obligations, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default.
B. Neither the Company nor any of its Subsidiaries is a party to or is
otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, could in the
reasonable determination of the Company be expected to impair the ability of the
Company to perform its payment or other material obligations under the Loan
Documents.
4.9 GOVERNMENTAL REGULATION.
Neither the Company nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable.
4.10 SECURITIES ACTIVITIES.
Neither the Company nor any of its Subsidiaries owns or is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.
4.11 EMPLOYEE BENEFIT PLANS.
Each Plan maintained by the Company or an ERISA Affiliate is in compliance
in all material respects with all applicable laws. Except in such instances
where an omission or failure would in the reasonable determination of the
Company impair the ability of the Company to perform its payment or other
material obligations under the Loan Documents (a) all returns, reports and
notices required to be filed with any regulatory agency with respect to any Plan
have been filed timely and (b) neither the Company nor any ERISA Affiliate has
failed to make any contribution or pay any amount due or owing as required by
the terms of any Plan. There are no pending or, to the best of the Company's
knowledge, threatened claims, lawsuits, investigations or actions (other than
routine claims for benefits in the ordinary course) asserted or
-76-
<PAGE> 84
instituted against the assets of any Plan or its related trust or against any
fiduciary of a Plan with respect to the operation of such Plan that are likely
to result in liability of the Company that in the reasonable determination of
the Company would impair the ability of the Company to perform its payment or
other material obligations under the Loan Documents. Except in such instances
where an omission or failure would not in the reasonable determination of the
Company impair the ability of the Company to perform its payment or other
material obligations under the Loan Documents, each Plan maintained by the
Company or an ERISA Affiliate that is intended to be "qualified" within the
meaning of section 401(a) of the Code is, and has been during the period from
its adoption to date, so qualified, both as to form and operation and all
necessary governmental approvals, including a favorable determination as to the
qualification under the Code of such Plan and each amendment thereto, have been
or will be timely obtained. Neither the Company nor any ERISA Affiliate has
engaged in any prohibited transaction, within the meaning of section 406 of
ERISA or section 4975 of the Code, in connection with any Plan which could
result in liability of the Company that would in the reasonable determination of
the Company impair the ability of the Company to perform its payment or other
material obligations under the Loan Documents. Neither the Company nor any ERISA
Affiliate has any contingent liability with respect to any post-retirement
benefits under a welfare benefit plan as defined in ERISA other than a liability
for continuation coverage described in Part 6 of Title 1 of ERISA, except where
such liability could not in the reasonable determination of the Company be
expected to impair the ability of the Company to perform its payment or other
material obligations under the Loan Documents. Neither the Company nor any ERISA
Affiliate maintains, has established or has ever participated in a multiple
employer welfare benefit arrangement within the meaning of ERISA except to the
extent that such participation would not in the reasonable determination of the
Company be expected to impair the ability of the Company to perform its payment
or other material obligations under the Loan Documents. The Company has not
incurred or potential liability with respect to a multiemployer plan, as defined
in section 3(37) of ERISA or a plan described in section 4063(a) of ERISA except
to the extent that such liability would not in the reasonable determination of
the Company be expected to impair the ability of the Company to perform its
payment or other material obligations under the Loan Documents. Neither the
Company nor any ERISA Affiliate has incurred any liability under Title IV of
ERISA that has not been satisfied, and no condition exists that could reasonably
be expected to result in the Company or an ERISA Affiliate incurring any
liability under Title IV of ERISA that would in the reasonable determination of
the Company impair the ability of the Company to perform its payment or other
material obligations under the Loan Documents.
4.12 ENVIRONMENTAL PROTECTION.
A. All Facilities and operations of the Company and its Subsidiaries are,
and have been to the Company's knowledge, in compliance with all Environmental
Laws except for any noncompliance which, individually or in the aggregate, could
not in the reasonable determination of the Company be expected to impair the
ability of the
-77-
<PAGE> 85
Company to perform its payment or other material obligations under the Loan
Documents.
B. There are no, and have been no, conditions, occurrences, or Hazardous
Materials Activity (a) arising at any Facilities or, to the knowledge of the
Company, at any other location or (b) arising in connection with the operations
of the Company or its Subsidiaries (including the transportation of Hazardous
Materials in accordance with applicable regulations), which conditions,
occurrences or Hazardous Materials Activity could reasonably be expected to form
the basis of an Environmental Claim against the Company or any of its
Subsidiaries and which, individually or in the aggregate, could in the
reasonable determination of the Company be expected to impair the ability of the
Company to perform its payment or other material obligations under the Loan
Documents.
C. To the Company's knowledge, there are no pending or threatened
Environmental Claims against the Company or its Subsidiaries, and the Company
and its Subsidiaries have received no notices, inquiries, or requests for
information with respect to any Environmental Claims which in either case if
adversely determined could individually or in the aggregate in the reasonable
determination of the Company be expected to impair the ability of the Company to
perform its payment or other material obligations under the Loan Documents.
D. Except as disclosed to the Agent in writing, the Company is not
currently operating or required to be operating under any compliance order,
schedule, decree or agreement, any consent decree, order or agreement, and/or
any corrective action decree, order or agreement issued or entered into under
any Environmental Law the failure to comply with which could individually or in
the aggregate in the reasonable determination of the Company be expected to
impair the ability of the Company to perform its payment or other material
obligations under the Loan Documents.
E. The Company has provided the Agent copies of all environmental audits,
assessments or other evaluations in its possession or subject to its control
prepared with respect to the Hangar, except for audits, assessments or other
evaluations that are confidential and privileged as attorney-client
communication.
4.13 SOLVENCY.
The Company is and, upon the incurrence of any Obligations by the Company
on any date on which this representation is made, will be, Solvent.
4.14 DISCLOSURE.
No representation or warranty of the Company contained in any Loan
Document or in any other document, certificate or written statement furnished to
the Agent or Lenders by or on behalf of the Company or any of its Subsidiaries
for use in connection with the transactions contemplated by this Agreement
contains any untrue statement.
-78-
<PAGE> 86
Any projections and pro forma financial information contained in such materials
are based upon good faith estimates and assumptions believed by the Company to
be reasonable at the time made, it being recognized by Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results. There are no facts known to any Responsible Officer
of the Company (other than matters of a general economic nature) that,
individually or in the aggregate, could in the reasonable determination of the
Company be expected to impair the ability of the Company to perform its payment
or other material obligations under the Loan Documents.
SECTION 5.
COMPANY'S AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations, the Company shall perform, and shall cause each of its
Subsidiaries to perform, all covenants in this Section 5.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
The Company will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. The Company will deliver to the Agent and Lenders:
(i) Quarterly Financials: as soon as available and in any event
within 60 days after the end of each fiscal quarter of each Fiscal Year
(other than the last quarter of each Fiscal Year), (a) the consolidated
balance sheets of each of the Company and Holdings as at the end of such
fiscal quarter and the related consolidated statements of income and
stockholders' equity of each such company for such fiscal quarter and
consolidated cash flows of each such company for the period from the
beginning of then current Fiscal Year to the end of such fiscal quarter,
all in reasonable detail and certified by the chief financial officer,
controller or treasurer of such company that they fairly present the
consolidated financial condition of such company as at the dates indicated
and the results of its operations and their cash flows for the periods
indicated and (b) a narrative report describing the operations of such
company in the form prepared for presentation to senior management for
such fiscal quarter and for the period from the beginning of then current
Fiscal Year to the end of such fiscal quarter; provided that delivery of
such company's Form 10-Q for such fiscal quarter shall be deemed to
satisfy all of the requirements of this subsection 5.1(i):
-79-
<PAGE> 87
(ii) Year-End Financials: as soon as available and in any event
within 105 days after the end of each Fiscal Year, (a) the consolidated
balance sheets of each of the Company and Holdings at the end of such
Fiscal Year and the related consolidated statements of income,
stockholders' equity and cash flows of such company for such Fiscal Year,
setting forth in each case in comparative form the corresponding figures
for the previous Fiscal Year and, in the case of the Company, the
corresponding figures from the annual financial plan delivered pursuant to
subsection 5.1(viii) for the Fiscal Year covered by such financial
statements of the Company, all in reasonable detail, (b) a narrative
report describing the operations of such company in the form prepared for
presentation to senior management for such Fiscal Year, and (c) an
accountant's report thereon of KPMG Peat Marwick L.L.P. or other
independent certified public accountants of recognized national standing
selected by such company, which report shall be unqualified, shall express
no doubts about the ability of such company to continue as a going
concern, and shall state that such consolidated financial statements
fairly present the consolidated financial position of such company as at
the dates indicated and the results of their operations and their cash
flows for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and that the examination by such accountants
in connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards; provided that (i)
references in such opinion to changes in GAAP, changes in accounting
standards, highlighting contents of footnotes, limitations in the scope of
the audit or exclusions from the audit information not required by GAAP
that are, in each case, customary in industry practice and not prejudicial
to the opinion stated therein shall not be deemed to be "qualifications"
for the purpose of this subsection and (ii) delivery of such company's
Form 10-K for such Fiscal Year shall be deemed to satisfy all of the
requirements of this subsection 5.1(ii);
(iii) Officer's and Compliance Certificates: together with each
delivery of financial statements of the Company pursuant to subdivisions
(i) and (ii) above after the Closing Date, (a) an Officer's Certificate of
the Company stating that the signer has reviewed the terms of this
Agreement and has made, or caused to be made under their supervision, a
review in reasonable detail of the transactions and condition of the
Company during the accounting period covered by such financial statements
and that such review has not disclosed the existence during or at the end
of such accounting period, and that the signer does not have knowledge of
the existence as at the date of such Officer's Certificate, of any
condition or event that constitutes an Event of Default or Potential Event
of Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action the
Company has taken, is taking and proposes to take with respect thereto;
and (b) a Compliance Certificate demonstrating in reasonable detail
compliance (or non-compliance) during and at the end of the applicable
quarterly and annual accounting periods with the restrictions contained in
subsections 6.4 and 6.5;
-80-
<PAGE> 88
(iv) SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by the Company to its
security holders, (b) all regular and periodic reports and all
registration statements and prospectuses, if any, filed by the Company or
any of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any governmental or private
regulatory authority, and (c) all material press releases and other
statements made available generally by the Company or any of its
Subsidiaries to the public concerning material developments in the
business of the Company or any of its Subsidiaries;
(v) Events of Default, etc.: promptly upon any Responsible Officer
of the Company obtaining knowledge (a) of any condition or event that
constitutes an Event of Default or Potential Event of Default, (b) that
any creditor has given any notice to the Company or any of its
Subsidiaries or taken any other action with respect to a claimed default
or event or condition of the type referred to in subsection 7.2, (c) of
any condition or event that would be required to be disclosed in a current
report filed by the Company with the Securities and Exchange Commission on
Form 8-K if the Company were required to file such reports under the
Exchange Act, or (d) of the occurrence of any event or change that has
caused or evidences, either in any case or in the aggregate, in the
reasonable determination of the Company, impairment of the ability of the
Company to perform its payment or other material obligations under the
Loan Documents, an Officer's Certificate specifying the nature and period
of existence of such condition, event or change, or specifying the notice
given or action taken by any such Person and the nature of such claimed
Event of Default, Potential Event of Default, default, event or condition,
and what action the Company has taken, is taking and proposes to take with
respect thereto;
(vi) Litigation or Other Proceedings: To the extent not disclosed
pursuant to this subsection, (a) promptly upon any Responsible Officer of
the Company obtaining knowledge of (X) the institution of, or threat of,
any action, suit, proceeding (whether administrative, judicial or
otherwise), governmental investigation or arbitration against or affecting
the Company or any of its Subsidiaries or any property of the Company or
any of its Subsidiaries (collectively, "Proceedings") or (Y) any material
development in any Proceeding that, in any case:
(1) if adversely determined and assuming that all damages
demanded in such litigation are awarded, is in the reasonable
determination of the Company likely to impair the ability of the
Company to perform its payment or other material obligations under
the Loan Documents; or
-81-
<PAGE> 89
(2) seeks to enjoin or otherwise prevent the consummation of,
or to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to the Company to enable the Agent and its counsel to
evaluate such matters; and (b) within twenty days after the end of each
Fiscal Year, a schedule of all Proceedings involving an alleged liability
of, or claims against or affecting, the Company or any of its Subsidiaries
equal to or greater than $20,000,000 and promptly after request by the
Agent such other information as may be reasonably requested by the Agent
to enable the Agent and its counsel to evaluate any of such Proceedings;
(vii) ERISA Reports: promptly after the receipt by the Company of a
request therefor by the Agent or a Lender copies of any annual and other
reports (including Schedule B thereto) with respect to a Plan filed by the
Company or any ERISA Affiliate with the United States Department of Labor,
the Internal Revenue Service or the Pension Benefit Guaranty Corporation;
(viii) Annual Financial Plan: annually, as soon as practicable after
preparation thereof by the Company in the ordinary course of business but
in no event later than January 31 of each year, the Company shall provide
the Agent and each Lender copies of its annual financial plan;
(ix) Environmental Audits and Reports: as soon as practicable
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of the Company or any of its Subsidiaries or
by independent consultants, with respect to significant environmental
matters at any Facility or which relate to an Environmental Claim which
could in the reasonable determination of the Company be expected to impair
the ability of the Company to perform its payment or other material
obligations under the Loan Documents;
(x) Pricing Certificates: (a) within one Business Day after any
public release by S&P or Moody's raising or lowering its credit rating on
the Company's senior unsecured debt obligations and (b) at such additional
times as the Company may elect, a certificate setting forth the credit
rating on the Company's senior unsecured debt obligations (each, a
"Pricing Certificate");
(xi) Additional Subsidiaries: to the extent permitted hereunder
pursuant to subsection 6.13, with reasonable promptness, upon the
formation thereof, the name, corporate structure and allocation of Voting
Securities of each Subsidiary of the Company, including, without
limitation, providing a supplement Schedule 4.1 hereto with all relevant
information included with respect to such new Subsidiary;
-82-
<PAGE> 90
(xii) Insurance Proceeds: promptly notify the Agent upon a
Responsible Officer of the Company obtaining actual knowledge of the
occurrence of an event of loss or damage to any Collateral that is
reasonably expected to result in receipt of insurance proceeds reasonably
estimated by the Company to exceed $1,000,000.
(xiii) Plan Audits and Liabilities: promptly after the Company or
any ERISA Affiliate (a) contacts the Internal Revenue Service for the
purpose of participation in a closing agreement or any voluntary
resolution program with respect to a Plan which could in the reasonable
determination of the Company impair the ability of the Company to perform
its payment or other material obligations under the Loan Documents or (b)
knows or has reason to know that any event with respect to any Plan
occurred that could in the reasonable determination of the Company impair
the ability of the Company to perform its payment or other material
obligations under the Loan Documents a notification thereof;
(xiv) Funding Changes and New Plan Benefits: promptly after the
change, a notification of any material increases in the benefits, or
material change in funding method, with respect to which the Company may
have any liability, or the establishment of any material new Plan with
respect to which the Company may have any liability or the commencement of
contributions to any Plan to which the Company or any ERISA Affiliate was
not previously contributing, except to the extent that such an event would
not in the reasonable determination of the Company be expected to impair
the ability of the Company to perform its payment or other material
obligations under the Loan Documents;
(xv) Claims and Proceedings: promptly after receipt of written
notice of commencement thereof, notification of all (i) claims made by
participants or beneficiaries with respect to any Plan and (ii) actions,
suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Company or any ERISA Affiliate with respect to any Plan,
except those which, in the aggregate, if adversely determined could not in
the reasonable determination of the Company impair the ability of the
Company to perform its payment or other material obligations under the
Loan Documents;
(xvi) ERISA Reportable Events: promptly after the occurrence of any
reportable event (as defined in ERISA) relating to a Plan with respect to
which the Company or an ERISA Affiliate may have any liability (other than
any such event with respect to which the Pension Benefit Guaranty
Corporation has waived the ERISA reportable event notification requirement
by regulation or notice); and
-83-
<PAGE> 91
(xvii) Other Information: with reasonable promptness, such other
information and data with respect to the Company or any of its
Subsidiaries as from time to time may be reasonably requested by the Agent
or any Lender.
5.2 CORPORATE EXISTENCE.
Except as permitted under subsection 6.6(v), the Company will do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence and the corporate, partnership or other existence of
each Subsidiary of the Company and the rights (charter and statutory) and
franchises of the Company and any Subsidiary of the Company; provided, that the
Company shall not be required to preserve any such corporate, partnership or
other existence of any Subsidiary or any such right or franchise, if the Board
of Directors of the Company shall determine in the exercise of its business
judgment that the preservation thereof is no longer desirable in the conduct of
the business of the Company or any Subsidiary and that abandonment of any such
right or franchise shall not in the reasonable determination of the Company
impair the ability of the Company to perform its payment or other material
obligations under the Loan Documents.
5.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
A. The Company will, and will cause its Subsidiaries to, pay or discharge
or cause to be paid or discharged, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges levied or imposed upon the
Company or any Subsidiary or upon the income, profits or property of the Company
or any Subsidiary, and (ii) all lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien on the property of the Company or
any Subsidiary; provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and with respect to which an adequate
reserve has been established by the Company to the extent required by GAAP.
B. The Company will not, and will not permit any of its Subsidiaries to,
file or consent to the filing of any consolidated income tax return with any
Person (other than any Subsidiary of the Company or the Company or Holdings).
5.4 MAINTENANCE OF PROPERTIES; INSURANCE.
The Company will, and will cause each of its Subsidiaries to, maintain all
properties used or useful in the conduct of its business in good condition,
repair and working order and supply such properties with all necessary equipment
and make all necessary repairs, renewals, replacements, betterments and
improvements thereto, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
subsection shall prevent the Company or any
-84-
<PAGE> 92
Subsidiary from discontinuing the operation and maintenance of any such
properties if such discontinuance is, in the good faith judgment of the Company
or such Subsidiary, as the case may be, desirable in the conduct of its
respective business and not disadvantageous in any material respect to the
Lenders. In addition to the insurance required pursuant to each of the Security
Agreements, the Company will insure and keep insured, and will cause each of its
Subsidiaries to insure and keep insured, with reputable insurance companies,
such of their respective properties, to such an extent and against such risks,
and will maintain liability insurance, to the extent that property of a similar
character is usually so insured by companies engaged in a similar business and
owning similar properties in accordance with good business practice.
5.5 INSPECTION.
The Company will, and will cause its Subsidiaries to, permit any
authorized representatives designated by the Agent or any Lender to visit and
inspect any of the properties (other than with respect to Collateral, inspection
of which is governed by the applicable Security Agreements) of the Company or
any of its Subsidiaries, including its and their financial and accounting
records, and to make copies and take extracts therefrom, and to discuss its and
their affairs, finances and accounts with its and their officers and independent
public accountants, all upon reasonable notice and at such reasonable times
during normal business hours and as often as may be reasonably requested;
provided that so long as no Potential Event of Default or Event of Default shall
have occurred and be continuing, such inspection shall not be disruptive to the
Company's business, as reasonably determined by the Company.
5.6 COMPLIANCE WITH LAWS, ETC.
The Company will, and will cause each of its Subsidiaries to, comply with
all applicable statutes, rules, regulations, orders and restrictions of the
United States of America, all states and municipalities thereof, and of any
governmental department, commission, board, regulatory authority, bureau, agency
and instrumentality of the foregoing, in respect of the conduct of their
respective businesses and the ownership of their respective properties, except
such as are being contested in good faith by appropriate proceedings and except
for such noncompliance as would not in any case or in the aggregate in the
reasonable determination of the Company impair the ability of the Company to
perform its payment or other material obligations under the Loan Documents on
the Company and its Subsidiaries, taken as a whole. The Company shall not
conduct, any Hazardous Materials Activity at any Facility or at any other
location in a manner that does not comply with Environmental Laws.
5.7 COMPANY'S REMEDIAL ACTION REGARDING HAZARDOUS MATERIALS.
To the extent required by Environmental Laws, the Company will promptly
take, and will cause each of its Subsidiaries promptly to take, any and all
necessary remedial action (except to the extent that such remedial action is
taken by other Persons
-85-
<PAGE> 93
responsible for such remedial action through contractual arrangements with the
Company) in connection with the presence, storage, use, disposal, transportation
or Release of any Hazardous Materials on, under or about any Facility in order
to comply with all applicable Environmental Laws and Governmental
Authorizations. In the event the Company or any of its Subsidiaries undertakes
any remedial action with respect to any Hazardous Materials on, under or about
any Facility, the Company or such Subsidiary will conduct and complete such
remedial action (or will cause such action to be taken pursuant to contractual
rights of the Company against third parties) in compliance with all applicable
Environmental Laws, and in accordance with the policies, orders and directives
of all federal, state and local governmental authorities except when, and only
to the extent that, the Company's or such Subsidiary's liability for such
presence, storage, use, disposal, transportation or discharge of any Hazardous
Materials is being contested in good faith and by appropriate proceedings
diligently conducted by the Company or such Subsidiary.
5.8 FURTHER ASSURANCES.
At any time or from time to time upon the request of the Agent, the
Company will, at its expense, promptly execute, acknowledge and deliver such
further documents and do such other acts and things as the Agent may reasonably
request in order to effect fully the purposes of the Loan Documents and to
provide for payment of the Obligations in accordance with the terms of this
Agreement, the Notes and the other Loan Documents.
5.9 EMPLOYEE BENEFIT PLANS.
The Company shall take such actions as are reasonably practicable to
ensure that the Plans with respect to which it may have any liability are
operated in material compliance with all applicable laws, except to the extent
that the failure to do so could not in the reasonable determination of the
Company be expected to impair the ability of the Company to perform its payment
or other material obligations under the Loan Documents. Neither the Company nor
a Subsidiary shall amend, adopt or terminate any Plan unless such action could
not in the reasonable determination of the Company be expected to impair the
ability of the Company to perform its payment or other material obligations
under the Loan Documents.
5.10 FAA MATTERS; CITIZENSHIP.
The Company will at all times hereunder be an "air carrier" within the
meaning of the Act and hold a certificate under Section 41102(a)(1) of the Act.
The Company will at all times hereunder be a United States Citizen holding an
air carrier operating certificate issued pursuant to Chapter 447 of the Act for
aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of
cargo. The Company will possess and maintain all necessary consents, franchises,
licenses, permits, rights and concessions and consents which are material to the
operation of the routes flown by it and the conduct of its business and
operations as currently conducted.
-86-
<PAGE> 94
5.11 CHANGES IN GAAP.
Should there be a change in GAAP from that in effect on the Closing Date,
such that the defined terms set forth in subsection 1.1 or the covenants set
forth in Section 6 would then be calculated in a different manner or with
different components or would render the same not meaningful criteria for
evaluating the matters contemplated to be evidenced by such covenants, the
Company will, upon the request of the Agent and the Lenders, and the Agent and
Lenders will, upon the request of the Company, within 30 days of such request,
amend this Agreement as necessary to preserve the intent of the financial
covenants contained herein on the Closing Date. In the event that the parties
hereto are unable to agree upon such an amendment within such 30 day period,
such defined terms and covenants shall be calculated in accordance with GAAP as
in effect immediately prior to such change.
SECTION 6.
COMPANY'S NEGATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations, the Company shall perform, and shall cause each of its
Subsidiaries to perform, all covenants in this Section 6.
6.1 RESERVED.
6.2 LIENS AND RELATED MATTERS.
A. PROHIBITION ON LIENS. The Company shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly create, incur, assume or permit
to exist any Lien on or with respect to any property or asset of any kind (other
than Collateral) (including any document or instrument in respect of goods or
accounts receivable) of the Company or any of its Subsidiaries, whether now
owned or hereafter acquired, or any income or profits therefrom, or file or
permit the filing of, or permit to remain in effect, any financing statement or
other similar notice of any Lien with respect to any such property, asset,
income or profits under the Uniform Commercial Code of any state or under any
similar recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) purchase money Liens securing Indebtedness used to acquire
aircraft (including aircraft engines installed thereon), spare aircraft
engines, aircraft parts, simulators, passenger loading bridges or other
flight or ground support equipment; and
(iii) other Liens securing or relating to Indebtedness and other
liabilities and obligations in an aggregate amount not to exceed $100
million at any time outstanding.
-87-
<PAGE> 95
B. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER
SUBSIDIARIES. Except (i) as provided herein and (ii) as described on Schedule
6.2 annexed hereto, the Company will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist or become
effective any Payment Restriction or consensual encumbrance with respect to any
Subsidiary thereof to (a) pay dividends or make other distributions on its
Capital Stock or (b) make loans or advances to the Company or any other
Subsidiary of the Company, or (c) transfer any of its property or assets to the
Company or any other Subsidiary of the Company.
6.3 INVESTMENTS.
The Company shall not, and shall not permit any Subsidiary to make any
Investment other than (i) Investments consisting of proceeds from Asset Sales as
permitted by subsection 6.11; (ii) Investments consisting of Cash Equivalents;
(iii) accounts receivable if credited or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
(iv) payroll advances and advances for business and travel expenses in the
ordinary course of business; (v) Investments by the Company in its Subsidiaries
in the ordinary course of business; (vi) Investments by any Subsidiary of the
Company in the Company or in any other Subsidiary; (vii) Investments by the
Company for the purpose of acquiring businesses reasonably related to the
business of the Company in an aggregate amount not exceeding $5,000,000 in any
Fiscal Year of the Company; (viii) Investments made by way of any endorsement of
negotiable instruments received by the Company or any Subsidiary in the ordinary
course of its business and presented by it to any bank for collection or
deposit; (ix) stock, obligations or securities received in settlement of debts
created in the ordinary course of business owing to the Company or any
Subsidiary; (x) Investments by the Company in any Subsidiary for the purpose of
receivables financing; (xi) an Investment not in excess of the amount of
Restricted Payments that the Company is permitted to make (immediately prior to
making such Investment) under subsection 6.4 of this Agreement; and (xii) in
addition to any other permitted investments, any other Investments by the
Company in an aggregate amount not exceeding $1,000,000 at any time.
6.4 RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for any
Restricted Payment if, at the time of such Restricted Payment or action with
respect thereto, (i) an Event of Default or Potential Event of Default has
occurred and is continuing, or would result therefrom or (ii) the aggregate
amount expended by the Company and its Subsidiaries for all Restricted Payments
(the amount of any Restricted Payment if other than cash to be the fair market
value of the property included in such payment as determined in good faith the
Board of Directors of the Company as evidenced by a Board Resolution) from and
after the date of this Agreement shall exceed an amount equal to [*] plus the
sum of (x) Equity Proceeds from any offering made by the Company after
October 1, 1997 plus (y) an amount equal to 50% of the Adjusted
[*] Confidential Treatment Requested
-88-
<PAGE> 96
Consolidated Net Income of the Company generated on or after October 1, 1997
through the last day of the most recently completed fiscal quarter immediately
preceding the quarter in which the Restricted Payment occurs, calculated on a
cumulative basis as if such period were a single accounting period. For the
purposes of this subsection 6.4, any guaranty of indebtedness of Holdings or any
Affiliate of the Company in excess of [*] shall, to the extent of such excess,
constitute a Restricted Payment.
6.5 FINANCIAL COVENANTS.
A. [*] The Company shall not permit the [*] of (i) [*] to (ii) [*] for any
four-fiscal quarter period ending as of the last day of any fiscal quarter of
the Company to be less than [*].
B. [*] The Company shall not permit [*] of (i) [*] of the Company on a
consolidated basis as of such date to (ii) [*] as of the last day of any fiscal
quarter of the Company to be [*] to [*]. If the Company incurs [*] in a Fiscal
Year, and such [*] or the [*] resulting therefrom reduce the Company's [*]
will exclude the lesser of the [*] and the [*] resulting therefrom, in an amount
not greater than [*] for such Fiscal Year and not greater than [*] in the
aggregate, and will also exclude any [*] from a [*] in respect of a [*] of [*].
C. [*] The Company shall not permit [*] at any time to be less than the
sum of (A) [*] plus (B) an amount equal to [*] of the [*] of the Company for the
period from [*] to the date of determination without regard to [*] except set
forth in the following sentence, plus (C) [*] of the [*] of any [*] by the
Company after [*]. If the Company incurs [*] in a Fiscal Year, and such [*] or
the [*] resulting therefrom reduce the Company's [*] will exclude the lesser of
the [*] and the [*] resulting therefrom, in an amount not greater than [*] for
such Fiscal Year and not greater than [*] in the aggregate, and will also
exclude any [*] arising from a [*] in respect of a [*] of [*].
D. [*] The Company shall not permit the [*] of [*] and [*] of the Company
and its [*] (without regard to [*] and [*] in the [*]) to be less than [*] at
any date of determination thereof.
E. [*] The Company shall not allow its [*] excluding (i) the [*], (ii) [*]
solely by [*] on [*] (including
[*] Confidential Treatment Requested
-89-
<PAGE> 97
[*] thereon) in its [*] and [*] or other [*] or [*] owned by the Company, (iii)
[*] and [*] of [*] and (iv) [*] consisting of [*] in [*] or [*] of [*] of the
Company under [*] in respect of [*] or [*] to exceed [*] at any time.
6.6 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS; NEW
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries to,
enter into any transaction of merger or consolidation, or liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, sub-lease, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any part of its business, property or fixed
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or any portion of the business, property or fixed assets of, or
stock or other evidence of beneficial ownership of, any Person or any division
or line of business of any Person, except:
(i) any Subsidiary of the Company may be merged with or into the
Company or any wholly-owned Subsidiary of the Company or be liquidated,
wound up or dissolved, or all or any part of its business, property or
assets may be conveyed, sold, leased, transferred or otherwise disposed
of, in one transaction or a series of transactions, to the Company or any
such wholly-owned Subsidiary of the Company; provided that, in the case of
such a merger, the Company or such wholly-owned Subsidiary shall be the
continuing or surviving corporation; and
(ii) the Company and its Subsidiaries may sell or otherwise dispose
of assets in transactions that do not constitute Asset Sales; provided
that the consideration received for such assets shall be in an amount at
least equal to the fair market value thereof; and
(iii) the Company and its Subsidiaries may make Asset Sales to the
extent permitted by subsection 6.11 hereto; and
(iv) the Company may make acquisitions of all or substantially all
of the capital stock of another Person or all or substantially all of the
assets of the business of another Person provided that, (a) the
acquisition primarily involves the acquisition of assets to be used in the
business of the Company, (b) with respect to such acquisition any newly
acquired Subsidiary of the Company shall be a Wholly Owned Subsidiary, (c)
immediately before and after giving effect thereto, no Potential Event of
Default or Event of Default shall have occurred and be continuing, (d)
immediately after giving effect to the acquisition, the Company shall be
in compliance on a Pro Forma Basis with financial covenants in subsection
6.5 and such compliance shall be evidenced by an Officer's
[*] Confidential Treatment Requested
-90-
<PAGE> 98
Certificate demonstrating such compliance and (e) the aggregate purchase
price in connection with all such acquisitions (excluding therefrom any
Indebtedness assumed in connection with such acquisitions and any portion
of the purchase price thereof paid with the Company's Common Stock) does
not exceed $200,000,000;
(v) the Company may enter into a consolidation or merger that
complies with subsections 6.10 and 6.12 hereof.
6.7 SALES AND LEASE-BACKS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired, other than aircraft (including aircraft engines installed
thereon), spare aircraft engines, aircraft parts, simulators, passenger loading
bridges or other flight or ground support equipment (i) which the Company or any
of its Subsidiaries has sold or transferred or is to sell or transfer to any
other Person (other than the Company or any of its Subsidiaries) or (ii) which
the Company or any of its Subsidiaries intends to use for substantially the same
purpose as any other property which has been or is to be sold or transferred by
the Company or any of its Subsidiaries to any Person (other than the Company or
any of its Subsidiaries) in connection with such lease; provided that the
Company and its Subsidiaries may become and remain liable as lessee, guarantor
or other surety with respect to any such lease if and to the extent that the
annual aggregate rentals under all such leases shall not exceed $10,000,000.
6.8 TRANSACTIONS WITH AFFILIATES.
A. Neither the Company nor any Subsidiary of the Company shall, directly
or indirectly (i) sell, lease, transfer or otherwise dispose of any of its
properties or assets, or issue securities to, (ii) purchase any property, assets
or securities from, (iii) make any Investment in, or (iv) enter into or suffer
to exist any contract or agreement with or for the benefit of, an Affiliate or
holder of 5% or more of any class of Capital Stock (and any Affiliate of such
holder) of the Company (an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under subsection 6.8B hereof and (y) Affiliate
Transactions (including lease transactions) which are on fair and reasonable
terms no less favorable to the Company or such Subsidiary, as the case may be,
than those as might reasonably have been obtainable at such time from an
unaffiliated party; provided that if an Affiliate Transaction or series of
related Affiliate Transactions involves or has a value in excess of $10,000,000,
the Company or such Subsidiary, as the case may be, shall not enter into such
Affiliate Transaction or series of related Affiliate Transactions unless a
majority of the disinterested members of the Board of Directors of the Company
or such Subsidiary shall reasonably and in good faith determine that such
Affiliate Transaction is fair to the Company or such Subsidiary, as the case may
be, or is on terms no less favorable to the Company or such Subsidiary,
-91-
<PAGE> 99
as the case may be, than those as might reasonably have been obtained at such
time from an unaffiliated party.
B. The provisions of subsection 6.8A shall not apply to (i) any agreement
as in effect as of the date hereof, or any amendment thereto in effect as of the
date hereof or any transaction contemplated thereby (including pursuant to any
amendment thereto) so long as any such agreement or amendment or transaction is
not disadvantageous to the Lenders in any material respect; (ii) any transaction
between the Company and any Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries, provided such transactions are not otherwise prohibited by this
Agreement; (iii) reasonable and customary fees and compensation paid to, and
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any Subsidiary, as determined by the Board of Directors of the
Company or any Subsidiary or the senior management thereof in good faith; (iv)
any Restricted Payments not prohibited by subsection 6.4; (v) any payments or
other transactions pursuant to any tax sharing agreement between the Company and
any other Person with which the Company is required or permitted to file a
consolidated tax return or with which the Company is or could be part of a
consolidated group for tax purposes; and (vi) transactions with Continental
Airlines, Inc., Mesa Airlines, Inc. and their respective Affiliates as
contemplated by the Alliance Agreements.
6.9 CONDUCT OF BUSINESS.
From and after the date hereof, the Company shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than (i) the
businesses engaged in by the Company and its Subsidiaries on the date hereof and
similar or related businesses and (ii) such other lines of business as may be
consented to by Requisite Lenders.
6.10 MERGER OR CONSOLIDATION.
The Company shall not consolidate with or merge into any other corporation
or convey, lease or transfer its properties and assets substantially as an
entirety to any Person, unless: (i) in the case of a consolidation or merger,
the Company is the surviving entity, or (ii) if the Company is not the surviving
entity, such surviving entity or the Person that acquires by conveyance, lease
or transfer the properties and assets of the Company substantially as an
entirety, shall be a corporation organized and existing under the laws of the
United States of America or any State or the District of Columbia, and shall
expressly assume, by an agreement executed and delivered to the Agent, in form
satisfactory to the Agent, the Company's Obligations to repay the Loans and all
other Obligations of the Company; (iii) immediately before and after giving
effect to such transaction, no Event of Default or Potential Event of Default
shall have occurred and be continuing; and (iv) the Company has delivered to the
Agent an Officer's Certificate and, in the case of any transaction described in
clause (ii) above, an opinion of counsel from counsel satisfactory to the Agent,
in form and substance satisfactory to the Agent, stating that such
consolidation, merger, conveyance, lease or
-92-
<PAGE> 100
transfer and such agreement comply with this subsection and that all conditions
precedent herein provided for relating to such transaction have been complied
with and addressing such other matters as may be reasonably requested by the
Agent.
6.11 LIMITATION ON ASSET SALES.
In the event and to the extent that on any date after the Closing Date the
Company and its Subsidiaries shall receive Net Cash Proceeds from one or more
Asset Sales (other than Asset Sales by the Company or any Subsidiary to the
Company or another Subsidiary), then the Company shall, or shall cause such
Subsidiary to, within 12 months after such date apply an amount equal to the
amount by which the aggregate amount of Net Cash Proceeds for such 12 month
period exceeds $15,000,000 (A) to repay Indebtedness of the Company or
Indebtedness of any of its Subsidiaries, in each case owing to a Person other
than the Company or any of its Subsidiaries, and/or (B) subject to subsection
6.6(iv), as an Investment (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in property or assets
of a nature or type or that are used in a business (or in a Person having
property and assets of a nature or type, or engaged in a business) similar or
related to the nature or type of the property and assets of, or the business of,
the Company and its Subsidiaries existing on the date thereof (as determined in
good faith by the board of directors of the Company or such Subsidiary, as the
case may be, whose determination shall be conclusive and evidenced by a
resolution of the board of directors of the Company or such Subsidiary). The
amount of such Net Cash Proceeds required to be applied (or to be committed to
be applied) during such 12-month period as set forth in clause (A) or (B) of the
preceding sentence shall constitute "Excess Proceeds."
6.12 LIMITATION ON ISSUANCES AND DISPOSITIONS OF CAPITAL STOCK OF SUBSIDIARIES.
Other than Subsidiaries which comply with Section 6.13, each Subsidiary of
the Company shall at all times be a Wholly Owned Subsidiary of the Company. The
Company (i) shall not, and shall not permit any Subsidiary to, transfer, convey,
sell, encumber or otherwise dispose of any Capital Stock of a Subsidiary, or
securities convertible or exchangeable into, or options, warrants, rights or any
other interest with respect to, Capital Stock of a Subsidiary to any Person
(other than the Company or a Wholly Owned Subsidiary) and (ii) shall not permit
any Subsidiary to issue shares of its Capital Stock (other than directors'
qualifying shares), or securities convertible or exchangeable into, or options,
warrants, rights or any other interest with respect to, its Capital Stock to any
Person other than to the Company or a Wholly Owned Subsidiary; provided, that
the limitations of this subsection shall not apply to any transaction between or
among the Company and one or more direct or indirect Wholly Owned Subsidiaries
of the Company whereby the Company merges, consolidates or otherwise combines
with such Wholly Owned Subsidiary and pursuant to which all existing holders of
Capital Stock of the Company receive, upon conversion or otherwise in exchange
for securities owned by such holders, Capital Stock of a corporation which
-93-
<PAGE> 101
immediately prior to such exchange is a Wholly Owned Subsidiary, and which
securities have rights and preferences identical to those of the securities
replaced, so long as (a) immediately before and after giving effect to such
transaction no Potential Default or Event of Default shall have occurred and be
continuing, and (ii) such transaction is otherwise in conformity with and not
prohibited by this Agreement.
6.13 LIMITATION ON CREATION OF NEW SUBSIDIARIES.
The Company may create new Subsidiaries provided that (i) the total assets
of all Subsidiaries in the aggregate (other than (a) single purpose Subsidiaries
created solely for the purpose of financing aircraft and (b) Subsidiaries
created solely for the purpose of acquiring assets from Persons other than the
Company or any of its Subsidiaries) does not at any time exceed ten percent
(10%) of the consolidated total assets of the Company, in each case determined
in accordance with GAAP and (ii) the Company complies with the provisions of
subsection 5.1(xi) hereof.
SECTION 7.
EVENTS OF DEFAULT
If any of the following conditions or events ("EVENTS OF DEFAULT") shall
occur:
7.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
(i) Failure by the Company to pay any installment of principal of
any Loan when due, whether at stated maturity, by acceleration, by notice
of voluntary prepayment, by mandatory prepayment or otherwise; or (ii)
failure by the Company to pay any interest on any Loan or any fee or any
other amount due under this Agreement or any other Loan Document within
five Business Days after the date due; or
7.2 DEFAULT IN OTHER AGREEMENTS.
(i) The Company or any Subsidiary (a) fails to make (whether as
primary obligor or as guarantor or other surety) any principal payment of
or interest or premium, if any, on any Indebtedness (other than
Indebtedness referred to in subsection 7.1) beyond any period of grace
provided with respect thereto, provided that the aggregate amount of all
Indebtedness as to which such a payment default shall occur and be
continuing is equal to or exceeds $10,000,000, or (b) fails to duly
observe, perform or comply with any agreement with any Person or any term
or condition of any instrument, if such failure, either individually or in
the aggregate, shall have caused or shall have the ability to cause the
acceleration of the payment of Indebtedness with an aggregate face amount
which is equal to or exceeds $10,000,000; or
-94-
<PAGE> 102
7.3 BREACH OF CERTAIN COVENANTS.
Failure of the Company to perform or comply in any material respect with
any term or condition contained in subsections 2.5B, 5.2, 5.10, 6.2, 6.5, 6.7
and 6.9 of this Agreement and (excluding subsection 5.10) such failure shall not
have been remedied within five days after a Responsible Officer of the Company
knows (or, in the reasonable exercise of such Responsible Officer's discretion,
should have known) of such failure; or
7.4 BREACH OF WARRANTY.
Any representation, warranty, certification or other statement made by the
Company or any of its Subsidiaries in any Loan Document or in any statement or
certificate at any time given by the Company or any of its Subsidiaries in
writing pursuant hereto or thereto or in connection herewith or therewith shall
be false in any material respect on the date as of which made; or
7.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.
(i) The Company shall default in the performance of or compliance with any
term contained in this Agreement or any of the other Loan Documents, other than
any such term referred to in any other subsection of this Section 7, and such
default shall not have been remedied or waived (x) within 30 days after the
earlier of (a) a Responsible Officer of the Company becoming aware of such
default or (b) receipt by the Company of notice from the Agent or any Lender of
such default or (y) with respect to a default under subsection 6.6, the earlier
of (a) an officer of the Company becoming aware of the default after the
applicable measurement date and (b) the delivery of financial statements
pursuant to subsection 5.1 or (ii) a guaranty, if any, of the Obligations for
any reason ceases to be in full force and effect; or
7.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) A court shall enter a decree or order for relief in respect of the
Company or any of its Subsidiaries in an involuntary case under the Bankruptcy
Code or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be commenced
against the Company or any of its Subsidiaries under the Bankruptcy Code or
under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect; or a decree or order of a court for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over the Company or any of its Subsidiaries, or over all or a
substantial part of its property, shall have been entered; or there shall have
occurred the involuntary appointment of an interim receiver, trustee or other
custodian of the Company or any of its Subsidiaries for all or a substantial
part of its property; or a warrant of attachment, execution or similar process
shall have been issued against any substantial part of the property of the
Company or any of its Subsidiaries, and any such
-95-
<PAGE> 103
event described in this clause (i) or clause (ii) shall continue for 60 days
unless dismissed, bonded or discharged; or
7.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) The Company or any of its Subsidiaries shall have an order for relief
entered with respect to it or commence a voluntary case under the Bankruptcy
Code or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian of all or a substantial
part of its property; or the Company or any of its Subsidiaries shall make any
assignment for the benefit of creditors; or (ii) the Company or any of its
Subsidiaries shall be unable, or shall fail generally, or shall admit in writing
its inability, to pay its debts as such debts become due; or the Board of
Directors of the Company or any of its Subsidiaries (or any committee thereof)
shall adopt any resolution or otherwise authorize any action to approve any of
the actions referred to in clause (i) above or this clause (ii); or
7.8 JUDGMENTS AND ATTACHMENTS.
Any final judgment or order (not covered by insurance) for the payment of
money in excess of $10 million in the aggregate for all such final judgments or
orders against the Company or any of its Subsidiaries treating any deductibles,
self-insurance or retention as not so covered shall be rendered against the
Company or any Subsidiary and shall not be discharged, and there shall be any
period of 60 consecutive days following entry of the final judgment or order
that causes the aggregate amount for all such final judgements or orders
outstanding against the Company or its Subsidiaries to exceed $10 million during
which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
7.9 DISSOLUTION.
Any order, judgment or decree shall be entered against the Company or any
of its Subsidiaries decreeing the dissolution or split up of the Company or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of 30 days; or
7.10 RESERVED.
7.11 FAILURE OF SECURITY.
Upon execution and delivery thereof, any Security Agreement shall, at any
time, cease to be in full force and effect in any material respect (other than
by reason of a release of Collateral thereunder in accordance with the terms
hereof or thereof, the satisfaction in full of the Obligations or any other
termination of such Security
-96-
<PAGE> 104
Agreement in accordance with the terms hereof or thereof) or shall be declared
null and void, or the validity or enforceability thereof shall be contested in
writing by the Company, or the Agent shall not have or shall in any material
respect cease to have a valid and perfected first priority security interest in
any Collateral (or in the case of the Spare Parts Security Agreement, Rotables
only) purported to be covered thereby, subject only to Liens permitted under the
applicable Security Agreements and, in each case, the Company shall fail to (i)
deliver a Borrowing Base Certificate excluding therefrom the Collateral subject
to such Security Agreement within ten (10) days after a Responsible Officer of
the Company knows of such failure and (ii) make a prepayment (and/or provide
collateral) in accordance with subsection 2.4B(iii)(1)(a);
THEN (i) upon the occurrence of any Event of Default described in subsection 7.6
or 7.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans and (b) all other Obligations shall automatically become immediately due
and payable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by the Company, and the
obligation of each Lender to make any Loan shall thereupon terminate and (ii)
upon the occurrence and during the continuation of any other Event of Default,
the Agent shall, upon the written request or with the written consent of
Requisite Lenders, by written notice to the Company, declare all or any portion
of the amounts described in clauses (a) and (b) above to be, and the same shall
forthwith become, immediately due and payable, and the obligation of each Lender
to make any Loan shall thereupon terminate. Following the occurrence and during
the continuation of an Event of Default, the Agent may exercise any remedy
provided in the Security Agreements or any other Loan Document or otherwise
available to it.
SECTION 8.
AGENT
8.1 APPOINTMENT.
The Industrial Bank of Japan, Limited, Los Angeles Agency, is hereby
appointed the Agent hereunder and under the other Loan Documents and each Lender
and the Issuing Bank hereby authorizes the Agent to act as its agent in
accordance with the terms of this Agreement and the other Loan Documents. The
Agent agrees to act upon the express conditions contained in this Agreement and
the other Loan Documents, as applicable. The provisions of this Section 8
(except subsections 8.5 and 8.6) are solely for the benefit of the Agent, the
Issuing Bank and the Lenders, and the Company shall have no rights as a third
party beneficiary of any of the provisions thereof. In performing its functions
and duties under this Agreement, the Agent shall act solely as an agent of the
Lenders and the Issuing Bank and does not assume and shall not be deemed to have
assumed any obligation towards or relationship of agency or trust with or for
the Company or any of its Subsidiaries.
-97-
<PAGE> 105
8.2 POWERS AND DUTIES; GENERAL IMMUNITY.
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes the Agent
to take such action on such Lender's behalf and to exercise such powers, rights
and remedies hereunder and under the other Loan Documents as are specifically
delegated or granted to the Agent by the terms hereof and thereof, together with
such powers, rights and remedies as are reasonably incidental thereto. The Agent
shall have only those duties and responsibilities that are expressly specified
in this Agreement and the other Loan Documents. The Agent may exercise such
powers, rights and remedies and perform such duties by or through its agents or
employees. The Agent shall not have, by reason of this Agreement or any of the
other Loan Documents, a fiduciary relationship in respect of any Lender or the
Issuing Bank; and nothing in this Agreement or any of the other Loan Documents,
expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Agreement or any of the other Loan
Documents except as expressly set forth herein or therein.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. The Agent shall not be
responsible to any Lender or the Issuing Bank for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any other Loan Document or for any representations, warranties,
recitals or statements made herein or therein or made in any written or oral
statements or in any financial or other statements, instruments, reports or
certificates or any other documents furnished or made by the Agent to the
Lenders or the Issuing Bank or by or on behalf of the Company to the Agent or
any Lender or the Issuing Bank in connection with the Loan Documents and the
transactions contemplated thereby or for the financial condition or business
affairs of the Company or any other Person liable for the payment of any
Obligations, nor shall the Agent be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained in any of the Loan Documents or as to the use of the
proceeds of the Loans or as to the existence or possible existence of any Event
of Default or Potential Event of Default. Anything contained in this Agreement
to the contrary notwithstanding, the Agent shall not have any liability arising
from confirmations of the amount of outstanding Loans or the component amounts
thereof.
C. EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers,
directors, employees or agents shall be liable to the Lenders or the Issuing
Bank for any action taken or omitted by the Agent under or in connection with
any of the Loan Documents except to the extent caused by their respective gross
negligence or willful misconduct. If the Agent shall request instructions from
the Lenders or the Issuing Bank with respect to any act or action (including the
failure to take an action) in connection with this Agreement or any of the other
Loan Documents, the Agent shall be entitled to refrain from such act or taking
such action unless and until the Agent shall have received instructions from the
Requisite Lenders. Without prejudice to the generality of the foregoing, (i) the
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any communication, instrument or document believed by it
-98-
<PAGE> 106
to be genuine and correct and to have been signed or sent by the proper person
or persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for the Company and
its Subsidiaries), accountants, experts and other professional advisors selected
by it; and (ii) neither a Lender nor the Issuing Bank shall have any right of
action whatsoever against the Agent as a result of the Agent acting or (where so
instructed) refraining from acting under this Agreement or any of the other Loan
Documents in accordance with the instructions of Requisite Lenders. The Agent
shall be entitled to refrain from exercising any power, discretion or authority
vested in it under this Agreement or any of the other Loan Documents unless and
until it has obtained the instructions of the Requisite Lenders.
D. AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in no
way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, the Agent in its individual capacity as a Lender or Issuing
Bank hereunder. With respect to its participations in the Loans, the Agent shall
have the same rights and powers hereunder as any other Lender and may exercise
the same as though it were not performing the duties and functions delegated to
it hereunder, and the term "Lender" or "Lenders" or any similar term shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates may accept deposits from, lend
money to and generally engage in any kind of banking, trust, financial advisory
or other business with the Company or any of its Affiliates as if it were not
performing the duties specified herein, and may accept fees and other
consideration from the Company for services in connection with this Agreement
and otherwise without having to account for the same to the Lenders.
8.3 REPRESENTATIONS AND WARRANTIES; NO RELIANCE.
Each Lender and the Issuing Bank represents and warrants that it has made
its own independent investigation of the financial condition and affairs of the
Company and its Subsidiaries in connection with the making of the Loans
hereunder and that it has made and shall continue to make its own analysis of
the creditworthiness of the Company and its Subsidiaries. The Agent shall not
have any duty or responsibility, either initially or on a continuing basis, to
make any such investigation or any such appraisal on behalf of Lenders and the
Issuing Bank or to provide any Lender and the Issuing Bank with any credit or
other information with respect thereto, whether coming into its possession
before the making of the Loans or at any time or times thereafter, and the Agent
shall not have any responsibility with respect to the accuracy of or the
completeness of any information provided to the Lenders and the Issuing Bank.
8.4 RIGHT TO INDEMNITY.
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify the Agent and the Issuing Bank (and their respective affiliates and
partners), to the extent that the Agent or the Issuing Bank, as the case may be,
shall not have been reimbursed by the Company, for and against any and all
liabilities, obligations, losses,
-99-
<PAGE> 107
damages, penalties, actions, judgments, suits, costs, expenses (including,
without limitation, counsel fees and disbursements) or disbursements of any kind
or nature whatsoever which may be imposed on, incurred by or asserted against
the Agent or the Issuing Bank, as the case may be, in exercising their
respective powers, rights and remedies or performing their respective duties
hereunder or under the other Loan Documents or otherwise in their respective
capacities as Agent and Issuing Bank, in any way relating to or arising out of
this Agreement or the other Loan Documents; provided that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's or the Issuing Bank's, as the case may be, gross negligence or
willful misconduct.
8.5 SECURITY AGREEMENTS.
Without limiting the generality of subsection 8.1, each Lender hereby
further authorizes the Agent to enter into the Security Agreements as secured
party on behalf of and for the benefit of such Lender and agrees to be bound by
the terms of each of the Security Agreements; provided that, except as otherwise
provided below, the Agent shall not enter into or consent to any amendment,
modification, termination or waiver of any provision contained in any Security
Agreement without prior written consent of the Requisite Lenders. Anything
contained in any of the Loan Documents to the contrary notwithstanding, each
Lender agrees that no Lender shall have any right individually to realize upon
any of the Collateral under any Security Agreement, it being understood and
agreed that all powers, rights and remedies under the Security Agreements may be
exercised solely by the Agent for the benefit of Lenders in accordance with the
terms thereof. Each Lender hereby authorizes the Agent (i) to release or
subordinate Collateral as permitted or required under this Agreement or the
Security Agreements, and agrees that a certificate executed by the Agent
evidencing such release of Collateral shall be conclusive evidence of such
release as to any third party and (ii) to enter into any amendments of the
Security Agreements to cure any ambiguity, defect or inconsistency or to amend
provisions relating to ministerial or administrative matters which do not
materially adversely affect the rights of the Lenders thereunder.
8.6 SUCCESSOR AGENT.
The Agent may resign at any time by giving 30 days' prior written notice
thereof to the Lenders and the Company and may be removed at any time with cause
by the Required Lenders, such resignation or removal to be effective only upon
acceptance of its appointment of a successor Agent as provided herein. Upon any
such notice of resignation or removal, the Requisite Lenders shall have the
right, upon consultation with the Company, to appoint a successor Agent. Upon
the acceptance of any appointment hereunder by a successor Agent, that successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring or removed Agent
shall be discharged from its duties and obligations under this Agreement. After
any retiring Agent's resignation or
-100-
<PAGE> 108
removal hereunder as Agent, the provisions of this Section 8 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was the
Agent under this Agreement.
SECTION 9.
MISCELLANEOUS
9.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS.
A. GENERAL. Each Lender shall have the right at any time to (i) sell,
assign or transfer to any Eligible Assignee, or (ii) sell participations to any
Person in, all or any part of its Commitments or any Loan or Loans made by it or
any other interest herein or in any other Obligations owed to it; provided that
no such sale, assignment, transfer or participation shall require the Company to
file a registration statement with the Securities and Exchange Commission or
apply to qualify such sale, assignment, transfer or participation under the
securities laws of any state; provided, further that no such sale, assignment or
transfer described in clause (i) above shall be effective unless and until an
Assignment Agreement effecting such sale, assignment or transfer shall have been
accepted by the Agent and recorded in the Register as provided in subsection
9.1B(ii). Except as otherwise provided in this subsection 9.1, no Lender shall,
as between the Company and such Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment or transfer of, or any granting of
participations in, all or any part of its Commitments or the Loans, or the other
Obligations owed to such Lender.
B. ASSIGNMENTS.
(i) Amounts and Terms of Assignments. Each Commitment, Loan or other
Obligation may (a) be assigned in any amount to another Lender, or to an
Affiliate of the assigning Lender or another Lender, with the giving of
notice to the Company and the Agent or (b) be assigned in an aggregate
amount of not less than $5,000,000 (or such lesser amount as shall
constitute the aggregate amount of the Commitments, Loans, and other
Obligations of the assigning Lender) to any other Eligible Assignee with
the consent of the Company (unless an Event of Default or Potential Event
of Default has occurred and is continuing) and the Agent (which consent in
either case shall not be unreasonably withheld or delayed). To the extent
of any such assignment in accordance with either clause (a) or (b) above,
the assigning Lender shall be relieved of its obligations thereafter
arising with respect to its Commitments, Loans, or other Obligations or
the portion thereof so assigned. The parties to each such assignment shall
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment Agreement, together with a processing and
recordation fee of $3,500 and such forms, certificates or other evidence,
if any, with respect to United States federal income tax withholding
matters as the assignee under such Assignment Agreement may be required to
-101-
<PAGE> 109
deliver to the Agent pursuant to subsection 2.7B(iii)(a). Upon such
execution, delivery and acceptance, from and after the effective date
specified in such Assignment Agreement, (y) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment Agreement, shall have
the rights and obligations of a Lender hereunder and (z) the assigning
Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment Agreement,
relinquish its rights and be released from its obligations thereafter
arising under this Agreement (and, in the case of an Assignment Agreement
covering all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party
hereto). The Commitments hereunder shall be modified to reflect the
Commitment of such assignee and any remaining Commitment of such assigning
Lender and, if any such assignment occurs after the issuance of the Notes
hereunder, the assigning Lender shall, upon the effectiveness of such
assignment or as promptly thereafter as practicable, surrender its
applicable Notes to the Agent for cancellation, and thereupon new Notes
shall be issued to the assignee substantially in the form of Exhibits
III-A, III-B and III-C annexed hereto, as the case may be, with
appropriate insertions, to reflect the new Commitments and/or outstanding
Loans, as the case may be, of the assignee and/or the assigning Lender.
(ii) Acceptance by the Agent; Recordation in Register. Upon its
receipt of an Assignment Agreement executed by an assigning Lender and an
assignee representing that it is an Eligible Assignee, together with the
processing and recordation fee referred to in subsection 9.1B(i) and any
forms, certificates or other evidence with respect to United States
federal income tax withholding matters that such assignee may be required
to deliver to the Agent pursuant to subsection 2.7B(iii)(a), the Agent
shall, if such Assignment Agreement has been completed and is in
substantially the form of Exhibit VI hereto and if the Agent has consented
to the assignment evidenced thereby, (a) accept such Assignment Agreement
by executing a counterpart thereof as provided therein (which acceptance
shall evidence any required consent of the Agent to such assignment), (b)
record the information contained therein in the Register and (c) give
prompt notice thereof to the Company. The Agent shall maintain a copy of
each Assignment Agreement delivered to and accepted by it as provided in
this subsection 9.1B(ii).
(iii) Successor Issuing Bank. Upon the replacement of an Issuing
Bank, the new Issuing Bank shall issue and deliver substitute Letters of
Credit to replace the outstanding and unpaid Letters of Credit issued by
the former Issuing Bank, but only to the extent the beneficiaries of such
outstanding Letters of Credit have agreed to accept replacement Letters of
Credit. The Company shall use its best efforts to return or cause to be
returned to the former Issuing Bank all outstanding Letters of Credit
issued by the former Issuing Bank. Notwithstanding anything to the
contrary contained herein, the Company shall
-102-
<PAGE> 110
provide cash collateral for all Letters of Credit issued by the former
Issuing Bank that have not been returned to the former Issuing Bank, and
shall further indemnify the former Issuing Bank for all costs, expenses
and liabilities under Letters of Credit issued by such former Issuing
Bank.
C. PARTICIPATIONS. No participation granted hereunder shall relieve the
granting Lender from its Commitment of other obligations hereunder and the
Agent, the Company and other Lenders shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
this Agreement and the other Loan Documents, provided, however, that (i) the
selling Lender's obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other entities
shall be entitled to the provisions of subsections 2.6, 2.7, 9.3, 9.4 and 9.5,
provided, however, that the costs to which a participant shall be entitled to
obtain pursuant thereto shall be determined by reference to such participant's
selling Lender and shall be recoverable solely from such selling Lender and (iv)
the Company, the Agent, the Issuing Bank and the other Lenders shall continue to
deal solely and directly with the selling Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents; provided, however, as between the selling Lender and any such
participant, the selling Lender may grant such participant rights with respect
to amendments, modifications or waivers with respect to any fees payable
hereunder to such Lender (including the amount and the dates fixed for the
payment of any such fees) or the amount of principal or the rate of interest
payable on, or the release of any obligations of the Company hereunder and under
the other Loan Documents. No participant shall be a third party beneficiary of
this Agreement and shall not be entitled to enforce any rights provided to its
selling Lender against the Company under this Agreement.
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
9.1, any Lender may assign and pledge all or any portion of its Loans, the other
Obligations owed to such Lender, and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that (i) no Lender shall, as between the Company and such Lender,
be relieved of any of its obligations hereunder as result of any such assignment
and pledge and (ii) in no event shall such Federal Reserve Bank be considered to
be a "Lender" or be entitled to require the assigning Lender to take or omit to
take any action hereunder.
E. INFORMATION. Each Lender may furnish any information concerning the
Company and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to subsection 9.19.
-103-
<PAGE> 111
9.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be consummated,
the Company agrees to pay promptly (i) all the reasonable costs and expenses of
preparation of the Loan Documents; (ii) all the costs of furnishing all opinions
by counsel for the Company (including without limitation any opinions requested
by the Agent or Lenders as to any legal matters arising hereunder) and of the
Company's performance of and compliance with all agreements and conditions on
its part to be performed or complied with under this Agreement and the other
Loan Documents including, without limitation, with respect to confirming
compliance with environmental and insurance requirements; (iii) the reasonable
fees, expenses and disbursements of counsel to the Agent in connection with the
negotiation, preparation, execution and administration of the Loan Documents and
the Loans and any consents, amendments, waivers or other modifications hereto or
thereto, and any other documents or matters, requested by the Company; (iv) all
the costs and expenses of creating and perfecting the Liens in favor of the
Agent for the benefit of Lenders pursuant to the Loan Documents, including
filing and recording fees and expenses, title insurance, fees and expenses of
counsel for providing such opinions as Lenders may reasonably request and fees
and expenses of legal counsel to the Agent (including local counsel); (v) all
other reasonable costs and expenses incurred by the Agent in connection with the
syndication of the Commitments; and (vi) all costs and expenses, including
reasonable attorneys' fees (including allocated costs of internal counsel) and
costs of settlement incurred by the Agent and Lenders in enforcing any
Obligations of or in collecting any payments due from the Company hereunder or
under the other Loan Documents by reason of any Event of Default or Potential
Event of Default or in connection with any refinancing or restructuring of the
credit arrangements provided under this Agreement in the nature of a "work-out"
or pursuant to any insolvency or bankruptcy proceedings.
9.3 INDEMNITY.
Subject to the limitations in subsection 9.2 with respect to the matters
specified therein, and without duplication of the provisions of the
Environmental Indemnity Agreement, Section 2.11 of the Aircraft Security
Agreement and Section 3.06 of the Spare Engine Security Agreement, whether or
not the transactions contemplated hereby shall be consummated, the Company
agrees to defend, indemnify, pay and hold harmless the Agent, the Issuing Bank
and the Lenders, and the officers, directors, employees, agents and affiliates
of the Agent, the Issuing Bank and the Lenders (collectively called the
"INDEMNITEES") from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including without limitation the
reasonable fees and disbursements of counsel for such Indemnitees), whether
direct, indirect or consequential and whether based on any federal, state or
foreign laws, statutes, rules or regulations (including without limitation
securities and commercial laws, statutes and rules or regulations), on common
law or equitable cause or on contract or otherwise, that may be imposed on,
incurred by, or asserted against any such Indemnitee, in any manner arising out
of this Agreement or the other Loan
-104-
<PAGE> 112
Documents or the transactions contemplated hereby or thereby (including without
limitation the Lenders' agreement to make the Loans hereunder or the use or
intended use of the proceeds of any of the Loans) or the statements contained in
the commitment letter delivered by the Agent, the Issuing Bank or any Lender to
the Company with respect thereto or any breach or default by the Company or any
Loan Party of any provision of the Loan Documents (collectively called the
"INDEMNIFIED LIABILITIES"); provided that the Company shall not have any
obligation to any Indemnitee hereunder with respect to any Indemnified
Liabilities to the extent such Indemnified Liabilities arise (i) solely from the
gross negligence or willful misconduct of that Indemnitee as determined by a
final judgment of a court of competent jurisdiction, (ii) constitute ordinary
and usual operating or overhead expenses of an Indemnitee (excluding, without
limitation, costs and expenses of any outside counsel, consultant or agent) and
(iii) arise out of the breach of any obligation or representation of an
Indemnitee in this Agreement or any other Loan Document. To the extent that the
undertaking to defend, indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Company shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them.
9.4 SET-OFF.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence and during
the continuance of any Event of Default, to the fullest consent permitted by
law, each Lender and is hereby authorized by the Company at any time or from
time to time, without notice to the Company or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all deposits (general or special, including, but not limited to,
Indebtedness evidenced by certificates of deposit, whether matured or unmatured)
and any other Indebtedness at any time held or owing by that Lender to or for
the credit or the account of the Company against and on account of the
obligations and liabilities of the Company to that Lender under this Agreement,
the Notes, and the other Loan Documents, including, but not limited to, all
claims of any nature or description arising out of or connected with this
Agreement, the Notes, or any other Loan Document, irrespective of whether or not
(i) that Lender shall have made any demand hereunder or (ii) the principal of or
the interest on the Loans or any other amounts due hereunder shall have become
due and payable pursuant to Section 7 and although said obligations and
liabilities, or any of them, may be contingent or unmatured.
9.5 RATABLE SHARING.
The Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment, by realization upon security, through the exercise
of any right of set-off or banker's lien, by counterclaim or cross action or by
the enforcement of any right under the Loan Documents or otherwise, or as
adequate protection of a deposit
-105-
<PAGE> 113
treated as cash collateral under the Bankruptcy Code, receive payment or
reduction of a proportion of the aggregate amount of principal, interest, fees
and other amounts then due and owing to that Lender hereunder or under the other
Loan Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which
is greater than the proportion received by any other Lender in respect of the
Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (i) notify the Agent and each other Lender
of the receipt of such payment and (ii) apply a portion of such payment to
purchase participations (which it shall be deemed to have purchased from each
seller of a participation simultaneously upon the receipt by such seller of its
portion of such payment) in the Aggregate Amounts Due to the other Lenders so
that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders
in proportion to the Aggregate Amounts Due to them; provided that if all or part
of such proportionately greater payment received by such purchasing Lender is
thereafter recovered from such Lender upon the bankruptcy or reorganization of
the Company or otherwise, those purchases shall be rescinded and the purchase
prices paid for such participations shall be returned to such purchasing Lender
ratably to the extent of such recovery, but without interest. The Company
expressly consents to the foregoing arrangement and agrees that any holder of a
participation so purchased may exercise any and all rights of banker's lien,
set-off or counterclaim with respect to any and all monies owing by the Company
to that holder with respect thereto as fully as if that holder were owed the
amount of the participation held by that holder.
9.6 AMENDMENTS AND WAIVERS.
A. No amendment, modification, termination or waiver of any provision of
this Agreement or of the Notes, or consent to any departure by the Company
therefrom, shall in any event be effective without the written concurrence of
Requisite Lenders; provided that any such amendment, modification, termination,
waiver or consent which: increases the amount of any of the Commitments or
reduces the principal amount of any of the Loans; changes any Lender's Pro Rata
Share; changes in any manner the definition of "Requisite Lenders"; changes in
any manner any provision of this Agreement which, by its terms, expressly
requires the approval or concurrence of all Lenders; postpones the scheduled
final maturity date (but not the date of any scheduled installment of principal)
of any of the Loans; postpones the date or reduces the amount of any scheduled
payment (but not prepayment) of principal of any of the Loans; postpones the
date on which any interest or any fees are payable; decreases the interest rate
borne by any of the Loans (other than any waiver of any increase in the interest
rate applicable to any of the Loans pursuant to subsection 2.2E) or the amount
of any fees payable hereunder; increases the maximum duration of Interest
Periods permitted hereunder; releases all or substantially all of the Collateral
(except as expressly provided in the Security Agreements); or changes in any
manner the provisions contained in subsection 7.1 or this subsection 9.6 shall
be effective only if evidenced by a writing signed by or on behalf of all
Lenders to whom are owed Obligations being directly affected by such amendment,
modification, termination, waiver or consent. In addition, (i) any amendment,
modification, termination or waiver of any of the
-106-
<PAGE> 114
provisions contained in Section 3 shall be effective only if evidenced by a
writing signed by or on behalf of the Agent and Requisite Lenders, (ii) no
amendment, modification, termination or waiver of any provision of any Note
shall be effective without the written concurrence of the Lender which is the
holder of that Note, (iii) no increase in the Commitments of any Lender over the
amount thereof then in effect shall be effective without the written concurrence
of that Lender, it being understood and agreed that in no event shall waivers or
modifications of conditions precedent, covenants, Events of Default, Potential
Events of Default or of a mandatory prepayment or a reduction of any or all of
the Commitments be deemed to constitute an increase of the Commitment of any
Lender and that an increase in the available portion of any Commitment of any
Lender shall not be deemed to constitute an increase in the Commitment of such
Lender, and (iv) no amendment, modification, termination or waiver of any
provision of Section 7 or of any other provision of this Agreement which, by its
terms, expressly requires the approval or concurrence of the Agent shall be
effective without the written concurrence of such the Agent. The Agent may, but
shall have no obligation to, with the concurrence of any Lender, execute
amendments, modifications, waivers or consents on behalf of that Lender. Any
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which it was given. No notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in similar or other circumstances. Any amendment, modification, termination,
waiver or consent effected in accordance with this subsection 9.6 shall be
binding upon each Lender at the time outstanding, each future Lender and, if
signed by the Company, on the Company.
B. If, in connection with any proposed change, waiver, discharge or
termination to any of the provision of this Agreement as contemplated by the
provision in the first sentence of this subsection 9.6, the consent of Requisite
Lenders is obtained but consent of one or more of such other Lenders whose
consent is required is not obtained, then the Company may, so long as all
non-consenting Lenders are so treated, elect to terminate such Lender as a party
to this Agreement; provided that, concurrently with such termination, (i) the
Company shall pay that Lender all principal, interest and fees and other amounts
owed to such Lender through such date of termination, (ii) another financial
institution satisfactory to the Company and the Agent (or if the Agent is also
the Lender to be terminated, the successor Agent) shall agree, as of such date,
to become a Lender for all purposes under this Agreement (whether by assignment
or amendment) and to assume all obligations of the Lender to be terminated as of
such date, and (iii) all documents and supporting materials necessary, in the
judgment of the Agent (or if the Agent is also the Lender to be terminated, the
successor Agent) to evidence the substitution of such Lender shall have been
received and approved by the Agent as of such date.
9.7 INDEPENDENCE OF COVENANTS.
All covenants under this Agreement shall be given independent effect so
that if a particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to, or would
otherwise be within the limitations
-107-
<PAGE> 115
of, another covenant shall not avoid the occurrence of an Event of Default or
Potential Event of Default if such action is taken or condition exists.
9.8 NOTICES.
Unless otherwise specifically provided herein, any notice, request or
other communication herein required or permitted to be given shall be in writing
and may be personally served or sent by telefacsimile or United States mail or
courier service and shall be deemed to have been given when delivered in person
or by courier service, or upon receipt of telefacsimile, or five Business Days
after depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices shall not be effective until received. For the
purposes hereof, the address of each party hereto shall be as set forth under
such party's name on the signature pages hereof or (i) as to the Company and the
Agent, such other address as shall be designated by such Person in a written
notice delivered to the other parties hereto and (ii) as to each other party,
such other address as shall be designated by such party in a written notice
delivered to the Agent.
9.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, (x) the agreements of the Company set forth in subsection 9.3 and the
agreements of the Lenders set forth in subsections 8.2C, 8.4 and 9.5 shall
survive the payment of the Loans, and the termination of this Agreement and (y)
the agreements of the Company set forth in subsections 2.6D, 2.7, 9.2 and 9.4
shall survive the payment of the Loans, and the termination of this Agreement
for a period of two years.
9.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Agent or any Lender in the exercise
of any power, right or privilege hereunder or under any other Loan Document
shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other power, right or privilege. All rights and remedies existing under
this Agreement and the other Loan Documents are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
9.11 MARSHALLING; PAYMENTS SET ASIDE.
Neither the Agent nor any Lender shall be under any obligation to marshal
any assets in favor of the Company or any other party or against or in payment
of any or all of the Obligations. To the extent that the Company makes a payment
or payments
-108-
<PAGE> 116
to the Agent or the Lenders (or to the Agent for the benefit of the Lenders), or
the Agent or Lenders enforce any security interests or exercise their rights of
set-off, and such payment or payments or the proceeds of such enforcement or
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, any other state or federal
law, common law or any equitable cause, then, to the extent of such recovery,
the obligation or part thereof originally intended to be satisfied, and all
Liens, rights and remedies therefor or related thereto, shall be revived and
continued in full force and effect as if such payment or payments had not been
made or such enforcement or set-off had not occurred.
9.12 SEVERABILITY.
In case any provision in or obligation under this Agreement or the Notes
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
9.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
The obligations of the Lenders hereunder are several and no Lender shall
be responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt.
9.14 HEADINGS.
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
9.15 APPLICABLE LAW.
THIS AGREEMENT AND EACH OF THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (EXCEPT, IN THE CASE OF SECURITY AGREEMENTS, AS OTHERWISE PROVIDED
THEREIN). Each Letter of Credit shall be governed by, and shall be construed in
accordance with, the laws or rules designated in such Letter of Credit, or, if
no such laws or rules are designated, the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500 or any later revision which may be in effect from time to
time (the "Uniform Customs")
-109-
<PAGE> 117
and, as to matters not governed by the Uniform Customs, the laws of the State of
New York.
9.16 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Lenders. Except as provided in
subsections 6.6(v), 6.10 and 6.12, neither the Company's rights or obligations
hereunder nor any interest therein may be assigned or delegated by the Company
without the prior written consent of all Lenders.
9.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY HERETO ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OBLIGATION MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH SUCH PARTY
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH OTHER LOAN
DOCUMENT OR SUCH OBLIGATION (SUBJECT TO ANY RIGHT OF APPEAL BY A HIGHER COURT).
The Company hereby agrees that service of all process in any such proceeding in
any such court may be made by registered or certified mail, return receipt
requested, to the Company at its address provided in subsection 9.8, such
service being hereby acknowledged by the Company to be sufficient for personal
jurisdiction in any action against the Company in any such court and to be
otherwise effective and binding service in every respect. The Company hereby
appoints CT Corporation System, 1633 Broadway, New York, New York 10019, as its
agent for service of process and agrees that service of process upon such agent
shall be deemed to be service of process upon the Company with respect to any
proceeding related to the Loan Documents. Nothing herein shall affect the right
to serve process in any other manner permitted by law or shall limit the right
of any Lender or the Agent to bring proceedings against the Company in the
courts of any other jurisdiction.
9.18 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
-110-
<PAGE> 118
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver
is intended to be all-encompassing of any and all disputes that may be filed in
any court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims and all
other common law and statutory claims. Each party hereto acknowledges that this
waiver is a material inducement to enter into a business relationship, that each
has already relied on this waiver in entering into this Agreement, and that each
will continue to rely on this waiver in their related future dealings. Each
party hereto further warrants and represents that it has reviewed this waiver
with its legal counsel and that it knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE
HEREUNDER. In the event of litigation, this Agreement may be filed as written
consent to a trial by the court.
9.19 CONFIDENTIALITY.
None of the Agent, the Issuing Bank and the Lenders shall disclose any
Confidential Information to any Person without the consent of the Company, such
consent not to be unreasonably withheld or delayed, other than (a) to the
Agent's, Issuing Bank's or Lender's Affiliates and their respective officers,
directors, employees, agents and advisors involved in the administration,
monitoring or enforcement of the Loans hereunder (in such Person's reasonable
judgment) and to actual or prospective Eligible Assignees and participants, and
then only in each case on a confidential basis, (b) as required by any law, rule
or regulation or judicial process and (c) as requested or required by any state,
federal or foreign authority or examiner regulating banks or banking.
9.20 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or supplements hereto
or in connection herewith may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
9.21 INTEGRATION.
This Agreement, the Security Agreements, and the other agreements executed
in connection therewith constitute the entire understanding among the parties
hereto with respect to the matters covered thereby, and shall supersede any
prior agreements covering such matters.
-111-
<PAGE> 119
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY: AMERICA WEST AIRLINES, INC.
By: /s/ Jacques C. Lazard
----------------------------------------
Name: Jacques C. Lazard
Title: Vice President & Treasurer
Notice Address:
4000 E. Sky Harbor Boulevard
Phoenix, Arizona 85034
INITIAL ISSUING BANK, AGENT AND LENDER:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
as Initial Issuing Bank, Agent and
Lender
By: /s/ Yoshiaki Ohashi
----------------------------------------
Name: Yoshiaki Ohashi
Title: Senior Vice President
Notice Address:
350 South Grand Avenue
Suite 1500
Los Angeles, CA 90071
Attention:________________________
Fax:______________________________
-112-
<PAGE> 120
[*]
By: Name: [*]
--------------------------
Title: [*]
--------------------------
Notice Address: [*]
[*]
[*]
Fax: [*]
[*]
By: Name:
--------------------------
Title:
--------------------------
Notice Address: [*]
[*]
[*]
Fax: [*]
[*]
By: Name:
--------------------------
Title:
--------------------------
Notice Address: [*]
[*]
Fax: [*]
[*] Confidential Treatment Requested
-113-
<PAGE> 121
[*]
By: Name:
-----------------------------------
Title:
-----------------------------------
Notice Address: [*]
[*]
[*]
Fax: [*]
[*]
By: Name: [*]
-----------------------------------
[*]
Title: [*]
-----------------------------------
Notice Address: [*]
[*]
[*]
Fax: [*]
[*]
By: Name:
-----------------------------------
Title:
-----------------------------------
Notice Address: [*]
[*]
Fax: [*]
[*] Confidential Treatment Requested
-113-
<PAGE> 122
[*]
By: Name:
-----------------------------
Title:
-----------------------------
Notice Address: [*]
[*]
[*]
Fax: [*]
[*]
By: Name:
-----------------------------
Title:
-----------------------------
Notice Address: [*]
[*]
[*]
Fax: [*]
[*]
By: Name: [*]
-----------------------------
[*]
Title: [*]
-----------------------------
Notice Address: [*]
[*]
Fax: [*]
[*] Confidential Treatment Requested
-113-
<PAGE> 123
[*]
By: Name: [*]
--------------------------
[*]
Title: [*]
--------------------------
Notice Address: [*]
[*]
[*]
Fax: [*]
[*]
By: Name:
--------------------------
Title:
--------------------------
Notice Address: [*]
[*]
[*]
[*]
Fax: [*]
[*] Confidential Treatment Requested
-113-
<PAGE> 124
[*]
By: Name:
--------------------------
Title:
--------------------------
Notice Address: [*]
[*]
[*]
Fax: [*]
[*]
By: Name: [*]
--------------------------
Title: [*]
--------------------------
Notice Address: [*]
[*]
[*]
[*]
Fax: [*]
[*] Confidential Treatment Requested
-113-
<PAGE> 125
EXHIBIT A
FORM OF AIRCRAFT SECURITY AGREEMENT
dated as of
made by
AMERICA WEST AIRLINES, INC.
Company
in favor of
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY,
as Agent
<PAGE> 126
AIRCRAFT SECURITY AGREEMENT (the "Security Agreement"), dated as of
_________ ___, _____ from AMERICA WEST AIRLINES, INC., a Delaware corporation
(the "Company"), whose mailing address is 4000 E. Sky Harbor Boulevard, Phoenix,
Arizona 85034, to The Industrial Bank of Japan, Limited, Los Angeles Agency, as
Agent under the Revolving Credit Agreement referred to below (together with its
successors and assigns in such capacity, the "Agent") for the benefit and on
behalf of itself as such Agent and the lenders (the "Lenders", such term to
include the Issuing Bank as defined in the Credit Agreement) from time to time
party to that certain Revolving Credit Agreement dated as of December 12, 1997
(as the same may be amended or waived from time to time the "Credit Agreement")
among the Company, the Lenders and the Agent.
WHEREAS:
A. The Lenders have agreed to extend certain financial accommodations
to the Company on the terms and subject to the conditions set forth in the
Credit Agreement.
B. Pursuant to the terms of the Credit Agreement, the Agent has been
appointed as the agent of the Lenders to hold and enforce on their behalf the
rights granted to the Agent herein with respect to the Subject Collateral.
C. Pursuant to the Credit Agreement the Company has agreed to deliver
this Security Agreement for the purposes of, among other things, securing all
payment and performance obligations of every nature of the Company from time to
time owed to the Agent, the Lenders or any of them under the Loan Documents,
whether for principal, interest, fees, expenses, indemnification or otherwise
(collectively, the "Obligations"), and subjecting the properties and assets
hereinafter described to the lien of this Security Agreement as security for the
performance of the Obligations.
NOW, THEREFORE, in consideration of the benefits accruing to the
Company, the receipt and sufficiency of which are hereby acknowledged, the
PARTIES HERETO AGREE:
ARTICLE I
DEFINITIONS AND INTERPRETATION; GRANTING CLAUSES;
SUBSEQUENTLY MORTGAGED ENGINE; REPRESENTATIONS AND
WARRANTIES
SECTION 1.01. Definitions and Interpretation. Unless otherwise defined
herein, all capitalized terms used in this Security Agreement that are defined
in the Credit Agreement (including those terms incorporated by reference) shall
have the respective meanings assigned to them in the Credit Agreement. The rules
of
<PAGE> 127
interpretation set forth in Section 1 of the Credit Agreement shall apply to
this Security Agreement. In addition, the following terms shall have the
meanings assigned as follows:
"Act" or "Federal Aviation Act" shall mean Subtitle VII of Title 49 of
the United States Code, and the rules and regulations promulgated thereunder, as
in effect on the date of this Security Agreement, and as modified or amended
hereafter, or any subsequent legislation that supplements or supersedes such
Subtitle.
"Agreed Value" shall mean the value of the Aircraft as determined from
time to time pursuant to an Approved Appraisal.
"Air carrier", "aircraft", "aircraft engines", "appliances" and "spare
parts" shall have the respective meanings given to these terms in the Act, as in
effect on the date of this Security Agreement.
"Airframe" has the meaning given in Section 1.02(a) hereof.
"Approved Appraisal" has the meaning specified in Section 2.10 of the
Credit Agreement.
"Commitments" means the commitments of the Lenders to make and convert
Loans as set forth in subsection 2.1A of the Credit Agreement and to issue
Letters of Credit set forth in subsection 2.9 of the Credit Agreement.
"Engine" has the meaning given in Section 1.02(a) hereof.
"Event of Default" means each of the events set forth in Section 7 of
the Credit Agreement.
"Event of Loss" shall mean any of the following events with respect to
the Aircraft, any Airframe or any Engine:
(i) the loss of such property or of the use thereof for 45 days
due to the destruction of or damage to such property which renders repair
uneconomic or which renders such property permanently unfit for normal use by
the Company;
(ii) any damage to such property which results in the receipt of
insurance proceeds with respect to such property on the basis of a total loss,
or a constructive or compromised total loss;
(iii) the theft or disappearance of such property for a period in
excess of 30 days;
(iv) the confiscation, condemnation, or seizure of, or requisition
of title to, or use of, such property by any government or governmental
authority which results
-2-
<PAGE> 128
in the loss of title or possession of such property by the Company for a period
in excess of 30 consecutive days;
(v) as a result of any law, rule, regulation, order or other
action by the FAA or other government body having jurisdiction, use of such
property in the normal course of the business of air transportation is
prohibited for a period longer than one (1) month; and
(vi) the Aircraft is removed from operational service and placed
in short term storage for a period of more than 90 consecutive days or the
Aircraft is placed in long term storage.
"Federal Aviation Administration" or "FAA" shall mean the United States
Federal Aviation Administration or any successor thereto administering the
functions of the Federal Aviation Administration under the Act.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"Letters of Credit" means each letter of credit that may be issued by
the Issuing Bank under the terms of subsection 2.9 of the Credit Agreement.
"Lien" shall mean any lien, mortgage, pledge, assignment, security
interest, charge, hypothecation, preference, priority, privilege, lease or
encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest); provided that neither negative pledges nor covenants to
abstain from granting liens on or security interests in assets of the Company or
its Subsidiaries shall constitute Liens.
"Loan" or "Loans" has the meaning given such term in the Credit
Agreement.
"Officer's Certificate" shall mean a certificate signed by a
Responsible Officer and delivered to the Agent.
"Parts" shall mean all appliances, components, parts, instruments,
appurtenances, accessories, furnishings, and other equipment of whatever nature
which may from time to time be incorporated or installed in or attached to the
Airframe or any Engine so long as ownership thereof (subject to Permitted Liens)
shall remain vested in the Company in accordance with the terms of Section 2.03C
hereof and any replacement Part incorporated or installed in or attached to the
Airframe or any Engine in accordance with the terms of Section 2.03C.
"Permitted Lessee" shall mean any United States "air carrier" (within
the meaning of the Act) that is not subject to a proceeding under Title 7 or 11
of the United
-3-
<PAGE> 129
States Bankruptcy Code (as now and hereafter in effect or any successor
statute), holds a certificate under Section 41102(a)(1) of the Act and operates
under Federal Aviation Regulation Part 121.
"Permitted Liens" shall mean (i) the Lien of this Security Agreement,
(ii) Liens for taxes, assessments or governmental charges payable by the Company
either not delinquent for a period of more than thirty (30) days or being
contested in good faith by appropriate proceedings so long as during such thirty
(30) day period there is not any material risk of the sale, forfeiture or loss
of the Airframe or any Engine or any interest therein or during such proceeding
there is not any material risk of the sale, forfeiture or loss of the Airframe
or any Engine or any interest therein due to an effective stay or otherwise,
(iii) any lien for the fees or charges of any airport or air navigation
authority or any materialmen's, repairmen's, landlord's, workmen's, supplier's
and other like Liens arising in the ordinary course of business, for amounts the
payment of which is not overdue for a period of more than thirty (30) days or is
being contested in good faith by appropriate proceedings so long as during such
thirty (30) day period there is not any material risk of the sale, forfeiture or
loss of the Airframe or any Engine or any interest therein or during such
proceeding there is not any material risk of the sale, forfeiture or loss of the
Airframe or any Engine or any interest therein due to an effective stay or
otherwise, (iv) Liens which the Agent has specifically permitted in writing, (v)
Liens (other than Liens for taxes) arising out of judgments or awards against
the Company which are being appealed so long as there is not any material risk
of the sale, forfeiture or loss of the Airframe, any Engine or any interest
therein or during such proceeding there is not any material risk of the sale,
forfeiture or loss of the Airframe, any Engine or any interest therein due to an
effective stay or otherwise, (vi) rights of third parties under arrangements
permitted pursuant to Section 2.01D and salvage rights of insurers expressly
permitted by this Security Agreement and (vii) other rights of the Company and
the Agent provided in this Security Agreement.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, limited liability
companies, Joint Ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Potential Event of Default" means a condition or event that, after
notice or the passage of time or both, would constitute an Event of Default.
"Replacement Engine" shall mean any aircraft engine described in any
Security Agreement Supplement from and after the date on which the same became
subject to the Lien of this Security Agreement, unless and until the same shall
be released from the Lien of this Security Agreement pursuant to the terms
hereof.
"Security Agreement" shall mean this instrument as originally executed
as of the date hereof and as it thereafter may from time to time be supplemented
through one or more Security Agreement Supplements or amended by one or more
instruments
-4-
<PAGE> 130
supplementary or amendatory thereto and which are executed by the Company and
the Agent.
"Supplement" or "Security Agreement Supplement" shall mean a security
agreement supplement in substantially the form of Appendix A hereto, subjecting
any additional aircraft engine to the Lien of this Security Agreement.
The following capitalized terms are defined in the applicable Recital
or Granting Clause:
Company First Paragraph
Lenders First Paragraph
Credit Agreement First Clause
Subject Collateral Granting Clause
Agent First Paragraph
Obligations Recital "C"
SECTION 1.02. Grant of Security Interest. The Company hereby grants to
and charges in favor of the Agent a security interest in the following property
(collectively the "Subject Collateral") as security for the due and prompt
payment and performance by the Company of the Obligations:
(a) the Airframe and Engines (each term as defined in and described in
Schedule I hereto);
(b) any Replacement Engine described in Schedule I to any Supplement
from time to time hereafter executed and delivered by the Company pursuant to
Section 1.02 hereof;
(c) all proceeds receivable or received when any Airframe or Engine is
sold, exchanged, collected, leased or otherwise disposed of, including,
without limitation, all amounts payable or paid under insurance, requisition
or other payments as the result of any loss (including an Event of Loss (as
hereinafter defined) and Event of Damage) or Repairable Damage to such
Airframe or Engine but (for avoidance of doubt) shall exclude amounts payable
to the Company for operating a charter or wet lease permitted without the
consent of the Agent pursuant to Section 2.01(D) hereof (collectively,
"Proceeds");
(d) all issues from and income and interest on Proceeds, products,
title, interest and claims whatsoever, at law, as well as in equity, now or
hereafter existing, in or to any of the foregoing;
-5-
<PAGE> 131
[(e) the Aircraft Sale and Purchase Agreement, dated
________________, between the Company and ____________________ (the
"Purchase Agreement") and any bills of sale for the Aircraft delivered
thereunder;]*/ and
(f) to the extent not included in the foregoing, all and any
proceeds (not expressly excluded in the definition of Proceeds) of any
and all of the foregoing Subject Collateral.
[It is expressly agreed that, anything herein contained to the contrary
notwithstanding, the Company shall remain liable under the Purchase Agreement
and the bills of sale delivered thereunder to perform all of its obligations
thereunder in accordance with and pursuant to the terms and provisions thereof
and the Agent and the Lenders shall have no obligation or liability under the
Purchase Agreement or such bills of sale by reason of or arising out of the
assignments hereunder nor shall the Agent or the Lenders be required or
obligated in any manner to perform or fulfill any obligations of the Company
under the Purchase Agreement or such bills of sale.]*/
Any lease of the Airframe together with the Engines, whether or not
such Engines are installed on the Airframe or any other airframe and any and all
logs, manuals and other records relating thereto (collectively, the "Aircraft")
shall be subject and subordinate to all of the provisions of the Credit
Agreement and this Security Agreement. Except with the prior written consent of
the Agent or as permitted pursuant to Sections 2.01B, 2.01D, 2.02 and 2.03, the
Company shall not sell or otherwise dispose of any part of, or any interest in,
the Aircraft prior to payment and performance in full of the Obligations and
expiration of the Commitments of the Lenders unless the same shall be released
from the Lien hereof in accordance with Section 2.10(B)(ii)(1) of the Credit
Agreement. If the Company complies with such provisions of Section 2.10B(ii)(1)
of the Credit Agreement with respect to the Aircraft, the Agent shall, at the
Company's written request and expense, promptly upon receipt thereof from the
Company, execute and deliver to the Company a release of the Lien of this
Security Agreement with respect to such Aircraft in such form as the Company
shall reasonably request.
SECTION 1.03. Subsequently Mortgaged Engine.
A. Replacement Engine. The Company may at any time or from time to
time subject to the Lien of this Security Agreement one or more Replacement
Engines, in substitution for one or more of the Engines then constituting part
of the Aircraft and subject to such Lien, provided that each Replacement Engine
so subjected to the Lien of this Security Agreement shall be appropriate for
installation on the Airframe.
B. Supplements. Whenever the Company shall subject any Replacement
Engine to the Lien of this Security Agreement, the Company will on or prior
thereto:
- -------------------
*/Subject to negotiation on a case by case basis.
-6-
<PAGE> 132
(i) execute and deliver to the Agent a Supplement properly
describing such Replacement Engine;
(ii) deliver to the Agent an Officer's Certificate confirming (x)
that the representations and warranties contained in Section 1.04
hereof are true and accurate on and as of the date of such Supplement
with respect to such Replacement Engine and the Company as though made
on and as of such date and (y) that the Company has complied with the
conditions contained in Section 2.10B(ii)(1) of the Credit Agreement;
(iii) deliver an Approved Appraisal (which may be a desktop
appraisal) with respect to the Airframe including the Replacement
Engine; and
(iv) if such Replacement Engine is Section 1110 Property (as
hereinafter defined), furnish the Agent with an opinion of counsel
reasonably satisfactory to the Agent in form and substance reasonably
satisfactory to the Agent that the Agent will have the benefit of
Section 1110 under this Security Agreement with respect to such
Replacement Engine.
Promptly upon the recordation of such Supplement with the FAA, the
Company will cause to be delivered to the Agent an opinion of counsel acceptable
to the Agent as to the due recording of such Supplement against such Replacement
Engine in accordance with the Act. Upon satisfaction of the conditions of this
Section 1.03B, the Replacement Engine shall become an "Engine" for all purposes
hereof and the engine being substituted for shall cease to be an "Engine" and
shall be released from the Lien of this Security Agreement. Upon written request
and at the Company's expense, the Agent shall execute and deliver to the Company
such releases as the Company may reasonably request to effectuate the release
contemplated in the previous sentence.
SECTION 1.04. Representations and Warranties of the Company. The
Company represents and warrants that, in the case of the Airframe and each
Engine mortgaged hereunder, on the date such Airframe or Engine is mortgaged
hereunder:
(i) the execution, delivery and performance by the Company of
this Security Agreement are within the Company's corporate power, have
been duly authorized by all necessary corporate action, and do not
contravene (1) the Company's articles of incorporation or by-laws or
(2) any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or any contractual restriction binding
on the Company or any of its properties and do not result in or require
the creation of any Lien (other than pursuant to the Loan Documents)
upon or with respect to any of its properties other than that created
hereunder;
(ii) no authorization or approval or other action by, and no
notice to or filing with, any governmental authority is required for
the due execution and delivery by the Company of this Security
Agreement, other than as have been duly obtained, taken, given or made;
and
-7-
<PAGE> 133
(iii) the Company shall have good and marketable title to such
Airframe or Engine, free and clear of all Liens created or incurred by
it or permitted to exist by it other than the Lien of this Security
Agreement and Permitted Liens.
ARTICLE II
COVENANTS
SECTION 2.01. Registration; Maintenance and Operation.
A. Registration. The Company, at its own expense, shall [upon
delivery of the Aircraft under the Purchase Agreement,]*/ cause the Aircraft to
be duly registered in the name of the Company, and to remain duly registered in
the name of the Company, with the FAA.
B. Maintenance.
1. General. The Company, at its own cost and expense shall (i)
service, repair, maintain and overhaul or cause the same to be done to the
Airframe and each Engine under the Company's FAA-approved Maintenance Program
(the "Approved Maintenance Program") in the same manner and with the same care
as used by the Company with similar aircraft and engines operated by the Company
(except for care required pursuant to return conditions of lease agreements with
respect to aircraft and engines leased by the Company) and so as to keep the
Airframe and each Engine in good operating condition and in passenger
configuration, (ii) maintain the manuals and technical records in an orderly
manner in the English language in accordance with the Approved Maintenance
Program and (iii) cause all heavy maintenance to be performed at a nationally
recognized maintenance facility holding a valid FAA repair facility certificate
and all other maintenance to be performed by FAA approved maintenance providers.
2. Specific Items of Maintenance. The Company agrees that
maintenance and repairs shall include, but shall not be limited to, the
following specific items:
a. to perform or have performed in accordance with the
Approved Maintenance Program all routine maintenance work, including on-line
maintenance on the Aircraft, and to ensure that all such maintenance shall be in
accordance with the regulations and directives of the FAA. The Company shall
cause all maintenance and repairs to the Aircraft to be performed at repair
facilities approved by the FAA, including, with respect to any lease permitted
hereunder, any lessee's FAA approved maintenance facilities;
- -------------------
*/ Subject to negotiation on a case by case basis.
-8-
<PAGE> 134
b. to correct diligently deficiencies revealed at any time by
any inspection by the Company which under the Approved Maintenance Program
reasonably require repair, replacement, overhaul and adjustment;
c. to maintain or cause to be maintained at all times in an
orderly manner and in accordance with all applicable requirements of the FAA and
any other governmental authority having jurisdiction with respect thereto, all
Aircraft documentation, including, without limitation, all records relating to
the location, service, inspection, maintenance, modification, repair and
overhaul of the Airframe, Engines and all Parts installed therein and the
manuals and technical records, and in accurate, current, up-to-date and complete
status (if necessary, through manufacturers' revision service);
d. if required by FAA regulations, to notify the manufacturer
promptly of any modifications or configuration changes to the Airframe which
would have a material effect on or be a material change to the detail
specification and/or the manuals relating to the Airframe (such as flight,
operations and maintenance);
e. to maintain the Engines at all times in accordance with
the Approved Maintenance Program; and
f. to make all structural repairs in accordance with the
Approved Maintenance Program.
3. Airworthiness Directives. The Company agrees to carry out or
cause to be carried out at its expense on the Aircraft, in accordance with the
terms thereof, any airworthiness directive or any other mandatory F.A.R. or
other regulation, directive or instruction (each, an "Airworthiness Directive")
which the FAA may from time to time issue. All Airworthiness Directives shall be
timely accomplished in accordance with the Approved Maintenance Program and the
terms and conditions of such Airworthiness Directives (including by means of
alternate compliance under the Airworthiness Directive and the Approved
Maintenance Program).
4. Corrosion Control. The Company shall carry out at its expense
such work as may be required for the control of corrosion in accordance with the
Approved Maintenance Program.
5. Repairs. Any repair to the Aircraft shall be accomplished
pursuant to the appropriate manufacturer's repair manual instructions, the
Approved Maintenance Program, or other FAA-approved data.
6. Warranties. Any warranties, express or implied, of
manufacturers, suppliers or subcontractors relating to the Aircraft or any of
the Engines shall inure to the benefit of the Company and be exercised or
enforced by the Company at the Company's sole expense. So long as the Loans have
not been accelerated the Company shall have the right to exercise, enforce,
compromise or release the same, and may apply the proceeds thereof in any manner
it deems appropriate. The Company shall
-9-
<PAGE> 135
maintain the Aircraft in such a manner so as not to knowingly void any available
warranties. Upon acceleration of the Loans, all warranties and all rights with
respect to warranties shall revert to the Agent or its designee and, upon
request of the Agent, the Company shall execute such documents and take such
action as may be requested or required to enable the Agent or its designee to
enforce or in any other way receive the benefit of such warranties.
C. Operation.
1. The Company will not maintain, use, service, repair, overhaul
or operate the Aircraft in violation of any law, rule, regulation, treaty or
order of any government or governmental authority (domestic or foreign) having
jurisdiction, or in violation of any airworthiness certificate, license or
registration relating to the Aircraft issued by any such authority or for a
purpose for which the Aircraft is not designed or reasonably suitable or in any
configuration other than passenger configuration.
2. The Company will not operate the Aircraft: (i) in or to any
area excluded from coverage by any insurance required to be maintained by the
terms of this Agreement; or (ii) any areas of actual or threatened armed
hostilities unless such operation is covered by and complies with the insurance
required hereunder.
D. Possession and Leases. The Company will not lease or otherwise in
any manner deliver, transfer or relinquish possession of the Airframe or any
Engine or install or permit any Engine to be installed on any airframe other
than the Airframe without the prior written consent of the Agent; provided that,
so long as no Event of Default exists at the time of such lease, delivery,
transfer or relinquishment of possession or installation and the Company shall
continue to maintain insurance in compliance with this Security Agreement, the
Company may, without the prior written consent of the Agent:
1. deliver possession of the Airframe or any Engine to the
manufacturer thereof or to any person for testing, service, repair, maintenance
or overhaul work on the Airframe or any Engine or any part thereof or for
alterations or modifications in or additions to the Airframe or Engine(s);
2. install an Engine on an airframe owned by the Company, leased
to the Company or owned or purchased by the Company subject to a conditional
sale or other security agreement, provided that (a) such airframe is free and
clear of all Liens, except: (i) the rights of the parties to the lease or
conditional sale or other security agreement covering such airframe, or their
assignees, (ii) liens of the type described in the definition hereunder of
"Permitted Liens", and (iii) the rights of other air carriers under normal
interchange agreements which are customary in the airline industry and do not
contemplate, permit or require the transfer of title to the airframe or engines
installed thereon, and (b) any such lease, conditional sale or other security
agreement provides that engines such as the Engine shall not become subject to
the lien of such lease, conditional sale or
-10-
<PAGE> 136
other security agreement, notwithstanding the installation thereof on such
airframe; and
3. lease the Aircraft to any Permitted Lessee provided that (A)
such lease shall not have a term of more that six (6) months (or
eighteen (18) months if at the time such lease is executed such
Permitted Lessee has a long term unsecured credit rating of at least BB
by Standard & Poor's Ratings Group), (B) the terms of such lease
expressly provide that the lease is subject and subordinate to this
Security Agreement and all rights of the Agent hereunder, including,
but not limited to, the right of the Agent to repossess the Aircraft
following the acceleration of the Loans, (C) the maintenance, insurance
and other terms of the lease are consistent with the requirements of
this Security Agreement, (D) the lease (1) requires that the Aircraft
remain a U.S. registered aircraft and (2) prohibits further leasing by
the Permitted Lessee and (E) concurrently with entering into such
lease, the Company provides the Agent with a copy thereof together with
insurance certificates and evidence complying with Section 2.04 (which
insurance may be provided by the Permitted Lessee if it otherwise
complies in all respects with Section 2.04 hereof).
The Agent agrees for the benefit of a lessor or secured party
under a lease, conditional sale or other security agreement containing an
agreement complying with Section 2.01(D)(2)(b) which lease, conditional sale or
security agreement also covers an engine or engines owned by the lessor under
such lease or subject to a security interest in favor of the secured party under
such conditional sale or other security agreement that the Agent will not
acquire or claim, as against such lessor or secured party, any right, title or
interest in any such engine or engines as the result of such engine or engines
being installed on the Airframe at any time while such engine or engines is
subject to such lease, conditional sale or other security agreement and owned by
such lessor or subject to a security interest in favor of such secured party.
The rights of any lessee or other transferee who receives
possession by reason of a transfer permitted by this Section 2.01(D) shall be
subject and subordinate to all the terms of this Security Agreement, including,
without limitation, the covenants contained in Sections 2.01 (A), (B) and (C) of
this Security Agreement and the Agent's rights, powers and remedies under this
Security Agreement, including the right to repossession pursuant thereto and to
avoid such lease upon such repossession and the Company shall remain primarily
liable under this Security Agreement for the performance of all of the terms
thereof to the same extent as if such lease or transfer had not occurred. The
terms of any such lease shall not permit any lessee to take any action not
permitted to be taken by the Company under this Security Agreement with respect
to the Aircraft.
Any wet lease or similar arrangement under which the Company
provides the crew and maintains operational control of the Aircraft shall not
constitute a delivery, transfer or relinquishment of possession for purposes of
this Section 2.1(D).
-11-
<PAGE> 137
E. Plates. On or before the date hereof, or as soon thereafter as
practicable, the Company agrees to affix and maintain in the cockpit of the
Airframe and on each Engine a nameplate bearing the inscription:
SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE INDUSTRIAL BANK
OF JAPAN, LIMITED, LOS ANGELES AGENCY, AS AGENT, SECURED
CREDITOR
F. Insignia. Nothing contained in the Credit Agreement or this Security
Agreement shall prohibit the Company from placing its customary colors and
insignia on the Airframe or any Engine or from otherwise operating the Aircraft
in its livery.
SECTION 2.02. Liens. The Company will not directly or indirectly
create, incur, assume or suffer to exist any Lien on or with respect to the
Aircraft, title thereto or any interest therein or part thereof other than
Permitted Liens. The Company will promptly, at its own expense, take (or cause
to be taken) such actions as may be necessary duly to discharge any Lien not
constituting a Permitted Lien if the same arise at any time.
SECTION 2.03. Parts.
A. Replacement of Parts. The Company, at its own cost and expense, will
promptly replace or cause to be replaced all Parts which may from time to time
become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever, except
as otherwise provided in this Section 2.03(A) or Section 2.03(D) of this
Security Agreement. All replacement parts (other than replacement parts
temporarily installed as provided in Section 2.03(B) of this Security Agreement
shall be free and clear of all Liens (except Permitted Liens), and shall be in
as good an operating condition, and shall have a value and utility substantially
equal to or greater than, the Parts replaced assuming such replaced Parts were
in the condition and repair required to be maintained by the terms of this
Security Agreement. All Parts at any time removed from the Airframe or any
Engine shall remain the property of the Company, no matter where located, until
such time as such Parts shall be replaced by parts which meet the requirements
for replacement Parts specified above. Upon any replacement part becoming
incorporated or installed in or attached to the Airframe or any Engine, without
further act (subject only to Permitted Liens and any arrangement permitted by
Section 2.03(B) of this Security Agreement), (i) such replacement part shall
become the property of the Company and shall become subject to the Lien of this
Security Agreement and be deemed a Part for all purposes of this Security
Agreement to the same extent as the Parts originally incorporated or installed
in or attached to the Airframe or such Engine and (ii) the replaced Part shall
no longer be deemed a Part under this Security Agreement. Upon written request
and at the Company's expense, the Agent shall execute and deliver to the Company
such releases as the Company may reasonably request to effectuate the release
contemplated in clause (ii) of the previous sentence.
-12-
<PAGE> 138
The Company may remove Parts which the Company determines in its
reasonable judgment to be obsolete or no longer suitable or appropriate for use
on the Airframe or any Engine (each, an "Obsolete Part"), provided that (i) such
removal is being applied by the Company on a fleet-wide basis and does not
discriminate against the Aircraft to the extent applicable having regard to the
fleet and equipment type and the age of the Aircraft and (ii) removal of any
such Obsolete Parts shall not diminish the value, utility or remaining useful
life of the Airframe or such Engine, or materially impair the condition or
impair the airworthiness thereof, below the value, utility, condition,
airworthiness or remaining useful life thereof immediately prior to such removal
assuming the Airframe or such Engine was then of the value and utility and in
the condition and airworthiness required to be maintained by the terms of this
Security Agreement.
B. Pooling of Parts; Temporary Replacement Parts. Any Part removed from
the Airframe or any Engine as provided in Section 2.03(A) of this Security
Agreement may be subjected by the Company to a normal pooling or similar
arrangement customary in the airline industry and entered into by the Company in
the ordinary course of its business; provided, that a Part replacing such
removed Part shall be incorporated or installed in or attached to such Airframe
or Engine in accordance with Section 2.03(A) of this Security Agreement as
promptly as practicable after the removal of such removed Part. In addition, the
Company may use temporary parts or pooled parts on the Aircraft as temporary
replacements for Parts, provided that the Company, at its expense as promptly
thereafter as practicable, either (1) causes such pooled or replacement part to
become the property of the Company free and clear of all Liens other than
Permitted Liens or (2) replaces such replacement part with a further replacement
part owned by the Company which meets the requirements of Section 2.03(A) of
this Security Agreement and which shall become the property of the Company, free
and clear of all Liens other than Permitted Liens.
C. Modifications.
1. Except as provided in Section 2.01B(3) hereof, the Company
shall at its expense make such alterations and modifications in and additions to
the Airframe or any Engine as may be required to be made from time to time by
applicable law ("Required Modifications").
2. The Company shall not make any modifications, alterations or
additions (collectively, "Modifications") to the Aircraft, (other than Required
Modifications) which will result in adverse changes to the Aircraft structure or
performance or which will either (a) materially decrease the utility, value or
remaining useful life of the Aircraft or (b) adversely affect the Aircraft's
airworthiness or use for transporting passengers or cargo in commercial service.
3. All Modifications shall be FAA-approved or in accordance with
the Approved Maintenance Program.
-13-
<PAGE> 139
D. Additional Parts. All parts incorporated or installed in or attached
or added to the Airframe or an Engine (other than passenger service items leased
to or owned by the Company including, without limitation, telephone or video
equipment, which such passenger service items shall not be considered "Parts")
as the result of a Modification (the "Additional Part" or "Additional Parts")
shall, without further act, become the property of the Company and subject to
this Security Agreement. Notwithstanding the foregoing, the Company may, at any
time, so long as no Event of Default shall have occurred and be continuing,
remove or suffer to be removed any Additional Part, provided that such
Additional Part (x) (i) is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in or attached
to the Airframe or any Engine at the time of delivery thereof hereunder or any
Part in replacement of or substitution for any such Part and (ii) can be removed
from the Airframe or such Engine without impairing the airworthiness of the
Airframe or such Engine or diminishing the value, utility or remaining useful
life of the Airframe or such Engine which the Airframe or such Engine would have
had at such time had such alteration, modification or addition not occurred or
(y) such Part is an Obsolete Part. Upon the removal thereof as provided above,
such Additional Parts shall no longer be deemed part of the Airframe or the
Engine from which it was removed.
SECTION 2.04. Insurance.
(a) Public Liability and Property Damage Liability Insurance.
(i) The Company, at its own cost and expense, will maintain
or cause to be maintained with respect to the Airframes and Engines,
comprehensive aircraft liability insurance including, without
limitation, bodily injury and/or property damage, inclusive of
liability to third parties and/or passengers, passenger legal liability
and property damage liability insurance and cargo legal liability in
such amounts, against such risks (including, without limitation,
contractual liability and war risk liability), with such retentions as
the Company customarily maintains with respect to similar airframes and
engines owned or operated by the Company (provided, however, that any
self-insured retention and/or deductible shall not exceed [$1,000,000]
per occurrence) (in the event that with the prior consent of the Agent
such insurance contains the War, Hijacking, and Other Perils Exclusion
Clause (AVN 48B), then there must be in place the Extended Coverage
Endorsement protection offered by AVN 52 to include "Buy Back" of
paragraphs C, D, E and G of AVN 48B (or coverage equal thereto under a
separate policy)) and with such insurers or reinsurers (which shall be
insurers or reinsurers of recognized responsibility), and insurance
against such other risks as is usually carried by similar corporations
engaged in the same or similar business and similarly situated as the
Company and owning or operating airframes and engines similar to the
Airframe and Engines; provided that such insurance shall not be in
amounts less than $500,000,000 per occurrence.
(ii) Notwithstanding Section 2.04(a)(i), in the event of the
requisition for use by the United States government of any Airframe or
Engine,
-14-
<PAGE> 140
the Company shall maintain throughout the period of such requisition
such insurance as would otherwise be required under this Section 2.04,
provided that the Agent shall accept, in lieu of such insurance
coverage, indemnification or insurance from the United States
government which is substantially the same as otherwise required under
this Section 2.04.
(iii) Any policy of insurance carried and maintained in
accordance with this Section 2.04(a), and any policy taken out in
substitution or replacement for any such policy subject to the terms,
conditions and limitations thereof, shall:
(A) name the initial Lenders and the Agent and their
respective successors and permitted assigns as additional insureds
(each an "Additional Insured");
(B) provide that, in respect of the interest of any
such Additional Insured in such policies, the insurance shall not
be invalidated by any action or inaction of the Company or any
Additional Insured as defined under the policy of insurance
required under this Section 2.04(a) (other than such Additional
Insured) and shall insure each such Additional Insured regardless
of any breach or violation of any warranty, declaration or
condition contained in such policies by the Company or any other
Additional Insured as defined under the policy of insurance
required under this Section 2.04(a) (other than such Additional
Insured);
(C) provide that if such insurance is canceled for any
reason, or any substantial change is made in the policies which
adversely affect the coverage required herein, or if such
insurance is allowed to lapse for nonpayment of premium, such
cancellation, change or lapse shall not be effective as to any
Additional Insured for 30 days (except in the case of war risk
coverage in which event the applicable period shall be seven days
or such other period as may be customary) after receipt by each
such Additional Insured of written notice from such insurers of
such cancellation, change or lapse;
(D) provide that no such Additional Insured shall have
any obligation or liability for premiums or other payments, if
any, in connection with such insurance;
(E) provide that the insurers shall waive any rights of
subrogation against each such Additional Insured except to the
extent that any insured event arises solely from the gross
negligence or willful misconduct of such Additional Insured as
determined by a final judgment of a court of competent
jurisdiction;
(F) provide that such insurer shall waive the right of
such insurer to any set-off or counterclaim or any other
deduction, whether by
-15-
<PAGE> 141
attachment or otherwise, in respect of any liability of any such
Additional Insured;
(G) provide that all of the provisions of such policy
shall operate in the same manner as if there were a separate
policy covering each such Additional Insured; provided that such
policies shall not operate to increase any insurer's limit of
liability; and
(H) be primary, without right of contribution from any
other insurance which is carried by any Additional Insured with
respect to its interest in the Subject Collateral.
(b) Insurance Against Loss or Damage to Subject Collateral. The
Company, at its own cost and expense, shall maintain or cause to be maintained
in effect, with insurers or reinsurers of recognized responsibility, all-risk
coverage, including ground and flight insurance on the Aircraft (with flight,
taxiing and ingestion coverages) with respect to any Aircraft, Engines and Parts
temporarily removed from the Airframe pending installation of the same or
similar Engines, engines, or Parts on the Airframe, including, war-risk and
allied perils insurance on the Aircraft in an amount not less than the Agreed
Value covering the perils of:
1. war, invasion, acts of foreign enemies, hostilities (whether
war be declared or not), civil war, rebellion, revolution, insurrection, martial
law, military or usurped power, or attempts at usurpation of power;
2. strikes, riots, civil commotions or labor disturbances;
3. any act of one or more persons, whether or not agents of a
sovereign power, for political or terrorist purposes and whether the loss or
damage therefrom is accidental or intentional;
4. any malicious act or act of sabotage;
5. confiscation, nationalization, seizure, restraint, detention,
appropriation, requisition of title or use by or under the order of any
government (whether civil, military or de facto) or public or local authority
other than the government or any public or local authority of the country of
registration; and
6. hijacking or any unlawful seizure or wrongful seizure or
wrongful exercise of control of the Aircraft or crew in flight (including any
attempt at such seizure or control) made by any person or persons on board this
Aircraft acting without the consent of the Company.
Such insurance shall be in such form and amounts and with such
retentions as the Company customarily maintains with respect to similar
airframes and engines owned or operated by the Company, provided, however, that
(1) such retentions shall consist only of industry standard deductibles
(determined by the deductible
-16-
<PAGE> 142
applicable to the aircraft type) and with no self insurance, (2) each Airframe
and Engine shall be insured in an amount not less than its Agreed Value and (3)
any reinsurance shall be on the same terms as the primary insurance.
Any policies carried and maintained in accordance with this
Section 3.04(b) and any policies taken out in substitution or replacement for
any such policies subject to the terms, conditions and limitations thereof
shall:
(i) name or be amended to name the then Lenders and the
Agent and their respective successors and assigns as additional
insureds and to name the Agent as loss payee (the "Loss Payee");
(ii) provide with respect to coverage provided under this
Section 3.04(b), that (A) in the event of a loss or damage involving
proceeds in excess of $1,000,000, the proceeds in respect of such loss
or damage shall be payable to the Agent and (B) the entire amount of
any loss or damage involving proceeds in the aggregate of $1,000,000 or
less shall be paid to the Company or its order unless an Event of
Default or Potential Event of Default then exists and the insurers have
been notified thereof by the Agent (in which case such payment shall be
made to the Agent);
(iii) provide that if such insurance is canceled for any
reason or any substantial change is made in the policies which
adversely affects the coverage required herein, or if such insurance is
allowed to lapse for nonpayment of premium, such cancellation, change
or lapse shall not be effective as to any such Additional Insured or
the Loss Payee for 30 days (except in the case of war-risk coverage in
which event the applicable period shall be seven days or such other
period as may be customary) after receipt by each such Additional
Insured or the Loss Payee of written notice from such insurer of such
cancellation, change or lapse;
(iv) provide that, in respect of the interest of any such
Additional Insured or the Loss Payee in such policies the insurance
shall not be invalidated by any action or inaction of the Company, the
Loss Payee or any additional insured as defined under the policy of
insurance required by this Section 2.04(b) (other than any action or
inaction of the Loss Payee or such Additional Insured, as the case may
be) and shall insure the Additional Insured and the Loss Payee
regardless of any breach or violation of any warranty, declaration or
condition in such policies by the Company or any other Additional
Insured as defined under the policy of insurance required under this
Section 2.04(b);
(v) provide that the insurers shall waive any rights of
subrogation against the Loss Payee and such Additional Insureds except
to the extent that any insured event arises solely from the gross
negligence or willful misconduct of such Additional Insured as
determined by a final judgment of a court of competent jurisdiction;
-17-
<PAGE> 143
(vi) provide that such insurer shall waive any right of
such insurer to any set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of any
such Additional Insured or Loss Payee;
(vii) be primary and without rights of contribution from any
other insurance which is carried by any such Additional Insured or the
Loss Payee with respect to its interest in the Subject Collateral;
(viii) provide that no such Additional Insured or Loss Payee
shall have any obligation or liability for premiums or other payments,
if any, in connection with such insurance; and
(ix) the reinsurer shall agree that in the event of any
valid claim arising under such reinsurance policy the reinsurers shall
in lieu of payment to the reinsured, its successors in interest and
assigns will pay to the Persons named as Additional Insureds under the
original insurance affected by the Company that portion of any loss for
which the reinsurers would otherwise be liable to pay the reinsured
(subject to proof of loss) it being understood and agreed that any such
payment shall fully discharge and release the reinsurer from any and
all further liability in connection with such claims.
(c) Application of Insurance Proceeds.
(i) Except as expressly provided in Section 2.04(c)(ii) or
(iii) below, all insurance proceeds (other than proceeds from policies
carried by the Agent or the Lenders) received under policies described
in Section 2.04(b) will be paid to the Agent except as otherwise
provided in Section 2.04(b)(ii) and paid by the Agent to the Company
unless an Event of Default or Potential Event of Default exists, in
which event such proceeds shall be retained by the Agent. If the Agent
retains any such insurance proceeds pursuant to this Section 2.04(c),
such proceeds shall, until applied by the Agent as provided in this
Section 2.04(c)(i), Section 2.04(c)(ii) or Section 2.04(c)(iii) hereof,
be maintained by the Agent in a segregated account and shall, at the
Company's request therefor, be invested in Permitted Cash Equivalents.
(ii) Insurance proceeds in respect of any Repairable Damage
with respect to any Aircraft which is not required by subsection
2.4B(iii)(1) of the Credit Agreement to be excluded from the Borrowing
Base shall be retained by the Agent pending repair thereof, and shall
be applied by the Agent in payment (or to reimburse the Company) for
repairs to the affected Aircraft upon receipt from the Company of an
Officer's Certificate annexing copies of invoices relating to such
repairs, provided, however, that the Agent shall not so apply any such
proceeds during the occurrence and continuance of any Potential Event
of Default or Event of Default. Any such insurance proceeds in excess
of the total amount required to pay for repair of the affected Aircraft
shall, upon certification by the Company to the Agent in an Officer's
Certificate that such repair has
-18-
<PAGE> 144
been completed, be paid by the Agent to the Company provided, however,
that the Agent shall not so pay any such insurance proceeds during the
occurrence and continuance of any Potential Event of Default or Event
of Default.
(iii) If an Event of Default shall have occurred and be
continuing, the Agent shall apply all insurance proceeds (including
proceeds of any earnings on any Permitted Cash Equivalents in which
such insurance proceeds have been invested) then on deposit with it
pursuant to Section 2.04(c)(i) or Section 2.04(c)(ii) hereof (all such
insurance and other proceeds and earnings being herein collectively
called "Section 2.04(c) Proceeds") to payment of the Obligations then
due. At such time as no Potential Event of Default or Event of Default
shall be continuing, any Section 2.04(c) Proceeds remaining on deposit
with the Agent shall be (x) applied as provided in Section 2.04(c)(ii),
if then applicable, or (y) if Section 2.04(c)(ii) is not then
applicable, shall be paid by the Agent to the Company.
(iv) If any of the Lenders or the Agent becomes subject to
any claim covered by any insurance policy maintained pursuant to this
Section 2.04, the Company shall make available any information
reasonably required by such Lender or the Agent in connection with such
claim.
(d) Reports. On or before the date hereof and thereafter annually
on or before the scheduled expiration date for such policy, the Company's
aviation insurance broker will furnish to the Agent a certificate and letter of
undertaking, signed by the Company's independent aviation insurance broker,
stating the types of coverage and limits carried and maintained on the Aircraft
and certifying that such insurance complies with the terms and conditions of
this Section 2.04. The Company will cause its aviation insurance broker to
advise the Agent in writing promptly of any default in the payment of any
premium and of any other act or omission on the part of the Company in any such
case of which it has knowledge and which is likely to cause cancellation of all
or any part of any insurance carried by the Company with respect to the
Aircraft. The Company will cause such insurance broker to agree to advise the
Agent in writing if and when it becomes evident to such broker that any
insurance policy carried and maintained on the Aircraft pursuant to this Section
2.04 will not be renewed at the expiration date. The Company will also cause
such insurance broker to deliver to the Agent, on or prior to the date of
expiration of any insurance policy referenced in a previously delivered
certificate of insurance, a new certificate of insurance, confirming to such
parties that such insurance as certified on the date thereof continues in full
force and effect. If the Company shall fail to maintain insurance as required
hereby, the Agent may, at its option, provide such insurance, and in such event,
the Company shall, upon demand, reimburse the Agent for the cost of such
insurance; provided, however, that no exercise of said option shall affect the
provisions of this Security Agreement, including the provisions that failure by
the Company to maintain the prescribed insurance shall constitute an Event of
Default, or otherwise constitute a waiver of any other rights the Agent may have
against the Company.
-19-
<PAGE> 145
(e) Notice of Proceeds. The Company shall promptly notify the
Agent upon a Responsible Officer of the Company obtaining actual knowledge
thereof of the occurrence of an event of loss or damage to any Aircraft which is
reasonably expected to result in the receipt of insurance proceeds reasonably
estimated by the Company to exceed $1,000,000.
SECTION 2.05. Inspection. At reasonable times and upon reasonable
notice, the Agent or its authorized representative may, at their own expense
(unless an Event of Default then exists or a Potential Event of Default arising
under the maintenance requirements of this Security Agreement, in which case the
reasonable expenses of such inspection shall be paid by the Company or unless
subsection 2.10 of the Credit Agreement provides that such inspection shall be
at the expense of the Company), inspect the Aircraft and inspect of the books
and records and FAA-required books and records of the Company in each case
relating to the maintenance of the Aircraft. Any such inspection of the Aircraft
shall be a visual, walk-around inspection (including on-board inspection) and
may include inspection of areas exposed by any open panels, bays or the like,
but shall not include opening any panels, bays or the like without the express
written consent of the Company; provided that no exercise of such inspection
right shall interfere with the normal operation of the Aircraft by, or the
business of, the Company. The Agent shall have no duty to make any such
inspection nor shall it incur any liability or obligation by reason of not
making any such inspection.
SECTION 2.06. Further Assurances. (a) The Company agrees from time
to time, at its sole expense, to promptly execute and deliver all further
instruments and documents, and take all further action, that the Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any of the Subject Collateral.
Without limiting the generality of the foregoing, such further actions shall
include executing and delivering such amendments or supplements to the schedules
to this Security Agreement, executing and filing such financing or continuation
statements, or amendments thereto, executing, filing and recording such
documents or instruments with the Federal Aviation Administration, and executing
and filing such other instruments or notices, in each case as the Agent on
behalf of the Lenders may reasonably request, in order to perfect and preserve
the security interest granted or purported to be granted hereby.
(b) The Company hereby authorizes the Agent to file one or more
financing or continuation statements or similar instruments or documents, and
amendments thereto, relative to all or any part of the Subject Collateral
without the signature of the Company where permitted by law.
SECTION 2.07. Recording and Filing; Opinions of Counsel. The
Company will bear the expense of and be responsible for recording and
re-recording, registering and re-registering and filing and re-filing this
Security Agreement and each and every Security Agreement Supplement and such
other instruments from time to time as may be reasonably requested by the Agent
in all such jurisdictions and offices
-20-
<PAGE> 146
as the Agent shall from time to time require in order that (a) the Lien hereof
be and continues to be a first priority Lien on all of the Subject Collateral to
the fullest extent permitted under applicable law, subject to Permitted Liens,
(b) all of the Subject Collateral is and remains security for the Obligations,
and (c) the rights and remedies of the Agent may be established, confirmed,
maintained and protected; and the Company will furnish to the Agent evidence
satisfactory to the Agent of every such recording, registering and filing which
is not filed, recorded or registered by the Agent. The foregoing includes,
without limitation, the execution and delivery by the Company of all documents,
financing statements and continuation statements deemed reasonably necessary by
the Agent to perfect the Agent's rights as secured party. The Company, at its
own cost and expense, shall on the date of this Security Agreement cause this
Security Agreement to be duly filed for recordation with the FAA and shall make
such other filings to perfect the Lien of this Security Agreement against the
Subject Collateral as shall be reasonably requested by the Agent. The Company
will furnish to the Agent an opinion of counsel reasonably satisfactory to the
Agent or other evidence reasonably satisfactory to the Agent to the effect that
such filings or refilings and such recordations or re-recordations have been
duly accomplished and as to any Liens of record against the Aircraft or any
Engine in the office where such filings or refilings or recordations or
re-recordations have been accomplished.
[SECTION 2.08. Section 1110. TO THE EXTENT PROVIDED THEREBY (OR TO
THE FULLEST EXTENT IT MAY LAWFULLY SO AGREE, WHETHER OR NOT PROVIDED THEREBY),
THE COMPANY HEREBY AGREES THAT ANY RIGHT OF THE AGENT TO TAKE POSSESSION OF THE
SECTION 1110 PROPERTY IN COMPLIANCE WITH THE PROVISIONS OF THIS SECURITY
AGREEMENT AND IN ACCORDANCE WITH SECTION 1110 OF TITLE 11 OF THE UNITED STATES
CODE OR ANY SIMILAR PROVISION OF ANY SUPERSEDING STATUTE, AS AMENDED FROM TIME
TO TIME, SHALL NOT BE AFFECTED BY THE PROVISIONS OF SECTIONS 362, 363 OR 1129 OF
SAID TITLE, OR OTHER ANALOGOUS PART OF ANY SUPERSEDING STATUTE, AS AMENDED FROM
TIME TO TIME, AND ACCORDINGLY, IT IS THE INTENTION OF THE PARTIES HERETO THAT
WITH RESPECT TO THE SECTION 1110 PROPERTY, THIS SECURITY AGREEMENT BE AFFORDED
THE BENEFITS OF SAID SECTION 1110.]**/
[SECTION 2.09. First Placed in Service. Schedule I hereto
specifically identifies, to the extent known to the Company with respect to
Aircraft not first placed in service by the Company, if the Aircraft was first
placed in service after October 22, 1994 or was acquired by the Company with the
proceeds of the Credit Agreement ("Section 1110 Property"). Each Security
Agreement Supplement adding a Replacement Engine to be subject to the Lien of
this Security Agreement shall also identify to the extent known to the Company
whether such Engine was first placed in service after October 22, 1994.]**/
- -------------------
**/ The Company agrees that this Security Agreement will grant to the Agent the
benefits of Section 1110 if such Section applies to the Airframe, any Engine or
any Replacement Engine.
-21-
<PAGE> 147
SECTION 2.10. Power of Attorney. The Company hereby irrevocably
appoints the Agent as the Company's attorney-in-fact and agent to the extent
permitted by law, effective on or after the acceleration of the Loans, but prior
to the Agent obtaining physical possession of the Subject Collateral, in the
Company's name and without any action on the part of the Company to do, at the
Agent's option, any act the Agent reasonably believes necessary to protect the
interests of the Agent in the Subject Collateral. The appointment of the Agent
and the rights and powers in connection therewith, being coupled with an
interest and with full power of substitution and resubstitution for the Company,
are and shall remain irrevocable until all of the Obligations have been fully
paid and performed and the Commitments of the Lenders under the Credit Agreement
have expired or been terminated.
SECTION 2.11. Indemnification. The Company shall assume liability
for and will indemnify, protect, save, and keep harmless the Agent and each of
the Lenders, and their respective agents, employees, successors and permitted
assigns (collectively, the "Indemnified Parties") from and against any and all
liabilities, losses, damages, taxes, claims, actions, suits, costs, demands
and/or expenses of whatsoever kind, including, without limitation, legal
expenses, imposed on, incurred by, or asserted against the Agent, the Company,
the Subject Collateral (or any part thereof or interest therein), arising out of
the [purchase]***/, ownership, delivery, possession, use, operation, condition,
performance, quality, suitability, airworthiness, maintenance, modification,
registration, loss, confiscation, seizure, requisition, or lease of the Aircraft
(collectively, the "Indemnified Events"). Notwithstanding the foregoing, the
Company shall not indemnify an Indemnified Party in respect of (i) any
Indemnified Events suffered or incurred after the release of the Lien of this
Security Agreement pursuant to the terms hereof, (ii) Indemnified Events that
consist of fees, costs or expenses which such Indemnified Party has expressly
agreed to pay in any provision of this Security Agreement or constitute ordinary
and usual operating or overhead expenses of an Indemnified Party (excluding,
without limitation, costs and expenses of any outside counsel, consultant or
agent), (iii) Indemnified Events arising from the gross negligence or willful
misconduct of such Indemnified Party, (iv) any Indemnified Events arising out of
any breach by the Agent of Section 2.12 hereof, (v) any tax arising as a result
of a voluntary transfer of any Indemnified Party's interest pursuant to Section
9.1 of the Credit Agreement provided that no Event of Default exists at the time
of such transfer, (vi) taxes, withholdings, imposts or duties imposed on, based
on or measured by the gross or net income, receipts, maximum tax, profits,
gains, capital, franchise, excess profits or net worth of an Indemnified Party
other than, in each case, resulting from the activities or presence of the
Company in the taxing jurisdiction or the use, location or registration of the
Aircraft (or any part thereof) in such taxing jurisdiction, (vii) taxes on items
of tax preference or any minimum tax imposed by the federal government of the
United States, (viii) interest, penalties, fines or additions to taxes that
would not have been imposed but for any failure to file any tax return or
information return in a timely and proper manner after timely notice by the
Company of such filing requirement and provision by the Company (at the
Company's expense)
- -------------------
***/ Subject to negotiation on a case by case basis.
-22-
<PAGE> 148
of all properly completed forms necessary in connection therewith and (ix) any
tax imposed as a result of a connection between an Indemnified Party and the
jurisdiction imposing such taxes, including, without limitation, engaging or
having engaged in business in, having or having had an office, branch or
permanent establishment in, or being or having been a citizen or resident of, or
present in, or incorporated or created in or under the laws of such jurisdiction
other than as a result of a connection arising from this transaction. Each
Indemnified Party shall file its tax returns and deal with taxing authorities in
good faith, and will honor all reasonable requests from the Company to file, or
provide the Company with, such information (but excluding information such
Indemnified Party considers confidential) as is necessary to complete forms or
other documentation (in each case, prepared by the Company at its sole expense)
as shall enable such Indemnified Party or the Company to claim a reduced rate of
tax or exemption from tax with respect to any taxes subject to payment or
indemnification by the Company hereunder to which it may be entitled. If the
Company is or may be required to make any payment under this Section 2.11, any
relevant Indemnified Party shall, at the reasonable request of the Company,
consult with the Company in good faith to consider what action may be taken to
resist payment of the amount claimed. Each indemnity pursuant to this Section
2.11 shall be in the amount which, after taking into account all taxes required
to be paid by the Agent as a result of the receipt or accrual of such amount,
shall be equal to the amount of the indemnity then due. The Company's
obligations under this Section 2.11 shall survive the expiration or termination
of this Security Agreement and the release of the Lien hereof from any or all of
the Subject Collateral.
SECTION 2.12. Use and Possession. Notwithstanding the terms of any
provision contained in this Security Agreement or the Credit Agreement, except
as provided in Section 3.01(e) of this Security Agreement, the Company shall
have the exclusive right to use and possess the Aircraft, to collect, retain,
use and enjoy all rents and accounts and to exercise its right, title and
interest in contracts, leases, licenses, permits and governmental approvals
subject at all times to (a) the right of the Agent to receive insurance proceeds
pursuant to Section 2.04(c) hereof, (b) the applicable restrictions and
limitations contained in Section 5.4 of the Credit Agreement and (c) such use,
possession, retaining, enjoyment or exercise not otherwise constituting an Event
of Default.
ARTICLE III
EVENTS OF DEFAULT AND REMEDIES
SECTION 3.01. Remedies; Obtaining the Aircraft Upon Default. The
Company agrees that, if the Loans have been accelerated, then, subject to any
mandatory requirements of applicable law then in effect, the Agent, in addition
to any rights now or hereafter existing under applicable law, shall have all
rights as a secured creditor under the UCC in all relevant jurisdictions and
may:
-23-
<PAGE> 149
(a) to the extent permitted by law, personally, or by agents or
attorneys, immediately take possession of the Aircraft or any part
thereof, from the Company with or without notice or process of law, and
for that purpose may enter upon the Company's premises where all or any
part of the Aircraft is located and remove the same; and
(b) instruct the obligor or obligors on any agreement, instrument
or other obligation relating to the Aircraft to make any payment
included in the Subject Collateral required by the terms of such
instrument or agreement directly to the Agent; and
(c) sell or assign, or direct the Company to sell or assign, the
Aircraft or any part thereof, and take possession of the proceeds of
any such sale or assignment; and
(d) take possession of the Aircraft or any part thereof, by
directing the Company in writing to deliver the same to the Agent at
any place or places designated by the Agent, in which event the Company
shall at its own expense forthwith fly or cause to be flown all or any
part of the Aircraft to such airport or airports in the United States
so designated by the Agent and there delivered to the Agent, and the
Company shall pay all reasonable and necessary expenses to (i) store
and keep all or any part of the Aircraft so delivered to the Agent at
such place or places pending further action by the Agent as provided in
Section 4.02, and (ii) while all or any part of the Aircraft shall be
so stored and kept, provide guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain them in good
condition; and
(e) revoke all or any of the rights of the Company provided for
pursuant to Section 2.12 of this Security Agreement by written notice
to the Company indicating which rights are revoked;
it being understood that the Company's obligation so to deliver the Aircraft or
any part thereof is of the essence of this Security Agreement and that,
accordingly, upon application to a court of equity having jurisdiction, the
Agent shall be entitled to a decree requiring specific performance by the
Company of said obligation.
SECTION 3.02. Remedies; Disposition of the Aircraft. (a) The
Aircraft, or any part thereof repossessed by the Agent under or pursuant to
Section 4.01, whether or not so repossessed by the Agent, may be sold, assigned,
leased or otherwise disposed of under one or more contracts or as an entirety,
and without the necessity of gathering at the place of sale the property to be
sold, and in general in such manner, at such time or times, at such place or
places and on such terms as the Agent may, in compliance with any mandatory
requirements of applicable law, determine to be commercially reasonable. The
Aircraft or any part thereof may be sold, leased or otherwise disposed of, in
the condition in which the same existed when taken by the Agent or after any
overhaul or repair which the Agent shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other
-24-
<PAGE> 150
private proceedings permitted by such requirements shall be made upon not less
than 10 days' written notice to the Company specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor. Any such disposition which shall be a public sale permitted by such
requirements shall be made upon not less than 10 days' written notice to the
Company specifying the time and place of such sale. To the extent permitted by
any such requirement of law, the Agent and the Lenders may bid for and become
the purchaser of the Aircraft or any part thereof, offered for sale in
accordance with this Section without accountability to the Company (except to
the extent of surplus money received as provided in Section 3.03) and may bid
the amount of the Obligations to be applied as credits against such purchase.
If, under mandatory requirements of applicable law, the Agent shall be required
to make disposition of the Aircraft or any part thereof within a period of time
which does not permit the giving of notice to the Company as hereinabove
specified, the Agent need give the Company only such notice of disposition as
shall be required by such mandatory requirements of applicable law. Any sale of,
or the grant of options to purchase, or any other realization upon, the Aircraft
or any part thereof shall operate to divest all right, title, interest, claim
and demand, either at law or in equity, of the Company therein and thereto, and
shall be a perpetual bar both at law and in equity against the Company and
against any and all Persons claiming or attempting to claim the Aircraft so
sold, optioned or realized upon, or any part thereof, from, through and under
the Company but without limitation of the Company's rights under Section 3.03
third hereof. At the request of the Agent, the Company shall deliver such
instruments of title or other instruments to ratify or document such sale but
such instruments shall not be necessary to make such sale final or binding.
(b) The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any appraisement, valuation, stay,
extension or redemption law wherever enacted, nor at any time hereafter in force
in any locality where any property subject to the Lien hereof may be situated,
in order to prevent, hinder or delay the enforcement or foreclosure of this
Security Agreement or the execution of any power granted herein to the Agent, or
the absolute sale of the Aircraft, or any part thereof, or the final and
absolute putting into possession thereof, immediately after such sale, by any
purchaser at any sale under this Section 3.02 but without limitation of the
Company's rights under Section 3.03 third hereof; and the Company, so far as it
now or thereafter lawfully may, hereby waives the benefit of all such laws. The
Company waives, to the extent that it lawfully may, all right to have the
property in the Subject Collateral marshalled upon any foreclosure hereof, and
agrees that any court having jurisdiction to foreclose this Security Agreement
may order the sale of the Subject Collateral as an entirety. If the Agent seeks
to take possession of any or all of the Subject Collateral or avail itself of
any provisional remedy by court process, the Company hereby irrevocably waives
(to the extent it may lawfully do so) any bonds and any surety or security
required by any statute, court rule or otherwise as an incident to such
possession, or remedy, and waives any demand for possession prior to the
commencement of any suit or action to recover.
-25-
<PAGE> 151
(c) If the Loans are accelerated, at the request of the Agent, the
Company shall promptly execute and deliver to the Agent such instruments of
title and other documents as the Agent may deem necessary or advisable to enable
the Agent or an agent or representative designated by the Agent, at such time or
times and place or places as the Agent may specify, to obtain possession or
control of all or any part of the Subject Collateral. To the extent permitted by
law, if the Company shall for any reason fail to execute and deliver such
instruments and documents after such request by the Agent, the Agent may (x)
obtain a judgment conferring on the Agent the right to immediate possession
and/or control and requiring the Company to deliver such instruments of title
and other documents as the Agent may deem necessary or advisable to enable the
Agent or an agent or representative designated by the Agent, at such time or
times and place or places as the Agent may specify, to obtain possession and/or
control of all or any part of the Subject Collateral, to the entry of which
judgment the Company hereby specifically consents.
SECTION 3.03. Application of Proceeds. Except as may otherwise be
required by law, any moneys or property actually received by the Agent pursuant
to the exercise of any rights or remedies referred to in Article III shall
(subject to the determination of the Agent as to the incurrence of costs and
expenses appropriate and the use of such moneys and property in connection with
the exercise of such rights or remedies and as to the manner of such exercise)
be applied in the following order:
first, to the payment of costs and expenses incurred in the
enforcement of rights and remedies under this Security Agreement;
second, to the payment of all of the Obligations (except for such
Obligations that shall have been paid pursuant to first item of this
Section 3.03), ratably according to the then unpaid amounts thereof,
without preference or priority of any kind among such various
Obligations; and
third, the remainder, if any, to the Company, its successors or
assigns, to such Person as the Agent may be legally required to be paid
to or as a court of competent jurisdiction may direct.
SECTION 3.04. Remedies Cumulative. Each and every right, power and
remedy hereby specifically given to the Agent shall be in addition to every
other right, power and remedy specifically given under this Security Agreement
or the Credit Agreement and other Loan Documents or now or hereafter existing at
law or in equity, or by statute and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time or simultaneously and as often and in such order as may be deemed
expedient by the Agent. All such rights, powers and remedies shall be cumulative
and the exercise or the beginning of exercise of one shall not be deemed a
waiver of the right to exercise of any other or others. No delay or omission of
the Agent in the exercise of any such right, power or remedy shall impair any
such right, power or remedy or shall be construed to be a waiver of any Event of
Default or an acquiescence therein.
-26-
<PAGE> 152
ARTICLE IV
AGENT
SECTION 4.01. Agent. As provided in Section 8 of the Credit
Agreement, each Lender has appointed The Industrial Bank of Japan, Limited, Los
Angeles Agency, as its Agent for purposes of this Security Agreement. In such
capacity, The Industrial Bank of Japan, Limited, shall be entitled to all of the
rights and benefits accorded the Agent by Section 8 of the Credit Agreement.
Following the payment in full of all Obligations and the termination or
expiration of the Loan Documents, the provisions of Section 8 of the Credit
Agreement shall be deemed to continue in full force and effect for the benefit
of the Agent under this Security Agreement. For the avoidance of doubt, nothing
in this Section 4.01 is intended to create any liability or obligation on the
Company.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.01. Notices. All notices and communications to be given
under this Security Agreement shall be given in the manner provided in the
Credit Agreement.
SECTION 5.02. Waiver. To the extent permitted by applicable law,
no failure on the part of the Agent or any Lender to exercise and no delay in
exercising, and no course of dealing with respect to, any right, remedy, power
or privilege under this Security Agreement shall operate as a waiver of such
right, remedy, power or privilege, nor shall any single or partial exercise of
any right, remedy, power or privilege under this Security Agreement preclude any
other or further exercise of any such right, remedy, power or privilege or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges provided in this Security Agreement are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
SECTION 5.03. Expenses Etc. The Company agrees to pay or to
reimburse the Agent and the Lenders for all reasonable costs and expenses
(including reasonable attorney's fees and expenses) that may be incurred by the
Agent or the Lenders for any expense or loss incurred in connection with any
Event of Default, including, but not limited to, any effort to enforce any of
the provisions of, or any of the obligations of the Company in respect of, this
Security Agreement and the other Loan Documents (including in any bankruptcy,
workout or similar proceeding).
SECTION 5.04. Amendments, Etc. To the extent permitted by
applicable law, any provision of this Security Agreement may be modified,
supplemented or waived only by an instrument in writing duly executed by the
Company and the Agent (after such consent as may be required, if any, by the
Lenders pursuant to the Credit Agreement). Any such modification, supplement or
waiver shall be for such period and
-27-
<PAGE> 153
subject to such conditions as shall be specified in the instrument effecting the
same and shall be binding upon the Agent, the Lenders and the Company, and any
such waiver shall be effective only in the specific instance and for the
purposes for which given.
SECTION 5.05. Successors and Assigns. This Security Agreement
shall be binding upon and inure to the benefit of the Company, the Agent, the
other Lenders and their respective successors and permitted assigns. Except as
provided in subsections 6.6(v), 6.10 and 6.12 of the Credit Agreement, the
Company shall not assign or transfer its rights under this Security Agreement
without the prior written consent of the Agent.
SECTION 5.06. Survival. All representations and warranties made in
this Security Agreement or in any certificate or other document delivered
pursuant to or in connection with this Security Agreement shall survive the
execution and delivery of this Security Agreement or such certificate or other
document (as the case may be) or any deemed repetition of any such
representation or warranty.
SECTION 5.07. Severability. To the extent permitted by applicable
law, any provision of this Security Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Security Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 5.08. Captions. The captions and section headings
appearing in this Security Agreement are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Security Agreement.
SECTION 5.09. Counterparts. This Security Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties to this Security
Agreement may execute this Security Agreement by signing any such counterpart.
SECTION 5.10. GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE
DELIVERED IN THE STATE OF NEW YORK AND GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-28-
<PAGE> 154
IN WITNESS WHEREOF, the Company and the Agent have caused this
instrument to be duly executed as of the day and year first above written.
AMERICA WEST AIRLINES, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY,
as Agent
By:_________________________________
Name:
Title:
-29-
<PAGE> 155
SCHEDULE I to
Aircraft Security Agreement
The following aircraft and the aircraft engines listed below,
which aircraft, together with the engines listed therewith below, shall
constitute a single "Aircraft" as said term is defined in the Security Agreement
to which this Schedule I is attached and made a part thereof:
Airframe
[Description]
UNITED STATES REGISTRATION NUMBER: _____________
MANUFACTURER'S SERIAL NO.: _____________
Engines
______________________ ENGINES
ENGINE SERIAL NOS.: ______________________
(each of which engines has 750 or more rated
takeoff horsepower or the equivalent thereof)
-30-
<PAGE> 156
APPENDIX A to
Aircraft Security Agreement
SUPPLEMENTAL AIRCRAFT SECURITY AGREEMENT
SUPPLEMENTAL AIRCRAFT SECURITY AGREEMENT dated as of
______________, 19__ from AMERICA WEST AIRLINES, INC., a Delaware corporation
(the "Company"), whose mailing address is 4000 E. Sky Harbor Boulevard, Phoenix,
Arizona 85034, to The Industrial Bank of Japan, Limited, Los Angeles Agency, as
Agent under the Revolving Credit Agreement referred to below (together with its
successors and assigns in such capacity, the "Agent") for the benefit and on
behalf of itself as such Agent and the lenders (the "Lenders", such term to
include the Issuing Bank as defined in the Credit Agreement) from time to time
party to that certain Revolving Credit Agreement dated as of December 12, 1997
(as the same may be amended or waived from time to time the "Credit Agreement")
among the Company, the Lenders and the Agent.
WHEREAS, the Company has heretofore executed and delivered to the
Agent an Aircraft Security Agreement dated as of _______________ (the "Security
Agreement"), covering an aircraft of the Company (terms used in this instrument
having the meanings assigned thereto in the Security Agreement);
WHEREAS, the Security Agreement has been duly recorded with the
FAA ______________________ on _______________ pursuant to the Act;
WHEREAS, this Supplemental Security Agreement relates to the
aircraft engine described in Schedule I hereto; and
WHEREAS, the Security Agreement provides for the execution and
delivery from time to time of Supplemental Security Agreements, each
substantially in the form hereof, for the purpose of subjecting a Replacement
Engine to the Lien of the Security Agreement.
NOW, THEREFORE, as contemplated by the Security Agreement, the
Company hereby grants to the Agent for its benefit and the benefit of the
Lenders a security interest in the property described in Schedule I hereto as
security for the due and prompt payment of the Obligations.
This Supplemental Security Agreement shall be construed as
supplemental to the Security Agreement and shall form a part thereof; and the
Security Agreement is hereby incorporated by reference herein to the same extent
as if fully set forth herein and is hereby ratified, approved and confirmed in
all respects.
-31-
<PAGE> 157
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Security Agreement to be duly executed, as of the day and year
first above written.
AMERICA WEST AIRLINES, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY,
as Agent
By:_________________________________
Name:
Title:
-32-
<PAGE> 158
SCHEDULE I
to
Supplemental Security Agreement
The same type of information should be
inserted herein as is described in
Schedule I to the Security Agreement]
-33-
<PAGE> 159
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION;
GRANTING CLAUSES; SUBSEQUENTLY
MORTGAGED ENGINE;
REPRESENTATIONS AND WARRANTIES............................ 1
SECTION 1.01. Definitions and Interpretation. ........................... 1
SECTION 1.03. Subsequently Mortgaged Engine............................... 6
SECTION 1.04. Representations and Warranties of the Company............... 7
ARTICLE II COVENANTS................................................. 8
SECTION 2.01. Registration; Maintenance and Operation..................... 8
SECTION 2.02. Liens....................................................... 12
SECTION 2.03. Parts....................................................... 12
SECTION 2.04. Insurance................................................... 14
SECTION 2.05. Inspection.................................................. 20
SECTION 2.06. Further Assurances.......................................... 20
SECTION 2.07. Recording and Filing; Opinions of Counsel................... 20
ARTICLE III EVENTS OF DEFAULT AND REMEDIES............................ 23
SECTION 3.01. Remedies; Obtaining the Aircraft Upon Default............... 23
SECTION 3.02. Remedies; Disposition of the Aircraft....................... 24
SECTION 3.04. Remedies Cumulative......................................... 26
ARTICLE IV AGENT..................................................... 26
SECTION 4.01. Agent....................................................... 26
ARTICLE V MISCELLANEOUS PROVISIONS.................................. 27
SECTION 5.01. Notices..................................................... 27
SECTION 5.02. Waiver...................................................... 27
SECTION 5.03. Expenses Etc. .............................................. 27
SECTION 5.04. Amendments, Etc. ........................................... 27
SECTION 5.05. Successors and Assigns...................................... 27
SECTION 5.06. Survival.................................................... 28
SECTION 5.07. Severability................................................ 28
SECTION 5.08. Captions.................................................... 28
SECTION 5.09. Counterparts................................................ 28
SECTION 5.10. GOVERNING LAW............................................... 28
-i-
<PAGE> 160
Exhibit B
Form of Cash and Cash Equivalent Security Agreement
See Tab #2
<PAGE> 161
Execution Copy
CASH AND CASH EQUIVALENT SECURITY AGREEMENT
Dated as of December 12, 1997
between
AMERICA WEST AIRLINES, INC.
and
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY,
as Agent
<PAGE> 162
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions and Interpretation................................ 1
1.01 Certain Defined Terms......................................... 1
"CC Collateral"............................................... 2
"CC Interest Period".......................................... 2
"Cash Collateral Account"..................................... 2
"Initial Deposit"............................................. 2
"Subsequent Deposit".......................................... 2
"Uniform Commercial Code"..................................... 2
Section 2. CC Collateral................................................. 2
2.01 Grant......................................................... 2
2.02 Preservation and Protection of Security Interests............. 3
2.03 Attorney-in-Fact.............................................. 3
2.04 Rights and Obligations........................................ 3
2.05 Payment of Indebtedness; Satisfaction. ...................... 4
Section 3. Cash Collateral............................................... 4
3.01 Cash Collateral Account....................................... 4
3.02 [Reserved].................................................... 4
3.03 Investment of Cash Balance in Cash Collateral Account......... 4
3.04 Permitted Cash Equivalents.................................... 5
Section 4. Representations and Warranties................................ 6
4.01 Title......................................................... 6
Section 5. Covenants..................................................... 6
5.01 Sales and Other Liens......................................... 6
5.02 Further Assurances............................................ 7
Section 6. Remedies...................................................... 7
6.01 Acceleration of Loans, Etc.................................... 7
6.02 Deficiency.................................................... 7
6.03 Application of Proceeds....................................... 7
Section 7. Miscellaneous................................................. 8
7.01 The Agent..................................................... 8
7.02 Waiver........................................................ 8
7.03 Notices....................................................... 8
7.04 Expenses, Etc................................................. 8
7.05 Amendments, Etc............................................... 8
7.06 Successor and Assigns......................................... 8
</TABLE>
-i-
<PAGE> 163
<TABLE>
<S> <C>
7.07 Survival...................................................... 9
7.08 Severability.................................................. 9
7.09 Captions...................................................... 9
7.11 GOVERNING LAW................................................. 9
</TABLE>
-ii-
<PAGE> 164
CASH AND CASH EQUIVALENT SECURITY AGREEMENT
THIS CASH AND CASH EQUIVALENT SECURITY AGREEMENT dated as of
December 12, 1997 (the "Security Agreement") from AMERICA WEST AIRLINES, INC., a
Delaware corporation (the "Company"), whose mailing address is 4000 E. Sky
Harbor Boulevard, Phoenix, Arizona 85034, to The Industrial Bank of Japan,
Limited, Los Angeles Agency, as Agent under the Revolving Credit Agreement
referred to below (together with its successors and assigns in such capacity,
the "Agent") for the benefit and on behalf of itself as such Agent and the
lenders (the "Lenders", such term to include the Issuing Bank as defined in the
Credit Agreement) from time to time party to that certain Revolving Credit
Agreement dated as of even date herewith (as the same may be amended or waived
from time to time the "Credit Agreement") among the Company, the Lenders and the
Agent.
W H E R E A S:
A. The Lenders have agreed to extend certain financial
accommodations to the Company on the terms and subject to the conditions set
forth in the Credit Agreement.
B. Pursuant to the terms of the Credit Agreement, the Agent
has been appointed as the agent of the Lenders to hold and enforce on their
behalf the rights granted to the Agent herein with respect to the CC Collateral
(as hereinafter defined).
C. Pursuant to the Credit Agreement the Company has agreed to
deliver this Security Agreement for the purposes of, among other things,
securing all payment and performance obligations of every nature of the Company
from time to time owed to the Agent, the Lenders or any of them under the Loan
Documents (as defined in the Credit Agreement), whether for principal, interest,
fees, expenses, indemnification or otherwise (collectively, the "Obligations"),
and subjecting the properties and assets hereinafter described to the lien of
this Security Agreement as security for the performance of the Obligations.
NOW, THEREFORE, in consideration of the premises and the
extension of credit by the Lenders contemplated in the Credit Agreement and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby intending to be legally bound and to
secure the performance of the Obligations, the Company agrees with the Agent as
follows:
Section 1. Definitions and Interpretation.
1.01 Certain Defined Terms. Unless otherwise defined herein,
all capitalized terms used in this Security Agreement that are defined in the
Credit Agreement (including those terms incorporated by reference) shall have
the respective meanings assigned to them in the Credit Agreement. The rules of
interpretation set forth in Section 1 of the Credit Agreement shall apply to
this Security Agreement. In addition, the following terms shall have the
meanings assigned as follows:
<PAGE> 165
"CC Collateral" shall have the meaning assigned to that term
in Section 2.01.
"CC Interest Period" shall have the meaning assigned to that
term in Section 3.03.
"Cash Collateral Account" shall have the meaning assigned to
that term in Section 3.01.
"Deposit Rate" shall mean with respect to any Cash in the Cash
Collateral Account the bid quotation by the Agent for United States dollar
deposits of amounts in same day funds comparable to the amount of such Cash with
the requested maturity; it being understood and agreed that the Deposit Rate
will in any event be no loss favorable than those rates offered to other
customers of the Agent for comparable amounts and maturities.
"Initial Deposit" shall have the meaning assigned to that term
in Section 3.03.
"Subsequent Deposit" shall have the meaning assigned to that
term in Section 3.03.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in the State of New York from time to time or, by reason of
mandatory application, any other applicable jurisdiction.
Section 2. CC Collateral.
2.01 Grant. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) and
performance of the Obligations, the Company hereby pledges and grants to the
Agent, for the benefit of the Lenders, a security interest in all of the
Company's right, title and interest in and to the following property, whether
now owned or hereafter acquired by the Company and whether now existing or
hereafter coming into existence (collectively, the "CC Collateral"):
(a) the Cash Collateral Account;
(b) the balance from time to time in the Cash Collateral
Account;
(c) all Permitted Cash Equivalents held from time to time in
the Cash Collateral Account; and
(d) all proceeds in whatever form of, and all earnings on, all
or any part of the CC Collateral, and all substitutions for and replacements of
all or any part of the other CC Collateral.
-2-
<PAGE> 166
The Company acknowledges that it has received certain more
favorable financial terms and accommodations by reason of the providing of CC
Collateral and that such terms and accommodations would not have been provided
but for such CC Collateral. Accordingly, the Company hereby waives, to the
fullest extent permitted by law, any defense (other than strict performance of
the Obligations) to the enforcement of remedies in respect of the CC Collateral.
2.02 Preservation and Protection of Security Interests. The
Company shall give, execute, deliver, file or record any and all financing
statements, notices, contracts, agreements or other instruments, obtain any and
all Governmental Authorizations and take any and all steps as may be necessary
or as the Agent may reasonably request to create, perfect, establish the
priority of, or to preserve the validity, perfection or priority of, the Liens
granted by this Security Agreement or to enable the Agent to exercise and
enforce its rights, remedies, powers and privileges under this Security
Agreement with respect to such Liens.
2.03 Attorney-in-Fact. The Agent is hereby appointed the
attorney-in-fact of the Company to the extent permitted by law, effective on and
after acceleration of the Loans for the purpose of carrying out the provisions
of this Security Agreement and taking any action and executing any instruments
which the Agent may deem necessary or advisable to accomplish the purposes of
this Security Agreement, to preserve the validity, perfection and priority of
the Liens granted by this Security Agreement and to exercise its rights,
remedies, powers and privileges under this Security Agreement, including for the
purpose of liquidating, and reinvesting the proceeds of, any Permitted Cash
Equivalents held in the Cash Collateral Account. To the extent permitted by law,
this appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, the Agent shall be
entitled under this Security Agreement on or after acceleration of the Loans (i)
to endorse or collect any drafts or other instruments received in connection
with the CC Collateral (including any draft or check representing the proceeds
of insurance or the return of unearned premiums) and (ii) to file any claims or
take any action or proceeding that the Agent may deem necessary or advisable for
the collection of all or any part of the CC Collateral, including the collection
of any compensation due and to become due under any contract or agreement with
respect to all or any part of the CC Collateral.
2.04 Rights and Obligations.
(a) No reference in this Security Agreement to proceeds or to
the liquidation or other disposition of CC Collateral shall authorize the
Company to liquidate or otherwise dispose of any CC Collateral except to the
extent otherwise expressly permitted by the terms of this Security Agreement or
any other Loan Document.
-3-
<PAGE> 167
(b) Neither the Agent nor any other Lender shall be required
to take steps necessary to preserve any rights against prior parties to any part
of the CC Collateral.
(c) The Company assumes all risks relating to the investment
of funds in Permitted Cash Equivalents, and neither the Agent nor any Lender
shall be responsible or have any liability for any losses related to any
Permitted Cash Equivalents (including any losses resulting from the liquidation
of any Permitted Cash Equivalents at the direction of the Agent during the
existence of any Event of Default).
2.05 Payment of Indebtedness; Satisfaction. If the Company
shall have paid and discharged all of the Obligations, and if the Commitments of
the Lenders under the Credit Agreement shall have been terminated or expired,
then this Security Agreement shall terminate, and the Agent shall forthwith
cause to be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, and at Company's sole expense,
any remaining CC Collateral and money received in respect of the CC Collateral,
to or on the order of the Company. The Agent shall also, upon the written
request of the Company and at the Company's sole expense, execute and deliver to
the Company upon such termination such Uniform Commercial Code termination
statements, and such other documentation as shall be reasonably requested by the
Company to effect the termination and release of the Liens granted by this
Security Agreement on the CC Collateral.
Section 3. Cash Collateral.
3.01 Cash Collateral Account. There is hereby established with
the Agent a cash collateral account (the "Cash Collateral Account") in the name
and under the control of the Agent into which there shall be deposited from time
to time the cash collateral or Permitted Cash Equivalents required to be
delivered to the Agent pursuant to the Credit Agreement. The Agent may establish
the Cash Collateral Account at any office of The Industrial Bank of Japan,
Limited or its Affiliates and may from time to time relocate such Cash
Collateral Account to any other such office. The Agent's records shall indicate
clearly that the Cash Collateral is held pursuant to the terms of this Security
Agreement. The cash balance and the Permitted Cash Equivalents from time to time
in the Cash Collateral Account shall constitute security for the Obligations and
shall not constitute payment of the Obligations until applied as provided in
this Security Agreement. However, if any Event of Default shall have occurred
and be continuing, the Agent may in its discretion liquidate or otherwise
dispose of any Permitted Cash Equivalents held in the Cash Collateral Account
and apply or cause to be applied (subject to collection) the balance from time
to time outstanding (including the proceeds of such liquidation) to the credit
of the Cash Collateral Account to the payment of the Obligations in the manner
specified in Section 6.
3.02 [Reserved].
3.03 Investment of Cash Balance in Cash Collateral Account.
-4-
<PAGE> 168
(a) The Agent agrees to pay to the Company interest on the
Cash amounts from time to time on deposit in the Cash Collateral Account at a
rate per annum equal to the Deposit Rate, in the manner specified in this
Section 3.03.
(b) Upon the initial deposit of Cash into the Cash Collateral
Account, the Company shall specify whether the Deposit Rate on such initial
deposit (the "Initial Deposit") is to be determined for a one, two or three
month period (each, a "CC Interest Period") and thereafter, no later than two
Business Days prior to the last day of that and each successive CC Interest
Period, to specify the duration of each such successive CC Interest Period for
the Initial Deposit. Each successive CC Interest Period shall commence on the
last day of the immediately preceding CC Interest Period. Upon the making of any
subsequent deposit (each, a "Subsequent Deposit"), the initial CC Interest
Period applicable to such Subsequent Deposit shall be the period commencing on
the date such Subsequent Deposit is made and ending on the last day of the CC
Interest Period for the Initial Deposit in effect on the date such Subsequent
Deposit is made, and each successive CC Interest Period for such Subsequent
Deposit shall be coterminous with the then CC Interest Period for the Initial
Deposit (the Deposit Rate being determined on the basis of the aggregate
deposited amounts having the same CC Interest Period). Should the Company fail
to specify on a timely basis the duration of any CC Interest Period, a duration
of one month shall be deemed selected.
(c) Unless a Potential Event of Default or Event of Default
shall then have occurred and be continuing, the Agent shall remit to the Company
(A) at the end of each CC Interest Period the unpaid interest accrued to the end
of such CC Interest Period and (B) all earnings on any Permitted Cash
Equivalents held by it in the Cash Collateral Account received (or, in the case
of any Permitted Cash Equivalents consisting of certificates of deposit or
banker's acceptances issued by it, payable) by the Agent, in each such case
within three Business Days (or, if the Company shall designate in writing to the
Agent an account of the Company with the Agent for the purpose of accepting
remittances under this Section 3.3(c), one Business Day) after (i) the end of
such CC Interest Period, or (ii) the Agent's receipt of such earnings, or the
Agent becoming obligated to pay such earnings in respect of Permitted Cash
Equivalents consisting of certificates of deposit or banker's acceptances issued
by it, as the case may be. Interest so accrued and earnings so received (or
payable) and not remitted shall constitute part of the CC Collateral. No Lender
other than the Agent shall be responsible in any respect for the payment of such
interest.
3.04 Permitted Cash Equivalents.
(a) The Agent shall invest any Cash in the Cash Collateral
Account in any Permitted Cash Equivalents specified in writing from time to time
by the Company (with respect to Permitted Cash Equivalents described in clause
(ii) of the definition of "Permitted Cash Equivalents" in the Credit Agreement,
pursuant to, and in compliance with, the condition contained in such clause
(ii)), it being agreed and understood that Permitted Cash Equivalents may be
included in the Cash Collateral Account only to the extent the Company requests
that the Agent invest Cash deposited
-5-
<PAGE> 169
in the Cash Collateral Account in Permitted Cash Equivalents, in substitution
for cash previously deposited and that investments in such Permitted Cash
Equivalents shall be for the account, benefit and risk of the Company; provided
that no Permitted Cash Equivalent may be delivered in substitution of Cash
previously deposited during the existence of any Potential Event of Default or
Event of Default or on any day other than the last day of a CC Interest Period.
Any investment in Permitted Cash Equivalents shall require two Business Days
prior written notice to the Agent specifying the Permitted Cash Equivalent to be
the subject of such investment and the dollar amount of such Permitted Cash
Equivalent.
(b) Upon the liquidation or the maturity of any Permitted Cash
Equivalent, the monies so derived (net of expenses) (other than earnings
thereon, which shall be paid to the Company or retained as provided in Section
3.03(c)) shall be deposited as Cash in the Cash Collateral Account.
3.05 Release. So long as after giving effect to any requested
release of CC Collateral, no Potential Event of Default, Event of Default or
Borrowing Base Deficiency shall exist as a result of such release of such CC
Collateral, upon three Business Days prior written notice to the Agent
accompanied by an Officer's Certificate to such effect, the Agent shall release
the CC Collateral described in such request from the Lien of this Security
Agreement and cause to be assigned, transferred and delivered, against receipt
but without any recourse, warranty or representation whatsoever, and at
Company's sole expense, such CC Collateral, to or on the order of the Company.
Section 4. Representations and Warranties. As of the Closing
Date and as of the date of each extension of credit by the Lenders and issuance
of a Letter of Credit by the Issuing Bank, the Company represents and warrants
to the Lenders as follows:
4.01 Title. The Company is the sole beneficial owner of the CC
Collateral in which it purports to grant a Lien pursuant to this Security
Agreement, and such CC Collateral is free and clear of all Liens arising by,
through or under it. The Liens granted by this Security Agreement in favor of
the Agent for the benefit of the Agent and the Lenders have attached and
constitute a perfected security interest in all of such CC Collateral prior to
all other Liens that can be perfected under the Uniform Commercial Code of any
jurisdiction.
Section 5. Covenants.
5.01 Sales and Other Liens. The Company shall not dispose of
any CC Collateral, create, incur, assume or suffer to exist any Lien upon any CC
Collateral or file or suffer to be on file or authorize to be filed, in any
jurisdiction, any financing statement or like instrument with respect to all or
any part of the CC Collateral in which the Agent is not named as the sole
secured party for the benefit of the Lenders.
-6-
<PAGE> 170
5.02 Further Assurances. The Company agrees that, from time to
time upon the written request of the Agent, the Company will execute and deliver
such further documents and do such other acts and things as the Agent may
reasonably request in order fully to effect the purposes of this Security
Agreement.
Section 6. Remedies.
6.01 Acceleration of Loans, Etc. On and after acceleration of
the Loans, the Agent may liquidate any Permitted Cash Equivalents held in the
Cash Collateral Account. The proceeds of, and other realization upon, the CC
Collateral by virtue of the exercise of remedies under this Section 6.01 shall
be applied in accordance with Section 6.03.
6.02 Deficiency. If the proceeds of, or other realization
upon, the CC Collateral by virtue of the exercise of remedies under Section 6.01
are insufficient to cover the costs and expenses of such exercise and the
payment in full of the other Obligations, the Company shall remain liable for
any deficiency.
6.03 Application of Proceeds. Except as may otherwise be
required by law, any moneys or property actually received by the Agent pursuant
to the exercise of any rights or remedies referred to in this Section 6 shall
(subject to the determination of the Agent as to use of such moneys and property
in connection with the exercise of such rights or remedies and as to the manner
of such exercise) be applied in the following order:
first, to the payment of costs and expenses incurred in the
enforcement of rights and remedies under this Security Agreement;
second, to the payment of all of the Obligations (except for
such Obligations that shall have been paid pursuant to first item of
this Section 6.03), ratably according to the then unpaid amounts
thereof, without preference or priority of any kind among such various
Obligations; and
third, the remainder, if any, to the Company, its successors
or assigns, to such Person as may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct.
As used in this Section 6, "proceeds" of CC Collateral shall
mean cash, securities and other property realized in respect of, and
distributions in kind of, CC Collateral, including any property received under
any bankruptcy, reorganization or other similar proceeding as to the Company or
any issuer of, or account debtor or other obligor on, any of the CC Collateral.
-7-
<PAGE> 171
Section 7. Miscellaneous.
7.01 The Agent. As provided in Section 8 of the Credit
Agreement, each Lender has appointed The Industrial Bank of Japan, Limited, Los
Angeles Agency, as its Agent for purposes of this Security Agreement. In such
capacity, The Industrial Bank of Japan, Limited, shall be entitled to all of the
rights and benefits accorded the Agent by Section 8 of the Credit Agreement.
Following the payment in full of all Obligations and the termination or
expiration of the Loan Documents, the provisions of Section 8 of the Credit
Agreement shall be deemed to continue in full force and effect for the benefit
of the Agent under this Security Agreement. For the avoidance of doubt, nothing
in this Section 7.01 is intended to create any liability or obligation on the
Company.
7.02 Waiver. To the extent permitted by applicable law, no
failure on the part of the Agent or any Lender to exercise and no delay in
exercising, and no course of dealing with respect to, any right, remedy, power
or privilege under this Security Agreement shall operate as a waiver of such
right, remedy, power or privilege, nor shall any single or partial exercise of
any right, remedy, power or privilege under this Security Agreement preclude any
other or further exercise of any such right, remedy, power or privilege or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges provided in this Security Agreement are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
7.03 Notices. All notices and communications to be given under
this Security Agreement shall be given in the manner provided in the Credit
Agreement.
7.04 Expenses, Etc. The Company agrees to pay or to reimburse
the Agent and the Lenders for all reasonable costs and expenses (including
reasonable attorney's fees and expenses) that may be incurred by the Agent or
the Lenders for any expense or loss incurred in connection with any Event of
Default, including, but not limited to, any effort to enforce any of the
provisions of, or any of the obligations of the Company in respect of, this
Security Agreement and the other Loan Documents (including in any bankruptcy,
workout or similar proceeding).
7.05 Amendments, Etc. To the extent permitted by applicable
law, any provision of this Security Agreement may be modified, supplemented or
waived only by an instrument in writing duly executed by the Company and the
Agent (after such consent as may be required, if any, by the Lenders pursuant to
the Credit Agreement). Any such modification, supplement or waiver shall be for
such period and subject to such conditions as shall be specified in the
instrument effecting the same and shall be binding upon the Agent, the Lenders
and the Company, and any such waiver shall be effective only in the specific
instance and for the purposes for which given.
7.06 Successor and Assigns. This Security Agreement shall be
binding upon and inure to the benefit of the Company, the Agent, the other
Lenders and their
-8-
<PAGE> 172
respective successors and permitted assigns. Except as provided in subsections
6.6(v), 6.10 and 6.12 of the Credit Agreement, the Company shall not assign or
transfer its rights under this Security Agreement without the prior written
consent of the Agent.
7.07 Survival. All representations and warranties made in this
Security Agreement or in any certificate or other document delivered pursuant to
or in connection with this Security Agreement shall survive the execution and
delivery of this Security Agreement or such certificate or other document (as
the case may be) or any deemed repetition of any such representation or
warranty.
7.08 Severability. To the extent permitted by applicable law,
any provision of this Security Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Security Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7.09 Captions. The captions and section headings appearing in
this Security Agreement are included solely for convenience of reference and are
not intended to affect the interpretation of any provision of this Security
Agreement.
7.10 Counterparts. This Security Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties to this Security Agreement may
execute this Security Agreement by signing any such counterpart.
7.11 GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE DELIVERED
IN THE STATE OF NEW YORK AND GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
7.12 WAIVER OF OFFSET. The Agent hereby waives any right of
offset it may from time to time have, other than rights of offset arising under
or relating to the transaction contemplated by this Security Agreement and the
Loan Documents.
-9-
<PAGE> 173
IN WITNESS WHEREOF, the parties have caused this Security
Agreement to be duly executed and delivered as of the day and year first above
written.
AMERICA WEST AIRLINES, INC.
By: /s/ Jacques C. Lazard
----------------------------------
Name: Jacques C. Lazard
---------------------------
Title: Vice President & Treasurer
---------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY, as Agent
By: /s/ Yoshiaki Ohashi
----------------------------------
Name: Yoshiaki Ohashi
---------------------------
Title: Senior Vice President
---------------------------
-10-
<PAGE> 174
Exhibit C
Form of Hangar Security Agreement
See Tab #3
<PAGE> 175
Execution Copy
RECORDING REQUESTED BY
WHEN RECORDED MAIL TO:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: James D. Tussing, Esq.
LEASEHOLD DEED OF TRUST,
SECURITY AGREEMENT, ASSIGNMENT OF RENTS,
FINANCING STATEMENT AND FIXTURE FILING
THIS LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS, FINANCING
STATEMENT AND FIXTURE FILING (this "Deed of Trust"), dated as of December 12,
1997 (the "Date of Issuance"), is made by AMERICA WEST AIRLINES, INC., a
Delaware corporation (the "Company"), as trustor, whose mailing address is 4000
E. Sky Harbor Boulevard, Phoenix, Arizona 85034, to First American Title
Insurance Company, a California corporation (not in its individual capacity, but
in its capacity as trustee, the "Trustee"), whose mailing address is 111 W.
Monroe, Phoenix, Arizona, 85003, for the benefit of The Industrial Bank of
Japan, Limited, acting through its Los Angeles Agency, as Agent for the lenders
under the Credit Agreement referred to below, whose mailing address is 350 South
Grand Avenue, Suite 1500, Los Angeles, California 90071 (the "Beneficiary").
A POWER OF SALE HAS BEEN GRANTED IN THIS DEED OF TRUST. A POWER OF SALE MAY
ALLOW THE BENEFICIARY TO TAKE THE COLLATERAL AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY THE COMPANY UNDER THIS DEED OF TRUST.
THIS DEED OF TRUST CONSTITUTES A SECURITY AGREEMENT AS THAT TERM IS USED IN THE
ARIZONA UNIFORM COMMERCIAL CODE. PORTIONS OF THE COLLATERAL ARE GOODS THAT ARE
OR ARE TO BECOME AFFIXED TO OR FIXTURES ON THE LAND DESCRIBED IN OR REFERRED TO
IN EXHIBIT A ATTACHED TO THIS DEED OF TRUST. THIS DEED OF TRUST IS INTENDED TO
SERVE AS A FIXTURE FILING AND IS TO BE RECORDED IN THE REAL ESTATE RECORDS OF
EACH COUNTY IN WHICH SAID LAND OR ANY PORTION THEREOF IS LOCATED AND INDEXED AS
BOTH A DEED OF TRUST AND A FIXTURE FILING. THE COMPANY IS THE OWNER OF RECORD
INTEREST IN THE REAL ESTATE CONCERNED.
<PAGE> 176
RECITALS
A. The lenders from time to time party to the Credit Agreement
referred to below (the "Lenders") have agreed to extend certain financial
accommodations to the Company on the terms and subject to the conditions set
forth in the Revolving Credit Agreement dated as of the date hereof (the "Credit
Agreement") among the Company, The Industrial Bank of Japan, Limited, acting
through its Los Angeles Agency (together with its successors and assigns in such
capacity, for the benefit of itself individually and the Lenders, the "Agent")
(the Agent and the Lenders collectively, the "Secured Parties") and the Lenders.
B. Pursuant to the terms of the Credit Agreement, the Agent
has been appointed as agent to hold and enforce the Secured Parties' rights with
respect to the properties and assets hereinafter described.
C. Pursuant to the Credit Agreement the Company has agreed to
deliver this Deed of Trust for the purposes of, among other things, securing all
payment and performance obligations of every nature of the Company from time to
time owed to the Agent, the Lenders or any of them under the Loan Documents (as
defined in the Credit Agreement), whether for principal, interest, fees,
expenses, indemnification or otherwise (collectively, the "Obligations"), and
subjecting the properties and assets hereinafter described to the lien of this
Deed of Trust as security for the performance of the Obligations.
D. Unless otherwise defined, all capitalized terms used in
this Agreement that are defined in the Credit Agreement (including those terms
incorporated by reference) shall have the respective meanings assigned to them
in the Credit Agreement. The rules of interpretation set forth in Section 1 of
the Credit Agreement shall apply to this Agreement.
E. All of the estate, property and interest described under 1
through 9 below is herein, collectively, called the "Real Property Collateral",
which, together with the Personal Property Collateral described in 10 through 19
below, is, collectively, called the "Deed of Trust Collateral".
1. The leasehold estates created by that certain
Airport Lease No. 43217 City of Phoenix Airport Lease Agreement (the
"Lease") dated as of August 6, 1986, between City of Phoenix, a
municipal corporation, as lessor, and the Company, as lessee, with
respect to that certain real property described in Exhibit A attached
hereto and by this reference incorporated herein (the "Premises");
2. Any and all buildings, constructions and
improvements now or hereafter erected in, on or under the Premises (the
"Improvements"), the fixtures, attachments, appliances, equipment,
machinery, and other articles that
-2-
<PAGE> 177
are attached to said Improvements, all of which shall be deemed and
construed to be a part of the Improvements;
3. All right, title and interest of the Company in
and to all of the items incorporated as part of or primarily attributed
or affixed to any of the Premises or other real property comprising all
or a portion of the Collateral or any other interest of the Company,
whether now owned or hereafter acquired, in, to or relating primarily
to the Premises or such other real property, in such a manner that such
items are no longer personal property under the law of the State of
Arizona;
4. All rents, issues, profits, royalties, deposits,
income, bank accounts, accounts receivable and other benefits and
proceeds derived from the Premises or the Improvements or any other
portion of the Collateral (collectively, the "Rents"), whether now due,
past due or to become due, subject to the rights, powers and
authorities hereinafter given to the Beneficiary and the Company as set
forth in Section 1.05 of this Deed of Trust;
5. All easements, use rights, rights-of-way and other
rights now owned or hereafter acquired by the Company and used in
connection with the foregoing described Collateral or as a means of
access thereto, including, without limiting the generality of the
foregoing, the Company's rights pursuant to any trackage agreement, all
rights to the non-exclusive use of common drive entries, and all
tenements, hereditaments and appurtenances thereof and thereto, all
development rights or credits and air rights, all water and water
rights (whether or not appurtenant to the Premises) and all shares of
stock evidencing the same, and all rights pursuant to any agreement for
the use of parking lots, spaces or facilities;
6. All leasehold estates (as used in this instrument,
the terms "Lease" and "Leasehold", and all derivative forms thereof,
shall be deemed to includes usufructuary interests), rights, titles and
interests of the Company in and to all leases or subleases covering the
Premises or the Improvements or any portion thereof now or hereafter
existing or entered into, and all right, title and interest of the
Company thereunder including, without limitation, all cash or security
deposits, advance rentals, and deposits or payments of similar nature:
7. All right, title and interest now owned or
hereafter acquired by the Company in and to any land lying within the
right-of-way of any street, open or proposed, adjoining the Premises,
and any and all sidewalks, alleys and strips and gores of land adjacent
to or used in connection with the Premises;
8. All rights and interests of the Company in, to and
under all plans, specifications, maps, surveys, studies, reports,
permits, licenses, architectural, engineering and construction
contracts, books of account, insurance policies and other documents, of
whatever kind or character, relating
-3-
<PAGE> 178
to use, construction upon, occupancy, leasing, sale or operation of the
Premises; and
9. All of the estates, interests, rights, titles,
other claims or demands, both at law and in equity, including claims or
demands with respect to the proceeds of insurance in effect with
respect thereto, which the Company now has or may hereafter acquire in
the Premises, the Improvements or other portions of the Collateral, and
any and all awards made for the taking by eminent domain, or by any
proceeding or purchase in lieu thereof, of the whole or any part of the
Collateral, including, without limitation, any award resulting from a
change of grade of streets and any award for severance damages.
F. All of the property described under 10 through 19 below is,
collectively, called the "Personal Property Collateral".
10. All goods, equipment and personal property now
owned or hereafter acquired by the Company and incorporated in or
forming part of the Improvements, including, but not limited to, fire
sprinklers and alarm systems, and air conditioning, heating,
refrigerating, electronic monitoring and equipment of every kind,
lighting fixtures, machinery and fixtures, and all building materials,
supplies, and equipment now or hereafter delivered to the Premises and
installed or used therein, together with all renewals or replacements
of articles in substitution thereof to be installed or used therein;
11. All accounts, deposits, reserves, rights of
payment in respect of general intangibles, documents, securities,
chattel paper, instruments, notes, drafts, letters or advises of
credit, receivables and other amounts and obligations owing to the
Company in respect of the Real Property Collateral;
12. All permits, licenses, approvals, certificates,
entitlements, variances, orders, exemptions and other authorizations
(collectively, "Authorizations") now or hereafter issued, made or
granted with respect to the ownership, development, construction,
reconstruction, repair, alteration, addition, improvement, replacement,
use, operation or management of the Real Property Collateral other than
those Authorizations that are by their terms unassignable or void or
voidable if assigned (except with the consent of the granting party);
13. All construction, service, engineering,
consulting, leasing, architectural and other similar contracts of any
nature (including, without limitation, those of general contractors and
subcontractors), as such may be modified, amended or supplemented from
time to time, concerning the design, construction, management,
operation, occupancy, use, and/or disposition of any portion of or all
of the Real Property Collateral;
14. All architectural drawings, plans,
specifications, soil tests, feasibility studies, appraisals, geological
reports, hazardous waste reports,
-4-
<PAGE> 179
engineering reports and similar materials relating to any portion of or
all of the Real Property Collateral;
15. All payment and performance bonds or guarantees
and any and all modifications and extensions thereof relating to the
Real Property Collateral;
16. All reserves, deferred payments, deposits,
refunds and payments of any kind relating to the construction, design,
development, operation, occupancy, use and disposition of any portion
of or all of the Real Property Collateral;
17. All the right, title, interest or other claim or
demand, both at law and in equity, that the Company now has or may
hereafter acquire in any awards made for the taking by eminent domain,
or by any proceeding of purchase in lieu thereof, of the whole or any
part of the Real Property Collateral, and all causes of action and
recoveries for any loss or diminution in the value of the Real Property
Collateral;
18. All policies of, and proceeds resulting from,
insurance relating to the Deed of Trust Collateral, and any and all
riders, amendments, extensions, renewals, supplements or extensions
thereof, and all proceeds thereof;
19. To the extent not included in the foregoing, all
proceeds and products and accessions of and to all of the foregoing, in
any form, that are hereafter acquired by the Company.
ARTICLE I
OBLIGATIONS
SECTION 1.01. GRANTING CLAUSE. For good and valuable
consideration, including, without limitation, the indebtedness herein recited,
the receipt and sufficiency of which are hereby acknowledged:
(a) The Company hereby grants, conveys, transfers and assigns
the Real Property Collateral to the Trustee and its successors and assigns, IN
TRUST, WITH POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, pursuant to this
Deed of Trust and applicable law, for the benefit of the Beneficiary and its
successors and assigns, subject to the rights of the Beneficiary under the
assignment made in subsection (b) below;
(b) The Company hereby assigns and transfers to the
Beneficiary all of the Rents, absolutely and unconditionally, and not merely as
additional collateral security for the indebtedness secured by this Deed of
Trust;
-5-
<PAGE> 180
(c) The Company hereby pledges, assigns, transfers and grants
to the Beneficiary a lien on, and security interest in, all of the Company's
right, title and interest, whether now owned or hereafter acquired, in, to and
under the Personal Property Collateral.
SECTION 1.02. ARIZONA CODE APPLICABLE TO REAL PROPERTY. With
respect to the portion of the Collateral which constitutes real property under
the laws of the State of Arizona, the Deed of Trust is intended to operate and
is to be construed as a Deed of Trust under Chapter 6.1, Title 33, Arizona
Revised Statutes. Should this instrument be or become ineffective as a Deed of
Trust, then these presents shall be construed and enforced as a realty mortgage
with the Trustor being the Mortgagor and Beneficiary being the Mortgagee.
SECTION 1.03. COMPANY AGREEMENT TO CONDITIONS OF DEED OF
TRUST. In furtherance of the foregoing grants (including grants of security
interests), bargains, sales, assignments, transfers, pledges, mortgages and
conveyances, and to protect the Premises and the security granted by this Deed
of Trust, the Company hereby warrants, represents, covenants and agrees to the
representations, terms and conditions set forth in this Deed of Trust.
SECTION 1.04. FIXTURES. This Deed of Trust is intended to
serve as a fixture filing pursuant to the terms of Sections 9-313 and 9-402 of
the Arizona Uniform Commercial Code. The Secured Parties desire that this
financing statement be indexed against the record owner of the Premises. In that
regard, the following information is provided:
Name of Debtor: AMERICA WEST AIRLINES, INC.
Address of Debtor: 4000 East Sky Harbor Boulevard
Phoenix, Arizona 85034
Name of Secured
Party: THE INDUSTRIAL BANK OF JAPAN,
LIMITED, AS AGENT
Address of Secured
Party: 350 South Grand Avenue
Suite 1500
Los Angeles, California 90071
Description of the
Real Estate: See Exhibit A of this Deed of Trust
Name of Record
Owner: THE CITY OF PHOENIX, ARIZONA
-6-
<PAGE> 181
Address of Record
Owner: City of Phoenix Aviation Department
3400 Sky Harbor Boulevard
Phoenix, Arizona 85034
Attention: Airports Business Office
SECTION 1.05. RENTS. The Company hereby absolutely and
unconditionally assigns and transfers to the Beneficiary (for the ratable
benefit of the Secured Parties) all the Rents to which the Company may be
entitled, whether now due, past due or to become due, and hereby gives to and
confers upon the Beneficiary the right, power and authority to collect the Rents
after the occurrence and during the continuance of an Event of Default. The
Company irrevocably appoints the Beneficiary its true and lawful
attorney-in-fact, at the option of the Beneficiary at any time during
continuance of an Event of Default and as provided in Article IV of this Deed of
Trust, to demand, receive and enforce payment, to give receipts, releases, and
satisfactions, and to sue, either in the name of the Company or in the name of
the Beneficiary on behalf of the Secured Parties, for all such Rents and apply
the same to the Obligations. It is understood and agreed that the exercise by
the Beneficiary of any of its respective rights or remedies under this Section
1.05 or under Article IV of this Deed of Trust shall not be deemed to make the
Beneficiary or any Secured Party a "mortgagee-in-possession" or otherwise
responsible or liable in any manner with respect to the Premises or the Deed of
Trust Collateral or the occupancy, use, operation or maintenance of all or any
part of the Premises or the Deed of Trust Collateral.
SECTION 1.06. TAKING PROCEEDS. If all or any part of the Deed
of Trust Collateral is taken, damaged or reduced in value by reason of any
taking, eminent domain, public improvement, inverse condemnation, condemnation
or similar proceeding, and the Company shall be entitled to receive any
compensation, awards and other payments or relief therefor ("Taking Proceeds"),
the Beneficiary (for the ratable benefit of the Secured Parties) shall be
entitled to receive payment of and to hold, as part of the Deed of Trust
Collateral, all such Taking Proceeds; provided that, at any time except during
the continuance of an Event of Default, the Company (with the approval of the
Beneficiary upon the consent of the Requisite Lenders, which consent shall not
be unreasonably withheld) shall not be required to include as Deposited Monies
under Section 2.01 of this Deed of Trust, Taking Proceeds in an amount of
$1,000,000 or less. If any such amount is received by the Company in
circumstances when the Beneficiary is entitled to hold the same as part of the
Deed of Trust Collateral under the preceding sentence, the Company shall
immediately pay over the same to the Beneficiary, which shall include the same
as part of the Deposited Monies for application in accordance with Section 2.01
of this Deed of Trust. Taking Proceeds not required to be included as Deposited
Monies shall be used by the Company to repair, replace or restore the Deed of
Trust Collateral to its condition before such taking or similar proceeding, to
the maximum extent possible in the reasonable determination of the Company, and
may thereafter be retained by the Company for its own account. The Company shall
not be entitled without the prior approval of the Beneficiary (which approval
will not be unreasonably withheld) to make any
-7-
<PAGE> 182
compromise or settlement in connection with such taking, damage or reduction in
value to the extent of the right, title and interest of the Company therein;
provided that no such approval need be obtained as to any such compromise or
settlement that provides for a cash payment in an amount at least equal to
$30,000,000.
SECTION 1.07. RIGHTS AND OBLIGATIONS. No Lien created by this
Deed of Trust in respect of the Company's right, title or interest in contracts,
leases, licenses, permits and Governmental Authorizations shall be construed to
be a consent by the Beneficiary or any Secured Party to any contract, lease,
license, permit or Governmental Authorizations so subject to any such Lien, or
to impose upon the Beneficiary or any Secured Party any obligations with respect
to the same or, prior to the occurrence of an Event of Default and the exercise
of any remedy under Article IV of this Deed of Trust, to grant any power or
right (not expressly granted in the Loan Documents) to approve or consent to any
action under the foregoing.
SECTION 1.08. USE AND POSSESSION. Notwithstanding the terms of
any provision contained in this Deed of Trust or the Credit Agreement, except
during continuance of an Event of Default and as provided in Section 4.01(f) of
this Deed of Trust, the Company shall have the exclusive right to use and
possess the Deed of Trust Collateral, to collect, retain, use and enjoy all
Rents and accounts and to exercise its right, title and interest in contracts,
leases, licenses, permits and Governmental Approvals subject at all times to (a)
the right of the Beneficiary to receive all Deposited Monies, (b) the applicable
restrictions and limitations contained in Section 5.4 of the Credit Agreement
and (c) such use, possession, retaining, enjoyment or exercise not otherwise
constituting an Event of Default.
SECTION 1.09. SECURED OBLIGATIONS. The Liens created by this
Deed of Trust are given for the purpose of securing, in such order of priority
as the Beneficiary may, in its sole discretion (except as otherwise set forth
herein) determine, pursuant to the Credit Agreement and the Security Agreements
the Obligations.
SECTION 1.10. LIENS FOR THE RATABLE BENEFIT OF THE SECURED
PARTIES. The Lien on the Deed of Trust Collateral created by this Deed of Trust
and the related rights, privileges and remedies granted to or for the benefit of
the Beneficiary shall be for the benefit of the Secured Parties ratably
according to the amount of the Obligations due to each of the Secured Parties.
To the extent permitted by law, each of the rights, privileges and remedies
accorded to the Trustee or to the Beneficiary under this Deed of Trust or
otherwise by statute or at law or in equity with respect to the Deed of Trust
Collateral may be exercised by the Beneficiary or by the Trustee upon the
instruction of the Beneficiary. Any Deed of Trust Collateral held or recovered
at any time by the Beneficiary or any realization on account of any Deed of
Trust Collateral shall inure to the benefit of the Secured Parties as provided
in this Section 1.10.
SECTION 1.11. RISK OF LOSS; INSURANCE. Risk of loss of, damage
to or destruction of the Deed of Trust Collateral is and shall remain upon the
Company. If
-8-
<PAGE> 183
the Company fails to effect and keep in force insurance covering the Deed of
Trust Collateral as required by Section 3.06 of this Deed of Trust or fails to
pay the premiums on such insurance when due, the Beneficiary may, but is not
obligated to, do so for the account of the Company and add the cost of doing so
to the Obligations. The Beneficiary, its officers, employees and authorized
agents, are hereby irrevocably appointed the attorneys-in-fact of the Company to
endorse any draft or check that may be payable to the Company in order to
collect the proceeds of such insurance or any return of unearned premiums.
ARTICLE I
DEPOSITED MONIES; RELEASE AND SHARING OF
DEED OF TRUST COLLATERAL
SECTION 2.01. DEPOSITED MONIES. (a) The term "Deposited
Monies" shall mean all amounts referred to in Section 1.06 of this Deed of Trust
that are therein required to be paid over to or to be retained by the
Beneficiary, amounts paid to the Beneficiary under policies of insurance as
provided in Section 3.06 of this Deed of Trust and amounts paid or required to
be paid to the Beneficiary pursuant to Section 2.02 of this Deed of Trust,
together with any earnings and interest on such amounts, any other sums from
time to time standing to the credit of such amounts, any investments of any such
amounts and all right, title and interest of the Company with respect to such
amounts.
(b) Subject to Sections 2.01(d) and 2.01(e) of this Deed of
Trust, any Deposited Monies at any time held by the Beneficiary in respect of
any Repairable Damage that is to be repaired pursuant to subsection
2.4B(iii)(1)(b) of the Credit Agreement shall be paid over to or upon the order
of the Company, to reimburse it for, or to pay, the cost of replacing, renewing,
repairing or rebuilding all or any part of the Deed of Trust Collateral in
respect of which such Deposited Monies were paid. Such payment is conditioned
upon, and shall not be made until the receipt by the Beneficiary of:
(i) prior to or concurrently with the delivery of the
first disbursement request:
(A) a certificate of a Responsible Officer
of the Company (x) stating that it has determined to replace, renew, repair or
rebuild such Deed of Trust Collateral, (y) describing in reasonable detail the
work done or to be done and property purchased or to be purchased by way of the
replacement, renewal, repair or rebuilding of the affected Deed of Trust
Collateral; and (z) stating the aggregate amount required for such purposes and,
if such amount exceeds $1,000,000, providing evidence satisfactory to the
Beneficiary that the amount of Deposited Monies then held by the Beneficiary,
together with other available sums, will be sufficient for such purposes:
-9-
<PAGE> 184
(B) a written undertaking by the Company
that it has performed or will perform such replacement, renewal, repair or
rebuilding as set forth in such certificate;
(C) in the case of the replacement of Deed
of Trust Collateral, the replacement cost of which, when added to the
replacement cost of Deed of Trust Collateral as to which such an opinion of
counsel shall not previously have been delivered pursuant to this clause (C),
exceeds $1,000,000, an opinion of counsel to the effect that the replacement
property (and such other replacement property as to which no such opinion shall
have been delivered) is or will upon acquisition or construction become part of
the Deed of Trust Collateral and subject to the perfected lien and security
interest created by this Deed of Trust without further action (or stating the
action required); and
(D) evidence reasonably satisfactory to the
Beneficiary that the Lease has not been terminated and will not be terminated
during the period of replacing, renewing, repairing or rebuilding the Deed of
Trust Collateral; and
(ii) from time to time, following or concurrently
with the delivery of the certificate and undertaking required to be delivered
pursuant to clause (i) above:
(A) one or more written disbursement
requests of the Company (w) stating that such request relates to a specific
certificate and undertaking delivered pursuant to clause (i) above, (x) stating
the specific amount requested to be disbursed to be paid to or on the order of
the Company and that such amount is requested to reimburse the Company for, or
to pay, the cost incurred in such replacement, renewal, repair or rebuilding,
(y) stating that the Company has not previously requested a disbursement or
otherwise been reimbursed for the expenditure on account of which such request
is made and (z) stating that no Event of Default or Default, has occurred and is
continuing; and
(B) evidence reasonably satisfactory to the
Beneficiary that no mechanics' liens have been filed and that all contractors,
subcontractors and suppliers have been paid in full.
(c) Any Deposited Monies that shall not be applied as provided
in Sections 1.06 or 2.01(b) or (d) of this Deed of Trust shall, subject to
Sections 2.01(b) and (d) of this Deed of Trust, be deposited in a segregated
account and shall, upon the Company's request therefor, be invested in Permitted
Cash Equivalents or distributed to the Company pursuant to Section 2.01(e) of
this Deed of Trust.
(d) The provisions of Sections 2.01(b), (c) and (e) of this
Deed of Trust shall not, except to the extent that the Beneficiary otherwise
agrees in writing, apply to or in respect of all or any part of the Deposited
Monies at any time after the occurrence and during the continuance of a
Potential Event of Default or Event of Default. Upon the occurrence and during
the continuance of a Potential Event of
-10-
<PAGE> 185
Default or Event of Default, the Deposited Monies shall, upon the request of the
Beneficiary or the Requisite Lenders, be withdrawn and liquidated and applied to
the payment of any Obligations then due, and neither the Beneficiary nor any
Secured Party shall be responsible for any loss occasioned by the timing of such
action. Not withstanding the foregoing, if a Potential Event of Default or an
Event of Default shall have occurred and be continuing, until any Deposited
Monies are applied as provided in this Section 2.01(d), the Beneficiary shall
retain and invest such Deposited Monies, at the Company's request, in Permitted
Cash Equivalents.
(e) Following the exclusion of the Hangar (as defined in the
Credit Agreement) from the Borrowing Base pursuant to subsection 2.4B(iii)(1)(b)
of the Credit Agreement, the Deposited Monies shall be held by the Beneficiary
in a segregated account as security for the Obligations and, subject to Section
2.01(d) of this Deed of Trust, released to the Company. "Event of Loss" shall
mean any of the following events with respect to the Deed of Trust Collateral:
(1) permanent or temporary loss of all or substantially all of the Improvements
or Personal Property Collateral or the use thereof due to destruction, damage or
rendition of such property permanently or temporarily unfit for normal use; (2)
any event which results in the receipt of insurance proceeds with respect to
such property on the basis that such property or substantially all of such
property needs to be rebuilt to be suitable for normal use or on the basis that
such property is a total loss, arranged total loss or constructive total loss;
and (3) condemnation, confiscation or seizure of, or requisition or taking of
title of all or substantially all of such property by the United States
government or any other government, through the exercise of eminent domain,
public improvement, inverse condemnation, condemnation or other similar
proceeding.
SECTION 2.02. RELEASE OF DEED OF TRUST COLLATERAL. Except with
the written consent of the Beneficiary, which consent shall be withheld or
granted in the sole discretion of the Beneficiary, the Company shall not sell or
otherwise dispose of any part of, or any interest in, the Deed of Trust
Collateral prior to the repayment and performance of all of the Company's
Obligations under the Loan Documents and the termination of the Commitments of
the Lenders. Following the repayment and performance of the Obligations and the
termination of the Commitments of the Lenders, at the request of the Company,
the Beneficiary shall, at the Company's expense, execute and deliver to the
Company such documents, and give the Trustee such directions to quitclaim and
release portions of the Deed of Trust Collateral, as the Company shall
reasonably request, to evidence the release of such part of the Deed of Trust
Collateral. In addition, the Deed of Trust Collateral shall be released as
provided in subsection 2.4B(iii)(1)(g) of the Credit Agreement.
ARTICLE III
COVENANTS OF THE COMPANY
SECTION 3.01. CHANGE IN LAW. Without duplicating the Credit
Agreement, in the event of the passage, after the date of this Deed of Trust, of
any law
-11-
<PAGE> 186
that has the effect of changing in any way the laws now in force for the
taxation of deeds of trust, such as this Deed of Trust, or debts secured by such
deeds of trust or the manner of the collection of any such taxes so as in either
case to impose payment of the whole or any portion of any taxes, assessments or
other similar charges against the Deed of Trust Collateral upon any Secured
Party, the Obligations shall immediately become due and payable at the election
of the Beneficiary and upon 60 days' notice to the Company; provided that such
election by the Beneficiary shall not be made, or if made shall be ineffective,
if (a) such law shall neither impose a tax (except any tax, in replacement of
any existing tax now payable by a Secured Party, that is not greater than the
replaced tax) upon any Secured Party nor increase any tax now payable by any
Secured Party or (b) such law shall impose a tax upon any Secured Party or
increase any tax now payable by any Secured Party and, prior to the due date,
(i) the Company is permitted by law and can become legally obligated to pay such
tax or the increased portion thereof (in addition to all interest, additional
interest and other charges payable hereunder and under the Credit Agreement),
(ii) the Company does pay such tax or increased portion and (iii) the Company
agrees with the Beneficiary in writing to pay, or reimburse each Secured Party,
as the case may be, for the payment of, any such tax or increased portion
thereof when thereafter levied or assessed against the Company's interest in all
or any part of the Deed of Trust Collateral. The obligations of the Company
under such agreement shall be secured by this Deed of Trust.
SECTION 3.02. PRESERVATION AND PROTECTION OF SECURITY
INTEREST. The Company shall faithfully preserve and protect the Liens in the
Deed of Trust Collateral created by this Deed of Trust and shall, at its own
cost and expense, cause such Liens to be perfected and continue to be perfected
and to remain prior to all such other Liens, subject only to Permitted Liens (as
defined in the following paragraph), so long as all or a portion of the
Obligations are outstanding and unpaid and the Commitments of the Lenders have
not expired or terminated, and for such purpose the Company shall from time to
time at the request of the Beneficiary make notations of the security interest
on certificates of title to Deed of Trust Collateral a security interest in
which is perfected by such notation, and deliver the same to the Beneficiary,
deliver possession of Deed of Trust Collateral (concurrent with its acquisition)
a security interest in which is perfected by the taking of possession, and file
or record, or cause to be filed or recorded, such instruments, documents and
notices, including additional security deeds of trust, financing statements and
continuation statements, as the Beneficiary may reasonably deem necessary or
advisable from time to time in order to perfect and continue to perfect such
Liens and to maintain their priority over all other Liens, subject to Permitted
Liens. The Company shall do all such other acts and things and will execute and
deliver all such other instruments and documents, including further deeds of
trust, mortgages, security agreements, pledges, endorsements, assignments
(including assignments of the Company's contracts) and notices (including
notices of any real property on which Deed of Trust Collateral which is or may
be a fixture is located together with a legal description of such real
property), as the Beneficiary may reasonably deem necessary or advisable from
time to time in order to perfect and preserve the priority (subject only to
Permitted Liens ) of the Liens in the Deed of Trust Collateral. The Beneficiary
is hereby irrevocably appointed the
-12-
<PAGE> 187
attorney-in-fact of the Company to do, at the Company's expense, all acts and
things which the Beneficiary may reasonably deem necessary or advisable to
preserve, perfect, continue to perfect and maintain the priority of such Liens
in the Deed of Trust Collateral, including the signing of financing,
continuation or other similar statements and notices on behalf of the Company,
and which the Company is required to do by the terms of this Deed of Trust and,
after request, shall not have done.
As used herein, the term "Permitted Liens" means such of the following
as to which no enforcement, collection, execution, levy or foreclosure
proceeding shall have been commenced: (a) Liens for taxes, assessments and
governmental charges or levies not yet delinquent; (b) Liens imposed by law,
such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens
and other similar Liens arising in the ordinary course of business securing
obligations that are not overdue for a period of more than 30 days; (c) pledges
or deposits to secure obligations under worker's compensation or similar
legislation or to secure public or other statutory obligations and (d) the
Lease.
SECTION 3.03. COVENANTS REGARDING THE LEASE. With respect to
the Lease, the Company agrees:
(a) To keep and perform each and every material covenant,
agreement and obligation of the lessee set forth in the Lease, to take all
actions necessary to preserve and keep unimpaired its rights and privileges
under the Lease, and not to commit, suffer or permit any material breach of the
Lease; provided that (i) if an event of default by the Company under the Lease
shall occur, the Beneficiary may, at its option but without any obligation to do
so, take any action and make such expenditures necessary or desirable to cure
the same, the Beneficiary being authorized to enter upon the Premises for such
purposes, (ii) any amounts so expended may be funded under the Credit Agreement
to the extent the Company is otherwise entitled to borrow such amounts
thereunder, (iii) if the Company is not otherwise entitled to borrow under the
Credit Agreement, the Company shall, immediately on demand, pay to the
Beneficiary all costs of the Beneficiary incurred in curing any such default,
together with interest on such costs from the date of expenditure at the Base
Rate then in effect plus 2% per annum and (iv) all sums due to the Beneficiary
pursuant to this Section 3.03(a) shall be secured by this Deed of Trust;
(b) To give immediate notice to the Beneficiary of any
material default under the Lease within the Company's knowledge or of the
receipt by it of any notice of default from the lessor under the Lease, and to
furnish to the Beneficiary all information that it may request concerning the
performance by the Company of the covenants of the Lease;
(c) That the provisions of this Deed of Trust shall be deemed
to be obligations of the Company in addition to the Company's obligations as
lessee with respect to similar matters contained in the Lease, and the inclusion
in this Deed of Trust of any covenants and agreements relating to similar
matters under which the
-13-
<PAGE> 188
Company is obligated under the Lease shall not restrict or limit the Company's
duties and obligations to keep and perform promptly all of its covenants,
agreements and obligations as lessee under the Lease; provided that nothing in
this Deed of Trust shall be construed as requiring the taking of or the omission
of any action by the Company that would cause a default under the Lease;
(d) That (i) so long as this Deed of Trust is in effect, there
shall be no merger of the Lease or any interest therein nor of the leasehold or
any other estate created thereby with the fee estate in the Premises or any
portion thereof by reason of the fact that the Lease, such interest therein or
such leasehold estate may be held directly or indirectly by or for the account
of any person who shall hold the fee estate in the Premises or any portion
thereof or any interest of the lessor under the Lease, (ii) in case the Company
hereafter acquires the fee title or any other estate, title or interest in any
portion of the Premises, this Deed of Trust shall attach to and cover and be a
Lien upon the fee title or such other estate so acquired, and such fee title or
other estate shall, without further assignment, mortgage or conveyance, become
and be subject to the Lien of and covered by this Deed of Trust and (iii) the
Company shall notify the Beneficiary of any such acquisition by the Company and,
on written request by the Beneficiary, shall cause to be executed and recorded
and shall provide all such other and further assurances or other instruments in
writing as may in the opinion of the Beneficiary be required to carry out the
intent and meaning hereof;
(e) That no election to terminate or surrender (except a
surrender upon the natural expiration of the term of the Lease or upon the
termination by the lessor under the Lease pursuant to its provisions or upon
partial condemnation) by the Company, as lessee under the Lease, to the lessor
under the Lease, as the case may be, of any portion of the Lease or of any
interest in the Lease and no termination of the Lease by the Company as lessee
under the Lease shall be valid or effective, and neither the Lease nor its terms
may be amended, modified, changed, surrendered or canceled, or subordinated to
any fee mortgage, to any lease, or to any other interest, either orally or in
writing, without the prior written consent of the Beneficiary so long as this
Deed of Trust is in effect;
(f) That the Company shall, promptly after the execution and
delivery of this Deed of Trust or of any instrument or agreement supplemental to
this Deed of Trust, notify the lessor under the Lease in writing of the
execution and delivery of this Deed of Trust or of the supplemental instrument
or agreement and deliver to such lessor a copy of this Deed of Trust or such
instrument or agreement, as the case may be; and
(g) That if the Lease is for any reason whatsoever terminated
prior to the natural expiration of its term and, if pursuant to any provision of
the Lease or otherwise, any Secured Party shall acquire from the lessor under
the Lease a new lease of the Premises or of any part of the Premises or other
property rights for the Premises or any portion thereof, the Company shall have
no right, title or interest in or to such
-14-
<PAGE> 189
new lease or the leasehold estate created by such new lease, or in or to such
new option or property rights, or in or to such new easement rights created by
such new easement.
(h) The Company acknowledges that pursuant to Section 365 of
the Bankruptcy Code (title 11, United States Code), as amended (the "Bankruptcy
Act") it is possible that the City of Phoenix, Arizona (or a trustee in
bankruptcy) could reject the Lease, in which case the Company, as lessee, would
have the rights of election described in Section 365(h) of the Bankruptcy Act
(which rights of election, as the same may be amended, revised or recodified
from time to time, and together with any comparable right under any other state
or federal law relating to bankruptcy, reorganization or other relief for
debtors and any other right the Company may have to rescind, surrender or
terminate the Lease under any state law, whether now or hereafter in effect, is
herein called the "Election") to treat the Lease as terminated by such rejection
or, in the alternative, to retain its rights under the Lease, including without
limitation the right to remain in possession under the Lease, for the balance of
the term of such Lease and any renewal or extension thereof that is enforceable
by the lessee under applicable non-bankruptcy law;
(i) The Company covenants that it will not cause, suffer or
permit the termination of the Lease by exercise of the Election without the
prior written consent of the Beneficiary. The Company acknowledges that since
the Lease is a primary part of the security for the Obligations, the Beneficiary
does not anticipate that it would consent to termination of the Lease and shall
not under any circumstances be obliged to give such consent;
(j) To secure the covenant made in Section 3.03(i) above and
as security for the other obligations secured under this Deed of Trust, the
Company assigns the Election to the Trustee and the Beneficiary. The Company
acknowledges and agrees that the foregoing assignment of the Election is one of
the rights that the Trustee and the Beneficiary may use at any time to protect
and preserve the other rights of the Trustee and the Beneficiary under this Deed
of Trust; provided, however, that unless any Event of Default shall have
occurred and be continuing, the Trustee and the Beneficiary may not exercise the
assigned Election to treat the Lease as terminated by such rejection without the
Company's consent;
(k) The Company acknowledges and agrees that the Election is
in the nature of a remedy and is not a property interest that the Company can
separate from the Lease. Therefore, the Company agrees that any exercise of the
Election in favor of preserving the rights under the Lease, including without
limitation the right to remain in possession under the Lease, shall not be
deemed to constitute a taking or sale of the Premises or the Deed of Trust
Collateral by the Trustee or the Beneficiary and shall not entitle the Company
to any credit against the Obligations; and
(l) The Company acknowledges and agrees that in the event the
Election is exercised in favor of the Company retaining its rights under the
Lease, the Company's resulting right to possession and use of (and rents and
profits from) the
-15-
<PAGE> 190
Premises under the Lease, as may be adjusted by the effect of Section 365 of the
Bankruptcy Act shall then be part of the Deed of Trust Collateral and shall be
subject to the Lien created by this Deed of Trust.
SECTION 3.04. PROVISIONS APPLICABLE TO THE DEED OF TRUST
COLLATERAL. The parties agree that the following provisions shall be applicable
to the Deed of Trust Collateral, and the Company covenants and agrees that
during the term of this Deed of Trust:
(a) Books and Records. The Company will keep accurate and
complete books and records concerning the Deed of Trust Collateral. The Company
will furnish to the Beneficiary, at such times and in such form and substance as
may reasonably be requested, information adequate to enable the Beneficiary to
identify all or any part of the Deed of Trust Collateral and determine the
amount or value of the Deed of Trust Collateral, and such information as the
Beneficiary may reasonably deem relevant concerning proceeds.
(b) Location of Chief Executive Office. The Company will not
move its chief executive office from Maricopa County, Arizona, except to such
new location as it may establish in accordance with subsection (e) below.
(c) Location of Books, Records, Inventory and Equipment. The
Company will, unless otherwise directed by a court of competent jurisdiction,
keep books of account or records concerning its accounts, inventory, equipment
and proceeds included in the Deed of Trust Collateral at its address specified
in the Credit Agreement except that a new location may be established in
accordance with subsection (e) below.
(d) Use of Other Names. The Company will not invoice an
account debtor on any account included in the Deed of Trust Collateral or
maintain its records relating to any such account in any name other than its own
proper name (as of the date of this Deed of Trust), except such new names as it
may establish in accordance with subsection (e) below.
(e) Establishment of New Location or Name. If the Company
desires to establish a new location for its chief executive office or books of
account or records relating to its accounts, inventory, equipment or proceeds
included in the Deed of Trust Collateral may be kept or to establish a new name
in which it may invoice account debtors or maintain records concerning accounts,
inventory, equipment or proceeds, it shall first with respect to each such new
location or name:
(i) give the Beneficiary not less than 45 days' written notice
of its intention to do so and provide the Beneficiary with such
information in connection therewith as the Beneficiary may reasonably
request; and
-16-
<PAGE> 191
(ii) take such action, satisfactory to the Beneficiary, as may
reasonably be necessary to maintain at all times the Liens of the
Security Documents.
SECTION 3.05. ASSET SALES. The Company agrees not to sell,
lease, sublease, transfer or otherwise dispose of the Deed of Trust Collateral,
or any portion thereof, or contract to do any of the foregoing, except as
expressly permitted by the provisions of the Credit Agreement and this Deed of
Trust.
SECTION 3.06. INSURANCE. The Company will, and will cause each
of its Subsidiaries to, keep insured by financially sound and reputable insurers
all Deed of Trust Collateral of a character usually insured by corporations
engaged in the same or similar business similarly situated against loss or
damage of the kinds and in the amounts customarily insured against by such
corporations and carry such other insurance as is usually carried by such
corporation, provided that in any event the Company will maintain (with respect
to itself and each of its Subsidiaries):
(1) Property Insurance -- insurance against loss or
damage covering all of the Deed of Trust Collateral and tangible real
and personal property and improvements of the Company and each of its
Subsidiaries included in the Deed of Trust Collateral by reason of any
Peril (as defined below) in such amounts (subject to such deductibles
as are customary in the airline industry and are satisfactory to the
Beneficiary) as shall be reasonable and customary and sufficient to
avoid the named insured from becoming a co-insurer of any loss under
such policy but in any event in an amount at least equal to the greater
of (x) 100% of the actual replacement cost of such assets (including
foundation, footings and excavation costs) and (y) the Borrowing Base
Value of such assets, subject to such deductibles.
(2) Liability Insurance -- insurance against claims
for bodily injury, death or property damage occurring on, in or about
the Premises (and adjoining streets, sidewalks and waterways) of the
Company and its Subsidiaries, in such amounts as are then customary for
property similar in use in the jurisdictions where such Deed of Trust
Collateral is located but in any event not less than $100,000,000 per
occurrence provided, however, that any self-insured retention and/or
deductible shall not exceed $1,000,000 per occurrence.
Such insurance shall be written by financially responsible companies selected by
the Company and reasonably acceptable to the Beneficiary, and (other than
workers' compensation) shall name the Beneficiary (for the benefit of the
Secured Parties) as additional insured, or loss payee, as its interests may
appear. Each policy referred to in this Section 3.06 shall provide that it will
not be canceled or reduced, or allowed to lapse without renewal, except after
not less than 30 days' notice to the Beneficiary and shall also provide that the
interests of the Beneficiary shall not be invalidated by any act or negligence
of the Company or any other Person having an interest in any Deed of Trust
Collateral covered by this Deed of Trust nor by occupancy or use of any such
Premises for purposes more hazardous than permitted by such policy nor by any
-17-
<PAGE> 192
foreclosure or other proceedings relating to such Premises. The Company will
advise the Beneficiary promptly of any policy cancellation reduction or
amendment.
On or before the Date of Issuance and thereafter annually on
or before the scheduled expiration date for such policy, the Company's insurance
broker will furnish to the Beneficiary a report, signed by the Company's
independent insurance broker, stating the types of coverage and limits carried
and maintained by the Company on the Deed of Trust Collateral and certifying
that such insurance complies with the terms and conditions of this Section 3.06
of this Deed of Trust. The Company will cause its insurance broker to advise the
Beneficiary in writing promptly of any default in the payment of any premium and
of any other act or omission on the part of the Company of which it has
knowledge and which might cause cancellation of all or any part of any insurance
carried by the Company with respect to the Deed of Trust Collateral. The Company
will cause such insurance broker to agree to advise the Beneficiary in writing
if and when it becomes evident to such broker that any insurance policy carried
and maintained on the Deed of Trust Collateral pursuant to this Section 3.06
will not be renewed at the expiration date. The Company will also cause such
insurance broker to deliver to the Beneficiary, on or prior to the date of
expiration of any insurance policy referenced in a previously delivered
certificate of insurance, a new certificate of insurance, confirming to such
parties that such insurance as certified on the Date of Issuance continues in
full force and effect. If the Company shall fail to maintain insurance as
required here by the Beneficiary, the Beneficiary may, at its option, provide
such insurance, and in such event, the Company shall, upon demand, reimburse the
Beneficiary for the cost of such insurance; provided, however, that no exercise
of said option shall affect the provisions of this Deed of Trust, including the
provisions that failure by the Company to maintain the prescribed insurance
shall constitute an Event of Default, or otherwise constitute a waiver of any
other rights the Beneficiary may have against the Company.
Without limiting the obligations of the Company under the
foregoing provisions of this Section 3.06, in the event the Company shall fail
to maintain in full force and effect insurance as required by the foregoing
provisions of this Section 3.06, then the Beneficiary may, but shall have no
obligation to, procure insurance covering the interests of the Beneficiary in
such amounts and against such risks as the Beneficiary shall deem appropriate,
and the Company shall reimburse the Beneficiary in respect of any premiums paid
by the Beneficiary in respect of such insurance.
For purposes of this Section 3.06, the term "Peril" shall
mean, collectively, fire, lightning, flood, windstorm, hail, earthquake,
explosion, riot and civil commotion, vandalism and malicious mischief, damage
from aircraft, vehicles and smoke and all other perils covered by the "all-risk"
endorsement then in use in the jurisdictions where the Deed of Trust Collateral
is located.
SECTION 3.07. OTHER COVENANTS. The Company agrees to keep and
perform each and every covenant of the Company in the Loan Documents and in the
Credit Agreement.
-18-
<PAGE> 193
ARTICLE IV
REMEDIES
SECTION 4.01. REMEDIES. On and after the acceleration of the
Loans, the Beneficiary or the Trustee, upon written instructions from the
Beneficiary (the legality thereof as between the Trustee and the Beneficiary to
be determined solely by the Beneficiary), shall, to the extent permitted by law,
have the right, without notice to or demand (other than any written notice
required by law the giving of which is not waivable), upon the Company (all of
which are hereby waived to the extent permitted by applicable law), without
releasing the Company from any obligation under the Security Agreements and
without waiving any rights any Secured Party may have or impairing any
declaration of default or election to cause the Deed of Trust Collateral to be
sold or any sale proceeding predicated thereon:
(a) To demand, collect or receive upon all or any part of the
Deed of Trust Collateral and assemble or require the Company to assemble all or
any part of the Deed of Trust Collateral; to require the Company to vacate the
Premises;
(b) To commence, appear in or defend any action or proceeding
purporting to affect all or any part of the Deed of Trust Collateral or the
interests, rights, powers or duties of any Secured Party, whether brought by or
against the Company or any Secured Party;
(c) To pay, purchase, contest or compromise any claim, debt,
lien, charge or encumbrance which in the judgment of the Beneficiary may affect
or appear to affect the Deed of Trust Collateral or the interest, rights, powers
or duties of any Secured Party;
(d) In such manner and to such extent as the Beneficiary may
deem necessary to protect the Deed of Trust Collateral or the interests, rights,
powers or duties of any Secured Party, to enter into and upon the Premises and
take and hold possession of all or any part of the Deed of Trust Collateral (the
Company hereby waiving and releasing any claim for damages in respect of such
taking), and exclude the Company and all other persons from the Deed of Trust
Collateral, operate and manage the Deed of Trust Collateral (subject to
applicable Governmental Rules) and rent and lease the same, perform such
reasonable acts of repair, improvement or protection as the Beneficiary may, in
its sole discretion, determine to be necessary or proper to conserve the value
of the Deed of Trust Collateral, and collect any and all income, rents, issues,
profits and proceeds from the Deed of Trust Collateral, the same being hereby
assigned and transferred to the Beneficiary for the ratable benefit of the
Secured Parties, and from time to time apply or accumulate such income, rents,
issues, profits and proceeds in such order and manner as the Beneficiary, in its
sole discretion, shall instruct, it being understood that the collection or
receipt of income, rents, issues, profits or proceeds from the Deed of Trust
Collateral after an Event of Default and
-19-
<PAGE> 194
election to cause the Deed of Trust Collateral to be sold under and pursuant to
the terms of this Deed of Trust shall not affect or impair any Event of Default
or declaration of default or election to cause the Deed of Trust Collateral to
be sold or any sale proceedings predicated thereon, but such proceedings may be
conducted and sale effected notwithstanding the collection or receipt of any
such income, rents, issues, profits and proceeds;
(e) To commence a judicial action to foreclose this Deed of
Trust in respect of the Deed of Trust Collateral or, by the delivery to the
Trustee of a written declaration of default and demand for sale, foreclose by
exercise of the power of sale provided for in this Deed of Trust; provided that
(i) the Beneficiary shall also deposit with the Trustee a copy of the Credit
Agreement and such receipts and evidence of the Obligations as the Trustee may
require, and notice (which the Company agrees shall constitute sufficient
notice) of sale having been published in a newspaper having general circulation
in the jurisdiction in which the Premises are located once a week for four
successive weeks (it being understood that the Trustee may make such other and
different advertisement as Trustee shall determine in its sole discretion to
make) and after such other notice and lapse of such time as may then be required
by law, the Trustee, without demand on the Company, shall sell the Deed of Trust
Collateral at the time and place and terms of sale fixed by it in such notice of
sale, either as a whole or in separate parcels, and in such order as it may
determine, at public auction to the highest bidder in lawful money of the United
States, (ii) the Trustee may postpone sale of all or any portion of the Deed of
Trust Collateral by public announcement at such time and place of sale, and from
time to time thereafter may postpone such sale by public announcement at the
time fixed by the preceding postponement, (iii) the Trustee shall deliver to any
purchaser its deed or deeds conveying the Deed of Trust Collateral, or any
portion thereof, so sold, (iv) the recitals in such deed or deeds of any matters
or facts shall be conclusive proof of the truthfulness thereof and (v) any
Person (other than the Trustee), including the Company, the Beneficiary or any
Secured Party, may purchase at such sale;
(f) To revoke all or any of the rights of the Company provided
for pursuant to Section 1.08 of this Deed of Trust by written notice to the
Company indicating which rights are revoked;
(g) To take over and direct collection of the Rents and the
accounts of the Company that are included in the Deed of Trust Collateral and
the proceeds thereof, give notice of the Beneficiary's Lien on the Rents, such
accounts and the proceeds thereof to any or all persons obligated to the Company
thereon, direct such persons to make payment of all moneys paid or payable
thereon directly to the Beneficiary (and, at the request of the Beneficiary, the
Company shall indicate on all billings that payments thereon are to be made to
the Beneficiary) and give any Person so notified and directed the receipt of the
Beneficiary for any such payment as full release for the amount so paid;
-20-
<PAGE> 195
(h) To take control of any and all of the Rents, accounts,
contractual and other rights that are included in the Deed of Trust Collateral
and proceeds arising from any such contractual and other rights; enforce
collection either in the name of the Beneficiary or in the name of the Company,
of any or all of the Rents, accounts, contractual and other rights that are
included in the Deed of Trust Collateral and proceeds by suit or otherwise; and
receive, give receipt for, surrender, release or exchange all or any part
thereof or compromise, settle, extend or renew (whether or not longer than the
original period) any indebtedness thereunder;
(i) To sell all or any portion of the Deed of Trust Collateral
at public or private sale at such place or places and at such time or times and
in such manner and upon such terms, whether for cash or credit, as the
Beneficiary in its sole discretion may instruct;
(j) To endorse in the name of the Company any instrument,
howsoever received by the Beneficiary, representing Deed of Trust Collateral or
proceeds of any of the Deed of Trust Collateral; and
(k) To exercise all the rights and remedies granted to a
secured party under the Arizona Uniform Commercial Code and all other rights and
remedies granted by this Deed of Trust or any other Security Agreement or
otherwise available at law or in equity, or any combination of the foregoing.
Neither the Trustee nor the Beneficiary shall be under any obligation to make
any of the payments or do any of the acts referred to in this Section 4.01 and,
except as otherwise required by law, any of the actions referred to in this
Section 4.01 may be taken irrespective of whether any notice of default or
election to sell has been given hereunder (provided that (i) an Event of Default
shall have occurred and be continuing and (ii) all notices required by law shall
be given in accordance with such law) and without regard to the adequacy of the
security for the Obligations.
SECTION 4.02. RESCISSION OF NOTICE OF DEFAULT. The Beneficiary
at any time before the Trustee's sale, may rescind any notice of default and of
election to cause the Deed of Trust Collateral to be sold by executing and
delivering to the Trustee a written notice of such rescission, which notice
shall also constitute a cancellation of any prior such declaration of default
and demand for sale. The exercise by the Beneficiary of such right of rescission
shall not constitute a waiver of any Event of Default then existing or
subsequently occurring, shall not impair the right of the Beneficiary to execute
and deliver to the Trustee, as provided above, other such declarations of
default and demands for sale and shall not otherwise affect any provision,
agreement, covenant or condition of this Deed of Trust or the rights,
obligations or remedies of the parties hereunder.
SECTION 4.03. APPOINTMENT OF RECEIVER. Upon the occurrence and
continuance of an Event of Default, the Beneficiary, upon notice to the Company
and as a matter of right, and without regard to the then current value of the
Deed of Trust
-21-
<PAGE> 196
Collateral or the interest of the Company in the Deed of Trust Collateral, shall
have the right to apply to any court having jurisdiction to appoint a receiver
or receivers of the Deed of Trust Collateral, and, to the extent permitted by
applicable law, the Company hereby irrevocably consents to such appointment. Any
such receiver or receivers shall have all the usual powers and duties of
receivers in like or similar cases and all the powers and duties of the
Beneficiary in case of entry as provided herein and shall continue as such and
exercise all such powers until the date of confirmation of sale of the Deed of
Trust Collateral unless such receivership is sooner terminated.
Trustor agrees that the Beneficiary shall have the absolute
and unconditional right to the appointment of a receiver in any independent or
separate action brought by the Beneficiary regardless of whether the Beneficiary
seeks any relief in such action other than the appointment of a receiver. In
that respect, Trustor waives any express or implied requirement under common law
or A.R.S. Section 12-1241 that a receiver may be appointed only ancillary to
other judicial or non-judicial relief.
SECTION 4.04. APPLICATION OF PROCEEDS. Except as may otherwise
be required by law, any moneys or property actually received by the Beneficiary
pursuant to the exercise of any rights or remedies referred to in Section 4.01
of this Deed of Trust shall (subject to the determination of the Beneficiary as
to use of such moneys and property in connection with the exercise of such
rights or remedies and as to the manner of such exercise) be applied in the
following order:
first, to the payment of costs and expenses incurred in the
enforcement of rights and remedies under the Loan Documents;
second, to the payment of all of the Obligations (except for
such Obligations that shall have been paid pursuant to first item of
this Section 4.04), ratably according to the then unpaid amounts
thereof, without preference or priority of any kind among such various
Obligations;
third, to the payment of such amounts, if any, as shall be
required to be paid pursuant to Section 9-504(1)(c) of the Arizona
Uniform Commercial Code and any similar provision of any applicable
law; and
fourth, the remainder, if any, to the Company, its successors
or assigns, to such Person as may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct.
SECTION 4.05. ADDITIONAL SECURITY. If the Secured Parties at
any time hold security for any Obligations in addition to the Deed of Trust
Collateral, the Beneficiary may enforce the terms of the Security Documents or
otherwise realize upon the Deed of Trust Collateral, at its option, either
before or concurrently with the exercise of remedies as to such other security
or after a sale is made of such other security, and may apply the proceeds upon
the Obligations without affecting the status of or waiving any right to exhaust
all or any other security, including the Deed of Trust
-22-
<PAGE> 197
Collateral, and without waiving any breach or default or any right or power
whether exercised under the Security Agreements, contained in the Security
Agreements or provided for in respect of any such other security.
SECTION 4.06. REMEDIES CUMULATIVE. No remedy conferred upon or
reserved to the Trustee, the Beneficiary or any Secured Party by this Deed of
Trust is intended to be exclusive of any other remedy provided or permitted by
any Security Agreements or by law, but each shall be cumulative and shall be in
addition to every other remedy so provided or permitted. Every power or remedy
given by this Deed of Trust to the Trustee or the Beneficiary or to which either
of them may be otherwise entitled may be exercised concurrently or
independently, from time to time and as often as may be deemed expedient by the
Trustee or the Beneficiary and either of them may pursue inconsistent remedies.
SECTION 4.07. RIGHTS AND ACKNOWLEDGMENTS WITH RESPECT TO
REMEDIES.
(a) The Beneficiary (or any other person owning, directly or
indirectly, an interest in any of the Obligations) shall have the right to
become the purchaser at any sale made pursuant to the provisions of this Article
IV and shall have the right to credit upon the amount of the bid made therefor
the amount of Obligations owed to it out of the net proceeds of such sale. All
other sales shall be, to the extent permitted by applicable law, on a cash
basis. Recitals contained in any conveyance to any purchaser at any sale made
hereunder will conclusively establish the truth and accuracy of the matters
therein stated, including, without limitation, nonpayment of the Obligations and
advertisement and conduct of such sale in the manner provided herein or provided
by law. The Company does hereby ratify and confirm all acts that the Beneficiary
or the Trustee may legally do in carrying out the provisions of this Deed of
Trust.
(b) Any sale of the Deed of Trust Collateral or any part
thereof pursuant to the provisions of this Article IV will operate to divest all
right, title, interest, claim and demand of the Company in and to the property
sold and will be a perpetual bar against the Company. Nevertheless, if requested
by the Beneficiary so to do, the Company shall join in the execution,
acknowledgement and delivery of all proper conveyances, assignments and
transfers of the property so sold. Any purchaser at a foreclosure sale will
receive immediate possession of the property purchased, and the Company agrees
that if the Company retains possession of the property or any part thereof
subsequent to such sale, the Company will be considered a tenant at sufferance
of the purchaser, and will, if the Company remains in possession after demand to
remove, be guilty of unlawful detainer and will be subject to eviction and
removal, forcible or otherwise, with or without process of law, and all damages
to the Company by reason thereof are hereby expressly waived by the Company.
(c) The Company acknowledges that it is aware of and has had
the advice of counsel of its choice with respect to its rights, under applicable
law, with respect to this Deed of Trust, the Obligations and the Deed of Trust
Collateral.
-23-
<PAGE> 198
Nevertheless, the Company hereby waives and relinquishes to the maximum extent
permitted by law any right under any law relating to, and, subject to any
mandatory requirements of applicable law, the Company hereby agrees that the
Company shall not at any time hereafter have or assert any right under any law
pertaining to: any statute of limitations, marshalling, whether of assets or
liens, the sale of property in the inverse order of alienation, the exemption of
homesteads, the administration of estates of decedents, any rights or remedies
that the Company may have or be able to assent by reason of laws relating to the
rights and remedies of sureties, the appraisement before sale of any of the Deed
of Trust Collateral, stay of execution, extension, redemption, the maturing or
declaring due of the whole or any part of the Obligations, notice of intention
of such maturing or declaring due, other notice (whether of defaults, advances,
the creation, existence, extension or renewal of any of the Obligations or
otherwise), subrogation, or abatement, suspension, deferment, diminution or
reduction of any of the Obligations (including, without limitation, set-off),
now or hereafter in force.
(d) BY EXECUTION OF THIS DEED OF TRUST, THE COMPANY EXPRESSLY:
(i) ACKNOWLEDGES THE RIGHT TO ACCELERATE THE OBLIGATIONS AND THE POWER OF
ATTORNEY GIVEN HEREIN TO THE BENEFICIARY TO SELL OR CAUSE TO BE SOLD THE
PREMISES BY NONJUDICIAL FORECLOSURE UPON DEFAULT BY THE COMPANY WITHOUT ANY
JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS
SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED OF TRUST OR
BY APPLICABLE LAW; (ii) WAIVES ANY AND ALL RIGHTS THAT THE COMPANY MAY HAVE
UNDER THE CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH
AMENDMENTS THEREOF) (A) TO NOTICE AND JUDICIAL HEARING PRIOR TO THE EXERCISE BY
THE BENEFICIARY OR THE TRUSTEE OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO THE
BENEFICIARY OR THE TRUSTEE, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY
REQUIRED TO BE PROVIDED IN THIS DEED OF TRUST OR BY APPLICABLE LAW; AND (B)
CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR
ANY MORATORIUM, REINSTATEMENT, MARSHALLING, FORBEARANCE, APPRAISEMENT,
VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS; (iii)
ACKNOWLEDGES THAT THE COMPANY HAS READ THIS DEED OF TRUST AND ANY AND ALL
QUESTIONS REGARDING THE LEGAL EFFECT OF THIS DEED OF TRUST AND ITS PROVISIONS
HAVE BEEN EXPLAINED FULLY TO THE COMPANY AND THE COMPANY HAS CONSULTED WITH
COUNSEL OF THE COMPANY'S CHOICE PRIOR TO EXECUTING THIS DEED OF TRUST; AND (iv)
ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF THE COMPANY HAVE BEEN
MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY THE COMPANY AS PART OF A
BARGAINED FOR TRANSACTION CONTEMPLATED BY THE CREDIT AGREEMENT AND THAT THIS
DEED OF TRUST IS VALID AND ENFORCEABLE BY THE BENEFICIARY AGAINST THE
-24-
<PAGE> 199
COMPANY IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF.
INITIALLED BY THE COMPANY:
(e) The Beneficiary, at its option, is authorized to foreclose
this Deed of Trust subject to the rights of any tenants of the Premises, and the
failure to make any such tenants parties to any such foreclosure proceedings and
to foreclose their rights will not be, nor be asserted to be by the Company, a
defense at any proceedings instituted by the Beneficiary to collect the
Obligations.
(f) The Beneficiary shall, to the extent permitted by
applicable law, have the option to proceed with foreclosure or the exercise by
the Trustee of the power of sale in satisfaction of any part of the Obligations
without declaring the whole of the Obligations as immediately mature, and such
foreclosure or foreclosure sale may be made subject to the unmatured part of the
Obligations, and it is agreed that such foreclosure or foreclosure sale, if so
made, shall not in any manner affect the unmatured part of the Obligations, but
as to such unmatured part of any Note, this Deed of Trust and all other Loan
Documents shall remain in full force and effect just as though no foreclosure or
foreclosure sale had been made. Several foreclosures or foreclosure sales may be
made without exhausting the right of foreclosure or the power of sale for any
unmatured part of the Obligations, it being the purpose to provide for a
foreclosure and sale of the security for any matured portion of the Obligations
without exhausting the power of foreclosure and the power to sell the Deed of
Trust Collateral for any other part of the Obligations.
SECTION 4.08. ABANDONMENT. The Beneficiary may at any time
abandon all or any part of the Deed of Trust Collateral or terminate this Deed
of Trust as to all or any part of the Deed of Trust Collateral by the delivery
of a written reconveyance to the Trustee; provided that in no event shall any
Beneficiary be deemed to have so abandoned any Deed of Trust Collateral or
terminated this Deed of Trust in the absence of an express written reconveyance.
No such abandonment or termination shall impair the rights, remedies, powers and
privileges of the Beneficiary or any Secured Party under any other Loan
Agreement or, in respect of any remaining Deed of Trust Collateral, under this
Deed of Trust.
-25-
<PAGE> 200
ARTICLE V
BENEFICIARY
SECTION 5.01. BENEFICIARY AS AGENT. As provided in Section 8
of the Credit Agreement, each Secured Party has appointed The Industrial Bank of
Japan, Limited, acting through its Los Angeles Agency, as its Agent for purposes
of this Deed of Trust. In such capacity, The Industrial Bank of Japan, Limited,
shall be entitled to all of the rights and benefits accorded the Agent by
Section 8 of the Credit Agreement. Following the payment in full of all
Obligations and the termination or expiration of the Loan Documents, the
provisions of Section 8 of the Credit Agreement shall be deemed to continue in
full force and effect for the benefit of the Agent under this Deed of Trust. For
the avoidance of doubt, nothing in this Section 5.01 is intended to create any
liability or obligation on the Company.
ARTICLE VI
THE TRUSTEE
SECTION 6.01. ACCEPTANCE OF TRUST. The Trustee accepts the
trust created by this Deed of Trust when this Deed of Trust, duly executed and
acknowledged, is made a public record as provided by law. The trust created
hereby is irrevocable by the Company.
SECTION 6.02. NO NOTICE. The Trustee shall be under no
obligation to notify any party hereto of any action or proceeding of any kind in
which the Company, the Secured Parties, the Beneficiary or the Trustee shall be
a party, unless brought by the Trustee, or of any pending sale under any other
deed of trust.
SECTION 6.03. INSTRUCTIONS FROM THE BENEFICIARY. The Agent, as
the Beneficiary, is acting as a representative of the Secured Parties pursuant
to the provisions of the Credit Agreement. The Trustee shall receive and is
authorized to act upon instructions solely from the Beneficiary and the Trustee
shall be entitled to rely on a written notice or response from the Beneficiary
as being based on the written concurrence or consent of all (or such lesser
required portion of) the Secured Parties unless otherwise expressly stated in
the Beneficiary's notice or response. The Trustee shall deal exclusively with
the Agent, as the Beneficiary with regard to this Deed of Trust and all other
matters in connection herewith. In the event the Trustee relies on or complies
with written instructions from the Beneficiary, the Trustee shall not incur any
liability for such reliance and compliance; provided that nothing contained
herein shall relieve the Trustee from liability for any negligence or the
negligence of its employees or agents in connection with or arising from the
Trustee's performance or nonperformance of its responsibilities and duties under
this Deed of Trust. The Trustee may, upon the written request of the
Beneficiary, subordinate to any easement in or
-26-
<PAGE> 201
release any interest in the Deed of Trust Collateral or consent to any
restrictions on the Deed of Trust Collateral.
SECTION 6.04. APPOINTMENT OF SUCCESSOR TRUSTEE. If directed by
the Requisite Lenders, the Beneficiary may, for any reason from time to time, by
a written instrument executed and acknowledged by the Beneficiary and recorded
in the jurisdiction where the Premises is located, substitute a successor or
successors for the Trustee.
ARTICLE VII
MISCELLANEOUS COVENANTS AND AGREEMENTS
SECTION 7.01. WAIVER. No failure on the part of the
Beneficiary or any Secured Party to exercise and no delay in exercising, and no
course of dealing with respect to, any right, remedy, power or privilege under
this Deed of Trust shall operate as a waiver of such right, remedy, power or
privilege, nor shall any single or partial exercise of any right, remedy, power
or privilege under this Deed of Trust preclude any other or further exercise of
any such right, remedy, power or privilege or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges provided
in this Deed of Trust are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
SECTION 7.02. SUCCESSORS AND ASSIGNS. This Deed of Trust shall
apply to, bind and inure to the benefit of the respective successors and assigns
of each of the Company and the Beneficiary; provided that, except as provided in
subsections 6.6(v), 6.10 and 6.12 of the Credit Agreement, the Company may not
assign its rights or obligations hereunder without the prior written consent of
the Beneficiary. Notwithstanding any other provision contained herein, if any
property interest granted by this Deed of Trust does not vest on the execution
and delivery of this Deed of Trust, it shall vest, if at all, no later than 21
years less one day after the death of the survivors of Queen Elizabeth II of the
House of Windsor, England, and Philip Mountbatten, Prince Philip, Duke of
Edinburgh, and their children and grandchildren, including adopted children and
grandchildren, who are living at the date of the execution of this Deed of
Trust.
SECTION 7.03. PARTIAL RELEASES. No release from the lien or
encumbrance of this Deed of Trust of any part of the Deed of Trust Collateral by
the Beneficiary or the Trustee shall in any way alter, vary or diminish the
force and effect of this Deed of Trust on the balance of the Deed of Trust
Collateral or the priority of the lien of this Deed of Trust on the balance of
the Deed of Trust Collateral.
SECTION 7.04. SEVERABILITY. If any provision hereof or of any
of the other documents constituting, evidencing or creating all or any part of
the Secured Obligations is invalid or unenforceable, the other provisions hereof
or of said documents
-27-
<PAGE> 202
shall remain in full force and effect and the remaining provisions hereof shall
be liberally construed in favor of the Beneficiary (or the Trustee) in order to
carry out the provisions hereof and of such other documents. If any lien,
encumbrance or security interest evidenced or created by this Deed of Trust is
invalid or unenforceable, in whole or in part, as to any part of the
Obligations, or is invalid or unenforceable, in whole or in part, as to any part
of the Deed of Trust Collateral, such portion, if any, of the Obligations as is
not secured by all of the Deed of Trust Collateral hereunder shall be paid prior
to the payment of the portion of the Obligations secured by all of the Deed of
Trust Collateral, and all payments made on the Obligations (including, without
limitation, cash and/or property received in connection with sales of Deed of
Trust Collateral pursuant to Article IV hereof) shall, unless prohibited by
applicable law or unless the Beneficiary, in its sole and absolute discretion,
otherwise elects, be deemed and considered to have been first paid on and
applied to payment in full of the unsecured or partially secured portion of the
Obligations, and the remainder to the secured portion of the Obligations.
SECTION 7.05. SUBROGATION. This Deed of Trust is made with
full substitution and subrogation of the Beneficiary (or the Trustee) in and to
all covenants and warranties by others heretofore given or made in respect of
the Deed of Trust Collateral or any part thereof. To the extent that proceeds of
the Notes are owed to pay any outstanding lien, charge or prior encumbrance
against the Deed of Trust Collateral, such proceeds have been or will be
advanced by the Beneficiary at the Company's request and the Beneficiary shall
be subrogated to any and all rights and liens held by any owner or holder of
such outstanding liens, charges and prior encumbrances, irrespective of whether
said liens, charges or encumbrances are released.
SECTION 7.06. NOTICES. All notices and communications to be
given under this Deed of Trust shall be given or made in writing to the intended
recipient at the address specified below or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Deed of Trust and as required by applicable
law, all such communications shall be served or sent by telefacsimile, United
States mail or courier service and shall be deemed to have been given when
delivered in person or by courier service (for example, without limitation,
Federal Express) or upon receipt of telefacsimile, or five Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed as follows:
-28-
<PAGE> 203
To the Company: America West Airlines, Inc.
4000 East Sky Harbor Boulevard
Phoenix, Arizona 85034
Attention: Vice President and
Treasurer
Telephone: (602) 693-3685
Telecopy: (602) 693-5886
with a copy to: Senior Vice President, Legal Affairs
Telephone: (602) 693-5785
Telecopy: (602) 693-5904
To Beneficiary: The Industrial Bank of Japan, Limited
Los Angeles Agency
350 South Grand Avenue
Suite 1500
Los Angeles, California 90071
Attention: Craig Papayanis
Telephone: (213) 893-6441
Telecopy: (213) 488-9840
with a copy to: Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: James D. Tussing, Esq.
Telephone: (212) 318-3024
Telecopy: (212) 752-5958
-29-
<PAGE> 204
To Trustee: First American Title Insurance Company
6710 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85253
Attention: Gerry Ring Waltz
Telephone: (602) 991-5432
Telecopy: (602) 991-4665
SECTION 7.07. BENEFICIAL INTEREST DISCLOSURES. For the
purposes of complying with the provisions of A.R.S. Section 33-404, the
beneficiaries (within the meaning of that term set forth in A.R.S. Section
33-404.C) for whom title to real property or interests in real property is held
under this Deed of Trust by the Agent are the present and future Secured
Parties. The names and addresses of the initial Secured Parties are listed in
the attached Exhibit B. The names and addresses of subsequent Secured Parties
will be available from the Agent at its office set forth above. The Agent shall
be entitled to record a revised Exhibit B at any time as the identity of the
Secured Parties changes.
SECTION 7.08. ENFORCEABILITY OF DEED OF TRUST. This Deed of
Trust is deemed to be and may be enforced from time to time as an assignment,
chattel mortgage, contract, deed of trust, financing statement, real estate
mortgage, or security agreement, and from time to time as any one or more
thereof, as is appropriate under the law of the State of Arizona. A carbon,
photographic or other reproduction of this Deed of Trust or any financing
statement in connection herewith shall be sufficient as a financing statement
for any and all purposes.
SECTION 7.10. EXPENSES, ETC. The Company agrees to pay or to
reimburse the Beneficiary and the other Secured Parties for all costs and
expenses (including reasonable attorney's fees and expenses) that may be
incurred by the Beneficiary or the other Secured Parties in any effort to
enforce any of the provisions of this Deed of Trust or any of the obligations of
the Company in respect of the Collateral or in connection with (a) the
preservation of the Lien of, or the rights of the Beneficiary and the other
Secured Parties under this Deed of Trust, or (b) any actual or attempted sale,
disposition, exchange, collection, compromise, settlement or other realization
in respect of, or care of, the Collateral, including all such costs and expenses
(and reasonable attorney's fees and expenses) incurred in any bankruptcy,
reorganization, workout or other similar proceeding.
SECTION 7.11. INTEREST. All interest required pursuant to this
Deed of Trust shall be calculated in accordance with the terms of the Credit
Agreement.
SECTION 7.12. RECORDING REFERENCE. Unless otherwise specified
in Exhibit A hereto, all recording references in Exhibit A are to the official
real property records of the city, town, county or parish, as appropriate, in
which the affected land
-30-
<PAGE> 205
is located. The references in Exhibit A to liens, encumbrances and other burdens
shall not be deemed to recognize or create any rights in third parties.
SECTION 7.13. AGREEMENTS SUPERSEDED. This Deed of Trust,
together with the other Loan Documents, comprises the complete, exclusive and
integrated agreement of the parties with respect to the financial accommodation
being provided or to be provided by the Secured Parties under the Credit
Agreement and supersedes all prior agreements, written or oral, on such subject
matter. Each Loan Document was drafted with the joint participation of its
respective parties and shall be construed neither against nor in favor of any
party, but rather in accordance with its fair meaning.
SECTION 7.14. HEADINGS. The captions and section headings
appearing in this Deed of Trust are included solely for convenience of reference
and are not intended to affect the interpretation of any provision of this Deed
of Trust.
SECTION 7.15. AMENDMENTS, ETC. Any provision of this Deed of
Trust may be modified, supplemented or waived only by an instrument in writing
duly executed by the Company and the Beneficiary. Any such modification,
supplement or waiver shall be for such period and subject to such conditions as
shall be specified in the instrument effecting the same and shall be binding
upon the Beneficiary and the Company, and any such waiver shall be effective
only in the specific instance and for the purposes for which given.
SECTION 7.16. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
DEED OF TRUST SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF ARIZONA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF
ARIZONA. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA AND OF ANY ARIZONA
STATE COURT SITTING IN PHOENIX, ARIZONA FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS DEED OF TRUST OR THE TRANSACTIONS
CONTEMPLATED BY THIS DEED OF TRUST. THE COMPANY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
-31-
<PAGE> 206
IN WITNESS WHEREOF, the undersigned have executed this Deed of
Trust as of the date first written above.
AMERICA WEST AIRLINES, INC.,
a Delaware corporation
By: /s/ Jacques C. Lazard
-------------------------------
Name: Jacques C. Lazard
Title: Vice President, Treasurer
Witness:
By: /s/ Linda M. Mitchell
-------------------------------
Name: Linda M. Mitchell
-32-
<PAGE> 207
STATE OF ARIZONA )
:ss.
COUNTY OF MARICOPA )
On the ____ day of December, 1997, personally appeared before me
__________________, who being by me duly sworn did say that (s)he is the
________________________ of America West Airlines, Inc. and said person
acknowledged to me that said corporation executed the Leasehold Deed of Trust.
----------------------------
NOTARY PUBLIC
My Commission Expires:
- -----------------------------
-33-
<PAGE> 208
EXHIBIT "A"
Legal Description
All that real property situate in the County of Maricopa, State of Arizona, more
particularly described as follows:
A parcel of land situated in Section Seven (7), Township One (1) North,
Range Four (4) East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, being a portion of Lot One (1), SKY HARBOR
THREE, according to the plat of record in the office of the County
Recorder of Maricopa County, Arizona, in Book 328 of Maps, page 15,
Maricopa County Records, more fully described as follows:
COMMENCING at a point on the South line of the Southwest quarter of
said Section 7 (form said point the Quarter Corner Common to Sections 7
and 18 bears South 89 degrees 5 minutes 45 seconds East, a distance of
810.00 feet); thence North 00 degrees 54 minutes 15 seconds East, a
distance of 59.48 feet to the POINT OF BEGINNING; thence continuing
North 00 degrees 54 minutes 15 seconds East, a distance of 40.52 feet;
thence South 89 degrees 05 minutes 45 seconds East, a distance of
250.95 feet; thence North 53 degrees 54 minutes 22 seconds East, a
distance of 252.71 feet; thence North 00 degrees 00 minutes 00 seconds
East, a distance of 641.57 feet; thence North 90 degrees 00 minutes 00
seconds West, a distance of 1062.15 feet; thence South 00 degrees 00
minutes 00 seconds West, a distance of 827.00 feet; thence North 90
degrees 00 minutes 00 seconds East, a distance of 606.39 feet to the
POINT OF BEGINNING.
-34-
<PAGE> 209
Exhibit D
Form of Spare Engine Security Agreement
See Tab #5
<PAGE> 210
Execution Copy
SPARE ENGINE AND SIMULATOR SECURITY AGREEMENT
dated as of December 12, 1997
Between
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY, AS AGENT
and
AMERICA WEST AIRLINES, INC.
<PAGE> 211
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Schedule of Subject Collateral.................................................................................. 2
ARTICLE I DEFINITIONS AND INTERPRETATION....................................................... 3
Section 1.01. Definitions and Interpretation. ...................................... 3
ARTICLE II RELEASE OF EQUIPMENT AND POWER OF ATTORNEY........................................... 6
Section 2.01. Release of Equipment. ............................................... 6
Section 2.02. Power of Attorney. .................................................. 7
ARTICLE III PARTICULAR COVENANTS OF THE COMPANY ................................................. 7
Section 3.01. Reserved. ........................................................... 7
Section 3.02. Liens. .............................................................. 7
Section 3.03. Warranty of Title. .................................................. 7
Section 3.04. Recording. .......................................................... 8
Section 3.05. Maintenance and Operation: Possession and Lease...................... 8
Section 3.06. Indemnification. .................................................... 12
Section 3.07. Insurance............................................................. 13
Section 3.08. Insignia. ........................................................... 18
Section 3.09 Replacement and Pooling of Parts...................................... 19
Section 3.10. Alterations, Modifications and Additions. ........................... 20
Section 3.11. Reserved. ........................................................... 21
Section 3.12. Inspection. ......................................................... 21
Section 3.13. Reserved.............................................................. 21
Section 3.14. Simulators............................................................ 21
Section 3.15. First Placed in Service. ............................................ 21
Section 3.16. Section 1110. ....................................................... 21
Section 3.17. Additional Equipment. ................................................ 21
ARTICLE IV REMEDIES ............................................................................ 23
Section 4.01. "Event of Default" ................................................... 23
Section 4.02. Remedies with Respect to Equipment.................................... 23
Section 4.03. Application of Proceeds. ............................................ 25
Section 4.04. Agent May Purchase. ................................................. 26
Section 4.05. Waiver of Appraisement. ............................................. 26
Section 4.06. Waiver of Bonds, etc. ............................................... 26
</TABLE>
-i-
<PAGE> 212
<TABLE>
<S> <C> <C>
ARTICLE V DEFEASANCE........................................................................... 26
Section 5.01. Payment of Indebtedness; Satisfaction. .............................. 26
ARTICLE VI AGENT................................................................................ 27
Section 6.01. Agent. .............................................................. 27
ARTICLE VII MISCELLANEOUS PROVISIONS............................................................. 27
Section 7.01. Notices. ............................................................ 27
Section 7.02. Waiver. ............................................................. 27
Section 7.03. Expenses Etc. ....................................................... 27
Section 7.04. Amendments, Etc. .................................................... 28
Section 7.05. Successors and Assigns. ............................................. 28
Section 7.06. Survival. ........................................................... 28
Section 7.07. Severability. ....................................................... 28
Section 7.08. Captions. ........................................................... 28
Section 7.09. Counterparts. ........................................................ 28
Section 7.10. GOVERNING LAW. ...................................................... 28
SCHEDULE I ..................................................................................................... 31
</TABLE>
-ii-
<PAGE> 213
SPARE ENGINE AND SIMULATOR SECURITY AGREEMENT
THIS SPARE ENGINE AND SIMULATOR SECURITY AGREEMENT dated as of
December 12, 1997 (the "Security Agreement") from AMERICA WEST AIRLINES, INC., a
Delaware corporation (the "Company"), whose mailing address is 4000 E. Sky
Harbor Boulevard, Phoenix, Arizona 85034, to The Industrial Bank of Japan,
Limited, Los Angeles Agency, as Agent under the Revolving Credit Agreement
referred to below (together with its successors and assigns in such capacity,
the "Agent") for the benefit and on behalf of itself as such Agent and the
lenders (the "Lenders", such term to include the Issuing Bank as defined in the
Credit Agreement) from time to time party to that certain Revolving Credit
Agreement dated as of even date herewith (as the same may be amended or waived
from time to time, the "Credit Agreement") among the Company, the Lenders and
the Agent.
W H E R E A S:
A. The Lenders have agreed to extend certain financial
accommodations to the Company on the terms and subject to the conditions set
forth in the Credit Agreement.
B. Pursuant to the terms of the Credit Agreement, the Agent
has been appointed as the agent of the Lenders to hold and enforce on their
behalf the rights granted to the Agent herein with respect to the Subject
Collateral.
C. Pursuant to the Credit Agreement the Company has agreed to
deliver this Security Agreement for the purposes of, among other things,
securing all payment and performance obligations of every nature of the Company
from time to time owed to the Agent, the Lenders or any of them under the Loan
Documents (as defined in the Credit Agreement), whether for principal, interest,
fees, expenses, indemnification or otherwise (collectively, the "Obligations"),
and subjecting the properties and assets hereinafter described to the lien of
this Security Agreement as security for the performance of the Obligations.
NOW, THEREFORE, in consideration of the premises and the
extension of credit by the Lenders contemplated in the Credit Agreement and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby intending to be legally bound and to
secure the performance of the Obligations, the Company does hereby assign,
transfer and set over to the Agent and does hereby grant, convey and mortgage
unto the Agent, and gives to the Agent for the ratable benefit of the Agent and
Lenders a first priority lien and security interest, subject only to Permitted
Liens, in all right, title and interest of the Company in, to and under the
following described property to the fullest extent permitted under applicable
law (hereinafter, together with any additional or replacement property becoming
subject to the Lien of this Security Agreement pursuant to the terms hereof from
and after the time such additional or replacement property becomes subject to
such Lien, called the "Subject Collateral", which term shall not include any
property that has been released from the Lien of this Security Agreement
pursuant to the terms hereof but shall include any additional spare engine and
flight simulator which becomes subject to the Lien of
<PAGE> 214
this Security Agreement pursuant to the terms hereof, unless and until
thereafter released from such Lien pursuant to the terms hereof):
Schedule of Subject Collateral
FIRST CLAUSE.
Engines
The spare engines listed in Schedule I hereto (each
hereinafter referred to, so long as the same shall not have been released from
the Lien of this Security Agreement pursuant to the terms hereof, as an
"Engine", and collectively, the "Engines"), which terms shall also include any
additional Eligible Spare Engine which becomes subject to the Lien of this
Security Agreement pursuant to the terms hereof from and after the time such
spare engine becomes subject to such Lien, unless and until thereafter released
from such Lien pursuant to the terms hereof.
Flight Simulators
The flight simulators listed in Schedule I hereto (each
hereinafter referred to, so long as the same shall not have been released from
the Lien of this Security Agreement pursuant to the terms hereof, as a
"Simulator", and, collectively, the "Simulators", which terms shall also include
any additional flight simulator which becomes subject to the Lien of this
Security Agreement pursuant to the terms hereof from and after the time such
flight simulator becomes subject to such Lien, unless and until thereafter
released from such Lien pursuant to the terms hereof and, together with the
Engines, the "Equipment");
together, in the case of such Simulators and such Engines, with all appliances,
equipment and accessories thereto, by whomsoever manufactured, in which the
Company now has or in the future acquires rights, and installed in or
appurtenant to said Equipment, and any and all manuals, logbooks, flight records
and other historical records or written information of the Company relating to
such Equipment.
SECOND CLAUSE.
All warranties, service contracts and product agreements of
any manufacturer or of any maintenance and overhaul agency of the Equipment, or
any subcontractor or supplier or vendor thereof, to the extent assignable or
enforceable, and any and all rights of the Company to compel performance of the
terms of such warranties, service contracts and product agreements in respect of
any of the Equipment.
-2-
<PAGE> 215
THIRD CLAUSE.
All substitutions, replacements and renewals of all property
covered by or required to be covered by the Lien hereof and all property which
shall hereafter become physically attached or incorporated in all property
covered by or required to be covered by the Lien hereof, in each case to the
extent the Company now has or in the future acquires rights in the same.
FOURTH CLAUSE.
All general intangibles and accounts arising from the sale or
lease by the Company of the Equipment and the use of the Simulators to provide
services to third parties, including all rents, revenues and other income from
the Equipment, and all proceeds of the Equipment and other property assigned
herein, including insurance proceeds.
A Lien upon all property mortgaged hereby and which is
hereafter acquired by the Company or to which it may at any time hereby be, in
any manner, entitled at law or in equity, and required to be covered hereby or
intended to be covered hereby, shall vest in the Agent, under the terms and
conditions of this Security Agreement, forthwith upon acquisition thereof by the
Company (excluding, however, Additional Equipment, which shall only become
subject to the Lien hereof as provided in Section 3.17), and such property shall
be as fully embraced within the provisions of this Security Agreement and
subject to the Lien hereof as if such property were now owned by the Company and
more specifically described herein and mortgaged hereby.
TO HAVE AND TO HOLD, all and singular said property unto the
Agent, its successors and assigns, as security as aforesaid.
All of the Subject Collateral shall secure all of the
Obligations.
IT IS HEREBY COVENANTED AND DECLARED by and between the
parties hereto and their respective successors and assigns that the terms upon
which the Subject Collateral shall be held, used and operated are as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01. Definitions and Interpretation. Unless otherwise
defined herein, all capitalized terms used in this Security Agreement that are
defined in the Credit Agreement (including those terms incorporated by
reference) shall have the respective meanings assigned to them in the Credit
Agreement. The rules of interpretation set forth in Section 1 of the Credit
Agreement shall apply to this Security
-3-
<PAGE> 216
Agreement. In addition, the following terms shall have the meanings assigned as
follows:
"Act" or "Federal Aviation Act" shall mean Subtitle VII of
Title 49 of the United States Code, and the rules and regulations promulgated
thereunder, as in effect on the date of this Security Agreement, and as modified
or amended hereafter, or any subsequent legislation that supplements or
supersedes such Subtitle.
"Additional Equipment shall mean any spare engines or flight
simulators described in any Security Agreement Supplement from and after the
date on which the same became subject to the Lien of this Security Agreement,
unless and until the same shall be released from the Lien of this Security
Agreement pursuant to the terms hereof.
"Agreed Value" shall mean, with respect to each Engine and
Simulator, the Borrowing Base Value of such Engine and Simulator as determined
from time to time pursuant to the Credit Agreement.
"Air carrier", "aircraft", "aircraft engines", "appliances"
and "spare parts" shall have the respective meanings given to these terms in the
Act, as in effect on the date of this instrument.
"Company Order" and "Company Request" shall mean,
respectively, a written order or request signed in the name of the Company by a
Responsible Officer and delivered to the Agent in accordance with the terms
hereof.
"Date of Issuance" shall mean the date when this Security
Agreement is filed at the FAA and other appropriate filings are made to perfect
the Lien of this Security Agreement against the Subject Collateral initially
subject thereto, which date shall be the date of this Security Agreement.
"Event of Loss" with respect to any Simulator or any Engine
shall mean any of the following events with respect to such property: (i) loss
of such property or the use thereof due to theft or disappearance; (ii) loss of
such property or the use thereof due to destruction, damage beyond economic
repair or rendition of such property permanently unfit for normal use; (iii) any
event which results in the receipt of insurance proceeds with respect to such
property on the basis of a total loss, arranged total loss or constructive total
loss; (iv) condemnation, confiscation or seizure of, or requisition or taking of
title of such property by the United States government or any other government;
or (v) as a result of any rule, regulation, order or other action (generally
applicable to flight simulators or engines, as the case may be, of the same type
as the affected Simulator or Engine) by the FAA, the U.S. Department of
Transportation or other governmental body (including any court) having
jurisdiction, the use of such Simulators for training or Engine for the
operation of aircraft is prohibited.
-4-
<PAGE> 217
"Federal Aviation Administration" or "FAA" shall mean the
United States Federal Aviation Administration or any successor thereto
administering the functions of the Federal Aviation Administration under the
Act.
"Lien" shall mean any lien, mortgage, pledge, assignment,
security interest, charge, hypothecation, preference, priority, privilege, lease
or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest); provided that neither negative pledges nor covenants to
abstain from granting liens on or security interests in assets of the Company or
its Subsidiaries shall constitute Liens.
"Officer's Certificate" shall mean a certificate signed by a
Responsible Officer and delivered to the Agent.
"Parts" shall mean all appliances, components, parts,
instruments, appurtenances, accessories, furnishings, and other equipment of
whatever nature which may from time to time be incorporated or installed in or
attached to any Engine or Simulator so long as ownership thereof (subject to
Permitted Liens) shall remain vested in the Company in accordance with the terms
of Section 3.10 hereof and any replacement Part incorporated or installed in or
attached to any Engine or Simulator in accordance with the terms of Section
3.10.
"Permitted Lessee" shall mean any United States "air carrier"
(within the meaning of the Act) that is not subject to a proceeding under Title
7 or 11 of the United States Bankruptcy Code (as now and hereafter in effect or
any successor statute), holds a certificate under Section 41102(a)(1) of the Act
and operates under Federal Aviation Regulation Part 121.
"Permitted Liens" shall mean (i) the Lien of this Security
Agreement, (ii) Liens for taxes, assessments or governmental charges payable by
the Company either not delinquent for a period of more than thirty (30) days or
being contested in good faith by appropriate proceedings so long as during such
thirty (30) day period there is not any material risk of the sale, forfeiture or
loss of any Engine, Simulator or any interest therein or during such proceeding
any material risk of the sale, forfeiture or loss of any Engine or Simulator or
any interest therein is effectively stayed (iii) materialmen's, repairmen's,
landlord's and other like Liens arising in the ordinary course of business, for
amounts the payment of which is not overdue for a period of more than thirty
(30) days or is being contested in good faith by appropriate proceedings so long
as during such thirty (30) day period there is not any material risk of the
sale, forfeiture or loss of any Engine, Simulator or any interest therein or
during such proceeding any material risk of the sale, forfeiture or loss of any
Engine or Simulator or any interest therein is effectively stayed and (iv) in
the case of Engines or Simulators, any arrangement permitted by Section 3.05(b),
(c), or (d).
"Security Agreement" shall mean this instrument as originally
executed as of the date hereof and as it thereafter may from time to time be
supplemented through
-5-
<PAGE> 218
one or more Security Agreement Supplements or amended by one or more instruments
supplementary or amendatory thereto and which are executed by the Company and
the Agent.
"Security Agreement Supplement" shall mean a security
agreement supplement in substantially the form of Exhibit A hereto, subjecting
any additional spare engine or flight simulator to the Lien of this Security
Agreement.
"Sites" means, with respect to any Simulator, originally 3737
East Bonanza Way, Phoenix, Arizona 85034, or any other location within (a)
Maricopa County, Arizona or (b) the United States of America with respect to
which the Company has provided the Agent with at least 30 days' prior written
notice of the relocation thereto of the Simulator and has, prior to such
relocation, (x) in the case of subclause (b) hereof, made such filings or taken
such action, at the Company's expense, as reasonably requested by the Agent in
order to maintain the perfection of the Lien of this Security Agreement in the
relocated Simulator and (y) in all cases taken such action, at the Company's
expense, as reasonably requested by the Agent in order to protect the interest
of the Agent therein, provided, however, that such relocation shall not give
rise to an Event of Default or a Potential Event of Default.
The following capitalized terms are defined in the applicable
Recital or Granting Clause:
Company First Paragraph
Engine First Clause
Flight Simulator First Clause
Credit Agreement First Clause
Subject Collateral Granting Clause
Agent First Paragraph
Obligations Recital "C"
ARTICLE II
RELEASE OF EQUIPMENT AND POWER OF ATTORNEY
Section 2.01. Release of Equipment. Except with the prior
written consent of the Agent and without limitation of the arrangements
permitted by Section 3.05(d), the Company shall not sell or otherwise dispose of
any part of, or any interest in, the Equipment prior to payment and performance
in full of the Obligations and expiration of the Commitments of the Lenders
unless the same shall be released from the Lien hereof in accordance with
Section 2.10(B)(ii)(1) of the Credit Agreement
-6-
<PAGE> 219
(disregarding the reference in clause (iii) thereof to this Agreement). If the
Company complies with such provisions of Section 2.10B(ii)(1) of the Credit
Agreement with respect to any of the Equipment, the Agent shall, at the
Company's written request and expense, execute and deliver to the Company a
release of the Lien of this Security Agreement with respect to such Equipment in
such form as the Company shall reasonably request effective as of the date of
the sale or other disposition of such Equipment.
Section 2.02. Power of Attorney. The Company hereby
irrevocably appoints the Agent as the Company's attorney-in-fact and agent to
the extent permitted by law, effective on or after the acceleration of the
Loans, but prior to the Agent obtaining physical possession of the Subject
Collateral, in the Company's name and without any action on the part of the
Company to do, at the Agent's option, any act the Agent reasonably believes
necessary to protect the interests of the Agent in the Subject Collateral. The
appointment of the Agent's rights and powers in connection therewith, being
coupled with an interest and with full power of substitution and resubstitution
for the Company, are and shall remain irrevocable until all of the Obligations
have been fully paid and performed and the Commitments of the Lenders under the
Credit Agreement have expired or been terminated.
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
The Company covenants, agrees, represents and warrants in
particular as hereinafter in this Article set forth:
Section 3.01. Reserved.
Section 3.02. Liens. The Company will not directly or
indirectly create, incur, assume or suffer to exist, and will promptly, at its
own cost and expense, take such action as may be necessary to discharge, any
Lien on or with respect to any of the Equipment or title thereto or any interest
therein except for Permitted Liens.
Section 3.03. Warranty of Title. At the time of the execution
and delivery of this instrument, the Company owns the Equipment subject to no
Liens other than Permitted Liens. The Company is and shall remain the legal and
beneficial owner of the Equipment, free and clear of all Liens on the Equipment
except Permitted Liens. The Company hereby does and will forever warrant and
defend the title to and possession of the Subject Collateral against the claims
and demands of all persons whomsoever, other than those arising under Permitted
Liens, and will at all times keep the Lien granted herein with respect to the
Subject Collateral, at the Company's expense, a first priority lien and security
interest upon all of the Subject Collateral, subject to Permitted Liens, and
shall obtain any authorization, approval, license or consent of any competent
governmental or judicial authority, including, without
-7-
<PAGE> 220
limitation, filing for recordation with the Federal Aviation Administration
Aircraft Registry this Security Agreement and Security Agreement Supplements in
respect of the Engines from time to time subject to the Lien hereof, which may
be or become necessary in order to obtain the full benefits of this Security
Agreement and all rights and powers granted or to be granted herein.
Section 3.04. Recording. The Company will bear the expense of
and be responsible for recording and re-recording, registering and
re-registering and filing and re-filing this Security Agreement and each and
every Security Agreement Supplement and such other instruments from time to time
as may be reasonably requested by the Agent in all such jurisdictions and
offices as the Agent shall from time to time require in order that (a) the Lien
hereof be and continues to be a first priority Lien on all of the Subject
Collateral to the fullest extent permitted under applicable law, subject to
Permitted Liens, (b) all of the Subject Collateral is and remains security for
the Obligations, and (c) the rights and remedies of the Agent may be
established, confirmed, maintained and protected; and the Company will furnish
to the Agent evidence satisfactory to the Agent of every such recording,
registering and filing which is not filed, recorded or registered by the Agent.
The foregoing includes, without limitation, the execution and delivery by the
Company of all documents, financing statements and continuation statements
deemed reasonably necessary by the Agent to perfect the Agent's rights as
secured party.
Section 3.05. Maintenance and Operation: Possession and Lease.
(a) The Company, at its own cost and expense, shall on the
Date of Issuance cause this Security Agreement to be duly filed for recordation
with the FAA and shall make such other filings to perfect the Lien of this
Security Agreement against the Subject Collateral as shall be reasonably
requested by the Agent.
(b) The Company, at its own cost and expense, shall with
respect to the Engines:
(i) maintain, inspect, service, repair and overhaul
(or cause the same to be accomplished) the Engines in good operating
condition, ordinary wear and tear excepted, and fully serviceable
(except when being overhauled or repaired in accordance with the
Company's FAA approved maintenance program (the "Approved Maintenance
Program")) and in any event (x) without discrimination and in the same
manner and with the same care used by the Company with respect to other
engines of the same type owned or operated by the Company and (y) so as
to keep the Engines in an airworthy condition and suitable for
installation and operation on an airframe in accordance with the
Approved Maintenance Program and in compliance with all applicable
airworthiness directives;
(ii) maintain, or cause to be maintained, all
records, logs and other materials in respect of the Engines required by
the FAA, the Department
-8-
<PAGE> 221
of Transportation or any other government or governmental
authority to be maintained in one location at a Company
facility in Maricopa County, Arizona and in a manner
sufficiently discrete and separate from its other records as
to permit the prompt inspection thereof;
(iii) not knowingly maintain, service, repair,
overhaul, use or operate the Engines in violation of any airworthiness
certificate or registration relating thereto, or in violation of any
material law or any material license, rule, regulation or order of or
by any government or governmental authority having jurisdiction over
the Company or the Engines or for any purpose for which the Engines are
not designed; provided, however, that the Company may in good faith
contest the validity or application of any such law, license, rule,
regulation or order in any manner that does not adversely affect the
Agent or any other Lender; and if any such law, license, rule,
regulation or order is found to be valid and applicable to the Company
and requires alteration of the Engines, the Company will conform
therewith at its own cost and expense and will maintain the Engines in
compliance with such law, license, rule, regulation or order in all
material respects;
(iv) not operate or locate the Engines, or suffer the
Engines to be operated or located (A) in any manner not permitted under
insurance policies maintained under Section 3.07 or (B)) in any area
excluded from coverage by any insurance policy in effect with respect
to the Engines required by the terms of Section 3.07 or (C) in any area
that is a war zone or recognized or threatened area of hostilities,
unless the Company has obtained, prior to the operation or location of
the applicable Engines in such area, indemnification from the United
States government, or other insurance, against the risks and in the
amounts required by, and in compliance with, Section 3.07 covering such
area (and naming the Agent as loss payee in respect of indemnification
or insurance payable in respect of casualties to the applicable
Engines).
(c) The Company, at its own cost and expense, shall, with
respect to Simulators:
(i) maintain, inspect, service, repair and overhaul
(or cause the same to be accomplished) the Simulators (A) in good
operating condition, ordinary wear and tear excepted, (B) in accordance
with all applicable FAA regulations and as is necessary to keep the
Simulators in such operating condition as may be necessary to enable
the Level C qualifications status of the Simulators to be maintained in
good standing at all times under the applicable rules and regulations
of the FAA (including, without limitation, FAA Advisory Circular
120-40B dated July 29, 1991, FAR 121.407 and FAR Part 121, Appendix H,
each as amended or supplemented from time to time or any successor
provision thereto) and (C) in substantially the same manner as Lessee
maintains, services, repairs and overhauls other flight simulators
owned or operated by Lessee and without in any way discriminating
against the Simulators.
-9-
<PAGE> 222
(ii) maintain, or cause to be maintained, all
records, logs and other materials in respect of the Simulators required
by the FAA, the Department of Transportation or any other governmental
agency or authority to be maintained in one location at a Company
facility in Maricopa County, Arizona and in a manner sufficiently
discrete and separate from its other records as to permit the prompt
inspection thereof;
(iii) not knowingly maintain, service, repair,
overhaul, use or operate the Simulators in violation of any certificate
or registration relating thereto, or in violation of any material law
or any material license, rule, regulation or order of or by any
government or governmental authority having jurisdiction over the
Company or the Simulators or for any purpose for which the Simulators
are not designed; provided, however, that the Company may in good faith
contest the validity or application of any such law, license, rule,
regulation or order in any manner that does not adversely affect the
Agent or any other Lender; and if any such law, license, rule,
regulation or order is found to be valid and applicable to the Company
and requires alteration of the Simulators, the Company will conform
therewith at its own cost and expense and will maintain the Simulators
in compliance with such law, license, rule, regulation or order in all
material respects;
(iv) use the Simulators solely for initial pilot
training, upgrade, transition and recurrent training, research and
development, accident investigation and demonstration purposes and keep
the Simulators at all times at the Sites; and
(v) not operate or use the Simulators in any manner
not permitted under insurance policies maintained pursuant to Section
3.07.
(d) The Company will not, without the prior written consent of
the Agent, lease or otherwise in any manner deliver, transfer or relinquish
possession of the Equipment; provided, that, so long as (1) no Event of Default
shall have occurred and be continuing, and (2) the Company shall comply with the
provisions of Section 3.07, the Company may without the prior written consent of
the Agent:
(i) subject the Engines or permit the Engines to be
subjected to normal interchange or pooling agreements or arrangements,
in each case customary in the airline industry, entered into by the
Company in the ordinary course of its business with any United States
air carrier; provided that the terms of such arrangements only permit
the Engines to be operated on aircraft registered in the United States,
that they are in fact only operated on such aircraft and that
throughout the period that the Engines are subjected to such
interchange or pooling agreement or arrangement the terms of this
Security Agreement shall be observed; and provided, further, that no
such agreement or arrangement contemplates or requires the transfer of
title to the Engines, and if the Company's title to the Engines shall
be divested under any such agreement
-10-
<PAGE> 223
or arrangement, such divestiture shall be deemed to be an Event of Loss
with respect to such Engines and the Company shall comply with Section
3.11 in respect of such Engines;
(ii) deliver or permit the delivery of possession of
the Engines to their respective manufacturers or certified maintenance
providers for testing, services, repair, maintenance or overhaul work
or for alterations or modifications in or additions to such Equipment
to the extent required or permitted by the terms of Section 3.10;
(iii) lease time on the Simulators to third parties
in the ordinary course of business of the Company;
(iv) install an Engine on an airframe owned by the
Company which airframe is free and clear of all Liens, except (A) the
rights of third parties under interchange agreements which would be
permitted under clause (i) above, provided that the Company's interest
in such Engine shall not be divested as a result thereof, and (B)
mortgage liens or other security interests, provided that (as regards
this clause (B)) such mortgage or the instrument creating such security
interests effectively provides that such Engine shall not become
subject to the lien of such mortgage or security interest
notwithstanding the installation thereof on such airframes;
(v) install an Engine on an airframe leased to the
Company or purchased by the Company subject to a conditional sale or
other security agreement, provided that such lease, conditional sale or
other security agreement effectively provides that such Engine shall
not become subject to the Lien of such lease, conditional sale or other
security agreement, notwithstanding the installation thereof on such
airframe;
(vi) install any Engine on any airframe as to which
the Company has entered into a wet lease under which the Company has
effective control of such airframe in the ordinary course of the
Company's business which shall not be considered a transfer of
possession hereunder, provided that the Company's obligations under
this Security Agreement shall continue in full force and effect
notwithstanding any such wet lease; and
(vii) lease an Engine to a Permitted Lessee provided
that (A) such lease shall not have a term of more that six (6) months
(or eighteen (18) months if at the time such lease is executed such
Permitted Lessee has a long term unsecured credit rating of at least BB
by Standard & Poor's Ratings Group), (B) the terms of such lease
expressly provide that the lease is subject and subordinate to this
Security Agreement and all rights of the Agent hereunder, including,
but not limited to, the right of the Agent to repossess the Engine
following the occurrence and continuance of an Event of Default, (C)
the maintenance, insurance and other terms of the lease are consistent
with the
-11-
<PAGE> 224
requirements of this Security Agreement, (D) the lease (1) only permits
the Permitted Lessee to use the Engine on a U.S. registered aircraft
and (2) prohibits further leasing by the Permitted Lessee and (E)
concurrently with entering into such lease, the Company provides the
Agent with a copy thereof together with insurance certificates and
evidence complying with Section 3.07(d) (which insurance may be
provided by the Permitted Lessee if it otherwise complies in all
respects with Section 3.07 hereof).
(e) Notwithstanding the provisions of Section 3.05(d): (i) the
rights of any transferee or Permitted Lessee who takes possession of the
Equipment by reason of a transfer or lease permitted by Section 3.05(d) shall be
subject and subordinate to all the terms of this Security Agreement, including,
without limitation, the Agent's right to repossession pursuant to Article IV,
and the Company shall remain primarily liable for the performance of all the
terms of this Security Agreement to the same extent as if such transfer or lease
had not occurred; and (ii) no transfer, lease or other arrangement otherwise
permitted under the provisions of Section 3.05(d) shall permit installation or
operation of any Engine on an aircraft not registered in the United States.
Section 3.06. Indemnification. The Company shall assume
liability for and will indemnify, protect, save, and keep harmless the Agent and
each of the Lenders, and their respective agents, employees, successors and
permitted assigns (collectively, the "Indemnified Parties") from and against any
and all liabilities, losses, damages, taxes, claims, actions, suits, costs,
demands and/or expenses of whatsoever kind, including, without limitation, legal
expenses, imposed on, incurred by, or asserted against the Agent, the Company,
the Subject Collateral (or any part thereof or interest therein), arising out of
the ownership, delivery, possession, use, operation, condition, performance,
quality, suitability, airworthiness, maintenance, modification, registration,
loss, confiscation, seizure, requisition, or lease of the Equipment
(collectively, the "Indemnified Events"). Notwithstanding the foregoing, the
Company shall not indemnify an Indemnified Party in respect of (i) any
Indemnified Events suffered or incurred after the release of the Lien of this
Security Agreement pursuant to the terms hereof, (ii) Indemnified Events that
consist of fees, costs or expenses which such Indemnified Party has expressly
agreed to pay in any provision of this Security Agreement or constitute ordinary
and usual operating or overhead expenses of an Indemnified Party (excluding,
without limitation, costs and expenses of any outside counsel, consultant or
agent), (iii) Indemnified Events arising from the gross negligence or willful
misconduct of such Indemnified Party, (iv) any tax arising as a result of a
voluntary transfer of any Indemnified Party's interest pursuant to Section 9.1
of the Credit Agreement provided that no Event of Default exists at the time of
such transfer, (v) taxes, withholdings, imposts or duties imposed on, based on
or measured by the gross or net income, receipts, maximum tax, profits, gains,
capital, franchise, excess profits or net worth of an Indemnified Party other
than, in each case, resulting from the activities or presence of the Company in
the taxing jurisdiction or the use, location or registration of the Equipment
(or any part thereof) in such taxing jurisdiction, (vi) taxes on items of tax
preference or any minimum tax imposed by the federal
-12-
<PAGE> 225
government of the United States, (vii) interest, penalties, fines or additions
to taxes that would not have been imposed but for any failure to file any tax
return or information return in a timely and proper manner after timely notice
by the Company of such filing requirement and provision by the Company (at the
Company's expense) of all properly completed forms necessary in connection
therewith and (viii) any tax imposed as a result of a connection between an
Indemnified Party and the jurisdiction imposing such taxes, including, without
limitation, engaging or having engaged in business in, having or having had an
office, branch or permanent establishment in, or being or having been a citizen
or resident of, or present in, or incorporated or created in or under the laws
of such jurisdiction other than as a result of a connection arising from this
transaction. Each Indemnified Party shall file its tax returns and deal with
taxing authorities in good faith, and will honor all reasonable requests from
the Company to file, or provide the Company with, such information (but
excluding any information such Indemnified Party considers confidential) as is
necessary to complete forms or other documentation (in each case, prepared by
the Company at its sole expense) as shall enable such Indemnified Party or the
Company to claim a reduced rate of tax or exemption from tax with respect to any
taxes subject to payment or indemnification by the Company hereunder to which it
may be entitled. If the Company is or may be required to make any payment under
this Section 3.06, any relevant Indemnified Party shall, at the reasonable
request of the Company, consult with the Company in good faith to consider what
action may be taken to resist payment of the amount claimed. Each indemnity
pursuant to this Section 3.06 shall be in the amount which, after taking into
account all taxes required to be paid by the Agent as a result of the receipt or
accrual of such amount, shall be equal to the amount of the indemnity then due.
The Company's obligations under this Section 3.06 shall survive the expiration
or termination of this Security Agreement and the release of the Lien hereof
from any or all of the Subject Collateral.
Section 3.07. Insurance.
(a) Public Liability and Property Damage Liability
Insurance.
(i) The Company, at its own cost and expense, will
maintain or cause to be maintained with respect to the Equipment,
comprehensive aircraft liability insurance including, without
limitation, passenger legal liability and property damage liability
insurance and cargo legal liability in such amounts, against such risks
(including, without limitation, contractual liability and war risk
liability), with such retentions as the Company customarily maintains
with respect to similar engines and flight simulators owned or operated
by the Company (provided, however, that any self-insured retention
and/or deductible shall not exceed $1,000,000 per occurrence) and with
such insurers (which shall be insurers of recognized responsibility),
and such insurance against such other risks as is usually carried by
similar corporations engaged in the same or similar business and
similarly situated as the Company and owning or operating equipment
similar to the Equipment and the aircraft on which the Engines are
installed or the operation of which is supported by use of the
Simulators;
-13-
<PAGE> 226
provided that such insurance shall not be in amounts less than (X) with
respect to Engines, $500,000,000 per occurrence and (Y) with respect to
Simulators, $100,000,000 per occurrence, provided further that in no
event shall the limits of liability for all public liability insurance
be less than the amount, per occurrence as set forth on the insurance
certificate delivered on the Date of Issuance.
(ii) Notwithstanding Section 3.07(a)(i), in the event
of the requisition for use by the United States government of any
Equipment, the Company shall maintain throughout the period of such
requisition such insurance as would otherwise be required under this
Section 3.07, provided that the Agent shall accept, in lieu of such
insurance coverage, indemnification or insurance from the United States
government which is substantially the same as otherwise required under
this Section 3.07.
(iii) Any policy of insurance carried and maintained
in accordance with this Section 3.07(a), and any policy taken out in
substitution or replacement for any such policy subject to the terms,
conditions and limitations thereof, shall:
(A) name the initial Lenders and Agent and
their respective successors and assigns as additional insureds
(each an "Additional Insured");
(B) provide that, in respect of the interest of
any such Additional Insured in such policies, the insurance
shall not be invalidated by any action or inaction of the
Company or any additional insured as defined under the policy
of insurance required under this Section 3.07(a) (other than
such Additional Insured) and shall insure each such Additional
Insured regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by the
Company or any other additional insured as defined under the
policy of insurance required under this Section 3.07(a) (other
than such Additional Insured);
(C) provide that if such insurance is canceled
for any reason, or any substantial change is made in the
policies which adversely affect the coverage required herein,
or if such insurance is allowed to lapse for nonpayment of
premium, such cancellation, change or lapse shall not be
effective as to any Additional Insured for 30 days (except in
the case of war risk coverage in which event the applicable
period shall be seven days or such other period as may be
customary) after receipt by each such Additional Insured of
written notice from such insurers of such cancellation, change
or lapse;
(D) provide that no such Additional Insured
shall have any obligation or liability for premiums or other
payments, if any, in connection with such insurance;
-14-
<PAGE> 227
(E) provide that the insurers shall waive any
rights of subrogation against each such Additional Insured
except to the extent that any insured event arises solely from
the gross negligence or willful misconduct of such Additional
Insured as determined by a final judgment of a court of
competent jurisdiction;
(F) provide that such insurer shall waive the
right of such insurer to any set-off or counterclaim or any
other deduction, whether by attachment or otherwise, in
respect of any liability of any such Additional Insured;
(G) provide that all of the provisions of such
policy shall operate in the same manner as if there were a
separate policy covering each such Additional Insured;
provided that such policies shall not operate to increase any
insurer's limit of liability; and
(H) be primary, without right of contribution
from any other insurance which is carried by any Additional
Insured with respect to its interest in the Equipment; and
(I) be written by financially responsible
companies selected by the Company and reasonably acceptable to
the Agent. The Company will advise the Agent promptly of any
policy cancellation, reduction or amendment.
(b) Insurance Against Loss or Damage to Equipment. The
Company, at its own cost and expense, shall maintain or cause to be maintained
in effect, with insurers of recognized responsibility, all-risk coverage with
respect to any Equipment, including, in the case of Engines only, war-risk and
allied perils, hijacking (air piracy) and governmental confiscation and
expropriation insurance (except in the country of registry) and in such form and
amounts and with such retentions as the Company customarily maintains with
respect to similar equipment owned or operated by the Company, provided,
however, that (1) such retentions shall consist only of industry standard
deductibles (determined, in the case of Engines, by the deductible applicable to
the aircraft type on which the Engine is operated) and with no self insurance
and (2) each Engine and Simulator shall be insured in an amount not less than
its Agreed Value.
Any policies carried and maintained in accordance with this
Section 3.07(b) and any policies taken out in substitution or replacement for
any such policies subject to the terms, conditions and limitations thereof
shall:
(i) name or be amended to name the then Lenders and
the Agent and their respective successors and assigns as additional
insureds and to name the Agent as loss payee (the "Loss Payee");
-15-
<PAGE> 228
(ii) provide with respect to coverage provided under
this Section 3.07(b), that (A) in the event of a loss or damage
involving proceeds in excess of $1,000,000, the proceeds in respect of
such loss or damage shall be payable to the Agent and (B) the entire
amount of any loss or damage involving proceeds in the aggregate of
$1,000,000 or less shall be paid to the Company or its order unless an
Event of Default or Potential Event of Default then exists and the
insurers have been notified thereof by the Agent (in which case such
payment shall be made to the Agent);
(iii) provide that if such insurance is canceled for
any reason or any substantial change is made in the policies which
adversely affects the coverage required herein, or if such insurance is
allowed to lapse for nonpayment of premium, such cancellation, change
or lapse shall not be effective as to any such Additional Insured or
the Loss Payee for 30 days (except in the case of war-risk coverage in
which event the applicable period shall be seven days or such other
period as may be customary) after receipt by each such Additional
Insured or the Loss Payee of written notice from such insurer of such
cancellation, change or lapse;
(iv) provide that, in respect of the interest of any
such Additional Insured or the Loss Payee in such policies the
insurance shall not be invalidated by any action or inaction of the
Company, the Loss Payee or any additional insured as defined under the
policy of insurance required by this Section 3.07(b) (other than any
action or inaction of the Loss Payee or such Additional Insured, as the
case may be) and shall insure the Additional Insured and the Loss Payee
regardless of any breach or violation of any warranty, declaration or
condition in such policies by the Company or any other Additional
Insured as defined under the policy of insurance required under this
Section 3.07(b);
(v) provide that the insurers shall waive any rights
of subrogation against the Loss Payee and such Additional Insureds
except to the extent that any insured event arises solely from the
gross negligence or willful misconduct of such Additional Insured as
determined by a final judgment of a court of competent jurisdiction;
(vi) provide that such insurer shall waive any right
of such insurer to any set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of any
such Additional Insured or Loss Payee;
(vii) be primary and without rights of contribution
from any other insurance which is carried by any such Additional
Insured or the Loss Payee with respect to its interest in the
Equipment;
-16-
<PAGE> 229
(viii) provide that no such Additional Insured or
Loss Payee shall have any obligation or liability for premiums or other
payments, if any, in connection with such insurance; and
(ix) be written by financially responsible companies
selected by the Company and reasonably acceptable to the Agent. The
Company will advise the Agent promptly of any policy cancellation,
reduction or amendment.
(c) Application of Insurance Proceeds.
(i) Except as expressly provided in Section
3.07(c)(ii) or (iii) below, all insurance proceeds (other than proceeds
from policies carried by the Agent or the Lenders) received under
policies described in Section 3.07(b) will be paid to the Agent except
as otherwise provided in Section 3.07(b)(ii) and paid by the Agent to
the Company unless an Event of Default or Potential Event of Default
exists, in which event such proceeds shall be retained by the Agent. If
the Agent retains any such insurance proceeds pursuant to this Section
3.07(c), such proceeds shall, until applied by the Agent as provided in
this Section 3.07(c)(i), Section 3.07(c)(ii) or Section 3.07(c)(iii)
hereof, be maintained by the Agent in a segregated account and shall,
at the Company's request therefor, be invested in Permitted Cash
Equivalents.
(ii) Insurance proceeds in respect of any Repairable
Damage with respect to Equipment which is not required by subsection
2.4B(iii)(1) of the Credit Agreement to be excluded from the Borrowing
Base shall be retained by the Agent pending repair thereof, and shall
be applied by the Agent in payment (or to reimburse the Company) for
repairs to the affected Equipment upon receipt from the Company of an
Officer's Certificate annexing copies of invoices relating to such
repairs, provided, however, that the Agent shall not so apply any such
proceeds during the occurrence and continuance of any Potential Event
of Default or Event of Default. Any such insurance proceeds in excess
of the total amount required to pay for repair of the affected
Equipment shall, upon certification by the Company to the Agent in an
Officer's Certificate that such repair has been completed, be paid by
the Agent to the Company provided, however, that the Agent shall not so
pay any such insurance proceeds during the occurrence and continuance
of any Potential Event of Default or Event of Default.
(iii) If an Event of Default shall have occurred and
be continuing, the Agent shall apply all insurance proceeds (including
proceeds of any earnings on any Permitted Cash Equivalents in which
such insurance proceeds have been invested) then on deposit with it
pursuant to Section 3.07(c)(i) or Section 3.07(c)(ii) hereof (all such
insurance and other proceeds and earnings being herein collectively
called "Section 3.07(c) Proceeds") to payment of the Obligations then
due. At such time as no Potential Event of Default or Event of Default
shall be continuing, any Section 3.07(c) Proceeds remaining on deposit
-17-
<PAGE> 230
with the Agent shall be (x) applied as provided in Section 3.07(c)(ii),
if then applicable, or (y) if Section 3.07(c)(ii) is not then
applicable, shall be paid by the Agent to the Company.
(iv) If any of the Lenders or the Agent becomes
subject to any claim covered by any insurance policy maintained
pursuant to this Section 3.07, the Company shall make available any
information required by such Lender or the Agent in connection with
such claim.
(d) Reports. On or before the Date of Issuance and thereafter
annually on or before the scheduled expiration date for such policy, the
Company's aviation insurance broker will furnish to the Agent a report, signed
by the Company's independent aviation insurance broker, stating the types of
coverage and limits carried and maintained on the Equipment and certifying that
such insurance complies with the terms and conditions of this Section 3.07. The
Company will cause its aviation insurance broker to advise the Agent in writing
promptly of any default in the payment of any premium and of any other act or
omission on the part of the Company in any such case of which it has knowledge
and which might cause cancellation of all or any part of any insurance carried
by the Company with respect to the Equipment. The Company will cause such
insurance broker to agree to advise the Agent in writing if and when it becomes
evident to such broker that any insurance policy carried and maintained on the
Equipment pursuant to this Section 3.07 will not be renewed at the expiration
date. The Company will also cause such insurance broker to deliver to the Agent,
on or prior to the date of expiration of any insurance policy referenced in a
previously delivered certificate of insurance, a new certificate of insurance,
confirming to such parties that such insurance as certified on the Date of
Issuance continues in full force and effect. If the Company shall fail to
maintain insurance as required hereby, the Agent may, at its option, provide
such insurance, and in such event, the Company shall, upon demand, reimburse the
Agent for the cost of such insurance; provided, however, that no exercise of
said option shall affect the provisions of this Security Agreement, including
the provisions that failure by the Company to maintain the prescribed insurance
shall constitute an Event of Default, or otherwise constitute a waiver of any
other rights the Agent may have against the Company.
(e) Notice of Proceeds. The Company shall promptly notify the
Agent upon a Responsible Officer of the Company obtaining actual knowledge of
the occurrence of an event of loss or damage to any Equipment which is
reasonably expected to result in the receipt of insurance proceeds reasonably
estimated by the Company to exceed $1,000,000.
Section 3.08. Insignia. The Company will plainly, distinctly
and conspicuously place (or cause to be placed) and leave on each Simulator and
Engine, a plate, insignia or other identification bearing the following words in
letters of a size, reasonable under the circumstances, as follows:
-18-
<PAGE> 231
SUBJECT TO A SECURITY INTEREST IN FAVOR OF
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY, AS AGENT,
SECURED CREDITOR
Section 3.09 Replacement and Pooling of Parts.
(a) Replacement of Parts. The Company, at its own cost and
expense, will replace or cause to be replaced as promptly as practicable all
Parts which may from time to time be incorporated or installed in or attached to
the Equipment and which may from time to time become worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use for any reason, except as otherwise provided in Section 3.10. In
addition, the Company may, at its own cost and expense, remove or cause to be
removed in the ordinary course of maintenance, service, repair, overhaul or
testing, any Parts, whether or not worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use,
provided that the Company, except as otherwise provided in Section 3.10, will,
at its own cost and expense, replace such Parts as promptly as practicable. All
replacement Parts when incorporated or installed in or attached to the Equipment
shall be free and clear of Liens (except for pooling arrangements to the extent
permitted by Section 3.09(b) and Permitted Liens) and shall be in as good
operating condition as the Parts replaced, assuming such replaced Parts were in
the condition and repair required to be maintained by the provisions of this
Security Agreement. Immediately upon any replacement Part becoming incorporated
or installed in or attached to the Equipment, and without further act (subject
only to a pooling arrangement to the extent permitted by Section 3.09(b)) such
replacement Part shall become subject to the Lien of this Security Agreement and
shall be deemed part of the Equipment, for all purposes to the same extent as
the Parts originally incorporated or installed in or attached to the Equipment.
(b) Pooling of Parts. Any Part removed from an Engine as
permitted in Section 3.09(a) may be subjected by the Company to any normal
pooling arrangement customary in the airline industry and entered into with
other United States air carriers in the ordinary course of the Company's
business, provided that the Part replacing such removed Part shall be
incorporated or installed in or attached to such Engine, as promptly as
practicable after the removal of such removed Part. In addition, any replacement
Part when incorporated or installed in or attached to an Engine in accordance
with Section 3.09(a) may be owned by another air carrier subject to such normal
pooling arrangement, provided that the Company, at its own cost and expense and
as promptly as possible, either:
(A) causes title to such replacement Part to vest in
the Company free and clear of all Liens other than Permitted Liens and
become subject to the Lien of this Security Agreement; or
-19-
<PAGE> 232
(B) replaces such replacement Part by incorporating
or installing in or attaching to the Engine a further replacement Part
owned by the Company free and clear of all Liens other than Permitted
Liens and otherwise in compliance with Section 3.09(a) and causes such
replacement Part to become subject to the Lien of this Security
Agreement.
Section 3.10. Alterations, Modifications and Additions. The
Company, at its own cost and expense, shall make or cause to be made such
alterations and modifications in and additions to the Equipment as may be
required from time to time to meet the applicable requirements of the FAA or any
other governmental authority with jurisdiction over the Equipment and/or the
Company's operations and aircraft; provided, however, that the Company may in
good faith contest the validity or application of any such requirements in any
reasonable manner that does not adversely affect the priority or perfection of
the Lien of this Security Agreement or the interests of the Agent in the
Equipment or involve any material risk of liability or civil or criminal
penalties imposed on or against the Agent and any material risk of the sale,
forfeiture or loss of any of the Equipment or any interest therein unless such
sale, forfeiture or loss is effectively stayed. All alterations, modifications
and additions made pursuant to this Section 3.10 shall without further act
secure the Obligations. In addition, the Company, at its own cost and expense,
may from time to time make such alterations and modifications in and additions
to the Equipment as the Company may deem desirable in the proper conduct of its
business, including, without limitation, removal of obsolete Parts, provided
that no such alteration, modification, addition or removal shall impair the
condition and (in the case of Engines) airworthiness of such Equipment below its
condition and airworthiness immediately prior to such alteration, modification,
addition or removal, assuming that the Equipment was then in the condition and
airworthiness required to be maintained by the terms of this Security Agreement.
Each Part incorporated or installed in or attached or added to
the Equipment as the result of any alteration, modification, removal or addition
made pursuant to this Section 3.10 shall without further act become subject to
the Lien of this Security Agreement. Notwithstanding the foregoing, in addition
to the rights of the Company to make alterations, modifications and additions to
the Equipment pursuant to the preceding paragraph, the Company may remove any
such Part if: (i) such Part is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in or attached
or added to the Equipment on the Date of Issuance or any Part in replacement of,
or substitution for, any such Part; (ii) such Part is not required to be
incorporated or installed in or attached or added to the Equipment pursuant to
the terms of Section 3.05 or the first sentence of this Section 3.10; and (iii)
such Part can be removed from the Equipment without impairing the condition or
airworthiness (in the case of Engines only) required to be maintained by the
terms of this Security Agreement assuming the Equipment was then in the
condition required to be maintained by the terms of this Security Agreement.
Upon the removal by the Company of any such Part as provided in the preceding
sentence or any obsolete Part
-20-
<PAGE> 233
as provided in the immediately preceding paragraph such Part shall no longer be
subject to the Lien of this Security Agreement or deemed a Part.
Section 3.11. Reserved.
Section 3.12. Inspection. At reasonable times and upon
reasonable notice, the Agent or its authorized representative may, at their own
expense (unless an Event of Default then exists or a Potential Event of Default
arising under the maintenance requirements of this Security Agreement, in which
case the reasonable expenses of such inspection shall be paid by the Company or
unless subsection 2.10 of the Credit Agreement provides that such inspection
shall be at the expense of the Company), inspect the Equipment and inspect and
make copies of the books and records of the Company required to be maintained by
the FAA or the maintenance program of the Company relating to the maintenance of
the Equipment. The Agent shall have no duty to make any such inspection nor
shall it incur any liability or obligation by reason of not making any such
inspection.
Section 3.13. Reserved.
Section 3.14. Simulators. On the date hereof, the Simulators
are located at a Site which the Company sub-leases on a month-to-month basis;
the Company intends to remove the Simulators to a new Site (subject to
satisfaction of the terms and conditions of the definition of "Site" in Section
1.01 of this Security Agreement) during the term of this Security Agreement. The
Simulators are movable equipment capable of being so moved from one Site to
another.
Section 3.15. First Placed in Service. Schedule I hereto
specifically identifies, to the extent known to the Company with respect to
Engines not first placed in service by the Company, each Engine first placed in
service after October 22, 1994 ("Section 1110 Engines"). Each Security Agreement
Supplement adding an Engine to be subject to the Lien of this Security Agreement
shall also identify, to the extent known to the Company whether such Engine was
first placed in service after October 22, 1994.
Section 3.16. Section 1110. TO THE EXTENT PROVIDED THEREBY (OR
TO THE FULLEST EXTENT IT MAY LAWFULLY SO AGREE, WHETHER OR NOT PROVIDED
THEREBY), THE COMPANY HEREBY AGREES THAT ANY RIGHT OF AGENT TO TAKE POSSESSION
OF THE SECTION 1110 ENGINES IN COMPLIANCE WITH THE PROVISIONS OF THIS SECURITY
AGREEMENT AND IN ACCORDANCE WITH SECTION 1110 OF TITLE 11 OF THE UNITED STATES
CODE OR ANY SIMILAR PROVISION OF ANY SUPERSEDING STATUTE, AS AMENDED FROM TIME
TO TIME, SHALL NOT BE AFFECTED BY THE PROVISIONS OF SECTIONS 362, 363 OR 1129 OF
SAID TITLE, OR OTHER ANALOGOUS PART OF ANY SUPERSEDING STATUTE, AS AMENDED FROM
TIME TO TIME, AND ACCORDINGLY, IT IS THE INTENTION OF THE PARTIES
-21-
<PAGE> 234
HERETO THAT WITH RESPECT TO THE SECTION 1110 ENGINES, THIS AGREEMENT BE AFFORDED
THE BENEFITS OF SAID SECTION 1110.
Section 3.17. Additional Equipment. From time to time, the
Company may add additional engines or flight simulators to the Lien of the
Security Agreement provided that such additional engine or flight simulator is
of the type and model stated in Schedule 2.10 to the Credit Agreement and each
of the conditions specified below are met to the reasonable satisfaction of the
Agent.
Prior to or at the time of any addition of Additional
Equipment pursuant to this Section 3.17, the Company, at its own cost and
expense will:
(i) furnish the Agent with such evidence of
compliance with the insurance provisions of Section 3.07 with respect
to such Additional Equipment as the Agent may reasonably request;
(ii) furnish the Agent with an Approved Appraisal
from an Approved Appraiser selected by Agent appraising the Fair Market
Value of the Additional Equipment;
(iii) cause a Security Agreement Supplement with
respect to such Additional Equipment to be duly executed by the Company
and the Agent and recorded pursuant to the Act and/or, if such
Additional Equipment is a Simulator, cause such other filings as may be
necessary in order that the Lien of this Security Agreement shall
constitute a first and prior and perfected Lien and security interest
on and in respect of such Additional Equipment (except to the extent,
if any, that any Permitted Lien is superior thereto as a matter of
applicable law) and, if such Additional Equipment is an Engine, the
Security Agreement Supplement shall contain the information required by
Section 3.15 hereof;
(iv) furnish the Agent with a copy of the bill of
sale or other evidence of ownership reasonably satisfactory to the
Agent respecting such Replacement Equipment, together with an
assignment, to the extent assignable, of any and all manufacturer's
warranties applicable thereto and, if required pursuant to any purchase
agreement or other agreement governing such warranties, the Company
will use its best efforts to obtain a consent reasonably satisfactory
to the Agent from such manufacturer to such assignment;
(v) if such Additional Equipment is an Engine,
furnish the Agent with an opinion of FAA counsel reasonably
satisfactory to the Agent as provided in subsection 3.2B(iii) of the
Credit Agreement;
(vi) cause a financing statement or statements with
respect to such Additional Equipment to be filed in such place or
places as necessary in order that the Lien of this Security Agreement
shall constitute a first and prior
-22-
<PAGE> 235
perfected Lien and security interest on such Additional Equipment
(subject to Permitted Liens);
(vii) if such Additional Equipment is a Section 1110
Engine, furnish the Agent with an opinion of counsel reasonably
satisfactory to the Agent in form and substance satisfactory to the
Agent that the Agent will have the benefit of Section 1110 under this
Security Agreement with respect to such Engine; and
(viii) take such other action, as the Agent may
reasonably request in order that such Additional Equipment be duly and
properly subjected to the Lien of this Security Agreement.
Promptly upon the recordation of the Security
Agreement Supplement covering such Additional Equipment pursuant to the
Act and/or, if such Additional Equipment is a Simulator, such other
filings as may be necessary to perfect the Lien of this Security
Agreement in such Additional Equipment, the Company will cause to be
delivered to the Agent an opinion of counsel to the Company addressed
to the Agent as to the due recordation of such Security Agreement
Supplement or such other requisite documents or instruments and the
validity and perfection of the Lien in such Additional Equipment
granted to the Agent under this Security Agreement. Upon the taking of
all actions and filings required by this Section 3.17 with respect to
such Additional Equipment, such Additional Equipment shall become an
Engine or Simulator (as the case may be) for all purposes of this
Security Agreement.
ARTICLE IV
REMEDIES
Section 4.01. "Event of Default" shall have the same meaning
hereunder as ascribed to it in the Credit Agreement.
Section 4.02. Remedies with Respect to Equipment. On and after
acceleration of the Loans, the Agent may, and upon the written instructions of
the Requisite Lenders, the Agent shall, to the extent permitted by law, do one
or more of the following:
(a) cause the Company, upon the written demand of the Agent,
at the Company's expense, to deliver promptly, and the Company shall
deliver promptly, all or such part of the Equipment (together with all
records, logs, manuals, data, and inspection, modification and overhaul
records and other documents maintained with respect thereto or
pertaining thereto) as the Agent may so demand to the Agent or its
order, or the Agent, at its option, may enter upon the premises where
all or any part of the Equipment (or any such records, logs, manuals,
data, or inspection, modification or overhaul records or other
-23-
<PAGE> 236
documents) is located and take immediate possession (to the exclusion
of the Company and all Persons claiming under or through the Company)
of and remove any and all Equipment, all without liability accruing to
the Agent for or by reason of such entry or taking of possession or
removal, whether for the restoration of damage to property caused by
such taking or otherwise;
(b) sell all or any part of the Equipment at public or private
sale, whether or not the Agent shall at the time have possession
thereof, as the Agent may determine, or otherwise dispose of, hold,
use, operate, lease to others or keep idle all or any part of the
Equipment as the Agent, in its sole discretion, may determine, all free
and clear of any rights or claims of whatsoever kind of the Company; or
(c) apply to any court having jurisdiction to appoint a
receiver or receivers for the Equipment, such receivers to have all the
powers and rights of the Agent as provided herein and by applicable law
and all the normal power and rights of receivers in like circumstances
(including the right to sell, lease, dispose of, repair, improve or
modify any of the Equipment) until the sale of all the Equipment or
sooner termination of any such receivership;
(d) exercise any or all of the rights and powers and pursue
any and all remedies of a secured party under the Uniform Commercial
Code of the State of New York (whether or not in effect in the
jurisdiction where the Equipment is located) and under any other
applicable law.
Upon every taking of possession of any part of the Equipment
under this Section 4.02, to the extent permitted by applicable law, the Agent
may, from time to time, at the expense of the Company or the Equipment, make all
such expenditures for maintenance, insurance, repairs, replacements,
alterations, additions and improvements to and of any of the Equipment, as it
may deem proper. In each such case, the Agent shall have the right to maintain,
use, operate, store, lease, control or manage all or any part of the Equipment
and to exercise all rights and powers of the Company in relation to any part of
the Equipment in connection therewith, as the Agent shall deem best, including
the right to enter into any and all such agreements with respect to the
maintenance, insurance, use, operation, storage, leasing, control, management or
disposition of any and all of the Equipment as the Agent may determine; and the
Agent shall be entitled to collect and receive directly all tolls, rents,
revenues, income, and profits of all or any part of the Equipment, without
prejudice, however, to the right of the Agent under any provision of this
Security Agreement to collect and receive all cash held by, or required to be
deposited with, the Security Agreement hereunder. Such tolls, rents, revenues,
income, and profits may be applied to pay the expenses of use, operation,
storage, leasing, control, management or disposition of all or any part of the
Equipment, and of all maintenance, repairs, replacements, alterations, additions
and improvements, and to make all payments which the Agent may be required or
may elect to make, if any, for taxes, assessments, insurance or other proper
charges upon any or all of the Equipment (including the employment of engineers
and accountants to
-24-
<PAGE> 237
examine, inspect and make reports upon the properties and books and records of
the Company), and all other payments which the Agent may be required or
authorized to make under any provision of this Security Agreement, as well as
just and reasonable compensation for the services of the Secured Party, and of
all Persons properly engaged and employed by the Agent.
In addition, the Company shall be liable for all reasonable
legal fees and other costs and expenses incurred by reason of the occurrence of
any Event of Default or the exercise of the Agent's remedies with respect
thereto, including all costs and expenses incurred in connection with the
retaking or return of the Equipment (or any records, logs, manuals, data, or
inspection, modification or overhaul records or other documents maintained with
respect thereto or pertaining thereto) in accordance with the terms hereof and
under the Uniform Commercial Code of the State of New York, which amounts shall,
until paid, be secured by the Lien of this Security Agreement.
If an Event of Default shall have occurred and be continuing,
at the request of the Agent, the Company shall promptly execute and deliver to
the Agent such instruments of title and other documents as the Agent may deem
necessary or advisable to enable the Agent or an agent or representative
designated by the Agent, at such time or times and place or places as the Agent
may specify, to obtain possession of any or all of the Equipment. If the Company
shall for any reason fail to execute and deliver such instruments and documents
after such request by the Agent, the Agent may obtain a judgment conferring on
the Agent the right to immediate possession and requiring the Company to execute
and deliver such instruments and documents to the Agent, to the entry of which
judgment the Company hereby specifically consents to the fullest extent it may
lawfully do so.
Nothing in the foregoing shall affect the right of any of the
Lenders to receive all payments of principal of, and interest on, the
Obligations and all other amounts owing to such Lender as and when the same may
be due.
The Agent shall give the Company at least 10 days' prior
notice of any public sale or of the date on or after which any private sale will
be held, which notice the Company hereby agrees is reasonable notice.
Section 4.03. Application of Proceeds. Except as may otherwise
be required by law, any moneys or property actually received by the Agent
pursuant to the exercise of any rights or remedies referred to in Article IV
shall (subject to the determination of the Agent as to use of such moneys and
property in connection with the exercise of such rights or remedies and as to
the manner of such exercise) be applied in the following order:
first, to the payment of costs and expenses incurred in the
enforcement of rights and remedies under this Security Agreement;
-25-
<PAGE> 238
second, to the payment of all of the Obligations (except for
such Obligations that shall have been paid pursuant to first item of
this Section 4.03), ratably according to the then unpaid amounts
thereof, without preference or priority of any kind among such various
Obligations; and
third, the remainder, if any, to the Company, its successors
or assigns, to such Person as may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct.
Section 4.04. Agent May Purchase. At any public sale under
this Article IV, the Agent or its nominee may bid for and purchase the property
offered for sale, and, upon compliance with the terms of sale, may hold, retain
and dispose of such property without further accountability therefor, except as
otherwise required by applicable law. The Agent need not be present at such
sale. For the purpose of making payment for the Subject Collateral or any part
thereof so purchased, any claim for any amounts owing under the Notes, the
Letters of Credit, the Credit Agreement or hereunder or under any other
Obligation owed by the Company to the Lenders and Agent may be used by the Agent
as a credit against the purchase price.
Section 4.05. Waiver of Appraisement. The Company agrees, to
the fullest extent that it may lawfully so agree, that neither it nor anyone
claiming through or under it will set up, claim or seek to take advantage of any
appraisement, valuation, stay, extension or redemption law now or hereafter in
force in any locality where any property subject to the lien hereof may be
situated in order to prevent, hinder or delay the enforcement or foreclosure of
this Security Agreement, or the absolute sale of the Subject Collateral or any
part thereof; or the final and absolute putting into possession thereof,
immediately after such sale, of the purchasers thereof, and the Company, for
itself and all who may at any time claim through or under it, hereby waives, to
the full extent that it may be lawful so to do, the benefit of all such laws,
and any and all right to have any of the properties or assets comprising the
Subject Collateral marshalled upon any such sale, and agrees that the Agent or
any court having jurisdiction to foreclose the lien hereof may sell the Subject
Collateral as an entirety or in such parcels as the Agent may determine.
Section 4.06. Waiver of Bonds, etc. If the Agent seeks to take
possession of any or all of the Equipment or avail itself of any provisional
remedy by court process, the Company hereby irrevocably waives (to the extent it
may lawfully do so) any bonds and any surety or security required by any
statute, court rule or otherwise as an incident to such possession, or remedy,
and waives any demand for possession prior to the commencement of any suit or
action to recover.
ARTICLE V
DEFEASANCE
-26-
<PAGE> 239
Section 5.01. Payment of Indebtedness; Satisfaction. If the
Company shall have paid and discharged all of the Obligations, and if the
Commitments of the Lenders under the Credit Agreement shall have been terminated
or expired, then upon the written request of the Company, and at the expense of
the Company, the Agent shall execute and deliver to the Company a release or
releases of the Subject Collateral from the security interest of this Security
Agreement in such form as may be reasonably requested by the Company.
ARTICLE VI
AGENT
Section 6.01. Agent. As provided in Section 8 of the Credit
Agreement, each Lender has appointed The Industrial Bank of Japan, Limited, Los
Angeles Agency, as its Agent for purposes of this Security Agreement. In such
capacity, The Industrial Bank of Japan, Limited, shall be entitled to all of the
rights and benefits accorded the Agent by Section 8 of the Credit Agreement.
Following the payment in full of all Obligations and the termination or
expiration of the Loan Documents, the provisions of Section 8 of the Credit
Agreement shall be deemed to continue in full force and effect for the benefit
of the Agent under this Security Agreement. For the avoidance of doubt, nothing
in this Section 6.01 is intended to create any liability or obligation on the
Company.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.01. Notices. All notices and communications to be
given under this Security Agreement shall be given in the manner provided in the
Credit Agreement.
Section 7.02. Waiver. To the extent permitted by applicable
law, no failure on the part of the Agent or any Lender to exercise and no delay
in exercising, and no course of dealing with respect to, any right, remedy,
power or privilege under this Security Agreement shall operate as a waiver of
such right, remedy, power or privilege, nor shall any single or partial exercise
of any right, remedy, power or privilege under this Security Agreement preclude
any other or further exercise of any such right, remedy, power or privilege or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges provided in this Security Agreement are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
Section 7.03. Expenses Etc. The Company agrees to pay or to
reimburse the Agent and the Lenders for all reasonable costs and expenses
(including reasonable attorney's fees and expenses) that may be incurred by the
Agent or the Lenders for any expense or loss incurred in connection with any
Event of Default, including, but not
-27-
<PAGE> 240
limited to, any effort to enforce any of the provisions of, or any of the
obligations of the Company in respect of, this Security Agreement and the other
Loan Documents (including in any bankruptcy, workout or similar proceeding).
Section 7.04. Amendments, Etc. To the extent permitted by
applicable law, any provision of this Security Agreement may be modified,
supplemented or waived only by an instrument in writing duly executed by the
Company and the Agent (after such consent as may be required, if any, by the
Lenders pursuant to the Credit Agreement). Any such modification, supplement or
waiver shall be for such period and subject to such conditions as shall be
specified in the instrument effecting the same and shall be binding upon the
Agent, the Lenders and the Company, and any such waiver shall be effective only
in the specific instance and for the purposes for which given.
Section 7.05. Successors and Assigns. This Security Agreement
shall be binding upon and inure to the benefit of the Company, the Agent, the
other Lenders and their respective successors and permitted assigns. Except as
provided in subsections 6.6(v), 6.10 and 6.12 of the Credit Agreement, the
Company shall not assign or transfer its rights under this Security Agreement
without the prior written consent of the Agent.
Section 7.06. Survival. All representations and warranties
made in this Security Agreement or in any certificate or other document
delivered pursuant to or in connection with this Security Agreement shall
survive the execution and delivery of this Security Agreement or such
certificate or other document (as the case may be) or any deemed repetition of
any such representation or warranty.
Section 7.07. Severability. To the extent permitted by
applicable law, any provision of this Security Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Security Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 7.08. Captions. The captions and section headings
appearing in this Security Agreement are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Security Agreement.
Section 7.09. Counterparts. This Security Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties to this Security
Agreement may execute this Security Agreement by signing any such counterpart.
Section 7.10. GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE
DELIVERED IN THE STATE OF NEW YORK AND GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-28-
<PAGE> 241
IN WITNESS WHEREOF, the Company and the Agent have caused this
instrument to be duly executed as of the day and year first above written.
AMERICA WEST AIRLINES, INC.,
a Delaware corporation
By: /s/ Jacques C. Lazard
---------------------------------
Name: Jacques C. Lazard
Title: Vice President & Treasurer
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES
AGENCY, as Agent
By: /s/ Yoshiaki Ohashi
---------------------------------
Name: Yoshiaki Ohashi
Title: Senior Vice President
-29-
<PAGE> 242
Exhibit E
Form of Spare Parts Security Agreement
See Tab #6
<PAGE> 243
Execution Copy
SPARE PARTS SECURITY AGREEMENT
THIS SPARE PARTS SECURITY AGREEMENT dated as of December 12,
1997 (the "Security Agreement") from AMERICA WEST AIRLINES, INC., a Delaware
corporation (the "Company"), whose mailing address is 4000 East Sky Harbor
Boulevard, Phoenix, Arizona 85034, to THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS
ANGELES AGENCY, as Agent under the Revolving Credit Agreement referred to below
(together with its successors and assigns in such capacity, the "Agent") for the
benefit and on behalf of itself as such Agent and the lenders ("Lenders", such
term to include the Issuing Bank as defined in the Credit Agreement) from time
to time party to that certain Revolving Credit Agreement dated as of even date
herewith (as the same may be amended or waived from time to time, the "Credit
Agreement") among the Company, the Lenders and the Agent.
RECITALS
A. The Lenders have agreed to extend certain financial
accommodations to the Company on the terms and subject to the conditions set
forth in the Credit Agreement.
B. Pursuant to the terms of the Credit Agreement, the Agent
has been appointed as the agent of the Lenders to hold and enforce on their
behalf the rights granted to the Agent herein with respect to the Parts
Collateral (as defined below).
C. Pursuant to the Credit Agreement the Company has agreed to
deliver this Security Agreement for the purposes of, among other things,
securing all payment and performance obligations of every nature of the Company
from time to time owed to the Agent, the Lenders or any of them under the Loan
Documents (as defined in the Credit Agreement), whether for principal, interest,
fees, expenses, indemnification or otherwise (collectively, the "Obligations"),
and subjecting the properties and assets hereinafter described to the lien of
this Security Agreement as security for the performance of the Obligations.
NOW, THEREFORE, in consideration of the premises and the
extension of credit by the Lenders contemplated in the Credit Agreement and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby intending to be legally bound and to
secure the performance of the Obligations, it is hereby agreed as follows:
<PAGE> 244
ARTICLE 1.
The Spare Parts
Section 1.1 Grant of Security. As security for the
Obligations, the Company hereby grants, assigns and pledges to the Agent for the
ratable benefit of the Lenders a continuing security interest in all of the
Company's right, title and interest, whether now existing or hereafter acquired
and wherever located, in and to the following:
(a) All spare parts, assemblies, equipment,
accessories, appliances and appurtenances now owned or hereafter acquired by the
Company which are rotable in nature, which are appropriate for installation or
use on, in or with any Boeing 737, Boeing 757 and Airbus A320 aircraft
(including the A319 and A321) or on, in or with any aircraft engine or appliance
appropriate for installation or use on, in or with any such aircraft (all such
aircraft, aircraft engines and appliances, collectively, the "Specified
Aircraft") and without regard to whether any such spare parts, assemblies,
equipment, accessories, appliances or appurtenances are appropriate for
installation or use on, in or with any other type or model aircraft, aircraft
engine or appliance which is not a Specified Aircraft, including any
replacements, substitutions or renewals therefor and accessions thereto (any and
all such parts, assemblies, equipment, accessories, appliances and
appurtenances, other than Expendables (as defined below), and any replacements,
substitutions or renewals therefor and accessions thereto, collectively, the
"Parts Collateral"), including but not limited to: (i) any fans, valves,
sensors, communications, navigation and radar spare parts, interior components,
landing gear, brakes, wheels, flight control items, avionic parts, avionic spare
parts, computers, panel assemblies, amplifiers, circuits, transformers, seats,
windows, storage bins, bulkhead assemblies, passenger service units, generators,
evacuation slides and covers, fire detectors, circuit cards, fire extinguishers,
drum assemblies, transmitters, jackshaft assemblies, locks, start assemblies,
doors and door assemblies, light assemblies, alternators, compasses, antennas,
ducts, joints, gauges, fans, windshields, nozzles, ignitions, engine nose cones,
cable assemblies secondary equipment, PCU rudders, engine indication and gas
panels, MLG trucks, landing gears, transceivers, mounts, turbine wheels,
rudders, crank and shaft assemblies, motors, transmissions and transmission
assemblies, instrumentation, gearboxes, gear assemblies, stick assemblies,
pumps, clocks, flight data recorders, regulators, transducers, toilets and
lavatory spare parts, spare rotable parts and other equipment; and (ii) any
Parts Collateral (by way of illustration and not limitation) described on
Schedule I attached hereto and incorporated herein by reference or any
supplement or amendment thereto supplied hereunder. For the avoidance of doubt,
the term "Parts Collateral" shall not include any spare parts, assemblies,
equipment, accessories, appliances or appurtenances which are classified in
balance sheet general classification 1300(a)(1) or (3) pursuant to the
provisions of the Uniform System of Accounts and Reports for Large Certificated
Air Carriers (14 Code of Federal Regulations Part 241 or any successor thereto)
as flight equipment replacement parts of a type which ordinarily would be
recurrently expended and replaced rather than repaired and reused, including by
way of illustration and
-2-
<PAGE> 245
without limitation, screws, washers, seals, filters, bolts, gaskets, bushings,
switches, nuts and drill bits, and all substitutions, replacements or renewals
thereof and accessions thereto, whether or not the same shall at any time be
located at any Designated Location (as defined in Section 3.2(d) hereof) (any
and all such parts, assemblies, equipment, accessories, appliances and
appurtenances and any replacements, substitutions or renewals therefor and
accessions thereto being referred to herein as the "Expendables"); and
(b) All proceeds, products, accessions of and to any
of the Parts Collateral (including without limitation proceeds of insurance
thereon); any payments under any indemnity, warranty or guaranty payable by
reason of loss or damage to or otherwise with respect to any of the Parts
Collateral; and, to the extent related to the Parts Collateral, all books, logs,
records, correspondence, invoices and other papers in the possession of the
Company or under the control of the Company or any service company or vendor
from time to time having possession thereof or acting on behalf of the Company
with respect thereto;
Notwithstanding the generality of the foregoing, the
Parts Collateral shall not include aviation fuel, ground support equipment, food
service equipment, and goods and inventory held for sale to employees of the
Company and to the public generally.
ARTICLE 2.
Representations and Warranties
The Company represents and warrants to the Agent and the
Lenders (such representations and warranties being deemed to be continuing and
deemed to be remade with the extension of each Revolving Loan (as defined in the
Credit Agreement) and issuance of each Letter of Credit (as defined in the
Credit Agreement) until final payment in full of all Obligations) as follows:
Section 2.1 Description of Rotables. Schedule I is in all
material respects a true and correct summary description by type of all Parts
Collateral located at any Designated Location (as defined in Section 3.2(d)
hereof; such Parts Collateral located at Designated Locations being referred to
herein as the "Rotables") owned by the Company as of October 31, 1997.
Section 2.2 Location, Identification and Release of Parts
Collateral. All of the Parts Collateral is or will (upon becoming subject to the
Lien of this Security Agreement) be maintained by or on behalf of the Company at
the Designated Locations, subject to Section 3.2(a) hereof.
Section 2.3 Ownership and Liens. The Company has full power,
authority and legal right to assign and pledge all of the Parts Collateral
assigned and
-3-
<PAGE> 246
pledged by this Security Agreement, and the Company owns the Parts Collateral
now subject to the Lien of this Security Agreement free and clear of any Liens
(as defined in the Credit Agreement), except for (i) the Lien of this Security
Agreement, (ii) Liens for taxes, assessments or governmental charges payable by
the Company either not delinquent for a period of more than thirty (30) days or
being contested in good faith by appropriate proceedings so long as during such
thirty (30) day period there is not any material risk of the sale, forfeiture or
loss of such Parts Collateral or any interest therein or during such proceeding
any material risk of the sale, forfeiture or loss of such Parts Collateral or
any interest therein is effectively stayed, (iii) materialmen's, repairmen's,
landlord's and other like Liens arising in the ordinary course of business, for
an amount the payment of which is not overdue for a period of more than thirty
(30) days or which is being contested in good faith by appropriate proceedings
so long as during such thirty (30) day period there is not any material risk of
the sale, forfeiture or loss of such Parts Collateral or any interest therein or
during such proceeding any material risk of the sale, forfeiture or loss of such
Parts Collateral or any interest therein is effectively stayed, (iv) Liens of
creditors of any Person to whom any Parts Collateral is consigned for sale at a
Designated Location and (v) any Lien listed in Schedule V hereto, provided,
however, that the Company shall make all reasonable effort to cause the Liens
listed in Schedule V-A hereto to be released as soon as reasonably practicable
(the Liens referred to in the foregoing clauses (i) through (v), collectively,
the "Permitted Liens").
Section 2.4 Valid Security Interest. Subject to Section 2.7,
this Security Agreement creates a valid, binding and enforceable first priority
security interest in the Parts Collateral, subject to Permitted Liens, securing
the payment and performance of the Obligations.
Section 2.5 Authorizations, Filings, etc. Except for (i) the
filing for recording pursuant to Subtitle VII of Title 49 of the United States
Code and the rules and regulations promulgated thereunder of this Security
Agreement and (ii) the filing and/or recording of UCC-1 financing statements in
the jurisdictions set forth on Schedule IV hereto, no authorization, consent,
approval or other action by, and no notice to or filing with, any governmental,
regulatory or judicial body or any other person or entity is necessary or
advisable (a) for the grant by the Company of a first priority perfected
security interest in the Parts Collateral (subject to Section 2.7 and Permitted
Liens), (b) for the execution, delivery or performance of this Security
Agreement by the Company, (c) to establish and perfect the Agent's security
interest of first priority in the Parts Collateral (subject to Section 2.7 and
Permitted Liens), or (d) for the perfection of or the exercise by the Agent of
its rights and remedies hereunder.
Section 2.6 Records. The Company shall maintain its records
with respect to the Parts Collateral at a Company Facility in Maricopa County,
Arizona.
Section 2.7 Spare Parts. It is the intention of the parties to
this Security Agreement that all Parts Collateral be "spare parts" as defined in
Section 40102(a)(38)
-4-
<PAGE> 247
of Title 49 of the United States Code (the "Act"). The Company represents that
it maintains the Parts Collateral for the purpose of installing the Parts
Collateral on aircraft, aircraft engines or appliances as defined in Sections
40102(a)(6), (7) and (11) of the Act.
ARTICLE 3.
Covenants
Section 3.1 Further Assurances.
(a) The Company agrees from time to time, at its sole
expense, to promptly execute and deliver all further instruments and documents,
and take all further action, that the Agent may request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable the Agent to exercise and enforce its rights and remedies hereunder with
respect to any of the Parts Collateral. Without limiting the generality of the
foregoing, such further actions shall include executing and delivering such
amendments or supplements to the schedules to this Security Agreement, executing
and filing such financing or continuation statements, or amendments thereto,
executing, filing and recording such documents or instruments with the Federal
Aviation Administration, and executing and filing such other instruments or
notices, in each case as the Agent on behalf of the Lenders may reasonably
request, in order to perfect and preserve the security interest granted or
purported to be granted hereby.
(b) The Company hereby authorizes the Agent to file one
or more financing or continuation statements or similar instruments or
documents, and amendments thereto, relative to all or any part of the Parts
Collateral without the signature of the Company where permitted by law.
(c) The Company shall not change its name or do business
under any other name and shall not change the location of its chief executive
office or the office where it keeps its books and records with respect to the
Parts Collateral to a place not within the boundaries of Maricopa County,
Arizona, except after at least 45 days prior written notice thereof to the Agent
and, with respect to such change, shall take such action, satisfactory to the
Agent, as may reasonably be necessary to maintain at all times the Lien of the
Security Agreement.
(d) The Company is an air carrier and holds an air
carrier operating certificate issued under Section 44705 of the Act for aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of cargo.
Section 3.2 As to Collateral.
-5-
<PAGE> 248
(a) In the ordinary course of its business, the Company
may (i) move Parts Collateral from one Designated Location to another Designated
Location or a location that is in the process of becoming a Designated Location
and such Parts Collateral shall remain "Rotables" hereunder and for purposes of
calculating the Borrowing Base pursuant to the Credit Agreement (except while in
transit between such Designated Locations) provided, however, that at any time
the aggregate book value of Parts Collateral located at Designated Locations
outside of the United States exceeds $1,000,000, all Parts Collateral at such
Designated Locations shall be deemed to no longer constitute "Rotables" for
purposes of calculating the Borrowing Base, (ii) install any Parts Collateral on
any aircraft, aircraft engine or appliance comprising Specified Aircraft and
owned, operated or leased by it or held by it under leases or pooling
arrangements entered into by the Company in the ordinary course of its business,
(iii) transfer possession of any Parts Collateral to any vendor or service
provider (whose location does not constitute a Designated Location) for repair
or testing or to any other air carrier under a pooling arrangement entered into
by the Company in the normal course of its business and in accordance with
normal industry practice provided, however, that all such transfers of Parts
Collateral during any one calendar month the aggregate book value of which, in
the reasonable determination of the Company, exceeds $8.5 million shall be
subject to the prior satisfaction of the requirements of the second sentence of
subsection 2.10B(ii)(1) of the Credit Agreement (without regard to the such
sentence's exclusion of Rotables therefrom) before the Lien of this Security
Agreement shall be deemed to be released pursuant to the next sentence of this
Section 3.2(a) or (iv) consign any Parts Collateral for sale by a third party
(whose location does not constitute a Designated Location) and deliver
possession of the same to such third party in connection therewith, provided,
however, that (1) consignments of Parts Collateral during any one calendar month
the aggregate book value of which, in the reasonable determination of the
Company, exceeds $8.5 million shall be subject to prior satisfaction of the
requirements of the second sentence of subsection 2.10B(ii)(1) of the Credit
Agreement (without regard to the such sentence's exclusion of Rotables
therefrom) before the Lien of this Security Agreement shall be deemed to be
released pursuant to the next sentence of this Section 3.2(a) and (2) without
duplication, sales on consignment shall be subject to the requirements of
Section 3.2(h) hereof. Without further act (except as provided in the proviso to
the preceding sentence), any Parts Collateral installed on any Specified
Aircraft pursuant to the foregoing clause (ii) or transferred pursuant to the
foregoing clause (iii) or delivered to a third party on consignment pursuant to
the foregoing clause (iv) or to a buyer for sale pursuant to Section 3.2(e)
hereof shall cease to be Parts Collateral and be free and clear of the Lien of
this Security Agreement, provided, however, that at such time as any such item
shall (x) cease to be installed on any Specified Aircraft in the case of clause
(ii) or (y) returned to the possession of the Company at a Designated Location
in the case of clause (iii) or (iv), such item shall again become Parts
Collateral subject to the Lien of this Security Agreement. The Parts Collateral
is or will (upon becoming subject to the Lien of this Security Agreement) be
kept in such a manner as to permit identification of Parts Collateral, and the
Company shall not commingle the Parts Collateral with Expendables.
-6-
<PAGE> 249
(b) At any time that Parts Collateral ceases to be
"Parts Collateral" or "Rotables" pursuant to Section 3.2(a), such deletion shall
be reflected in an adjustment to the book value of the Rotables certified in the
next Borrowing Base Certificate (as defined in the Credit Agreement) delivered
after such adjustment would be made pursuant to the Company's normal accounting
procedures and, in any event, in the Borrowing Base Certificate delivered by the
Company next following a Responsible Officer (as defined in the Credit
Agreement) having actual knowledge thereof or, in the case of any transfer or
consignment described in Section 3(a)(iii) or (iv), the aggregate book value of
which, in the reasonable determination of the Company, in each case, exceeds
$8.5 million for any one calendar month, in the updated Borrowing Base
Certificate delivered by the Company in connection with such transfer or
consignment.
(c) Subject to the requirements of Section 3.2(d)
hereof, Schedules II and III to this Security Agreement may be modified from
time to time by the Company's delivery to the Agent of a Supplement (each, a
"Supplement") to this Security Agreement substantially in the form attached
hereto as Exhibit 3.2, which such Supplement shall revise Schedule II or III by
adding one or more Designated Locations or (provided that no Parts Collateral
shall be then located thereat), deleting one or more Designated Locations; as of
any date of determination, all references herein to Schedule II or Schedule III
to this Security Agreement shall be deemed to refer to said Schedule as
originally in effect, or to the subsequent Schedule II or III then most recently
modified pursuant to a Supplement, as the case may be.
(d) Except as permitted by Section 3.2(a) hereof, (i)
maintain the Parts Collateral at one of the Company locations specified in
Schedule II hereto as such Schedule II may be amended from time to time pursuant
to Sections 3.2(a) and (d) or, (ii) cause the Parts Collateral to be maintained
by or on behalf of the Company by one of the vendors on Schedule III hereto at
the location of such vendor described in Schedule III as such Schedule III may
be amended from time to time pursuant to this Sections 3.2(a) and (c) (each such
location referred to clause (i) and (ii) above, a "Designated Location" and
collectively the "Designated Locations"). The Company shall use its best efforts
to include on Schedule III (as such Schedule III may be modified from time to
time pursuant to Sections 3.2(a) or (c)) each vendor with whom the Company from
time to time maintains Parts Collateral in the ordinary course of its business.
Except as permitted by Section 3.2(a) hereof, the Company shall not maintain any
Parts Collateral at any location which is not a Designated Location, unless (i)
it shall have notified the Agent in writing at least 15 days in advance, (ii) it
shall have executed and delivered to the Agent a Supplement hereto including any
modifications to Schedule II or Schedule III hereto, (iv) the Agent shall have
completed such filings or recordings and such other actions as are necessary or
advisable in the opinion of the Agent to perfect and confirm or assure the first
priority security interest of the Agent in the Parts Collateral, including, in
the case of any Supplement hereto adding or removing Designated Locations, the
filing of such Supplement to this Security Agreement including such additions or
deletions to Schedules II and III at the FAA and, in the case of additions of a
Designated Location, subject to the following sentence, an
-7-
<PAGE> 250
opinion of FAA counsel (the "FAA Opinion") that the Security Agreement as so
supplemented establishes a first priority security interest in the Parts
Collateral located at such additional Designated Location. Such FAA Opinion
shall be delivered (x) when the aggregate book value, as reasonably determined
by the Company, of all Parts Collateral at all Designated Locations added since
the date of the then most recently delivered FAA Opinion exceeds $8.5 million
and (y) if any Designated Locations have been added in the one year period since
the then most recent FAA Opinion. The Company shall bear the costs and expenses
of all such filings and FAA Opinions.
(e) Upon the occurrence of a Potential Event of Default
(as defined in the Credit Agreement) under Section 7.1 of the Credit Agreement,
the Agent may notify each of the vendors listed in Schedule III hereof of the
Lien of this Security Agreement.
(f) Cause the Parts Collateral to be maintained and
preserved in the same condition, repair and working order as when new, ordinary
wear and tear excepted, and in accordance with any applicable manufacturer's
manual and Federal Aviation Administration standards and requirements and shall
forthwith, or in the case of any loss or damage to any of the Parts Collateral
or installation or use of any such Parts Collateral as permitted by any
provisions hereof, as quickly as practicable after the occurrence thereof, make
or cause to be made such repairs, replacements, and other maintenance or
overhaul in connection therewith which the Company shall reasonably determine
are necessary or desirable to such end in the ordinary course of the Company's
business in accordance with past practice consistently applied. All such
replacement Parts Collateral (the "Replacement Parts") shall be free and clear
of all Liens (except for Permitted Liens), and shall be in as good operating
conditions as, and shall have a value and utility at least equal to, the Parts
Collateral replaced (the "Replaced Parts") if such Replaced Parts were in the
condition and repair required by the terms hereof. All such Replacement Parts
shall constitute Parts Collateral hereunder and shall immediately become subject
to the Lien of this Security Agreement. Notwithstanding anything herein to the
contrary, (i) all Rotables located at Designated Locations other than for the
purpose of being maintained or overhauled shall have a current and valid
serviceable tag and shall be in compliance with such tag, in each case in
compliance with applicable FAA regulations and (ii) the records relating to all
Parts Collateral shall be maintained in proper condition in compliance with
applicable FAA regulations.
(g) Upon the request of the Agent, if an Event of
Default (as defined in the Credit Agreement) shall have occurred and be
continuing, segregate or further segregate all Parts Collateral so that they are
capable of better identification; deliver records and schedules which show the
status, amount and condition of the Parts Collateral and such contracts or other
matters which affect the Parts Collateral; notify third parties of the Agent's
interest in the Parts Collateral; enter into any property of the Company where
any Parts Collateral are located at reasonable times to use any equipment and
facilities of the Company (but only to the extent permissible under FAA rules
and regulations) if the Agent deems such use necessary or advisable in order to
-8-
<PAGE> 251
protect, preserve, maintain, process or develop any of the Parts Collateral; and
take such actions as the Agent deems necessary or advisable in order to
protect, preserve and maintain any of the Parts Collateral.
(h) (i) The Company may sell or otherwise dispose of
Parts Collateral in the ordinary course of the Company's business consistent
with past practices, including sales on consignment as contemplated by Section
3.2(a)(iv). The Company shall notify the Agent of, and obtain the prior written
consent of the Agent and the Lenders to, any sale, contract of sale, or other
disposition of, or any series of sales, contracts of sale or other dispositions
of, Parts Collateral not in the ordinary course of the Company's business.
(ii) Parts Collateral sold pursuant to Section
3.2(h)(i) shall cease to be "Parts Collateral" and subject to the Lien of this
Security Agreement upon such sale, subject in each case to prior satisfaction of
the requirements of Sections 3.2(a) and (b) hereof as if such sale were a
consignment for sale, including, but not limited to, the requirement that a
consignment (here, sale) of Parts Collateral valued in excess of $8.5 million be
subject to prior satisfaction of the requirements of the second sentence of
subsection 2.10B(ii)(1) of the Credit Agreement. In addition, adjustments to the
book value of the remaining Parts Collateral shall be made in connection with
such sale pursuant to the requirements of Sections 3.2(a) and (b) as if such
sale were a consignment for sale.
(i) Pay promptly when due all property and other
taxes, assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against, the Parts
Collateral, except to the extent such non-payment results in a Permitted Lien.
(j) Maintain and preserve accurate, complete and
current records, logs, documents and other materials required to be maintained
in respect of the Parts Collateral by any applicable law, regulation or order,
and in the event the Agent or a third party demands possession of any Parts
Collateral pursuant to Article 5 hereof, the Company will promptly deliver to
the Agent or such third person copies of all such records, logs, documents and
other materials.
(k) Provide, on a monthly basis (or more frequently,
to the extent required by subsections 2.4B(iii)(1) and 2.10 of the Credit
Agreement), on the applicable Borrowing Base Certificate, the Borrowing Base
Value (as defined in the Credit Agreement) of the Parts Collateral that
constitute Rotables, setting forth the calculation specified therefor in the
definition of "Borrowing Base" in the Credit Agreement and further certifying
that either (x) no Adjustment Event (as defined in the Credit Agreement) has
occurred as of the date of such Borrowing Base Certificate or (y) that the
Borrowing Base Value of the Rotables as calculated and set forth in such
Borrowing Base Certificate has been adjusted due to the occurrence of an
Adjustment Event pursuant to subsection 2.4B(iii)(1)(d) of the Credit Agreement.
-9-
<PAGE> 252
Section 3.3 Insurance.
(a) Public Liability and Property Damage Liability
Insurance.
(i) The Company, at its own cost and expense, will
maintain or cause to be maintained with respect to the Parts Collateral,
comprehensive aircraft liability insurance including, without limitation,
passenger legal liability and property damage liability insurance and cargo
legal liability in such amounts, against such risks (including, without
limitation, contractual liability), with such retentions as the Company
customarily maintains (provided, however, that any self-insurance retention
and/or deductible shall not exceed $1,000,000 per occurrence) and with such
insurers (which shall be insurers of recognized responsibility), and such
insurance against such other risks as is usually carried by similar corporations
engaged in the same or similar business and similarly situated as the Company
and owning or operating spare parts, assemblies, equipment, accessories,
appurtenances and appliances similar to the Parts Collateral; provided that such
insurance shall not be in amounts less than $100,000,000 per occurrence,
provided further that in no event shall the limits of liability for all public
liability insurance be less than the amount, per occurrence as set forth on the
insurance certificate delivered on the date hereof.
(ii) Notwithstanding Section 3.3(a)(i) hereof, in the
event of the requisition for use by the United States government of any Parts
Collateral, the Company shall maintain throughout the period of such requisition
such insurance as would otherwise be required under this Section 3.3, provided
that the Agent shall accept, in lieu of such insurance coverage, indemnification
or insurance from the United States government which is substantially the same
as otherwise required under this Section 3.3.
(iii) Any policy of insurance carried and maintained
in accordance with this Section 3.3(a), and any policy taken out in substitution
or replacement for any such policy subject to the terms, conditions and
limitations thereof, shall:
(A) name the initial Lenders and the Agent and
their respective successors and assigns as additional insureds
(each an "Additional Insured");
(B) provide that, in respect of the interest of
any such Additional Insured in such policies, the insurance
shall not be invalidated by any action or inaction of the
Company or any additional insured as defined under the policy
of insurance required under this Section 3.3(a) (other than
such Additional Insured) and shall insure each such Additional
Insured regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by the
Company or any additional insured as defined under the policy
of insurance required under this Section 3.3(a) (other than
such Additional Insured);
-10-
<PAGE> 253
(C) provide that if such insurance is
canceled for any reason, or any substantial change is made in
the policies which adversely affect the coverage required
herein, or if such insurance is allowed to lapse for
nonpayment of premium, such cancellation, change or lapse
shall not be effective as to any Additional Insured for 30
days after receipt by each such Additional Insured of written
notice from such insurers of such cancellation, change or
lapse;
(D) provide that no such Additional Insured
shall have any obligation or liability for premiums or other
payments, if any, in connection with such insurance;
(E) provide that the insurers shall waive
any rights of subrogation against each such Additional Insured
except to the extent that any insured event arises solely from
the gross negligence or willful misconduct of such Additional
Insured as determined by a final judgment of a court of
competent jurisdiction;
(F) provide that such insurer shall waive
the right of such insurer to any set-off or counterclaim or
any other deduction, whether by attachment or otherwise, in
respect of any liability of any such Additional Insured;
(G) provide that all of the provisions of
such policy shall operate in the same manner as if there were
a separate policy covering each such Additional Insured;
provided that such policies shall not operate to increase any
insurer's limit of liability; and
(H) be primary, without right of
contribution from any other insurance which is carried by any
Additional Insured with respect to its interest in the Parts
Collateral; and
(I) be written by financially responsible
companies selected by the Company and reasonably acceptable to
the Agent. The Company will advise the Agent promptly of any
policy cancellation, reduction or amendment.
(b) Insurance Against Loss or Damage to Parts Collateral. The
Company, at its own cost and expense, shall maintain or cause to be maintained
in effect, with insurers of recognized responsibility, all-risk coverage with
respect to all Parts Collateral, in such form and amounts and with such
retentions as the Company customarily maintains with respect to similar spare
parts, assemblies, equipment, accessories, appurtenances and appliances owned or
operated by the Company (provided, however, that any self-insurance retention
and/or deductible shall not exceed $1,000,000 per occurrence).
-11-
<PAGE> 254
Any policies carried and maintained in accordance with this
Section 3.3(b) and any policies taken out in substitution or replacement for any
such policies subject to the terms, conditions and limitations thereof shall:
(i) name or be amended to name the then Lenders and
the Agent and their respective successors and assigns as Additional
Insureds and to name the Agent as loss payee (the "Loss Payee");
(ii) provide with respect to coverage provided under
this Section 3.3(b), that (A) in the event of a loss or damage
involving proceeds in excess of $1,000,000, the proceeds in respect of
such loss or damage shall be payable to the Agent and (B) the entire
amount of any loss or damage involving proceeds in the aggregate of
$1,000,000 or less shall be paid to the Company or its order unless an
Event of Default, Potential Event of Default or Prepayment Event then
exists and the insurers have been notified thereof by the Agent (in
which case such payment shall be made to the Agent);
(iii) provide that if such insurance is canceled for
any reason or any substantial change is made in the policies which
adversely affects the coverage required herein, or if such insurance is
allowed to lapse for nonpayment of premium, such cancellation, change
or lapse shall not be effective as to any such Additional Insured or
the Loss Payee for 30 days after receipt by each such Additional
Insured or the Loss Payee of written notice from such insurer of such
cancellation, change or lapse;
(iv) provide that, in respect of the interest of any
such Additional Insured or the Loss Payee in such policies the
insurance shall not be invalidated by any action or inaction of the
Company, the Loss Payee or any additional insured as defined under the
policy of insurance required by this Section 3.3(b) (other than any
action or inaction of the Loss Payee or such Additional Insured, as the
case may be) and shall insure the Additional Insured and the Loss Payee
regardless of any breach or violation of any warranty, declaration or
condition in such policies by the Company or any other Additional
Insured as defined under the policy of insurance required under this
Section 3.3(b);
(v) provide that the insurers shall waive any rights
of subrogation against the Loss Payee and such Additional Insureds
except to the extent that any insured event arises solely from the
gross negligence or willful misconduct of such Loss Payee or Additional
Insured as determined by a final judgment of a court of competent
jurisdiction;
(vi) provide that such insurer shall waive any right
of such insurer to any set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of any
such Additional Insured or Loss Payee;
-12-
<PAGE> 255
(vii) be primary and without rights of contribution
from any other insurance which is carried by any such Additional
Insured or the Loss Payee with respect to its interest in the Parts
Collateral;
(viii) provide that no such Additional Insured or
Loss Payee shall have any obligation or liability for premiums or other
payments, if any, in connection with such insurance; and
(ix) be written by financially responsible companies
selected by the Company and reasonably acceptable to the Agent. The
Company will advise the Agent promptly of any policy cancellation,
reduction or amendment.
(c) Application of Insurance Proceeds.
(i) Except as expressly provided in Section
3.3(c)(ii) or (iii) below, all insurance proceeds (other than proceeds from
policies carried by the Agent or the Lenders) received under policies described
in 3.3(b) will be paid to the Agent (except as otherwise provided in 3.3(b)(ii))
and paid by the Agent to the Company unless an Event of Default or Potential
Event of Default exists, in which event such proceeds shall be retained by the
Agent. If the Agent retains any such insurance proceeds pursuant to this Section
3.3(c)(i), such proceeds shall, until applied by the Agent as provided in this
Section 3.3(c)(i), (ii) or (iii) hereof, be maintained by the Agent in a
segregated account and shall, at the Company's request therefor, be invested in
Permitted Cash Equivalents.
(ii) Insurance proceeds in respect of any Parts
Collateral that is being repaired pursuant to Section 3.2(c) hereof
shall be retained by the Agent pending repair thereof, and shall be
applied by the Agent in payment (or to reimburse the Company) for
repairs to the affected Parts Collateral upon receipt from the Company
of an Officer's Certificate (as defined in the Credit Agreement)
annexing copies of invoices relating to such repairs, provided,
however, that the Agent shall not so apply any such proceeds during the
occurrence and continuance of any Potential Event of Default or Event
of Default. Any such insurance proceeds in excess of the total amount
required to pay for repair of the affected Parts Collateral shall, upon
certification by the Company to the Agent in an Officer's Certificate
that such repair has been completed, be paid by the Agent to the
Company provided, however, that the Agent shall not so pay any such
insurance proceeds during the occurrence and continuance of any
Potential Event of Default or Event of Default.
(iii) If an Event of Default shall have occurred and
be continuing, the Agent shall apply all insurance proceeds (including
proceeds of any earnings on any Permitted Cash Equivalents in which
such insurance proceeds have been invested) then on deposit with it
pursuant to Section 3.3(c)(i) or (ii) hereof (all such insurance and
other proceeds and earnings being herein collectively called "Section
3.3(c) Proceeds") to payment of the Obligations then due. At such time
-13-
<PAGE> 256
as no Potential Event of Default or Event of Default shall be
continuing, any Section 3.3(c) Proceeds remaining on deposit with the
Agent shall be (x) applied as provided in Section 3.3(c)(ii), if then
applicable, or (y) if Section 3.07(c)(ii) is not then applicable, shall
be paid by the Agent to the Company.
(iv) If any of the Lenders or the Agent becomes
subject to any claim covered by any insurance policy maintained
pursuant to this Section 3.3, the Company shall make available any
information required by such Lender or the Agent in connection with
such claim.
(d) Reports. On or before the date hereof and
thereafter annually on or before the scheduled expiration date for such policy,
the Company's independent insurance broker will furnish to the Agent a report,
signed by the Company's independent insurance broker, stating the types of
coverage and limits carried and maintained on the Parts Collateral and
certifying that such insurance complies with the terms and conditions of this
Section 3.3. The Company will cause its independent insurance broker to advise
the Agent in writing promptly of any default in the payment of any premium and
of any other act or omission on the part of the Company in any such case of
which it has knowledge and which might cause cancellation of all or any part of
any insurance carried by the Company with respect to the Parts Collateral. The
Company will cause such insurance broker to agree to advise the Agent in writing
if and when it becomes evident to such broker that any insurance policy carried
and maintained on the Parts Collateral pursuant to this Section 3.3 will not be
renewed at the expiration date. The Company will also cause such insurance
broker to deliver to the Agent, on or prior to the date of expiration of any
insurance policy referenced in a previously delivered certificate of insurance,
a new certificate of insurance, confirming to such parties that such insurance
as certified on the date hereof continues in full force and effect. If the
Company shall fail to maintain insurance as required hereby, the Agent may, at
its option, provide such insurance, and in such event, the Company shall, upon
demand, reimburse the Agent for the cost of such insurance; provided, however,
that no exercise of said option shall affect the provisions of this Security
Agreement, including the provisions that failure by the Company to maintain the
prescribed insurance shall constitute an Event of Default, or otherwise
constitute a waiver of any other rights the Agent may have against the Company.
(e) Notice of Proceeds. The Company shall promptly
notify the Agent upon a Responsible Officer of the Company obtaining actual
knowledge of the occurrence of an event of loss or damage to any Parts
Collateral which is reasonably expected to result in the receipt of insurance
proceeds reasonably estimated by the Company to exceed $1,000,000.
Section 3.4 Other Liens. The Company shall not create or
suffer to exist any Lien upon or with respect to any of the Parts Collateral,
except for (i) the security interest created by this Security Agreement and (ii)
Permitted Liens.
-14-
<PAGE> 257
Section 3.5 Inspection. At reasonable times and upon
reasonable notice, the Agent or its authorized representative may, at its own
expense (unless an Event of Default then exists or a Potential Event of Default
arising under the maintenance requirements of this Security Agreement then
exists, in which case the reasonable expenses of such inspection shall be paid
by the Company), inspect the Rotables at any of the Designated Locations and
inspect and make copies of the books and records of the Company required by the
Federal Aviation Administration or the aircraft maintenance program of the
Company relating to the maintenance of the Parts Collateral. Any such inspection
may be conducted for the purpose of determining the accuracy of the inventory
report maintained by the Company (and provided to the Agent together with each
Borrowing Base Certificate) with respect to the Rotables and the Company shall
provide the Agent or its representative with such records related to such report
as they may reasonably request in connection with any inspection of the
Rotables. The Agent shall have no duty to make any such inspection nor shall it
incur any liability or obligation by reason of not making any such inspection.
Section 3.6. Inventory Monitoring System. Except as disclosed
to the Agent prior to the Closing Date (as defined in the Credit Agreement), the
Company shall provide the Agent with written notice not less than 90 days prior
to changing its internal inventory monitoring procedures with respect to the
Rotables in any manner that would materially affect the way in which the
Borrowing Base Value of Rotables is determined under the Credit Agreement.
Section 3.7. Section 1110. TO THE EXTENT PROVIDED THEREBY (OR
TO THE FULLEST EXTENT IT MAY LAWFULLY SO AGREE, WHETHER OR NOT PROVIDED
THEREBY), THE COMPANY HEREBY AGREES THAT ANY RIGHT OF THE AGENT TO TAKE
POSSESSION OF ANY PARTS COLLATERAL FIRST PLACED IN SERVICE AFTER OCTOBER 22,
1994 (THE"SECTION 1110 SPARE PARTS") IN COMPLIANCE WITH THE PROVISIONS OF THIS
SECURITY AGREEMENT AND IN ACCORDANCE WITH SECTION 1110 OF TITLE 11 OF THE UNITED
STATES CODE OR ANY SIMILAR PROVISION OF ANY SUPERSEDING STATUTE, AS AMENDED FROM
TIME TO TIME, SHALL NOT BE AFFECTED BY THE PROVISIONS OF SECTIONS 362, 363 OR
1129 OF SAID TITLE, OR OTHER ANALOGOUS PART OF ANY SUPERSEDING STATUTE, AS
AMENDED FROM TIME TO TIME, AND ACCORDINGLY, IT IS THE INTENTION OF THE PARTIES
HERETO THAT WITH RESPECT TO THE SECTION 1110 SPARE PARTS THIS AGREEMENT BE
AFFORDED THE BENEFITS OF SAID SECTION 1110.
ARTICLE 4.
The Agent
Section 4.1 Agent Appointed Attorney-in-Fact. The Company
hereby irrevocably appoints the Agent the Company's attorney-in-fact to the
extent permitted by law, effective on and after acceleration of the Loans but
prior to the Agent obtaining physical possession of the Parts Collateral, with
full authority in the place and stead
-15-
<PAGE> 258
of the Company and in the name of the Company or otherwise, from time to time in
the Agent's discretion, to take any action and to execute any instrument which
the Agent may deem necessary or advisable to accomplish the purposes of this
Security Agreement. The power of attorney granted hereby is a power coupled with
an interest and shall be irrevocable until the Obligations are paid in full.
Section 4.2 Agent May Perform. If the Company fails to perform
any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement.
Section 4.3 The Agent's Duties. The powers conferred on the
Agent hereunder are solely to protect the interest of the Agent and the Lenders
in the Parts Collateral and shall not impose any duty upon it to exercise any
such powers. Except for reasonable care for the custody of any Parts Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Agent shall have no duty as to any Parts Collateral or as to the
taking of or the failure to take any action hereunder, including without
limitation, with respect to the preservation of rights against prior parties or
any other rights pertaining to any Parts Collateral.
ARTICLE 5.
Default
Section 5.1 Remedies. On and after acceleration of the Loans:
(a) The Agent on behalf of the Lenders may exercise
in respect of the Parts Collateral, in addition to other rights and remedies
provided for in the Loan Documents or otherwise available to it, all the rights
and remedies of a secured party upon default under the Uniform Commercial Code
(the "UCC") of any state or the Act (to the extent permitted by law, whether or
not the UCC applies to the affected Parts Collateral) and also may (i)
personally, or by agents or attorneys, take possession of any item of or all of
the Parts Collateral from the Company or any other Person who then has
possession of the same, and for the purpose may enter upon the premises of the
Company or such Person where such Parts Collateral are located and may remove
the same; (ii) take possession of any item or all of the Parts Collateral by
directing the Company in writing to deliver any of the same to the Agent or a
third party designated by the Agent at any place or places which shall be
reasonably convenient to both parties in which event Company shall at its own
expense: (A) forthwith cause the same to be moved to the place or places so
designated by the Agent and there delivered to the Agent, and (B) store and keep
the Parts Collateral so delivered to the Agent at such place or places pending
further action by the Agent as provided in this Article; and (iii) without
notice except as specified below, sell or lease the Parts Collateral or any part
thereof in one or more parcels through public or private transaction, to the
extent permitted by law, at any of the Agent's offices or elsewhere, for cash,
on credit or for future delivery, and at such price or prices and upon such
other terms as may be
-16-
<PAGE> 259
commercially reasonable. The Company agrees that, to the extent notice of sale
shall be required by law, at least 10 days' notice to the Company of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Agent shall not be obligated
to make any sale of Parts Collateral regardless of notice of sale having been
given. The Agent may adjourn any public or private transaction from time to time
by announcement at the time and place fixed therefor, and such sale may without
further notice be made at the time and place to which it was so adjourned. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
(b) All cash proceeds received by the Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Parts Collateral may, in the discretion of the Agent, be held by the
Agent as collateral for and/or then or at any time thereafter applied in whole
or in part to the Obligations by the Agent, subject to the terms of the Credit
Agreement, in such order as the Agent shall elect. Any surplus of such cash or
cash proceeds held by the Agent and remaining after payment in full of all the
Obligations shall be paid over to the Company or to whomsoever may be lawfully
entitled to receive such surplus or as a court of competent jurisdiction may
elect.
ARTICLE 6.
Miscellaneous
Section 6.1 Amendments, Etc. To the extent permitted by law,
no amendment or waiver of any provision of this Security Agreement shall in any
event be effective unless the same shall be in writing and signed by the Agent.
Any amendment, modification or supplement of or to any provision of this
Security Agreement, any waiver of any provision of this Security Agreement, and
any consent to any departure by the Company from the terms of this Security
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. No notice to or demand upon the Company in any
instance hereunder shall entitle the Company to any other or further notice or
demand in similar or other circumstances.
Section 6.2 Expenses. The Company agrees to pay or to
reimburse the Agent and the Lenders for all reasonable costs and expenses
(including reasonable attorney's fees and expenses) that may be incurred by the
Agent or the Lenders for any expense or loss incurred in connection with any
Event of Default or Potential Event of Default, including, but not limited to,
any effort to enforce any of the provisions of, or any of the obligations of the
Company in respect of, this Security Agreement and the other Loan Documents
(including in any bankruptcy, workout or similar proceeding). The Company's
obligations under this Section 6.2 shall survive the termination of this
Security Agreement and the satisfaction of the Obligations.
-17-
<PAGE> 260
Section 6.3 Notices. All notices and communications to be
given under this Security Agreement shall be given in the manner provided in the
Credit Agreement.
Section 6.4 Counterparts. This Security Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and any party hereto may execute this
Security Agreement by signing any such counterpart.
Section 6.5 Waivers. To the extent permitted by law, no
failure on the part of the Agent to exercise, and no delay on the part of the
Agent in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by the Agent preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies that may be available,
whether at law, equity or otherwise.
Section 6.6 Termination. This Security Agreement shall create
a continuing security interest in the Parts Collateral and shall (a) remain in
full force and effect until payment and performance in full of the Obligations,
(b) continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by the Agent or any Lender, as though such payment or
performance has not been made, (c) be binding upon the Company, its successors,
transferees and assigns, and (d) inure, together with the rights and remedies of
the Agent hereunder, to the benefit of the Agent and the Lenders and their
respective successors, transferees and assigns. Without limiting the generality
of the foregoing clause (d), any Lender may assign or otherwise transfer its
rights and obligations under the Loan Documents as permitted by the Credit
Agreement, and such other Person or entity shall thereupon become vested with
all the benefits in respect thereof granted to such assigning Lender under the
Loan Documents. Upon the payment in cash and performance in full of the
Obligations and termination of the Commitments (as defined in the Credit
Agreement) of the Lenders, the security interest granted hereby shall terminate
and all rights to the Parts Collateral shall revert to the Company. Upon any
such termination, the Agent shall, at the Company's expense, execute and deliver
to the Company such documents as the Company shall reasonably request to
evidence such termination.
Section 6.7 Governing Law; Terms. THIS SECURITY AGREEMENT
SHALL BE DELIVERED IN AND SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, except to the
extent that the validity or perfection of the security interest hereunder, or
remedies hereunder, in respect of any particular Parts Collateral are governed
by the laws of a jurisdiction other than the State of New York, including,
without limitation, the Act. Unless otherwise defined herein or in the Credit
-18-
<PAGE> 261
Agreement, terms used in Article 9 of the Uniform Commercial Code of the State
of New York are used herein as therein defined.
Section 6.8 Successors and Assigns. This Security Agreement
shall be binding upon and shall inure to the benefit of the Company, the Agent
and the Lenders and their respective successors and assigns; provided, however,
that except as permitted in subsections 6.6(v), 6.10 and 6.12 of the Credit
Agreement, the Company may not assign its rights or obligations hereunder or in
connection herewith or any interest herein (voluntarily, by operation of law or
otherwise) without the prior written consent of the Agent and all the Lenders.
Section 6.9 Severability. To the extent permitted by law, the
illegality or unenforceability of any provision of this Security Agreement or
any instrument or agreement required hereunder shall not in any way affect or
impair the legality or enforceability of the remaining provisions of this
Security Agreement or any instrument or agreement required hereunder.
-19-
<PAGE> 262
IN WITNESS WHEREOF, the Company has caused this Security
Agreement to be duly executed and delivered by its officer thereunder duly
authorized as of the date first above written.
AMERICA WEST AIRLINES, INC.
By /s/ Jacques G. Lazard
-------------------------------------
Name: Jacques G. Lazard
------------------------------
Title: Vice President and Treasurer
-------------------------------
ACCEPTED AND AGREED:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY,
as Agent
By /s/ Yoshiaki Ohashi
-------------------------------------
Name: Yoshiaki Ohashi
-------------------------------
Title: Senior Vice President
-------------------------------
-20-
<PAGE> 263
EXHIBIT I
December 12, 1997
The Industrial Bank of Japan,
as Agent
350 South Grand Avenue
Suite 1500
Los Angeles, CA 90071
Re: Request for Revolving Loan/Letter of Credit Under Revolving
Credit Agreement dated as of December 12, 1997
Ladies and Gentlemen:
We refer you to the Revolving Credit Agreement as of December 12, 1997
by and among America West Airlines, Inc. (the "Company"); The Industrial Bank of
Japan, Limited, Los Angeles Agency, as agent for itself and the other lending
institutions named therein (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"). Capitalized terms used herein without
definition have the meanings specified in the Credit Agreement.
Pursuant to Section 2.1B of the Credit Agreement, the Company hereby
irrevocably requests the following Revolving Loan.
(a) Principal Amount: [*] to be disbursed in the amounts and to
the payees listed on the attached Schedule I.
(b) Funding Date: December 12, 1997
(c) Type: Base Rate Loan
We understand that this request obligates us to accept the requested
Revolving Loan on such date.
The Company hereby represents and warrants that all of the conditions
(other than
[*] Confidential Treatment Requested
<PAGE> 264
-2-
matters subject to the satisfaction of the Agent) set forth in 3.1A of the
Credit Agreement have been satisfied on the date of this request.
No Potential Event of Default or Event of Default has occurred and is
continuing and no Potential Event of Default or Event of Default would occur
after giving effect to the requested Revolving Loan.
AMERICA WEST AIRLINES, INC.
By:____________________________
Name:
Title:
<PAGE> 265
EXHIBIT II
[Date]
The Industrial Bank of Japan,
as Agent
350 South Grand Avenue
Suite 1500
Los Angeles, CA 90071
Re: Form of Notice of Conversion/Continuation Under Revolving
Credit Agreement dated as of December 12, 1997
Ladies and Gentlemen:
We refer you to the Revolving Credit Agreement as of December 12, 1997
by and among America West Airlines, Inc. (the "Company"), The Industrial Bank of
Japan, Limited, Los Angeles Agency, as agent for itself and the other lending
institutions named therein (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"). Capitalized terms used herein without
definition have the meanings specified in the Credit Agreement.
Pursuant to Section 2.2D of the Credit Agreement, the Company hereby
notifies you of the following Conversion/Continuation:
(a) Proposed Conversion/Continuation Date(1):
(b) Amount of Loan to be Converted/Continued:
(c) Type of Loan to be Converted/Continued (Base Rate Loan or
Eurodollar Rate Loan):
(d) Nature of the proposed Conversion/Continuation (Base Rate Loan
or Eurodollar Rate Loan):
(e) Interest Period (if applicable):
(f) No Potential Event of Default or Event of Default has occurred and
is continuing and no Potential Event of Default or Event of Default would occur
after
- --------
(1) The Company shall deliver a Notice of Conversion/Continuation to the Agent
no later than 9:00 a.m. (Los Angeles time) on the proposed Conversion Date or
Continuation Date with respect to a Base Rate Loan and three Business Days in
advance of the proposed Conversion/Continuation date with respect to a
Eurodollar Rate Loan.
<PAGE> 266
giving effect to the proposed conversion/continuation (to be included only
with respect to conversions to or continuation of Eurodollar Rate Loans):
AMERICA WEST AIRLINES, INC.
By:______________________________
Name:
Title:
-2-
<PAGE> 267
EXHIBIT III-A
FORM OF REVOLVING NOTE
$[_____________] December __, 1997
FOR VALUE RECEIVED, the undersigned AMERICA WEST AIRLINES, INC., a
Delaware corporation (the "Company"), hereby promises to pay to the order of
[___________________] (the "Lender"):
(a) from time to time at the times and in the amounts provided
in the Credit Agreement (as hereinafter defined) and prior to or on the
Revolving Loan Commitment Termination Date (as defined in the Credit
Agreement) the principal amount of [$_____________ ] ($______) or, if
less, the aggregate unpaid principal amount of Revolving Loans (as
defined in the Credit Agreement) advanced by the Lender to the Company
pursuant to the Revolving Credit Agreement dated as of December 12,
1997 (as amended and in effect from time to time, the "Credit
Agreement"), among the Company, the Lender, the Agent and the other
parties thereto; and
(b) interest on the principal balance hereof from time to time
outstanding from the Closing Date (as defined in the Credit Agreement)
under the Credit Agreement through and including the maturity date
hereof at the times and at the rates provided in the Credit Agreement.
All capitalized terms used in this Revolving Note and not otherwise
defined herein shall have the same meanings herein as in the Credit Agreement.
This Revolving Note evidences borrowings under and has been issued by the
Company in accordance with the terms of the Credit Agreement. The Lender and any
Eligible Assignee of the Lender under Section 9.1 of the Credit Agreement is
entitled to the benefits of the Credit Agreement, the Security Agreements and
the other Loan Documents.
The Company has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Revolving Note on the terms and conditions specified in the Credit
Agreement.
If any one or more of the Events of Default shall occur, the entire
unpaid principal amount of this Revolving Note and all of the unpaid interest
accrued thereon may become or be declared due and payable in the manner and with
the effect provided in the Credit Agreement.
<PAGE> 268
No delay or omission on the part of the Lender or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Lender or such holder, nor shall any delay, omission or
waiver on any one occasion be deemed a bar or waiver of the same or any other
right on any further occasion.
The Company and every endorser and guarantor of this Revolving Note or
the obligation represented hereby waives to the extent permitted by law,
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Revolving Note, and assents to any extension or postponement of the time of
payment or any other indulgence, to any release of collateral and to the
addition or release of any other party or person primarily or secondarily
liable.
THIS REVOLVING NOTE AND THE OBLIGATIONS OF THE COMPANY HEREUNDER SHALL
BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to
be signed in its corporate name by its duly authorized officer as of the day and
year first above written.
AMERICA WEST AIRLINES, INC.
By: _____________________________
Name:
Title:
-2-
<PAGE> 269
================================================================================
Amount of
Amount of Principal Balance of
Revolving Paid or Principal Notation
Date Loan Prepaid Unpaid Made By:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-3-
<PAGE> 270
EXHIBIT III-B
FORM OF AMENDED AND RESTATED NOTE
$[_____________] ________ __, ____
FOR VALUE RECEIVED, the undersigned AMERICA WEST AIRLINES, INC., a
Delaware corporation (the "Company"), hereby promises to pay to the order of
[___________________] (the "Lender"):
(a) from time to time at the times and in the amounts provided
in the Credit Agreement (as hereinafter defined) and prior to or on the
Term Loan Termination Date (as defined in the Credit Agreement) the
principal amount of [$_____________ ] ($______) advanced by the Lender
to the Company pursuant to the Revolving Credit Agreement dated as of
December 12, 1997 (as amended and in effect from time to time, the
"Credit Agreement"), among the Company, the Lender, the Agent and the
other parties thereto; and
(b) interest on the principal balance hereof from time to time
outstanding from the Conversion Date (as defined in the Credit
Agreement) under the Credit Agreement through and including the
maturity date hereof at the times and at the rates provided in the
Credit Agreement.
All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement. This Note
evidences the Term Loan borrowed under and has been issued by the Company in
accordance with the terms of the Credit Agreement, and is issued in substitution
for and replacement of the Revolving Note issued by the Company to the Lender on
the Closing Date. The Lender and any Eligible Assignee of the Lender under
Section 9.1 of the Credit Agreement is entitled to the benefits of the Credit
Agreement, the Security Agreements and the other Loan Documents.
The Company has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire
unpaid principal amount of this Note and all of the unpaid interest accrued
thereon may become or be declared due and payable in the manner and with the
effect provided in the Credit Agreement.
No delay or omission on the part of the Lender or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the
<PAGE> 271
Lender or such holder, nor shall any delay, omission or waiver on any one
occasion be deemed a bar or waiver of the same or any other right on any further
occasion.
The Company and every endorser and guarantor of this Note or the
obligation represented hereby waives to the extent permitted by law,
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, and assents to any extension or postponement of the time of payment
or any other indulgence, to any release of collateral and to the addition or
release of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE COMPANY HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed
in its corporate name by its duly authorized officer as of the day and year
first above written.
AMERICA WEST AIRLINES, INC.
By: _____________________________
Name:
Title:
-2-
<PAGE> 272
================================================================================
Amount of
Amount of Principal Balance of
Term Paid or Principal Notation
Date Loan Prepaid Unpaid Made By:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-3-
<PAGE> 273
AMERICA WEST AIRLINES, INC.
COMPLIANCE CERTIFICATE
Reference is made to the Revolving Credit Agreement dated as of
December 12, 1997 (as it may be amended, restated or supplemented or otherwise
modified from time to time, the "Credit Agreement") among America West Airlines,
Inc. (the "Company"), the lenders from time to time party thereto (the "Banks"),
and The Industrial Bank of Japan Limited, Los Angeles Agency, as initial issuing
bank and as agent for the Banks (in such last capacity, the "Agent").
The undersigned, the Vice President & Treasurer of the Company, and
acting on behalf of the Company, hereby certifies as of the date hereof that he
is the officer named above of the Company, and is duly authorized to execute and
deliver this Certificate to the Banks and the Agent on behalf of the Company,
and that:
1. The undersigned has reviewed and is familiar with the terms of the
Credit Agreement and has made, or has caused to be made under his supervision, a
review of the provisions of the Credit Agreement and related definitions and the
transactions and conditions (financial or otherwise) of the Company and their
Subsidiaries, if any, during the period covered by this Certificate sufficient
in his opinion to be able to provide this certification.
2. To the best knowledge of the undersigned, no Potential Event of
Default or Event of Default exists.
3. The financial covenant analyses and information set forth on
Schedule 1 attached hereto are true and accurate on and as of the date of this
Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
behalf of the Company as of .
AMERICA WEST AIRLINES, INC.
By: __________________________________
Title:
<PAGE> 274
SCHEDULE 1
to the Compliance Certificate
- ------------------------------------------------------------------------------
I. SUBSECTION 6.4 RESTRICTED PAYMENTS
- ------------------------------------------------------------------------------
A. [*] [*]
- ------------------------------------------------------------------------------
B. [*] from all [*] made during the period from [*] $
through the end of the fiscal quarter next
preceding the date of the certificate (the
"Certificate") to which this Schedule I is
attached (the "Measuring Period")
- ------------------------------------------------------------------------------
C. [*] during the Measuring Period $
- ------------------------------------------------------------------------------
D. Restricted Payment Allowance for the Measuring $
Period. (sum of lines I(A) + line I(B) + 50% of
line I(C))
- ------------------------------------------------------------------------------
E. All Restricted Payments made during the Measuring $
Period (must not exceed line I(D))
- ------------------------------------------------------------------------------
II. SUBSECTION 6.5A: [*]
- ------------------------------------------------------------------------------
A. [*]
- ------------------------------------------------------------------------------
1. [*] $
- ------------------------------------------------------------------------------
2. [*]
- ------------------------------------------------------------------------------
a. [*] on [*] (including that portion $
attributable to [*]
- ------------------------------------------------------------------------------
b. Without duplication, [*] $
- ------------------------------------------------------------------------------
c. Line II(A)(2)(a) + line II(A)(2)(b) $
- ------------------------------------------------------------------------------
3. Provisions for taxes based on income $
including state franchise taxes based on
income
- ------------------------------------------------------------------------------
4. Total consolidated depreciation expense $
- ------------------------------------------------------------------------------
5. Total consolidated amortization expense $
- ------------------------------------------------------------------------------
6. Other [*] items [*] less other [*] items $
increasing [*]
- ------------------------------------------------------------------------------
[*] Confidential Treatment Requested
<PAGE> 275
<TABLE>
<S> <C> <C>
7. Line II(A)(1) + line II(A)(2)(c) + $
line II(A)(3) + line II(A)(4) +
line II(A)(5) + line II(A)(6)
[*]
B. [*] $
C. Line II(A)(7) + line II(B) $
D. [*] $
(Line II(A)(2)(c))
E. [*](1) $
(Line II(B))
F. Line II(D) + line II(E) $
G. Ratio of line II(C) to line II(F) :1.0(2)
III. SUBSECTION 6.5B[*]
A. [*]
1. All [*]
2. net present value of all remaining [*]
under [*] discounted at an
annual rate of [*] $
3. line III(A)(1) plus line III(A)(2) $
B. [*] $ (4)
C. Ratio of III(A)(3) to III(B) :1.0(3)
IV. SUBSECTION 6.5C[*]
A. [*] [*]
B. [*] x [*] for period from [*]
to the date of determination $
C. [*] x [*] for the period from [*]
to the date of determination $
D. Line IV(A) + line IV(B) + line IV(C) $
E. [*] $ (4)
</TABLE>
- --------------------------
(1) Calculated for the four fiscal quarters ending prior to the date of the
Certificate.
(2) Not to be [*].
(3) Not to be [*].
[*] Confidential Treatment Requested.
-2-
<PAGE> 276
<TABLE>
<S> <C> <C>
V. SUBSECTION 6.5(D)[*]
A. [*] and [*] $ (5)
VI. SUBSECTION 6.5(E)[*]
A. All [*] $
B. [*] under the [*] $
C. [*] described in subsection 6.5(E)(ii),(iii)
and (iv) to the extent included in VI(A) $
D. Line VI(A)-line VI(B)-line VI(C) $ (6)
</TABLE>
- --------------------------
(4) If Company incures [*] in any Fiscal Year, and such [*] or the [*]
resulting therefrom reduces the Company's [*] will exclude lesser of the
[*] and the [*] resulting therefrom in an amount not greater than [*] for
such Fiscal Year and not greater than [*] in the aggregate, and will also
exclude any [*] arising from a [*] in respect of a [*] of [*].
(5) Not to be less than [*].
(6) Not to exceed [*].
[*] Confidential Treatment Requested.
-3-
<PAGE> 277
Exhibit V-A
Form of Opinion of A&K
See Tab #26
<PAGE> 278
[ANDREWS & KURTH L.L.P. LETTERHEAD]
December 12, 1997
The Several Initial Lenders, the Initial Issuing Bank
and the Agent Parties to the Credit
Agreement Hereinbelow Referred to
c/o The Industrial Bank of Japan, Limited,
Los Angeles Agency, as Agent
350 South Grand Avenue
Suite 1500
Los Angeles, California 90071
Re: America West Airlines, Inc.
Ladies and Gentlemen:
We have acted as special counsel to America West Airlines, Inc., in
connection with the financing transactions contemplated by the Revolving Credit
Agreement dated as of December 12, 1997 (the "Credit Agreement") by and among
the Company, the several Lenders initially parties thereto (the "Initial
Lenders") and The Industrial Bank of Japan, Limited, Los Angeles Agency, as the
Initial Issuing Bank, as Arranger and as the Agent for the Lenders thereunder
(in such last capacity, the "Agent"). The opinions expressed below are
furnished to you pursuant to Section 3.1D of the Credit Agreement at the
request, and with the approval, of the Company. All capitalized terms defined
in the Credit Agreement are used with the same meanings, unless otherwise
defined, in this opinion letter.
In rendering the opinions expressed below, we have examined (a)(i) the
Credit Agreement and the Revolving Credit Notes issued to the Initial Lenders
today pursuant thereto (collectively, the "Initial Revolving Credit Notes" and,
together with any Revolving Credit Notes issued after the date hereof in
substitution or exchange therefor, or in subsequent substitutions or exchanges,
or otherwise, as provided in the Credit Agreement, the "Revolving Credit
Notes"), (ii) the Spare Engine Security Agreement and the Spare Parts Security
Agreement, each dated as of even date therewith and executed and delivered by
the Company in favor of the Agent for the benefit of the Lenders (collectively,
the "Initial Security Agreements"), (iii) the Environmental Indemnity
Agreement, dated as of the date hereof and executed by the Company and the
Agent (said
<PAGE> 279
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 2
Agreement, together with the Credit Agreement, the Initial Revolving Credit
Notes and the Initial Security Agreements, the "Initial Loan Documents"), and
(iv) the forms of the Security Agreements (other than the Hangar Security
Agreement) that are being or may be executed and delivered by the Company in
favor of the Agent for the benefit of the Lenders on or after the date hereof,
all as more fully provided in the Credit Agreement (collectively, the "Other
Security Agreements" and, together with the Initial Loan Documents and any
Revolving Credit Notes issued after the date hereof, the "Loan Documents"), and
(b) such corporate records of the Company and other documents as we have deemed
necessary or appropriate as a basis for the opinions expressed below, including,
among others, forms of certain financing statements prepared for execution and
delivery by the Company and filing under the Uniform Commercial Code, as in
effect in the State of Arizona and each of the other States listed in Schedule
IV to the Spare Parts Security Agreement (the "Financing Statements").
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity with authentic original
documents of all documents submitted to us as copies, and compliance on the part
of all parties to the Loan Documents with their covenants and agreements
contained therein. When relevant facts were not independently established, we
have relied upon such statements of governmental officials, representations made
in or pursuant to the Initial Loan Documents, certificates of appropriate
representatives of the Company, and other documents, as we have deemed necessary
or appropriate for the purposes of this opinion. With your permission, all
assumptions and statements of reliance herein have been made without any
independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon, except to
the extent otherwise expressly stated.
In rendering the opinions expressed below, we have
assumed that:
(i) as of the date of its execution and delivery
thereof, each party to each Loan Document is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization;
(ii) as of such date, each party to each Loan
Document has full power and authority and has obtained all requisite
corporate, third party and governmental authorizations, consents and
approvals and made all requisite filings and registrations, necessary
to execute and deliver, and perform its obligations under, such
document;
(iii) the execution, delivery and performance of the
Loan Documents, and the execution and delivery of the Financing
Statements, will not violate or conflict with any
<PAGE> 280
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 3
law, rule, regulation, order, decree or judgment binding upon or
applicable to any party thereto or its respective properties;
(iv) except as is the subject of our opinion in
paragraph 1 below with respect to the Company, the Initial Loan
Documents to which they are, respectively, parties have been duly
authorized by all Persons parties thereto, and duly executed and
delivered by all parties thereto, and all signatories to the Initial
Loan Documents on behalf of the parties thereto have been duly
authorized;
(v) except as is the subject of our opinion in
paragraph 2 below with respect to the Company, the Loan Documents
constitute, or when executed and delivered will constitute, the legal,
valid and binding obligations of all Persons parties thereto,
enforceable against such Persons in accordance with their respective
terms; and
(vi) each of the Other Security Agreements will be
executed and delivered by the Company in the respective form thereof as
set forth as an exhibit to the Credit Agreement as initially executed
and delivered, with the blanks appropriately filled in.
Based upon and subject to the foregoing, and subject also to
the qualifications, limitations exceptions and further assumptions hereinbelow
set forth, we are of the opinion that:
1. The execution and delivery by the Company of the Loan Documents, and
the performance of its obligations thereunder in accordance with the terms
thereof, and the execution and delivery by the Company of the Financing
Statements, have been duly authorized by all necessary corporate action on the
part of the Company, and the Initial Loan Documents and the Financing Statements
have been duly executed and delivered by the Company.
2. Each Initial Loan Document constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its respective terms.
3. Each Initial Security Agreement is effective to create in favor of
the Agent, as security for the Obligations, as defined therein, a valid security
interest under the Uniform Commercial Code as in effect in the State of New York
(the "NY UCC") in all right, title and interest of the Company in and to the UCC
Collateral, as defined below, subject thereto, except that such security
interest is subject to the limitations described in paragraph D(7) below arising
from Section 552 of the Federal Bankruptcy Code. For purposes of this opinion,
the term "UCC Collateral" means the "Subject Collateral" and the "Parts
Collateral", as respectively defined in the Spare Engine Security Agreement and
the Spare Parts Security Agreement, but only to the extent the same constitutes
"accounts", "general intangibles", "equipment" or "inventory" (such terms
<PAGE> 281
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 4
being used herein as the same are defined in the NY UCC) other than "farm
products", "consumer goods", "fixtures", those goods covered by a "certificate
of title" and "minerals" (such terms being used herein as the same are defined
in the NY UCC) of the Company to the extent not excluded by Section 9-104 of the
NY UCC, and "proceeds" (such term being used herein as the same is defined in
Section 9-306 of the NY UCC) thereof consisting of such accounts, general
intangibles, equipment and inventory.
4. The security interests referred to in paragraph 3 above in the types
of property identified below will be perfected as described below:
(a) such security interests in (i) that portion of
the UCC Collateral consisting of (A) "accounts" (as defined in
Section 9-106 of the NY UCC) other than accounts subject to
Section 9-103(5) of the NY UCC, (B) "general intangibles" (as
defined in Section 9-106 of the NY UCC) other than
"uncertificated securities" (as defined in Section 8-102(a)(5)
of the NY UCC), and (ii) that portion of the UCC Collateral
consisting of "inventory" or "equipment" (each as defined in
Section 9-109 of the NY UCC) that is not covered by a
certificate of title or is mobile and of a type normally used
in more than one jurisdiction and, if inventory, leased or
held for lease to others will, on the creation of such
security interests, be perfected by filing appropriate
financing statements in office of the Secretary of State of
the State of Arizona (or, in the case of accounts consisting
of proceeds of a letter of credit, by the Agent's taking and
retaining possession of such letter of credit); if, however,
the Company moves its place of business or, if it has more
than one place of business, its chief executive office, to
another jurisdiction, the effectiveness of the financing
statements executed by the Company will cease on the
expiration of four months after such move or, if earlier, when
perfection would have otherwise ceased, unless such security
interest becomes perfected under the law of such other
jurisdiction prior to such expiration;
(b) such security interest in that portion of the UCC
Collateral consisting of "inventory" or "equipment" (each as
defined in Section 9-109 of the NY UCC) that is not of the
type referred to in paragraph 4(a) above and that is located
in the jurisdictions listed in Schedule IV to the Spare Parts
Security Agreement will, upon the creation of such security
interest, be perfected by filing appropriate financing
statements in the appropriate filing offices in each of said
states;
(c) to the extent not expressly covered by paragraph
4(a) or (b) above, such security interest in that portion of
the UCC Collateral consisting of "proceeds"
<PAGE> 282
[ANDREWS & KURTH L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 5
(as defined in Section 9-306(1) of the New York UCC) may be perfected
as and to the extent provided in Section 9-306 of the New York UCC;
and
(d) anything in this paragraph 4 to the contrary
notwithstanding, compliance with a statute or treaty described in
Section 9-302(e) of the NY UCC is required in order to perfect such
security interest in any portion of the UCC Collateral that is
subject to any such statute or treaty.
5. No consent, approval or authorization of, or registration, declaration
or filing with, any United States Federal or New York State governmental
authority is required to be obtained for the execution, delivery or performance
by the Company of the Initial Loan Documents or the validity or enforceability
thereof, except for (a) any such filings as have already been made or consents
which have already been obtained, (b) filings and recordations necessary to
perfect the Liens of the Initial Security Agreements, and (c) routine
post-closing informational filings.
6. The execution, delivery and performance by the Company of the Initial
Loan Documents will not violate any applicable law or statute of the State of
New York or of the United States, such that the ability of the Company to
perform its obligations under the Initial Loan Documents is materially and
adversely affected.
***
The foregoing opinions are subject to the following comments and
qualifications:
A. Our opinions in paragraph 2 are subject to and may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer or other similar laws relating to or
affecting the rights of creditors generally, (ii) general principles of
equity (regardless of whether considered in a proceeding in equity or at
law), including, without limitation (a) the possible unavailability of
specific performance, injunctive relief or any other equitable remedy, and
(b) concepts of materiality, reasonableness, good faith and fair dealing,
and (iii) the exercise of rights of the Agent under remedial or procedural
provisions of the Initial Security Agreements being subject to possible
limitations arising from applicable laws and court decisions, but such
limitations do not, in our opinion (but subject to the other comments and
qualifications set forth herein), make the remedies and procedures that
will be afforded the Agent inadequate for the practical realization of the
substantive benefits purported to be provided to the Agent by such
agreements.
<PAGE> 283
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 6
B. We express no opinion herein with respect to the
enforceability of provisions of any Loan Document that (i) relate to
rights of set-off or subrogation rights (or the waiver thereof); (ii)
purport to establish particular notice periods as "reasonable", to
establish evidentiary standards for suits or proceedings to enforce
such document or otherwise, to establish certain determinations as
conclusive, or to establish or negate applicable rules of construction
based upon participation in negotiations or document preparation, or to
permit the Agent or any Lender to act in its sole discretion or to
waive a right to a jury trial or service of process or rights to
notice, demands, defenses, counterclaims or setoffs; (iii) relate to
severability or separability, marshaling of assets, or rights of
redemption (or the waiver thereof); (iv) relate to indemnification or
reimbursement obligations to the extent any such provisions would
purport to require the Company to provide indemnification or
reimbursement in respect of the gross negligence, willful misconduct or
unlawful behavior of any Person, or in respect of any matter which has
not been disclosed to the indemnitor, or is not reasonably within the
scope of such provisions or the overall intention of the parties at the
time the agreement containing such provision was entered into, or are
otherwise contrary to public policy; (v) purport to appoint
attorneys-in-fact or other representatives or to limit the liability of
or exculpate any Person other than the Company; (vi) contain any
agreement to agree or purport to bind non-parties; (vii) purport to
require that all amendments, waivers and terminations be in writing or
to require disregard of any course of dealing between the parties;
(viii) purport to confer subject matter jurisdiction in respect of
bringing suit, enforcement of judgments or otherwise on any court, to
the extent that such court does not have such jurisdiction; (ix)
purport to waive inconvenient forum or the defense of illegality or to
establish any obligation of the Company as unconditional regardless of
the occurrence or non-occurrence of any other event; (x) purport to
waive notice of acceleration; (xi) purport to permit or authorize the
application of any proceeds of the foreclosure sale of any personal
property covered by either Initial Security Agreement, or the taking of
any other action pursuant to such agreement, in a manner contrary to
Section 9-504 of the NY UCC; (xii) purport to grant rights of specific
enforcement of contract provisions, or to waive matters that may not be
waived under the NY UCC; or (xiii) purport to ratify future acts.
C. We express no opinion as to any provisions of the Credit
Agreement which purport to impose liability on the Company, or to
relieve the Issuing Bank from liability, in connection with the Issuing
Bank's payment, or failure to make payment, of draws under a letter of
credit to the extent that such provisions are inconsistent with any
provision of Article 5 of the NY UCC or the Uniform Customs and
Practice for Documentary Credits (the "UCP"), which provisions of said
Article 5, or of the UCP, as the case may be, may not under applicable
law or the UCP be varied by agreement.
<PAGE> 284
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 7
D. The opinions expressed in paragraphs 3 and 4 above
are also subject to the following:
(1) We have assumed that (a) no part of the UCC
Collateral consists of accounts that result from the sale of minerals
or the like (including oil and gas) at the wellhead or minehead, and
(b) the place of business or, if it has more than one place of
business, the chief executive office, of the Company is located in
the State of Arizona. Further, no opinion is expressed in said
paragraphs as to any property subject to a United States statute or
treaty providing for a national or international recordation,
registration, or certificate of title, or specifying a place for
filing different from that specified in Article 9 of the NY UCC (in
which connection we note that you are receiving the opinion of
William C. Boston & Associates, dated the date hereof, with respect
to property of the Company purported to be subjected to the Lien of
the Spare Engine Security Agreement or the Spare Parts Security
Agreement, as the case may be, which is of the character hereinbefore
described in this sentence).
(2) We note that the effectiveness of the security
interests in the UCC Collateral covered by either Initial Security
Agreement may be impaired, lost or adversely affected as to such
property, or portions thereof, that (I) lose its or their identity or
become part of a product or mass, (ii) are goods purchased by a buyer
in the ordinary course of business, or (iii) are goods purchased by a
buyer other than in the ordinary course of business as provided in
Section 9-307(3) of the NY UCC (and the comparable provision of the
Uniform Commercial Code in effect in any other jurisdiction). We note
that security interests in the UCC Collateral, other than with
respect to identifiable proceeds, if any, received in exchange
therefor, will be lost to the extent that the secured party
authorizes the sale, exchange or other disposition of any part
thereof.
(3) We express no opinion herein regarding the
accuracy, completeness or adequacy of any property descriptions
contained in the Initial Security Agreements, or regarding the title
to or the existence of any of the assets, tangible or intangible, in
which a security interest is granted by Company.
(4) We call your attention to, and our opinions are
limited by, the fact that the continuation of any security interest
in UCC Collateral consisting of "proceeds" (as that term is defined
in NY UCC) is limited to the extent set forth in Section 9-306 of the
NY UCC.
<PAGE> 285
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 8
(5) In rendering the foregoing opinions, we have
assumed that the Company has rights in the Collateral in which a
security interest is granted by it in each Initial Security Agreement,
requisite for attachment of a security interest therein.
(6) We have made no examination of, and express no
opinion as to the existence of any Liens on any of the UCC Collateral,
other than those arising under the Initial Security Agreement to which
the same is subject. We have assumed that the UCC Collateral exists. We
express no opinion herein as to the priority, or except as set forth in
paragraph 3 or 4, the creation, attachment or perfection, of any
security interests in any UCC Collateral.
(7) Our opinions herein with respect to the security
interests arising under the Initial Security Agreements are further
subject to the qualification that Section 552 of the Bankruptcy Code,
may affect the validity of the Liens purported to be created by such
Security Agreements with respect to proceeds realized and property
acquired after the commencement of a case under the Bankruptcy Code.
(8) We have assumed that appropriate financing
statements will be filed in the offices specified in paragraph 4(a) and
(b) above no later than ten (10) days after the initial closing under
the Credit Agreement.
(9) You are advised that continuation statements as
and when required by the Uniform Commercial Codes as in effect in the
State of Arizona and the other States listed in Schedule IV to the
Spare Parts Security Agreement must be filed in order to maintain the
effectiveness of such financing statements, and, if the Company so
changes its name, identity or structure that such financing statements
naming the Company as debtor become seriously misleading, such
financing statements will be ineffective to perfect a security interest
in any UCC Collateral acquired by the Company more than four months
after such change.
(10) Our opinion in paragraph 4 above, insofar as it
relates to the perfection of security interests under the laws of the
States of Arizona and the other States listed in Schedule IV to the
Spare Parts Security Agreement, is based solely on a review of the
statutory text of Article 9 of the Uniform Commercial Code of each such
State, as set forth in the CCH Secured Transactions Guide for such
State, as on file in our offices on the date hereof, without regard to
the decisional law of any such State.
(11) Our opinion in paragraph 4 above, insofar as it
relates to the perfection of security interests under the Spare Parts
Security Agreement, is limited to UCC Collateral
<PAGE> 286
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 9
described in both the Spare Parts Security Agreement and the financing
statements filed to perfect that security interest.
E. We express no opinion as to the effect of the laws of any
jurisdiction in which any Lender is located (other than the State of
New York) that limit the interest, fees or other charges such Lender
may impose.
F. Without limiting the generality of paragraph H below (1) we
express no opinion as to any Environmental Laws or as to any antitrust
or other laws regulating anticompetitive practices; (2) in rendering
our opinions in paragraphs 5 and 6 above, we have considered only those
laws, statutes, rules and regulations that in our experience are
customarily applicable to transactions of the character contemplated by
the Credit Agreement; and (3) we do not purport to be experts in
respect of, or to express any opinion concerning, aviation law or other
laws, rules and regulations applicable to Persons engaged in the
particular businesses in which the Company is engaged, or (except for
the NY UCC) applicable to the particular nature of any collateral
security furnished by the Company under either of the Initial Security
Agreements.
G. Our opinions in regard to the governing law provisions of
the Loan Documents are based solely on Section 5-1401 of the New York
General Obligations Law, and no opinion is expressed with respect to
the enforceability of such provisions in any court other than a New
York State court or a United States Federal court sitting in New York
and applying New York choice of law principles.
H. The opinions herein expressed are limited to the matters
expressly set forth in this opinion letter, and no opinion is implied
or may be inferred beyond the matters expressly so stated.
I. The foregoing opinions are limited to matters involving the
laws of the State of New York, and (i) in the case of paragraph 2, the
Federal laws of the United States, or (ii) in the case of paragraph 1,
the Delaware General Corporation Law, and (iii) in the case of
paragraph 4, subject to the limitation set forth in paragraph D(10)
above, Article 9 (or the comparable article or division) of the Uniform
Commercial Code as in effect in each State listed in Schedule IV to the
Spare Parts Security Agreement. We do not express any opinion as to any
other laws. Moreover, we do not express any opinion as to the various
state and Federal laws regulating the Agent, the Issuing Bank, or the
Lenders in the conduct of their respective businesses that may relate
to the Loan Documents.
<PAGE> 287
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 10
This opinion letter is provided to you by us in our capacity
as special counsel to the Company and may not be relied upon (i) by any Person
other than you and other Persons who shall become Lenders under the Credit
Agreement, or (ii) by any Person for any purpose other than in connection with
the transactions contemplated by the Credit Agreement without, in each instance,
our prior written consent. Notwithstanding the foregoing, your counsel,
Fulbright & Jaworski L.L.P., are hereby authorized to rely hereon. This opinion
letter speaks as of its date and we undertake no, and hereby disclaim any, duty
to advise you or any other Person entitled to rely hereon as to changes of law
or fact coming to our attention after the delivery hereof on such date.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
1580/1285
<PAGE> 288
Exhibit V-B
Form of Opinion of A&K re: Section 1110 of Bankruptcy Code
See Tab # 27
<PAGE> 289
[Andrews & Kurth L.L.P. Letterhead]
December 12, 1997
The Several Initial Lenders, the Initial Issuing Bank
and the Agent Parties to the Credit
Agreement Hereinbelow Referred to
c/o The Industrial Bank of Japan, Limited,
Los Angeles Agency, as Agent
350 South Grand Avenue
Suite 1500
Los Angeles, California 90071
Re: America West Airlines, Inc. -- Bankruptcy Code Section 1110
Ladies and Gentlemen:
We have acted as special counsel to America West Airlines,
Inc., in connection with the financing transactions contemplated by the
Revolving Credit Agreement dated as of December 12, 1997 (the "Credit
Agreement", all capitalized terms defined in the Credit Agreement being used
with the same meanings, unless otherwise defined, in this opinion letter) by and
among the Company, the several Lenders initially parties thereto (the "Initial
Lenders") and The Industrial Bank of Japan, Limited, Los Angeles Agency, as the
Initial Issuing Bank, as Arranger and as the Agent for the Lenders thereunder
(in such last capacity, the "Agent"). Section 3.1D of the Credit Agreement
contemplates our delivery of a favorable written opinion regarding Section 1110
of the Bankruptcy Code; specifically, you have requested us to advise as to
whether, in the event that the Company were to become a debtor under the
Bankruptcy Code, the Agent would be afforded the protection of Bankruptcy Code
Section 1110(a) with respect to the right to take possession of certain
equipment constituting collateral security for the Company's Obligations. The
opinions expressed below are furnished to you pursuant to said Section 3.1D of
the Credit Agreement at the request, and with the approval, of the Company.
In rendering the opinions expressed below, we have examined
(a)(i) the Credit Agreement and the Revolving Credit Notes issued to the Initial
Lenders today pursuant thereto (collectively, the "Initial Revolving Credit
Notes" and, together with any Revolving Credit Notes issued after the date
hereof in substitution or exchange therefor, or in subsequent substitutions or
<PAGE> 290
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 2
exchanges, or otherwise, as provided in the Credit Agreement, the "Revolving
Credit Notes"), and (ii) the Spare Engine Security Agreement and the Spare Parts
Security Agreement, each dated as of even date therewith and executed and
delivered by the Company in favor of the Agent for the benefit of the Lenders
(collectively, the "Initial Security Agreements" and, together with the Credit
Agreement, the "Loan Documents").
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity with authentic original
documents of all documents submitted to us as copies, and compliance on the part
of all parties to the Loan Documents with their covenants and agreements
contained therein. When relevant facts were not independently established, we
have relied upon such statements of governmental officials, representations made
in or pursuant to the Initial Loan Documents, certificates of appropriate
representatives of the Company, and other documents, as we have deemed necessary
or appropriate for the purposes of this opinion. With your permission, all
assumptions and statements of reliance herein have been made without any
independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon, except to
the extent otherwise expressly stated. Without limitation of the generality of
the foregoing, we have in particular assumed, and express no opinion with
respect to, the accuracy as a matter of law, as of the date on which made and at
all other relevant times, of the representations of the Company contained in
Section 4.1B of the Credit Agreement.
Based upon and subject to the foregoing, and subject also to
the qualifications, limitations, exceptions and further assumptions hereinbelow
set forth or referred to, we are of the opinion that, in a case for
reorganization of the Company under Chapter 11 of the Bankruptcy Code, assuming
that the conditions of Sections 1110(a)(1)(A) and (B) of the Bankruptcy Code
were not timely satisfied, the Agent would be afforded the benefits of Section
1110(a)(1) of the Bankruptcy Code with respect to the right to take possession
of any "aircraft engine" and any "spare parts" (each as defined in 49 United
States Code Section 40102) from time to time subject to the security interest
granted by the Spare Engine Security Agreement or the Spare Parts Security
Agreement, as the case may be, provided that such aircraft engine was, or such
spare parts were, "first placed in service" (as said term is used in Section
1110(c) of the Bankruptcy Code) after October 22, 1994, and, in the case of such
spare parts, that the same are maintained at locations designated in the Spare
Parts Security Agreement. (We express no view as to when any Spare Engine (as
defined in the Spare Engine Security Agreement) or Rotables (as defined in the
Spare Parts Security Agreement) constituting such an aircraft engine or such
spare parts, as the case may be, now or hereafter subject to the security
interest of the applicable Initial Security Agreement was first so placed in
service.)
<PAGE> 291
[Andrews & Kurth L.L.P. Letterhead]
The Industrial Bank of Japan, Limited
December 12, 1997
Page 3
Pursuant to Section 3.1D of the Credit Agreement, we are
delivering to you concurrently herewith an opinion regarding the enforceability
of the Credit Agreement and certain other matters (our "Main Opinion"), and
pursuant to Section 3.1G of the Credit Agreement, William C. Boston &
Associates ("FAA Counsel") are delivering to you their opinion regarding certain
matters relating to or arising from the filing for recording with the FAA of the
Initial Security Agreements (the "FAA Counsel Opinion"). To the extent that our
legal conclusions hereinabove expressed are based upon or otherwise involve
legal conclusions expressed in our Main Opinion or the FAA Opinion, including,
without limitation (i) our conclusions in the Main Opinion regarding the
enforceability of the Credit Agreement, the Initial Revolving Credit Notes, the
Spare Engine Security Agreement and the Spare Parts Security Agreement, and (ii)
FAA Counsel's conclusions in the FAA Counsel Opinion regarding validity of each
Initial Security Agreement and the perfection of the security interests of the
Agent granted thereby in the Engines and the Spare Parts (each as defined in the
FAA Counsel Opinion), our conclusions herein are subject to the same
qualifications, limitations, exceptions and assumptions set forth in the Main
Opinion or the FAA Counsel Opinion, as the case may be, and, to the extent that
our legal conclusions hereinabove expressed are based upon or otherwise involve
legal conclusions expressed in the FAA Opinion, we have, in expressing our legal
conclusions herein, relied upon the FAA Counsel Opinion.
This opinion letter is provided to you by us in our capacity
as special counsel to the Company and may not be relied upon (i) by any Person
other than you and other Persons who shall become Lenders under the Credit
Agreement, or (ii) by any Person for any purpose other than in connection with
the transactions contemplated by the Credit Agreement without, in each instance,
our prior written consent. This opinion letter speaks as of its date and we
undertake no, and hereby disclaim any, duty to advise you or any other Person
entitled to rely hereon as to changes of law or fact coming to our attention
after the delivery hereof on such date.
This opinion letter relates solely to the Bankruptcy Code and
should be interpreted in accordance with the Special Report by the TriBar
Opinion Committee, Opinions in the Bankruptcy Context: Rating Agency, Structured
Financing and Chapter 11 Transactions, 46 Bus. Law. 717 (1991).
Very truly yours,
/S/ Andrews & Kurth L.L.P.
1580/1285
<PAGE> 292
Exhibit V-C
Form of Opinion of Stephen L. Johnson, Esq.,
Senior Vice President, Legal Affairs of AWA
See Tab # 31
<PAGE> 293
[STEPHEN L. JOHNSON - AMERICA WEST AIRLINES LETTERHEAD]
December 12, 1997
The Several Lenders, the Initial Issuing Bank
and the Agent Parties to the Credit
Agreement Hereinbelow Referred to
c/o The Industrial Bank of Japan, Limited,
Los Angeles Agency, as Agent
350 South Grand Avenue
Suite 1500
Los Angeles, California 90071
Ladies and Gentlemen:
I am Senior Vice President-Legal Affairs of America West Airlines, Inc.
(the "Company") and in that capacity I am familiar with the financing
transactions contemplated by the Revolving Credit Agreement dated as of December
12, 1997 (the "Credit Agreement") by and among the Company, the several Lenders
initially parties thereto (the "Initial Lenders") and The Industrial Bank of
Japan, Limited, Los Angeles Agency, as the Initial Issuing Bank, as Arranger and
as the Agent for the Lenders thereunder (in such last capacity, the "Agent").
All capitalized terms defined in the Credit Agreement are used with the same
meanings, unless otherwise defined, in this opinion letter.
In rendering the opinions expressed below, I have examined (a)(i) the
Credit Agreement and the Revolving Credit Notes issued to the Initial Lenders
today pursuant thereto (collectively, the "Initial Revolving Credit Notes" and,
together with any Revolving Credit Notes issued after the date hereof in
substitution or exchange therefor, or in subsequent substitutions or exchanges,
or otherwise, as provided in the Credit Agreement, the "Revolving Credit
Notes"), (ii) the Spare Engine Security Agreement, the Spare Parts Security
Agreement and the Hangar Security Agreement, each dated as of even date
therewith and executed and delivered by the Company in favor of the Agent for
the benefit of the Lenders (collectively, the "Initial Security Agreements"),
(iii) the Environmental Indemnity Agreement, dated as of the date hereof and
executed by the Company and the Agent (said Agreement, together with the Credit
Agreement, the Initial Revolving Credit Notes and the Initial Security
Agreements, the "Initial Loan Documents"), and (iv) the forms of the Security
Agreements that may be executed and delivered by the Company in favor of the
Agent for the benefit of the Lenders after the date hereof, all as more fully
provided in the Credit Agreement (collectively, the "Other Security Agreements"
and, together with the
<PAGE> 294
The Industrial Bank of Japan, Limited
December 12, 1997
Page 2
Initial Loan Documents and any Revolving Credit Notes issued after the date
hereof, the "Loan Documents"), and (b) such corporate records of the Company and
such other documents as I have deemed necessary as a basis for the opinions
expressed below. In my examination, I have assumed the genuineness of all
signatures, the authenticity of documents submitted to me as originals and the
conformity with authentic original documents of all documents submitted to me as
copies. When relevant facts were hot independently established, I have relied
upon statements of governmental officials and upon representations made in or
pursuant to the Initial Loan Documents and certificates of appropriate
representatives of the Company.
In rendering the opinions expressed below, I have assumed (except, to
the extent set forth below, as to the Company) that all of the documents
referred to in this opinion have been duty authorized by, have been or will be
duly executed and delivered by, and constitute legal, valid, binding and
enforceable obligations of, all of the parties to such documents, that all
signatories to such documents have been duly authorized and that all such
parties are duly organized and validly existing and have the power and authority
(corporate or other) to execute, deliver and perform such documents. Further, I
have assumed that each of the Other Security Agreements will be executed and
delivered by the Company in the respective form thereof as set forth as an
exhibit to the Credit Agreement as initially executed and delivered, with the
blanks appropriately filled in.
Based upon and subject to the foregoing and subject also to the comments
and qualifications set forth below, and having considered such questions of law
as I have deemed necessary as a basis for the opinions expressed below, I am of
the opinion that:
(i) The Company is (a) a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware and has the corporate power to execute and deliver,
and to borrow and perform its obligations under, the Loan
Documents and to conduct its business as now conducted and (b)
duly qualified to transact the business in which it is engaged
in the State of Arizona and in all other jurisdictions listed
in Schedule I hereto.
(ii) The execution and delivery by the Company of the Initial Loan
Documents, the borrowing by the Company under the Credit
Agreement, and the performance by the Company of its
obligations under the Credit Agreement and the other Initial
Loan Documents do not and will not result in a breach of,
constitute a default under, require consent under, result in
or require the creation of any Lien on any property of the
Company (other than the Liens of the Initial Security
Agreements in respect of the Collateral subject thereto) or
result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any agreement,
instrument or order (including any arbitral award) to which
the Company or any of its assets is subject.
<PAGE> 295
The Industrial Bank of Japan, Limited
December 12, 1997
Page 3
I advise you that, to my knowledge, there are no pending or threatened
actions, suits, proceedings or investigations against the Company in any court
or by or before any arbitrator or governmental authority which, if determined
adversely, would have a material adverse effect on the Company's financial
condition.
The opinions set forth in paragraph (i)(a) above are limited to matters
involving the General Corporation Law of the State of Delaware; the opinions set
forth in paragraph (i)(b) above are based solely on certificates of appropriate
governmental officials in Arizona and the other jurisdictions listed in Schedule
I hereto; and I have assumed for purposes of the opinion in paragraph (ii) above
that each agreement, instrument and order referred to therein is legal, valid,
binding and enforceable in accordance with its respective terms under the laws
of the jurisdiction by whose laws it is expressed to be, or is otherwise,
governed. I do not express any opinion as to the laws of any other jurisdiction.
This opinion letter is provided to you and, as of its date, other
Persons who shall become Lenders under the Credit Agreement, by me as Senior
Vice President-Legal Affairs of the Company pursuant to Section 3.1E of the
Credit Agreement and may not be relied upon by any other person or for any
purpose other than in connection with the transactions contemplated by the Loan
Documents without my prior written consent in each instance. This opinion letter
speaks as of its date and I undertake no, and hereby disclaim any, duty to
advise you or any other Person entitled to rely hereon as to changes of law or
fact coming to my attention after the delivery hereof on such date.
Yours sincerely,
/s/ Stephen L. Johnson
Stephen L. Johnson
SLJ/ikr
<PAGE> 296
EXHIBIT VI
FORM OF ASSIGNMENT AGREEMENT
Dated as of _______________________
Reference is made to the Revolving Credit Agreement, dated as of
December 12, 1997 (as from time to time amended and in effect, the "Credit
Agreement"), by and among America West Airlines, Inc., a Delaware corporation
(the "Company"), The Industrial Bank of Japan, Limited and the other banking
institutions referred to therein as Lenders (collectively, the "Lenders"), and
The Industrial Bank of Japan, Limited, as agent (hereinafter, in such capacity,
the "Agent") for the Lenders. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in the Credit Agreement.
__________________ (the "Assignor") and (the ______________________
(the "Assignee") hereby agree as follows:
1. ASSIGNMENT. Subject to the terms and conditions of this Assignment
and Acceptance, the Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes without recourse to the Assignor, a $
___________ interest in and to the rights, benefits, indemnities and obligations
of the Assignor under the Credit Agreement equal to _______% in respect of the
Assignor's Commitment as in effect immediately prior to the Effective Date (as
hereinafter defined).
2. ASSIGNOR'S REPRESENTATIONS. The Assignor (i) represents and warrants
that (A) it is legally authorized to enter into this Assignment Agreement, (B)
as of the date hereof, its Commitment is $____________ , its Pro Rata Share is
_______%, the aggregate outstanding principal balance of its Loans equals
$_________ (ii) makes no representation or warranty, express or implied, and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or any of the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant thereto or the
attachment, perfection or priority of any security interest or mortgage, other
than that it is the legal and beneficial owner of the interest being assigned by
it hereunder free and clear of any claim or encumbrance; (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Company or any of its Subsidiaries or any other
Person primarily or secondarily liable in respect of any of the Obligations, or
the performance or observance by the Company or any of its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations of any of its obligations under the Credit Agreement or any of the
other Loan Documents or any other instrument or document delivered or executed
pursuant thereto; and (iv) attaches hereto the [Revolving Note] [Term Note]
delivered to it under the Credit Agreement.
<PAGE> 297
The Assignor requests that the Company exchange the Assignor's
[Revolving Note] [Term Note] for a new [Revolving Note] [Term Note] payable to
the Assignor and the Assignee as follows:
Notes Payable to [Amount of Revolving Amount of
the Order of: Note Term Note
- ---------------- -------------------- -----------
Assignor $ $
------------------- ----------
Assignee $ $ ]
------------------- ----------
3. ASSIGNEE'S REPRESENTATIONS. The Assignee (i) represents and warrants
that (A) it is duly and legally authorized to enter into this Assignment
Agreement, (B) the execution, delivery and performance of this Assignment
Agreement do not conflict with any provision of law or of the charter or by-laws
of the Assignee, or of any agreement binding on the Assignee, (C) all acts,
conditions and things required to be done and performed and to have occurred
prior to the execution, delivery and performance of this Assignment Agreement,
and to render the same the legal, valid and binding obligation of the Assignee,
enforceable against it in accordance with its terms, have been done and
performed and have occurred in due and strict compliance with all applicable
laws; (ii) confirms that it has received a copy of the Credit Agreement,
together with copies of the most recent financial statements delivered pursuant
to Section 5.1(i) and (ii) thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment Agreement; (iii) agrees that it will, independently and
without reliance upon the Assignor, the 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 credit decisions in taking or not taking action under
the Credit Agreement; (iv) represents and warrants that it is an Eligible
Assignee; (v) appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under the Credit Agreement and the other
Loan Documents as are delegated to the Agent by the terms thereof, together with
such powers as are reasonably incidental thereto; (vi) represents and warrants
that as of the date hereof, it is not entitled to any additional amounts payable
under Section 2.7 of the Credit Agreement and as of the date hereof, no Tax
would be imposed upon any amounts payable to it hereunder; (vii) agrees to be
bound by the provisions of Section 8 of the Credit Agreement; [and] (viii)
agrees that it will perform in accordance with their terms all the obligations
which by the terms of the Credit Agreement are required to be performed by it as
a Lender[; and (viii) acknowledges that it has made arrangements with the
Assignor satisfactory to the Assignee with respect to its pro rata share of
Letter of Credit Fees in respect of outstanding Letters of Credit].
4. EFFECTIVE DATE. The effective date for this Assignment Agreement
shall be (the "Effective Date"). Following the execution of this
Assignment Agreement, each party hereto shall deliver its duly executed
counterpart hereof to the Agent for acceptance by the Agent and recording in the
Register by the Agent. Schedule
-2-
<PAGE> 298
2.1 to the Credit Agreement shall thereupon be replaced as of the Effective Date
by the Schedule 2.1 annexed hereto.
5. RIGHTS UNDER CREDIT AGREEMENT. Upon such acceptance and recording,
from and after the Effective Date, (i) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment Agreement, have
the rights and obligations of a Lender thereunder, and (ii) the Assignor shall,
with respect to that portion of its interest under the Credit Agreement assigned
hereunder, relinquish its rights and be released from its obligations under the
Credit Agreement; provided, however, that the Assignor shall retain its rights
to be indemnified pursuant to Section 9.3 of the Credit Agreement with respect
to any claims or actions arising prior to the Effective Date.
6. PAYMENTS. Upon such acceptance of this Assignment Agreement by the
Agent and such recording, from and after the Effective Date, the Agent shall
make all payments in respect of the rights and interests assigned hereby
(including payments of principal, interest, fees and other amounts) to the
Assignee. The Assignor and the Assignee shall make any appropriate adjustments
in payments for periods prior to the Effective Date by the Agent or with respect
to the making of this assignment directly between themselves.
7. GOVERNING LAW. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
-3-
<PAGE> 299
8. COUNTERPARTS. This Assignment Agreement may be executed in any
number of counterparts which shall together constitute but one and the same
agreement.
IN WITNESS WHEREOF, intending to be legally bound, each of the
undersigned has caused this Assignment and Acceptance to be executed on its
behalf by its officer thereunto duly authorized, as of the date first above
written.
[THE ASSIGNOR]
By: ___________________________
Name:
Title:
[THE ASSIGNEE]
By: ___________________________
Name:
Title:
-4-
<PAGE> 300
CONSENTED TO:
THE INDUSTRIAL BANK OF
JAPAN, LIMITED, as Agent
By: ________________________________
Name:
Title:
-5-
<PAGE> 301
EXHIBIT VII
FORM OF CERTIFICATE RE: NON-BANK STATUS
Reference is made to the Note(s) held by the undersigned pursuant to
the Revolving Credit Agreement dated as of December __, 1997 among AMERICA WEST
AIRLINES, INC., THE INDUSTRIAL BANK OF JAPAN LIMITED, LOS ANGELES AGENCY, as
Agent, and the Lenders (capitalized terms not otherwise defined herein having
the meanings given therein). The undersigned hereby declares under penalty of
perjury that:
(1) the undersigned is the beneficial owner of the Note(s) registered
in its name;
(2) the income from the Note(s) held by the undersigned is not
effectively connected with the conduct of a trade or business within the United
States;
(3) the undersigned is not a deposit-taking institution and is not
regulated as a "Bank" in its country of incorporation;
(4) to the best of its knowledge and belief, the undersigned is not a
controlled foreign corporation related (within the meaning of Section 864(d)(4)
of the Code) to the Company;
(5) to the best of its knowledge and belief, the undersigned is not a
10% shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Company;
(6) the undersigned is a Person other than (i) a citizen or resident of
the United States of America, its territories and possessions (including the
Commonwealth of Puerto Rico and all other areas subject to its jurisdiction)
(for purposes of this definition, the "United States"), (ii) a corporation, a
partnership or other entity created or organized under the laws of the United
States or any political subdivision thereof or therein or (iii) an estate or
trust that is subject to United States federal income taxation regardless of the
source of its income; and
(7) the undersigned is not a natural person.
[Lender]
By: _____________________
Name:
Date:
Dated: _______________________, ____
<PAGE> 302
Exhibit VIII
Form of Financial Condition Certificate
See Tab #33
<PAGE> 303
Financial Condition Certificate
I, Jacques C. Lazard, hereby certify that I am the Vice President &
Treasurer of America West Airlines, Inc., a Delaware corporation (the
"Company"), that I am familiar with its properties, businesses, assets,
finances and operations and that I am duly authorized to execute this
certificate on behalf of the Company, which is being delivered pursuant to
Section 3.1C of the Revolving Credit Agreement, dated as of December 12, 1997
(the "Credit Agreement") among the Lenders named therein (the "Lenders") and
The Industrial Bank of Japan, as Agent for the Lenders (the "Agent"). Terms
defined in the Credit Agreement are used herein as therein defined unless
otherwise defined herein.
For purposes of this certificate, the terms below shall have the following
definitions:
(a) "present fair saleable value"
The amount that could be obtained by an independent willing seller
from an independent willing buyer if the assets of the Company and
its Subsidiaries taken as a whole are sold with reasonable promptness
in an arm's-length transaction under present conditions for the sale
of comparable business enterprise.
(b) "contingent liabilities"
The maximum estimated amount of liabilities reasonably likely to
result from pending litigation, asserted claims and assessments,
guaranties, uninsured risks and other contingent liabilities of the
Company and its Subsidiaries taken as a whole after giving effect to
the borrowing under the Credit Agreement.
(c) "would constitute an unreasonably small capital"
As of the date hereof, the Company and its Subsidiaries taken as a
whole is a going concern and has sufficient capital to ensure that it
will continue to be a going concern and has sufficient capital to
ensure that it will continue to be a going concern in the business in
which it is engaged and proposes to be engaged.
I further certify that I have reviewed the Loan Documents and the contents
of this certificate and, in connection therewith, have made such investigation
and inquiries as I deem necessary and appropriate therefor.
I hereby further certify that:
<PAGE> 304
1. On the date hereof, after giving effect to the transactions
contemplated by the Credit Agreement and the other Loan Documents, the present
fair saleable value of any and all property of the Company and its Subsidiaries
taken as a whole is greater than the total amount of liabilities, including
contingent liabilities, of the Company and its Subsidiaries taken as a whole.
2. On the date hereof, after giving effect to the transactions
contemplated by the Credit Agreement and the other Loan Documents, the present
fair saleable value of the assets of the Company and its Subsidiaries taken as
a whole exceeds the amount that will be required to pay the probable liability
of the Company and its Subsidiaries taken as a whole on its existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to the Company.
3. The Company and its Subsidiaries do not intend to or believe that
they will incur debts and liabilities that will be beyond their ability to pay
as such debts and liabilities mature.
4. On the date hereof, after giving effect to the transactions
contemplated by the Credit Agreement and the other Loan Documents, the Company
and its Subsidiaries are not engaged in a transaction, and are not about to
engage in business or a transaction, for which their property would constitute
an unreasonably small capital.
5. The Company and its Subsidiaries taken as a whole is solvent within
the meaning given that term and similar terms under applicable laws relating to
fraudulent transfers and conveyances.
This certificate is being delivered solely to satisfy the Company's
obligations pursuant to Section 3.C of the Credit Agreement and in my capacity
as Vice President & Treasurer of the Company (and not in my personal capacity).
All statements made herein are to the best of my knowledge after making such
inquiries and analyses as I have deemed necessary or appropriate for the
opinions herein stated.
IN WITNESS WHEREOF, the undersigned has executed this certificate on
behalf of the Company this 12th day of December, 1997.
AMERICA WEST AIRLINES, INC.
By /s/ Jacques C. Lazard
-------------------------------
Title: Vice President &
Treasurer
-2-
<PAGE> 305
Exhibit IX
Form of Borrowing Base Certificate
See Tab #32
<PAGE> 306
REVOLVING LOAN PERIOD Date:
BORROWING BASE CERTIFICATE
Reference is made to the Revolving Credit Agreement dated as (as may be
amended, restated or supplemented or otherwise modified from time to time, the
"Credit Agreement") among America West Airlines, Inc. (the "Company"), the
lenders from time to time party thereto and The Industrial Bank of Japan
Limited, Los Angeles Agency, as arranger, initial issuing bank and as agent for
such lenders. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement. The
undersigned, ___________ being the __________ of the Company, does hereby
certify for and on behalf of the Company, as of __________ the following:
BORROWING BASE COLLATERAL
- --------------------------------------------------------------------------------
A CASH AND PERMITTED CASH A Collateral Balance:
EQUIVALENTS
--------------------------------------------
Rate of Advance:
--------------------------------------------
Borrowing Base Value:
- --------------------------------------------------------------------------------
B STAGE II AIRCRAFT B Appraised Value:
--------------------------------------------
Rate of Advance:
--------------------------------------------
Borrowing Base Value:
- --------------------------------------------------------------------------------
C STAGE III AIRCRAFT C Appraised Value:
--------------------------------------------
Rate of Advance:
--------------------------------------------
Borrowing Base Value:
- --------------------------------------------------------------------------------
D ROTABLES D Book Value:
--------------------------------------------
Adjusted Fair Market Value:
--------------------------------------------
Lower of Book Value or Adjusted Fair
Market Value:
--------------------------------------------
Rate of Advance:
--------------------------------------------
Borrowing Base:
- --------------------------------------------------------------------------------
E HANGAR E Appraised Value:
--------------------------------------------
Rate of Advance:
--------------------------------------------
Borrowing Base Value:
- --------------------------------------------------------------------------------
F SIMULATORS F Appraised Value:
--------------------------------------------
Rate of Advance:
--------------------------------------------
Borrowing Base Value:
- --------------------------------------------------------------------------------
G SPARE ENGINES G Appraised Value:
--------------------------------------------
Rate of Advance:
--------------------------------------------
Borrowing Base Value:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL BORROWING BASE VALUE:
- --------------------------------------------------------------------------------
Total Loans
- --------------------------------------------------------------------------------
Letter of Credit Usage
- --------------------------------------------------------------------------------
TOTAL OUTSTANDING AMOUNTS
- --------------------------------------------------------------------------------
Availability
- --------------------------------------------------------------------------------
Deficiency ($ )
- --------------------------------------------------------------------------------
In addition, the Company certifies that:
(1) None of the Borrowing Base Collateral included in the calculation of
the Borrowing Base is subject to an Event of Loss, Event of
-1-
<PAGE> 307
Damage, Repairable Event or Adjustment Event;
(2) No reduction in the Borrowing Base is required pursuant to subsection
2.4B(iii)(1)(e) of the Credit Agreement; and
(3) The portion of the Borrowing Base attributable to Rotables stated above
does not exceed fifty percent (50%) of the aggregate Borrowing Base.
AMERICA WEST AIRLINES, INC.
By: ___________________________________
Name:
Title:
-2-
<PAGE> 308
Schedule 2.1
<TABLE>
<CAPTION>
Lender Revolving Loan Commitment
------ -------------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
The Industrial Bank of [*]
Japan, Limited, Los
Angeles Agency
</TABLE>
[*] Confidential Treatment Requested
<PAGE> 309
Schedule 2.10
Eligible Assets
Eligible Stage II Aircraft: any 737-100 or 737-200 series aircraft
Eligible Stage III Aircraft: 737-300 or higher series aircraft
737-500 series aircraft
A320, all series aircraft (including A319 and A321)
Eligible Simulators: any 737, 757 or A320 series full flight simulator
Eligible Spare Engines: any spare engines that can be mounted on a 737, 757 or
A320 series aircraft
<PAGE> 310
Schedule 2.10A
Borrowing Base Collateral on the Closing Date
Rotables, as defined in the Spare Parts Security Agreement
Engines, as defined in the Spare Engine Security Agreement
Simulators, as defined in the Spare Engine Security Agreement
Deed of Trust Collateral, as defined in the Hangar Security Agreement
<PAGE> 311
Schedule 4.1
Subsidiaries
None.
<PAGE> 312
Schedule 6.2
Payment Restrictions
None.
<PAGE> 1
EXHIBIT 11.1
AMERICA WEST HOLDINGS CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income before extraordinary items .................. $ 74,970 $ 9,610 $ 54,770
Extraordinary items, net ........................... -- (1,105) (984)
------------ ------------ ------------
Income applicable to common stock .................. $ 74,970 $ 8,505 $ 53,786
============ ============ ============
Weighted average number of common shares outstanding 44,528,575 44,931,953 45,158,433
Basic earnings per share:
Income before extraordinary items .................. $ 1.68 $ .21 $ 1.21
Extraordinary items ................................ -- (.02) (.02)
------------ ------------ ------------
Net income ......................................... $ 1.68 $ .19 $ 1.19
============ ============ ============
DILUTED EARNINGS PER SHARE
Income before extraordinary items .................. $ 74,970 $ 9,610 $ 54,770
Extraordinary items, net ........................... -- (1,105) (984)
------------ ------------ ------------
Income applicable to common stock .................. $ 74,970 $ 8,505 $ 53,786
============ ============ ============
Weighted average number of common shares outstanding 44,528,575 44,931,953 45,158,433
Assumed exercise of stock options and warrants ..... 1,542,375 2,800,982 1,168,742
------------ ------------ ------------
Weighted average number of common shares outstanding
as adjusted ................................... 46,070,950 47,732,935 46,327,175
============ ============ ============
Diluted earnings per share:
Income before extraordinary items .................. $ 1.63 $ .20 $ 1.18
Extraordinary items ................................ -- (.02) (.02)
------------ ------------ ------------
Net income ......................................... $ 1.63 $ .18 $ 1.16
============ ============ ============
</TABLE>
80
<PAGE> 1
Exhibit 21.1
America West Airlines, Inc.
Incorporated in Delaware
Doing business as AWA
The Leisure Company
Incorporated in Delaware
Doing business as Leisure Co.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS PRIMARY REPRESENTS
BASIC NET INCOME PER SHARE
</LEGEND>
<CIK> 0001029863
<NAME> AMERICA WEST HOLDINGS CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 172,303
<SECURITIES> 0
<RECEIVABLES> 91,388
<ALLOWANCES> 3,850
<INVENTORY> 27,135
<CURRENT-ASSETS> 323,893
<PP&E> 971,802
<DEPRECIATION> 276,430
<TOTAL-ASSETS> 1,546,791
<CURRENT-LIABILITIES> 485,942
<BONDS> 0
0
0
<COMMON> 460
<OTHER-SE> 683,110
<TOTAL-LIABILITY-AND-EQUITY> 1,546,791
<SALES> 0
<TOTAL-REVENUES> 1,874,956
<CGS> 0
<TOTAL-COSTS> 1,713,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> 32,249
<INCOME-PRETAX> 140,001
<INCOME-TAX> 65,031
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,970
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS PRIMARY REPRESENTS
BASIC NET INCOME PER SHARE
</LEGEND>
<RESTATED>
<CIK> 0001029863
<NAME> AMERICA WEST HOLDINGS CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 224,367 137,499
<SECURITIES> 0 39,131
<RECEIVABLES> 71,609 109,306
<ALLOWANCES> 2,515 3,091
<INVENTORY> 28,643 21,423
<CURRENT-ASSETS> 365,419 351,813
<PP&E> 678,186 834,312
<DEPRECIATION> 76,123 163,718
<TOTAL-ASSETS> 1,588,709 1,597,650
<CURRENT-LIABILITIES> 435,835 522,720
<BONDS> 0 0
0 0
0 0
<COMMON> 453 458
<OTHER-SE> 649,019 622,295
<TOTAL-LIABILITY-AND-EQUITY> 1,588,709 1,597,650
<SALES> 0 0
<TOTAL-REVENUES> 1,550,642 1,739,526
<CGS> 0 0
<TOTAL-COSTS> 1,395,910 1,670,860
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,600 2,950
<INTEREST-EXPENSE> 58,598 46,866
<INCOME-PRETAX> 108,378 34,493
<INCOME-TAX> 53,608 24,883
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 984 1,105
<CHANGES> 0 0
<NET-INCOME> 53,786 8,505
<EPS-PRIMARY> 1.19 .19
<EPS-DILUTED> 1.16 .18
</TABLE>
